Paradise & Bhoomi Developers , Mumbai vs Assessee

BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM) सव ी एच.एल. कावा, अ य एवं बी.आर.बा करन, लेखा सद य आयकर अपील सं./I.T.A. No.73/Mum/2012 ( नधारण वष / Assessment Year :2007-08)

Paradise & Bhoomi Developers, बनाम/ Asstt. Commissioner of Income 102-A,Bldg. No.29, Vs. Tax 15(3), Paradise Arcade, Mumbai. Tilak Nagar, Chembur, Mumbai-400089 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIRNo. :AAIFP4078K

अपीलाथ ओर से / Assessee by : Shri K Gopal यथ क ओर से/Respondent by : Shri Neil Phlip.

सन ु वाई क तार ख / Date of Hearing : 29.12.2014 घोषणा क तार ख /Date of Pronouncement : 07.01.2015

आदे श / O R D E R Per B.R.BASKARAN, Accountant Member:

The appeal of the assessee is directed against the order dated 25.10.2011 passed by Ld CIT(A)-26, Mumbai and it relates to the assessment year 2007-08.

2. The assessee is aggrieved by the decision of ld. CIT(A) in confirming the following additions :

a) disallowance of unadjusted profit taxed in AY 2005-06 Rs.3,48,712;

b) addition on account of revised value of unutilized FSI Rs.3,74,716/-;

c) disallowance of labour expenditure Rs.2,81,600/-

d) disallowance of expenditure incurred on rent Rs.2,52,000/-

e) disallowance of expenditure incurred on purchase of raw material Rs.4,78,000/-

3. The assessee is a partnership firm and is engaged in the business of development of real estates. It filed its return of income on 2.10.2007 declaring a total income of Rs.37,47,327/-. Thereafter, the assessee revised the return of 2 ITA No.73/M/12

income twice. The AO completed the assessment by making various additions. In the appeal filed by the assessee, the ld. CIT(A) allowed the appeal partly. Still aggrieved, the assessee has filed this appeal before the Tribunal.

4. The first issue relates to the disallowance of unadjusted profit taxed in assessment year 2005-06 amounting to Rs.3,48,712/-. The facts relating to the same are that in the assessment proceedings relevant to the assessment year 2005-06, the AO has enhanced the profit declared by the assessee by Rs.3,48,712/-. According to Ld A.R, the assessee was offering income from execution of building projects on percentage completion method and hence, any variation of income made in one year would have cascading effect on the profit to be assessed in the final year of the project. According to the ld. AR, the relevant project got completed during the year under consideration and hence, the assessee claimed set off of the above said amount of Rs.3,48,712/- against the final profit declared by the assessee. However, both the taxing authorities disallowed the said claim.

5. We heard both the parties on this issue and perused the material available on record. According to the assessee, it has carried out a project and profit was declared every year on some basis, pending completion of the project. However, in assessment year 2005-06, the AO has enhanced the profit declared by the assessee by Rs.3,48,712/-. There cannot be any doubt that the profit of the project per se are only spread over the period of the project on some basis. Hence if any adjustment is made with respect to the profit declared in any one of the year, the same shall have cascading effect on the remaining amount of the profit to be declared in the final year of completion of project. Since the aggregate of profit cannot change under this principle, if the profit declared by the assessee for the assessment year 2005-06 is enhanced, then equivalent amount of enhancement is required to be set off against the profit computed in the financial year of the project, i.e., the net effect of this adjustment is that the net profit from the project less the amount of profit already assessed in the prior years is required to be assessed in the final year of the project. Though the ld. AR submitted that the year under consideration is the year in which the project was completed, yet the said fact is not discernible from the order of the 3 ITA No.73/M/12

assessing officer. Hence the fact relating to the completion of the project requires examination at the end of the AO. Accordingly, we set aside the order of ld.CIT(A) on this issue and restore this issue to the file of the AO with a direction to ascertain about the completion of project and decide this issue in accordance with the discussion made supra.

6. The next issue relates to the valuation of "unutilized FSI". The AO noticed that the assessee has valued the unutilized FSI at Rs.7,50,000/-. On making inquiry about the valuation, the AO noticed that the assessee has valued unutilized FSI on its base value without including or considering related expenditure incurred in acquiring the FSI. The AO accordingly revalued the value of unutilized FSI at Rs.11,24,716/- by including all direct expenses incurred in acquiring the FSI. Accordingly, he made an addition of Rs.3,74,716/-. The ld. CIT(A) also confirmed the said addition.

7. We heard the parties on this issue. During the course of hearing, the ld. AR of the assessee submitted that the AO, while modifying the value of closing stock of unutilized FSI, should have also revalued the opening value of unutilized FSI. At the time of hearing, the ld. AR submitted that the assessee has not routed the value of FSI through the Profit and loss account. However, the ld. DR pointed out that the AO has recorded a finding that the assessee has credited the value of unutilised FSI to the profit and loss account.

8. From the Assessment Order, we notice that the assessing officer has observed that the assessee has credited value of unutilized FSI amounting to Rs.7,50,000/- to its profit and loss account. Hence the submission of ld. AR in this regard does not appear to be correct. However, in our view, there is some merit in the contention of Ld A.R that the value of opening stock of utilized FSI should also have been revalued by the AO on identical manner. Admittedly, the AO has not disturbed the opening value of unutilized FSI. Hence, in our view this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order of ld. CIT(A) on this issue and restore the same to the file of AO with a direction to consider the claim of the assessee with regard to the opening stock of unutilized FSI and decide the issue afresh in accordance with law.

4 ITA No.73/M/12 9. The next issue relates to the disallowance of Rs.2,81,600/- made out of labour expenses of Rs.99,16,248/-. We notice that the disallowance was made for the deficiencies noticed in the vouchers. At the time of hearing, the Ld A.R submitted that the labourers were employed at the work site by engaging local people and hence there bound to be some deficiency in the preparation of vouchers. Accordingly he submitted that the disallowance may be sustained to a reasonable extent. After hearing Ld D.R, we are of the view that this issue would meet the ends of justice, if the disallowance is sustained to the extent of Rs.1,50,000/-. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to sustain the disallowance to Rs.1,50,000/-.

10. The next issue relates to the disallowance of rent expenditure claim of Rs.2,52,000/-. As per the redevelopment agreement, the assessee was required to pay the rent of alternative accommodation provided to the members of the society. Out of the claim of rent, the assessee could not produce receipt for payment to the extent of Rs.2,52,000/-. Hence the AO disallowed the same and the Ld CIT(A) also confirmed the said disallowance. Before us also, the assessee could not produce any evidence to substantiate the claim of payment of rent of Rs.2,52,000/-. Hence, we have no other option but to confirm the order of Ld CIT(A) on this issue.

11. The next issue relates to the disallowance of Rs.4,78,000/- made out of raw material (building material) purchase expenses. Since this expenditure was supported by self made vouchers, the AO disallowed a sum of Rs.4,78,000/- and the same was confirmed by Ld CIT(A). The Ld A.R submitted that the assessee was constrained to deal with unorganized sector people for purchase of raw material like sand, bricks etc. Considering the difficulties expressed by the assessee, we are of the view that this issue would meet the ends of justice, if the disallowance is restricted to Rs.4,00,000/-. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance on this issue to Rs.4,00,000/-.

5 ITA No.73/M/12 12. In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes.

The above order was pronounced in the open court on 7th Jan,2015.

घोषणा खुले यायालय म दनांकः 7th Jan 2015 को क गई ।

sd sd

(एच.एल. कावा/ H.L. KARWA) (बी.आर. बा करन,/ B.R. BASKARAN) अ य / PRESIDENT लेखा सद य/Accountant Member मब ुं ई Mumbai: 7th Jan, 2015.

व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु त(अपील) / The CIT(A)- concerned 4. आयकर आयु त / CIT concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मब ंु ई / DR, ITAT, Mumbai concerned 6. गाड फाईल / Guard file.

आदे शानस ु ार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai