Ram Chandra Agarwal , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 707/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

The D.C.I.T. cuke Shri Ram Chandra Agarwal Circle-6, Jaipur. Vs. Triveni Properties, 21-A, Triveni Chambers, vishveshwariya Nagar, Gopalpura Bye Pass, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABRPA 9062 C vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Shri Ajay Malik (Addl.CIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 27/11/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/02/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

This is an appeal filed by the revenue against the order dated

31/5/2012 passed by the learned CIT (A)-II, Jaipur for A.Y. 2009-10.

The effective grounds of appeal are as under:-

"On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in:-

1) allowing the unascertained development expenses of Rs. 12,40,483/- despite the fact that development

2 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

work was to be done at different sites and development expenditure incurred during the year cannot be co-related with respective sites.

2) the basis of provision was a letter of Jaipur Development Authority stipulating rate for different kind of development work but it cannot be standardized for all kind of land, thus estimation only on this basis is not an ascertained amount of liability.

3) liability for development work has not been worked out in a scientific manner as held by the Apex Court in the case of Rotork India Ltd. 314 ITR 62 (SC)"

2. The learned Assessing Officer observed that the assessee is

engaged in the business of real estate developer and subsequent sale

of plots in the name and style of M/s Triveni Properties. The assessee

had shown net profit of Rs. 43,67,211/- on total sales of Rs.

6,79,37,725/-. On verification of P&L account, it was found by the

Assessing Officer that the assessee had debited expenses on account of

development expenses to the tune of Rs. 84,26,808/- including the

provisions made for development of Rs. 12,40,483/-. These provisions

were not made by the assessee in earlier year. The Assessing Officer

held that these provisions for development were not being actually

incurred but simply provisions were made and were shown as

outstanding current liability in the balance sheet. The assessee had

claimed that these provisions have been made @ Rs. 145/- per square

yard in respect of the sale carried out during the year. The expenses 3 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

claimed to have been incurred during this year, were not possible to be

ascertained in the sense that as against which scheme these expenses

had been incurred. The assessee was not having any site wise detail in

respect of the expenses incurred and on what basis the provisions for

these expenses pertaining to preceding and current A.Y. have been set

off against these expenses actually claimed to have been incurred. The

period to which these expenses related and the purpose thereof, was

also not ascertainable. The assessee was asked to furnish the basis and

justification of these provisions by the Assessing Officer during the

course of assessment proceedings, which was also replied by the

assessee and argued that the provisions @ 145 per Sq. yard was made

as per rate given for various development works by the Jaipur

Development Authority (in short the JDA). The assessee also furnished

the copy of order issued by the JDA before the Assessing Officer. The

assessee reply was considered by the Assessing Officer and held that

the provisions made by the assessee on the basis of percentage

allocated by the JDA for different kind of development works, liable to

be carried out by him. The JDA had allotted the amount of expenditure

in terms of percentage on ad hoc basis while the actual expenditure

might be less or more than the percentage fixed by the JDA depending 4 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

upon the kinds of land and location thereof. Most of the schemes are

developed on agricultural land. It is further observed that in most of the

cases, terrain is not so uneven that the assessee had to incur such a

huge expenditure. Simultaneously, in some cases, it may be more than

the ad hoc rate given/fixed by the JDA. Roads constructed by the

assessee in the scheme developed by him are thin layered grit road.

They are not of good quality as mentioned in the JDA letter.

Development works done by the assessee through contractor and

intermediary person was created but the basis of payment for work

down cannot be co-related with the actual development work done. The

Assessing Officer held that the assessee had not truly estimated the

expenses on scientific manner. Thus, the liability of the assessee for any

past work cannot be precisely determined. He concluded that the

provisions made by the assessee were contingent in nature and liability

had not been crystallized. He further relied on the decisions in the cases

of Rajasthan State Mines and Minerals Ltd. Vs. CIT (Raj) 208 ITR 1010

and TN Small Industries Development Corporation Vs. CIT (Mad) 242

ITR 122. Accordingly, he made addition of Rs. 12,40,483/- in the

income of the assessee.

5 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal by observing that the issue is covered in favour of the

assessee by the order of the undersigned for A.Y. 2008-09 in Appeal

No. 509/10-11 dated 08/09/2011 and order of Hon'ble ITAT in ITA No.

1078/JP/2011 dated 13/01/2012. The findings of the Hon'ble ITAT has

been reproduced on page No. 2 to 4 and held that there is no material

change in the facts and circumstances in the year under consideration.

Therefore, the decision of Hon'ble ITAT is binding on the first appellate

authority. Thus, he deleted the addition made by the Assessing Officer.

4. Now the Revenue is in appeal before us. The learned D.R.

supported the order of the Assessing Officer and argued that there was

no scientific method to calculate the liability for development work as

per the letter of JDA and prayed to confirm the order of the Assessing

Officer.

5. At the outset, the learned AR for the assessee reiterated the

facts, which were raised before the learned CIT(A) that identical issue

has been considered by the Hon'ble ITAT in A.Y. 2008-09, which has

been decided in favour of the assessee. He further argued that even

department in A.Y. 2006-07 to 2008-09 and 2010-11 to 2011-12 has 6 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

been accepted & in A.Y. 2011-12, the additions were made under this

head, which has been deleted by the learned CIT(A). It is further

argued that the action of the Assessing Officer clearly violates the

provisions of consistency and rule of matching. He further argued that

the provisions has been made on the basis of order of the JDA in

respect of development work and breakup of expenses of each activity

of development were calculated by the JDA, which was fixed on

technical analysis of the JDA. These expenses were estimated by the

JDA on the basis of plot area. The developer had option either to carry

out development activities himself or get the development work of his

schemes through JDA by paying Rs. 250 per Sq.Mt.. Since the JDA is a

government body and rates fixed by it cannot be arbitrary but certainly

based on its technical analysis over the cost in respect of each item.

The assessee is not incurring expenses for drainage, sewerage and

other public facilities. The cost development of these facilities has been

worked out @ 175 per Sq.Mt. whereas the assessee made the

provisions for this development @ 145 per Sq. yard. The liability

towards development expenses to be incurred in future on the plot sold

did not extinguish merely the assessee had incurred small part of

expenses in next few years. The assessee's books of account has not 7 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

been rejected by the Assessing Officer. Therefore, he prayed to confirm

the order of the learned CIT(A). He also relied on the various case laws

in his argument, which is summarized as under:-

(i) Calcutta Co Ltd. Vs. Commissioner of Income Tax (1959) 37 ITR 1 S.C.

(ii) Greater Ashoka Land and Development Co. (P) Ltd. Vs. ACIT (2001) 79 ITD 595 (Del.)

(iii) Rotork Controls India (P) Ltd. Vs. CIT (2009) 314 ITR 62 (SC).

(iv) Bharat Earth Movers Vs. CIT (2000) 245 ITR 428 (SC)

(v) Udaipur Mineral Development Syndicate (P) Ltd. Vs. DY.CIT (2003) 181 CTR (Raj) 251.

(vi) CIT Vs. Development Trust (P) Ltd. (1991) 99 CTR (All)

247.

(vii) Welding Rods Mfg.Co. Vs. CIT (1997) 137 CTR (Guj) 569.

6. We have heard the rival contentions of both the parties and

perused the material on record. The issue is identical with A.Y. 2008-09

of assessee's own case in ITA No. 1076/JP/2011 & ITA No.

1078/JP/2011 wherein the Coordinate Bench had decided this issue by

observing as under:-

"2.15 Following that order, we hold that the ld. CIT(A) was justified in deleting the addition. It is useful to note that the assessee has used the percentage 8 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

completion method. When an assessee follows the percentage completion method then at the completion of the project, the assessee has to make up the accounts. At that relevant time, the assessee can offer surpluses from the provisions or may claim the deficit in case the actual expenditure is more than the provisions. Hence, the revenue is not without any remedy in case the provision is excessive."

By respectfully following the decision of the coordinate Bench on

identical issue in A.Y. 2008-09, we do not find any infirmity in the order

of the learned CIT(A). Accordingly, we upheld the order of the learned

CIT(A).

7. In the result, the revenue's appeal is dismissed.

Order pronounced in the open court on 13/02/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 13th February, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

9 ITA 707/JP/2012_ DCIT Vs. Shri Ram Chandra Agarwal

1. vihykFkhZ@The Appellant- The D.C.I.T., Circle-6, Jaipur.

2. izR;FkhZ@ The Respondent- Shri Ram Chandra Agarwal, Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 707/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar