The Grreen Triveni Developer, Jaipur vs Assessee

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. 291/JP/2014 fu/kZkj.k o"kZ@Assessment Year : 2009-10

M/s. The Green Triveni cuke The CIT-1 Developer, Vs. Jaipur 309-310, City Pearl, Opp. Hotel Gangaur, M.I. Road, Jaipur

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFFT 5998 M vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vijay Goyal jktLo dh vksj ls@ Revenue by :Smt. Rolee Agarwal (CIT-DR)

lquokbZ dh rkjh[k@ Date of Hearing : 11/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24 /02/2015

vkns'k@ ORDER

PER R.P. TOLANI, JM

This is an appeal filed by the assessee against the order of the ld.

CIT-1, Jaipur dated 28-03-2014 for the assessment year 2009-10 u/s 263

of the Act wherein the assessee has raised following grounds in its

appeal.

''1. On the facts and in the circumstances of the case and in law, the order passed u/s 263 of the Act by the worthy CIT is illegal, bad in law and without jurisdiction. 2 ITA No. 291/JP/2014

M/s. The Green Triveni Developer vs. CIT , Jaipur 1

2. On the facts and in the circumstances of the case and in law, the worthy CIT erred in holding that the order passed u/s 143(3) of the I.T. Act, 1961 by the AO was erroneous and prejudicial to the interest of Revenue as the AO allowed the provision for development expenses without any verification an discussion. The worthy CIT passed the order u/s 263 of the I.T. Act without appreciating the fact that during the course of assessment proceedings the AO examined this issue in detail and several queries on this issue were made and replied thereof were fled before the AO.

3. On the facts and in the circumstances of the case and in law, the worthy CIT was not justified in invoking the proceedings of Section 263 and setting aside the order passed by the AO u/s 143(3) of the I.T. Act and directing the AO to verify the claim of provision for development expenses.

4. That the order of the CIT deserves to be cancelled.''

2.1 Brief facts are - assessee is a partnership firm engaged in the

business of real estate mainly making colonies on agriculture lands

purchased and after seeking due permissions for conversions including

JDA approvals. After approval of township plan and map by JDA the

development work is commenced i.e. construction of road, laying of

water supply lines and providing electrical polls and wiring, construction

of overhead tanks etc.. After proper development of residential and

commercial plots same are allotted/sold to customers. The assessee

maintains proper books of account following mercantile method of 3 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 accounting which are audited u/s 44AB of Income Tax Act. Return of

income for this year declaring total income at Rs.9,37,036/- was filed on

12.09.2009. The case was selected for scrutiny. Consequently ld. AO

issued notices u/s 143(2); 142(1) and other information as asked for from

time to time supplied to the satisfaction of AO. After due verification ld

AO accepted the returned income by passing the order u/s 143(3) of

Income Tax Act.

2.2 However ld. CIT-I, Jaipur issued show cause notice dated

18/03/2014 u/s 263 of Income Tax Act, 1961. It alleged that the order was

erroneous as a sum of Rs. 1,46,08,190/- under the head "provision for

development expenses" is not an allowable expenses because as

per provisions of Income Tax Act the expenses actually incurred are only

allowable. The assessee objected to the proceedings u/s 263 vide detailed

letter dated 24/03/2014 along with the supporting enclosures, claiming

that there was no error committed by AO in allowing this expenditure

and there was no prejudice to revenue in this behalf; various other

submissions were made and case laws relied, during the course of

hearing. Ld. CIT-I, Jaipur rejected assessee's contentions and held

Section 143(3) order to be erroneous and prejudicial to the interest of

revenue as passed in a casual manner without considering the relevant 4 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 provisions. Ld. CIT though held that liability of development expenses in

respect of plots sold have to be allowed against the sale receipts, the

assessment order was set aside for limited purpose directing AO to allow

the provisions in respect of sales affected qua which proceeds are offered

for tax and whether the development expenses have been estimated in

accordance with guidelines issued by JDA by following observations:

Para 4 - " I have duly considered the submission of the assessee and material available on record. It is evident from records that the assessment order was passed by AO without considering the facts of the issue and relevant provisions of the Act. Assessment was completed in a very casual manner and the assessment order is a non-speaking order. AO has not examined whether the provisions of Rs. 1,46,08,190/- was made by assessee on scientific or logical basis. I therefore hold that the assessment order dated 01-12-2011 was erroneous in so far as it was prejudicial to the interest of revenue in terms of sec. 263 of IT Act.

I agree with the contention of Ld AR that developer has to incur several expenses on the development of the scheme and the cost of these expenses are included in the sale price of plots. If the entire sale price of the plots sold during the year are offered for tax, liability of development expenses in respect of plots sold have to be allowed against the sale receipts. The principle has been laid down by the Hon'ble Supreme Court in the case of Bharat Earth Movers Vs CIT (245 ITR 428) and Rotork Controls India (P) Ltd Vs CIT (314 ITR 62). However, the liability of the development 5 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 expenses should be estimated on a scientific basis. Since the AO has not examined and verified the expenses of Rs. 1,46,08,190/- claimed as 'provisions' the assessment order is set aside for the limited purpose of examining and deciding the issue of allowability of expenses of Rs. 1,46,08,190/- claimed as provisions. AO is directed to verify whether the provisions are made only in respect of sales affected during the year receipt of which are offered for tax and whether the development expenses have been estimated in accordance with guidelines issued by the JDA. AO should allow reasonable opportunity or hearing to the assessee. "

2.3 Aggrieved against this order, assessee is before us.

2.4 Ld. Counsel for the assessee contends that ld CIT is not correct in

holding that the assessment order was passed in a casual manner and

without considering the facts of the issue and relevant provisions of the

Act. During the course of assessment proceedings, ld AO raised specific

query on the issue of claim of development expenses which is evident

from para 3 of letter dt 12/07/2011 placed at PB pg 34. The assessee

submitted detailed reply and in para 3 of its letter dated 13/09/2011

placed at PB pg 38-41 explained about the allowability and justification

of provision for development expenses, which is supported by several

case laws. Inquiry did not end here as ld. AO further raised queries. In

response thereto assessee further explained the justification of

allowability of provision vide letter placed on PB 46 citing case of M/s 6 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 Salasar Overseas Pvt. Ltd. On further query raised by the AO, the

assessee explained total project cost viz a viz sales and profit vide its

letter dated 16/11/2011 placed at PB pg 47-48, assessee filed proper

breakup of development expenses along with copy of JDA circulars

regarding the mandatory development expenses liability in the developers

placed ( JDA circulars are placed at 64-85). This copious

correspondence and proceedings make it very clear that this issue was

examined by the ld AO in detail during the course of assessment

proceedings. Consequently the adverse observations of ld CIT that the

assessment order was passed in a casual manner without considering the

facts of the issue and relevant provisions of the Act is untenable and

contrary to the record. It is pleaded that assessee has no control on the

manner ld. AO drafts assessment order; generally the issues which are

accepted by the Assessing Officer may not find mention in the assessment

order. As a general practice only those issues are mentioned in the

assessment order on which the assessee's explanation is rejected and

additions/disallowances are made. With demonstratively voluminous

discussions on assessment record; mere absence of specific mention of

issue would not mean that the Assessing Officer had not applied his mind

while allowing it. Reliance is placed on the findings of Hon'ble Delhi 7 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 High Court in the case of CIT v. Honda Seil Power Products Ltd. (2011)

333 ITR 547 (Del) holding as under-

"(i) ...

(ii) It is also clear that while passing an order u/s.263, the Commissioner has to examine not only the assessment order, but also the entire record. Since the assessee has no control over the way an assessment order is drafted and since generally the issues which are accepted by the Assessing Officer, do not find mention in the assessment order and only those points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made, in the instant case, the mere absence of the discussion of the provisions of S. 80-IB(13), r/w. S. 80-IA(9), would not mean that the Assessing Officer had not applied his mind to the said provisions.

(iii). When a regular assessment is made u/s. 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind.

The AO called necessary details in this regard and the matter was

examined in detail, the breakup of development expenses was filed during 8 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 the course of assessment proceedings before the AO and is placed at PB

pg 49 showing the following working:-

i) Rs. 250/- to be deposited in JDA against conversion etc charges and the same is included in sales of assessee.

ii) Rs. 50/- against road construction. iii) Rs. 42/- water lines and overhead tanks iv) Rs. 37/- electricity work. v) Rs. 21/- drainage system, park etc.

Rs. 400/- Total

Besides this, following documents are on the assessment record :

i. Copy of JDA circulars filed alongwith this letter - PB pg 64 to 85.

ii. Working for the provision clearly demonstrating that the estimated liability against expenses is Rs. 400/- per sq. yard and actual expenses incurred during this year were Rs.137.11 per sq yard and Rs. 262.80/- per sq. yard yet to be incurred. The plot area sold during this year was 55567.44. Therefore the provision of Rs. 1,46,08,190.59/- (55567.44 X 262.89) was made against the plot area sold. The sale of the plot area 55567.44 is offered for taxation which is apparent from Scheme Trading Account PB pg 17 and working for project cost and sales filed before AO copy at PB pg 48. Further the copy of JDA circular filed before the AO, the AO has verified that provision is in accordance with the JDA circular PB page 45 .

9 ITA No. 291/JP/2014

M/s. The Green Triveni Developer vs. CIT , Jaipur 1

The ld CIT has no issue on assessee's following mercantile system of

accounting and liability being allowable; set aside the assessment order

again to AO for limited purpose to verify that:-

(i) provision has been made in respect to the area sold offered for taxation.

(ii) Development expenses were estimated in accordance with JDA circular.

It is contended that the ld CIT committed mistake in holding this

expenditure being allowed without applying mind framing the assessment

in casual manner and liability allowable on offer of sales basis. The

finding that assessment order is erroneous and prejudicial to the interest

of revenue is baseless, contrary to record which contains above

documentary evidence and proceedings demonstrating that order was

passed after proper verification and examination of expenditure. Reliance

is placed on following cases:

i. M/s Salasar Overseas Pvt Ltd in ITA No 433/JP/2011 order dated 22-11-2011.

ii. S. Murugan v. ITO (2012) 135 ITD 527 (Chennai) (Trib.)

iii. CIT vs Jain Construction Co (2013) 257 CTR (Raj)

iv. CIT vs Ganpat Ram Vishnoi (2008) 296 ITR 292 (Raj) 10 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 v. CIT vs. Shri Ganesh Print Fab.(P) Ltd, (ITAT, Jodhpur), ITA No. 357/ JU/2010 dated 13.01.2012.

vi CIT Vs Deepak Real Estate Developers Ltd 107 DTR (Raj) 259

vii CIT v. Smt Tasneem Z Madraswala 324 ITR 67 (Mad.), viii CIT vs. DLF Ltd. [2013] 350 ITR 555 (Delhi) ix CIT v. Arvind Jeweller, 259 ITR 502 (Guj.), x CIT Vs Smt. D Valliammal (1998) 230 ITR 695 (Mad).

xi CIT Vs Hastings Properties (2002) 253 ITR 124 (Cal).

xii CIT Vs Max India Ltd (2007) 295 ITR 282 (SC)

(xiii) Malabar Industrial Co Ltd Vs CIT (2000) 243 ITR 83 (SC)

2.5 Ld. CIT (DR) contends that assessee had made a huge claim of

development expenses qua development expenses. The AO failed to

mention even a single word about the justification for allowability of the

claim. It clearly indicates that AO framed the assessment in a casual

manner and without application of mind. There is no loss to the assessee

as ld. CIT has set aside the issue for verification to AO with proper

directions. The order of ld. CIT is relied on.

2.6 We have heard the rival contentions and perused the material

available on record. The first finding of the ld. CIT is to the effect that

assessment order has been passed in a casual manner and without

application of mind. In our consideration with the above correspondence,

evidence and discussions during the course of assessment proceedings do 11 ITA No. 291/JP/2014 M/s. The Green Triveni Developer vs. CIT , Jaipur 1 not substantiate these adverse observations of ld. CIT. Consequently we

are unable to agree that assessment order is erroneous or prejudicial to the

interest of revenue on this score.

2.7 Apropos the allowability of JDA development charges as business

expenditure, ld. CIT has no objection on assessee's following mercantile

system of accounting in that eventuality even the accrued liabilities are to

be allowed. Assessee has demonstrated that per square yard working of

JDA expenses was provided to ld. AO during the assessment proceedings

which is part of the record. Once the liability is accrued as per JDA

circulars and AO allows the claim based on working provided by

assessee; it demonstratively means that AO allowed the claim after due

application of mind. Ld. CIT has not even disputed that liability is

allowable as clearance has been give about liability qua the sale proceeds

offered. It has been lost sight of that assessee follows mercantile method,

liability is statutory and working of quantum is provided. With all this

available on record we hold that the assessment order can neither be

called as erroneous or prejudicial to the interest of revenue. Our views are

fortified by the catena of judgments cited above, consequently the 263

order is quashed and assessee's grounds are allowed. 12 ITA No. 291/JP/2014

M/s. The Green Triveni Developer vs. CIT , Jaipur 1

3.0. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 24/02/2015.

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

Tk;iqj@Jaipur fnukad@Dated:- 24th FEB. 2015

*Mishra

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

1. vihykFkhZ@The Appellant- M/s.The Green Triveni Developers, Jaipur

2. izR;FkhZ@ The Respondent- The CIT-1, Jaipur

3. vk;dj vk;qDr@ CIT,

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

5. xkMZ QkbZy@ Guard File (ITA No.291/JP/2014)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar