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IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
.. , .. ,
./I.T.A. No.73/Mum/2012
( / Assessment Year :2007-08)
Paradise & Bhoomi Developers, / Asstt. Commissioner of Income
102-A,Bldg. No.29, Vs. Tax 15(3),
Paradise Arcade, Mumbai.
Tilak Nagar,
Chembur,
Mumbai-400089
( /Appellant) .. ( / Respondent)
. / . / PAN/GIRNo. :AAIFP4078K
/ Assessee by : Shri K Gopal
/Respondent by : Shri Neil Phlip.
/ Date of Hearing
: 29.12.2014
/Date of Pronouncement : 07.01.2015
/ 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.
7th Jan 2015
sd sd
(.. / H.L. KARWA) (.. ,/ B.R. BASKARAN)
/ PRESIDENT /Accountant Member
Mumbai: 7th Jan, 2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
true copy
(Asstt. Registrar)
, /ITAT, Mumbai
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