2015 (8) TMI 329 - AT - Income Tax

Computation of income - manner in which income of the assessee is liable to be computed from the development of its project named Pranik Garden at Mahavir Nagar, Kandivali(West), Mumbai - Held that - The project of the assessee was substantially completed in the previous year relevant to the assessment year under consideration. In fact it is seen that the project consisted of construction of Tower-A,B,D & E, Tower Ekata and shopping arcade/parking space. The AO has noticed that except for Tower-B the occupation certificates for all other buildings were received prior to 31/3/2005 and in fact they have been received in the earlier years. With respect of Tower- B, it is seen that though the occupation certificatewas issued by the Mumbai Municipal Corporation on 21/4/2005 but 30 flat owners out of 40 flats, took possession of the flats before 31/3/2005 and the flats were occupied. The maintenance society confirmed before the AO that the flat owners were occupying the flats even before 31/3/2005. In any case, it is not disputed that assessee approached the Mumbai Municipal Corporation for issuance of occupation certificate, through an Architect on 16/7/2002 itself, which would show that as per the assessee the building Tower-B was completed before it approached the Municipal Corporation for issuance of the occupation certificate. Having regard to the fact-situation and the material on record, we find enough justification for the lower authorities to hold that the project of the assessee was substantially completed in the previous year relevant to the assessment year 2005-06 and, therefore, income from such project was liable to be assessed in assessment year 2005-06 itself by application of the project completion method. - Decided against assessee. Income from other sources - Held that - Factually speaking, it cannot be disputed that the aforestated incomes, namely, the interest on overdue installments, interest on overdue out comings, interest on bank deposits, transfer charges as transfer of ownership of flats/shops, etc. on resale transactions and brokerage income on resale of flats are not incomes arising in the course of assessees business activity of construction and development of the real estate project. Therefore, in our view, the lower authorities have made no mistake in assessing the aforesaid incomes under the head income from other sources, which we hereby affirm. - Decided against assessee. Corporate expenses disallowed by the AO while computing income from the project - Held that - Having perused the orders of the authorities below, we find that the entire addition is not based on any evidence or material. In fact, the entire corporate expenses have been incurred by way of reimbursement to a concern, who is maintaining common facilities for all the group concerns operating from a common premise. While the AO cannot be faulted for examining the impugned expenses, so however, he has made the disallowance without bringing out any material or evidence to say that the expenses were not genuine or that the same were false. Therefore, the Ld. CIT(A) ought to have deleted the entire addition instead of scaling down the disallowance out of the expenses pertaining to the period 1994-95 to 2001-02 and enhancing the disallowance in respect of the period from 2005-06 to 2006-07. As a consequence, we hereby set-aside the order of Ld. CIT(A) and direct the AO to delete the impugned addition. - Decided in favour of assessee. Addition on account of unaccounted interest - Held that - Interest income assessed by the AO in relation to the flat No.21 in Tower A sold to Mrs. Kashmira J. Malavia & Ors. on overdue installments. The addition has been made by AO only on the basis of the document found during survey, which is merely a tabulation showing interest due and does not clinchingly establish actual receipt of interest without any corroborative evidence. On the contrary, assessee furnished a confirmation from the flat buyer, a copy of which is also placed in the Paper Book filed before us, which establishes that no interest was paid to the assessee. In the orders of the authorities below, we find no negation qua the aforesaid evidence furnished by the assesse. Therefore, we deem it fit and proper to direct the AO to delete the said addition. - Decided in favour of assessee. Addition on account of 10% of expenses on construction of swimming pool and gymnasium disallowed by the AO - Held that - It was noticed that construction of some of common amenities was still in progress and the relevant expenditure was incurred in later years. The AO noted that total expenses in the project after 1/4/2005 till 31/3/2007 is ₹ 98,81,184/- and the provision for expenses was ₹ 79,02,200/-, totaling to ₹ 1,77,83,184/-. In the assessment for A.Y 2007- 08 provision for expenses claimed amounted to ₹ 79,02,200/- out of which 10% was disallowed as excess provision leaving the balance of ₹ 71,11,800/-, which was allowed. No reason to interfere in the findings of Ld. CIT(A) confirming disallowance, which are quite fair and proper. Thus, on this aspect assessee fails. - Decided against assessee. Addition made by the AO out of payments to contractor for labour charges - CIT(A) deleted the addition - Held that - It is notable that the Ld. CIT(A) has relied upon the material before him which proved that M/s. PM Construction had rendered services to the assessee firm and that the payment made by assessee stood duly confirmed in the course appellate proceedings. There is no material led by the Revenue which would enable us to disagree with the finding of the Ld. CIT(A) on this aspect, which we hereby affirm. It is also discernible that the material and evidence relied upon by the CIT(A) for deleting the addition was very much made available to the AO in the remand proceedings and he was also directed by the CIT(A) to conduct enquiries and furnish a remand report. We do not find any adverse finding by the AO in this context. Even before us, no cogent reasoning or material has been lead by the Revenue to establish any infirmity in the fining of the Ld. CIT(A). - Decided against revenue. Penalty under section 273B r.w.s. 271B - assessee failed to obtain the requisite tax audit report prescribed under section 44AB - Held that - there was a reasonable cause prevailing with the assessee for not getting his accounts audited under section 44AB of the Act as the prescription of section 44AB of the Act was triggered only after AO rejected the assessee s methodology of booking profit from its project. Therefore, in our view, having regard to the provisions of section 273B r.w.s. 271B of the Act, there was a reasonable cause prevailing with the assessee for not getting its accounts audited under section 44AB of the Act. Accordingly, the penalty levied under section 273B is liable to be deleted. - Decided against revenue.

Issues Involved:
1. Completion of the project and computation of income for A.Y. 2005-06.
2. Addition of income of Rs. 62,11,417/- as income from other sources.
3. Disallowance of corporate expenses.
4. Addition of Rs. 3,45,375/- on account of unaccounted interest.
5. Disallowance of 10% of expenses on construction of swimming pool and gymnasium.
6. Deletion of addition made out of payments to M/s. P.M Construction.
7. Year of project completion for A.Y. 2006-07 and 2007-08.
8. Penalty under section 271B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Completion of the project and computation of income for A.Y. 2005-06:
The assessee argued that the project at Pranik Garden was completed in F.Y. 2006-07, but the AO and CIT(A) concluded it was completed in the year under appeal (A.Y. 2005-06). The AO noted that all buildings were constructed, sold, and occupied by March 2005, and the occupation certificate was issued on 21/04/2005. The Tribunal upheld the lower authorities' decision, stating the project was substantially completed in the previous year relevant to A.Y. 2005-06.

2. Addition of income of Rs. 62,11,417/- as income from other sources:
The AO classified various incomes (interest on overdue installments, bank deposits, transfer charges, etc.) totaling Rs. 62,11,417/- as income from other sources, not related to the project. The CIT(A) upheld this classification, and the Tribunal affirmed, stating these incomes did not arise from the construction and development of the project.

3. Disallowance of corporate expenses:
The AO disallowed 50% of the claimed corporate expenses as excessive and unreasonable. The CIT(A) varied the disallowance, reducing it to 30% for F.Y. 1994-95 to 2001-02 and enhancing it to 60% for F.Y. 2002-03 to 2004-05 and 70% for F.Y. 2005-06 to 2006-07. The Tribunal found the entire addition was based on conjectures without evidence and directed the AO to delete the disallowance.

4. Addition of Rs. 3,45,375/- on account of unaccounted interest:
The AO added Rs. 19,55,281/- as unaccounted interest based on documents found during a survey. The CIT(A) directed verification of specific transactions, reducing the addition. The Tribunal found the addition for flat No.21 in Tower "A" was unsupported by evidence, as the assessee provided confirmation of no interest received. The Tribunal directed the AO to delete the addition.

5. Disallowance of 10% of expenses on construction of swimming pool and gymnasium:
The AO disallowed 10% of the provision for expenses on common amenities as excessive. The CIT(A) upheld this disallowance, and the Tribunal found no reason to interfere, affirming the disallowance.

6. Deletion of addition made out of payments to M/s. P.M Construction:
The AO disallowed payments to M/s. P.M Construction as unverifiable. The CIT(A) deleted the addition based on confirmations and other documents provided by the assessee. The Tribunal affirmed the CIT(A)'s decision, noting the AO's remand report did not dispute the evidence provided.

7. Year of project completion for A.Y. 2006-07 and 2007-08:
The Tribunal, having concluded the project was completed in A.Y. 2005-06, dismissed the assessee's appeals for A.Y. 2006-07 and 2007-08, as the income from the project was already assessed in A.Y. 2005-06.

8. Penalty under section 271B of the Income Tax Act, 1961:
The AO levied a penalty for not obtaining a tax audit report under section 44AB. The Tribunal found reasonable cause for the assessee's failure, as the requirement for audit arose only after the AO's assessment. The Tribunal deleted the penalty, citing section 273B.

Conclusion:
The Tribunal partly allowed the assessee's appeal for A.Y. 2005-06, dismissed the Revenue's cross-appeal, dismissed the assessee's appeals for A.Y. 2006-07 and 2007-08, and allowed the appeal against the penalty under section 271B.

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