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TMI Blog2009 (2) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... e, therefore, they are disposed off together. 4. Briefly stated, the facts of the case are that the buildings named Mittal Park and Megh Apartments are old projects while land for Ocean View was purchased last year and construction commenced during this year. In past the assessee has estimated profit at the rate of 20% in respect of the first two buildings. It estimated profit this year at the rate of 5% as against 20% estimated in past on the ground that there was crash in the real estate market and in respect of Ocean View project it had incurred heavy loss. 4.1 The Assessing Officer states that the buildings known as Mittal Park and Megh Apartments were on the same land and have been treated as one project since beginning. Land for Ocean View was purchased as per agreement dated 31.01.2000 for ₹ 282,500,000/- from Shree Bhagawati Construction Company which was a sister concern of the assessee. According to the Assessing Officer, the existing projects in respect of Mittal Park and Megh Apartments were almost complete during the year. He alleges that the assessee had merged the new Ocean View project with the completed projects so as to avoid payment of taxes on the comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of Megh Apartments is not complete. From the possession of certain flats given to a few buyers it does not follow that the construction work is complete. Generally, it takes 15 to 18 months to do interior decoration of the flats and therefore some buyers prefer to take possession of the flats much before the building is complete in all respects. By simultaneously carrying out the interior work such buyer saves considerable amount of time as compared to if he were to commence the interior work only after the building is complete in all respects. The assessee further pointed out that it has sold only 3 flats out of total 11 flats in Megh Apartments. The loss in the Ocean View project is on account of sudden crash in the real estate market during the relevant period. 4.3 The Assessing Officer passed the assessment order on 31st March, 2004. He placed reliance on the BMC issued occupation certificate dated 29th October, 1999 in respect of Megh Apartments and the assessee having given possession of three flats and held that as the construction of Mittal Park and Megh Apartments was complete the profit from that project was required to be assessed on final basis. While estimating fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , especially when the assessee was paying tax every year as percentage of recovery. In the absence of completion certificate, occupation certificate could not be independently taken as an evidence of the completion of the project. CIT (A) held that Assessing Officer was not justified in relying on the decision of ITAT in the case of Champion Construction Co. 5 ITD 495 (Bom). At the same time CIT (A) held the reduction of rate of profit from 20% to 5% for Mittal Park and Megh Apartments was not justified. Ocean View was a separate and distinct project. That project was located at different plot. The assessee had merged that project with other projects only to justify the reduction in the rate of estimation of profits from 20% to 5%. There was no material to justify reduction in the rate of estimated profit in the case of Mittal Park and Megh Apartments projects. The assessee was not entitled to make departure from the earlier years. The estimation of profits in regard to recoveries in Ocean View project was made by the assessee for the first time. There was no question of departure from the past in that project. But, CIT (A) held that till Ocean View project was completed it could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-Para vi the assessing office admits that there was going to be loss of ₹ 13,15,36,745 in Ocean View project. It was in this background that the assessee reduced rate of profit to 5% uniformly in respect of all the three projects. The Assessing Officer did not realize that the assessee was not following project completion method and he was following the method under which profit/loss of each year was being offered for assessment and therefore even if the assessee had worked out the loss on Ocean View project separately it would be entitled to set off loss of Ocean View against the profits Mittal Park and Megh Apartments Assessee was offering profit/loss on estimate since it had no choice in the matter. The exact quantum of profit/loss of each project could not be found until a project was fully constructed and fully sold. 6.2 The ld counsel of the assessee further argued that the facts that the assessee had handed over possession of a few flats at Megh Apartments and the BMC had issued occupation certificate for on 29th October, 1999 did not signify that construction work in relation to Megh Apartments was complete. The completion certificate had not been issued. In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that after the completion of the building, assessment could be made on the assessee in the year in which 80% of the flats have been sold. Hence to rely upon Champion Construction Company (supra) in the case of the assessee is not justified. 7.1 Secondly, the Assessing Officer has not even correctly computed the income of the two projects. The Assessing Officer has argued that the facility of club-house is not mentioned in the agreements of sale of flats of Megh Apartments and Mittal Park. In respect of other expected expenses such as basement and ground floor and finishing in Megh Apartments the Assessing Officer has observed that such expenditure will be taken care of when the unsold flats in Megh Apartments will be sold. We hold that the argument that there is no mention of club-house in the agreements is not sufficient to disallow the expenditure. The facility of club-house is mentioned in the construction plans as approved by Bombay Municipal Corporation. The agreements of sale entered into between the assessee and its buyers have to be read with these plans. There is no material relied upon by revenue to show that expenditure on clubhouse is not wholly and exclusively fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project viz. Ocean View is ₹ 28,25,00,000/-, the total recoverable amount is shown at ₹ 20,76,51,000/- including the value of stock. Thus there is direct loss of ₹ 7,48,49,000/-. When the construction cost incurred/ to be incurred is added to the same, the total loss works out to ₹ 13,15,36,745/-." 8.1 According to the CIT (A) till such time Ocean View Project is completed, it cannot be said that project will be a loss. He has therefore directed that Ocean View income should be assessed at the net profit rate of 5%. In other words, the ld CIT (A) holds that no loss can be claimed, in the years before the completion of project. In our opinion in a case where profits before the completion of project have been and are being assessed, if there is loss it has to be assessed in the same manner. It appears to us that the assessee has correctly relied upon the judgment of Supreme Court in the case of Chainrup Sampatram (supra). It is a settled principle that the value of closing stock is estimated at cost or market price whichever is less. It is totally incorrect and unjust not to allow the loss and at the same time assess estimated profit from other two build ..... X X X X Extracts X X X X X X X X Extracts X X X X
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