Mr.Narsinha J Ghate, 21, Veena Beena, Ground floor, Opp Bandra Rly station, Bandra (W), Mumbai-400050 Vs. Income Tax Officer Ward 22(2)(3), Vashi Railway Station Building, Vashi, Navi Mumbai-400703
February, 20th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI
BEFORE S/SHRI I.P. BANSAL, (JM) AND B.R.BASKARAN (AM)
.. , .. ,
( / Assessment Year : 2004-05)
Mr.Narsinha J Ghate, / Income Tax Officer Ward
21, Veena Beena, Ground floor,
Opp Bandra Rly station, Vashi Railway Station Building,
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. :AACPG9377L
/ Assessee by: Shri M Subramanian
/ Revenue by:: Shri S J Singh
/ Date of Hearing
/Date of Pronouncement : 18.2.2015
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal filed by the assessee is directed against the order dated
12.10.2008 passed by the ld. CIT(A)-22, Mumbai and it relates to the
assessment year 2004-05.
2. The ld. counsel appearing for the assessee invited our attention to
the additional ground of appeal filed by the assessee, wherein initiation of
reassessment proceedings is being questioned.
3. We have heard the parties on this preliminary issue and perused the
record. The assessee has furnished a copy of reasons recorded by the AO
for reopening of assessment at page 18 of the paper book filed by the
assessee. The reasons recorded by the AO read as under:
"SHRI NARASINHA J GHATE : ASSESMETN YEAR 2004-05
In this case Income tax return for the AY 2004-05 was filed on
1.11.2004 declaring total income at Rs.2,79,690/-. The return is
accompanied with tax audit report which shows the assessee is
proprietor of M/s Orient Associates doing the business as Builders
and developers. The asset side of the balance sheet shows WIP at
Rs.14,42,034/- and various plots of land at Ulve and Kamothe. The
assessee has also shown advance against booking at
Rs.29,00,556/-. However, on examination assessee's return for AY
2005-06, it is seen that the assessee has shown salary income of
Rs.2,36,925/-. No balance sheet is enclosed with the return. It is
therefore, presumed that the assessee has sold the work-in-progress
in the AY 2004-05 itself.
In view of the above facts and circumstances of the case I
have reason to believe that income to the tune of Rs.14,42,034/-
and further income on sale other assets, chargeable to tax has
escaped assessment for the AY 2004-05 within the meaning of sub-
section (b) of section 147 of the IT Act. Accordingly, this is a fit
case for issue of notice under section 148 of the IT Act, 1961"
4. The ld. counsel submitted that the AO has reopened the assessment
on presumption without pointing out the income which has escaped
assessment. He further submitted that the AO has made reference to the
income relating to WIP amounting to Rs.14.42 lakhs, but he has failed to
make any addition with regard to the same in the re-assessment
proceedings. Accordingly he contended that, in view of the decision of the
Jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd.(331
ITR 336(Bom.), the AO is not entitled to make any other addition, if he
fails to make addition in respect of items on which the assessment was
5. On the contrary, the ld. DR submitted that the AO has reopened the
assessment not only with regard to the WIP but also with regard to the
other income relating to the sale of assets. Further, the AO has made
reference to the advance received by the assessee towards booking of
flats. Accordingly, the ld. DR submitted that the AR was not right in
presuming that the AO has reopened the assessment with regard to WIP
only. The ld. DR further submitted that the AO has added the sum of
Rs.1,36,525/- relating to capital gain arising on sale of assets.
Accordingly, he submitted that the AO has made addition with respect to
the one of the points on which the impugned assessment was reopened.
6. Having heard the rival submissions, we are of the view that there is
no merit in the contentions of the assessee. As pointed out by the ld. DR
that the AO has reopened the assessment, inter-alia, with regard to the
income arising on sale of other assets. The AO has also made addition
with regard to the sale of assets, and hence, we are of the view that the
reopening has been done in accordance with law. Accordingly, we reject
the contention of the assessee in this regard.
7. Other grounds urged by the assessee are relating to the following
a) disallowance out of electricity charges;
b) disallowance of telephone expenses;
c) assessment of profit on plot no.12 and
d) assessment of profit at 11 %.
The assessee is engaged in the business of builder and developer. During
the course of assessment proceedings, the AO disallowed electricity
expenses to the tune of Rs.2,83,485/-, which pertained to Plot No.21
(CIT(A) has stated as 200) and Plot No.132B. The assessee did not offer
any income during the instant year from Plot No.21 and Plot No. 132B
happened to be the residence of the assessee. Hence the AO disallowed
the above said sum of Rs.2,83,485/-.
8. Before the ld. CIT(A), the assessee submitted that the construction
on plot No.200 had already been completed and possession of flats were
also given in the immediately preceding year. It was submitted that the
assessee received a bill for an amount of Rs.2,81,034/- during the year
under consideration from the Electricity department and the same was
paid by the assessee and claimed as deduction. Accordingly it was
submitted that the electricity expenses is related to the year under
consideration. The assessee further submitted that he has incurred a sum
of Rs.7980/- towards the electricity charges of his residence and claimed
the same as expenditure, since he was carryon the business activities from
his residence. The ld. CIT(A), by accepting the contention of the assessee
with regard to the electricity charges pertaining to Plot No.200, granted
relief to the tune of Rs.2,81,034/-. However, the ld. CIT(A) confirmed the
electricity charges of Rs.7980/- pertaining to residence. Aggrieved by the
decision of the ld.CIT(A) in confirming the addition of Rs.7980/- towards
electricity charges the assessee is in appeal before us.
9. We notice that the electricity charges of Rs.7980/-pertain to
residence of the assessee. Though the assessee has contended that he
was using the residence as his office, yet no proof whatsoever was placed
before us to substantiate the same. Under these circumstances, we are of
the view that the ld. CIT(A) was justified in confirming the addition of
Rs.7980/- towards electricity charges.
10. The next issue relates to disallowance of telephone expenses. The
AO disallowed 20% of telephone expenses towards personal usage and
the ld. CIT(A) also confirmed the said disallowance. Before us, the ld. AR
submitted that the assessee has been using the telephone for official
purposes only and the personal usage was negligible.
11. We have heard the ld. DR on this issue. We notice that the assessee
has claimed a sum of Rs.1,03,939/- in aggregate as telephone expenses,
which included residential phone also and the AO has disallowed 20% of
the same towards personal use. Considering the activity of the assessee,
we are of the view that the disallowance of 20% of the aggregate amount
of telephone expenses is on higher side. Accordingly, we modify the order
of ld. CIT(A) on this issue and direct the AO to restrict the disallowance to
10% of the telephone expenses claimed by the assessee.
12. The next issue relates to assessment of profit on plot No.42. The AO
noticed that the assessee has carried out the construction work on three
plots viz plot N.42, 57 and 76. The AO further noticed that the project on
plot no.42 has been completed during the year under consideration and
the projects on remaining two plots were in progress. The assessee has
not furnished project wise profit and loss account and hence the AO
proceeded to work out the profit from each of the project. Though the AO
allocated direct expenses to the concerned project, the indirect or common
expenses were allocated equally @ 1/3 each between the three projects
referred above. In this process, the AO arrived at profit from the project
carried out at Plot No.42 at Rs.10,95,869/- and assessed the same. The
ld. CIT(A) also confirmed the same.
13. We have heard both the parties and perused the record on this
issue. According to the assessee, he was preparing consolidated profit
and loss account. The Ld A.R submitted that the assessee has completed
the project in Plot No.42 and the other projects are only at infancy state.
Accordingly he submitted that the AO was not justified in preferring profit
and loss account project wise. Accordingly, the ld. AR submitted that the
profit declared by the assessee should be accepted. In the alternative, he
submitted the allocation of administrative expenses on the project carried
out in Plot No.42 is on the lower side. On the contrary, the ld DR strongly
defended the orders of authorities below on this issue.
14. The undisputed facts remains that the assessee has completed the
project carried on plot no.42. However, while estimating the profit on the
said project, the AO allocated administrative expenses equally on all the
three projects viz Plot No.42 (which is completed), Plot No.57 and Plot
No.76 (under progress). We notice from the assessment order, that the
assessee has received a sum of Rs.95,85,736/- on sale of flats constructed
on plot no.42 and the total expenses incurred was Rs.82,03,672/-.
However amount spent on Plot No.57 and 76 was Rs.9,71,227/- and
2,40,497/- only. Thus it is seen that the projects carried in Plot No.57 and
76 are comparatively lower in size. Under these set of facts, we are of the
view that the AO was not justified in allocating the administrative expenses
equally between all the three projects. Since the assessee has been selling
flats constructed on Plot No.42, naturally he would have spent more time
and energy in respect of this project. Accordingly, we are of the view that
the major portion of the administrative expenses should be allocated to
Plot No.42. Considering the status of each of the project, we are of the
considered view that the allocation of administrative expenses would meet
ends of justice, if it is allocated in the following manner:
a) Plot No.42 70%
b) Plot No.57 20% and
c) Plot No.76 10%
Accordingly, we set aside the order of the ld. CIT(A) on this issue and
direct the AO to recompute the profit on construction of flats on Plot
No.42 by adopting the administrative expenses in the ratio cited above.
15. The next issue relate to assessment of profit from construction on
flats on plot Nos. 57 and 76. The AO estimated the profit at 11% of WIP
and the ld. CIT(A) also confirmed the same. Before us, the ld.AR
submitted that both the projects are at initial stages and hence no profit
need to be estimated. However, the ld. AR failed to show about the stage
of completion of project. In the absence of the details, we are not able to
appreciate the contention of the ld. AR. At the same time, we notice that
the estimate of profit from WIP made by the AO at 11% is on the higher
side. Accordingly, we modify the order of ld. CIT(A) and direct the AO to
estimate the profit from WIP of Plot Nos.57 and 76 at 8% of the WIP.
While computing the WIP, the AO should adopt the figure of administrative
expenses as per our direction given in the earlier paragraph.
16. In the result, the appeal of the assessee is partly allowed.
The above order was pronounced in the open court on 18th Feb,
18th Feb, 2015
(.. /I.P. BANSAL) (.. ,/ B.R. BASKARAN)
/ Judicial Member /Accountant Member
Mumbai: 18th Feb,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,
, /ITAT, Mumbai