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This appeal by the assessee is directed against the order of the Principal Commissioner of Income Tax-33, Mumbai (‘Pr.CIT for short) dated 30.03.2018 and pertains to the assessment year (A.Y.) 2014-15.
2. The grounds of appeal read as under:
1. That on the facts and circumstances of the case and in law, the order passed by the Ld. CIT-33 u/s 263,merely on presumptions without any material evidences, is bad in law and is liable to be quashed.
2. That on the facts and circumstances of the case and in law, the Ld. CIT-33 erred in exercising revisionary powers under section 263 without giving an}' finding as to how the order passed by the assessing officer is "erroneous" as well as "prejudicial to the interest of the revenue and as such, the order passed u/s 263 is bad in law and is liable to be set aside in view of the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd vs. CIT (243 ITR 83).
3. That, on the facts and circumstance of the case and in law, the Lei. CIT-33 erred in holding that the assessment order dated 30.12.2016 passed u/s 143(3)of the Act by the assessing officer was "erroneous" and "prejudicial to the interest of the revenue" and also erred in partially setting aside the same and directing the Assessing Officer to iollow the directions as per para 6.4 of the impugned order.
4. That on the facts and circumstances of the case and in law, the Ld. CITerred in exercising revisionary powers without considering the fact that the recourse to section 263 cannot be invoked where two views are possible, as decided in the case of Malabar industrial Co. Ltd. (Supra), and as such, the order passed is bad in law and is liable to be quashed.
5. 5.1 That on the facts and circumstances of the case and in law, the Ld. CIT not considering the fact that detailed examination had already been done by the Ld. Assessing officer at the time of original proceedings u/s 143(3), and as such, the Ld. CIT would not be justified in exercising revisionary powers under section 263 of the Act.
5.2 Without prejudice to the above, even if the enquiry was inadequate, the Ld. CIT would not be justified in exercising revisionary powers under section 263 of the Act.
6. That on the facts and circumstances of the case and in law, Ld. CIT erred in changing the method of accounting ^dividing the project into two phases on the basis of consent
3. In this case, the Pr.CIT observed as under:
The firm is in the business of construction. It has taken SRA project for development of Behrambaug, Oshiwara, Andheri-West. The firm has constructed slum buildings for the slum dwellers to be handed-over to them free of cost. The firm has constructed Ito 6 rehab buildings for the slum dwellers and handed over to th m free of cost. The firm entered into an agreement with Ever shine Builders Pv Ltd for construction of sale buildings (Ever Shine Building) comprising of 3 wings of 26 stories. As per the agreement, the right to construct & sale solely lies with the Evershine Builders Pvt Ltd and the amount received on sale shall be shared equally. On 10.12 2000 a survey had taken place at the assessee's premise. During the survey statement of Shri Ketan Shah Partner was recorded. He informed in the statement that Evershine Builders Pvt Ltd will construct the units on 18th to 21st floor of sale building against the rate of Rs 2300 per sq ft of saleable area. Project Gaurav Legend is still to be started full fledge. It is at plinth level and Evershine is constructed up to 17th floor. The sale proceeds evershine is to share @ 50 percent with the assess e from 1st to 17th floor. However, a dispute took place between Evershine Builders Pvt Ltd and the Assessee. Therefore, Evershine and the assessee reached to the consen terms dated Feb 2014 in pursuance to the suit no 1335 dated 2010 which they filed in the Hon High Court of Bombay. As per this document assessee would get foll wing:
• 10 flats in A wing having saleable area 16115 sq.ft in evershine upto 17th floor.
• Shops 1,2,3 & 6 in A wing and shop 18 in C Wing and
2.2 Once again a survey was conducted at the business premise of the assessee on 27.09.2016. During the survey statement of Jayesh Shah partner was recorded. Subsequently, it was observed that the assessee has had total receipts of Rs 115.64 Crores. The details are as follows-
• Total receipts from Evershine Rs 87.51 Cr
• 10 flats retained by the assessee consisting of total area 16,115 square, assessee has sold for Rs 6.70 Cr
• 5 shops retained by the assessee out of which 4 shops were sold amounting to Rs 16.03 Cr. Accordingly sale price of 5 shops is estimated at Rs 20.04
• Total TDRsRs 5.38 Cr
2.3 This being the position, in AY 2014-15 in view of Consent terms entered into between the assessee and Evershine Builders Pvt Ltd, approved by the Hon High Court of Bombay, the amount received and receivable Rs 115.64 Crores by the assessee and expenditure on construction of 1 to 6 rehab buildings for the slum dwellers and handed over to SRA free of cost should be taken into consideration and income should be computed. The Assessee is deliberately deferring the computation of income on this project on the ground that project is yet not over.
2.3.1 the advantage of project completion method in any case of a builder is that on completion all revenue receipts and expenditures are known and the profit earned by the builder can be ascertained in no uncertain terms. In my view following dispute settlement between the assessee and Evershine Builder Pvt Ltd under the aegis of Hon High Court of Bombay in AY 2014-15, there is a clear demarcation in the construction history of the project. The project can be divided into two stages on the basis of facts existing in this case. In Phase one that has come to an end with the settlement of dispute under the aegis of the Hon High Court of Bombay assessee has already built six rehab buildings and handed over to SRA. In this phase 17 floors have been constructed by Evershine Builders Pvt Ltd and assessee has not only received its share on resolution of dispute but also huge money on sale of TDRs. In second phase, Evershine builders Pvt Ltd would construct floors from 18 to 21 as contractor on behalf of the assessee firm @Rs 2300 per sq.ft. It is thus a second phase while determining profit on sale of flats in this project from 18th to 21SI floor expenditures incurred by the assessee w.e.f 1.4.2014 related to Rehab project may be taken into consideration and income may be determined.
2.4 Thus the assessee has already built and transferred six rehab buildings and transferred to SRA in first phase of the project. Further, the assessee has received in this phase Rs 115.64 Crores. It is full and final receipt. The dispute with Evershine Builders pvt Ltd is already settled under the aegis of Hon High Court of Bombay and therefore, it must be taken into consideration for computation of total income.
3. Thus, on the basis of examination of records it is found that the Assesing Officer without making proper inquiry or verification has passed the assessment order. The order passed by the AO is therefore erroneous in so far it is prejudicial to the interest of revenue.
4. In view of above, a show cause notice dated 2.08.2017 was issued and served upon the assessee firm on 7.8.2017 to explain as to why assessment order for AY 2014- 15 should not be revised u/s 263 of the Income tax Act, 1961.
4. The Pr. CIT noted the response of the assessee as under:
4.1 In response to the notice u/s 263 dated 16.06.2017 Shri Ashok Ladha CA attended from time to time. He filed written submissions dated 4.12.2017 and 2.01.2018. He is also heard at length.
4.2 In the reply dated 4.12.2017 the Assessee has not contradicted the basic facts brought on record. But the Assessee has submitted that the order passed u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue. The Assessee submits that the AO has passed order after making the proper and requisite enquiries. The assessee submits that where the AO has applied his mind to the facts of the case and taken a possible view, recourse to section 263 for the purpose of taking another view would not be permissible in view of the decision of the Apex Court in the case of Malabar Industrial Co Limited Vs CIT [(2000)109 Taxman 66 (SC)]. The Assessee has also submitted that assessee is consistently following its method of accounting and offering income @ 9% of work done during the year.
This method of accounting has been accepted by the revenue for the prior years as well as subsequent years. Therefore, the method of accounting consistent followed by the assessee need not be changed. The assessee has also submitted that it would not be possible to divide the project upto 17lh floor as complete and compute profit thereon. This