2019 (5) TMI 993 - AT - Income Tax

Tribunal confirms CIT(A)'s decisions on undisclosed sales addition & loss disallowance

The Tribunal upheld the CIT(A)'s decisions in the case. The undisclosed sales addition of Rs. 26,63,100 was deleted, as the assessee followed the Project ... Income recognition - Project Completion Method - Accounting Standards (AS)­ 9 - Undisclosed sales addition - advances received from the two customers - HELD THAT:- The assessee builder/ developer had rightly not recognized advances received from the two customers as income ongoing by project completion method as per its past practice accounting system regularly followed. More so in view of the fact that it had actually sold the flats in issue in AY 2016-17. We therefore confirm the CIT(A) ‘s findings deleting the impugned addition of undisclosed sales. The Revenue fails in this former ground. Nature of loss - business loss or short term capital loss - assessee’s books treating the land in issue as a fixed asset than stock-in-trade - HELD THAT:- No reason to accept the Revenue’s instant arguments. The fact remains that the assessee is engaged in property development business. It has been developing residential projects throughout all preceding assessment years. We therefore are of the view that the assessee’s mere book treatment of the land in issue as a fixed asset cannot form the sole criteria to hold that the same gives rise to capital loss. As decided in KEDARNATH JUTE MANUFACTURING COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX (CENTRAL), CALCUTTA [1971 (8) TMI 10 - SUPREME COURT] an assessee’s book treatment cannot form the sole guiding factor giving rise to a tax incidence. This tribunal’s decision in Canara Bank v/s. JCIT [2017 (11) TMI 1425 - ITAT BANGALORE] also holds that any treatment given at the assessee’s behest in books of account; item-wise on expenditure, has no relevant to decide taxability or otherwise thereof under the provisions of the Income-tax Act, 1961. We reject Revenue’s instant substantive ground as well and cured that the assessee is entitled to treat its land as stock-in-trade than fixed assets/investments. DR contended that the AO in his assessment order had recorded assessee’s consent on the instant issue during scrutiny - No substance in the technical plea as well as the purpose of a scrutiny assessment is to determine appropriate taxable income as per provisions of the Act only. This tribunal’s co-ordinate bench’s decision in “Canara Bank” (supra) holds that estopple does not apply in income-tax proceedings. The Revenue’s latter substantive ground is rejected therefore. - Decided against revenue. Issues Involved:1. Deletion of undisclosed sales addition of Rs. 26,63,100.2. Treatment of loss disallowance of Rs. 58,46,550 under the head 'business' instead of short-term capital loss.Issue-wise Detailed Analysis:1. Deletion of Undisclosed Sales Addition of Rs. 26,63,100:The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 26,63,100 as undisclosed sales. The Assessing Officer (AO) had added this amount based on the registration of sale agreements without possession, arguing that significant risks and rewards of ownership had been transferred to the buyers, thus necessitating revenue recognition under Accounting Standard (AS) 9. The assessee, however, followed the 'Project Completion Method,' recognizing revenue only when the project was complete and possession was given.The CIT(A) found that the AO had incorrectly applied AS-9 instead of AS-7, which is relevant for construction contracts. The CIT(A) noted that the assessee had shown the amounts as advances in its balance sheet and had not recognized them as sales due to the lack of possession transfer and full payment. The Tribunal upheld the CIT(A)'s findings, emphasizing that the assessee consistently followed the project completion method and had recognized the revenue in the subsequent assessment year when the sale deeds were registered. The Tribunal cited its decision in the case of M/s. Ashoka Hi-Tech Builders P. Ltd., where it had rejected the Revenue's similar argument to invoke AS-7.2. Treatment of Loss Disallowance of Rs. 58,46,550:The Revenue contended that the CIT(A) erred in treating the loss disallowance of Rs. 58,46,550 as a business loss instead of a short-term capital loss. The AO had applied Section 50C of the Income-tax Act, 1961, to compute the short-term capital gain by considering the stamp duty value of the lands sold. The assessee argued that the lands were part of its business stock, not investments, and the loss should be treated as a business loss.The CIT(A) agreed with the assessee, stating that the nature of the land as business stock should not be altered merely because it was shown under fixed assets in the balance sheet. The CIT(A) cited various judgments, including the Supreme Court's decision in Kedarnath Jute & Mills, which held that book treatment cannot solely determine taxability. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's argument that the land should be treated as a fixed asset. The Tribunal noted that the assessee was engaged in property development and consistently followed the project completion method, which justified treating the land as stock-in-trade.The Tribunal also dismissed the Revenue's technical plea that the assessee had consented to the AO's treatment during scrutiny, emphasizing that estoppel does not apply in income-tax proceedings.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The deletion of the undisclosed sales addition of Rs. 26,63,100 and the treatment of the loss disallowance of Rs. 58,46,550 as a business loss were confirmed. The Tribunal emphasized the consistent application of the project completion method and the irrelevance of book treatment in determining taxability.