2022 (11) TMI 1195 - AT - Income Tax

Tribunal upholds FAA's decision on profit recognition method and unsold flats income.

The Tribunal upheld the First Appellate Authority's decision to delete the additions made by the Assessing Officer in two issues. Firstly, the Tribunal ... Revenue recognition - Profit offered during the survey proceeding - profit determined on the project undertaken by the assessee - Method of accounting - assessee was following percentage completion method of accounting - assessee has not honored the income of Rs. 5 crore, which the assessee declared during the course of survey action - HELD THAT:- A.O. ignored the percentage completion method of revenue recognition consistently followed by the assessee in assessment years prior to the assessment year under consideration i.e. A.Y. 2009-10 and opined that project of the assessee was completed therefore entire profit should have been declared in the year under consideration. In our opinion, the Ld. FAA after considering the submission of the assessee and analyzing facts of the case, correctly upheld the percentage completion method of Revenue recognition following the judicial precedents, and therefore we do not find any error in the order of the Ld.FAA on the issue in dispute, accordingly we uphold the same. - Decided against revenue. Addition on account of income from house property - ALV of the flats held by the assessee as stock in trade - Addition determined by the Ld. A.O. on the closing stock of the flats held by the assessee - whether, from the flats held by an assessee as a stock in trade, the deemed rental income under the head income from house property should be assessed or not? - HELD THAT:- The coordinate bench of the Tribunal in the case of Bangal Shapoorji housing development Private Limited [2021 (5) TMI 636 - ITAT MUMBAI] after considering various decisions directed the Ld. Assessing Officer to delete the addition made towards the ALV of the flats held by the assessee as stock in trade of its business as that of a builder and developer. In our opinion, there is no error in the order of the Ld. FAA on the issue in dispute, which has been passed after following binding precedent on the issue in dispute. We accordingly uphold the same. The ground No.3 of the appeal of the Revenue is accordingly dismissed. Issues Involved:1. Deletion of addition of Rs. 5,93,35,636/- as profit determined on the project.2. Deletion of addition on account of income from house property determined on the closing stock of flats.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 5,93,35,636/- as Profit Determined on the Project:The Revenue challenged the deletion of Rs. 5,93,35,636/- added by the Assessing Officer (AO) as profit from the project undertaken by the assessee. The AO argued that the assessee, following the percentage completion method, had not declared the profit from the project 'Jeerawali Residency' despite its completion. The AO computed the profit based on the cost and sale price of the area sold, resulting in an addition of Rs. 5,93,35,636/-.The First Appellate Authority (FAA) found that the assessee consistently followed the percentage completion method, recognizing revenue over the years as per the Accounting Standards. The FAA noted that no incriminating documents were found during the survey, and the disclosure of Rs. 5 crore by the partner was conditional. The FAA emphasized that the AO did not reject the books of accounts nor invoked Section 145(3) of the Income Tax Act before computing the profit.The FAA relied on the Supreme Court's decision in CIT v/s Realest Builders and Services Ltd., which stated that the method of accounting should not be changed unless it results in underestimation of profits. The FAA observed that the AO failed to demonstrate underestimation of profits by the assessee. The FAA also highlighted the AO's erroneous assumptions regarding the saleable area and cost of construction, leading to an inflated profit calculation.The Tribunal upheld the FAA's decision, noting that the assessee declared profits in subsequent years, exceeding the disclosed amount during the survey. The Tribunal found no error in the FAA's order, dismissing the Revenue's appeal on this ground.2. Deletion of Addition on Account of Income from House Property Determined on the Closing Stock of Flats:The Revenue contested the deletion of Rs. 49,13,037/- added by the AO as income from house property based on the closing stock of flats. The AO determined the deemed annual lettable value (ALV) of the flats, treating 7% of the cost as ALV and allowing a 30% deduction under Section 24 of the Income Tax Act.The FAA deleted the addition, relying on the Tribunal's decision in DCIT Vs. Bangal Shapoorji Housing Development Private Limited, which held that notional income from unsold flats held as stock-in-trade is not assessable. The FAA noted that Section 23(5) of the Income Tax Act, inserted by the Finance Act, 2017, applies prospectively from AY 2018-19 and does not affect the relevant assessment year.The Tribunal upheld the FAA's decision, considering the conflicting views of the Delhi High Court in CIT Vs. Ansal Housing Finance and Leasing and the Gujarat High Court in CIT Vs. Neha Builders Private Limited. The Tribunal followed the binding precedent, dismissing the Revenue's appeal on this ground.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the FAA's deletion of additions on both grounds. The Tribunal found that the FAA correctly applied the percentage completion method for profit recognition and followed judicial precedents regarding notional income from unsold flats. The Tribunal emphasized the importance of consistent accounting methods and adherence to judicial decisions in tax assessments.