TaxTMI 
TaxTMI 
2020 (6) TMI 371
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 39,04,500/-. During the year under consideration, the assessee has laid out the plots and declared work-inprogress of Rs. 2,83,21,930/- and closing stock of finished goods at Rs. 4,72,36,750/- aggregating to Rs. 7,55,58,680/-. The AO observed that as per Accounting Standard 2, the inventory required to be valued at cost or net realisable value whichever is lower. The AO further observed that though the assessee firm had the incurred land cost and development cost for developing the plots for layout and the same was debited to Profit & Loss account, the assessee had included only land cost, but not included the development cost of plots in arriving at the work in progress/closing stock. Therefore, the AO reworked the value of closing stock including the development cost and made the addition of Rs. 3,13,94,622/- representing the difference amount on account of undervaluation of the stock. The AO recomputed the closing stock as follows : A. 1 Land Cost (52.3 acres) Rs. 5,62,26,120 2 Total Development Cost (adopted as per P&L)* Rs. 7,11,26,961 3 Total cost of developed land (1) + (2) Rs. 12,73,53,081 4 Saleable area (as shown by the assessee) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that the development expenses required to be apportioned among the sold / developed plots. He further observed that the assessee has sold the plots @2500/- per sq.yard and if the AO's method of closing stock is accepted, the cost of each plot works out to Rs. 874/- per sq.yardand the profit per sq.yd works out to Rs. 1676/- which works out to 60% of the sale price and the same appears to be very high in this line of business. The Ld.CIT(A) found that the assessee estimated the profit at 11% and arrived at the net cost of plots sold at Rs. 2,225/- which is also less compared to the business in this line. The Ld.CIT(A) considered the estimation of profit @15% is reasonable and accordingly reworked the development cost per plot and the closing stock. On estimation of profit @15%, the closing stock worked out to Rs. 3.00 crores as against the closing stock worked out by the assessee at Rs. 2,83,21,930/- and hence, sustained addition to the extent of Rs. 22,15,032/- and allowed the relief to the extent of Rs. 2,91,79,590/-, accordingly allowed the appeal of the assessee partly. 5. Against the order of the CIT(A), the department has filed appeal before us and raised the following gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd cost pertained to the plots which were already developed and ready for sale. He further submitted that no development cost was incurred on unsold plots. The assessee has developed the land and incurred the development cost on stage by stage basis, since it is not possible to develop the entire stretch of 52.30 acres at one go. Therefore, the assessee has developed the land in parts and the remaining area was plotted as per the lay out and remained undeveloped. The assessee further submitted that in subsequent years, the assessee has developed the remaining tracks of land and declared the resultant income in the return of income filed subsequently. Since the development cost does not pertain to the plots remained unsold, the assessee argued that it is unjustified to allocate the development cost to the remaining plots and argued that only the land cost to be taken to unsold plots representing the closing stock. Therefore, submitted that the assessee has worked out the closing stock in conformity with the accounting standards, hence, there is no requirement of disturbing the method adopted by the assessee for arriving at the closing stock, hence requested to uphold the order of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the entire cost is already incurred and known. Since major part of the development expenditure will be incurred after 31st March, 2016, application of simple average method results in apportionment of only partial cost to the sold plots. 6.2.1. I have carefully considered the assessment Order and the submissions of the appellant. I find that there is no dispute about the basic details relating to the cost of the land purchased, saleable area of plots, unsold area of plots and also the development cost incurred, Further, I find that there is no dispute in value of cost of land apportioned to the unsold area of plots. The only point in dispute is the apportionment of development cost incurred over the sold plots and the unsold plots. The assessing officer divided the total cost of Rs. 7,11,26,961/- by the total saleable area of land (I45716 sq.yards) and multiplied the same by the unsold area of land (1,22,375 sq.yards) to arrive at the value of closing stock. The assessing officer adopted the same method even for the cost of land. The contention of the appellant is that the purchase of land had already been completed and as such the actual/complete cost of land is known a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the cost of land per sq.yard which works out to Rs. 386 per sq.yard and the resultant figure of Rs. 1839 was treated as the proportionate cost of development. In fact the correct method would be to estimate the balance cost to be incurred on development of layout and adding the same to the cost already incurred the total cost has to be arrived. From such total cost (cost incurred plus estimated cost) the cost per sq.yard of saleable area has to be worked out. However, when the appellant is developing multiple layouts and each of the layout is in a different stage of completion it would be difficult to even estimate the balance cost to be incurred for completion of the layout. Therefore, in principle I approve the method of valuation adopted by the appellant. In this method adopted by the appellant, the only variable element is the rate or profit estimated. I find that the rate of profit estimated by the appellant @11% is very low. The normal rate of profit in this line of business is around 15%. Therefore. I prefer to adopt this rate of 15%. 6.2.4. By substituting 15% in the place of 11% the value of work in progress would be as under : Total number of plots in the lay....