TaxTMI 
TaxTMI 
2022 (11) TMI 1195
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....e CIT(A) was right in deleting the addition of Rs.5,93,35,636/- being profit determined on the project undertaken by the assessee, failing to appreciate that the assessee itself had estimated the profits from the project at Rs.5 crores during the course of survey proceedings and had given post dated cheques amounting to Rs.1.50 crore towards the tax liability. 3) Whether on the facts and circumstances of the case and in law, the CIT(A) was right in deleting the addition on account of income from house property determined on the closing stock of flats held by the assessee. 4) The appellant craves leave to amend, modify and alter any grounds of appeal during the course of hearing of this case." 2. Briefly stated facts of the case are that the assessee is a builder and developer and was engaged in the construction work. In the case, a survey action u/s 133A of the Income Tax Act, 1961 (in short the Act) was carried out on 03-10-2022, wherein the Partner of the firm, Shri Kamal U. Jain stated voluntarily offered income of Rs. 5 crore relevant to year under confidential from the sale of Real Estate project. For the year under consideration, the assessee filed return....
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....bserving as under: In the case of assessee, it is also found that the work is fully completed and thus the uncertainly of cost escalation is not arises. Further, the capital of partners shown in balance sheet at Rs.12,66,54,470/- whereas stock of flats shown at Rs.10,28,44,296/- which show that there will be no interest burden on the assessee. In view of this fact, the cost of the asset constructed by the assessee will not be affected. The assessee has blocked its capital in the stock of flats for only the reason to make more and more profit by prolonging the sales. In view of the above discussion and fact finding of the case, the profit on the project till 31.03.2013 is worked out as under: Cost of project (construction area 58712 sq.fts) -Rs.22,38,96,938/- Cost of construction per sq. feet Rs.3,813/- Area sold by the assessee 18476 sq. feet Cost of area sold Rs7,04,48,988/- Sale price determined for 18476 sq.fts. Rs.13,20,15,004/- Less:- cost of area sold as worked above Rs.7,04,48,988/- Thus, Profit worked out at Rs.6,15,66,016/- Therefore, the income determined on the project for the year as under: Profit as per workin....
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....to pay advance tax on the total income of 5 crores from "the sale of flats accordingly." The undisputed fact is that during the course of survey u/s. 133A no incrimination documents/ evidences were found and impounded by the survey team. The statement of the partner which is reproduced in the assessment order (supra) is a testimony to this undisputed fact. Therefore the first aspect on which A.O. has delved upon does not hold ground as the statement of disclosure by the partner of the firm appears to be conditional in nature and the disclosure made during the survey proceedings is not backed up by contemporaneous incriminating evidences. Further the appellant firm was not able to sell the remaining flats which is evident from the perusal of "Working of Revenue Recognized" (para 2.5.3 supra) which shows the "balance saleable area as on 31.03.2013" at 15697 sq ft. In view of these facts, it is held that the statement of Sh. Kamal U. Jain disclosing an income of Rs. 5 crore for the A.Y. 2013-14 is contingent in nature and hence not enforceable. 2. The second aspect on which A.O. has relied is the method of accounting and method of revenue recognition. The A.O. states that the....
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.... Is worked out at Rs.5,93,35,636/- and added to the total income of the assessee. From the perusal of the assessment order and the above "computation of the profit on the project" it becomes abundantly clear that the A.O. is neither following the Project Completion Method nor the Percentage Completion Method. The A.O. has not invoked the provisions of Section 145(3) and has not rejected the books of a/c before proceeding to compute the profit on the project by applying certain assumptions which are contrary to the Accounting Standards. 7. The Ld. FAA relied on the decision of the Hon'ble Supreme Court in the case of CIT v/s Realest builders and services Ltd.(supra) observing as under: The main factor influencing the judgment of the A.O. is the disclosure of Rs 5 crore made by the partner of the firm during the course of survey proceedings. The Hon'ble Supreme Court in the case of CIT vs. Realest Builders & Services Ltd 170 Taxman 218 (SC) has held as under: "Under section 145, it is always open to the department to insist on the change in the method of accounting followed by the assessee over the years if the impugned method of accounting results i....
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....ny redevelopment project is the permanent alternate accommodation which is to be provided to the tenants free of cost in lieu of their present accommodation. The other important expenditure is the rent payment to the tenants till handing over of the possession of flats as alternate accommodation in the redeveloped project. It is pertinent here to A.O. mention that the total area constructed in Jeeravali project is 58712 sq ft out of which the area of 24539 sq ft has been handed over to the tenants against the alternate accommodation free of cost. Therefore, the net saleable area is 34173 sq ft. The A.O. has erroneously considered the total area of 58712 sq ft as saleable area and accordingly has worked out cost of construction per sq ft at Rs.3813/-. If the cost of construction is recomputed on the net saleable area then it comes to Rs. 6552/- per sq ft. then as per the computation of A.O. the profit would be Rs.10960252/-. Further the allowability of expenses of Rs.64,27,926/- incurred by the appellant for additional work reduces the profit below the returned income. The above facts make it abundantly clear that the methodology followed by the AO to compute profits of the project ....
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....rom the project more than what was offered during the course of the survey action. 12. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The main basis for making addition by the Assessing Officer is that the assessee has not honored the income of Rs. 5 crore, which the assessee declared during the course of survey action. The Ld. Assessing Officer was of the view that revenue should be recognized when there was reasonable certainty of ultimate collection of revenue. According to him, the project was fully completed and there was no uncertainty of escalation of price and assessee blocked its capital in the stock of flats only for the reason that assessee wanted to make more and more profit by prolonging the sales. The learner Assessing Officer accordingly determined profit on even unsold flats. The Ld 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 con....
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.... Further the Hon'ble ITAT, in para 5 of the above reproduced decision, has held that the newly inserted Section 23(5)vide Finance Act, 2017 w.e.f. 01.04.2018 is applicable prospectively i.e. w.e.f. A.Y. 2018-19, the same, thus, would not have no bearing on the year under consideration. Since the jurisdictional ITAT has decided this issue in favour of the assessee, respectfully following the above mentioned judgement of the Hon'ble Guj HC(supra) and above referred decisions of Hon'ble Mumbai ITAT the addition on account of notional rent of Rs. 70,19,910/- is hereby deleted. Accordingly, the grounds of appeal 3 and 4 are allowed. 15. Before us the Ld. Departmental Representative relied on the decision of the Hon'ble Delhi High Court in the case of Ansal housing finance and leasing (supra), which was relied upon by the Ld. Assessing Officer. 16. On the other hand, the Ld. counsel of the assessee relied on the finding of the Ld. CIT(A) on the issue in dispute. 17. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is whether, from the flats held by an assessee as a stock in trade, ....