INCOME TAX OFFICER, WARD-7(1), PUNE, PUNE V. AMBIENCE DEVELOPMENTS, GHORPADI, PUNE

ITA 1491/PUN/2024

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the National Faceless Appeal Centre, which had deleted the addition made by the AO on account of estimated profit margin from the 'Ambience Greendale' project. The AO had compared the profit margins of the project with those of a sister concern's project eligible for deduction under section 80IB of the Income Tax Act, and estimated a higher profit margin for the 'Ambience Greendale' project. The Tribunal, however, found that the AO's estimation was based on surmises and conjectures without any substantial basis, leading to the dismissal of the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126385 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: HARI KRISHAN
• Keywords: Grounds of appeal; Dismissed; National Faceless Appeal; Residential projects; Partners; AMP; Ad hoc; Section 80IB; Department; Explanation; Withdrawn
• Section: 271(1)(c); 80IB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A”, PUNE BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1491/PUN/2024 Assessment Year : 2013-14 ITO, Ward-7(1), Pune Vs. Ambience Developments, A02, Ambience Empyrean, 64/14, Empress County, Ghorpadi, Pune 411 001 Maharashtra PAN : AALFA1383K Appellant Respondent आदेश / ORDER PER DR. MANISH BORAD, ACCOUNTANT MEMBER : This appeal filed at the instance of Revenue pertaining to the Assessment Year 2013-14 is directed against the order dated 24.05.2024 passed by National Faceless Appeal Centre, Delhi which in turn is arising out of the Assessment order dated 30.03.2016 passed u/s.143(3) of the Act. 2. Revenue has raised following grounds of appeal : “1. On facts and circumstances of the case and in law, the assessing officer has correctly computed profit of Rs.5,82,65,058 on the total sale of Rs.15,22,77,000 working out of profit margin of 38.26% by comparing to the profit margin of 64% disclosed by the sister concern and the selling rate of Rs.10,850 per square feet quoted by the appellant site office. Therefore, the AO is justified in making addition of Rs 5,82,40,000/- to the Income of the assessee on account of estimated profit margin in Ambience Greendale Project. Appellant by : Shri Ramnath P. Murkunde Respondent by : Shri Hari Krishan Date of hearing : 18.02.2025 Date of pronouncement : 21.04.2025 ITA No.1491/PUN/2024 Ambience Developments 2 2. On facts and circumstances of the case and in law, the assessing officer has correctly computed the interest u/s 2348 of the Income tax Act, 1961 on the basis of the assessed Income ascertained in the assessment order. 3. On facts and circumstances of the case and in law, the assessing officer has correctly initiated the penalty u/s 271(1)(c) of the Act, 1961 on the basis of the addition made by the assessing officer on account of estimated profit margin in Ambience Greendale Project.” 3. Brief facts of the case are that the assessee is a partnership firm engaged in the business of Promoters and Developers. Nil income declared in the return for A.Y. 2013-14 furnished on 29.09.2013. Case selected for scrutiny under CASS followed by validly serving of notices u/s.143(2)/142(1) of the Act. During the year, the assessee is engaged in construction of a residential project in the name of ‘Ambience Greendale’, Sopan Baug, Pune. Ld. AO called for the details to examine the profit margins in the ‘Ambience Greendale’ project. Ld. AO observed that the profit margins are too little in comparison to other residential projects carried out by the assessee wherein deduction u/s.80IB(10) of the Act have been claimed. He also observed that in those projects claiming deduction u/s.80IB(10) the profit has been shown at 64.4% which is much more than the profit declared in the ‘Ambience Greendale’ project. Ld. AO further referred to the RHK petty cash book showing that there was cash in hand of Rs.75,78,000/- but still the assessee withdrew Rs.61,50,000/- from the bank which was not a prudent decision. Further, ld. AO referred to the assessee’s letter dated 25.03.2016 about the 15 unsold flats and on the basis of his own information stated that as per his interaction with the person at the site there was only 3 unsold flats in B and C buildings and no flats are available for sale in A building. Ld. AO thus concluded that the details furnished in the letter dated 25.03.2016 did not appear ITA No.1491/PUN/2024 Ambience Developments 3 to be the factual position. Ld. AO concluded the assessment and estimated the income at Rs.5,82,40,000/-. 4. Aggrieved assessee preferred appeal before the ld.CIT(A) and succeeded. Now the Revenue is in appeal before this Tribunal. 5. Ld. Departmental Representative vehemently argued supporting the order of the AO and also stated that the profit margin for the projects having 80IB(10) deductions are more and for the others are too little even though they are located at prime places. 6. On the other hand, ld. Counsel for the assessee apart from relying on the finding of ld.CIT(A) firstly took us through the detailed written submissions in the form of synopsis running into 21 pages giving details of the profits earned by the assessee in the ‘Ambience Greendale’ project and also stated that this project is very old and it took a long time in disposing due to some legal issues and poor demand at some point of time. He also stated that the sale consideration of the flats sold is much above the ready reckoner rates prescribed by the stamp valuation authorities and it is almost 163% of the same and therefore the AO could not have questioned the low profit. He further submitted that the assessee has been claiming interest paid to its partner as expenditure in the projects where deduction u/s.80IB(10) is not available which is justified method for tax planning and if the interest paid to partners is added back to the profits declared in the ‘Ambience Greendale’ project then the profit could be much higher. Reference was also made to the paper book running into 131 pages. He also ITA No.1491/PUN/2024 Ambience Developments 4 stated that ld. AO has not rejected the books u/s.145 of the Act and merely estimated the income on surmises and conjectures. 7. We have heard the rival submissions and perused the record placed before us. Revenue is aggrieved with the finding of ld.CIT(A) deleting the addition made by the AO in the nature of estimated income from the residential project in the name of ‘Ambience Greendale’ project, Sopan Baug, Pune for the impugned year at Rs.5,82,40,000/-. We observe that ld.CIT(A) after carefully examining the submissions filed by the assessee and the facts and circumstances of the case has given the relief to the assessee observing as follows : “4 I have carefully considered the assessment order, the grounds of appeal and the written submission of the appellant in the case. During the assessment, the assessing officer observed that the appellant was incurring losses on its residential project named 'Ambience Greendale' Sopen Bag Pune and had paid taxes of only Rs.6,00.000 on the project as on 15/03/2013. On the other hand, M/s Ambience Estates, a sister concern of the appellant was declaring an income of around Rs.40 Crores in its project named 'Ambience Antilla', which was eligible for deduction under section 80IB of the Act. Given the low profitability of the appellant project vis- a-vis the 80IB eligible project of the sister concern, the assessing officer wanted the appellant to justify its case for low profitability and to show cause why the profitability of 80IB project should not be adapted for Ambience Greendale project. In response to the same, the appellant submitted that the gross profit of the project over the period are actual and normal by industry standards and the net profitability is low as their sales have been very low and then an amount of Rs.2,23,68,452 was distributed as interest to partners. The appellant also cited the delay in execution of the project which resulted in escalation in cost of development and other overheads. Having not accepted the above explanation for the low profitability tendered by the appellant, the assessing officer proceeded to estimate the cost of land, the cost of construction, administrative cost and finance cost at Rs.200 per sft, Rs.1400 per sft, Rs.100 per sft and Rs. 200 per sft, respectively and arrived an estimated cost of Rs.1900 per square feet. The same was deducted from the average sale consideration of Rs. 3078 per square feet to arrive at a profit margin of Rs.1178 per square feet. By taking the above figures, the assessing officer computed profit of Rs.5,82,65,058 on the total sale of Rs.15,22,77,000 working out of profit margin of 38.26%. The assessing officer substantiated the above profit margin by comparing to the profit margin of 64% disclosed by the sister concern and the ITA No.1491/PUN/2024 Ambience Developments 5 selling rate of Rs.10,850 per square feet quoted by the appellant site office during the assessing officer's visit. The assessing officer also referred to the cashbook of the appellant, drawing attention to the instance of cash withdrawn by issuing cheque for Rs.61,50,000 when there was available cash of Rs.75,78,000 as on 15/12/2012 and stated that the cashbook does not reflect the true state of affairs. The assessing officer also referred to his enquiry at the site to disprove the sales details furnished by the appellant. On the other hand, the appellant has argued that the assessing officer has not found any fault or discrepancies in the books of account of the assessee and has not rejected the books of account which was mandatory under the law to proceed with the estimation of profits. The appellant also contested that the sale rates of the nearby projects cannot be compared with the sale rates of the appellant project owing to the variation in location and project specifications and other amenities connected to the projects. The appellant also contested the reference to the site visit or enquiry made by the assessing officer arguing that the assessing officer has not made any official visit to the site office of the assessee and there has been no mention of the person with whom the officer has made the enquiry, and no statement recorded was brought on record. The appellant also argued that the sale price charged by the appellant for all the flats sold by them were much higher than the stamp duty rates, or circle rates and the average transaction was in the range of 163% of the market value of the flats sold. From the assessment order, it is noted that the assessing officer was concerned about the low profitability of the appellant project, given the higher profitable rates declared by the eligible projects under 80IB and the prevailing market rates. Further given the cash transaction trends in real estate market, the assessing officer was unable to accept the appellant reasoning for the low profitability in their project and left with no alternative but to estimate the profit on his own. It is noted from the assessment order that the assessing officer while estimating the profit of the project has considered the average sale consideration as declared by the appellant in respect of the area of the flats sold and only estimated the cost of land, the cost of construction and the other overheads. The estimation of the cost of the saleable area appears to have been made on ad hoc basis without considering or reconciling with the cost and other overheads charged by the appellant in its P&L account in arriving the net profit. Though the assessing officer has made the references to certain casual enquiries made to find the sale rate quoted and the flats booked at the site office, the same appears to be only a casual and general passing remarks, lacking credibility and evidentiary value. As contested by the appellant, no formal enquiry or statement appeared to have been undertaken to bring any credible evidence in the appellant case. Further the discrepancy in the cashbook noted by the assessing officer was also stands reconciled and explained by the appellant as the same was reflected in the books of accounts of the appellant. ITA No.1491/PUN/2024 Ambience Developments 6 In the above circumstances, I am of the view that the estimation of profit by the assessing officer on ad hoc basis without any evidence or tangible data has no merit. Further I do not find any reason by the assessing officer to reject the book results of the appellant and proceed with estimation of profit without rejecting the books of accounts as mandated by the statute. In the result, the appellant ground no.3 is allowed.” 8. The above finding of ld.CIT(A) remains uncontroverted by the ld. DR by placing any contrary material on record. Therefore, considering the facts and circumstances of the case, we are of the considered view that ld. AO erred in estimating the income of the assessee without rejecting the regularly maintained and duly audited books of account and also the consistent income declared for the said project for past many years. Ld. AO has also not given reference to any discrepancy in the financial statements and the observations of the AO seems to be hollow because he is comparing the profitability of project eligible for 80IB(10) deduction with that of the project in question without considering that the location of the projects are different, the time schedule for the starting and closing of the projects are also different and ld. AO has also not taken note about the profitability of the project prior to apportionment of income towards interest paid to partners. Had these exercise has been carried out, the observation of the AO would have been different and the actual profitability of the project could have been examined. Further, ld. AO has given reference to some interaction with the person which is not supported by any documentary evidence like any notice issued to the firm, or the statement recorded of any person and whether such statement has been confronted with the assessee. All this exercise has not been carried out and therefore the estimation of income by the ld. AO is not in accordance with law and is merely on surmises and conjectures. We therefore fail to find any infirmity ITA No.1491/PUN/2024 Ambience Developments 7 in the finding of ld.CIT(A). Grounds of appeal raised by the Revenue are dismissed. 9. In the result, the appeal of the Revenue is dismissed. Order pronounced on this 21st day of April, 2025. Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; \u0001दनांक / Dated : 21st April, 2025. Satish आदेश क\u0002 \u0003ितिलिप अ ेिषत / Copy of the Order forwarded to : 1. अपीलाथ / The Appellant. 2. \u000eयथ / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, “A” ब\u0014च, पुणे / DR, ITAT, “A” Bench, Pune. 5. गाड\u0004 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. "