INCOOME TAX OFFICER, WARD-3(1), HYDERABAD V. SRI KRISHNA VENTURES PRIVATE LIMITED, HYDERABAD

ITA 592/HYD/2024

AI Insights

The case involves an appeal by the Revenue against the order of the learned CIT (A) concerning the assessment year 2016-17. The primary issue was the discrepancy in the turnover reported by Sri Krishna Ventures (P) Ltd in their Profit & Loss Account compared to the turnover reflected in their tax audit report and Form 26QB. The Assessing Officer added the differential amount to the assessee's income, which was contested. The CIT (A) accepted the differential amount as turnover but restricted the addition to the profit element at 15%. The Tribunal, however, found that the gross profit rate declared by the assessee was 16.22% and directed the Assessing Officer to recalculate the income using this rate.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 26915 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2016-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL RANPURA

Judgement Text

" ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 1 of 8 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-B ‘ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice-President A N D Shri Manjunatha, G. Accountant Member आ.अपी.सं /ITA No.592/Hyd/2024 (िनधाŊरण वषŊ/Assessment Year: 2016-17) Income Tax Officer Ward 3(1) Hyderabad Vs. Sri Krishna Ventures (P) Ltd, Hyderabad PAN:AAFCS2713Q (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: CA Mehul Ranpura राज̾ व Ȫारा/Revenue by:: Dr. Schin Kumar, DR सुनवाई की तारीख/Date of hearing: 24/03/2025 घोषणा की तारीख/Pronouncement: 27/03/2025 आदेश/ORDER Per Vijay Pal Rao, Vice President This appeal by the Revenue is directed against the order dated, 04/04/2024 of the learned CIT (A)-NFAC Delhi, for the A.Y.2016-17. 2. The Revenue has raised the following grounds of appeal: ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 2 of 8 ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 3 of 8 3. The learned DR has submitted that the Assessing Officer has noted from the tax audit report and on verification of Form 26QB that the total receipt of the company for the year under consideration is Rs.10,71,70,184/-, whereas the assessee has declared the sales turnover in the P&L Account at Rs.8,48,798/-. The Assessing Officer further noted that, the assessee has adopted an accounting policy of recognizing the revenue in respect of the amount received at the time of booking, whereas the assessee has not recognized the sale receipt of Rs.2,23,50,000/- and claimed the same as advance received for which a sale deed was executed in February, 2018 i.e. in the subsequent year. Thus, the learned DR has submitted that, when the Auditor has also certified the turnover of the assessee in the audit report at Rs.11,13,55,369/- and the assessee has declared the turnover of Rs.8,48,07,948/- in the P&L Account as well as in the return of income, then the Assessing Officer is justified in ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 4 of 8 making the addition of differential amount of Rs.2,23,62,336/-. The learned DR has further pointed out that, though the learned CIT (A) has accepted the said differential amount as turnover of the assessee for the year under consideration, however, the addition was restricted only to the profit @ 15% which is without any basis when the entire expenditure has already been booked by the assessee in the P&L Account. He has further pointed out that, for the year under consideration, the assessee has declared the gross profit of 16.22% whereas the learned CIT (A) has adopted the profit @ 15%. 4. On the other hand, the learned AR of the assessee has submitted that the assessee has explained the reasons for difference in the turnover, as declared by the assessee as the said amount was received as an advance and the buyer was subsequently not interested in purchasing the Flat. Therefore, the assessee has shown this amount in the current liability as advance from the buyer, which cannot be treated as turnover of the assessee for the year under consideration. Ultimately, in the month of February, 2018, the buyer has opted for flat No.701 and a sale deed was executed for sale of the said flat and the turnover of the same was offered to tax for the A.Y 2018-19. The learned AR has further submitted that, the learned CIT (A) though treated the said differential amount as turnover of the assessee for the year under consideration, however, in the order passed u/s 154, the learned CIT (A) has directed the Assessing Officer to give necessary relief in the A.Y 2018-19 by ensuring the fact that the ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 5 of 8 assessee has accepted the order of the learned CIT (A) and also paid the tax on the said income. Thus, the learned AR has submitted that, the addition made by the Assessing Officer of the entire amount is not justified when the assessee has already taken into consideration the closing work in progress in the P&L Account. He has referred to page No.66 of the paper book and submitted that, the assessee has debited the P&L Account on account of material consumed, as a difference of opening work in progress and closing work in progress as Rs.7,40,69,227/-. Once the assessee has already taken into account the closing work in progress, then the addition made by the Assessing Officer of the entire turnover is highly unjustified and the learned CIT (A) has rightly restricted the same to the profit element of the additional turnover. He has supported the impugned order of the learned CIT (A). 5. We have considered the rival submission as well as relevant material available on record. The assessee has declared less turnover to the extent of Rs.2,23,50,000/- in comparison to the turnover reflected in Form 26QB as well as the audit report in Form 3CA. The Assessing Officer made addition of the entire differential amount to the total income of the assessee. On appeal, the learned CIT (A) has restricted the addition to the profit element in the differential receipt/turnover by adopting the profit @ 15% of the said receipts in para No.4.3.5 to 4.3.8 as under: ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 6 of 8 ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 7 of 8 6. Thus, it is clear from the impugned order of the learned CIT (A) that, the differential amount has been treated as sales turnover for the year under consideration, however, the addition was restricted to 15% of the said receipt. Though the learned CIT (A) has not discussed the point as raised by the learned DR that the expenditure has already been booked by the assessee in the P&L Account, however, we find that in the P&L Account, the assessee has debited only the net amount of material consumed during the year by taking into account the opening balance on WIP + expenditure and subtracting the closing work-in-progress. Once the assessee has taken into consideration, the opening and closing work-in-progress, then the entire differential amount cannot be treated as income of the assessee. It is an undisputed fact that, the assessee has declared the GP @ 16.22% for the year under consideration and, therefore, the addition of profit element in the differential amount ought to have been computed at the GP rate declared, i.e. 16.22%. Accordingly, we modify the impugned order of the learned CIT (A) and direct the Assessing Officer to compute the income on this account by taking the GP @ 16.22% as against 15% adopted by the learned CIT (A). ITA No 592 of 2024 Sri Krishna Ventures P Ltd Page 8 of 8 7. In the result, the appeal of the Revenue is partly allowed. Order pronounced in the Open Court on 27th March, 2025. Sd/- Sd/- (MANJUNATHA, G) ACCOUNTANT MEMBER (VIJAY PAL RAO) VICE-PRESIDENT Hyderabad, dated 27th March, 2025 Vinodan/sps Copy to: S.No Addresses 1 Income Tax Officer Ward 3(1) Room No.706, 7th Floor, Signature Towers, Kondapur, Hyderabad 500084 2 Sri Krishna Ventures (P) Ltd, 8-2-626/2nd Floor Sri Krishna House, Road No.10 Banjara Hills, Hyderabad 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order "