DCIT, Pune V. M/s. Alliance Builders, Pune

ITA 1118/PUN/2010

• Counselvise Citation: 111824514 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPUSTHAMA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO 1118/PN/10 (ASSTT. YEAR: 2007-08) DY. COMMISSIONER OF INCOME-TAX .. APPELLANT CIR.3, PUNE VS. M/S ALLIANCE BUILDERS, .. RESPONDENT G-2 GOPAL PARK, S.NO. 37/2/1, ERANDWANE,PUNE APPELLANT BY: SMT ANN KAPUSTHAMA RESPONDENT BY: SHRI SUNIL GANOO DATE OF HEARING : 01.12.2011 DATE OF PRONOUNCEMENT : 23.12.2011 ORDER PER G.S. PANNU, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, PUNE DATED 19. 5.2010, WHICH IN TURN, HAS ARISEN FROM THE ORDER OF THE ASSESSING OFFICER PASSED U NDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERT AINING TO THE ASSESSMENT YEAR 2007-08. 2. THE SOLITARY ISSUE RAISED IN THIS APPEAL BY THE REVE NUE IS THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS 48,95,582/- MADE BY THE ASSESSING OFFICER. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A REGISTERED PARTNERSHIP FIRM CONSISTING OF FIVE PARTNERS AND CARRIES ON THE BUSINESS OF PROMOTERS AND BUILDERS. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE BASIS OF 2 WORKING OF THE CLOSING WORK-IN-PROGRESS AT RS 3.05 CRORES. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD DECLARED PROFITS BY TAKING THE VALUE OF THE CLOSING WORK- IN-PROGRESS AT COST BY WHICH THE TAX LIABILITY HAD BEEN P OSTPONED. IT IS FURTHER STATED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD RECEIVE D FLAT BOOKING ADVANCES AMOUNTING TO RS 3,54,77,677/- AND THE AGREEME NT FOR SALE WAS ALSO EXECUTED WITH THE PERSONS WHO HAD BOOKED THE FLATS. ON THESE FACTS, THE ASSESSING OFFICER INFERRED THAT THE PROFIT SHOULD BE COM PUTED BASED ON THE ADVANCES RECEIVED AND AGREEMENT FOR SALE ENTERED UPON . HE ACCORDINGLY PROCEEDED TO ADD THE DIFFERENCE IN THE CLOSING WORK-IN-P ROGRESS OF RS 3,05,82,095/- AND FLAT BOOKING ADVANCES OF RS 3,54,77,6 77/- AMOUNTING TO RS 48,95,582/- TO THE INCOME OF THE ASSESSEE. BEING AGGRIE VED, THE ASSESSEE TOOK UP THE MATTER IN APPEAL TO THE COMMISSIONER OF INCOME -TAX (APPEALS). 3. THE COMMISSIONER OF INCOME-TAX (APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE IMPUGNED A DDITION OF RS 48,95,582/- MADE BY THE ASSESSING OFFICER BY HOLDIN G AS UNDER: 3.9 NOW, ACCORDING TO THE METHOD FOLLOWED BY THE A O, THE DIFFERENCE BETWEEN THE CLOSING WIP OF RS 3,05,82,095/-, AND TH E ADVANCES RECEIVED DURING THE YEAR FOR BOOKING OF FLATS BEING RS 3,54, 77,677/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. IT IS IN COMPRE HENSIBLE AS TO HOW THIS DIFFERENCE, WHICH IN EFFECT IS IN EXCESS OF BOOKING ADVANCES OVER THE WIP, CAN BE DISALLOWED AND ADDED TO INCOME. IT IS NOTICE D THAT THESE FLAT BOOKING ADVANCES IN RESPECT OF ALLIANCE CHAITANYA PROJECT H AVE BEEN RECEIVED IN THIS YEAR ONLY I.E. IN AY 2007-08, AS THE OPENING BALANC E WAS NIL FOR THIS PROJECT AS ON1.4.2006.ONTHE OTHER HAND, AS HAS ALREADY BEEN DISCUSSED ABOVE, EXPENDITURE WAS INCURRED ON THIS PROJECT ALLIANCE C HAITANYA AMOUNTING TO RS 1,47,62,607/- IN AY 2006-07 ALSO, WHICH WAS THE CLO SING WIP AS ON 31.3.2006. A FURTHER AMOUNT OF RS 1,44,03,388/- WAS INCURRED IN AY 2007-08 AND ADDED TO WIP UNDER ALLIANCE CHAITANYA PROJECT F OR THIS YEAR. INTERESTINGLY, THE CLOSING WIP ALSO INCLUDES RS 14, 16,099/- IN RESPECT OF ALLIANCE GULMOHAR PROJECT BEING FOR THE UNSOLD FLAT S, WHEREAS THE MAJORITY OF THE FLATS ARE SOLD OFF DURING THIS YEAR, AS WOULD BE REVEALED FROM THE SALES UNDER THIS PROJECT AT RS 1,79,67,000/-. THEREFORE, THE COMPUTATION DONE BY THE AO HAS RESULTED IN REDUCING FROM THE BOOKING AD VANCES RECEIVED FROM ALLIANCE CHAITANYA PROJECT THIS MUCH AMOUNT OF CLOS ING WIP OF ALLIANCE GULMOHAR PROJECT ALSO. THEREFORE, THE METHOD OF COM PUTATION DONE BY THE AO IS WITHOUT ANY BASIS AND NOT IN ACCORDANCE WITH THE ACCOUNTING NORMS. 3.10 FOR REJECTING THE PROJECT COMPLETION METHOD OF ACCOUNTING WHICH IS A RECOGNIZED METHOD, THE AO SHOULD HAVE ANALYZED THE METHOD OF ACCOUNTING FOLLOWED FOR DIFFERENT PROJECTS OVER A NUMBER OF YE ARS SO AS TO ARRIVE AT A CONCLUSION THAT ANY DISTORTION IN PROFITS HAD OCCUR RED. THIS HAS NOT BEEN DONE, AND THE ANALYSIS OF THE FINANCIAL STATEMENTS, PROFIT AND LOSS ACCOUNT ETC. FOR AY 006-07 TILL AY 2008-09 MADE ABOVE FOR T HE DIFFERENT SCHEMES SHOWS THAT A CONSISTENT METHOD OF ACCOUNTING WAS BE ING FOLLOWED BY THE APPELLANT. THE DISALLOWANCE OF EXCESS OF ADVANCES R ECEIVED FOR FLAT BOOKING OF ONE PARTICULAR SCHEME OVER THE TOTAL CLOSING WIP DURING THE YEAR WORKED OUT AT RS 48,95,582/- BY THE AO., THEREFORE, IS DIR ECTED TO BE EXCLUDED FROM 3 THE INCOME OF THE APPELLANT AND GROUND OF APPEAL NO S. 1 TO 3 ARE THEREFORE ALLOWED. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LEARND DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER TO SUPPORT THE CASE OF THE REVENUE. THE PLEA RAISED ON BEHALF OF THE REVENUE IS THAT THE CLOSING WOR K- IN-PROGRESS OF THE FLATS UNDER CONSTRUCTION HAS BEEN VALUED BY THE ASSESSEE WITHOU T HAVING REGARD TO THE FLAT BOOKING ADVANCES RECEIVED BY THE ASSESSEE. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE BASIS OF THE ADVA NCES SO RECEIVED, ASSESSEE WAS IN A POSITION TO ESTIMATE THE PROFITS THEREON, AND THAT SUCH PROFITS HAVE NOT BEEN TAKEN INTO CONSIDERATION. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE R ESPONDENT-ASSESSEE POINTED OUT THAT THE METHODOLOGY ADOPTED BY THE ASSESSI NG OFFICER WAS INCOMPREHENSIBLE AND TOTALLY INCONSISTENT WITH THE ACCEPTE D SYSTEM OF METHOD OF ACCOUNTING. IT WAS POINTED OUT THAT THE ASSESSEE WAS FOLLO WING PROJECT COMPLETION METHOD SINCE THE PAST YEARS AND THAT THE CLOSING WORK-IN -PROGRESS HAS ALSO BEEN VALUED AT COST. IN NUTSHELL, THE ORDER OF THE COMMISSION ER OF INCOME-TAX (APPEALS) WAS RELIED UPON. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE PRESENT CASE, THE RESPONDENT-ASSESSEE IS A PARTNERSHIP CONCERN, WHICH IS E NGAGED IN THE BUSINESS OF PROMOTER AND BUILDERS. THE ASSESSEE IS COMPUTING PROFIT/LOSS FOR EACH YEAR FOLLOWING THE PROJECT COMPLETION METHOD AND IT HAS BEEN ASSERTED BY THE ASSESSEE THAT THE SAME HAS BEEN FOLLOWED SINCE INCEPTI ON (I.E. MORE THAN 20 YEARS) AND IT HAS BEEN ACCEPTED BY THE DEPARTMENT. IN FACT, IT EMERGES FROM THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT ASSESSEE PRODUCED ITS INCOME-TAX RETURNS FOR A PRIOR ASSESSMENT YEAR 2006-07 A S WELL FOR THE SUBSEQUENT ASSESSMENT YEAR OF 2008-09 TO DEMONSTRATE THAT SUCH METHOD OF ACCOUNTING FOLLOWED BY IT HAS BEEN ACCEPTED BY THE DEPA RTMENT. IN TERMS THEREOF, THE CLOSING WORK- IN-PROGRESS AS ON 31.3.2007 WAS DECLARED BY THE ASSESSEE AT 4 RS 3,05,82,094/-. ON BEING ASKED TO GIVE THE BASIS OF CA LCULATION OF CLOSING WORK- IN-PROGRESS, THE ASSESSEE EXPLAINED THAT THE SAME WAS CALCUL ATED AT COST. THE ASSESSING OFFICER IN PARA 6 OF THE ASSESSMENT ORDER OBSERVED THAT, IT IS SEEN THAT THE ASSESSEE HAS DECLARED PROFITS BY TAKING THE VALUE O F THE STOCK AT COST. IT IS CLEAR THAT THE ASSESSEE HAS POSTPONED ITS TAX LIABILITY BY DECLARING PROFIT ON THE BASIS OF COST INCURRED. AS PER THE ASSESSING OFFICER, THERE IS AN ELEMENT OF CERTAINTY IN THE ACCRUAL OF PROFITS IN THE CASE OF A BU ILDER/DEVELOPER AND, THEREFORE, EVEN WITH REGARD TO THE FLAT BOOKING ADVANCES RECEIVED BY THE ASSESSEE AMOUNTING TO RS 3,54,77,677/-, ASSESSEE OUGHT TO HAVE EST IMATED PROFITS THEREOF AND PAID TAXES IN THIS YEAR ITSELF. FOR THIS REASON, HE MADE AN ADDITION OF RS 48,95,582/- REPRESENTING THE DIFFERENCE IN THE CLOSING WORK- IN-PROGRESS SHOWN (AT RS 3,05,82,094/-) AND FLAT BOOKING ADVANCES SHOWN (I.E . RS 3,54,77,677/-). 7. IN OUR CONSIDERED OPINION, THE COMMISSIONER OF INCO ME-TAX (APPEALS) HAS RIGHTLY DELETED THE ADDITION AS THE SAME, TO OUR MIN D, WAS ENTIRELY MISCONCEIVED. THE FACTUM OF THE ASSESSEE FOLLOWING PROJECT COMPLETION METHOD CONSISTENTLY IS NOT DISPUTED BY THE REVENUE AT ANY STAGE. IN THIS YEAR , THE ASSESSING OFFICER HAS NOT ADVERTED ANY REASONING WHATSOEVER WHICH WOULD REQ UIRE DEPARTURE FROM SUCH ACCEPTED METHOD OF ACCOUNTING. MOREOVER, THE CLOSING WORK -IN-PROGRESS HAS BEEN STATED AT COST WHICH HAS BEEN NOTED BY THE ASSESSING O FFICER HIMSELF AND WE FIND NO JUSTIFIABLE REASONS FOR HIM TO MAKE THE IMP UGNED ADDITION. TO SAY THAT THE ASSESSEE HAS POSTPONED ITS TAX LIABILITY BY VALUING T HE CLOSING WORK-IN- PROGRESS AT COST IS A MISNOMER. TO VALUE THE CLOSING STOCK OF WORK-IN-PROGRESS AT COST IS A WELL ACCEPTED RULE OF COMMERCIAL PRACTICE AND IN ANY CASE THE HONBLE SUPREME COURT IN THE CASE OF CHAINUP SAMPATRAM V. CIT 24 ITR 481 (SC) RECOGNISED THE PRINCIPLE THAT NO PROFIT ARISES OUT OF T HE VALUATION OF THE CLOSING STOCK. WE THUS FIND NO JUSTIFICATION WITH THE ACTION OF TH E ASSESSING OFFICER TO REJECT THE ASSESSEES ACTION OF VALUING THE CLOSING WORK-IN -PROGRESS AT COST. NEVERTHELESS, IN OUR VIEW THE RATIO OF THE JUDGMENT O F THE HONBLE SUPREME COURT IN THE CASE OF CIT V. BILHARI INVESTMENTS (P) LTD. 299 ITR 1 (SC) CLEARLY COVERS 5 THE CONTROVERSY IN THE PRESENT CASE INASMUCH AS THERE W AS NO JUSTIFICATION WITH THE REVENUE FOR THE IMPUGNED ADDITION BY INTERFERIN G WITH THE CONSISTENTLY ACCEPTED METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE OF PROJECT COMPLETION METHOD. IN THIS VIEW OF THE MATTER, THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN DELETING THE IMPUGNED ADDITION IS AFFIRM ED AND THE APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. DECISION PRONOUNCED IN THE OPEN COURT ON THE 23 RD DAY OF DECEMBER, 2011. SD/- SD/- (I C SUDHIR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE, DATED: 23 RD DECEMBER, 2011 B COPY TO:- 1) APPELLANT 2) RESPONDENT 3) THE CIT (A)-II, PUNE 4) CIT-II PUNE 5) DR, B BENCH, ITAT, PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, I.T.A.T., PUNE