THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1(1),BHILAI, BHILAI(CG) V. M/S RUCHI INFRASTRUCTURE, DURG, DURG(CG)

ITA 170/BIL/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5797 (ITAT-RAIPUR)
• Duration Of Justice: 5 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 06-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 68; 143(3); 72

Judgement Text

आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण य यपी य यपी य यपी य यपी र यपुर र यपुरर यपुर र यपुर IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 170/BIL/2017 नधा रण वष / Assessment Year : 2012-13 The Deputy Commissioner of Income Tax- 1(1), 32/32 Bunglows, Bhilai. .......अपीलाथ / Appellant बनाम / V/s. M/s Ruchi Infrastructure, Green Betel, Circuit House Road, Durg PAN : AAMFR 3353 B ...... यथ / Respondent Assessee by : Shri S. R. Rao Revenue by : Shri G. N. Singh स ु नवाई क तार ख / Date of Hearing : 07.06.2022 घोषणा क तार ख / Date of Pronouncement : 19.07.2022 आदेश आदेशआदेश आदेश / ORDER PER RATHOD KAMLESH JAYANTBHAI, AM: This appeal is filed by the revenue aggrieved from the order of the Commissioner of Income Tax (Appeal)-II, Raipur (CG) [ Here in 2 ITA No. 170/BIL/2017 A.Y.2012-13 after referred as Ld. CIT(A)] for the assessment year 2012-13 dated 30.03.2017 which in turn arises from the order passed by the assessing officer passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 25.03.2015. 2. Before us the revenue has assailed the impugned order on the following grounds of appeal: “1. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,89,48,000/- made by the AO u/s 68 of the Act on the ground of application of percentage completion method? 2. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the assessee plea and opining that the amounts received in instalments from the customers who booked the flats is a normal feature instead of equating the same with percentage completion method which the AO has adopted in the assessment order? 3. The order of ld. CIT(A) is erroneous both in law and on facts. 4. Any other ground that may be adduced at the time of hearing.” 3. Only issue raised in this appeal by the revenue is against the action of the ld. CIT(A) in deleting the addition of Rs.1,89,48,000/- made by the Assessing Officer u/s 68 of the Act. 4. The fact as culled out from the records is that the return of income in this case has been e-filed on 28/09/2012 showing total income at Rs. Nil and audited accounts were also filed. The case was 3 ITA No. 170/BIL/2017 A.Y.2012-13 selected for scrutiny through CASS and first notice u/s 143(2)/142(1) were issued from time to time and in response, the ld. AR of the assessee were produced books of accounts and vouchers during the assessment proceedings. The assessee is engaged in the business and builder of residential/commercial colony. During the year under consideration, the assessee firm has started development and construction of flats. This being the first year on the assessment and the assessee following project completion method. Income has offered being the first year of the project held the expenditure incurred by the assessee are converted into working in progress carried forward as the opening balance in the next assessment year. 5. On perusal of the balance sheet, the Assessing Officer has observed that the assessee has received a sum of Rs. 1,89,48,000/- as an advance from the various person who booked their flat and paid their advance money. The Assessing Officer has made in addition said amount u/s 68. 6. Aggrieved from the said order of the Assessing Officer, the assessee preferred an appeal before the ld. CIT(A) wherein the ld. 4 ITA No. 170/BIL/2017 A.Y.2012-13 CIT(A) has deleted the said addition and relevant observations of the ld. CIT(A) is as under:- “1. I have considered the grounds of appeal, gone through the assessment order of the AO and perused the submissions made by the appellant. I am in agreement with the submissions of the appellant that the appellant has been following the mercantile system of accounting regularly and this being the first year of the business the amount received from customers were shown as advance from customers and rightly taken under the liability side of the balance sheet. It is only after handing over the possession of the flat against the advances the character of the receipt will change to income. Since no sales were affected during the year no income was recognized. The amounts received in instalments from the customers who booked the flats is a normal feature where payments are received in instalments on the progress of the construction of flats and the final payment is taken at the time of completion and handing over the possession of the flat to the buyer which cannot in my opinion be equated with percentage completion method which the AO has adopted in this case. In view of the above facts I find that the AO has proceeded erroneously in treating the advance of Rs. 1,89,48,000/- as revenue income on the basis of percentage of completed method of accountancy. I also observe that the AO has not brought material basis in support of his findings in the assessment made by him. For the subsequent assessment year i.e, A Y 2013-14 the assessment order u/s. 143(3) dated 31.3.2016 of the DCIT-2(1) Bhilai in the appellant's own case was brought to my notice wherein at para no. 2 the AO has held it was explained that the assessee was recognizing revenue only at the time of transferring risk and reward of the property and hence no profit was derived during the financial year 2011-12 and of Income Face comparison of profit of earlier year could not be done as the necessary figures were not available. The assessee's contention has been examined and the profits disclosed in this year have been examined with reference to the respective books of accounts. During the course of proceedings it was contended by the assessee that it has recognized revenue when the seller will transfer all significant risks and rewards of ownership to the buyer and the seller retains no effective control of the real estate to a degree usually associated with ownership and this practice was followed consistently. It was further explained that the assessee is recognizing the income based on the principles of AS-9 in respect of sale of goods to real estate projects. The 5 ITA No. 170/BIL/2017 A.Y.2012-13 assessee's version is considered and since position found verifiable no adverse inference is drawn." In view of the totality of the facts and circumstances of the case I am of the opinion that the addition is unjustified and accordingly the appeal is allowed.” 7. Aggrieved from the said order of the ld. CIT(A), the revenue is preferred this appeal as per grounds as stated herein above. 8. The ld. DR appearing on behalf of the revenue stated that the assessee has even though received a substantial amount, has not shown any income for the year under consideration and relied upon the order of ld. Assessing Officer and finding of the ld. CIT(A) is challenged on the grounds raised in this appeal. He further submitted that the action of the Assessing Officer should be confirmed as the assessee has received money but not offered it for the tax in the year under consideration. 9. Per contra, ld. AR appeared on behalf of the assessee has filed a detailed paper book wherein he has contended that the action of the Assessing Officer. He has also filed a written submission in this regard. The relevant submission of the assessee on the grounds raised by the department is submitted and the same is reproduced herein below: 6 ITA No. 170/BIL/2017 A.Y.2012-13 “3. Ground No. 1 to 3 All these grounds of appeal are directed against addition of Rs.1,89,48,000/- made u/s 68 on the say application of Percentage Completion Method. 3.1 The Ld. Assessing Officer observed that there are two types of accounting procedures- one is Percentage of Completion Method and the other is Completed Method. According to him in the assessee's case, Percentage of Completion Method is applicable. In order to justify his contention, Ld. Assessing Officer held that the appellant has received Rs.20 lakhs each as advance from the customers against sale consideration of Rs.25 lakhs for each flat during the year. Total advance of Rs.21448000/- was received and out of this Rs.1 lakh was against booking of flat and this cannot be treated as revenue income on the basis of percentage completion method and remaining payments are revenue income of the assessee. Accordingly he made addition of Rs.1,89,48,000/- u/s 68 of the Act. Penalty proceedings u/s 271 (1)(c) were also initiated. 3.2 The action of Ld. Assessing Officer is not justified. It appears that the Ld. Assessing Officer has absolutely disregarded both the provisions of Sec.68 and the method of accounting claimed as applied by him. Firstly and most importantly the provisions of Sec.68 have no application in this case. Relevant extract of the provisions as applicable to the assessment year under consideration are reproduced below- "6 Where any sum is found credited in the books of an assessee maintained for any previous years, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year." As may be appreciated from face of assessment order, there is no dispute regarding the nature and source of credit which was made for purchase of flats. Hence the action of Ld. Assessing Officer invoking provisions of sec. 68 is perverse and bad in law. 3.3 That similarly the observation that percentage completion method is applicable in the appellant's case is bereft of any reasons. The appellant has been and is employing mercantile system of accounting regularly. Undisputedly, this is the first year of business and the appellant has started 7 ITA No. 170/BIL/2017 A.Y.2012-13 booking of flats and the sums received were shown as advance from customers and started construction work. Except book of flats no sales were effected during the year. Hence no income was recognized. The entire amount was shown as work in progress. In the course of assessment proceedings, it was explained that the assessee's activity does not fall in Accounting Standard-7 (AS-7)(applicable to contractors) but falls in Accounting Standard-9 (AS-9) (applicable to builders). As per AS-9 revenue recognition has to be made at the point of time at which all significant risks and rewards of ownership can be considered as transferred. Copy of written submission filed during assessment proceedings is submitted herewith as Annexure-1. In this case significant risks and rewards were not transferred in the assessment year under consideration. Therefore the appellant was required not to recognize any income and if such income was to be recognized it would solely be based on estimation and hypothetical. The assessee has followed the same method regularly in all the subsequent assessment years. The ld. A.O. did not point out any discrepancies in the method employed nor did he give any figures or facts for invoking percentage completion method in the manner he resorted to. Surprisingly, ld. A.O. has held that out of aggregate sums of Rs.20 lakhs received from each of the customers, Rs. 1 lakh cannot be treated as revenue income for percentage completion method. He did not render any finding for such discriminatory treatment with respect to same nature of receipt. This demonstrates the level of absurdity of the action. 3.4 That the appellant has transferred the risks and rewards with respect to part of the flats of the project in the subsequent assessment year. Accordingly sales were also recognized in the next year. Copy the relevant Tax Audit Report for AY 2013-14 is submitted herewith as Annexure-2 for kind perusal. 3.5. That the assessment for AY 2013-14 was completed u/s 143(3) of the Act and the method of recognition of revenue following AS-9 was approved and it was categorically held that the assessee was recognizing income based on the principles of AS-9 in respect of sale of goods applicable to Real Estate Projects. It was also held that the assessee's version was considered and since the position was found verifiable, no adverse inference was drawn. Thus, the Ld. Assessing Officer himself admitted the correctness and completeness of the method regularly employed by the appellant and preferred not to draw any adverse inference in the subsequent assessment year. Copy of assessment order for AY 2013-14 is submitted herewith as Annexure 3 for kind perusal. 8 ITA No. 170/BIL/2017 A.Y.2012-13 3.6 That the appellant further humbly submits that the total size of the project is 72 flats. Out of which in the first year he could obtain booking for 25 flats which constituted around only 35% of the project and construction was in progress during relevant year. Therefore, the real profits cannot be estimated at such initial stage of the project that too without transferring risks and rewards associated with the goods. 3.7 That the appellant relies on the decision of Hon'ble ITAT at B Bench, New Delhi in the case of DCIT, Circle-11(1) New Delhi vs Friends Buildtech & Developers Pvt. Ltd. in ITA No. 2012/Del/2012 dated 11.03.2016 wherein the Hon'ble Tribunal has considered similar issue for first year of assessment and keeping the decision of Hon'ble Supreme Court in the case of CIT vs. Realest Builders & Services Ltd. reported in (2008) 170 Taxman 218, dismissed the revenue appeal holding that where the project was not complete, real profits cannot be estimated from the sale. The Assessing Officer has not pointed out any discrepancy that the method followed regularly by the assessee was distorting are under estimating profits. Therefore the method regularly followed by the assessee cannot be interfered with. The Hon'ble Tribunal also held that the percentage completion method applied by Assessing Officer cannot be applied in this case. Copy of the citation is submitted herewith Annexure-4 for kind perusal. Therefore in view of the above the addition made is not justified. 3.8 That in alternate and without prejudice to the above argument, the appellant humbly submits that the addition made is arbitrary and grossly incorrect for the reason that entire advance receipt cannot be charged tax without considering corresponding amount of expenditure even under the purported method that he proposed to invoke. Therefore the action is fundamentally wrong. 4. On the basis of these submissions and the legal position settled in this regard, it is prayed to kindly allow the appeal and render justice.” 10. In addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted that the once the regular method of accounting accepted by the Assessing Officer, receipt of money from the buyer accounted in the books being not disputed and for that the 9 ITA No. 170/BIL/2017 A.Y.2012-13 provisions of section 68 does not apply. The assessee has already filed explanation about the nature and source of the receipt and explanation offered by the assessee is also not disputed by the ld. AO. The amount received is duly credited by the assessee as advanced money receipt and is explained and not disputed by the Assessing Officer. Thus, the action of the AO invoking provisions of section 68 is bad in law as well as on fact. The ld. AR appeared on behalf of the assessee also aggrieved that ld. CIT(A) is not given finding on applicability of provisions of section 68 has given the finding that the assessee was recognizing revenue only at the time of transferring risk and reward of the property and hence no profit was derived during the Financial Year 2011-12. During the course of proceedings, it was contended by the assessee that it has recognized revenue when the seller will transfer all significant risks and rewards of ownership of the buyer and the seller retains no effective control of the real estate to a degree usually associated with ownership and this practice was followed consistently. It was further explained that the assessee is recognizing the income based on the principles of AS-9 in respect of sale of goods to real estate projects. The ld. CIT(A) has considered the explanation of the 10 ITA No. 170/BIL/2017 A.Y.2012-13 assessee and deleted the impugned addition made by the Assessing Officer. 11. We have heard both the parties, perused materials available on record. Based on the written submission made by the assessee and considering the finding given by ld. CIT(A) on fact. Not only that the assessee has submitted in the assessment proceeding that the advance is used to be converted into revenue when respective registry of the flat against which advances were received, this important facts has been accepted by the ld. AO. Since, this method of accounting to offer the income at the time of registration of flat followed by the AO cannot be disturbed merely on the reason that the assessee has received substantial amount in the year under consideration and no corresponding receipt to that advance is offered as income of the year under consideration. Even the ld. CIT(A) has given his detailed finding on this issue and ld. DR has not placed anything contrary to established that the finding of the ld. CTI(A) is wrong we found no reason to interfere in the finding given by the ld. CIT(A). In term of this observation the appeal filed by the revenue is dismissed having no merits. 11 ITA No. 170/BIL/2017 A.Y.2012-13 12. In the result, the appeal of revenue is dismissed. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RAVISH SOOD RATHOD KAMLESH JAYANTBHAI JUDICIAL MEMBER ACCOUNTANT MEMBER रायप ु र/ RAIPUR ; #दनांक / Dated : 19 th July, 2022 Ganesh Kumar आदेश क त'ल(प अ)े(षत / Copy of the Order forwarded to : 1. अपीलाथ / The Appellant. 2. यथ / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. (वभागीय त न,ध, आयकर अपील य अ,धकरण,रायप ु र ब-च, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, नजी स,चव / Private Secretary आयकर अपील य अ,धकरण, रायप ु र / ITAT, Raipur. 12 ITA No. 170/BIL/2017 A.Y.2012-13 Date 1 Draft dictated on Sr.PS/PS 2 Draft placed before author Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order