M/s. Rupayan Udyog, Kolkata V. ITO, Ward-49(4), Kolkata, Kolkata

ITA 1943/KOL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5004 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 01-03-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 17-10-2014
• Court: TRIBUNAL
• Department Lawyers: NONGOTHUNGS JUNGIO JC
• Assessee Lawyers: SOUMITRA CHOUDHURY LD
• Section: 143(3)

Judgement Text

ITA NOS. 1943 & 1944/KOL/2014 M/S. RUPAYAN UDYOG-C-AM 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH, JUDICIAL MEMBER , AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NOS. 1943 & 1944/KOL/2014 A.YS: 2003-04 & 04-05 M/S. RUPAYAN UDYOG VS. INCOME TAX OFFICER PAN:AAGFR0358E WARD 49(4), KOLKATA (APPELLANT) ( RESPONDENT) FOR THE APPELLANT/ASSESSEE: SHRI SOU MITRA CHOUDHURY, ADVOCATE, LD.AR FOR THE RESPONDENT/DEPARTMENT: S HRI NONGOTHUNGS JUNGIO, JCIT, LD.SR.DR DATE OF HEARING: 01-03-2016 DATE OF PRONOUNCEMENT: 13-4-2016 ORDER SHRI M.BALAGANESH, AM THESE APPEALS OF THE ASSESSEE ARISE OUT OF COMMON O RDER OF THE LEARNED CIT(A)-XXXII, KOLKATA IN APPEAL NOS. 126&137/XXXII/ 10-11/49(4)/KOL DATED 25.8.2014 AGAINST THE SEPARATE ORDERS OF ASSESSMENT FRAMED FOR THE ASST YEARS 2003-04 & 2004-05 U/S 147/143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN RECOGNIZING REVENUE UNDER PROJECT C OMPLETION METHOD IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE FACTS IN ASST YEAR 2003-04 ARE STATED HEREI N AND THEY REMAIN THE SAME FOR ASST YEAR 2004-05 ALSO EXCEPT CHANGE IN FIGURES. ITA NOS. 1943 & 1944/KOL/2014 M/S. RUPAYAN UDYOG-C-AM 2 4. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. FOR THE ASST YEAR 2003-04, THE ASSESSEE HAD DECLARED 11 RUNNING PROJECTS INVOLVING 160 UNITS. THE ASSESSEE HAD SOLD 35 SUCH UNITS ONLY DURING THE ASST YEAR 2003-04 AND DECLARED SALE RECEIPTS AT RS. 1,02,51,125/-. HOWEVER, THE 11 PROJECTS WERE AT VA RIOUS STAGES OF DEVELOPMENT / COMPLETION AND THE ASSESSEE ALSO HAD DECLARED FLAT AND SHOP BOOKING ADVANCES OF RS. 1,34,11,791/- IN ITS BALANCE SHEET. THE CLOSING WO RK IN PROGRESS WAS DECLARED AT RS. 1,08,10,361/-. ACCORDING TO LEARNED AO, SINCE THE ASSESSEE WAS FOLLOWING PERCENTAGE OF COMPLETION METHOD FOR RECOGNIZING REVENUE, THE E NTIRE ADVANCE FROM CUSTOMER SHOULD BE TREATED AS SALE RECEIPT AND THE LEARNED A O MADE AN ADDITION OF RS. 2,58,848/- AFTER APPLYING THE NET PROFIT RATE OF 1. 93% TO THE ADVANCE OF RS. 1,34,11,791/-. BEFORE THE LEARNED CITA, THE ASSE SSEE SUBMITTED THAT THE ASSESSEE HAS FOLLOWED ACCOUNTING STANDARD (AS) 7 ISSUED BY THE I NSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) FOR RECOGNIZING THE REV ENUE OUT OF THE ADVANCE RECEIVED BY THE ASSESSEE ON PERCENTAGE OF COMPLETION METHOD. IT WAS ARGUED THAT NO WHERE IT IS MENTIONED IN AS 7 THAT THE WHOLE AMOUNT OF RECEIPTS / ADVANCES FROM CUSTOMERS ARE TREATED AS REVENUE OR SALE IN THE YEAR OF RECEIPT W HILE THE CONSTRUCTION WORK IS SPREAD OVER NUMBER OF YEARS. ADVANCES OR RECEIPTS FROM CU STOMERS ARE TREATED AS REVENUE OR SALE WITH REFERENCE TO THE STAGES OF COMPLETION OF WORK YEAR TO YEAR. THE ASSESSEE SUBMITTED VARIOUS DETAILS TOGETHER WITH THE MANNER IN WHICH REVENUE RECOGNITION IS DONE BY HIM. THE LEARNED CIT(A), HOWEVER, FELT THA T THE ASSESSEES METHOD OF REVENUE RECOGNITION IS TOTALLY INCORRECT AS PER THE PROJECT COMPLETION METHOD. ACCORDING TO LEARNED CIT(A), THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING PERCENTAGE OF COMPLETION METHOD FOR RECOGNIZING REVENUE AND UN DER THIS METHOD, CONTRACT REVENUE IS MATCHED WITH THE CONTRACT COSTS INCURRED IN REACHING THE STAGE OF COMPLETION, RESULTING IN THE REPORTING OF REVENUE, EXPENSES AND PROFITS WHICH CAN BE ATTRIBUTED TO THE PROPORTION OF WORK COMPLETED. I T WAS FURTHER HELD THAT AS PER AS 7, THE ASSESSEE SHOULD MAINTAIN VERY SPECIFIC AND COMP LETELY TRANSPARENT ACCOUNTING TO ENABLE DETERMINATION OF THE PERCENTAGE COMPLETION W ORK AND THE ATTENDANT PROFITS AND ITA NOS. 1943 & 1944/KOL/2014 M/S. RUPAYAN UDYOG-C-AM 3 IN THE CASE OF THE ASSESSEE, THIS ACCOUNTING WAS NO T THERE. HENCE HE IGNORED THE WORKINGS OF THE ASSESSEE AND PROCEEDED TO MAKE HIS OWN CALCULATION FOR RECOGNIZING THE REVENUE AND HELD THAT THE ENTIRE ADVANCES RECEI VED BY THE ASSESSEE IN THE SUM OF RS. 1,34,11,791/- IS TO BE BROUGHT TO TAX. SIMILA RLY, HE HELD THAT ADVANCES AS ON 31.3.2004 AMOUNTING TO RS. 1,53,43,975/- IS TO BE B ROUGHT TO TAX FOR ASST YEAR 2004- 05. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS:- 1) THAT BOTH LD. CIT (A) AND A. O. HAVE MISUNDERSTO OD THE PROVISION OF AS- 7 ( REVISED) OF ICAI AND CONSEQUENTLY DETERMIN ED THE REVENUE WRONGLY. 2) THAT LD. CIT (A) HAS CALCULATED THE REVENUE ON E STIMATED / EXPECTED SALE BASIS INSTEAD OF ACTUAL RECEIPTS OR ADVANCE TO BE RECOGNISED AS REVENUE FOR THE A.Y -2003-04 WHICH IS GROSSLY IMPRO PER AND UNJUSTIFIED. 3)THAT LD CIT (A) HAS COMPUTED THR REVENUE ON PROJE CT COMPLETION METHOD INSTEAD OF PERCENTAGE COMPLETION METHOD. PRO JECT COMPLETION METHOD HAS SINCE BEEN MADE IN-OPERATIVE & INAPPLICA BLE, ONLY PERCENTAGE COMPLETION METHOD IS APPLICABLE AS PER AS-7( REVISE D 2002). MOREOVER, UNDER PROJECT COMPLETION METHOD PROFIT SAN NOT E AS CERTAINED UNLESS WHOLE OF THE UNITS ARE SOLD AND REGISTERED BY CONVEYANCE DEED. 5. THE LEARNED AR ARGUED THAT THE LEARNED CIT(A) HAD COMPLETELY PROCEEDED ON THE WRONG UNDERSTANDING OF AS 7. THE LEARNED CIT(A ) THOUGHT THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD , WHEREAS HE HI MSELF RECORDS IN HIS ORDER THAT ASSESSEE IS FOLLOWING PERCENTAGE OF COMPLETION METH OD. HE ARGUED THAT THE LEARNED CIT(A) HAD RESORTED TO ESTIMATE THE REVENUE RECOGNI TION AND ULTIMATELY CONCLUDED BY BRINGING THE ENTIRE ADVANCES RECEIVED FROM CUSTOMER S TO TAX IN THE SUMS OF RS. 1,34,11,791/- AND RS. 1,53,43,975/- FOR ASST YEARS 2003-04 AND 2004-05 RESPECTIVELY. HE FILED A CHART CONTAINING THE DETAILS OF SALES RE FLECTED IN THE EARLIER AND SUBSEQUENT YEARS INCLUDING THE ASSESSMENT YEARS UNDER APPEAL, DETAILS OF ADVANCES RECEIVED IN EACH YEAR , DETAILS OF WORK IN PROGRESS IN EACH YEA R. HE FURTHER STATED THAT THE LEARNED AO WHILE COMPLETING THE ASSESSMENT FOR THE ASST YEA R 2005-06 U/S 143(3) OF THE ACT VIDE HIS ORDER DATED 31.12.2007 HAD ACCEPTED THE RE VENUE RECOGNITION METHOD ADOPTED BY THE ASSESSEE. HE REFERRED TO THE BALANCE SHEET TOGETHER WITH THE TAX AUDIT REPORT OF THE ASSESSEE AS ON 31.3.2005 VIDE PAGES 18-32 OF TH E PAPER BOOK , WHEREIN MINIMUM ITA NOS. 1943 & 1944/KOL/2014 M/S. RUPAYAN UDYOG-C-AM 4 INVENTORY OF UNITS WERE LEFT WITH THE ASSESSEE WHIC H WERE SOLD IN ASST YEAR 2006-07. HE ARGUED THAT THERE IS NO NEED TO DISTURB THE ACCO UNTS OF THE ASSESSEE AND THE MANNER IN WHICH THE REVNEUE HAS BEEN RECOGNIZED BY THE ASS ESSEE. IN RESPONSE TO THIS, THE LEARNED DR RELIED ON THE ORDER OF THE LEARNED CIT(A ). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE LEARNE D AR. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THEY ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. WE FIND THAT THE ASSESSEE HAS BEEN CONSISTENTLY REC OGNIZING REVENUE BASED ON PERCENTAGE OF COMPLETION OF WORK IN ACCORDANCE WITH THE AS 7 ISSUED BY ICAI. THE FOLLOWING CHART SUBMITTED BY THE ASSESSEE WOULD CLE ARLY EXPLAIN THE SCENARIO :- RUPAYAN UDYOG ITA NOS. 1943 & 1944/K/2014 A SSTT.YEAR SALES (RS.) ADVANCE (RS.) WORK - IN PROGRESS(RS.) 2001-02 21,56,600.00 81,63,120.00 77,57,896. 00 2002-03 72,39,370.00 1,50,98,255.00 1,19,28,939.0 0 2003-04 1,02,51,125.00 1,34,11,791.00 1,08,10,361.0 0 2004 - 05 1,05,74,033.00 1,53,43,975 .00 1,19,51,978.00 2005-06 3,13,07,200.00 4,62,136.00 3,51,8 00.00 FROM THE CHART, IT COULD BE SEEN THAT THE ADVANCES RECEIVED FROM CUSTOMERS AS ON 31.3.2004 (ASST YEAR 2004-05) AMOUNTING TO RS. 1,53 ,43,975/- HAD BEEN REDUCED TO RS. 4,62,136/- AS ON 31.3.2005 AND SIMILARLY THE SA LES AS ON 31.3.2004 AMOUNTING TO RS. 1,05,74,033/- HAS BEEN INCREASED SUBSTANTIALLY TO RS. 3,13,07,200/- AS ON 31.3.2005. THIS GOES TO PROVE THAT THE ADVANCES R ECEIVED FROM CUSTOMERS HAS BEEN CONVERTED INTO SALES YEAR ON YEAR DEPENDING UPON TH E PERCENTAGE OF COMPLETION OF WORK BY THE ASSESSEE. WE ALSO FIND FROM PAGE 85 OF THE PAPER BOOK CONTAINING SCRUTINY ASSESSMENT ORDER U/S 143(3) OF THE ACT FOR ASST YEAR 2005-06 DATED 31.12.2007 AND A RE-ASSESSMENT ORDER FOR ASST YEAR 2005-06 FRAMED U/S 143(3) READ WITH SECTION 147OF THE ACT ON 28.12.2010 ENCLOSED I N PAGE 88 OF PAPER BOOK , THAT THE REVENUE RECOGNITION METHOD ADOPTED AND DECLARED BY THE ASSESSEE HAS BEEN ACCEPTED ITA NOS. 1943 & 1944/KOL/2014 M/S. RUPAYAN UDYOG-C-AM 5 BY THE LEARNED AO AND NO ADDITION WAS MADE ON THAT ACCOUNT. WE FIND THAT THE LEARNED CIT(A) WITHOUT ANY BASIS AND IGNORED THE AC COUNTS OF THE ASSESSEE AND RESORTED TO MAKE ESTIMATION OF PERCENTAGE OF WORK C OMPLETED AND ERRONEOUSLY CONCLUDED THAT THE ENTIRE ADVANCES HAVE TO BE TREAT ED AS INCOME IN THE ASST YEARS 2003-04 AND 2004-05. WE ARE CONVINCED WITH THE MA NNER OF REVENUE RECOGNITION BY THE ASSESSEE. HENCE THE ADDITIONS MADE BY THE LE ARNED AO IN THIS REGARD AND HAVE NO HESITATION IN DELETING THE ADDITIONS MADE THEREO N. ACCORDINGLY THE GROUNDS 1 TO 3 RAISED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED. 7. WITH REGARD TO THE GROUND RAISED BY THE ASSESS EE ON DISALLOWANCE OF DONATION, THE LEARNED AR STATED THAT HE IS NOT PRESSING THE SAID GROUND. THE SAME IS TAKEN AS A STATEMENT FROM THE BAR. ACCORDINGLY, THE GROUND NO . 4 RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 8. THE LAST GROUND RAISED BY THE ASSESSEE IS GENE RAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 13-4 - 2016 SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 13-4 -2016 ITA NOS. 1943 & 1944/KOL/2014 M/S. RUPAYAN UDYOG-C-AM 6 1.. THE APPELLANT/ASSESSEE: M/S. RUPAYAN UDYOG CB- 10/14 DESHBANDHUNAGAR BAGUIHATI, KOLKATA-700059. 2 THE RESPONDENT/DEPARTMENT: INCOME TAX OFFICER, W 49(4), UTTARAPAN COMPLEX, MANICKTALA, CIVIC CENTRE, KOL-54. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS COPY OF THE ORDER FORWARDED TO:-