M/s. Ashirvad Infrastructure, Bhubaneswar V. ITO, Ward-2(2), Bhubaneswar

ITA 255/CTK/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1022 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 21-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BRAJA BANDHU BIHARI
• Keywords: Valuation report
• Section: 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG , J M & SHRI L.P. SAHU, A M . / ITA NO. 255 /CTK/2018 ( / ASSESSMENT YEAR : 201 5 - 201 6 ) M/S ASHIRVAD INFRASTRUCTURE, FLA T NO.1, PLOT NO.26, BUDHA NAGAR, LAXM I SAGAR, BHUBANESWAR - 751006 VS. ITO, WARD - 2(2), BHUBANESWAR ./ PAN NO. : A A TFA 5443 Q ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI BRAJABANDHU BIHARI , AR /REVENUE BY : SHRI SUBHENDU DUTTA , DR / DATE OF HEARING : 06 /09/2019 / DATE OF PRONOUNCEMENT : 11 /09/2019 / O R D E R PER L.P.SAHU , A M : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 1 , BHUBANESWAR , DATED 23.04.2018 FOR THE ASSESSMENT YEAR 201 5 - 201 6 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. THAT THE ORDER PASSED BY THE HONORABLE COMMISSIONER IF INCOME TAX (APPEAL) - L AS WELL AS THE ORDER OF ASSESSMENT PASSED BY THE LEARNED ASSESSING OFFICER, WARD - 2 (2), BHUBANESWAR WITHOUT VALID REASON AND WITHOUT CONSIDERING THE FACTS OF THE CASE IS ILLEGAL, UNJUSTIFIED AND LIABLE TO BE QUASHED. 2. THAT THE ESTIMATION OF NET PROFIT @15% ON CLOSING STOCK TREATING I T AS SALE IS UNJUSTIFIED, ARBITRARY AND NOT TENABLE IN LAW. 3. THAT AS PER THE AUDITED STATEMENT OF ACCOUNTS OF THE APPELLANT, THE NET TAXABLE PROFIT RATIO TO SALES WAS 1.04%. ON THE BASIS OF THIS THE TAXABLE PROFIT ON STOCK, IF TREATED AS SALE SHALL BE RS.1,95,610. [ 4. THAT AGAIN ONCE THIS IS TAXED THIS YEAR, THE AS S ESSEE SHALL CLAIM REFUND IN SUBSEQUENT YEAR, WHEN THE SAID STOCK HAS ACTUALLY BEEN SOLD IN THE AY 2016 - 17 AND AY 2017 - 18. ITA NO. 255/CTK/2018 2 5. THAT ABOVE ALL THERE WAS ACTUALLY STOCK VALUED AT COST AMOUNTING TO RS. 1,88,08,700/ - AS ON 31.03.2015 AS PER CERTIFICATE OF ARCHITECT. 6. THAT THE APPELLANT BEGS TO URGE FURTHER GROUNDS TO BE RAISED AT THE TIME OF HEARING. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DERIVES INCOME FROM CONSTRUCTIO N AND SALE OF FLAT AND FILED RETURN OF INCOME ELECTRONICALLY ON 01.10.2015 SHOWING GROSS TOTAL INCOME AT RS.8,08,190/ - . THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE ON VARIOUS DATES BUT NO PROPER COMPLIANCE WAS MADE ON THE PART OF THE ASSESSEE. ON SCRUTINY OF DOCUMENTS AVAILABLE BEFORE HIM, THE AO NOTICED THAT THE ASSESSEE HAS SHOWN CLOSING STOCK (WIP) OF RS.1,88,08,700/ - , WHICH WAS VERIFIED FROM THE TRADING PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. THEREAFTER DETAILS WERE CALLED FOR AS PER NOTICE U/S.142(1) OF THE ACT DATED 01.11.2017 TO FURNISH THE DETAILS OF CLOSING STOCK WITH VALUATION REPORT. ON THE DATE OF HEARING THE ASSESSEE COULD NOT FURNISH SUFFICIENT DOCUMENTS/EVIDENCES/BOOKS OF ACCOUNTS FOR VERIFICATION ON THE ABOVE STATED ISSUE. EVEN ANOTHER OPPORTUNITY WAS ALSO GIVEN TO THE ASSESSEE FOR FURNISHING THE DETAILS UPTO 8 TH DECEMBER, 2017 BUT THE ASSESSEE NEITHER APPEAR ED BEFORE THE AO NOR FILED ANY DETAILS. ACCORDINGLY, THE FRAMED THE ASSESSMENT AND ADDED THE ENTIRE AMOUNT OF CLOSING STOCK (WIP) TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 255/CTK/2018 3 4. FEELING AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE APPEALED BEFORE THE CT(A) AND THE CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FINDINGS OF AO HAS APPLIED PERCENTAGE C OMPLETION METHOD (PCM) AND ESTIMATED @15% PROFIT ON THE ENTIRE VALUE OF CLOSING STOCK (WIP) AS DECLARED BY THE ASSESSEE IN HIS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET . ACCORDINGLY, THE CIT(A) SUBSTITUTED BY PROFIT OF RS.28 , 21 , 305/ - ON THE VALUATION OF CLO SING STOCK. 5. FURTHER FEELING AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL. 6. LD. AR BEFORE US FILED PAPER BOOK WHICH IS PLACED ON RECORD CONTAINING WRITTEN SUBMISSION OF MATERIAL FACT, BALANCE SH EET AS ON 31.03.2015 AND COPY OF TAX AUDIT REPORT FOR A.Y.2015 - 2016 AND SUBMITTED THAT BOTH THE AUTHORITIES BELOW ARE NOT JUSTIFIED AND THE ENTIRE VALUE OF CLOSING STOCK SHOULD NOT BE ADDED AND NO ANY RECEIVING HAS BEEN RECOGNIZED FROM THE CLOSING STOCK AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. HE ALSO SUBMITTED THAT ONCE IT IS ADDED I N THE IMPUGNED YEAR, THE ASSESSEE WILL GET BENEFIT IN THE SUBSEQUENT YEAR AS OPENING WORK - IN - PROGRESS. THE TAX WOULD BE NUTRIALIZED. THEREFORE, LD. AR PRAYED FOR ALLOWING THE A PPEAL OF THE ASSESSEE. ITA NO. 255/CTK/2018 4 7. ON THE OTHER HAND, LD.DR RELIED ON THE ORDER OF AO AND SUBMITTED THAT THE AO HAS RIGHTLY ADDED THE AMOUNT OF UNEXPLAINED CLOSING STOCK (WIP) TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE HAS ALSO NO COOPERATED WITH THE DEPARTM ENT AT THE ASSESSMENT STAGE AND UNABLE TO SUBSTANTIATE THE VALUE OF CLOSING STOCK (WIP) . NO ANY REPORT HAS BEEN OBTAINED FROM THE TECHNICAL PERSONS/ARCHITECT FOR VALUING OF THE CLOSING STOCK (WIP) . THE ASSESSEE SHOULD VALUE ON THE BASIS OF PERCENTAGE COMPLET ION METHOD AS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) FOR THE CONSTRUCTION CONTRACT. 8. AFTER HEARING BOTH THE SIDES AND CAREFULLY PERUSING THE ENTIRE MATERIALS AVAILABLE ON RECORD AND THE ORDERS OF LOWER AUTHORITIES, WE FIND THAT THE CIT(A) HAS APPLIED PERCENTAGE COMPLETION METHOD AND ACCORDINGLY CALCULATED PROFIT @15% ON THE VALUE OF CLOSING STOCK (WIP) . WE FURTHER OBSERVE THAT THE ASSESSEE HAS ALSO DISCLOSED IN THE BALANCE SHEET ADVANCE FROM CUSTOMERS OF RS.2,91,31,903/ - . AS PER CHARGING OF INCOME - TAX U/S.4 OF THE ACT, THE LAW IS SETTLED THAT PROFIT SHOULD BE TAXED IN THE YEAR IN WHICH IT HAS BEEN EARNED/ACCRUED BY THE ASSESSEE. THE ASSESSEE HAS FOLLOWED MERCANTILE SYSTEM OF ACCOUNT ING AND IN RESPECT OF THE CONSTRUCTION CONTR ACT . T HE PERCENTAGE COMPLETION METHOD (PCM) HAS BEEN RECOGNIZED FOR CALCULATING OF THE PROFITS . AS PER OUR CONSIDERED OPINION, THE ASSESSEE SHOULD HAVE BEEN OBTAINED THE ITA NO. 255/CTK/2018 5 VALUATION REPORT FROM ANY TECHNICAL PERSONS/ARCHITECTS FOR VALUING OF THE CLOSING STOC K (WIP) AND ACCORDINGLY HE SHOULD HAVE BEEN DISCLOSED IN HIS PROFIT AND LOSS ACCOUNT. IT IS UN DISPUTED THAT THE ASSESSEE HAS TAKEN ADVANCE FROM CUSTOMERS I.E. THE FINAL SALE VALUE HAS NOT BEEN RECOGNIZED . WE ALSO NOTICE FROM THE ORDER OF AO THAT THE ASSESSE E DID NOT COOPERATE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR SUBSTANTIATING THE VALUATION OF CLOSING STOCK (WIP) AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. FURTHER AS PER THE PROFIT AND LOSS ACCOUNT FILED BEFORE US BY THE ASSESSEE AT PAPER BOOK PAGE NO .6, WE FIND THAT THE GROSS PROFIT OF THE ASSESSEE COMES TO 6.4 5 % ON THE ASSESSEES BUSINESS FOR THE YEAR UNDER CONSIDERATION. THEREFORE, AS PER OUR CONSIDERED OPINION, THE AUTHORITIES BELOW SHOULD APPLY THE GP RATE ON THE IMPUGNED AMOUNT @6.4 5 %. ACCORDINGL Y, WE RESTRICT THE ADDITION ESTIMATING @6.45% ON THE VALUE OF CLOSING ST OCK (WIP) AS SHOWN BY THE ASSESSEE IN HIS PROFIT AND LOSS ACCOUNT. HENCE, THE PROFIT ON THE CLOSING STOCK OF RS.1,88,08,700/ - ESTIMATED @15% BY THE CIT(A) WITHOUT ANY BASIS , IS RESTRICT ED TO 6.45% AND THE PROFIT IS DIRECTED TO BE TAXED IN THE IMPUGNED ASSESSMENT YEAR ON THE CLOSING STOCK AT RS.12,13,161/ - . FURTHER IN REGARD TO THE CONTENTION OF LD. AR THAT THE ASSESSEE WILL GET BENEFIT OF OPENING WORK - IN - PROGRESS IN THE NEXT YEAR, IT IS MADE CLEAR THAT THE ASSESSEE HAS NOT COOPERATED DURING THE COURSE OF ASSESSMENT STAGE FOR SUBSTANTIATING THE VALUE SHOWN IN THE PROFIT AND LOSS ACCOUNT ITA NO. 255/CTK/2018 6 OF WORK - IN - PROGRESS. THE AO HAS ADDED AS UNEXPLAINED CLOSING STOCK (WIP) AND THE LD. CIT(A) HAS OBSERV ED THAT PERCENTAGE COMPLETION METHOD (PCM) HAS NOT BEEN FOLLOWED. THEREFORE, THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTED . ACCORDINGLY, THE GROUND S OF APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 / 09 / 201 9 . SD/ - ( C.M.GARG ) SD/ - ( L.P.SAHU ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER CUTTACK ; DATED 11 / 0 9 /201 9 PRAKASH KUMAR MISHRA, SR.P.S. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - M/S ASHIRVAD INF RASTRUCTURE, FLAT NO.1, PLOT NO.26, BUDHA NAGAR, LAXM I SAGAR, BHUBANESWAR - 751006 2. / THE RESPONDENT - ITO, WARD - 2(2), BHUBANESWAR 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//