M/s Jain Builders (P) Ltd, Balasore V. CIT, Cuttack

ITA 306/CTK/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7843 (ITAT-CUTTACK)
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 22-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2012
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: P K MISHRAB N BEHERA ARS
• Keywords: Assessment record

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 306/CTK/2012 (ASSESSMENT YEAR 2008 - 09) M/S.JAIN BUILDERS P. LTD., AT: PARAS PLAZA, TINKONIA BAGICHA, P.S.BUXIBAZAR, CITY/DI ST.BALASORE PAN: AAACJ 7476 D VERSUS COMMISSIONER OF INCOME - TAX, CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI P.K.MISHRA/B.N.BEHERA, ARS FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HEARING : 22.06.2012 DATE OF PR ONOUNCEMENT : 29.06.2012 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY ISSUE ON THE LEARNED CIT(A) ASSUMING JURISDICTION U/S.263 OF THE I.T.ACT,1961. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT ON VERIFICATION OF THE M ATERIALS AVAILABLE IN THE ASSESSMENT RECORD AND THE FINDINGS OF THE ASSESSING OFFICER, THE LEARNED CIT FOUND THAT THE ASSESSEE COMPANY FOLLOWS PERCENTAGE COMPLETION METHOD IN RECOGNIZING REVENUE FROM CONSTRUCTION CONTRACTS. AS PER THIS PERCENTAGE COMPLETIO N METHOD, PROFIT HAS TO BE RECOGNIZED OVER AND ABOVE THE CLOSING WORK IN PROGRESS IN PROPORTIONATE TO THE PERCENTAGE OF PROJECTS COMPLETED. ON VERIFICATION OF THE BALANCE SHEET FILED IT IS FOUND THAT THERE WAS AN INCREASE IN WORK IN PROGRESS TO THE EXTENT OF 1,54,91,957 DURING THE RELEVANT F/Y 2007 - 08. BUT THE ASSESSEE COMPANY HAS NOT RECOGNIZED THE PROFIT AS PER PERCENTAGE COMPLETION METHOD AS PER ACCOUNTING STANDARD (AS - 7). HE WORKED OUT THE EXPECTED PROFIT ON THE BASIS OF PERCENTAGE COMPLETION METHOD TO 7 ,74,598 AS DETAILED BELOW: TOTAL PROFIT SHOWN .. .. .. 56,550 TOTAL COST OF THE LAND RECOGNIZED FOR REVENUE .. 11,15,354.12 HENCE ESTIMATED PROFIT = 56,550/ 11,15,354 X 100=5.07% SAY 5% ITA NO.306/CTK/2012 2 INCREASE IN WORK IN PROGRESS (WIP) .. 1,54,91,957 HENCE PR OFIT ACCRUING ON PERCENTAGE COMPLETION METHOD ON SUCH WORK IN PROGRESS = 1,54,91,957 X 5% = 7,74,598 FROM SUCH FACTS THE LEARNED CIT WAS OF THE VIEW THAT THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT ORDER WAS APPARENTLY IN ERROR IN NOT EXAMINING TH E AFORESAID ISSUES HAVING DIRECT IMPACT ON THE COMPUTATION OF ASSESSABLE TOTAL INCO ME. HE THEREFORE, DIRECTED THE ASSESSING OFFICER TO VERIFY THE DETAILS OF INCREASE IN WORK - IN - PROGRESS TO THE EXTENT OF 1,54,91,957 FOR THE F/Y 2007 - 08 AND COMPUTE PROFIT A CCRUING ON SUCH WORK - IN - PROGRESS AS PER PERCENTAGE COMPLETION METHOD OF ACCOUNTING STANDARD 7. 3. THE LEARNED AR OF THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S.143(3) OBSERVED THAT IT HAS BEEN FOUND FROM THE DETAILS AND THAT THE ASSESSEE COMPANY FOLLOWS PERCENTAGE OF COMPLETION METHOD IN RECOGNIZING THE REVENUE FROM CONSTRUCTION CONTRACTS. DURING THE YEAR NO SALE HAS BEEN MADE AND ONLY PRELIMINARY WORKS HAVE BEEN DONE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE THE INCOME RETURNED BY THE ASSESSEE COMPANY IS ACCEPTED . HE SUBMITTED THAT A VIEW HAS BEEN TAKEN BY THE ASSESSING OFFICER WHICH IS A VIEW NOT ILLEGAL OR PREJUDICIAL TO THE INTEREST OF REVENUE ON THE BASIS OF ACCOUNTI NG STANDARD FOLLOWED BY THE ASSESSEE. THEREFORE, THE INCREASE IN WORK - IN - PROGRESS CANNOT BE SUBJECTED TO TAX ON PERCENTAGE COMPLETION METHOD IN VIEW OF THE FACT THAT THE INCOME IF RENDERED HAVE ALREADY BEEN CONSIDERED IN THE WORK - IN - PROGRESS AGAINST WHICH EXPENSES HAVE BEEN ALLOWED BY THE ASSESSING OFFICER. THE LEARNED CIT THEREFORE IS TRYING TO BRING ON A NOTHER PERCENTAGE TO TAX UNDER THE PERCENTAGE METHOD OF ACCOUNTING BY HOLDING A VIEW THAT A PARTICULAR RATE OF PERCENTAGE SHOULD BE APPLIED IN THE INCREAS E IN THE WORK - IN - PROGRESS WHICH WOULD HAVE NIL EFFECT ON THE BASIS ITA NO.306/CTK/2012 3 OF DIRECTION BY THE LEARNED CIT. IT WAS NOT THE CASE OF THE LEARNED CIT TO DISALLOW THE EXPENSES CLAIMED WHICH MADE UP THE WORK - IN - PROGRESS AS A COMPOSITE ASSET HELD BY THE ASSESSEE TO BE CARRIED FORWARD TO THE NEXT YEAR TO FORM PART OF THE COST OF SALES. THEREFORE, GIVING A DIRECTION TO THE ASSESSING OFFICER WHICH WOULD NOT CRYSTALIZE EITHER AS AN ERROR IN THE ASSESSMENT ORDER OR LOSS OF REVENUE ON THE BASIS OF PREJUDICE CAUSED TO THE RE VENUE HAS NOT BEEN DEFINED BY THE LEARNED CIT HIMSELF THEREFORE IS A FIT CASE FOR QUASHING HIS ORDER INSOFAR AS THE ASSESSMENT RECORD RELIED UPON BY THE LEARNED CIT INCLUDED THE COPY OF SALES OF FLATS AGREEMENTS AND ALSO THE AUDITED ACCOUNTS FOR THE AYS 20 08 - 009, 2009 - 10 AND 2010 - 11 WHETHER CAN CLEARLY INDICATE THAT THE INCREASE IN THE WORK - IN - PROGRESS WAS P E RI MATERIA FOR COMPUTING INCOME TO BE TAXED ON PERCENTAGE METHOD AND NOT BECAUSE ADVANCES HAD BEEN RECEIVED WHICH ADVANCES HAVE BEEN SUBJECTED TO A PER CENTAGE CANNOT BE EQUATED WITH PROFIT ON SALE OF ASSETS SO CONSTRUCTED BY THE ASSESSEE. 4. THE LEARNED DR SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT. HE SUBMITTED THAT THE AO HAD NOT ACTUALLY GONE INTO THE DETAILS OF COMPUTATION OF PERCENTAGE METHOD O F INCOME ON COMPLETION AS HE OBSERVED THAT NO SALES HAD BEEN MADE AND ONLY PRELIMINARY WORK HAD BEEN COMPLETED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE ARE INCLINED TO UPHOLD THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. INCREASE IN WORK - IN - PROGRESS IS WHAT THE BUSINESS ABOUT. THE ASSESSEE CANNOT BE SUBJECTED TO PROFIT FROM ITS OWN EXPENDITURE. A PERCENTAGE THAT HAS TO BE ALLOWED FOR THE PURPOSE OF RENDERING OF INCOME IS NOT ON THE COST OF SALES BUT ON THE TURNOVER OF SALES. A WRONG APPLICATION BY THE LEARNED CIT IS A VIEW WAS NOT A VIEW TAKEN BY THE ASSESSING OFFICER WHEN THE ACCOUNTS VERIFIED BY THE ASSESSING OFFICER WERE WITH RESPE CT TO A LIMITED ITA NO.306/CTK/2012 4 COMPANYS ACCOUNTS DULY AUDITED AND THE RENDERING OF INCOME ON THE PERCENTAGE METHOD WAS ACCEPTED BY HIM AS NO SALES WERE MADE. WE ARE INCLIN ED TO FIND THAT THE LEARNED CIT HAS TRIED TO IMPORT THE MEANING OF THE COMPUTATION OF INCOME ON THE PERCENTAGE COMPLETION METHOD WHICH WAS NOT THE CASE OF THE ASSESSING OFFICER INSOFAR AS HE HAS ACCEPTED THE INCOME AS RETURNED BY THE ASSESSEE ON THE ACCOUNTS MAINTAINED AS ACCOUNTING STANDARD AGAINST WHICH NO REJECTION HAS BEEN REPORTED UNDER THE PROVIS IONS OF SECTION 145(3). WE ARE ALSO OF THE CONSIDERED VIEW THAT THE DIRECTION OF THE LEARNED CIT ON HIS OWN OBSERVATION WOULD HAVE LED THE ASSESSING OFFICER TO COME TO THE SAME FINDING INSOFAR AS NO SALES HAD BEEN MADE AND THE INCREASE IN WORK - IN - PROGRESS WAS ALREADY CONSIDERED FOR TAXATION ON THE PERCENTAGE COMPLETION METHOD. IN THIS VIEW OF THE MATER, WE DO NOT FIND ANY MERIT IN THE ORDER O F THE LEARNED CIT U/S.263. THE AUDITED ACCOUNTS AND THE SALES AGREEMENTS HAVE BEEN PERUSED BY US WHICH ARE AVAILABLE IN THE ASSESSMENT RECORD THEREFORE CANNOT BE CONSIDERED OTHERWISE AS CONSIDERED BY THE ASSESSING OFFICER AND IT IS NOT THE CASE OF THE LEARNED CIT THAT THE VIEW ADOPTED BY THE ASSESSING OFFICER W A S ONE NOT SUSTAINABLE UNDER LAW. THE ORDER OF THE LEARNED CIT THEREFORE IS QUASHED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 29.06.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.306/CTK/2012 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.JAIN BUILDERS P. LTD., AT: PARAS PLAZA, TINKONIA BAGICHA, P.S.BUXIBAZAR, CITY/DIST.BALASORE 2. THE RESPONDENT: COMMISSIONER OF INC OME - TAX, CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY. APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 25.06.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.06.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..