The ACIT, Central Circle-2(3), Ahmedabad V. M/s. Ashrapura Developers, Himatnagar

ITSSA 845/AHD/2010

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9435 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 30-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEM BER ACIT, CENTRAL CIRCLE-2(3), AHMEDABAD (APPELLANT) VS M/S ASHAPURA DEVELOPERS SIDDHIVINAYAK COMPLEX, STATION ROAD, HIMATNAGAR PAN: AAIF2991C (RESPONDENT) REVENUE BY: SRI O.P. VAISHNAV, SR.D.R. ASSESSEE BY: NONE DATE OF HEARING : 14-08-2013 DATE OF PRONOUNCEMENT : 23-08-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THESE ARE REVENUES APPEALS AGAINST THE ORDER OF L D. CIT(A)-III AHMEDABAD DATED 21-10-2010. 2. IN ALL THESE APPEALS, REVENUE HAS TAKEN FOLLOWIN G IDENTICAL GROUNDS EXCEPT FIGURES. IT(SS)A NOS. 844, 845 & 846/AHD/2010 ASSESSMENT YEAR 2004-05, 2005-06 & 2006-07 I.T.(SS)A NOS.844,845 &846/AHD/2010 A.Y. 2004-05, 05-06 &06-07 PAGE NO ACIT VS. M/S ASHAPURA DEVELOPERS 2 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.23,49,435/- MADE BY THE ASSESSING OF FICER BY ESTIMATING THE GROSS PROFIT RATE @ 19% OF THE WORK- IN-PROGRESS SHOWN BY THE ASSESSES. 2. THE LEARNED CIT(A) FURTHER ERRED IN LAW AND ON F ACTS IN ACCEPTING THE ACCOUNTING METHOD AS ADOPTED BY THE A SSESSEE-FIRM ON THE BASIS OF WHICH THE PROFIT OF THE CONSTRUCTION B USINESS WAS COMPUTED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION MADE ON ACCOUNT OF ESTIMATING THE GROSS PROFIT RATE @ 19%. 3. BRIEF FACTS OF THE CASE ARE THAT A SEARCH ACTION UNDER SECTION 132 OF THE INCOME TAX ACT WAS CARRIED OUT IN THE CASE OF ASIAN GROUP INCLUDING THE ASSESSEE ON 7/2/2008. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS UNDER SECTION 153A OF THE INCOME TAX ACT, THE AO OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF A COMMER CIAL COMPLEX NAMED DURGA BAZAR IN HIMMATNAGAR. HE NOTICED THAT THE CON STRUCTION ACTIVITY COMMENCED IN FINANCIAL YEAR 2003-04 AND WAS ALMOST COMPLETE IN FINANCIAL YEAR 2008-09. ON THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FROM THE FINANCIAL YEAR 2005-06 TO ASSESSMENT YEAR 2007- 08, THE AO OBSERVED AS UNDER:- F.Y. CONSTRUCTIO N EXPENSES CUMULATIVE WIP % OF YEAR- WISE COST TO TOTAL COST ADVANCES RECEIVED SALES AMOUNT RETUNED INCOME 02-03 7431868 (LAND DOCUMENT) 7431868 0% 3323387 - NIL 03-04 13929281 21361149 23% 16056158 - NIL 04-05 23356594 44717743 39% 14626000 - NIL 05-06 14836830 59554574 25% 14375416 190100 0 NIL I.T.(SS)A NOS.844,845 &846/AHD/2010 A.Y. 2004-05, 05-06 &06-07 PAGE NO ACIT VS. M/S ASHAPURA DEVELOPERS 3 06-07 5352753 64907326 10% 6266977 169815 00 490130 07-08 2064319 66971645 3% 3896163 187060 00 1611799 08-09 721760 67693405 1% 3723137 330000 RETURN NOT FILED 4. THE AO OBSERVED THAT THE ASSESSEE IS FOLLOWING P ROJECT COMPLETION METHOD, I.E. THE SALES ARE RECOGNIZED WHEN THESE SH OPS ARE HANDED OVER TO THE CUSTOMERS. ACCORDING TO THE AO, THOUGH THE ASSE SSEE HAS COMPLETED MAJOR PART OF THE CONSTRUCTION OF THE PROJECT AND A LSO RECEIVED PART PAYMENT TOWARDS PURCHASE OF FLATS, THE ASSESSEE WAS POSTPON ING HIS INCOME TAX LIABILITY BY RECOGNIZING SALES ONLY WHEN THE SALES REGISTERED. THE AO REFERRED TO SECTION 4 OF THE INCOME TAX ACT AND STA TED THAT THE INCOME IS CHARGEABLE IN RESPECT OF THE TOTAL INCOME OF EACH PREVIOUS YEAR. THE INCOME ACCRUING IN ONE YEAR CANNOT BE DEFERRED TO THE FUTU RE YEARS BY ADOPTING AN INCORRECT METHOD OF ACCOUNTING WITH A VIEW TO POSTP ONE THE LIABILITY. HE REFERRED TO THE DECISION OF SUPREME COURT IN THE CA SE OF THE TIRTHRAM AHUJA PVT. LTD., 186 ITR 428. HE ISSUED A SHOW CAUSE NOTI CE TO THE ASSESSEE ASKING THE ASSESSEE TO EXPLAIN AS TO WHY WORK IN PROGRESS SHOULD NOT BE TAXED AT 19% IN EACH YEAR, WHICH IS THE AVERAGE GP SHOWN BY THE ASSESSEE. BEFORE AO, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT FOLLOWING PROJECT COMPLETION METHOD BUT THE SALES ARE SHOWN AS AND WH EN A PARTICULAR UNIT IS SOLD. THE ASSESSEE TRIED TO CONVINCE THE AO THAT THE PROJECT COMPLETION METHOD MEANS THE SALES ARE RECORDED WHEN THE ENTIRE PROJECT IS COMPLETED. WHEREAS, THE ASSESSEE IS RECORDING THE SALES ARE GENUINE THE POSSESSION IS GIVEN TO THE CONCERNED PARTIES AND THE SALE DEED IS EXECUTED. HOWEVER, THIS CONTENTION WAS NOT ACCEPTED BY THE AO AND HE STILL HELD THAT THE ASSESSEE IS I.T.(SS)A NOS.844,845 &846/AHD/2010 A.Y. 2004-05, 05-06 &06-07 PAGE NO ACIT VS. M/S ASHAPURA DEVELOPERS 4 FOLLOWING PROJECT COMPLETION METHOD WHICH IS NOT CORRECT METHOD IN THIS CASE. HE SUBMITTED HIS OWN METHOD OF ESTIMATING GP AT THE RATE OF 19% OF THE WORK IN PROGRESS SHOWN IN EACH YEAR. BY THIS WA Y, THE FOLLOWING ADDITIONS WERE MADE BY HIM IN DIFFERENT ASSESSMENT YEARS AS UNDER: ASSESSMENT YEAR GP DECLARED BY THE ASSESSEE GP ESTIMATED BY THE AO 2004-05 0 2846563 2005-06 623195 4437753 2006-07 2804346 2818998 2007-08 3736819 1017023 2008-09 1240600 399220 IN ASSESSMENT YEAR 2007-08 AND ASSESSMENT YEAR 2008 -09 AS THE INCOME SHOWN BY THE ASSESSEE WAS MORE THAN THE INCOME COMP UTED BY THE AO, THE AO HAS ACCEPTED THE RETURNED INCOME AS IT WAS HIGHE R THAN THE ASSESSED INCOME. 5. LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER:- 8. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. THE MAIN REASON GIVEN FOR FALL IN GP BY THE AR IS THAT IN AS SESSMENT YEAR 2006- 07, THE APPELLANT HAS SOLD MAINLY THE SHOPS (84%) A T GROUND FLOOR WHICH HAD HIGHER RATE THAN AS COMPARED TO THE SHOPS SITUATED AT OTHER HIGHER FLOORS (16%). WHEREAS, IN ASSESSMENT YEAR 2 007-2008 AND ASSESSMENT YEAR 2008-2009, THE SALE OF GROUND FLOOR S SHOP CONSTITUTED ONLY 53% AND, 49% RESPECTIVELY OF THE TOTAL SALES. FURTHER, IT WAS CONTENDED THAT THE AO HAS ALSO CONSIDERED THE ISSUE OF FALL IN GP IN THESE TWO ASSESSMENT YEARS, BUT DID NOT MAKE ANY AD DITION ON THIS GROUND. AS CAN BE SEEN FROM THE ABOVE CHART THAT IN SUBSEQUENT YEARS THAT IS ASSESSMENT YEAR 2009-2010 AND 2010-2011, TH E GP RATE HAS BEEN SHOWN BY THE APPELLANT AT MORE THAN 35%. THIS INFORMATION REGARDING THE GP RATE IN SUBSEQUENT YEARS WAS NOT A VAILABLE WITH THE AO AS THE ASSESSMENT ORDER HAS BEEN PASSED BY THE A O IN THE MONTH OF DECEMBER 2009. THEREFORE, THE CONTENTION OF THE APPELLANT THAT THE FALL IN GP IS DUE TO THE REASON THAT IN EARLIER YEA R THAT IS ASSESSMENT YEAR 2006-2007, MOSTLY THE SHOPS AT GROUND FLOOR W AS SOLD BY THE APPELLANT WHICH CARRIED HIGHER PRICE AND IN ASSESSM ENT YEAR 2007- I.T.(SS)A NOS.844,845 &846/AHD/2010 A.Y. 2004-05, 05-06 &06-07 PAGE NO ACIT VS. M/S ASHAPURA DEVELOPERS 5 2008 AND 2008-2009, THE PERCENTAGE OF GROUND FLOOR SHOPS SOLD WAS LESS THAN THE SHOPS SOLD AT THE HIGHER FLOORS, DOES NOT APPEAR TO BE FULLY CORRECT IN VIEW OF THE FACT THAT IN SUBSEQUEN T YEARS THAT IS ASSESSMENT YEAR 2009-2010 AND ASSESSMENT YEAR 2010- 2011, EVEN THOUGH THERE IS SUBSTANTIAL SALE OF SHOPS AT A HIGH ER FLOORS, STILL THE GP HAS BEEN SHOWN AT MORE THAN 35% AS STATED ABOVE. IT IS POSSIBLE THAT THE APPELLANT COULD HAVE CLAIMED HIGHER COST O F WORK IN PROGRESS; WHICH IS SOLD DURING ASSESSMENT YEAR 2007-08 AND AS SESSMENT YEAR 2008- 09, RESULTING INTO LESSER GP RATE. THE AR COU LD NOT CONVINCE ME AS TO ON WHAT BASIS THE COST OF THE SHOPS SOLD HAS BEEN WORKED OUT BY THE APPELLANT. IF THE CORRECT COST OF THE SOLD SHOP S IS WORKED OUT, THEN THE GP IN THESE TWO YEARS SHOULD HAVE GONE UP AND T HE GP OF THE SUBSEQUENT TWO YEARS SHOULD HAVE BEEN REDUCED TO TH AT EXTENT BECAUSE THE CLOSING WORK IN PROGRESS OF EARLIER YEAR BECOME S THE OPENING WORK IN PROGRESS OF SUBSEQUENT YEAR. THEREFORE, IN THE INTEREST OF THE JUSTICE, IT WOULD BE FAIR, TO ESTIMATE AD HOC ADDIT ION OF RS 3 LAKH IN ASSESSMENT TEAR 2007-08 AND RS. 2 LACS IN ASSESSMEN T YEAR 2008-09. IN OTHER WORDS, THE ADDITIONS MADE IN ASSESSMENT YE AR 2004-2005, 2005-2006, 2006-07 ARE DELETED AND ENHANCEMENT OF R S. 3 LAKH IS MADE IN ASSESSMENT YEAR 2007-08 AND RS. 2 LAKH IN A SSESSMENT YEAR 2008-09. SINCE THE ABOVE FINDING OF THE LD. CIT(A) REMAINED UNCONTROVERED BY REVENUE AND ASSESSEE HAS ALSO NOT FILED ANY APPEAL AGAINST THE ENHANCEMENT OF INCOME MADE BY LD. CIT(A) FOR THE ASSESSMENT YEA R 2007-08 AND 2008- 09, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. 6. IN THE RESULT, REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 23/08/2013 AK I.T.(SS)A NOS.844,845 &846/AHD/2010 A.Y. 2004-05, 05-06 &06-07 PAGE NO ACIT VS. M/S ASHAPURA DEVELOPERS 6 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER/ , / ,