S.P.Enterprises, Indore V. The ACIT2(1), Indore

MA 44/Ind/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6042 (ITAT-INDORE)
• Duration Of Justice: 1 month(s) 5 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 03-07-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-06-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 28-05-2024
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 145(3)

Judgement Text

Page 1 of 6 आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER MA No.44/Ind/2024 (Arising out of ITA No.216/Ind/2023) (Assessment Year:2016-17) S.P. Enterprises UG-9 Lokhandwala Complex, Bengali Square Ring Road Indore Vs. ACIT-2(1) Indore (Appellant / Assessee) (Revenue) PAN: ACKFS0827M Assessee by Ms. Nisha Lahoti AR Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 28.06.2024 Date of Pronouncement 04.07.2024 O R D E R Per Vijay Pal Rao, JM: By way of this Misc. Application the assesse is seeking rectification of mistake in the order of this Tribunal dated 21.02.2024 for not adjudicating ground no.3 of the appeal. 2. Ld. AR of the assesse has submitted that the assesse has raised specific objection against the estimation of net profit @8% by the AO without rejecting books account u/s 145(3) of the Act. This tribunal though remanded the matter to the record of the AO however, the action of the AO for estimating MANo.44/Ind/2024 S.P. Enterprises Page 2 of 6 Page 2 of 6 the net profit @8% has not been disturbed by the Tribunal. Ld. AR has submitted that the books of account of assessee were not rejected by the AO and therefore, the estimation of the net profit by the AO is not justified and liable to be set aside. Ld. AR further submitted that in any case only the incremental closing stock shall be taken for estimation of profit. 3. On the other hand, Ld. DR has submitted that the Tribunal has given a finding on the solitary issue arises from the grounds of the assesse’s appeal as estimation of net profit @ 8% without rejecting books of account of the assesse. He has referred to para no.2 of the impugned order and submitted that the Tribunal has specifically made a reference of the effective issue arising from the grounds of appeal of the assesse therefore, it is not a case of non-adjudication of the grounds of the appeal but the Tribunal has considered all the relevant facts as well as the contentions of the parties and then decided the issue. He has relied upon the judgment of Andra Pradesh High Court in case of Pothina Venkateswara Swamy vs. ACIT 369 ITR 639 as well as judgment of Hon’ble Gujarat High Court in case of Vrundavan Ginning and Oil Mill vs. Aassistant Registrar 434 ITR 583. 4. We have considered the rival submissions and carefully perused the impugned order of this Tribunal. The grievance of the assesse is that the Tribunal has accepted the estimation of profit @8% however, only to ascertain the quantum of sales on which the profit has to be estimated has been remanded to the record of the AO. We further note that it is not a case of MANo.44/Ind/2024 S.P. Enterprises Page 3 of 6 Page 3 of 6 estimation of profit by the AO on the entire sale declared by the assesse in the return of income but the AO has estimated the profit on the closing balance of work in progress shown by the assessee and hence, there was no requirement for rejecting the books of account to estimate the income on the closing work in progress shown by the assessee which was actually sold out stock in all respect except execution of sale deed. Therefore, by considering all these facts the tribunal has uphold the action of the AO and CIT(A) for estimating the profit on the work in progress when the assesse has received full sale consideration at the time of booking but the same was not declared as a sale for the year under consideration. The relevant finding of the tribunal in para 5 & 6 are as under: “5. We have considered rival submission as well as relevant material on record. The assessee has developed a residential project namely “Jai Shri Shyam Hights” Village Bicholi Mardana, Indore. The assesse had declared sales only in respect of the flats for which sale deeds were executed by the assessee during the year under consideration and the remaining flats are shown in the closing stock of WIP. The AO noted that the assessee has shown 68% of closing stock of work in progress as creditors. The AO issued show cause notice to assessee to explain method of computation of income declared from real Estate Business. It was explained by the assesse that the booking accepted from the investors is not treated as sales until and unless the investor further sales the said property to the actual buyer and only when the sale deed is executed in favour of the actual buyer the assessee recognized the sales. We find that the assesse is accepting bookings for sale of flats through agreement to sale but the said booking is not declared as sales and the same is shown in closing stock of work in progress at cost price. This modus operandi of the assessee is not acceptable because the transactions of sale is completed when the assessee received full sale consideration from the so called investors and executed an agreement to sale. A subsequent transaction of sale by the investor in favour of the purchaser is only a transaction between MANo.44/Ind/2024 S.P. Enterprises Page 4 of 6 Page 4 of 6 the investor and the subsequent buyer. The role of the assessee is in the subsequent transaction of sale is only to execute the sale deed in favour of the purchaser. This arrangement does not result any income or business transaction of the assesse but this is merely an arrangement to avoid stamp duty at the time of sale through agreement to sell. Once the assessee receives sale consideration and executes the agreement to sell then the flat sold through the agreement to sale cannot be shown in WIP at cost. The transactions of sale between the assessee and the investors are completed when the assessee received sale consideration and executed an agreement to sale in favour of the investor/purchaser. Thus only where the booking is subsequently cancelled the same would not be considered as sale but if cancellation happen in the subsequent year then the same would be shown as sales return in the subsequent year and appropriate treatment is to be given in the books of accounts. Therefore, we do not find any substance in the contentions of the assessee that until and unless the investor sells the flat to the actual purchaser and assessee executes the sale deed transactions of booking of flat cannot be considered as sales. It is not a case of accepting the booking at a token amount but the assessee received full consideration and the subsequent sale deed executed by the assessee on the behest of the investor cannot be regarded as business transaction of the assessee. The CIT(A) has considered this issue in para 11 to 15 as under: “11. The submission of the appellant has been gone through. The appellant has itself stated that all the documents were placed before the AO, and the AO in remand report has also stated that the then AO in assessment proceedings had considered all such submissions including the ledger accounts of various parties and registries. The appellant has stated that it is consistently following mercantile system of accounting. The appellant is contending that no adverse view was taken on purchase, sale of opening stock then why closing stock is doubted and further, the books of accounts were also not rejected, as per section 145. 12. It cannot be denied that most units in the closing stock were sold and in this line of business, payments are received in this manner only and hence, the huge piling up of creditors is not possible. In this background, the estimation of profit @ 8% over and above the profit declared by the appellant even without explicitly rejecting books of accounts u/s 145, is accordingly, held to be justified. It is not leading to double addition as AO is not disturbing the closing stock. Further, it is strange that MANo.44/Ind/2024 S.P. Enterprises Page 5 of 6 Page 5 of 6 remaining list of 18 parties, are being able to furnish reply through the appellant, only now, with such a delay despite many being family members of the partner, with "deals" showing "cancelled" in most of the cases. Thus, entire description shows that AO was justified in his stand for rejecting the claim of the appellant even during remand report stage. 13. In the case of MC Puri vs. ACIT, 69 taxmann.com 313 (Chandigarh-ITAT) (2016) - where there was a book entry for sundry creditors, profit should be estimated at a little higher rate or a separate addition for creditors should have been made since the AO himself had not made a separate addition for creditors, considering the peculiarity of this case, the profit should be estimated @ 11% - Held, in favour of Revenue. 14. In view of above facts, as the appellant has already received payments as per his own submission dated 20-11-2018 but still showing huge creditors standing in the account, the same was rightly held to be not commensurate with its following of 'Percentage Completion Method', as per accounting standards. 15. In view of above discussion, the estimated addition of 8% profit on WIP, keeping in view of "creditors", made by the AO is held to be reasonable, more realistic and hence, is confirmed and accordingly. Ground Nos. 1 and 2 of the appellant are dismissed.” 6. The CIT(A) has considered all the relevant facts as well as the remand report of the AO while confirming addition made by the AO. In view of the facts and circumstances discussed above we do not find any error or illegality in the impugned order of the CIT(A) to the extent of estimation of income on the sales done by the assessee through agreement to sale except the transactions where the booking was subsequently cancelled. Accordingly for limited purpose of recalculation of the sales after reducing the booking subsequently cancelled the matter is remanded to the record of the AO to verify the relevant record and then considering the relief to the extent of booking got cancelled.” 5. Therefore, the tribunal has given the finding based on the facts which are not disputed by the assessee and however, we find that the tribunal while passing the impugned order has not considered this aspect of the matter that only the difference MANo.44/Ind/2024 S.P. Enterprises Page 6 of 6 Page 6 of 6 between the opening and closing WIP shall be considered for estimating the income. Accordingly the AO is directed to consider the increment in WIP during the year for estimation of income. We may further clarify that the AO should ensure that there should not be a double taxation on the same sale for the year under consideration and in the subsequent year when the assesse has declared the sale at the time of execution of sale deed. 6. In the result, the Misc. application of assessee is partly allowed. Order pronounced in the open court on 04.07.2024. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore, 04.07.2024 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore