AIM REALTORS PVT LTD.,MUMBAI vs. ITO 9(1)(2), MUMBAI

Facts relating to the issue are stated in brief. The assessee is a builder. It has redeveloped a building owned by Ujamba CHSL, which consisted of forty new flats. As per the agreement, the assessee was entitled to sell twenty flats. The assessee followed percentage completion method for disclosing income. The assessee disclosed loss of Rs. 15,903/- in A.Y. 2014-15, profit of Rs. 14.14 lakh in the current A.Y. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has applied for a building completion certificate on 6.2.2015 itself. He further noticed that the assessee has declared profit from this project in the succeeding assessment year i.e. A.Y. 2016-17 also. Since the assessee has applied for a building completion certificate, the Assessing Officer took the view that the assessee

We have heard the parties and perused the record. We noticed earlier that the AO has placed full reliance on the application filed by the assessee for “building completion certificate” for coming to the conclusion that the assessee has completed the project during the current year itself. However, we notice that that the assessee has incurred expenses on construction in the succeeding A.Y. i.e. A.Y. 2016-17 also. Further the Assessing Officer himself noted at page No.9 of the assessment order that the maximum sale of the flats have taken place in the succeeding assessment year. There should not be any dispute that the income could be declared on the flats actually sold by the assessee and the income would be offered on those sold flats on the basis of percentage of completion. Further, in our view, the books of accounts should be the basis to determine the income, as the books of accounts only depicts the income earned and expenses incurred by the assessee. The application filed for building completion certificate is an external document and in our view, the AO was not justified in placing reliance on it by totally disregarding the books of account. In this view of the matter, we are of the view there is no requirement to disturb the workings made by the assessee. Further, the fact that the Assessing Officer has not rejected the books of accounts would support our above said view. Without rejecting the books, the AO could not have estimated the profits of the assessee. Further, under percentage completion method, income is required to be estimated and hence any increase or decrease made in the said estimated income would have corresponding effect in the succeeding year. Hence the exercise undertaken by the AO is a revenue neutral exercise only

In the result appeal filed by the assessee is allowed.