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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: SRI RAJPAL YADAV & DR. MANISH BORAD
order
: March 28th, 2023 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2016-17 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income Tax (Appeal)-22, Kolkata [in I.T.A. No.: 157/KOL/2022 Assessment Year: 2016-17 Eastern Devcon Limited. short “ld. CIT(A)”] dated 27.01.2022 arising out of the Assessment Order framed u/s 143(3) of the Act dated 10.12.2018.
The assessee is in appeal before the Tribunal raising the following grounds: “
1. For that Ld. CIT(A) erred in upholding Ld. AO’s action in deducting the books of account u/s 145(3) and resorting to estimate of profit from business.
2. For that Ld. CIT(A) erred in upholding the estimate of income from business at Rs 430,341/- by adopting NP rate of 4.01%.
3. For that loss shown by appellant at Rs 51,87,901/- ought to have been accepted.”
3. Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in real estate business. Loss of Rs. 51,87,901/- declared in the e-return filed for AY 2016-17. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. During the course of assessment proceedings ld. AO noticed that the assessee sold the flats for a consideration of Rs. 1,07,31,700/- and the value of opening stock of these flats was also Rs. 1,07,31,700/-. Ld. AO further noticed that the assessee has claimed various other expenses amounting to Rs. 52,54,688/- and has claimed loss. Ld. AO further observed that the assessee has shown the value of opening stock at market price whereas the valuation method stated in the audit report is at cost. The submissions filed by the assessee could not convince ld. AO and he rejected the books of accounts u/s 145(3) of the Act and estimated net profit at the rate of 4.01% of the revenue of Rs. 1,07,31,700/- declared by the assessee and assessed the business income at Rs. 4,30,341/-. Income assessed at Rs. 4,43,780/-. Page 2 of 5 I.T.A. No.: 157/KOL/2022 Assessment Year: 2016-17 Eastern Devcon Limited.
4. Aggrieved, the assessee preferred appeal before ld. CIT(A) but failed to convince.
5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee vehemently argued referring to the written submissions filed before the lower authorities and stated that sales for the year are not in dispute and opening stock is brought forward from the preceding year and the same ought to have been accepted.
On the other hand, ld. D/R supported the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us. The assessee has challenged the finding of ld. CIT(A) confirming the action of ld. AO of rejecting the books of accounts and estimating the net profit at the rate of 4.01%. We notice that the assessee company has sold the flats for a sale consideration of Rs. 1,07,31,700/-. The sales are not in dispute before us. In the audited balance sheet opening stock value of these flats is shown at Rs. 1,07,31,700/-. Both the lower authorities have raised doubt about the valuation of opening stock. We observe that the value of opening stock of Rs. 1,07,31,700/- is brought forward from the preceding year. Though there remains a state of confusion that whether in the preceding year the assessee valued the flats applying one of the methods i.e. at cost price or at cost or at market price whichever is higher. If for the sake of argument, it is considered that in the preceding year the assessee has valued the closing stock at market price though it was required to be valued at cost price but then the positive impact on income Page 3 of 5 I.T.A. No.: 157/KOL/2022 Assessment Year: 2016-17 Eastern Devcon Limited. has already been accounted for in the preceding year itself and the same has not been in dispute by the Revenue authorities. Once the book results of the preceding financial year have been accepted then for the purpose of computing income for the current year i.e. the year under appeal the value of the closing stock of the preceding year is to be adopted as opening stock for this year. Also, it is pertinent to note that ld. AO has applied the net profit rate on the sales as declared by the assessee. Therefore, since there is no change in the figure of sales and the figure of opening stock is brought forward from the preceding year, the action of ld. AO rejecting the book results for the year under appeal is not justified and the finding of both the lower authorities rejecting the book results is not in accordance with law.
We, therefore, under the given facts and circumstances of the case are of the considered view that the finding of both the lower authorities deserves to be set aside and the book results declared by the assessee have to be accepted. Thus, ground nos. 1, 2 & 3 raised by the assessee are allowed.