THE DCIT, CIRCLE-3(1)(2), AHMEDABAD vs. M/S. RATNABHUMI DEVELOPERS PVT. LTD., AHMEDABAD

The instant appeal filed by the Revenue and cross objection filed by the assessee are directed against the order dated 12.01.2016 passed by the CO No.74/Ahd/2016 M/s. Ratnabhumi Developers Pvt. Ltd. Asst.Year –2012-13 - 2 - Commissioner of Income Tax (Appeals)-9, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the order dated 30.12.2014 passed by the Deputy Commissioner of Income Tax, Circle – 3(1)(2), Ahmedabad for the Assessment Year 2012-13 with the following grounds:

The assessee engaged in the business of construction, filed its return of income on 30.09.2012 declaring total income at Rs.6,39,91,610/- which was processed u/s 143(1) of the Act. Subsequently, under scrutiny notice u/s 143(2) dated 13.08.2013 was served upon the assessee. During the course of assessment proceeding, it was found from the records submitted by the assessee that the assessee had received an amount of Rs.2,40,25,000/- as members contribution towards project. The assessee had shown net profit @8.68% (6,67,14,040 as profit / 76,77,15,139 as sales) but has not shown any profit on such members contribution. According to the Learned AO the income of the assessee is to be taxed under AS-7 and hence 9% of profit of such members contribution amounting to Rs.21,62,250/- has been added to the total

The case of the assessee is this that the fact that the assessee is a developer and builder has already been accepted by the Learned AO in the preceding year wherein assessment was made u/s 143(3) of the Act clarifying that the appellant is a developer and as such AS-7 (percentage of completion method) is not applicable and its profit is required to be computed under accounting standard-9 i.e. on the basis of project completion method being developing commercial complex and not as a contractor. In that view of the matter, the order passed by the Learned Assessing Officer is against the provision of the Act and the same has been rightly deleted by the Learned CIT(A) as the case made out by the assessee before us.

The case of the assessee is this that the investment made by the assessee was out of interest free funds available with it. It appears from the records that the assessee has received 70.23 crores as advances from the members on which no interest was payable. It also appears from the balance sheet of the company as on 31.03.2012 available at paper book before us that the assessee is having share capital to the tune of Rs.50,00,000/- and reserve and surplus to the tune of Rs.4,58,21,184/- reflecting at Page 29 of the paper book. The assessee is having more interest free funds then the borrowed funds and also there is interest expenditure. The assessee also invested in mutual funds during the year under consideration out of the said booking advances for a short period and interest was also earned. The interest expenses have reduced from Rs.2.87 to 1.42 crores and the borrowing has also reduced from Rs.4.57 crores to 1.34 which has not been disputed by the authorities below. Since the assessee is having huge amount of interest free funds and the assessee has reduced its interest liability during the financial year the Learned CIT(A) deleted such addition made u/s 36(1)(iii) of the act which according to us does not call for CO No.74/Ahd/2016 M/s. Ratnabhumi Developers Pvt. Ltd. Asst.Year –2012-13 - 5 - any interference. It is also evident that the amount of interest paid in respect of capital borrowed for the purpose of business or professions fact of which has also not been disputed by the Revenue. Thus taking into consideration the ratio laid down in favour of the assessee in the similar situation in the judgments passed in the matter of CIT-vs-Reliance Utilities & Power Ltd reported in 313 ITR 340 (Bom) as well as in the matter of S. A. Builders Ltd.-vs-CIT reported in 288 ITR 1 and also in the matter of CIT-vs-Torrent Leasing Finance Tax Appeal No.620 to 625 of 2006 as relied upon by the Learned AR before us. We, confirm the order passed by the Learned First appellate authority. Revenue’s appeal is thus dismissed.