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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
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:
1. “The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.21,62,250/- made on account of net profit by adopting the percentage of completion method.
2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.53,91,736/- made on account of disallowance of interest expenses u/s.36(1)(iii) of the Act.
3. The Ld. CIT(A) has further erred in law and on facts by not appreciating that the assessee could not establish that the investment in assets yielding exempt income was clearly made out of interest free funds available.
4. On the facts and circumstances of the case, the Ld. Commissioner of Income Tax(A) ought to have upheld the order of the Assessing Officer.
5. It is, therefore, prayed that the order of the Ld. Commissioner of Income Tax(A) may be set-aside and that of the Assessing Officer be restored.”
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
CO No.74/Ahd/2016 M/s. Ratnabhumi Developers Pvt. Ltd. Asst.Year –2012-13 - 3 - income of the assessee. In appeal, the same was deleted by the Learned CIT(A), hence the instant appeal before us.
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.
It appears from the records that the assessee is following the same system of computation in A.Y. 2011-12 which was accepted by the Revenue. It is a settled principle of law that AS-7 is applicable only to the civil contractors and AS-9 is applicable to the AS-9 developers and builders. Further that, it is found from the documents that the assessee has been following the same recognized method of accounting consistently; the said method was applied in 2011-12 which was followed in the year under consideration. But the AO has made addition of the members contribution Rs.21,62,250/- based on application of AS-7 and thereby applying percentage of completion method for recognition of revenue. It is a fact that the Learned AO has not given any finding that the method so applied by the appellant is not able to reflect the true profits neither the bank books of account of the appellant has been rejected on this ground. We find no reason to disturb such method of accounting adopted
CO No.74/Ahd/2016 M/s. Ratnabhumi Developers Pvt. Ltd. Asst.Year –2012-13 - 4 - by the appellant and/or imposing AS-7 for working out of the profit of appellant based on percentage completion method for recognition of Revenue which was rightly taken into consideration by the Learned CIT(A) while deleting addition of Rs.21,62,250/-. Thus, we find no infirmity in the order impugned on the basis of the discussion made hereinabove. Hence, the same is hereby confirmed and Revenue’s appeal is found to be devoid of any merit and thus dismissed.
2nd Ground relates to deletion of addition of Rs.53,91,736/- made on 5. account of disallowance of interest expenses u/s 36(1)(iii) of the Act.
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.
CO No.74/Ahd/2016 for A.Y. 2012-13: 7. At the time of hearing of the matter, the Learned Counsel for the assessee submitted before us that he is not pressing the CO. Hence, CO is dismissed as not pressed.