M/S. ASHIRVAD INFRASTRUCTURE,BHUBANESWAR vs. ITO, WARD-2(2), BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM आयकर अपीऱ सं./ITA No.255/CTK/2018 (नििाारण वषा / Assessment Year :2015-2016) M/s Ashirvad Infrastructure, Vs. ITO, Ward-2(2), Flat No.1, Plot No.26, Bhubaneswar Budha Nagar, Laxmisagar, Bhubaneswar-751006 स्थायी लेखा सं./PAN No. : AATFA 5443 Q (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee by : Shri Brajabandhu Bihari, AR िाजस्व की ओर से /Revenue by : Shri Subhendu Dutta, DR

सुनवाई की तािीख / Date of Hearing : 06/09/2019 घोषणा की तािीख/Date of Pronouncement : 11/09/2019 आदेश / O R D E R Per L.P.Sahu, AM: This is an appeal filed by the assessee against the order of CIT(A)-1, Bhubaneswar, dated 23.04.2018 for the assessment year 2015-2016. 2. The assessee has raised the following grounds of appeal :- 1. That the order passed by the honorable Commissioner if Income Tax (Appeal)-l as well as the order of assessment passed by the learned Assessing Officer, Ward-2 (2), Bhubaneswar without valid reason and without considering the facts of the case is illegal, unjustified and liable to be quashed. 2. That the estimation of net profit @15% on closing stock treating it as sale is unjustified, arbitrary and not tenable in law. 3. That as per the audited statement of accounts of the appellant, the net taxable profit ratio to sales was 1.04%. On the basis of this the taxable profit on stock, if treated as sale shall be Rs.1,95,610. [ 4. That again once this is taxed this year, the assessee shall claim refund in subsequent year, when the said stock has actually been sold in the AY 2016-17 and AY 2017-18.

2 ITA No.255/CTK/2018 5. That above all there was actually stock valued at cost amounting to Rs. 1,88,08,700/- as on 31.03.2015 as per certificate of architect. 6. That the appellant begs to urge further grounds to be raised at the time of hearing.

construction and sale of flat and filed return of income electronically on

01.10.2015 showing gross total income at Rs.8,08,190/-. The case was

selected for scrutiny and statutory notices were issued to the assessee

on various dates but no proper compliance was made on the part of the

assessee. On scrutiny of documents available before him, the AO

noticed that the assessee has shown closing stock(WIP) of

Rs.1,88,08,700/-, which was verified from the trading profit and loss

account and balance sheet. Thereafter details were called for as per

notice u/s.142(1) of the Act dated 01.11.2017 to furnish the details of

closing stock with valuation report. On the date of hearing the assessee

could not furnish sufficient documents/evidences/books of accounts

for verification on the above stated issue. Even another opportunity

was also given to the assessee for furnishing the details upto 8th

December, 2017 but the assessee neither appeared before the AO nor

filed any details. Accordingly, the framed the assessment and added the

entire amount of closing stock(WIP) to the total income of the assessee.

3 ITA No.255/CTK/2018 4. Feeling aggrieved by the order of AO, the assessee appealed

before the CT(A) and the CIT(A) considering the submissions of the

assessee and findings of AO has applied Percentage Completion Method

(PCM) and estimated @15% profit on the entire value of closing

stock(WIP) as declared by the assessee in his profit and loss account

and balance sheet. Accordingly, the CIT(A) substituted by profit of

Rs.28,21,305/- on the valuation of closing stock.

in appeal before the Income Tax Appellate Tribunal.

containing written submission of material fact, balance sheet as on

31.03.2015 and copy of tax audit report for A.Y.2015-2016 and

submitted that both the authorities below are not justified and the

entire value of closing stock should not be added and no any receiving

has been recognized from the closing stock as shown in the profit and

loss account. He also submitted that once it is added in the impugned

year, the assessee will get benefit in the subsequent year as opening

work-in-progress. The tax would be nutrialized. Therefore, ld. AR

prayed for allowing the appeal of the assessee.

4 ITA No.255/CTK/2018 7. On the other hand, ld.DR relied on the order of AO and submitted

that the AO has rightly added the amount of unexplained closing

stock(WIP) to the total income of the assessee. The assessee has also no

cooperated with the department at the assessment stage and unable to

substantiate the value of closing stock(WIP). No any report has been

obtained from the technical persons/architect for valuing of the closing

stock(WIP). The assessee should value on the basis of percentage

completion method as prescribed by the Institute of Chartered

Accountants of India (ICAI) for the construction contract.

materials available on record and the orders of lower authorities, we

find that the CIT(A) has applied percentage completion method and

accordingly calculated profit @15% on the value of closing stock(WIP).

We further observe that the assessee has also disclosed in the balance

sheet advance from customers of Rs.2,91,31,903/-. As per charging of

income-tax u/s.4 of the Act, the law is settled that profit should be

taxed in the year in which it has been earned/accrued by the assessee.

The assessee has followed mercantile system of accounting and in

respect of the construction contract. The Percentage Completion

Method (PCM) has been recognized for calculating of the profits. As per

our considered opinion, the assessee should have been obtained the

5 ITA No.255/CTK/2018 valuation report from any technical persons/architects for valuing of

the closing stock(WIP) and accordingly he should have been disclosed

in his profit and loss account. It is undisputed that the assessee has

taken advance from customers i.e. the final sale value has not been

recognized. We also notice from the order of AO that the assessee did

not cooperate during the course of assessment proceedings for

substantiating the valuation of closing stock(WIP) as shown in the

profit and loss account. Further as per the profit and loss account filed

before us by the assessee at paper book page no.6, we find that the

gross profit of the assessee comes to 6.45% on the assessee’s business

for the year under consideration. Therefore, as per our considered

opinion, the authorities below should apply the GP rate on the

impugned amount @6.45%. Accordingly, we restrict the addition

estimating @6.45% on the value of closing stock(WIP) as shown by the

assessee in his profit and loss account. Hence, the profit on the closing

stock of Rs.1,88,08,700/- estimated @15% by the CIT(A) without any

basis, is restricted to 6.45% and the profit is directed to be taxed in the

impugned assessment year on the closing stock at Rs.12,13,161/-.

Further in regard to the contention of ld. AR that the assessee will get

benefit of opening work-in-progress in the next year, it is made clear

that the assessee has not cooperated during the course of assessment

stage for substantiating the value shown in the profit and loss account

6 ITA No.255/CTK/2018 of work-in-progress. The AO has added as unexplained closing stock (WIP) and the ld. CIT(A) has observed that percentage completion method (PCM) has not been followed. Therefore, the contention of the assessee is not accepted. Accordingly, the grounds of appeal of the assessee are partly allowed.

Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 11/09/2019 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीलाथी / The Appellant- 1. M/s Ashirvad Infrastructure, Flat No.1, Plot No.26, Budha Nagar, Laxmisagar, Bhubaneswar-751006 प्रत्यथी / The Respondent- 2. ITO, Ward-2(2), Bhubaneswar आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, 5. Cuttack गार्ा पाईल / Guard file. 6. सत्यावऩत प्रनत //True Copy// आदेशािुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack