THE DCIT, CIRCLE-3(1)(1),, AHMEDABAD vs. M/S. NAVARATNA ORGANISERS & DEVELOPERS PVT. LTD.,, AHMEDABAD

As the facts and issue involved in the two appeals of the revenue are common therefore the same are adjudicated by this common order by taking the facts of ITA No. 780/Ahd/2017 for the sake of convenience.

The fact in brief is that assessee has filed return of income declaring income of Rs. 23413987/- on 30th Sep, 2010. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 1st Sep, 2011. The assessee is engaged in the business of developing of various projects as developer for which it was earning development fees. The assessment u/s. 143(3) of the case in the case of assessee was finalized on 21st March, 2013 at Rs. 83691740/-. Further facts of the case are discussed while adjudicating ground of appeal filed by the revenue.

During the course of assessment proceedings by adopting percentage completion method, the assessing officer has observed that by adopign the percentage completion method, the assessee was not offering the correct amount of profit to tax even though it was involved in all stages of activities of the project starting from acquisition of land, construction of the project and incurring expenses from the project as can be seen from the balance sheet of the company as well as finally handing over of the constructed development property to the unit holder. Following the earlier assessment years, the assessing officer has concluded that by not adopting percentage completion method the assesesse was not offering the correct amount of profit to tax even though it was involved in all stages of activities.

Aggrieved assessee filed appeal before the ld. CIT(A). The CIT(A) has allowed the appeal of the assessee.

During the course of appellate proceedings before us, the ld. counsel has submitted that the identical issue on identical fact in the case of the assessee for the assessment year 2008-09 and 2009-10 have been decided by the Co-ordinate Bench of the ITAT Ahmedabad vide ITA Nos. 2634/Ahd/2011 and 1875/Ahd/2013 in favour of the assessee. Ld. departmental representative could not controvert these undisputed facts. With the assistance of ld. representatives, we have gone through the record and order of the aforesaid mentioned order of the Co-ordinate Benches and consider the impugned issue has been decided in favour of the assessee . Relevant part of the Co-ordinate Bench of the ITAT is reproduced as under:- “10. As far estimation of profit at 8% of the WIP in both these years is concerned, we have gone through the record with the assistance of the ld. representatives. In the Asstt.Year 2008-09, WIP of Rs.45,98,27,752/- was noticed by the AO. He estimated 8% profit on such WIP and made addition of Rs.3,67,86,220/-. On similarly analogy, he noticed WIP of Rs.54,36,30,173/- in the Asstt.Year 2009-10 and estimated profit at Rs.4.34 crores. These additions have been deleted by the ld.CIT(A). Similar addition was made in the case of the assessment in the Asstt.Year 1997-98 which was deleted by the ld.CIT(A). Dispute travelled upo the Tribunal vide ITA No. 1114/Ahd/2005 and the Tribunal has upheld the deletion. Copy of the Tribunal's order has been placed on record. 11. On due consideration of all the materials, we are of the view that the assessee was working as a developer. It was not owner of work-in-progress. Moreover, on completion of project, it used to offer receipt received in the shape of development fees and such receipts have been recognized on completion of project. Consistently, this has been shown by the assessee. The AO has made an addition on hypothetical basis by treating the WIP belonged to the assessee. It has been contended before us that the AO has invoked Accounting Standard-7 which otherwise applicable on

During the course of assessment, the assessing officer has noticed from assessment order for assessment year 2009-10 that the assessee had not disclosed the basis of various figures appearing under the head net of collection over expenses relating to Kalhar Bangalow Project. He has further stated that on the basis of seized document, the assessing officer had observed in the assessment order for assessment year 2007-08 that the said project was near completion in financial year 2005-06. In view of this, he was of the view that genuineness of the figures under the head net of collection over expenses was not verifiable. From the details filed by the assessee, the assessing officer has stated that assessee had received collection of Rs. 59,69,567/- and had incurred project cost of only Rs. 2,31,04,644/- in relation to the Kalhar Bungalow Project, therefore, the excess collection in the hand of the assessee in relation of this project stood at Rs. 3,65,90,983/-

Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the aforesaid addition. During the course of appellate proceedings before us, the ld. counsel has contended that similar addition on identical issue has been adjudicated by the decision of Co-ordinate Bench for assessment year 2008-09 and 2009-10 vide 2634/Ahd/2011 1075/Ahd/2013 in favour of the assessee. The ld. departmental representative could not controvert this undisputed fact. With the assistance of ld. ld. representatives we have gone through the aforesaid decision of the Co-ordinate bench of the ITAT and consider that the similar issue has been decided in favour of the assessee by the aforesaid decision of the Co- ordinate bench . Relevant part of the decision of Co-ordinate Bench of the ITAT is reproduced as under:- “9. With the assistance of ld. representatives, we have gone through the record carefully. A perusal of the assessment order would indicate that the Id.AO has treated the assessee as owner of Kalhar Project whereas the case of the assessee is that it is a developer. It used to develop housing project on behalf of the cooperative societies and charges development fees for carrying out such development work. According to the assessee, cooperative societies provide material for carrying out development activity. The assessee used to collect booking amount on behalf of the society and its development work is being shown under the head work-in-progress on asset side of the balance sheet. Similarly, collections taken from the members are being shown as liability in the balance sheet. Thus, stand of the assessee before the AO was that being a developer, its rights were limited to receive development fees on completion of project. The society is owner and has right, title and interest on work-in-progress. This stand of the assessee has been accepted by the Id.CIT(A) in both the assessment years. Contrary to this stand, nothing has been brought to our notice. The assessee has demonstrated that it was working only as a developer and alleged collection over expenditure cannot be treated as its business income, rather, it was a liability in the balance sheet. Therefore, we are of the view that the Id.CIT(A) has rightly deleted this addition and, no interference is called for. Similarly, in A.Y.2009-10 and addition of Rs.4,84,35,702/- was made on account of excess of collection over expenses. It was deleted by CIT(A). We do not find any error in the order of ld. CIT(A) . Thus, this ground is rejected in both years.” Respectfully following the decision of the Co-ordinate bench of the ITAT on similar issue and similar fact in the case of the assessee as supra we

In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 21-02-2019