BISWA BIJOY GHOSH,BOLPUR, BIRBHUM vs. D.C.I.T., CIRCLE - 3, SURI, BIRBHUM

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ITA 3167/KOL/2025Status: DisposedITAT Kolkata04 August 2026AY 2018-20195 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that income tax cannot be levied on hypothetical income. Since the profit on unsold flats was offered to tax in subsequent years when they were sold, the addition made by the AO was deleted.

What were the facts?

The assessee, engaged in property development, followed the percentage completion method for revenue recognition. The AO added profit estimated in unsold flats and parking space, considering the project 100% complete. The CIT(A) confirmed this addition.

What were the issues?

Whether profit on unsold inventory, when accounted for using the percentage completion method, can be taxed in the current year if it will be taxed upon actual sale in subsequent years.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH: KOLKATA

Before: Shri Duvvuru RL Reddy&Shri Rajesh Kumar]

आयकर अपीलीय अधिकरण, कोलकाता पीठ “ए’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA श्री डुव्वुरु आर.एल. रेड्डी, न्याययक सदस्यएवं श्री राजेशकुमार, लेखा सटस्य के समक्ष [Before Shri Duvvuru RL Reddy, Judicial Member &Shri Rajesh Kumar, Accountant Member] I.T.A. No. 3167/Kol/2025 Assessment Year: 2018-19 Biswa Bijoy Ghosh Vs. DCIT, Circle-3, Suri, Birbhum

(PAN: ADAPG 3796 Q) ) अपीलार्थी ( Respondent / प्रत्यर्थी Appellant / Date of Hearing / सुनवाई 09.06.2026 की यिथर्थ Date of Pronouncement/ 04.08.2026 आदेश उद्घोषणा की यिथर्थ For the Appellant/ Shri S. K. Tulsiyan, Advocate यनर्ााररिी की ओर से For the Respondent/ Shri Sanjib Kumar Paul, Sr. DR राजस्व की ओर से

ORDER / आदेश Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 27.10.2025 for the AY 2018-19. 2. Issue raised in ground no. 1 is against the order of Ld. CIT(A) confirming the addition of Rs. 49,27,105/- as made by the AO by estimating profit included in the unsold flats and parking.

2 I.T.A. No.3167/Kol/2025 Assessment Year: 2018-19 Biswa Bijoy Ghosh 3. Ground no. 2, 3 and 4 are in support of ground no. 1.

4.

Facts in brief are that the assessee filed return of income on 02.10.2018 declaring total income of Rs. 2,39,80,470/-. Thereafter the case of the assessee was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act were issued along with questionnaire on 23.11.2020 and 17.03.2021 respectively . The assessee appeared before the AO and submitted various documents as called for from time to time. The AO noted that the assessee is engaged in the business of development of properties and during the year sold three projects namely Alapan Project, Appayan Project and Abhihita Project as apparent from the profit and loss account. The AO noted that the assessee is following percentage completion method for accounting of revenue on construction contracts. The AO asked the assessee to furnish the working of revenue recognition in respect of these projects which were furnished by the assessee and extracted by the AO at page no. 2 and 3 of assessment order . Thereafter the AO noted from the submission of assessee that the assessee has shown sales of Alapan Project at Rs. 30,71,83,032/- and also shown closing stock of flats and parking space of Appayan Project at Rs. 1,12,00,067/- and Rs. 31,72,500/- respectively. The AO noted that the assessee has followed percentage completion method and the project is 100% complete. Meaning thereby that in sales and closing stocks, there was included the profit element. The AO concluded per sq. ft. sale at Rs. 2251.17 and accordingly computed the shortfall of revenue at Rs. 1,00,33,040/- and issued show cause notice as to how the amount should not be added to the income of the assessee. However, in para 5 of the assessment order , the AO noted that the assessee himself stated that proposed addition should be reduced at Rs. 49,27,105/-. Finally the same was added to the income of the assessee in the assessmenmt framed u/s 143(3) read with Section 144B of the Act dated 30.04.2021.

5.

In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee. Hence the aggrieved assessee is in appeal before the Tribunal.

3 I.T.A. No.3167/Kol/2025 Assessment Year: 2018-19 Biswa Bijoy Ghosh 6. We have heard the rival contentions and perused the material on record. We find that the assessee engaged in the business of development of residential complexes on the land owned by the assessee. The assessee followed percentage completion method to recognize revenue and expense based on how much the project was completed. During the year, the assessee showed the unsold closing stock of flats and parking space in respect of Appayan Project in its audited balance sheet as on 31.03.2018. The contention of AO is that since the assessee is following percentage completion method, profit element included in the valuation of closing stock of unsold flats and parking space should have been offered to tax. We note that the assessee is following mercantile system of accounting to recognize the revenue. Therefore, there is a merit in the contention of the assessee that a notional revenue cannot be brought to tax. We also note in AY 2013-14 the scrutiny assessment was framed u/s 143(3) of the Act a copy whereof is available at page 124 to 127 of PB wherein the valuation method as folloed by the assessee has been accepted by revenue. Therefore, the assessee’s case is squarely covered by the decision of Hon’ble Supreme court in the case of CIT vs. M/s Excel Industries Ltd. in [2013] 358 ITR 295 (SC) wherein it has held as under:

17.

First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. ShoorjiVallabhdas& Co. [1962] 46 ITR 144 (SC) it was held as follows: "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping. an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." 19. This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount." 20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.

4 I.T.A. No.3167/Kol/2025 Assessment Year: 2018-19 Biswa Bijoy Ghosh 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.” 7. Again in the decision of Co-ordinate Bench of Delhi in the case of Red Fort Shahjahan Properties vs. ACIT, New Delhi in ITA NO. 742/Del/2020 for AY 2016-17 it was held that if no income has been materialized there can be no liability to tax a hypothetical income. We also note that profit on those flats and parking space when sold in the subsequent years were brought to tax in the AY 2019-20, 2021-22 and 2024-25 details whereof is available at page 1 of PB wherein the complete details of income offered to tax in respect of closing stocks of Appayan Project (unsold flats and parking space as shown in the audited balance sheet as on 31.03.2018) in the subsequent years when sold. The audited balance sheets of 4 years of the assessee are also enclosed from page 6 to 119 of PB. In view of these facts and also the ratio laid down above, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. In the result, the appeal of the assessee is allowed. 7.

Order is pronounced in the open court on 4th August, 2026

Sd/- Sd/-

(Duvvuru RL Reddy /डुव्वुरु आर.एल. रेड्डी) (Rajesh Kumar/राजेश कुमार) Judicial Member/न्याययक सदस्य Accountant Member/लेखा सदस्य Dated: 4th August, 2026 SM, Sr. PS Copy of the order forwarded to:

5 I.T.A. No.3167/Kol/2025 Assessment Year: 2018-19 Biswa Bijoy Ghosh 1. Appellant- Biswa Bijoy Ghosh, C.o, Jhinuk Constructions, Municipal Super Market, Municipal Super Market, Block-A, 1st Floor, Santiniketan Road, Bolpur, Birbhum-731204. 2. Respondent – DCIT, Circle-3, Suri, Birbhum 3. Ld. CIT(A)- NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata

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