ZODIAC DEVELOPERS PVT LTD,MUMBAI vs. INCOME TAX OFFICER WARD 11(3)(2), MUMBAI

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ITA 8635/MUM/2025Status: DisposedITAT Mumbai31 July 2026AY 2017-186 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal noted that the assessee had obtained permission from the National Company Law Tribunal to revise its financial statements. This permission implies that the original financial statements were not necessarily final and could be amended. Therefore, the revised return, reflecting the amended financials, should be considered.

What were the facts?

The assessee, a real estate developer, initially recognized advances from property sales as revenue using the Percentage Completion Method. Subsequently, advised to follow the Completed Contract Method, it filed a revised return. The Assessing Officer rejected the revised return, considering the original audited financials as final.

What were the issues?

The primary issue was whether the Assessing Officer was justified in rejecting the assessee's revised return of income when the assessee had obtained permission to revise its financial statements.

Which sections of the Income-tax Act were involved?

Section 139(5)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, G” BENCH, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "G” BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Zodiac Developers Pvt. Ltd. 205-C, 45 Juhu Residency, Off. Gulmohar Road, Opp. Juhu Club Millennium, Juhu, Vile Parle West, Mumbai 400049. Maharashtra. [PAN:AAACZ0428N] …………. Appellant Vs Income Tax Officer Circle 11(3)(2), Mumbai Aayakar Bhawan, MaharshiKarve Road, Mumbai – 400020, Maharashtra. …………. Respondent Appearance For the Appellant/Assessee Shri S. C. Tiwari For the Respondent/Department Shri Arun B, Sr.DR Date Conclusion of hearing 07.05.2026 Pronouncement of order 31.07.2026

O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is directed against the Order, dated 30/10/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby Learned CIT(A) had dismissed the appeal against the Assessment Order, dated 14/12/2019, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’],for the Assessment year 2017-2018. 2. The Assessee has raised following grounds of appeal: 1. That on the facts and in the circumstance of the case of the appellant and in law, ld. CIT(A) has erred in upholding the assessment of income from Hanuman Nagar Project at Rs.17,96,11,766 as against Rs.18,34,072 shown by the Assessment Year: 2017-2018 appellant on application of percentage of completion method whereas for assessment year 2017-18 under consideration only the incremental cost of construction during financial year 2016-17 could be taken into account. 2. That, without prejudice to ground of appeal no.1, on the facts and in the circumstance of the case of the appellant and in law, Id. CIT(A) has erred in rejecting the appellant's submissions that its total income for assessment year 2017-18 should be computed in accordance with the revised return of income filed by the appellant. 3. Each of the grounds of appeal enumerated above are independent and without prejudice to one another. 4. The Ld. CIT(A) order and the assessing officer's order, being contrary to law, evidence and facts of the case should be set aside, amended or modified in the light of grounds of appeal above. 5. That the appellant craves leave to reserve to himself the right to add, alter or amend any of the aforesaid grounds of appeal at or before the time of hearing and to produce such further evidence, documents and papers in support of his claim as may be necessary.” 3. We have heard both the sides and have perused the material on record.

4.

The facts as emanating from the record are that the Assessee is a real estate development company engaged in the business of reconstruction/redevelopment of slum areas, or old buildings belonging to the Municipal corporation of Greater Mumbai. The Assessee had been consistently following ‘Completed Contract Method’ under which the income/revenue was being recognized when the contract is completed or substantially completed.On reviewing the financial statements of the Assessee for the Financial Year ended 31 March 2017, its auditors opined that the Assessee had received sizeable amounts as advances towards sale of property; and following ‘Percentage Completion Method’, the Assessee should recognize amounts received as advance as revenue. Therefore, advance towards sale of property related to the sale of 7 properties forming part of the ‘Hanuman Nagar

Assessment Year: 2017-2018 Project’ of the Assesseewas recognized as revenue. Accordingly, the financial statements of the Assessee-Company for the year ended 31 March 2017 were prepared and the same were duly approved by the shareholders of the Assessee Company. Subsequently, the Assessee Company was advised that in relation to the 7 properties forming part of the ‘Hanuman Nagar Project’, the Assessee Company should have followed ‘Completed Contract Method’.

5.

Meanwhile on the basis of the aforesaid financial statements (wherein the advances received by the Assessee in respect of the 7 properties of ‘Hanuman Nagar Project’ were recognized as revenue), the Assessee filed return of income for the Assessment Year 2017-2018 offering to tax the said revenues. The case of the Assessee was selected for scrutiny. During the assessment proceedings the Assessee claimed that the Assessee had filed revised return wherein the Assessee had not offered to tax revenues in relation to advance received for 7 properties forming part of ‘Hanuman Nagar Project’. The Assessing Officer did not consider the revised return filed by the Assessee observing that the revised return filed by the Assessee was not a valid return. In paragraph 5.2 of the Assessment Order, the Assessing Officer recorded as under: “5.2 The fact is that assessee's accounts were audited by auditors on 04/09/2017 which were duly signed by Sh. Ramesh V Shah and Jimit R Shah, directors of the company. As per audited P&L account the profit before tax was worked out at Rs. 9,52,62,517. The assessee has filed revised return withdrawing profit worked out as per the audited accounts though no other audited accounts were prepared after that date. There is no justification for claiming deduction of Rs. 9,28,08,537 in any other amount allowable as deduction in revised return. Thus the claim made by assessee is in addition to the profit shown in P&L account in the audited P&L account which is not permitted.” 6. The Assessee filed appeal against the above assessment order which was dismissed by the Learned CIT(A) observing as under

Assessment Year: 2017-2018 in the revised return, the Assessee had reduced its tax liability by way of showing receipt from sale of 7 flats as 'advance' and claimed that agreement for sale of 7 flats were not registered in the relevant previous year. The Assessee had filed petition in National Company Law Tribunal on 20/07/2018 seeking following permission to revise the Financial Statements and Directors' Report for the year ended 31st March 2017. However, the Assessee has not produced the outcome of its petition in the appellate proceedings.

7.

Now, the Assessee has placed before us the decision of the National Company Law Tribunal passed in Company Petition [CP 2875 OF 2018, CP (IB) No. 4697/MB/2018, Dated 14/02/2025] wherein it has been held as under:

“5.4. The Regional Director has drawn attention of this Tribunal to Paras 19, 20 and 21 of their report. We note that Paras 19 & 20 deals with the Tax incidence arising from such change in the Accounting Policy, in relation to which the Principal CIT- 3, Mumbai has already filed their no objection with a request to extend the liberty to the Income Tax Department to examine the tax obligations arising from such revision. As regards Para No. 21, we are of the considered view that the office of the

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