SHREE MADHAV DEVELOPERS,JAMNAGAR vs. DCIT, CIRCLE-1, JAMNAGAR, JAMNAGAR

आदेश / ORDER Per, Dr. Dinesh Mohan Sinha, JM: Captioned appeal filed by the assessee, pertaining to Assessment Years (AY) 2010-11, is directed against the order passed by the Learned Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A), NFAC”], dated 18.07.2025, which in turn arises out of a penalty order passed by Assessing Officer [hereinafter referred to as “the AO”] u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], vide order dated 18.12.2017. 2. Grounds of appeal raised by the assessee, are as follows: “1. The grounds of appeal mentioned hereunder are without prejudice to one another. 2. The Id. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as the "CIT(A)"]erred on facts as also in law in rejecting the ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, initiation of action u/s. 147 of

ITA No. 558/RJT/2025 Dff Sh. Madhav Developers the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed. 3. The Id. CIT(A) erred on facts as also in law in confirming addition of Rs. 32,51,000/- made by AO treating the appellant as contractor by applying Percentage Completion Method as per accounting standard-7. The addition made and confirmed is bad in law as also on facts therefore the same may kindly be deleted. 4. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.

ITA No. 558/RJT/2025 Dff Sh. Madhav Developers That the assessment was completed with an addition of Rs.34,80,742/- on account of differences in opening balance and closing balance and stock, and an addition of Rs.32,51,000/- being the profit estimated on completion method(AS-7) was assessed for taxation. 4. That the assessee filed an appeal against the order of the AO before the Ld.CIT(A). The Ld.CIT(A) has partly allowed the appeal and confirmed the addition of Rs.32,51,000/- by order dated 18.07.2025. 5. That the assessee filed an appeal against the impugned order dated 18.07.2025 before this Tribunal. a. During the course of hearing, the Ld. AR of the assessee submitted the reopening of assessment is invalid and the addition of Rs.32,51,000/- on account of profit wrongly estimated on the project completion method(AS- 7), the addition may kindly be deleted.

b. On the other hand, Ld. DR for the revenue the relied on the order of the Ld. CIT(A).

Ground No.2, the assessee claimed that reassessment notice u/s. 148 is without jurisdiction, and is illegal and it deserve to be quashed. The entire reopening of the case was without application of mind. Since, the case has been reopened by the AO without recording any reasons to believe that the income has Page 3 of 6

ITA No. 558/RJT/2025 Dff Sh. Madhav Developers escaped assessment and without taking approval u/s. 151 of the Act for issue of notice for reopening of assessment. We note that the assessee has made objection for reopening of assessment during the assessment proceedings and the objection was dismissed by AO. The assessee has not taken any legal action on the dismissal order for reopening of assessment, however, the Ld.CIT(A) has also dismissed the ground of reopening in the appellate order dated 18.07.2025, considering the facts and circumstances of the case, we are of the view that this ground of the assessee is not tenable. Hence, this grounds of appeal is dismissed.

Ground No. 3 is related to addition of Rs.32,51,000/- on account of advances received from various parties of Rs.1,30,04,001/- was wrongly taxed, considering the project completion method(AS-7) an as such the advance of Rs.1,30,04,001/- and income estimated @25% on the advance, which comes to Rs.32,51,000/-. During the course of hearing, the Ld. AR of the assessee submitted; "The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of "The objective of this Standard is to prescribe the accounting treatment of Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of

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ITA No. 558/RJT/2025 Dff Sh. Madhav Developers contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria. "profit and loss. It also provides practical guidance on the application of these criteria."

The assessee is in constructing own building and sell the same after getting the suitable buyers, the assessee sale the respective portion of unit like shops or office or residential units to the buyer by executing sales deed prepared and registered with sub registrar under transfer of property Act. That the Appellant submitted that; 1. Not registered any agreement to sale with such depositors. 2. Not handed over the possession of property.

There was no sale of the property to the depositor. On the above position actions of the AO is arbitrary in making addition in total income. Appellant relies on the following judicial pronouncements.

In the case of Hon’ble ITAT, Rajkot Bench, in the case of ITO v. M/s. Ruch Builders, in ITA No.565/Rjt/2014, vide order dated 01.08.2018, held that; “4. The brief fact of the case is that the assessee firm has filed return of income on 27th August, 2010 declaring total income at Rs. 171290/-. Subsequently, the case was selected under scrutiny by issuing of notice dated 28th September, 2011. During the course of assessment proceedings, the assessing officer has noticed that assessee is a builder and has followed mercantile system of accounting and shown gross profit @ 35.35% during the year under consideration. The assessing officer observed that assessee has not taken into consideration booking advance of Rs. 76,86,000/- as part of sale shown by the assessee therefore he has added booking advance of Rs. 76,86,000/- to the total sale of the assesse and worked out gross profit @ 55.58% which resulted in addition of Rs. 42,71,878 to the total income of the assessee. 5. Aggrieved assessee filed appeal before the ld. CIT(A) against the order of assessing officer. The ld. CIT(A) has allowed the appeal of the assessee.

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ITA No. 558/RJT/2025 Dff Sh. Madhav Developers 6. We have heard the rival contentions and perused the material on record carefully. The nature of the business of the assessee is a builder or developer. The income is accrued when the transaction of sales are completed and revenue is recognized and income is offered only when the significant risks and awards of ownership are transferred to buyers as per accounting standard- 9. We are inclined with the findings of the Ld.CIT(A) that assessing officer is not justified in rejecting books of account of the assessee as this is the first year of business and it has followed project completion method because of being engaged in the business of builder and real estate developer. It is also demonstrated from the profit and loss a/c for the period ending 31st March, 2010 enclosed with the Audit Report u/s. 44AB that the assessee was engaged in the business of real estate and shown income from sale of shops. The facts of the case of the assesse is clearly distinguishable from the facts of the case of Tirath Ram Ahuja (P) Ltd. relied upon by the assessing officer which pertained to profit derived from contract as contractor whereas the assessee is engaged in the business of real estate as builder and developer. This is the first year of the business and it had followed project completion method as per Accounting Standard 9 as the revenue is recognized when the ownership is transferred to the buyer and in the subsequent year, the assessee’s method of accounting has been accepted by the department. In view of the above facts, we consider that assessing officer is not justified in rejecting the method of accounting followed by the assesssee and ld. CIT(A) has correctly deleted the addition made by the assessing officer . Therefore, the appeal of the revenue is dismissed.”

Order is pronounced in the open court on 22/04/2026.

Sd/- Sd/- (Dr. Arjun Lal Saini) (Dr. Dinesh Mohan Sinha) Accountant Member Judicial Member Rajkot �दनांक/ Date: 22/04/2026 Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr. CIT 5. DR/AR, ITAT, Rajkot 6. Guard File By Order //True Copy// Assistant Registrar/Sr. PS/PS ITAT, Rajkot

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