ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE - 2(4), AHMEDABAD, AHMEDABAD vs. PACIFICA BUILDERS PRIVATE LIMITED, AHMEDABAD

ITA 2335/AHD/2026Status: DisposedITAT Ahmedabad13 October 2026AY 2020-219 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the addition made by the AO was based on an erroneous re-computation of project profit under POCM, and it was not supported by any incriminating material found during the search. The assessee's consistent application of POCM, accepted in earlier years, was an admitted fact. Crucially, the AO had not pointed out any defects in the assessee's books of accounts nor rejected them under section 145(3). The search did not yield any evidence of unrecorded cash or hidden assets, and all project income was accounted for through bank channels and taxed over the project's duration. The addition was made solely by adopting an alternative working and revising the percentage of completion. The Tribunal emphasized that a Completion Certificate from a local authority cannot be treated as conclusive evidence of the completion of all contractual obligations of a developer. The assessee had demonstrated that substantial work related to amenities, finishing, infrastructure, and other project obligations continued even after the issuance of the Completion Certificate, and the corresponding expenditure incurred post-completion was not disputed by the Revenue. A reconciliation statement submitted by the assessee showed that the total revenue recognized over the project period exceeded the revenue considered by the Department, indicating that the alleged suppression arose due to timing differences in revenue recognition, not due to suppression of receipts or income. Therefore, in the absence of any finding of suppression of revenue, inflation of expenditure, or defects in the regularly maintained books of accounts, the AO was not justified in substituting the assessee's consistently followed accounting method with an estimated computation. The Tribunal found no infirmity with the CIT(A)'s order deleting the addition and upheld it.

What were the facts?

The Revenue filed three appeals before the Income Tax Appellate Tribunal (ITAT) challenging the orders of the Commissioner of Income Tax (Appeals) (CIT(A)) for Assessment Years (AY) 2020-21 and 2022-23. The appeals concerned Pacifica Builders Pvt. Ltd. and Pacifica India Projects Pvt. Ltd. The Assessing Officer (AO) had made an addition of Rs. 3,52,12,602/- on account of alleged suppression of profit for AY 2020-21, based on a search under section 132 of the Income Tax Act, 1961, conducted on March 20, 2023. The AO contended that the assessee incorrectly applied the Percentage of Completion Method (POCM) by deferring profit recognition despite issuance of Completion Certificates and handing over possession. The CIT(A) deleted the addition, finding no justification for the AO's recalculation and no evidence of suppression.

What were the issues?

1. Whether the CIT(A) erred in deleting the entire addition of Rs. 3,52,12,602/- made by the AO on account of suppression of profit for AY 2020-21, particularly in a post-search reassessment scenario based on digital evidence (Tally data) seized under section 132, as per section 147 of the Income Tax Act, 1961. Assessee's contentions: - The addition was based on assumptions without evidence of sales suppression or undisclosed income. - The assessee consistently followed POCM, which was accepted in earlier years. - The Completion Certificate does not signify completion of all contractual obligations, and substantial expenditure continued post-issuance. - The AO did not point out defects in the audited books of account or reject them under section 145(3). - The AO erred in assuming 100% project completion upon issuance of the Completion Certificate and in adopting a fixed estimated project cost without considering revised estimates and subsequent expenditure as per ICDS-III. - No incriminating material of undisclosed sales, receipts, assets, or bogus expenditure was found during the search. - Reliance was placed on Supreme Court and High Court decisions regarding consistency of accounting methods, rejection of books before estimation, and revenue neutrality. - A reconciliation statement showed total revenue recognized exceeded the department's computation, with the difference arising from timing adjustments, not suppression. Revenue's contentions: - The CIT(A) failed to appreciate that the assessment was a post-search reassessment under section 147, allowing for fresh examination based on seized material. - The CIT(A) erred in holding that no incriminating material was found, ignoring that the AO's recalculation was based on the assessee's seized Tally data and financial records demonstrating profit suppression. - The CIT(A) erred in ignoring ICDS-III and accounting principles requiring revenue recognition upon substantial transfer of risks and rewards and possession, wrongly holding that pending internal finishing work allowed deferring revenue recognition. - The CIT(A) misplaced reliance on a previous ITAT decision for AY 2015-16, which was a normal scrutiny assessment, unlike the present post-search reassessment.

Which sections of the Income-tax Act were involved?

Section 132,Section 145(3),Section 147,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH

Before: Shri Sanjay Garg & Shri R. Govindarajan

For Appellant: Shri Karan Ranka, A.R
For Respondent: Shri Abirama Karthikeyan, CIT-D.R

PER R. GOVINDARAJAN, ACCOUNTANT MEMBER:

These three appeals have been filed by the Revenue against separate orders passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad (in short, referred to as the CIT(A)) all orders dated 10.04

The order continues below.

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