EMPIRE BUILDERS,ERNAKULAM vs. DEPUTY COMMISSIONER OF INCOME TAX, ERNAKULAM

ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER

This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 30/11/2023 in respect of the A.Y. 2007-08 and raised the following grounds: Sl.No. Grounds of Appeal Tax effect The learned assessing officer erred in referring the cost of building to 1 the Department Valuer u/s 142A of 0 the income tax act without rejecting the books of accounts. The assessing officer and 2 27,79,220 CIT(Appeals) erred in making an Rs.59,75,010/- based on the valuation report and without considering the expenditure incurred by the assessee on Generator, Elevator, Fire fighting equipment, transformer etc. The assessing officer has not considered the indirect and 3 administrative expenses incurred 0 by the assessee during the construction period Any other relevant grounds that 4 may be allowed at the time of 0 hearing Total Tax Effect 27,79,220

2. The brief facts of the case are that the assessee is a partnership firm engaged in the business of construction. During the assessment year 2007- 08, the assessee was in the construction of a commercial complex at Ernakulam. The assessee vide its return of income disclosing a taxable income of Rs. 80,27,540/- based on the estimated cost at 90% and the corresponding estimated profit accruing thereon. The AO sought for some details for which the assessee submitted the details. The AO in order to ascertain the cost of investment in the property, had referred the matter to the departmental valuer u/s. 142A of the Act. Thereafter, the value was fixed at Rs. 6,46,37,000/- as against the actual expenditure incurred at Rs. 6,97,65,946/-. The AO had estimated the sale price of the property at Rs. 10 crores and reduced the value fixed by the departmental valuer and arrived the cost profit at Rs. 3,53,63,000/-. Thus the AO had arrived an estimated gross profit at 35% which is not a practical one. The AO thereafter reduced the profits already considered for the A.Ys. 2005-06 and 2006-07. Then the AO had reduced the profit for the A.Y. 2007-08 to Rs. 75,62,990/- even though, the assessee had disclosed an income of Rs. 80,27,540/- in their return of income. The AO added an amount of Rs. 59,75,010/- to the income declared by the assessee and determined the total income at Rs. 1,41,25,070/-. The AO had added the gross profit of Rs. 59,75,010/- based on the Departmental Valuation Officer report obtained u/s. 142A of the Act which was disputed by the assessee before the Ld.CIT(A). The assessee contended that the estimated gross profit as unexplained investment u/s. 69C of the Act is not correct since the value estimated by the departmental valuer had not considered the certain other major expenditures. The assessee also contested the estimated value of Rs. 10 crores. The assessee further submitted that the AO had rejected the real income theory and the project developed by the assessee is stock in trade and is assessable u/s. 28 of the Act. The assessee also submitted that on the sale of stock in trade, what accrues to the assessee is the value as per the deed of sale and hence there is no provision in section 28 of the Act to substitute to the accrued consideration for market value of such consideration. The assessee also contended that Accounting Standard 7 applies to the assessee and from 01/04/2003, revised Accounting Standard 7 was applicable only to a Contractor and in the case of a real estate developer, revised AS-9 was prescribed and as per revised AS-9, income has to be computed only on completion of the project i.e. when the property was sold. On these grounds, the assessee submitted that the order of the AO is not correct.