AASHIRWAD BUILDERS,RAJKOT vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 1(1), RAJKOT, RAJKOT
Facts
The assessee, a builder, filed an appeal against an order from the CIT(A) for AY 2015-16. The appeal was initially barred by 10 days, but the delay was condoned. The main issue was an addition of Rs. 3,29,95,241/- made by the AO on account of variation in stock, which was upheld by the CIT(A). An additional ground was raised regarding suppressed turnover.
Held
The Tribunal noted that the CIT(A) had replaced the AO's addition of Rs. 2,06,26,420/- (suppressed turnover) with an addition of Rs. 3,29,95,241/- (variation in stock) but had not provided specific findings on the suppressed turnover issue. Due to the assessee's failure to submit a complete reconciliation and supporting documents, the matter was remitted back to the CIT(A).
Key Issues
Whether the addition on account of variation in stock is justified, and whether the CIT(A) properly adjudicated the issue of suppressed turnover, especially when the initial addition was replaced.
Sections Cited
143(3), 250
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
आदेश/Order
Per Dr. Arjun Lal Saini, Accountant Member:
Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2015-16, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi[in short ‘Ld.CIT(A)/NFAC’], under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 23.11.2023, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Act, dated 26.12.2017.
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
The grounds of appeal raised by the assessee are as under:
“1) The Ld. CIT(A) has erred in law as well as in facts, while making new addition of Rs. 3,29,95,241/- on account of variation in stock as appearing in Audited P&L, for: a. The variation in Stock i.e. Closing Stock (-) Opening Stock, is already forming part of Profit & Loss A/c., requiring no separate effect to be given to the Total Income. In case of a Builder, following Project Completion Method, the accumulated stock gets reduced when corresponding Sales is effected and recognized in P&L. It is obvious and ostensible that upon Sale being given effect, the value of Closing Stock would be lesser than that of Opening Stock. No Addition is warranted on any counts towards the difference in value from Opening Stock to Closing Stock. b. No addition can be proposed/made/confirmed on an entirely new issue, without first issuing a Show-cause Notice. The issue of considering the difference in value from opening stock to closing stock, never arose at any stage during assessment. Even, if it was to be raised for the first time during appellate proceedings, then it couldn't have been done without issuing a specific Show-cause notice.” 3. At the outset, Learned Counsel for the assessee, informs the Bench that assessee does not wish to press ground No. 1(b), therefore we dismiss ground No. 1(b), of the assessee, as not pressed.
The appeal filed by the assessee is barred by limitation by 10 days. The assessee moved a petition for condonation of delay, requesting the Bench to condone the delay. The Ld. Counsel explained the reasons for delay stating that the assessee is a partnership firm and completed its project in Financial Year (F.Y.) 2017-18, and after that partnership- firm was in dormant condition and none of the partners were actively involved. Therefore, such small delay may kindly be condoned in the interest of justice. On the other hand, Ld. DR for the Revenue, opposed the prayer of the assessee, for condonation of delay. 2
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
We have heard both the parties on this preliminary issue and noted that the assessee has explained the sufficient cause for such small delay. Therefore, considering the facts narrated in the affidavit for condonation of delay, we condone the delay of 10 days and admit the appeal of the assessee for hearing.
The relevant material facts, as culled out from the material on record, are as follows. The return of income, showing income of Rs. 20,84,420/-, was filed by the assessee, on 26.10.2015. The assessee engaged in the business of real estate project of construction and sale of residential flats. The accounts of the assessee are audited and Audit Reports dated 27.09.2015, in Form No. 3CA & 3CD were filed during the assessment proceedings. The case was selected for Limited Scrutiny in CASS. Notice u/s. 143(2) dated 28.07.2016 of the I.T. Act was issued and was duly served upon the assessee. Notice u/s 142(1) of the I.T. Act dated 21.03.2017 was issued and served upon the assessee calling for various details relevant to the assessment in the case of the assessee. In response to said notices, assessee attended from time to time and furnished the details called for.
For unaccounted sale, on verification of case record and assessee's submission, it was noticed by the assessing officer that the assessee has not shown actual sale during the year. Therefore, a show cause notice was issued to the assessee. The contents of the show cause is as under:
"One of the reasons that "Higher turnover reported in Service Tax Return compared to ITR and assessee has deposited large amount of cash in saving bank account. It has given reply that "the service tax is leviable on receipt basis, irrespective of fact whether receipt is 'income' under income-tax Act 1961 or not. Mere advance payment is liable to service tax. Therefore, the turnover as reflected in service tax return is gross received during the year under reference, which were nothing else but advance money received from customers, it would be appropriate to note that even in a case where no construction activity has begun, but only advance payment is received, the service tax would be levied and the same would have to be collected and reflected in service tax periodic".
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
On perusal of advance received during the A.Y 2013-14 from the customers which are as under.
On perusal of advance received during the A.Y. 2014-15 from the customers which are as under:-
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
Now by comparing both the above table 1 and 2, we get the following picture: Table-3
As per our information you have paid service tax on an amount of Rs.3,92,00,000/- whereas according to previous year advance received and during year as under: Table-4 Advance received previous year compare sale deed
Advance received during and increased advance the year i.e. A.Y. 2015-16: Table-5
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
In view of the above and service tax details available as per out information, it is noticed that you have received advance during the year (i.e A.Y 2015-16) of Rs. 18,58,800/-. As per service tax data, you have grass receipt of Rs. 3,92,00,000/-. On verification of the customer advance, you have sold 4 flat during the years for which you have received advance during the previous year i.e 2014-15. As per service tax data, you have sold flat of Rs. 3,73,41,200/-. In view of the above. it is cleared that the total amount of Rs. 5,07,41,200/- (3,73,41,200/-+1,34,00,000/- will be gross receipt. But you have shown gross receipt of Rs. 4,41,00,000/-However, the difference of Rs. 66,41,200/- (Rs. 5,07,41,200/- (-) Rs. 4.41,00,000/-) needs to be clarified. If you have not clarified the same issue then show cause to as why the amount of Rs. 66,41,200/- should not be added to total income. (ii) On verification service tax data, you have received total amount during the year (i.e F.Y 2014-15) of Rs. 3,92,00,000/- but on verification of bank statement, you have received only Rs. 1,98,07,715/-. The credit side detail of bank statement is as under:
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
In response to the show-cause notice, the assessee submitted its reply before the assessing officer, however, the assessing officer rejected the explanation furnished by the assessee and did not accept the explanations of the assessee, for the following reasons:
(a) On verification of the service tax return, it is gather that the assessee has shown in service tax return gross amount of Rs. 3,92,00,000/-, the said amount is received during the year. However, as per reconciliation chart submitted by the assessee, it is noticed that the assessee has shown Gross receipts of Rs. 1,98,83,740/- (including service tax & Adjusted towards Gas connection Deposits) during the year. The working of service tax gross receipt is as under:
SrNo. Description of receipt Amount 1. Gross receipt as per chart provided by the 1,98,83,740/- assessee 2. Less:- Adjusted towards Service Tax levy 12,39,090/- 3. Less:- Adjusted towards Gas connection deposits 71,070/- 4. Total Sale (3-7) 1,85,73,580/-
(b) During the assessment proceedings, the assessee has not submitted completion certificate by authorized person.
In view of the above, the assessing officer held that the assessee has suppressed the sale to tune of Rs. 2,06,26,420/- [Rs. 3,92,00,000/- (-) Rs. 1,85,73.580/-. Therefore, the amount of Rs. 2,06,26,420/- was added to total income of the assessee.
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
Aggrieved by the order of the assessing officer, the assessee, carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of the assessing officer, observing as follows: “Taxpayer follows the Project Completion Method. This means profit or in this case sale is booked only when actual sale takes place. Here in taxpayers case "SALE" is the catch word. Taxpayer books it only when actual sale of flats takes place. The difference between Rs. 3.92 cr and Rs 4.41 cr is the sale of flat to Parag Dinesh Bhai Padaliya for Rs 49 lakhs. The assessing officer is requested to give credit for service tax payment of this flat at Rs. 4900000 to Parag Dinesh Bhai Padaliya. The assessee books only sale of flats as part of P and L account. Last year the sale is Rs 900000 where as Rs. 44100000 is sale booked this year which is reflected in the P and L account. The variation in stock reflected in the P and L account is Rs 32995241. For arriving at the correct profit the stock variation last year has to be reduced from the stock variation this year. The current year is 2014-15 Fy for which the financials are available. For FY 2013-14 the stock position is as follows – FY 2013-14 51317530 FY 2014-15 84312771 The difference of Rs. 32995241 which is the incremental value is brought in the P and L account as stock variation. In this connection it is pointed out that assessee has to regularly follow a method of accounting. Each years audited financials will show closing stock as on 31/3. The difference will be part of the income. Here the assessee has wrongly reduced the stock variation from the receipts. Instead of reducing it, it should be treated as income. Instead of adding the incremental value, the taxpayer has wrongly reduced the incremental value from the profits. The assessing officer is directed to add Rs. 32995241 being the stock which is added additionally. The addition of Rs. 32995241 is upheld.
Aggrieved by the order of the Ld. CIT(A), the assessee is in further appeal before us.
The Ld. Counsel for the assessee has also raised additional ground of appeal before the Bench, which is reproduced below:
“The ld. AO has erred in law as well as in facts in making addition of Rs.2,06,26,420/- towards suppressed turnover, by erroneously comparing Turnover as per Service Tax Returns Rs.3,92,00,000/- and Gross Receipts Rs.1,85,73,580/-, whereas appellant has shown Turnover of Rs.4,41,00,000/- higher than both of the former. Further, the ld. CIT(A) has erred in law as well as in facts, in not giving any finding on addition of Rs.2,06,26,420/- towards suppressed turnover, raised before him.”
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. In the context of above additional ground, and for the main grounds, the ld.Counsel for the assessee submitted that in the present case, against the addition made by ld. AO for Rs. 2,06,26,420/-, towards suppressed turnover, the ld. CIT(A) in order u/s. 250 of the Act, has first discussed the fact that appellant has shown higher turnover of Rs. 4.41 crore against turnover of 3.92 crores as per Service tax Returns. Then, CIT(A) discussed, variation in stock (i.e. Difference between value of Opening Stock and Closing Stock), and held as follows:
"The assessing officer is directed to add Rs 32995241 being the stock which is added additionally. The addition of Rs 32995241 is upheld.” 13. The conjoint reading of discussion and conclusion in CIT(A)'s Order, it appeared that original addition made by ld. AO for Rs. 2,06,26,420/- towards suppressed turnover, is replaced by another addition of Rs. 3,29,95,241/- towards variation in value of opening and closing stock, and that new addition is upheld. In view of aforesaid bona fide belief and understanding, no grounds of appeal were raised in relation to addition of Rs. 2,06,26,420/- towards suppressed turnover, in the Form-36 before the Tribunal.Since Id. CIT(A) has, though discussed the issue of suppressed turnover, but has not given any findings on the same, even that issue requires to be considered and finalized.In view of the above facts the assessee raised additional ground of appeal for adjudication.
On the other hand, Ld. DR for the Revenue submitted that in respect of additional ground raised by the assessee, the assessee has not submitted any
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
documentary evidence before the Bench. The learned CIT(A) has reached on right conclusion. The assessee has submitted a simple reconciliation before the lower authorities without supporting evidences. The assessee has also not submitted completion certificate. Therefore, appeal of the assessee may be dismissed.
We note that the assessee submitted the reconciliation before the lower authorities, without supporting evidences. We note that reconciliation submitted by the assessee before the lower authorities is incomplete. This reconciliation should be as per service tax data, advance received from customers, service tax paid on Flat sold, and amount received as per service tax data, and such reconciliation should be submitted by the assessee along with documentary evidences, however, assessee has failed to do so. The ld.CIT(A) held that the assessee has wrongly reduced the stock variation from the receipts. Instead of reducing it, it should be treated as income. Instead of adding the incremental value, the taxpayer has wrongly reduced the incremental value from the profits, therefore, ld CIT(A) directed the assessing officer to add Rs. 3,29,95,241/- being the stock which is added additionally.
We find that the above mismatch has arisen, due to non-submission of correct reconciliation by the assessee, as noted by us above. The assessee has also not submitted completion certificate of the authority. Besides, we note that the ld. CIT(A) has not given any finding on addition of Rs.2,06,26,420/- towards suppressed turnover, raised before him. Considering these facts, we remit this issue back to the file of the learned CIT(A) with the direction to the learned CIT(A) to adjudicate the addition of Rs.2,06,26,420/-, and we also direct the assessee to furnish the correct reconciliation statement with documentary evidences, before learned CIT(A) showing service tax data,
ITA No. 66/Rjt/2024 Aashirwad Builders vs. DCIT
advance received from customers, service tax paid on flat sold, and amount received as per service tax data. The assessee is also directed to submit completion certificate. Considering the facts and circumstances of the case we are of the considered view that the assessee deserves one more opportunity to contest his case on merit before ld.CIT(A). In the interest of justice, we set aside the order of Ld.CIT(A) and remit the matter back to the file of CIT(A) with a direction to pass fresh order in accordance with law after granting adequate opportunity of hearing to assessee. The assessee is also directed to be vigilant and to furnish all details, reconciliation and explanation as needed by Ld.CIT(A) and should not seek adjournment without valid reason. With this direction, the grounds of appeal raised by the assessee, including additional ground, are treated as allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order is pronounced in the open court on 11/09/2025
Sd/- Sd/- (DINESH MOHAN SINHA) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot �दनांक/ Date: 11/09/2025 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
Assistant Registrar/Sr. PS/PS ITAT, Rajkot
