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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI PAWAN SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 22.02.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.
The only issue raised by the Revenue is that the Ld. CIT(A) has erred in deleting the addition made by the AO of Rs.51,95,530/- in respect of sale of stock.
2 M/s. Ajit Developers Pvt. Ltd.
The brief facts of the case are that the assessee filed the return of income on 30.03.2013 which was processed under section 143(1) of the Act. The case was selected for scrutiny and notice under section 143(2) & 142(1) were duly issued and served on the assessee. During the assessment proceedings the AO observed from the final account for the year ended 31.03.11 that assessee has offered income on account of sale of property at Rs.1.25 crores and the closing stock was shown at Rs.3,44,39,625/-. The AO further noticed that assessee has further received advances to the tune of Rs.1.03 crores which is shown under the head liabilities. The assessee also observed that the project of the assessee Siddhivinayak Arcade was complete during the relevant previous year and accordingly AO asked the assessee vide order sheet noting dated 11.11.2013 to explain as to why the income from Siddhivinayak Arcade was not offered to tax as per project completion method by applying accounting standard -9 which was replied by the assessee by submitting that advance of Rs.1.03 crore is received from Ajit/Ramaben/Hitesh Hakani towards premises being office on 3rd floor in Siddhivinayak Arcade project. The assessee could not be given possession as they did not have occupation certificate. The assessee also submitted that the possession was given in F.Y. 2011-12 and amount received is adjusted against sale price receivable and offered to tax accordingly. As regards Rs.3,20,000/- the assessee submitted that the same was received from family members of Bhojwani family many years ago for residential premises to be given to them.
3 M/s. Ajit Developers Pvt. Ltd. However, the said property could not be constructed as there was delay in settling with the occupants of the slum property and therefore, the advance continued in the balance sheet. The AO was not convinced with the reply of the assessee and accordingly by applying percentage completion method he made an addition of Rs.51,95,530/- being profit on sale of property at 3rd floor, A Wing admeasuring 1266 sq. ft. According to the AO the assessee has deferred the tax liability qua the said project on the ground that possession is not given and changed the method of accounting from project completion to percentage completion method and thus made the above addition.
In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after considering the submissions of the assessee as has been incorporated in para 4.4 of the appellate order by observing and holding as under: “I have perused the assessment order and submissions made in this regard. It is noted that assessee is a builder and had carried out a SRA project which was sanctioned in 2004 and the construction commenced in October 2007. The assessee has been consistently following project completion method which was accepted by the department in other years and no addition was made on this issue. During the year under consideration the A.O. has applied percentage completion method and made addition of Rs.51,95,530/- to the income of the assessee. The A/R of the appellant has vehemently opposed the addition and has submitted that A.O. has changed the method of accounting without much basis and made addition which may be deleted. In this regard it is noted that project completion method is an accepted method of accounting for builders. The assessee is regularly following this method of accounting which has been accepted by the A.O. in other years. It is an established legal proposition that an assessee can follow any recognized method of accounting and the condition is that the same method has to be followed consistently. Since the assessee in instant case is regularly following project completion method and has offered income in the year of completion of project therefore there is no reason for the A.O. to reject the method of accounting regularly followed by the 4 M/s. Ajit Developers Pvt. Ltd. assessee. This view is supported by the order dt. 05.08.2011 of the Hon'ble ITAT, Mumbai in the case of Haware Constructions Pvt. Ltd. vs. ITO, ITA No.5601/Mum/2009 wherein the Hon'ble Tribunal had deleted the addition made on identical issue. In view of this discussion the addition made by the Ld.A.O. of Rs.51,95,530/- by adopting percentage completion method as against project completion method of the assessee cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed.”
5. Having heard the rival submissions of both the parties and perused the material on record, we find that the assessee was following a project completion method for the purpose of returning the income and was paying taxes accordingly. However, during the year under consideration the AO after examining the balance sheet of the AO noted that assessee has received advances to the tune of Rs.1,03,20,000/- as were appearing in the liability side on which the assessee has not paid any taxes. According to the assessee, the possession of the property could not be given as the occupation certificate was not available with the assessee. The assessee also submitted that the project completion method was being accepted by the Revenue over the years and pertinent to mention that the assessee has already offered the tax for sale in subsequent year i.e. A.Y. 2012-13 relating to the property on the 3rd floor qua which the said advance of Rs.1 crore was received and necessary adjustments towards the said advance of Rs. 1 crore was made. Thus the income on said property was offered to tax by the assessee suo moto. We find from the submissions of the assessee that in case the addition is sustained in the current year, the same will result in double taxation of the same income first by way of confirmation of addition made in the present year and second
5 M/s. Ajit Developers Pvt. Ltd. as the assessee suo moto showed the income as per the method of accounting being consistently followed. Under the present facts and circumstances, we are not in agreement with the contention of the Ld. D.R. that the assessee has resorted to deferment of tax or not offering the income to tax qua which the property is complete. In our view, the order passed by the Ld. CIT(A) is correct and does not require any inference from our side. Accordingly, we dismiss the appeal of the Revenue by upholding the order of Ld. CIT(A).
Order pronounced in the open court on 22.03.2018.