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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against the order by the Commissioner of Income Tax (Appeals) dated 20.06.2014 and pertains to the assessment year 2010- 11.
The grounds of appeal
read as under:
1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred by observing that the valuation of booked but not sold units has to be considered at a contracted rate and not at any other rate, without appreciating the fact that the addition was made by the Assessing Officer on the basis of working of closing work submitted by the assessee.
(A.Y. 2010-11) Dy. CIT vs. M/s. Shree Mukund Associates 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erroneously observed that in totality this way of valuation of WIP will not affect the tax effect, he has failed to appreciate that the income has to be taxed in the Assessment Year wherein it accrues or arises and not in the subsequent years.
3. The appellant prays that the order of the CIT(A) on the above grounds be reversed and that of the Assessing Officer be restored.
Brief facts of the case are that during the course of assessment proceedings, it was observed that the assessee had valued closing stock at different rates. The assessee was accordingly requested to submit an explanation regarding' valuation of closing stock. In respect to the above, the assessee has submitted letter dated 21.02.2013, explaining the method of valuation of closing stock as under: "The working of closing stock for the Ambience Court Project has been submitted. The saleable part of the project i.e. Ambience Court Bldg. ‘A’ is complete and the O.C. thereof has been received in March, 2010. The agreements that have been done upto 31st March, 2010 have been accounted as sales during F.Y.2009-2010. The unsold area has been treated as a part of closing stock and is valued at cost which is Rs.3,950/-per sq.ft. of saleable area. The part of the area wherein bookings are done and the advances are received and wherein the agreements could not be done as the balance money was not paid by the flat owners has been accounted as closing stock at the value for which the said flats have been agreed to be sold. Such saleable area is 51420 square feet upto 31st March, 2010. During the course of assessment proceedings you had observed that this salable area should also be valued at cost and not at booking rate. We respectfully submit that this is a matter of opinion and by valuing this area at booking rate, your assessee has in no way tried to suppress the value of closing stock but had tried to value the closing stock at cost or realizable value whichever is less. However, without prejudice, if your view is represented while making the assessment order, then the assessee should be allowed to appropriately adjust the opening and closing stock for the succeeding years".
In addition to the above submissions, the assessee's representative has also submitted the working of the closing stock valued on the basis of Rs.3950/- per sq.ft. of saleable area for flats which have been agreed to be sold. From the above, the (A.Y. 2010-11) Dy. CIT vs. M/s. Shree Mukund Associates Assessing Officer inferred that on the basis of the above working, the assessee has stated that there will be addition of Rs.1,15,76,580/- for which he has requested that the same should be allowed to be adjusted in the succeeding years. Hence, the Assessing Officer held that after considering the assessee's submission, an amount of Rs.1,15,76,580/- is added to the total income of the assessee.
Before the ld. Commissioner of Income Tax (Appeals), the ld. Counsel of the assessee submitted that it is a partnership firm engaged in the business of real estate development. The partnership was formed in the year 2005. Assessee is engaged in the construction of a building known as Ambience Court. The said construction started in the financial year 2005-2006 and was in progress. According to assessee, it has been declaring income from project for the past 3years at 5% of expenses incurred. It was pleaded that Assessing Officer without giving any reasons rejected the valuation of the assessee. It was therefore prayed that value adopted by the assessee should be restored and additional value of Rs.1,15,76,580/- considered by the Assessing Officer should be deleted.
Considering the above, the ld. Commissioner of Income Tax (Appeals) deleted the addition by holding as under:
2.3 I have gone through the assessment order as well as submissions made by the appellant carefully. In is seen from the assessment record that AO has valued the area actually sold at Rs.3,950/- whereas assessee had valued the same at a contracted rate of Rs.3,725/-. Thus, dispute is mainly on account of valuing the 51,420 sq. feet area sold by the appellant. During the course of the appellate proceedings, it is seen that appellant has been consistently declaring the income at cost plus 5% margin. This fact is also not disputed by the (A.Y. 2010-11) Dy. CIT vs. M/s. Shree Mukund Associates appellant. However, it is worth noting here that this valuation method can be applied to the closing work in progress which has remained unsold in the hands of the contractor/developer. In case of sold area, the valuation of closing WIP has to be done at the contracted rate, as this is the only income which contractor/developer is going to realize from customers. Therefore, valuation of sold units has to be considered at a contracted rate and not at any other rate. A.O. has not disputed the fact that area of booked units is sold at a price higher than Rs.3,725/-. In view of this, following the prudent accounting principle, I hold that area of the sold units i.e. 51,420/- sq. ft. is rightly valued by the appellant at Rs.3,725/- as against Rs.3,950/- considered by the A.O. I, therefore, direct the A.O. to consider the value as adopted by the appellant in his return of income.
Against the above order, the assessee is in appeal before us.
We have heard both the counsel and perused the records. We find that in this case the assessing officer has noted that assessee has valued the closing stock at different rates. Some part where sale was almost complete have been valued at sale price, while for some part where sale has not been made had been valued at cost. On assessing officer’s enquiry in this regard, the assessee had explained these facts and has given the working that if the unsold stock were also valued at sale price there would be an addition of the value of closing stock by Rs.1,15,76,580/-. The assessee had further stated that assessee cannot be forced to value closing stock at sale price.
However, it was submitted that if the assessing officer's so insisted, appropriate adjustment in opening and closing stock should be granted. The submissions of the assessee have been wrongly interpreted by the assessing officer that assessee has agreed for an addition of Rs.1,15,76,580/-. We find that by no stretch of imagination, assessee can be forced to value the closing stock at sale price. It is settled law that closing stock has to be valued at cost or market price, whichever is lower. There is no (A.Y. 2010-11) Dy. CIT vs. M/s. Shree Mukund Associates case that there is any variation in the method of valuation of closing stock by the assessee as compared to earlier years. In such circumstances, in our considered opinion, the learned CIT-A has correctly appreciated the matter. There was no case of enhancement in the valuation of closing stock by putting the value on the basis of sale price. Hence, in our considered opinion, there is no infirmity in the order of learned CIT-A. Accordingly we uphold the same
In the result, this appeal filed by the Revenue stands dismissed प�रणामतः राज�व क� अपील खा�रज क� जाती है । Order pronounced in the open court on 07.02.2018 Sd/- Sd/- (Amarjit Singh) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 07.02.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,