ITO WD 1(3), THANE vs. CHANDRASHEKHAR D. LOTLIKAR, THANE

Whether on the facts and in the circumstances of the case, and in law, the Hon'ble CIT(A) erred in not confirming the addition of Rs. 1,55,64,475/- on account of profit on sale of plots.

Whether on the facts and in the circumstances of the case, and in law, the Hon'ble CIT(A) erred in giving relief to the assessee on the basis of fresh evidences and income figures of A.Ys 2013-14 and 2014-15 without calling for remand report from the A.O. specially considering the fact that these figure were not available to the A.O. at the time of passing the assessment order. 3. The order of the CIT(A) may be vacated and that of the Assessing Officer may be restored.

The appellant craves leave to add, amend, alter or delete any ground of appeal

I have carefully considered the appellant's submissions, observations of the AO in the assessment order and the facts of the case. The appellant is a real estate developer. The appellant acquires land and after developing the infrastructure facilities like internal roads, lights, garden, etc., sells the land in the form of smaller plots. The amounts received in respect of various plots were being shown by the appellant as advances on the ground that he was following the "percentage completion method' which was consistently followed by him. This contention of the appellant has been found to be factually incorrect as can be seen from the following table – A.Y. Closing stock of Gross profit Income on account of work-in-progress maintenance charges.

While working out the above GP, the income on account of maintenance charges is also being taken on the credit side along with the closing stock. The total of the gross profit shown by the appellant for the above mentioned 5 years is Rs.94,53,657/- whereas the appellant has received an amount of Rs.81,58,362/- on account of maintenance charges only. After excluding these maintenance receipts from the gross profit it is seen that the appellant has hardly shown any gross profit for the above mentioned 5 assessment years in spite of doing substantial work in these years. In fact in AY 2012-13, if income on account of maintenance charges is taken out, there was a gross loss to the appellant. Thus from a perusal of the above table it is seen that the appellant is not showing the GP either on a percentage of the closing work-in-progress or on any other consistent basis. Therefore, the contention of the appellant that he was following the percentage completion method is not correct.

Further, it is seen that in respect of a majority of the plots, the appellant had received 100% of the sale amount of the plots which fact has been admitted by the appellant himself in the details filed during the course of assessment proceedings as well as the present proceedings. The total sales which the appellant had shown as advances in his books of accounts till the year under consideration amounts to Rs.6,86,38,150/-(mistakenly taken by the AO at Rs. 6,98,38,150/-). Therefore, the AO had rightly adopted the figure of Shri Chandrashekhar D. Lotlikar advances as sale proceeds of the plots sold by the appellant till the year under consideration. However, while working out the profit on the sale of these plots, the subtraction of the figure of the closing stock as on 31.03.2010 by the AO was not correct because the closing stock included expenses incurred in respect of plots sold as well as those plots which are yet to be sold. As per the Matching principle of accounting, for arriving at the correct profit, the revenues have to be matched to the expenses i.e. only those expenses are to be allowed which have been incurred to earn those revenues. Therefore, only those expenses were required to be deducted from the receipts which pertained to plots which had been sold till the year under consideration. To work out these figures, the appellant was asked to file details of year-wise expenses incurred as well as year-wise receipts of amounts in respect of various plots. The appellant furnished the following details: Assessment Year Advances during Site expenses Profit declared the year during the year 2005-06 10,50,000 34,83,931 47,250 2006-07 12,87,000 11,29,800 1,75,950 2007-08 2,53,96,647 1,81,49,117 16,19,844 2008-09 2,71,31,281 1,17,79,755 23,51,216 2009-10 80,00,259 1,02,72,576 46,68,661 2010-11 57,72,964 32,18,797 56,92,449 2011-12 26,96,644 33,08,353 63,81,156 2012-13 6,00,000 18,58,145 76,83,877 2013-14 35,71,699 57,37,449 82,08,678 2014-15 12,99,001 33,49,132 88,59,546 Expected 3,27,00,000 3,73,53,618 10,97,05,495 9,96,40,673 (Expected Total (Expected Total Revenue) Cost)

From the above chart, it is seen that in the last row, the appellant has added some expected receipts and expected expenses. No basis has been given by the appellant for arriving at these estimated figures of receipts and expenses. Therefore, the profits of the appellant till the year under consideration are being Shri Chandrashekhar D. Lotlikar worked out as under after ignoring the estimated figures of receipts and expenses mentioned in the last row by the appellant. Particulars Amount (Rs.) Receipts in respect of plots shown by the 7,68,05,495/- appellant till A.Y. 2014-15 on actual basis Add: Income on account of maintenance 81,58,362/- charges till AY 2014-15 Total receipts on actual basis till A.Y. 2014-15 8,49,63,857/- Actual receipts in respect of plots sold till the 6,86,38,150/- A.Y. 2010-11 i.e. year under consideration Add: Current year's receipts of maintenance 16,68,860/- charges Total receipts till the year under consideration 7,03,07,010/- Receipts of the current year as percentage of 82.75% total receipts till A.Y. 2014-15 (7,03,07,010/8,49,63,857*100) Closing stock of work-in-progress shown by the 6,72,00,000/- appellant in the A. Y. 20 14- 15 Add: Purchase price of land 6,79,781/- Add: Development charges of the land 32,66,820/- Total expenses incurred till AY 2014-15 7,22,46,601/- 82.75% of the above 5,88,73,812/- 14. Therefore, this is the amount of expenses which are relatable to the sale of the plots because the receipts in respect of sale of plots are 82.75% of the total actual receipts till A.Y. 2014-15. Therefore, the profit of the appellant till the year under consideration = Rs.1,14,33,197 [i.e. Rs.7,03,07,010 - Rs.5,88,73,812/-]. As the appellant has already declared income amounting to Rs.56,92,4497- in various years till the year under consideration, this amount is reduced from the profits worked out as above, which means the profits of the appellant for the year under consideration, excluding the income already offered for taxation are Rs.57,40,748/- (i.e. Rs. 1,14,33,197/- - Rs. 56,92,449/-) This amount is therefore, added to the declared income of the appellant at Rs.13,37,940/-. The taxable income of the appellant for the year under consideration is therefore, determined at Rs.70,78,688/-.