ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. B.U. BHANDARI DEVELOPERS,, PUNE

The Revenue in appeal has assailed the findings of Commissioner of Income Tax (Appeals) on following grounds :’ “1. On the facts and circumstances of the case, the Ld. CIT(A) erred in accepting the valuation of WIP presented by the assessee and directing AO to delete the addition made on account of under valuation of WIP. 2. The appellant craves leave to add, alter amend or omit any of the above grounds of appeal during the course of the appellate proceedings.”

Shri V.L. Jain appearing on behalf of the assessee submitted that the assessee is engaged in real estate business. The assessee estimated an amount of Rs.45 lakhs to be incurred for completion of project and accordingly computed the cost of sales of area sold during the year. The aforesaid amount was considered only for calculation of cost and was not provided in the accounts. The aforesaid expenditure of Rs.45 lakhs was mere estimation of cost to be incurred and was thus added in cost of flats for assessment year 2012-13. The ld. AR furnished the working of work- in-progress for the period relevant to the assessment year 2012-13 at page 9 of the paper book. The ld. AR pointed that out of total 66 residential units having saleable area of 45,868 sq. ft. in the three wings i.e. A, B and C of the housing project, the assessee could sell only 47 units with saleable area of 34,053 sq. ft. in Financial Year 2011-12. The remaining 19 units with saleable area of 11,815 sq. ft. was still in stock as on 31-03-2012. While computing work-in-progress the assessee reduced Rs.45 lakhs from the cost of unsold flats. The ld. AR vehemently supporting the findings of Commissioner of Income Tax (Appeals) prayed for dismissing the appeal of Revenue.

On the other hand Shri Aseem Sharma representing the Department prayed for reversing the findings of Commissioner of Income Tax (Appeals) on the issue and restoring the addition made by Assessing Officer.

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. In so far as the facts are concerned there is no dispute. The Commissioner of Income Tax (Appeals) granted relief to the assessee by following the decision of Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. Sane & Doshi reported as 120 DTR 49. The relevant extract of the findings of Commissioner of Income Tax (Appeals) allowing the claim of assessee reads as under : “4.2.2 It appears that the estimated expenditure of Rs.45,00,000/- has been taken into account only for the purpose of computing the profitability by estimating the cost of completion. Thus, estimated cost of Rs.45,00,000/- is the cost required to be incurred for completing the project. It is added to the cost of Rs.10,35,14,088/- already incurred to ascertain total cost of Rs. 10,80,14,088/-. However, such estimated cost will also have to be deducted for the purpose of the value of closing WIP as on 31.03.2012. The Bombay High Court judgment (supra) has observed that- "If the expenses which are required to be incurred and are allowable have been debited to the Profit & Loss account in accordance with the matching principle of accounting then the entire provision for incomplete work amount had been actually paid, the proportionate amount of provision of incomplete work of Rs.45 lakhs relating to unsold premises had been carried forward. This explanation which was given by the assessee was carefully examined and the CIT(A) being convinced with it, allowed the claim. The AO’s view having been interfered with in such a scenario no substantial question of law arises for determination and consideration. Tribunal was justified in directing the AD to allow the claim of expenses of Rs.45 lakhs on account of provisions for incomplete work." Therefore, relying on the aforesaid judgment of the hon'ble jurisdictional High Court, the Assessing Officer is directed to delete the additions made on account of inflation of cost price of area sold and under valuation of WIP.”

The order of Commissioner of Income Tax (Appeals) is well reasoned and justified. We find no reason to interfere with the same. Accordingly, the same is upheld.

In the result, the appeal of Revenue is dismissed.