ITO WD 2(4), THANE vs. SAI SHAKTI ENTERPRISES, MUMBAI

are directed against the order of ld. Commissioner of Income-tax, Thane, dated 19th March 2009 passed under section 263 and the order of ld. Commissioner of Income-tax(Appeals) –II CIT(A)], dated 24th March 2014. Both the appeals are filed for Assessment Year 2005-06. First appeal by assessee for challenging the order passed by learned Commissioner of Income-tax under section 263 dated 19.03.2009. And the second appeal by revenue arising out of order of ld. CIT (A) deleting the additions in quantum assessment added by Assessing Officer while giving effect to the order of ld. Commissioner of Income-tax under section 263 of the Act dated 19th March 2009. As both the appeals relates to the same Assessment Year, thus, both were heard together and are decided by common order. by assessee 2. At the outset of the hearing, the ld. AR for the assessee submits that he is not pressing this appeal and the appeal may be dismissed as not pressed. The ld. DR has no objection. Considering the prayer of ld. AR for the assessee, the appeal filed by assessee against the order of ld. Commissioner of Income-tax under section 263 dated 19.03.2009 is dismissed as not pressed. ITA No.4266/M/2014 3. Brief facts of the case are that assessee is a Builder and Developer, filed its return of income for relevant Assessment Year on 31st of October 2005 declaring total income of Rs. 3,40,630/-. The assessment was completed on 12th February 2007 under section 143(3) of the Act.

We have heard the ld. DR for the revenue and ld. AR for the assessee and perused the record. Ground No.1 relates to restricting the net profit from 20% to 8%. The ld. DR for the revenue argued that during the relevant period the assessee has undertaken a project viz Sai Sruti Complex consisting of three wings i.e. A, B & C, consisting area of 21605 sq. ft., 13225 sq. ft. and 13075 sq. ft respectively. ‘A’ Wing is completed and C Wing completed to 70%. The assessee has shown gross profit @ 9.77% for AY 2003-04, 12.52% for AY 204-05 and 8.65% for AY 2005-06. The assessee was not showing the correct Gross Profit thus, AO estimated the GP @ 20%. The ld. CIT(A) restricted the estimated income @ 12%. The assessee has not shown separate expenditure for all Wings. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). The ld. AR of the assessee would argued that the ld. CIT(A) on the basis of GP ratio of previous or subsequent year restricted the profit rate of assessee @ 8% of total sales of Rs. 1,52,71,355/-. The ld. AR submits that the details of Gross Profit for AY 2006-07 to AY 2009-10 is filed on record vide page no. 32 of Paper Book.

We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment proceeding the AO noticed that assessee has shown sale of Rs. 1,52,71,355/-, finished stock of Rs. 40,95,622/- and closing working progress of Rs. 78,09,413/-. The assessee claimed opening WIP of Rs.95,93,556/-, purchase of plot of land for Rs. 35,57,998/-, purchase of Rs. 97,94,267/-, labour charges of Rs. 30,44,850/- and other expenses of Rs. 9,32,411/-. The assessee shown gross profit of Rs. 9,32,411/- after claiming various expenses. The assessee declared book profit of Rs. 6,55,205/- before remuneration and interest to the partners. After allowing remuneration and interest of Rs. 3,14,580/- to its partners, the assessee has shown taxable income of Rs. 3,40,625/-. The assessee was asked to explain as to why percentage completion method should not be applied. The assessee filed its reply and contended that they are following percentage method of accounting consistently for recognizing revenue and profit. The assessee also furnished the detailed showing the year-wise profit & loss with detailed particulars. The contention of the assessee was not accepted by the AO holding that the assessee is required to follow the accounting method which should result in discloser of true, fair and correct picture of the accounts for ascertaining true income. The AO concluded that ‘C’ wing was completed and ‘A’ wing completed to 70%. Till 31.03.2005 the assessee was showing total receipt of Rs.1,69,42,513/- for ‘A’ wing out of which Rs. 1,52,71,355/- has been shown as a sale during AY 2005-06 and balance of Rs. 16,71,158/- has been shown as advance. For ‘C’ wing advance of Rs.20,11,364/- is shown. Thus, the assessee is showing total advance of Rs.41,27,522/-, including the advance of ‘B’ wing of Rs.4,45,000/-. The AO further concluded that the work commenced in AY 2003-04. In AY 2003-04 the assessee has shown gross profit (‘GP’) of Rs.9,961/- and for AY 2004-05 gross profit of Rs.10,65,951/-. For AY 2005-06 the assessee has shown gross profit of Rs. 9,32,411/-. The AO concluded that the GP ratio which was shown by assessee at 9.77% for AY 2003-04, 12.52% for AY 2004-05 and 8.65% for AY 2005-06 is not consistent. No bifurcation of expenses for “A” & “C” Wing is given, though “A” Block is complete and “C” Block is 70% complete and the assessee has shownGP ratio randomly on estimate basis. Accordingly, the Gross Profit shown by the assessee was rejected and AO estimated profit for year under consideration @ 20% of total advance received of Rs.1,07,84,248/-. The AO worked out estimated profit to Rs. 21,56,850/- thereby making addition of Rs. 12,24,439/- (Rs. 9,32,411/- declared by assessee + Rs. 12,24,439/- total Rs. 21,56,850/-). Before the ld. CIT(A) the assessee contended that assessee is consistently following percentage completion method of accounting and not the project completion method. The assessee offered profit on year to year basis by determining profit even in respect of project which are not complete. The assessee furnished year-wise chart showing year-wise advances received, GP and NP ratio. There is no deviation in the accounting method which is consistently followed by assessee from AY 2003-04. The assessee further contended that revenue for the incomplete project is also recognized in immediately succeeding AY 2006-07. The ld. CIT(A) on the basis of details of sale, finished stock and work-in-progress from AY 2003-04 observed that assessee has shown Net Profit of Rs. 8,160/- for AY 2003- 04 despite no sale. In AY 2004-05 there was no sale, the assessee has shown Net Profit of Rs. 4,90,651/-. The ld. CIT(A) observed that assessee was following percentage completion method. The assessee has shown Net Profit of Rs. 6,55,204/- on sale of Rs. 1,52,71,355/- in addition to the closing finished stock of Rs. 40,95,622/- and work-in-progress of Rs. 78,09,413/-. The Net Profit of the receipt from customer is 6.08%. The ld. CIT(A) further considered the Net Profit for subsequent year particularly for AY 2008-09 and 2009-10 which is shown at 15.91% and 11.53% respectively. On the basis Gross Profit & Net Profit ratio, the ld. CIT(A) restricted the addition @ 8% of total sale of Rs. 1,52,71,355/-. The ld. CIT(A) further concluded that Net Profit will be profit before payment of interest and remuneration to the partners. We have seen that the ld. CIT(A) passed the order after considering the all material available on record. The ld. DR for the Revenue failed to convince us as to why Net Profit @ 8% of total sale is not reasonable one. The assessee has offered the Net Profit for subsequent AY @ 15.91% for AY 2008-09 and 11.53% for AY 2009-10. In our view, the ld. CIT(A) arrived on a fair conclusion.