DCIT 9(1)(2), MUMBAI vs. AZOFEN P.LTD, MUMBAI

सुनवाई क� तार�ख / : 01/02/2017 Date of Hearing घोषणा क� तार�ख / : 02/02/2017 Date of Pronouncement आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned by revenue for Assessment Year 2006-2007 is directed against the order of Ld. Commissioner of Income Tax (Appeals)-16 [CIT(A)], Mumbai dated M/s Azofen Private Limited Assessment Year 2006-2007 05/01/2015 qua deletion of certain ‘project incomes’ earned by the assessee. This is second round of appeal before us. The revenue has filed revised grounds of appeal s on 03/07/2015, to which the Ld. Counsel for Assessee [AR] raised no serious objections and hence taking the same on record, we proceed to dispose-off the same in the succeeding paragraphs.

2. Briefly stated the assessee was engaged in the business of investment and development of real estate and builder who e-filed its return of income for impugned Assessment Year [AY] on 24/11/2006 declaring total income of Rs.5,40,190/- which was assessed at Rs.9,23,41,630 u/s 143(3) after making certain disallowances and adjustments vide Assessing Officer order dated 26/12/2008. The assessee was engaged in various housing projects during the year and was consistently following ‘substantial completion contract’ method to account for the income from these projects. AO noted that the assessee’s Closing Work-in-Progress (WIP) at year end was Rs.9,21,06,325/- against which advances received from customers against sales of flats stood at Rs.18,39,07,766/-. The assessee undertook three projects namely ‘Upvan-II’, ‘Upvan-III’ & ‘Vruksh’ out of which ‘Upvan II’ was already completed in Financial Year [FY] 2004-2005 whereas the other two projects were completed during the impugned year. The assessee allocated the closing WIP and advances at year end in the following manner:- No. Project Closing WIP Advance from customers

1. Upvan II 1,46,62,922/- Nil

2. Upvan III 2,95,58,257/- 6,23,31,132/-

3. Vruksh 4,78,85,146/- 12,15,76,634/- TOTAL 9,21,06,325/- 18,39,07,766/- The assessee explained that it followed ‘substantial completion method’ and accordingly cost incurred on the projects and advances received against the sale of flats were debited / credited to WIP/advances from customers account respectively. Whenever the sales of the flats were recognized as revenue, corresponding cost was also debited to the Profit & Loss account and due adjustment was made in WIP/advances from customers. But not convinced M/s Azofen Private Limited Assessment Year 2006-2007 and after noting that these two projects were substantially completed before 31/03/2006, AO treated the difference of these two accounts, being Rs.9,18,01,441/-, as the income of the assessee which was assailed before First Appellate Authority. The Ld. CIT(A), while affirming the stand of AO, directed AO to apply net profit rate of 8% on total advances of Rs.18,39,07,766/- vide order dated 24/12/2009 which came to Rs. 1,47,12,621/-. The stand of CIT(A) was contested before Tribunal vide & ITA No. 1509/Mum/2010 order dated 03/08/2011. The coordinate bench after noting the method of revenue & cost recognition adopted by the assessee concluded that the lower authorities failed to appreciate the accounting method followed by the assessee and the assessee also failed to explain the accounting method properly before the lower authorities and therefore, restored the matter back to the file of AO for deciding afresh after verifying the stand of assessee about the method of accounting having been followed consistently in the relevant years whereby the entire profit derived from the projects under consideration was finally offered to tax. Pursuant to these directions, AO passed order u/s 143(3) read with section 254 of the act dated 30/03/2013 wherein after considering the submissions of the assessee, he sustained addition to the extent of 8% of advances received from the project ‘Vruksh’ for Rs.12,03,23,871/- which came to Rs. 96,25,910/-. The assessee assailed the same in second round before Ld. CIT(A) successfully vide order dated 05/01/2015. CIT(A) after considering the submissions of the assessee, noted that the income from projects ‘Upvan II’ and ‘Upvan III’ was already disclosed by the assessee in AY 2007-2008 & 2008-2009, deleted the addition of Rs.1,47,12,621/-. Pursuant to CIT(A) order, AO passed order dated 29/06/2015 giving effect to order of CIT(A) wherein he deleted addition of Rs.96,25,910/-. Aggrieved, the revenue is in appeal before us.

3. The main contention of the Ld. DR that each assessment year is a unique unit of assessment and hence, the income arising in that period should be assessed in that year only. The purpose of assessment is to arrive at the true profits earned by the assessee in a given M/s Azofen Private Limited Assessment Year 2006-2007 assessment years. The projects undertaken by the assessee were substantially completed during impugned years whereas no income there-from was offered to tax. The contention that income was already been offered to tax in other years is not the correct proposition and cannot debar the AO to assess that income in the period in which it has arisen. Per Contra, Ld. Counsel for assessee [AR] contended that an income cannot be taxed twice and as income was already offered to tax as per method of accounting, the CIT(A) rightly deleted the additions on merits. The assessee consistently followed the accounting method over several years which was never in dispute and the income has been offered in respective assessment years following the same method of accounting. Further, disturbing the assessment for other years would serve no fruitful purpose as the whole exercise would be tax neutral. The Ld. AR, while placing relevant document in the paper-book, further contended that so far as the project ‘Vruksh’ is concerned, the income from the same was offered by assessee in AY 2011-2012 & 2012-2013.