DCIT, CENTRAL CIRCLE, DEHRADUN vs. GOLDEN MANOR, DEHRADUN

Shri S.K. Chaterjee, representing the Department narrating facts of the case submitted that a search and seizure operation was carried out at the business premises of Golden Manor Group on 22.07.2015. The assessee is a partnership firm and is engaged in Real Estate Business. During the course of search and seizure operation one of the partners Shri A N Ahuja in his statement recorded u/s. 132(4) of the Income Tax Act, Income Tax Act,1961(hereinafter referred to as ‘the Act’) made a disclosure of Rs.5 crores for AY 2015-16 and Rs.9 crores for AY 2016-17. However, in return of income the assessee did not offer surrendered income. The assessee in return of income declared total taxable of Rs.2,68,97,657/- from the business of Real Estate for AY 2015-16 and Rs.2,92,02,474/- for AY 2016-17. The assessee being in the business of Real Estate Development was required to adopt Percentage Completion Method as per Accounting Standard-7 (AS-7). The Assessing Officer (AO) computed the gross profit as per norms laid down in AS-7 and made addition of Rs.4,96,15,372/-in AY2015-16 and Rs.5,58,06,768/- in AY 2016-17. The CIT(A) has erred in deleting the additions made by the AO. The CIT(A) has not followed mandatory provision of AS-7. The assessee had furnished written submissions before the CITA(A). The CIT(A) has sought remand report from the AO. The AO submitted his report vide letter dated 18.04.2019. The CIT(A) without properly appreciating observations of the AO in remand report decided appeal of the assessee deleting addition made in the assessment orders. The ld. DR thus prayed for reversing findings of the CIT(A) and upholding addition made in assessment orders for respective impugned assessment years.

Shri S.K. Matta, appearing on behalf of the assessee submitted that Financial Year 2014-15 relevant to assessment year 2015-16 is the first year of booking profits by the assessee. During assessment proceedings, the assessee furnished all the relevant documents and financial statement before the AO. The assessee is following Percentage Completion Method as per AS-7. In assessment proceedings, the AO could not point any defect in the working of the assessee or books of the assessee which were duly audited as per provision of section 44AB of the Act. In so far as, surrender of Rs.5 crores/Rs.9 crores in impugned assessment years, by Shri A N Ahuja Managing Partner, the statement was retracted next day. The AO has not made any addition on the basis of surrender of income. The ld. Counsel for the assessee submitted that the AO instead of taking actual cost and actual revenue has adopted projected figures which were filed before the bank. The AO conveniently ignored actual figures which were submitted during the course of assessment proceedings as well as on the basis of which the return of income was filed. The ld. Counsel vehemently defended impugned order and prayed for upholding the same.

Both sides heard, orders of the authorities below examined. In so far as the nature of business activities carried out by the assessee, it is not in dispute. The assessee recoginzied revenue on the basis of Percentage Completion Method. The assessment year 2015-16 is the second year of operations and the first year of booking profits. The profits computed by the assessee for impugned assessment years per Percentage Completion Method and in line with AS-7, is tabulated herein under:-

PARTICULARS ASSESSMENT YEARS 2014-15 2015-16 2016-17 OPENING WORK IN PROGRESS (WIP) NIL 68405365 166362875 COST INCURRED DURING RELEVANT A.Y. 68405365 219370654 145259079 TOTAL COST INCURRED UPTILL NOW [A] 68405365 287776019 433035097 ESTIMATED PROJECT COST[B] 450645000 581130894 607096958 DEGREE OF COMPLETION (%) [C] i.e [A/B] 15.18% 49.52% 71.33% (Refer Note 1)

- PROJECT REVENUE FOR RELEVANT A.Y. 148310800 168085218 CLOSING WORK IN PROGRESS 68405365 166362875 172739211

We find that the AO is also of the view that the assessee has recognized profits in accordance with AS-7. However, the AO while computing profits instead of taking actual revenue and cost has relied on projections that were furnished to the bank by the assessee. When actuals are available, resorting to addition based on projections is unwarranted. The CIT(A) has reserved findings of the Assessing