TMI Blog2012 (12) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as amounts received towards price of the flats intended to be sold - AO was wrong to treat the advances received as sales - AO was wrong to add back adhoc “notional income” @ 10% of the advances and deleted the same - Decided in favor of assessee. - I.T.A.NO. 5594/Mum/2010 - - - Dated:- 6-6-2012 - BEFORE SHRI R. S. SYAL, SHRI VIVEK VARMA, JJ. Appellant by : Shri Manoj Mishra. (Sr. A.R.) Respondent by : Shri K. R. Lakshminarayanan. O R D E R Per VIVEK VARMA, JM: The appeal is filed by the department against the order of the CIT(A) 26, Mumbai, dated 28-04-2010. 2. The department has raised the following grounds: On the facts and in the circumstances of the case and law, the Learned CIT(A) has erred in law in deleting the addition of Rs.41,35,900/-, on account of estimation of income at 10% on the advances received, ignoring the fact that while doing so, the AO has taken into consideration the work-in-progress at Rs.8,58,20, 129/- and substantial advances received to the tune of Rs. 4,13,59,000/-, towards the sale of flats, coupled with the fact that the assessee has failed to get the accounts audited, as per the requirement u/s.44AB of the I. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two offices having value of Rs. 55,65,833/- and work-in-progress of Evershine project of Rs. 8,02,54,296/-. This work of present project does not represent cost of construction of flats but is the expenditure incurred towards purchase of development rights, purchase of old flats, purchase of garages, compensation paid to the members of the society who were asked to vacate their premises and also this expenditure comprises architecture fees, legal cost, interest on loan capitalization and other various expenses related with the project. The full details were submitted to the Ld. AO during the course of assessment proceedings itself. Therefore, it is contended that Ld. AO has wrongly estimated the profit @ 10% without properly appreciating the facts of the case and components of work-inprogress. Therefore, it is contended that addition so made may be deleted. In support of the argument, Ld. AR has also referred to the accounting standard annexed as AS-7 prescribed by Chartered Accountants Institute of India. Further, appellant has placed its reliance upon the case of D.K Enterprises v. ITO 39 lTD 394 (Bom) and has argued that there is no reason whatsoever to estimate such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cannot enjoy any right to proceed with redevelopment. It is matter record that all the members were not given their consent before 31-3-2007. 6.3 Further, in respect of estimation of profit, Hon ble ITAT, Mumbai has given a proposition in the case of Champion Construction Company 5 ITD 495, which is as under :- The proposition that profits of the assessee from a single venture/project in the nature of trade cannot be ascertained until the venture/project has come to an end is not absolute. Under the Act, each year is a self-contained unit and unless it was impossible to compute the profits or losses of each year reasonably the profits should be computed year-wise and taxed. For the second aspect, as to at which of the year, the profit is taxable, the Tribunal laid down the yardstick as under. During the assessment year 1977-78 neither the construction was complete not even half portion of the building was sold. The net sale proceeds received were much less than the total expenditure/cost incurred by the assessee up to that date. Therefore, it would be correct f no profits or losses were estimated during the year. However for the assessment year 1978-79, the constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch advances may be obtained by any such builder on account of reputation, advertisement personal rapport. It is very obvious that in the past, appellant had completed a building known as Vinayak Chambers which may maintain the reputation of the appellant for ensuing construction of new project. Further in Bandra area there is quite shortage of good flats and if any such project is advertised, buyers may lend advances for booking of flats. Thus, such doubt of the Ld. AO is having no foundation. Therefore, in the background of all the above facts, findings and decision of Hon ble ITAT, I reach to the conclusion that notional income estimated by Ld. AO @ 10% on advances against future project is not genuine, thus, AO is directed to delete such addition of Rs. 41,35,900/ from the assessment. The CIT(A), thus over ruled the observations of the AO and deleted the addition of Rs. 41,35,900. 8. It is against this finding of the CIT(A), the department is in appeal before the ITAT. 9. Before us, the DR relied and supported the observations and the order of the AO. 10. The A.R. on the other hand reiterated the arguments made before the revenue authorities and strongly supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the contracts undertaken. It was found that this was not supported by facts and figures. Therefore, the contention that the amounts received from prospective buyers should be treated as sales was fallacious. The facts in the instant case showed that there was no work done during the year and no amount was received towards flats. What was received from prospective buyers was only in the nature of loans, a good portion of which was repaid between 1985 and 1986 and therefore, could not be considered as amounts received towards price of the flats intended to be sold . 13. The CIT(A), then came to the conclusion that the AO was wrong to treat the advances received as sales. The CIT(A), therefore, held that the AO was wrong to add back adhoc notional income @ 10% of the advances and deleted the same. 14. We, do not find any infirmity in this order, neither the DR was able to point out anything, which could be considered as incorrect in the impugned order. 15. We, therefore, do not find any reason to disturb the factual findings of the CIT(A). We sustain the same and reject the appeal filed by the department. 16. In the result, the appeal filed by the department is dis ..... 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