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TMI Blog2019 (8) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... essee are identical in nature and hence they are taken up together for adjudication. They pertain to working of income from the real estate development project undertaken by the assessee at Cuffe Parade, Mumbai. 3. The brief facts of this issue are that the assessee is a Builder and Developer. The ld AO observed in the order that the assessee company was incorporated with the sole objective of developing and constructing residential buildings. With this objective, the assessee stated that the company has taken up the development of property at Taraporewala Mansion, Cuffe Parade, Colaba, Mumbai and has continued its construction activity during the year under consideration. The ld AO observed that the assessee company follows percentage of completion method of accounting and the expenses incurred have been capitalized to work in progress (WIP) account. The ld AO observed in his order that the assessee filed a letter dated 21.3.2013 furnishing details of total saleable area, area sold, cost of construction, interest cost, expected cost of construction to complete the project , estimated profit / loss from the project and profit and loss recognized based ont eh percentage of work com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p;Agreement Value 104.00 77.16% 80.24 45.17 Cr 35.07 Cr. Cost to be recognized 68.05 68.05 36.25 3 1.80 Cr Profit for the period 12.19 8.92 3.27 Cr. Assessee recognized profit as per working 0.88 Cr. Difference to be assessed as income 2.39 cr. 3.4. Accordingly, the ld AO made an addition of Rs. 2.39 crores to the total income of the assessee for the year under consideration. 4. Similarly, the ld AO also proceeded to examine the rate at which the flats were sold by the assessee during the year under consideration. From the first table reproduced above, the ld AO observed that the assessee was able to sell the flats D3 and D4 to Bharat Daftary and Gautam Daftary on 9.8.2007 at Rs. 33750 per sq.ft, whereas after a gap of 28 months, the assessee had sold similar flat to Bharat D Shah (Flat D5) for Rs. 28,750 per sq.ft on 29.12.2009. The ld AO proceeded to assume that the real estate market would always be on the upward trend and hence it is very unlikely that the assessee was able to sell at the rate of Rs. 5000 per sq.ft lesser than the rate at which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 4 crores made on account of suppressed sale of flat to Bharat D Shah. 5.1. The ld CITA observed that the assessee had disclosed the profit for the year from the project at Rs. 88,46,754/- worked out as under:- Description Unit Value Total area booked / sold A1 Sq.ft. 36,100 Balance saleable area B1 Sq. ft. 36,400 Area for the whole project C1 Sq.ft. 72,500 Total value of area booked / sold D1 Rs. 1,040,000,000 Average sale price of area sold E1=D1/A1 Rs, 28,808 Value of saleable area (as per appellant F1 Rs. 1,019,200,000 Value of whole project (Estimated) G1=D1+F1 Rs. 2,059,200,000 Cost of Land H1 Rs. 650,000,000 Interest cost incurred H1 Rs. 325,756,257 Estimated Interest cost in future J1 Rs. 126,491,929 Construction cost as per the appellant K1 Rs. 618,787,500 Others costs as per the appellant L1 Rs. 50,000,000 Cost of the project as per the appellant M1=H1+I2+J1+K1-L1 Rs. 1,771,035,686 Estimated Profit from the project as per the appellant N1=G1- M1 Rs. 2,88,164,313 Profit from the project as part of turnover (as per the appellant) O1= N1/ G1 13.99% Total expected cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) G3=Ds+P3 Rs. 2,088,611,200 Cost of Land as per the appellant H3 Rs. 650,000,000 Interest cost incurred as per the appellant I3 Rs. 325,756,257 Estimated Interest cost in future as per the appellant J3 Rs. 126,491,929 Construction cost as per the appellant K3 Rs. 18,787,500 Others costs as per the appellant L3 Rs. 50,000,000 Cost of the project as per the appellant M3=H3-H3+J3+K3+L3 Rs. 1,771,035,686 Estimated Profit from the project N3=G3- M3 Rs. 317,575,514 Profit from the project as part of turnover' O3= N3/ O3 Rs. 15.21% Total expected cost excluding cost of the land and 'other expenses') P3= I3+J3+K3 Rs. 1,071,035,687 Cost incurred upto March, 20 11 (excluding cost of the land and 'other expenses') Q3 Rs. 721,682,157 Estimate of work completed upto 31.03.2010 as per the appellant S3= Q3/P3 Rs. 67.3S% Profit upto 31. 03. 2010 T3 = D3- O3- S3 Rs. 106,584,379 Profit recognized upto 31.03.2009 U3 Rs. 89,218,923 Profit for P. Y. 2009-10 W3 = T3- U3 Rs. 173,65,456 5.3. The ld CITA accordingly confirmed the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of completion method as against the cost incurred upto 31.3.2010. Hence we hold that the percentage of work completed upto 31.3.2010 should be considered at 67.38% as determined by the assessee in the return of income. 7.1. The next aspect to be decided with regard to the addition of Rs. 2.39 crores is with regard to the valuation of unsold flats as on 31.3.2010. The assessee had valued the unsold flats the lower of cost or market value as on 31.3.2010, which is in accordance with generally accepted accounting principles for valuation of inventories. We find that the Hon'ble Supreme Court in the case of Chainrup Sampatram vs CIT reported in 24 ITR 481 (SC) and United Commercial Bank vs CIT reported in 106 Taxman 601 (SC) had accepted the basis of valuation of inventories at lower of cost or market value and had also held that no profit could arise out of valuation of closing stock. Their Lordships held that valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period and can in no sense be regarded as the source of such profits. We find that the ld CITA by valuing unsold flats at the average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents & Properties supra would not advance the case of the revenue as no one had appeared on behalf of the assessee before the tribunal and the decision was rendered based on the facts available in the assessment order in that case. Moreover, the said decision cannot be made applicable to the instant case as it is factually distinguishable. We hold that the ld AO had merely assumed that the price at which the flats were sold to Mr Bharat and Gautam Daftary was always available to the assessee and this assumption is based on no material at all. Apart from his suspicion, the ld AO has not brought an iota of material on record in support of the addition made by him. Furthermore, it is settled position in law that the addition on the ground of suppression of sale price or charging on money cannot be made without there being an evidence other than estimate of market value to show that the assessee had actually received more money from the buyer than as disclosed in his return of income. For this proposition, we find that the ld AR had rightly placed reliance on the decision of Hon'ble Supreme Court in the case of K. P. Varghese v. ITO reported in 131 ITR 597(SC) wherein it was held as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. The fulfilment of the second condition has, therefore, to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before sub-section (2) can be invoked and the burden of doing so is clearly on the revenue. It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no under statement of the consideration on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him. 7.2.1. Similarly, in yet another decision of Hon'ble Supreme Court in the case of CIT v. Sati Oil Udyog reported in 56 taxmann.com 285(SC), it was held as under:- 22. Taking ..... X X X X Extracts X X X X X X X X Extracts X X X X
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