TMI Blog2019 (12) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... HMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Pr. Commissioner of Income Tax, Ahmedabad dated 18/03/2019 ( in short Ld.CIT ) arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-inafter referred to as the Act ) dt. 29/08/2016 relevant to the Assessment Year 2014-2015. The assessee has raised the following ground of appeal. 2. The solitary issue raised by the assessee is that the learned CIT erred in holding the order passed by the AO under section 143(3) of the Act dated 29 August 2016 as erroneous insofar prejudicial to the interest of Revenue. 3. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of developing/building the real estate projects. The assessee purchased a piece of plot along with 2 parties namely Shri Amit Rajnikant Joshi and Shri Sureshbhai Thakkar vide sale deed bearing serial No. 8778 dated 11 May 2012. The total consideration of such piece of plot was ₹ 6,18,60000/- plus stamp duty of ₹ 30,31,200/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings to the notice issued under section 133(6) of the Act. Similarly, the other sundry creditor Shri Sureshbhai Thakkar confirmed receipt of ₹ 15 lakhs only. As such there was no confirmation from such party Shri Sureshbhai Thakkar for the closing balance shown by the assessee in its books of accounts. However, the AO without carrying out further verification of such sundry creditors has accepted them as genuine. ii. The impugned amount of sales of ₹ 7,54,21,991/- represents 87.05% of the total sales which evidences that the project was completed to the extent of 87.05%. But the assessee has claimed an expense of ₹ 4,20,00,000/- in the year under consideration vide agreement dated 28 March 2014. Thus such expenses do not relate to the projects of the assessee as discussed above. iii. The payment made by the assessee to the parties namely Shri Amit Rajnikant Joshi and Shri Sureshbhai Thakkar as per the agreement dated 28th March 2014 represents for the piece of land belonging to these persons. However, the assessee has claimed the same as revenue expenditure instead of capitalizing the same either as work in progress or closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and loss account. It is because, the assessee deals in the development of lands therefore this cost of such land was treated as stock in trade. Therefore the same was debited to the profit and loss account. 5.3 The assessee further submitted that it has incurred major part of the construction cost on its land as well as on the land of other parties as stated above in the year under consideration. Therefore the cost of land was also debited in the year under consideration though the same was acquired after 2 years from the start of the project. Accordingly, the project was completed in the year under consideration up-to 87.05% after including the cost of the impugned land. 5.4 Thus, the assessee recognized the revenue to the extent of 87.05% of the total value of the flat sold in the year under consideration. Accordingly the assessee against such revenue recognized the proportionate cost of 87.05% as per the guidance note issued by the Institute of chartered accountant of India. 6. However, the learned CIT after considering the submission of the assessee held the order of the AO as erroneous insofar prejudicial to the interest of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he materials available on record. From the preceding discussion, we note that the assessee has shown two projects in its financial statements namely as divine-1 and Divine-2. There is no quarrel regarding the project divine-2. Therefore, our entire subsequent discussion and finding is based on the project divine-1 only. 9.1 The assessee acquired a piece of land dated 11 May 2012 in joint ownership with 2 parties namely Sureshbhai Thakkar and Amit Joshi. The assessee thereafter started the construction activity on such piece of land including the land owned by the joint owners. The assessee in the 1st year of operation did not make any sale of its property therefore no revenue was recognized in the year ending as on 31 March 2013. As such the entire cost of land (only assessee being 50%) and the expenses incurred on the construction on such land including the land of the joint owners were categorized as work in progress. 9.2 The activity of the assessee for the construction of the project continued in the 2nd year on the land owned by it as well as the land owned by the joint owners. As such at the fag-end of the 2nd year i.e. the year under considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/17,46,46,000* 100) of the total project revenue. 9.6 As the project was completed to the extent of 87.05%, therefore the assessee decided to recognize the revenue as discussed above to the extent of 87.05% amounting to ₹ 754.2 lakhs ( 87.05% of 8,66,46,000.00 representing the value of the sales). Accordingly the assessee also worked out proportionate cost against such revenue amounting to ₹ 7,38,47,442/- being 49.61 of the total project cost incurred up-to 31-3-2014. Thus the remaining cost of ₹ 7,50,01,442/- (14,88,48,884 - 7,38,47,442/-) was classified as work in progress in the financial statements. The necessary details shown by the assessee is available on pages 28 of the paper book. 10. The learned AR also claimed that the above working was made in accordance with the guidance note issued by the Institute of chartered accountant of India. 11. However, we note that the learned CIT held the order of the AO is erroneous insofar prejudicial to the interest of revenue on the ground that the necessary verification was not carried out by the AO during the assessment proceedings. 12. However we note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Please find ledger copy of all expenses accounts as your desired. All expenses bills, voucher or supporting are ready available for your inspection. Annexure XX. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 34. Books of accounts, voucher Bank statement invoice and purchase bills are ready available for your inspection. In view of the above, we hold that the assessment order was framed under section 143(3) of the Act after due verification by the AO. Accordingly, we are of the view that the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue on account of non-verification of the facts as stated above. 12.3 In holding so, we draw support and guidance from the judgment of the Hon ble Supreme court in the case of Malabar Industrial Co Ltd Vs. CIT reported in 109 Taxman 66 wherein it was held as under: In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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