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TMI Blog2020 (6) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the assessee has laid out the plots and declared work-inprogress of Rs. 2,83,21,930/- and closing stock of finished goods at Rs. 4,72,36,750/- aggregating to Rs. 7,55,58,680/-. The AO observed that as per Accounting Standard 2, the inventory required to be valued at cost or net realisable value whichever is lower. The AO further observed that though the assessee firm had the incurred land cost and development cost for developing the plots for layout and the same was debited to Profit & Loss account, the assessee had included only land cost, but not included the development cost of plots in arriving at the work in progress/closing stock. Therefore, the AO reworked the value of closing stock including the development cost and made the addition of Rs. 3,13,94,622/- representing the difference amount on account of undervaluation of the stock. The AO recomputed the closing stock as follows : A. 1 Land Cost (52.3 acres) Rs. 5,62,26,120 2 Total Development Cost (adopted as per P&L)* Rs. 7,11,26,961 3 Total cost of developed land (1) + (2) Rs. 12,73,53,081 4 Saleable area (as shown by the assessee) 1,45,716 sq.yards 5 Sold during the year 23,341 sq.yards 6 Balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and if the AO's method of closing stock is accepted, the cost of each plot works out to Rs. 874/- per sq.yardand the profit per sq.yd works out to Rs. 1676/- which works out to 60% of the sale price and the same appears to be very high in this line of business. The Ld.CIT(A) found that the assessee estimated the profit at 11% and arrived at the net cost of plots sold at Rs. 2,225/- which is also less compared to the business in this line. The Ld.CIT(A) considered the estimation of profit @15% is reasonable and accordingly reworked the development cost per plot and the closing stock. On estimation of profit @15%, the closing stock worked out to Rs. 3.00 crores as against the closing stock worked out by the assessee at Rs. 2,83,21,930/- and hence, sustained addition to the extent of Rs. 22,15,032/- and allowed the relief to the extent of Rs. 2,91,79,590/-, accordingly allowed the appeal of the assessee partly. 5. Against the order of the CIT(A), the department has filed appeal before us and raised the following grounds in this appeal : 1) The Order of the Ld.CIT(A)-1, Visakhapatnam is erroneous both on facts and in law. 2) The Ld.CIT(A) has erred in holding that the method ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the development cost on stage by stage basis, since it is not possible to develop the entire stretch of 52.30 acres at one go. Therefore, the assessee has developed the land in parts and the remaining area was plotted as per the lay out and remained undeveloped. The assessee further submitted that in subsequent years, the assessee has developed the remaining tracks of land and declared the resultant income in the return of income filed subsequently. Since the development cost does not pertain to the plots remained unsold, the assessee argued that it is unjustified to allocate the development cost to the remaining plots and argued that only the land cost to be taken to unsold plots representing the closing stock. Therefore, submitted that the assessee has worked out the closing stock in conformity with the accounting standards, hence, there is no requirement of disturbing the method adopted by the assessee for arriving at the closing stock, hence requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. 8. We have heard both the parties and perused the material placed on record. In the instant case, the assessee has purchased the land of 52.30 acres a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sold plots. 6.2.1. I have carefully considered the assessment Order and the submissions of the appellant. I find that there is no dispute about the basic details relating to the cost of the land purchased, saleable area of plots, unsold area of plots and also the development cost incurred, Further, I find that there is no dispute in value of cost of land apportioned to the unsold area of plots. The only point in dispute is the apportionment of development cost incurred over the sold plots and the unsold plots. The assessing officer divided the total cost of Rs. 7,11,26,961/- by the total saleable area of land (I45716 sq.yards) and multiplied the same by the unsold area of land (1,22,375 sq.yards) to arrive at the value of closing stock. The assessing officer adopted the same method even for the cost of land. The contention of the appellant is that the purchase of land had already been completed and as such the actual/complete cost of land is known and is not going to change. Therefore apportionment of the said cost equally over the sold and unsold plots by applying simple average method is fully justified. However, as regards the development cost the expenditure incurred up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment of layout and adding the same to the cost already incurred the total cost has to be arrived. From such total cost (cost incurred plus estimated cost) the cost per sq.yard of saleable area has to be worked out. However, when the appellant is developing multiple layouts and each of the layout is in a different stage of completion it would be difficult to even estimate the balance cost to be incurred for completion of the layout. Therefore, in principle I approve the method of valuation adopted by the appellant. In this method adopted by the appellant, the only variable element is the rate or profit estimated. I find that the rate of profit estimated by the appellant @11% is very low. The normal rate of profit in this line of business is around 15%. Therefore. I prefer to adopt this rate of 15%. 6.2.4. By substituting 15% in the place of 11% the value of work in progress would be as under : Total number of plots in the layout 838 plots Total saleable area of plots 1,45,716 sq.yards Total area of plots sold 23,341 sq.yards Total amount of sale price Rs. 5,83,85,500 Average sale price per sq.yard Rs. 2,500 Less : Net profit estimated @15% Rs. 375 Net cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock. We, find from the order of the AO and the Ld.CIT(A), against the sale price of Rs. 2,500/-, the AO worked out the profit of Rs. 1,676/- per plot which is unreasonable. Since, the assessee did not produce the details of the tracks of the land developed and undeveloped out of the total area we are also unable to accept the contention of the assessee that the expenditure was exclusively laid out for the sold plots. Therefore we hold that the Ld.CIT(A) has rightly resorted for estimation of the profit.- The department did not bring any other case establishing that the profit of 15% estimated by the Ld.CIT(A) is less in this line of business. Therefore, we are of the view, that no interference is called for in the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed. 9. The assessee filed cross objections agitating for sustaining the addition of Rs. 22,15,032/- by the Ld.CIT(A). However, during the appeal hearing the Ld.AR did not make any specific argument supporting the cross objections. We, find that the estimation of income @15% is reasonable and dismissed the appeal of the Revenue, hence, the cross objections of the assessee also stand di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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