TMI Blog2022 (11) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... house property - ALV of the flats held by the assessee as stock in trade - Addition determined by the Ld. A.O. on the closing stock of the flats held by the assessee - whether, from the flats held by an assessee as a stock in trade, the deemed rental income under the head income from house property should be assessed or not? - HELD THAT:- The coordinate bench of the Tribunal in the case of Bangal Shapoorji housing development Private Limited [ 2021 (5) TMI 636 - ITAT MUMBAI] after considering various decisions directed the Ld. Assessing Officer to delete the addition made towards the ALV of the flats held by the assessee as stock in trade of its business as that of a builder and developer. In our opinion, there is no error in the order of the Ld. FAA on the issue in dispute, which has been passed after following binding precedent on the issue in dispute. We accordingly uphold the same. The ground No.3 of the appeal of the Revenue is accordingly dismissed. - I.T.A. No.1408/Mum/2022 - - - Dated:- 28-9-2022 - Shri Om Prakash Kant (Accountant Member) And Smt. Kavitha Rajagopal, (Judicial Member) For the Assessee : Shri Suchek Ancheliya For the Department : Shri Hosha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fession and addition of Rs.49,13,037/- under the head income from house property . Aggrieved, the assessee preferred the appeal before the Ld. FAA. After considering submissions of the assessee, the Ld. FAA allowed the appeal of the assessee. Aggrieved with the finding of the Ld.FAA, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 3. Before us, the Ld. counsel of the assessee filed a paper book containing pages from 1 to 208. 4. The ground No.1 and 2 of the appeal of the Revenue relate to deletion of the addition of Rs.5,93,35,636/- by the Ld. FAA , which was made by the Ld. Assessing Officer in respect of profit offered during the survey proceeding. 5. Facts qua the issue in dispute are that during scrutiny proceeding, the Ld. Assessing Officer observed that assessee undertaken the construction work of the project namely Jeerawali residency at Ghatkoper Mumbai. This project was started in the year 2001 and completed during the year under consideration. The assessee shown closing stock of flats for Rs.10,28,44,296/- The Ld. Assessing Officer noted that during the course of survey action dated 03/10/2012 under Section 133A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.15,91,170/- A.Y. 2011-12 Rs.6,39,210/- Rs.22,30,380/- Income from the project for the year under consideration Rs.5,93,35,636/- It is evident from the statement of the partner of the assessee which was recorded at the time of survey that they were estimated and offered the income for the year at Rs.5,00,00,000/- after discussion with the partners and on reasonable base. However, the assessee has not paid the taxes on the income declared during the survey. During the course of assessment proceedings, a proper working as shown above is done on the base of submissions made by the assessee and accordingly income on the project is determined. Hence, the income from the project for A.Y 2013-14 is worked out at Rs.5,93,35,636/- and added to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Act is initiated separately. 6. On further appeal, before the Ld. FAA the assessee mainly submitted that it was consistently following percentage completion method and profit had been offered to tax as and when it was accrued to the assessee. The Ld. FA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnition being followed by the appellant is such that it allows the appellant to postpone the tax liability. The undisputed fact is that the appellant is following mercantile system of accounting and the appellant is recognizing the revenue on the basis of percentage competition method since inception of the firm. There is no change or modification in the accounting method and the method of revenue recognition. The method of revenue recognition adopted by the appellant is as per the Accounting Standards. There are two methods of revenue recognition as per the Accounting Standards, viz. Project Completion Method and Percentage Completion Method. Both these method are being followed in the cases of Real Estate Development / Builders. In the instant case the revenue has been recognized as per the Percentage Completion Method which is evident from para 2.5.3 (supra) wherein the Working of Revenue Recognized has been reproduced. 3. In the assessment order the A.O. has computed the profit on the project till 31.03.2013 which is reproduced below: Cost of project (construction area 58712 sq.fts.) Rs.22,38,96,938/- Cost of construction pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm during the course of survey proceedings. The Hon'ble Supreme Court in the case of CIT vs. Realest Builders Services Ltd 170 Taxman 218 (SC) has held as under: Under section 145, it is always open to the department to insist on the change in the method of accounting followed by the assessee over the years if the impugned method of accounting results in underestimation of profits/net income. In the instant case, no allegation of that nature was ever made by the department. [Para 6] In cases where the department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting was warranted on the ground that profit is being underestimated under the impugned method of accounting. If the Assessing Officer comes to the conclusion that there is underestimation of profits, he must give facts and figures in that regard and demonstrate to the Court that the impugned method of accounting adopted by the assessee results in underestimation of profits and is, therefore, rejected. Otherwise, the presumption would be that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 6552/- per sq ft. then as per the computation of A.O. the profit would be Rs.10960252/-. Further the allowability of expenses of Rs.64,27,926/- incurred by the appellant for additional work reduces the profit below the returned income. The above facts make it abundantly clear that the methodology followed by the AO to compute profits of the project is adhoc and based on erroneous assumptions. 8. Further, the Ld. FAA has distinguished the decisions relied upon by the Ld. Assessing Officer with detailed finding. 9. Before us, the Ld. DR relied on the order of the Ld. Assessing Officer and submitted that the assessee did not comply with the income disclosure of Rs. 5 crore, which was offered by the assessee in the course of survey operation u/s 133A of the Act at the premises of the assessee. The Ld. DR submitted that project of the assessee had already completed and therefore, the assessee was required to offer profit from the project following the project completion method. Accordingly, he submitted that order of the Ld. FAA should be reversed and order of the Ld. Assessing Officer should be upheld. 10. Per contra, the Ld counsel of the assessee filed profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has not honored the income of Rs. 5 crore, which the assessee declared during the course of survey action. The Ld. Assessing Officer was of the view that revenue should be recognized when there was reasonable certainty of ultimate collection of revenue. According to him, the project was fully completed and there was no uncertainty of escalation of price and assessee blocked its capital in the stock of flats only for the reason that assessee wanted to make more and more profit by prolonging the sales. The learner Assessing Officer accordingly determined profit on even unsold flats. The Ld A.O. ignored the percentage completion method of revenue recognition consistently followed by the assessee in assessment years prior to the assessment year under consideration i.e. A.Y. 2009-10 and opined that project of the assessee was completed therefore entire profit should have been declared in the year under consideration. In our opinion, the Ld. FAA after considering the submission of the assessee and analyzing facts of the case, correctly upheld the percentage completion method of Revenue recognition following the judicial precedents, and therefore we do not find any error in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration. Since the jurisdictional ITAT has decided this issue in favour of the assessee, respectfully following the above mentioned judgement of the Hon'ble Guj HC(supra) and above referred decisions of Hon'ble Mumbai ITAT the addition on account of notional rent of Rs. 70,19,910/- is hereby deleted. Accordingly, the grounds of appeal 3 and 4 are allowed. 15. Before us the Ld. Departmental Representative relied on the decision of the Hon ble Delhi High Court in the case of Ansal housing finance and leasing (supra), which was relied upon by the Ld. Assessing Officer. 16. On the other hand, the Ld. counsel of the assessee relied on the finding of the Ld. CIT(A) on the issue in dispute. 17. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is whether, from the flats held by an assessee as a stock in trade, the deemed rental income under the head income from house property should be assessed or not. The Hon ble Delhi High Court in the case of Ansal housing finance and leasing (supra) has held that stock is to be treated as house property of the assessee and therefore liable for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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