2015 (3) TMI 1211 - AT - Income Tax

Computation of income from project - Om Megasparsh - assessee is maintaining its accounts on project completion method and it is recognizing income on the basis of handing over of possession of flats to the customers - method of accounting to account for sales on the basis of handing over of possession to the customers - Held that - The verification exercise carried out by the Assessing Officer revealed that even with respect to the flats in Wings A & C assessee had handed-over possession to the customers whereas in the return of income filed, such transactions were not recognized as sales during the year itself. The assessee firm has sought to repudiate the aforesaid conclusion of the Assessing Officer b5y attempting to demonstrate that the possession given to the customers was only a temporary possession whereas the final possession was to be given only after obtaining the completion certificate from the local authority , which happened in the month of April, 2005, which corresponds to the next assessment year. In our considered opinion, the case being set-up by the assessee is quite superfluous and is devoid of merit. We find that at no stage it was the case of the assessee that it is recognizing sale of flats on the basis of final handing over of possession. In-fact, there is no material on record to suggest that assessee has differentiated between a temporary possession and final possession so as to recognize income on sale of flats. Therefore, the verification exercise carried out by the Assessing Officer which revealed that even with respect to the flats in Wings A & C assessee had handed-over possession of certain flats would justify assessment of such income during the year itself, having regard to the methodology adopted by the assessee consistently over a period of time. Thus, we upheld the action of the Revenue in-principle. Considering the alternate plea to the effect that the Assessing Officer had carried out verification exercise only with respect to 20 customers as detailed in Annexure A to the assessment order we deem it fit and proper to restore the matter back to the file of the Assessing Officer to re-quantify the addition liable to be made on the basis of the evidence available with the Assessing Officer which demonstrates that the possession was handed-over by the assessee to the respective buyers in Wings A & C in the previous year relevant to the assessment year under consideration. The Assessing Officer shall compute the profit relatable to the 20 flats as enumerated in Annexure A to the assessment order and delete the balance of the addition.

Summary

Issues:
1. Dismissal of appeal by CIT(A) without appreciating facts and submissions.
2. Addition of estimated profit on alleged sales by AO.
3. Recognition of income from project "Om Megasparsh" by the assessee.
4. Dispute regarding income recognition for flats in Wings A & C.
5. Verification exercise by Assessing Officer on possession of flats.
6. Contention on temporary possession by assessee.
7. CIT(A) decision on the submissions made by the assessee.
8. Recognition of sale of flats based on possession.
9. Alternate plea by the assessee regarding verification exercise.
10. Restoration of the matter to the Assessing Officer for re-quantification.

Analysis:
1. The appeal pertains to the dismissal by CIT(A) without considering facts and submissions. The assessee, a partnership firm engaged in real estate, declared income for 2005-06 from a Pune project. The AO assessed a higher income, including an addition of estimated profit. The dispute revolves around the method of income recognition by the assessee based on possession of flats.

2. The core issue is the disparity in recognizing income from different wings of the project. While the assessee recognized income from Wing B flats, it did not account for income from Wings A & C in the same year. The AO's verification revealed possession of A & C flats by customers, leading to the addition of estimated profit. The CIT(A) affirmed this decision, prompting the appeal.

3. The assessee argued that possession of A & C flats was temporary for furniture work, with final possession in April 2005. However, the Revenue contended that the possession was final, not temporary. The Tribunal found the assessee's argument lacking merit, as there was no distinction made in income recognition based on possession type.

4. The Tribunal upheld the Revenue's action, stating that possession of A & C flats was handed over as per the method consistently followed by the assessee. An alternate plea to consider only verified cases for addition was accepted, leading to the matter being remanded to the AO for re-quantification based on verified evidence.

5. The Tribunal partially allowed the appeal, directing the AO to re-calculate the addition based on verified possession cases. This detailed analysis clarifies the income recognition dispute and the verification exercise's impact on the assessment.