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2014 (2) TMI 844 - AT - Income TaxConfirmation of net profit - Whether the CIT(A) was justified in confirming the amount of net profit estimated by the AO Held that - The year wise expenditure incurred by the assessee shows that the progress made by the assessee in the implementation of the project for the year under consideration was very little - it has incurred expenditure towards the bank liability - The year wise expenditure details substantiate the claim of the assessee that it did not make much progress in the assessment year 2009-10 - there was a valid reason for not offerring income in assessment year 2009-10 - the assessee was justified in not offering any income for the assesment year 2009-10 - The claim of the assessee that it has made considerable progress in subsequent years and it has also offered income in those years requires verification at the end of the assessing officer the matter remitted back to the AO for fresh adjudication Decided in favour of Assessee.
Issues Involved:
1. Justification of the CIT(A) in confirming the net profit estimated by the AO at Rs. 39,40,884/- for AY 2009-10. Issue-wise Detailed Analysis: 1. Justification of the CIT(A) in Confirming the Net Profit Estimated by the AO: The solitary issue in this appeal is whether the CIT(A) was justified in confirming the net profit estimated by the AO at Rs. 39,40,884/- for the assessment year (AY) 2009-10. The assessee, a partnership firm engaged in the construction and sale of apartments, followed the percentage completion method for estimating profit. During the financial year 2006-07, the assessee incurred an expenditure of Rs. 7.12 crores and estimated a profit of 11.69% (Rs. 83.30 lakhs). However, for the financial years ending 31.3.2008 and 31.3.2009, the assessee did not offer any income despite incurring further construction expenses. During the assessment proceedings for AY 2009-10, the AO questioned the lack of income declaration for the years ending 31.3.2008 and 31.3.2009. The assessee attributed this to a slump in the real estate market, poor bookings, and a significant shortage of working capital, resulting in a Rs. 15 crore loan from Cosmos Bank Ltd., Vashi Branch. The interest on this loan was Rs. 1.86 crores for the year ending 31.3.2008 and Rs. 2.75 crores for the year ending 31.3.2009. Due to these financial constraints and uncertainty about project completion, the assessee did not declare any income for these years. The AO rejected the assessee's explanation, emphasizing that under the percentage completion method, income should have been declared for AY 2009-10 based on the incurred expenditure of Rs. 3.36 crores. Applying the 11.70% profit rate used by the assessee for AY 2007-08, the AO estimated the net profit at Rs. 39,40,884/-. The CIT(A) upheld this estimation. The assessee argued that it was not mandatory to follow accounting standards but chose to use the percentage completion method. Due to market conditions, the project saw minimal progress in the year ending 31.3.2009, with most of the Rs. 3.36 crores expenditure being indirect expenses, including Rs. 2.76 crores in interest. The assessee contended that substantial progress and income declaration occurred in subsequent years (AY 2010-11 and AY 2011-12). The Tribunal noted that while the assessee was following the percentage completion method, the minimal progress in the project during the year ending 31.3.2009 justified not declaring income for that year. However, the Tribunal also recognized the need to verify the subsequent years' accounting figures, as these were presented for the first time during the appeal. Therefore, the Tribunal set aside the CIT(A)'s order and remanded the case to the AO for verification of the subsequent years' accounting figures. If the AO finds the assessee's claims and figures accurate, the AO should delete the assessed income of Rs. 39,40,884/-. If not, the AO may estimate the income accordingly. Conclusion: The appeal filed by the assessee is allowed for statistical purposes, with the AO directed to verify the subsequent years' accounting figures and adjust the assessed income accordingly. The Tribunal emphasized considering the ground realities and the minimal project progress during the relevant year.
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