2015 (4) TMI 440 - AT - Income Tax

Addition made applying percentage of completion method - Held that - No infirmity in the order of the CIT(Appeals) on the fact that the assessee has consistently followed the same method of accounting of income in all the earlier years as well as the succeeding years, has not been disputed by the Revenue. Thus the facts remains that the assessee has always been accounting for the sale proceeds of the portions sold by it as income in the year when the possession is given and the registered sale deeds are executed. This method of accounting of income stands accepted in the hands of the assessee u/s 143(3) in the earlier as well as succeeding years. On these facts the A.O. is not justified in adopting the percentage completion method for one year (the year under appeal) only on selective basis. Infact this will distort computation of the true profits and gains of the business. Further same income will be assessed again in the hands of the assessee in the year when sales have been declared in the subsequent years and assessments have been framed u/s 143(3) of the Act which is not tenable in law. - Decided against revenue. Unaccounted sales proceeds received in cash - CIT(A) deleted the addition holding neither the A.O. was justified in adopting the sales consideration on the basis of circle rate prescribed for charging of stamp duty nor was he justified in considering the taxability of transactions relating to office / residential flats against which only advances had been received during the year and actual sale had not been made - Held that - CIT(Appeals) has given a finding that the value adopted for the purpose of charging the stamp duty cannot be taken into consideration for assessing the business income in relation to the area sold by the assessee and therefore the A.O. was not justified in adopting the circle rate for the purpose of estimating the income. Even before us, the Revenue has not been able to bring any such material on record on the basis of which it could be said that the assessee has actually received any amount of sales proceeds over and above the amount declared by it in the registered sale deeds and its books of accounts and therefore we do not find any infirmity in the order of the learned CIT(Appeals) in deleting the addition of ₹ 1,46,25,071/-. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition by CIT(A) of Rs. 7,10,94,646 made by the A.O. by applying the percentage of completion method.
2. Deletion of addition by CIT(A) of Rs. 1,46,25,071 made by the A.O. as unaccounted sales proceeds received in cash.

Issue-wise Detailed Analysis:

1. Deletion of Addition by CIT(A) of Rs. 7,10,94,646 by Applying Percentage of Completion Method:

The Revenue appealed against the CIT(A)'s order that deleted the addition of Rs. 7,10,94,646 made by the Assessing Officer (A.O.) using the percentage of completion method. The A.O. argued that the assessee should have adopted this method for income computation. However, the assessee consistently followed the method of accounting income based on the actual sale when possession was handed over and the sale deed was registered. This method was accepted by the Department in preceding and succeeding years under section 143(3) of the Income Tax Act.

The CIT(A) accepted the assessee's contention that the percentage of completion method was neither mandatory under section 145(2) nor notified by the Central Government. The CIT(A) found no valid basis for the A.O. to change the method of accounting for a single year selectively. The Tribunal upheld this view, noting that the percentage of completion method is not prescribed under sections 145/145A, and applying it selectively would distort the true profits and gains of the business. The Tribunal referenced judgments from the Delhi High Court and ITAT in similar cases, affirming the CIT(A)'s decision to delete the addition.

2. Deletion of Addition by CIT(A) of Rs. 1,46,25,071 as Unaccounted Sales Proceeds Received in Cash:

The Revenue also contested the deletion of Rs. 1,46,25,071, which the A.O. added as unaccounted sales proceeds received in cash. The A.O. based this addition on the circle rate for stamp duty purposes, which was higher than the declared sale rates in the registered sale deeds. The CIT(A) found no evidence that the assessee received any sales consideration over the declared amount and rejected the A.O.'s reliance on the circle rate for estimating income.

The Tribunal supported the CIT(A)'s finding, noting that the Revenue failed to provide material evidence proving that the assessee received additional sales proceeds. The Tribunal referenced the Delhi High Court's judgment in CIT vs. Discovery Holdings Pvt. Ltd., which held that the value adopted for stamp duty cannot be used to assess business income. The Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the additions of Rs. 7,10,94,646 and Rs. 1,46,25,071. The Tribunal found no justification for the A.O.'s application of the percentage of completion method or the adoption of circle rates for estimating unaccounted sales proceeds. The decision was pronounced in the open court on 31.03.2015.