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2017 (2) TMI 67 - AT - Income TaxAddition on account of flat sold in Balaji Avenues - AO rejected method of accounting on the ground that profit from one of its projects is not offered to tax in the year under consideration by observing that project was completed in the Assessment Year 2011-2012 only. - Held that - From the record we found that the possession of all flat owners of Balaji Avenue was not handed over by the assessee in the year under consideration and actual possession was handed over in financial year 2011-12 relevant to the assessment year 2012-2013. Corresponding income has also been offered by AO in the Assessment Year 2012-13. A clear finding to this effect has also been recorded by CIT(A). In view of this finding CIT(A) was justified in deleting the addition of 58, 97, 073/- on account of flat sold in Balaji Avenues. Addition on account of large variation in the rates of sale of flats - Held that - AO has made detailed working to find out cash component of sale price not accounted for. The AO has drawn Annexure-II and Annexure-III to find out sale price on the basis of date of booking of flat flat number area agreement value booking date advance received etc. However without controverting all these findings of the AO CIT(A) after giving general observation deleted the addition. We do not find any merit in the order of CIT(A). Accordingly the same is set aside and matter is restored back to him for deciding afresh after controverting the findings recorded by AO as discussed above.
Issues Involved:
1. Deletion of addition of ?58.97 lacs made by the AO on the plea that the assessee did not offer its income during the year under consideration. 2. Deletion of addition of ?241.26 lacs on account of large variation in the rates of sale of flats. Issue-wise Detailed Analysis: 1. Deletion of addition of ?58.97 lacs: The primary issue revolves around the method of accounting employed by the assessee, a partnership firm engaged in building development, specifically for the project "Balaji Avenue" at Navi Mumbai. The AO rejected the assessee's method of accounting, arguing that the project was completed in the Assessment Year (AY) 2011-2012 and thus the income should be recognized in that year. The AO estimated the income of the project at ?58,97,073/-, basing this on the occupancy certificate dated 20.05.2011 and the observation that 95.83% of the project was completed by March 31, 2011. The CIT(A) deleted the addition, emphasizing the consistency in the assessee's method of accounting, which had been accepted in previous years. The CIT(A) referenced the principle of consistency upheld by courts, including the Supreme Court in Radhasoami Satsang v. CIT, asserting that a method consistently followed and accepted should not be changed without a material change in facts or law. The CIT(A) further noted that the assessee's method of accounting, the project completion method, is recognized by AS-9 issued by ICAI, and the income accrues only when the transaction of sale is complete, which includes handing over possession. Since possession was handed over in the financial year 2011-2012, the income should be recognized in AY 2012-2013. The tribunal upheld the CIT(A)'s decision, noting that the possession of flats was handed over in the financial year 2011-2012, and the corresponding income was offered by the AO in AY 2012-2013. Therefore, the addition of ?58,97,073/- was rightly deleted by the CIT(A). 2. Deletion of addition of ?241.26 lacs on account of large variation in the rates of sale of flats: The AO observed large variations in the sale prices of flats and concluded that the assessee had likely received a significant portion of the sale proceeds in cash, which remained unaccounted for. The AO rejected the assessee's books of account under Section 145 of the Income-tax Act and estimated unaccounted sale receipts at ?2,41,26,879/-. The CIT(A) deleted the addition, criticizing the AO's reliance on information from a private website and the lack of concrete evidence showing that the assessee received cash from its customers. The CIT(A) emphasized that the AO's estimation was based on presumption and not on any cogent evidence. The CIT(A) also noted that the AO did not find any unexplained cash or investment in the hands of the assessee. The tribunal, however, found merit in the AO's detailed working and analysis of the sale prices based on the date of booking, flat number, area, agreement value, booking date, and advance received. The tribunal noted that the CIT(A) had given general observations without addressing the specific findings of the AO. Consequently, the tribunal set aside the CIT(A)'s order and restored the matter to the CIT(A) for a fresh decision after addressing the AO's findings. Conclusion: The tribunal upheld the CIT(A)'s deletion of the addition of ?58.97 lacs, agreeing that the income should be recognized in AY 2012-2013 when possession was handed over. However, the tribunal set aside the CIT(A)'s deletion of the addition of ?241.26 lacs and remanded the matter for a fresh decision, emphasizing the need to address the AO's detailed findings on the variation in sale prices. Order Pronounced: The appeal of the Revenue was allowed in part, with the tribunal delivering the order on 23/11/2016.
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