2018 (3) TMI 1457 - AT - Income Tax

Advance received against the unsold stock far exceeded the cost - Addition of advances were more than closing WIP - Held that - AO had worked gross profit on work in progress which meant that the gross profit was determined from the expenses which was pending to be allowed. Without allowing corresponding expenses, the AO should not taxed the income portion of the transaction. A perusal of Schedule 7 reveal as to the current liability of Rs. ₹ 3, 18, 50, 717/- was explained. Both the departmental authorities did not consider the calculation or ignored it. There is no evidence that that the net advance was not ₹ 6, 70, 50, 365/-, as claimed by the assessee in the Schedule 7. The figure adopted by the AO/FAA at ₹ 3, 18, 50, 717/- under the head net advance was factually incorrect. If the net advance was of ₹ 6. 70 crores then same was lower than the closing WIP of ₹ 7. 31 crores. The sole basis of making the addition was that advances were more than closing WIP. Considering these facts we are of the opinion that matter needs further verification and correct appreciation of facts. It is true that principles of res judicata do not apply to income tax proceedings, but principles of consistency apply. So, if an AO wants to deviate from the path followed in the earlier year, he has to give reasons for it. We do not find any such reasons in the assessment order - the matter should be restored back to the file of the FAA for fresh adjudication Addition on account of variation in sale prices - Held that - FAA, after considering the available material, held that even after considering the date of booking, there was inexplicable variations in the rate per square feet shown by the appellant. He referred to some of the sale transactions where variation in the rates was found. He observed that in several cases the rate per sq. ft. as per agreement was lower than stamp duty value, that large variations in rates indicated that sales realization was under reported, that the assessee was showing losses year after year. Finally, he upheld the additions, made by the AO, in principle . But, he directed the AO to consider only the additional area area and rate of ₹ 5040 sq. ft. stated in the agreement in two cases while computing the addition - we direct the FAA to decide the issue of addition made on account of variation in sale price of office premises afresh after hearing the assessee

Summary

Issues:
1. Delay in filing the appeal and condonation of the delay.
2. Addition of ?2.36 crores upheld by the AO.
3. Variation in sale prices leading to an addition of ?1,59,22,968.

Issue 1: Delay in filing the appeal and condonation of the delay:
The Assessee filed an appeal challenging the order of CIT(A)-21, Mumbai, citing a delay of 299 days due to strained relationships among directors and unavailability of necessary details. The Tribunal, after considering the reasons provided, condoned the delay, noting the unintentional nature of the delay and the circumstances leading to it.

Issue 2: Addition of ?2.36 crores upheld by the AO:
The AO added ?2.36 crores to the Assessee's income, considering advances received against unsold stock exceeding the cost. The FAA upheld this addition, citing unclear liabilities, unrecognised sales, and delayed revenue recognition. The Assessee argued for consistency in accounting methods and disputed the AO's calculation of unrecognized gross profit. The Tribunal found discrepancies in the AO's approach, emphasizing the need for correct appreciation of facts and further verification. The matter was directed back to the FAA for fresh adjudication.

Issue 3: Variation in sale prices leading to an addition of ?1,59,22,968:
The AO estimated suppressed sales of ?1,59,22,968 based on variations in sale prices per sq. ft. The Assessee contested this, highlighting the registration date versus booking date discrepancy and inconsistencies in rate per sq. ft. The FAA, while upholding the addition "in principle," directed the AO to consider specific cases for computing the addition. The Tribunal directed the FAA to re-examine the issue after de novo proceedings, emphasizing the need for a fresh decision.

In conclusion, the Tribunal partly allowed the Assessee's appeal, stressing the importance of correct factual appreciation, consistency in accounting methods, and the necessity for proper verification in tax assessments. The matter was remanded back for fresh adjudication, ensuring a fair hearing and accurate consideration of the issues involved.