2013 (5) TMI 527 - AT - Income Tax

Profit on sale of flats - assessee is a builder into constructing two buildings at Bhayander - whether the A.O. was justified in taxing 15% of payments in respect of 5 flats for which the possession was given by the assessee in the previous year relevant to the assessment year under consideration - assessee submitted that following percentage completion method which stands accepted by the Revenue - Held that - The amount of work in progress in respect of these five flats at the rate of 31.65% was included in the overall 31.65% of WIP, which the assessee offered for taxation, after deduction of expenses. With the making of separate addition by the AO at the rate of 15% profit on 100% of the amount in respect of these flats, some part of these amounts got doubly included, once, when the assessee voluntarily offered at 31.65% of the total WIP and secondly when the AO brought to tax the profit on 100% in respect of receipts from these flat owners. Since the proceedings for all the years up to A.Y. 2004-2005 have been concluded and in the years following the previous year relevant to the assessment year under consideration, the assessee has followed the same method of accounting by also considering same percentage in respect of these five flats in each of the years, no final reduction can now be done to reduce the income for the subsequent years. It would be just and fair if the percentage of profit from 15% as applied by the A.O. and confirmed in the first appeal is reduced to 10% to set off the effect of double inclusion of the amount in respect of these five flats in this year and subsequent years - appeal of assessee partly allowed.

Summary

Issues involved:
1. Disallowance of interest amounting to Rs.31,872.
2. Addition of profit on sale of flats at Rs.4,85,400.

Issue 1: Disallowance of interest amounting to Rs.31,872:
The appeal was against the order passed by the Commissioner of Income-tax (Appeals) regarding the assessment year 2000-2001. The Assessing Officer disallowed interest of Rs.31,872 claimed by the assessee due to lack of evidence. The CIT(A) failed to decide on this issue. The Tribunal set aside the order and restored the matter to the CIT(A) for a decision on merits, emphasizing the need for justice to be served adequately.

Issue 2: Addition of profit on sale of flats at Rs.4,85,400:
The assessee, a builder, was following the percentage completion method for income recognition from two projects. The Assessing Officer added Rs.4,85,400 as profit on the sale of flats based on inquiries revealing receipts from flat owners. The Tribunal noted the consistent application of the percentage completion method by the assessee over the years. It held that the AO's approach of taxing 15% of payments for possession of flats was not entirely justified. The Tribunal concluded that a reduction to 10% was appropriate to offset the double inclusion of amounts from these transactions. As a result, the addition was reduced to Rs.3,23,600. The appeal was partly allowed in favor of the assessee.

In summary, the judgment addressed two main issues: the disallowance of interest amounting to Rs.31,872 and the addition of profit on the sale of flats at Rs.4,85,400. The Tribunal directed a reconsideration of the interest disallowance issue for a decision on merits. Regarding the profit addition, the Tribunal found the AO's approach unjustified and reduced the addition to Rs.3,23,600 to rectify the double inclusion of amounts, partially allowing the appeal in favor of the assessee.