2014 (4) TMI 386 - AT - Income Tax

Valuation of opening stock Ascertainment of cost of sale Held that - The total area supposed to have been sold by the assessee comes to 78,322 sq. ft. in the project, assessee could furnish total area sold only up to 64,998 sq. ft. and the area sold in A.Y. 2003-04 could not be furnished the assessee was unable to furnish the complete details of area sold year-wise in the entire project even at this point of time - In the absence of any explanation or details by the assessee the order of the AO is found to be reasonable and he has given relief from the original amount of Rs. 52 lakhs made as an addition in the first round of assessment to Rs.32,46,099/- as a result of his own working, whatever shortcomings may be - there is no reason to set aside again to the AO for fresh examination in the light of analysis - Assessee is not forthcoming with any information and in fact, asked for specific details of year-wise constructed area and the total area sold which is also not forthcoming from the assessee thus, there was no option than to confirm the order of the AO Decided against Assessee.

Issues Involved:
1. Valuation of opening stock.
2. Ascertainment of cost of sale.
3. Assumption regarding additions evenly made for the entire building.
4. Formula adopted for adjusting land owner's share.
5. Arithmetical accuracy of calculations.
6. Application of cost method despite ITAT's directions.

Detailed Analysis:

1. Valuation of Opening Stock:
The assessee contested that the A.O. wrongly appreciated the directions issued by the ITAT regarding the valuation of opening stock, which disturbed the previous year's results. The ITAT had previously set aside the issue of valuation of work in progress to the A.O. with specific observations and directions. The A.O. worked out the difference in closing work in progress at Rs. 32,46,099/- due to the lack of information furnished by the assessee. The CIT(A) confirmed the A.O.'s working, noting that the method adopted by the assessee left certain work in progress in the books even after project completion, which was deemed incorrect.

2. Ascertainment of Cost of Sale:
The assessee argued that the A.O. did not follow ITAT's directions regarding the ascertainment of cost of sale, which should not be less than the contract price. The ITAT had previously observed that the cost of the completed shop cannot be less than the contracted price payable to the contractor or the price incurred by the company itself. The A.O. was directed to consider the cost of construction incurred by the assessee on the area belonging to the landlords. However, the assessee failed to provide complete details of the area sold year-wise, leading to discrepancies in the cost of sale calculations.

3. Assumption Regarding Additions Evenly Made for the Entire Building:
The assessee contended that the A.O.'s assumption that additions were evenly made for the entire building was arbitrary and incorrect. The A.O. had divided the total area of construction, attributing 80% of the additions to the area sold and 20% to the unsold area (landowner's share). This resulted in a calculated rate of Rs. 319.94 per sq. ft. for the cost of the sold area. The closing work in progress was then arrived at by subtracting the cost of sales made during the year from the total available saleable area.

4. Formula Adopted for Adjusting Land Owner's Share:
The assessee argued that the A.O. adopted the wrong formula in adjusting the land owner's share. The A.O. had given the benefit of doubt to the assessee by holding that the major part of the addition during the year goes to the area sold, treating 80% of the additions to the area sold and 20% to the unsold area. The CIT(A) and ITAT found the A.O.'s working to be justified based on the facts presented.

5. Arithmetical Accuracy of Calculations:
The assessee claimed that the calculations made by the A.O. were arithmetically wrong. However, the ITAT found that the A.O.'s calculations were reasonable, considering the lack of detailed information provided by the assessee. The A.O. had worked out the cost of construction based on available data and previous assessments, which the ITAT deemed acceptable.

6. Application of Cost Method Despite ITAT's Directions:
The assessee argued that the A.O. wrongly applied the cost method despite clear directions from the ITAT. The ITAT had directed the A.O. to carry out necessary valuation as per law after giving the assessee an opportunity to furnish required information. The A.O. followed these directions, but the assessee failed to provide adequate details, leading to the confirmation of the A.O.'s working by the CIT(A) and ITAT.

Conclusion:
The ITAT dismissed the appeal of the assessee, confirming the A.O.'s working and calculations due to the lack of cooperation and detailed information from the assessee. The appeal was dismissed on the grounds that the assessee did not provide sufficient evidence to challenge the A.O.'s determinations regarding the valuation of work in progress, cost of sale, and other related issues. The order was pronounced in the open court on 02.04.2014.

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