2016 (1) TMI 1083 - AT - Income Tax

Accountability of project income - CIT(A) accounted for its income on project completion method - Held that - We are in agreement with the findings of the CIT(A) that the project was completed in the assessment year 2005-06 and the assessee had rightly accounted for its income on project completion method in the said year and not in AY 2004-05. Enhancement of assessment on the basis of fair market price - Held that - The order of CIT(A) enhancing the assessment by ₹ 5,30,80,200/- on the basis of fair market price of ₹ 8,990/-per sq.ft. on estimated basis when the actual sales deeds were on records, appears to be not correct and based on surmises and conjectures. The CIT(A) overlooked the fact that the assessee as per the terms of MOI dated 14.07.2001 took over the liabilities and commitments of the original owners towards the 4 original purchasers to whom the sale of flats were to be made at ₹ 3,000/- per Sq. fts as referred to in table A. The assessee was under contractual obligation to sell the flats to the original purchasers at the price agreed to by the original owners. Neither the AO nor the CIT(A) brought any materials on records to show that the assessee received more than what had been shown in the sale deeds. The Ld CIT(A) also failed to bring any cogent materials on records for enhancing the assessement. No defects were pointed out in the records maintained by the assessee and therefore the invoking the provisions of section 145(3) of the Act to estimate the income is wrong and the decisions relied on by the CIT(A) are not applicable to the assessee s case as the guess work in estimation can only be made when there defects in the records maintained by the assessee and it is not possible to arrive at the correct income by the AO on the basis of the said records. Further ,we also find force in the arguments of the ld authorized representative that the provision of section 50C are not applicable for ascertaining the full value of consideration in respect of business assets i.e inventories as the said provisions deals with ascertaining the full value of consideration in case of capital assets for the purpose of capital gain. Further our attention was drawn to the newly inserted section 43CA of the act which deals with ascertaining the full value of consideration in case of assets other than capital assets but the said section is applicable w.e.f. 2014-15. After taking into accounts all the facts, arguments of both the parties and records before us, we are of the considered view that the order passed by the ld.CIT(A) suffered from several infirmities and cannot be sustained. We therefore delete the enhancement of assessment of ₹ 5,30,80,200/- by the CIT(A) by allowing the appeal of the assessee - Decided in favour of assessee.

Issues Involved:
1. Determination of the correct assessment year for the completion of the Joanna Villa project.
2. Alleged suppression of sales value and understatement of profits from the Joanna Villa project.
3. Application of market rates for estimating income from the project.
4. Invocation of Section 145(3) for best judgment assessment.
5. Applicability of Section 50C and Section 43CA in determining the full value of consideration.

Issue-wise Detailed Analysis:

1. Determination of the correct assessment year for the completion of the Joanna Villa project:
The assessee argued that the Joanna Villa project was completed in the assessment year 2005-06, following the project completion method for accounting income. The Assessing Officer (AO) observed that 89% of the project was completed by the end of the financial year 2003-04 and concluded that the project was completed in the assessment year 2004-05. However, the Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee that the project was completed in the assessment year 2005-06. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s finding that the project was completed in the assessment year 2005-06 based on the completion certificate and the assessee's consistent accounting method.

2. Alleged suppression of sales value and understatement of profits from the Joanna Villa project:
The AO alleged that the assessee suppressed sales value and understated profits by not accounting for the fair market value of the flats sold. The CIT(A) enhanced the assessment by Rs. 5,30,80,200/- based on an estimated fair market value of Rs. 8,990/- per sq. ft. The ITAT found that the CIT(A) erred in enhancing the assessment based on hypothetical fair market value without concrete evidence of actual sales consideration received by the assessee. The ITAT noted that the assessee was contractually obligated to sell certain flats at pre-agreed rates due to prior agreements with original purchasers.

3. Application of market rates for estimating income from the project:
The CIT(A) applied a uniform market rate of Rs. 8,990/- per sq. ft. to estimate the income from the Joanna Villa project. The ITAT held that this approach was incorrect as it was based on conjectures and surmises without any material evidence. The ITAT emphasized that the actual sales deeds should be considered, and there was no evidence to suggest that the assessee received more than what was declared.

4. Invocation of Section 145(3) for best judgment assessment:
The CIT(A) invoked Section 145(3) to reject the assessee's books of accounts and estimate the income based on best judgment. The ITAT found that there were no defects pointed out in the assessee's records, and therefore, the invocation of Section 145(3) was not justified. The ITAT stated that best judgment assessment can only be made when there are defects in the records maintained by the assessee.

5. Applicability of Section 50C and Section 43CA in determining the full value of consideration:
The ITAT noted that Section 50C, which deals with ascertaining the full value of consideration in case of capital assets, was not applicable to the assessee's business of dealing in stock-in-trade. The ITAT also mentioned that Section 43CA, which applies to assets other than capital assets, was effective from the assessment year 2014-15 and was not applicable to the assessment years in question.

Conclusion:
The ITAT allowed the assessee's appeal by deleting the enhancement of Rs. 5,30,80,200/- made by the CIT(A) and upheld the CIT(A)'s decision that the project was completed in the assessment year 2005-06. The ITAT dismissed the revenue's appeal, confirming that the income from the Joanna Villa project was rightly accounted for in the assessment year 2005-06 and not in the assessment year 2004-05.

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