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TMI Blog2019 (8) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... e area while determining the percentage of completion method as against the cost incurred upto 31.3.2010. Hence we hold that the percentage of work completed upto 31.3.2010 should be considered at 67.38% as determined by the assessee in the return of income. Addition to the valuation of unsold flats as on 31.3.2010 - HELD THAT:- We find that the Hon ble Supreme Court in the case of Chainrup Sampatram vs CIT [ 1953 (10) TMI 2 - SUPREME COURT] and United Commercial Bank vs CIT [ 1999 (9) TMI 4 - SUPREME COURT] had accepted the basis of valuation of inventories at lower of cost or market value and had also held that no profit could arise out of valuation of closing stock. Their Lordships held that valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period and can in no sense be regarded as the source of such profits. CIT-A by valuing unsold flats at the average of sale price CIT(A) had assessed profit attributable to unsold flats which is not permissible. We direct the ld AO to accept the valuation of unsold flats as on 31.3.2010 as done by the assessee. Addition based on price rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant case, which in our considered opinion, does not call for any interference. - Decided in favour of assessee. - ITA No.3722/Mum/2016, ITA No.3466/Mum/2016 & 3465/Mum/2016 - - - Dated:- 10-7-2019 - SHRI M. BALAGANESH, AM AND SHRI AMARJIT SINGH, JM For the Appellant : Shri S.C.Tiwari For the Respondent : Ms.Rutuja Pawar ORDER PER M. BALAGANESH (A.M): These cross appeals in ITA No.3722/Mum/2016, 3466/Mum/2016 3465/Mum/2016 for A.Y.2010-11 2011-12 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-50, Mumbai in appeal No.CIT(A)-50/IT-236/2013-14 dated 26/02/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 28/03/2013 by the ld. Asst. Commissioner of Income Tax, Central Circle 47, Mumbai (hereinafter referred to as ld. AO). Since identical issues are involved in these appeals, they were heard together and are being disposed off by this consolidate order, for the sake of convenience. 2. The Ground No. 2 raised by the revenue and all the grounds of Asst Year 2010-11 raised by the assessee are id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction cost 12.62 Interest 8.52 Depreciation 0.32 100.43 Add: Construction cost recognized in Earlier year 36.25 136.68 crores 3.1. The ld AO observed that as per the above figures, the percentage of work completed should have worked out to 77.16% and proportionate cost should have worked out to ₹ 68.05 crores as under:- Calculation of % of work completed Total Project Cost 177.13 cr Project cost incurred upto 31.3.2010 136.68 cr % of work completed thereon 77.16% Proportionate cost as per Guidance Note of ICAI on Accounting for Recognition of Revenue by Real Estate Developers on the ground that the said Guidance Note is mandatory for the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77.16% 80.24 45.17 Cr 35.07 Cr. Cost to be recognized 68.05 68.05 36.25 3 1.80 Cr Profit for the period 12.19 8.92 3.27 Cr. Assessee recognized profit as per working 0.88 Cr. Difference to be assessed as income 2.39 cr. 3.4. Accordingly, the ld AO made an addition of ₹ 2.39 crores to the total income of the assessee for the year under consideration. 4. Similarly, the ld AO also proceeded to examine the rate at which the flats were sold by the assessee during the year under consideration. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than what has been shown. Hence he concluded that the suppression of sales cannot be alleged in the instant case. The ld CITA also examined the applicability of the co-ordinate bench decision of Mumbai Tribunal in the case of Diamond Investments Properties in ITA No. 5537/Mum/2009 dated 29.7.2010 which was relied upon by the ld AO, to the facts of the case. The ld CITA observed that the tribunal did not decide any legal issue and the decision so rendered is factually distinguishable with that of the assessee. With these observations, the ld CITA deleted the addition of ₹ 4 crores made on account of suppressed sale of flat to Bharat D Shah. 5.1. The ld CITA observed that the assessee had disclosed the profit for the year from the project at ₹ 88,46,754/- worked out as under:- Description Unit Value Total area booked / sold A1 Sq.ft. 36,100 Balance saleable area B1 Sq. ft. 36,400 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82,157 Estimate of work completed, upto 31.03.2010 as per the appellant S 1 = Q 1 /P 1 67.38% Profit recognized upto 31.03.2010 as per the appellant T 1 D 1 - O 1 - S 1 Rs. 98,065,677 Profit recognized upto 31.03.2009 U 1 Rs. 89,218,923 Profit recognized for P.Y. 2009-10 as per the appellant W 1 = T 1 -U 1 Rs. 8,846,754 5.2. The ld CITA observed that the assessee submitted that ICAI issued Guidance Note on Accounting for Real Estate Transactions (revised 2012) and in Paragraph 1.5. of the said guidance note, it was mentioned that the Guidance Note should be applied to all projects in real estate which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest cost incurred as per the appellant I 3 Rs. 325,756,257 Estimated Interest cost in future as per the appellant J 3 Rs. 126,491,929 Construction cost as per the appellant K 3 Rs. 18,787,500 Others costs as per the appellant L 3 Rs. 50,000,000 Cost of the project as per the appellant M 3 =H 3 -H 3 +J 3 +K 3 +L 3 Rs. 1,771,035,686 Estimated Profit from the project N 3 =G 3 - M 3 Rs. 317,575,514 Profit from the project as part of turnover' O 3 = N 3 / O 3 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total project and in the estimate of cost of work completed as on 31.3.2010. The manner of determination of revenue by the ld AO and consequential addition made thereon in the sum of ₹ 2.39 crores is reproduced in table supra. We find that the ld CITA had accepted the contention of the assessee that the cost of land should be excluded and accepted the percentage of work completed to be at 67.38% as disclosed by the assessee. We find that the acquisition of land is the very first step for the commencement of the project. The work on the project takes place after the acquisition of land. Generally, cost of land constitutes a very large portion but by the acquisition of land itself, there is no work-in-progress. At the stage where land only is acquired, it cannot be said that the project has commenced but if the cost of land is included in the percentage of the project completion, then it would show that the project has been substantially completed say, to the extent of 50-60% at the beginning itself. Hence, for working out the stage of completion of the project land value should not be included. Hence we hold that the ld CITA is justified in excluding the value of land while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld AO, the assessee submitted that after the sale of 2 flats to Mr Bharat and Gautam Daftary on 09.08.2007, there was no sale of not even a single unit from 10.08.2007 to 28.12.2009 for about 28 months. There was a slowdown in the real estate market and the fact that the assessee could sell only one unit after a gap of almost 28 months at a lower price indicated at ₹ 28750 per sq.ft. We find that the assessee had further pleaded that even the rate of ₹ 28750 per sq.ft. being the agreement value was higher than the stamp duty value of the flat at the prevailing point of time. We find that the ld AO however, proceeded to hold that the assessee had received on money in the sale of flat to Mr. Bharat D. Shah to the extent of the difference between the consideration received from Mr Bharat and Gautam Daftary 28 months earlier and the consideration received from Mr. Bharat D. Shah. Accordingly, he made an addition of ₹ 4,00,00,000/- to the declared income by way of understatement of sale price of the flat to Mr. Bharat D. Shah. We find that the assessee had pleaded that the flats were sold to Mr Bharat and Gautam Daftary during the period of boom in the real estate m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it must show not only that the fair market value of the capital asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15 per cent of the value so declared, but also that the consideration has been understated and the assessee has actually received more than what is declared by him. There are two distinct conditions which have to be satisfied before sub-section (2) can be invoked by the revenue and the burden of showing that these two conditions are satisfied rests on the revenue. It is for the revenue to show that each of these two conditions is satisfied and the revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer exceeds by 15 per cent or more the full value of the consideration declared in respect of the transfer and the first condition is therefore satisfied. The revenue must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the revenue cannot ask the Court to presume that the second condition too is fulfilled, because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not brought any material on record to prove that the assessee had indeed received onmoney to the exten of ₹ 4 crores from Mr Bharat D Shah and others. Infact the ld AO had not even bothered to make any examination of Mr Bharat D Shah by summoning him to understand the truth in the matter. Hence it could be safely concluded that the entire addition of ₹ 4 crores has been made merely on suspicion , surmise and conjecture and not backed by any material evidences and accordingly, the addition cannot be sustained in the eyes of law. Hence we hold tha the ld CITA had rightly deleted the addition in the sum of ₹ 4 crores in the facts and circumstances of the instant case, which in our considered opinion, does not call for any interference. 7.4. Accordingly, the Ground No. 1 raised by the revenue for Asst Year 2010-11 is dismissed and Ground No. 1 raised by the assessee for Asst Year 2010-11 is allowed. In view of our decision for Ground No.1 raised by the assessee, the adjudication of Ground No. 2 in assessee s appeal becomes academic in nature and does not require any adjudication at this stage. 8. Both the parties before us agreed that the Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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