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TMI Blog2019 (11) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company as its income during the year under consideration and the corresponding cost attributable to the said sale amounting to ₹ 6,02,38,280/- out of the total cost of ₹ 6,53,15,103/- on proportionate basis was transferred from work-in-progress and debited to the profit loss account. Similarly 64,610 sq.ft. of the total constructed area of Pratyee Project having been sold during the year under consideration, the sale consideration of 64,610 sq.ft. was recognized by the assessee-company as its income of the said Project and corresponding cost of ₹ 6,94,55,750/- out of the total cost of the said Project of ₹ 14,67,04,702/- was transferred from the work-in-progress and debited to the Profit Loss Account. As evident from the details furnished by the assessee before the AO as well as before the ld. CIT(Appeals), cost of construction incurred by the assessee during the year under consideration on all the Projects was ₹ 11,31,63,423/- while the general expenses incurred were ₹ 1,25,33,241/-. These two amounts were added to the opening work-in-progress and after transferring the general expenses to the extent of 10% amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on account of the profit of the assessee attributable to the unsold flats of the completed two Project - method of accounting followed by the assessee to recognize the income from its real estate development business, whereby the income was recognized in respect of the completed Projects to the extent of area sold during the relevant year. Since the said method of accounting was consistently followed by the assessee-company, the income attributable to the flats sold of the completed two Projects was recognized by the assessee company during the year under consideration, while the income from unsold flats of the said Projects was recognized in the subsequent years as and when the said flats were sold. This position was accepted by the CIT(Appeals) himself and the details of sale of such unsold flats during the subsequent years as furnished by the assessee were also taken note of by the ld. CIT(Appeals). As per the accounting method followed by the assessee, the income from the real estate development was recognized on Project Completion Method to the extent of sale of the completed project and there was no justification to disturb this method followed by the assessee to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by it on 30.09.2012 declaring total income of ₹ 32,96,440/-. In the balance-sheet filed along with the said return, closing work-in-progress was shown by the assessee at ₹ 17,49,74,365/-. Since the opening work-in-progress shown by the assessee was ₹ 18,02,20,356/-, the Assessing Officer required the assessee to explain as to why the closing work-in-progress shown as on 31.03.2012 was so low. In reply, it was submitted by the assessee that the two Projects, namely Parijat and Pratyee were completed during the year under consideration. It was also submitted that the total area of flats constructed in the said two projects was 80,141 sq,ft, and 1,36,470 sq.ft., out of which flat area of 73,912 sq.ft. and 64,610 sq.ft. was sold out of Parijat and Pratyee Projects respectively. It was further submitted that the total cost of construction and other expenses incurred during the year under consideration were ₹ 12,57,23,965/- and after adding the same to the opening work-in-progress, the total value of closing work-in-progress as on 31.03.2012 became ₹ 30,59,49,321/-. It was submitted that the total cost attributable to Parijat Project and Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,365/- . 3. For the reasons given above and keeping in view the failure of the assessee to furnish the relevant details of agreement values, the Assessing Officer rejected the value of work-in-progress shown by the assessee. He estimated the area of unsold flats completed by the assessee at 35% and worked out the value of closing work-in-progress at ₹ 19,08,87,526/- as against the value of closing work-in-progress shown by the assessee at ₹ 17,49,74,365/-. Accordingly the difference of ₹ 1,59,13,161/- was added by the Assessing Officer to the total income of the assessee on account of under-valuation of closing work-in progress. 4. During the course of assessment proceedings, it was also noted by the Assessing Officer that construction material worth ₹ 70,15,063/- was purchased by the assessee at the fag end of the year. According to the Assessing Officer, the said material should have been disclosed by the assessee as closing stock and since the assessee had failed to disclose the same in the Balance-sheet, the Assessing Officer required the assessee to offer its explanation in the matter. In reply, it was submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso submitted that the corresponding cost of the said two Projects reflected in the work-in-progress was transferred to the Profit Loss Account and the balance amount was shown as closing work-in-progress. The relevant Project-wise details showing opening work-in-progress, work done during the year, general expenses apportioned to the Project, cost of completed projects transferred to P L A/c. on proportionate basis and the balance closing work-in-progress were also prepared and furnished by the assessee before the ld. CIT(Appeals) as under:- Name of the project Opening(A) Work done during the year(B) General expenses(C) Cost transferred to P/L A/c.(D) Balance (A+B+C)- (D) General expenses for all project 12,53,324 12,53,324 NIL Gopalpur 300479 100800 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect, in the course of assessment the assessee has submitted the details of computation closing stock, sir for your kind perusal here I am again submitting the same which shows actual closing work in progress as per actual figure and his observation showing low closing stock is without any justification. PARA NO.3B OF ASSESSMENT ORDER:- Sir, in this para the Ld. DCIT has said that out of the total cost incurred only cost apportioned to the projects namely parijat and Pratayaee are ₹ 6,53,15,103.00 and 14,67,04,701.00 respectively. The summation of aforesaid two amounts results in ₹ 21,20,19,804.00 which does not agree with the total cost incurred during the year including opening work in progress that is ₹ 30,59,49,321.00. Sir, in the above para it is very difficult to understand what the Ld. DCIT wants to say, it seems that the Ld. DCIT has totally confused regarding the accounting treatment. Sir, the Ld. DCIT has failed to appreciate the fact that all amounts which is expensed in any real estate building will be included in the closing Work in progress and it remains in closing work i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. DCIT has also mentioned that the closing WIP of PRABARTAK PROJECT is Nil is also not correct, the actual closing WIP of the PRABARTAK project was ₹ 5,03,86,867.00 (Computation Sheet is attached). During the course of scrutiny the Ld. DCIT has his objection regarding non-disclosure of various purchase amounting to ₹ 70,15,063.00, in this respect I would like to bring your kind attention to the fact as already described above that any amount which is expensed towards the project will form the part of closing work in progress and the same treatment is also given to the above purchase. All the above purchases are already included in the value of closing work-in-progress hence it already disclosed and there is no undervaluation/undisclosed purchase . 7. The ld. CIT(Appeals) found merit in the submissions made by the assessee and deleted the addition of ₹ 1,59,13,161/- made by the Assessing Officer on account of the alleged under-valuation of closing work-in-progress for the following reasons given in his impugned order:- I have perused the assessment order and the submission of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said addition for the following reasons given in his impugned order:- In this case, it is seen that A.O. has simply stand raw material purchase for the work in progress and was of the opinion that when the material was not utilised then it cannot be the part of work in progress. Even if the contention of the A.O. is accepted there would be no material change because only the figure will remain same as the entire value of aforesaid closing stock has already been shown in the part of work in progress. If the same is shown as closing stock then the figure of work in progress has to be reduced which makes no change. The A.O. has not proved that this was the case of inflation of cost. In the construction business as per accounting system entire purchase relating to the construction is added in the work in progress when the raw material purchased at the end of March is added in the work in progress. The addition made by the A.O further tantamount to double deduction. Therefore, the addition made by the A.O. is unwanted and misconceived hence, deleted, the ground of appeal is allowed . 9. Having deleted both the additions made by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,748/- on estimation basis by taking 5% of sale next year ignoring the fact that this undisclosed stock was found as not disclosed in audited Balance Sheet. (3) In the facts and circumstances of the case, the Ld. CIT (Appeals) Durgapur has erred by deleting addition of ₹ 43,33,973/- by arriving at the value of closing stock of materials on estimate basis by taking into account the flats sold in the subsequent years. Assessee s appeal in ITA No. 1256/KOL/2017 (1) That the order passed by the CIT (A), Durgapur u/s 143(3) of the Income Tax Act 1961 is not tenable as the Addition of ₹ 27,50,748.00 is bad in law and without any basis. (2) The Ld. CIT (A) has erred in assuming 5% as profit margin, and is also not backed by any documentary evidence which proves that the appellant has not followed proper accounting policies. (3) Further the appellant has provided all documentary evidence, materials and books of accounts as and when required during the course of hearing, still these books were not considered during hearing and passed an inadequate order. 11. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch two Projects, namely Parijat and Pratyee were completed during the year under consideration. The income of the said Projects completed during the year under consideration was accordingly recognized by the assessee to the extent of flats sold during the year under consideration as per the method of accounting followed by it and corresponding expenses proportionate to such sale booked under work-in-progress were debited to the Profit Loss Account. In Parijat Project, the assessee-company had constructed 150 flats having total area of 80141 sq.ft., out of which 138 flats having area of 70912 sq.ft. were sold during the year under consideration. The total sale consideration of the 138 flats sold was recognized by the assessee-company as its income during the year under consideration and the corresponding cost attributable to the said sale amounting to ₹ 6,02,38,280/- out of the total cost of ₹ 6,53,15,103/- on proportionate basis was transferred from work-in-progress and debited to the profit loss account. Similarly 64,610 sq.ft. of the total constructed area of Pratyee Project having been sold during the year under consideration, the sale consideration of 64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the entire material purchased for the construction was included in the cost of construction and thereby in the work-in-progress, there was no question of showing any material purchased at the fag end of the year which was not utilized for construction in the closing stock separately. As rightly contended on behalf of the assessee and accepted by the ld. CIT(Appeals), the material purchased at the fag end of the year, which had remained un-utilized for construction was duly reflected in the value of closing work-in-progress and there was no case of any closing stock of material that had remained to be disclosed by the assessee as alleged by the Assessing Officer. The addition made by the Assessing Officer on account of such alleged undisclosed closing stock thus was not sustainable and the ld. CIT(Appeals), in our opinion, was fully justified in deleting the same. We, therefore, uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 2 of the Revenue s appeal. 16. As regards the solitary issue involved in the assessee s appeal relating to the addition of ₹ 27,50,748/- made by the ld. CIT(Appeals) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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