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TMI Blog2020 (6) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... , find from the order of the AO and the Ld.CIT(A), against the sale price of ₹ 2,500/-, the AO worked out the profit of ₹ 1,676/- per plot which is unreasonable. Since, the assessee did not produce the details of the tracks of the land developed and undeveloped out of the total area we are also unable to accept the contention of the assessee that the expenditure was exclusively laid out for the sold plots. Therefore we hold that the CIT(A) has rightly resorted for estimation of the profit.- The department did not bring any other case establishing that the profit of 15% estimated by the Ld.CIT(A) is less in this line of business. Therefore, we are of the view, that no interference is called for in the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed. - I.T.A.No.538/Viz/2019, Cross Objection No.150/Viz/2019 Arising out of I.T.A.No.538/Viz/2019 - - - Dated:- 5-6-2020 - Shri V. Durga Rao, Judicial Member And Shri D.S. Sunder Singh, Accountant Member For the Assessee : Shri G.V.N.Hari, AR For the Revenue : Shri S.Ravi Shankar Narayan CIT, DR ORDER PER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : This appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L account is as under : Rs. Labour charges 2,48,73,680 Development expenses 2,16,63,882 Regd approvals 1,62,91,780 Interest on loans 7,99,278 Material 18,54,012 Surveyor charges 3,35,000 Fabrication charges 1,28,000 Interest on capital 51,23,609 Site maintenance 57,720 Total 7,11,26,961 C. The difference closing stock worked out by the AO is as follows : Work-in-progress - ₹ 2,83,21,930/- Closing stock of finished goods - ₹ 4,72,36,750 Total - ₹ 7,55,58,680 Difference in closing stock - ₹ 10,69,53,302 7,55,58,680 = ₹ 3,13,94,622/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 2,83,21,930/- and hence, sustained addition to the extent of ₹ 22,15,032/- and allowed the relief to the extent of ₹ 2,91,79,590/-, accordingly allowed the appeal of the assessee partly. 5. Against the order of the CIT(A), the department has filed appeal before us and raised the following grounds in this appeal : 1) The Order of the Ld.CIT(A)-1, Visakhapatnam is erroneous both on facts and in law. 2) The Ld.CIT(A) has erred in holding that the method adopted by the Assessing Officer by apportionment of development cost to arrive at the cost of plot sold is erroneous and given absurd results, when the Assessing Officer has adopted the value of closing stock basing on the expenditure reported in the P L a/c by the assessee for the year under consideration. 3) The Ld.CIT(A) has erred in approving the method of valuation adopted by the appellant, wherein the appellant has arrived at the total cost of saleable area by deducting net profit (at a fictitious percentage) from the average sale price (which is again fictitious), which is against the Accounting Standards governing the subject. 4) The appellant craves leave to add or delete or amend or sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presenting the closing stock. Therefore, submitted that the assessee has worked out the closing stock in conformity with the accounting standards, hence, there is no requirement of disturbing the method adopted by the assessee for arriving at the closing stock, hence requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. 8. We have heard both the parties and perused the material placed on record. In the instant case, the assessee has purchased the land of 52.30 acres and developed some parts of the land and the development expenses was debited to Profit Loss account. The unsold area according to the assessee was not developed and hence the development cost should not be apportioned among the unsold area of 1,22,375 sq.yds. The development cost was related to sold plots and ready for sale but not related to the entire tracks of land. Therefore submitted that allocation of development cost to the entire saleable area and arriving at the closing stock is unjustified. The assessee has correctly valued the closing stock and profit rate worked out to 11%. However, the Ld.CIT(A) estimated the profit @15% which is acceptable and hence no interference is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsold area of land (1,22,375 sq.yards) to arrive at the value of closing stock. The assessing officer adopted the same method even for the cost of land. The contention of the appellant is that the purchase of land had already been completed and as such the actual/complete cost of land is known and is not going to change. Therefore apportionment of the said cost equally over the sold and unsold plots by applying simple average method is fully justified. However, as regards the development cost the expenditure incurred up to 31st March, 2016 is only a small part of the total development cost. Major portion of the development expenditure will be incurred in the subsequent years. Therefore, the appellant contended that if the complete portion of the development cost is apportioned equally by applying the simple average method, the cost apportioned to the sold plot and the unsold plot would be the same. 6.2.2. I find merit in the contention of the appellant. When the appellant is selling the plots, the customer would be paying the price on the basis of fully developed plot. There is a time lag between the sale of plot and incurring of actual cost development of the plot. The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit estimated by the appellant @11% is very low. The normal rate of profit in this line of business is around 15%. Therefore. I prefer to adopt this rate of 15%. 6.2.4. By substituting 15% in the place of 11% the value of work in progress would be as under : Total number of plots in the layout 838 plots Total saleable area of plots 1,45,716 sq.yards Total area of plots sold 23,341 sq.yards Total amount of sale price ₹ 5,83,85,500 Average sale price per sq.yard ₹ 2,500 Less : Net profit estimated @15% ₹ 375 Net cost of plot including the expenditure to be incurred) ₹ 2125 Less : Cost of land per sq.yard ₹ 386 Development cost per plot ₹ 1739 Development cost for plot sold (23341*1739) ₹ 4,05,89,999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale price of ₹ 2,500/-, the AO worked out the profit of ₹ 1,676/- per plot which is unreasonable. Since, the assessee did not produce the details of the tracks of the land developed and undeveloped out of the total area we are also unable to accept the contention of the assessee that the expenditure was exclusively laid out for the sold plots. Therefore we hold that the Ld.CIT(A) has rightly resorted for estimation of the profit.- The department did not bring any other case establishing that the profit of 15% estimated by the Ld.CIT(A) is less in this line of business. Therefore, we are of the view, that no interference is called for in the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed. 9. The assessee filed cross objections agitating for sustaining the addition of ₹ 22,15,032/- by the Ld.CIT(A). However, during the appeal hearing the Ld.AR did not make any specific argument supporting the cross objections. We, find that the estimation of income @15% is reasonable and dismissed the appeal of the Revenue, hence, the cross objections of the assessee also stand dismissed. 10. In the result, appeal of the revenue as well ..... X X X X Extracts X X X X X X X X Extracts X X X X
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