Principal Commissioner of Income-tax, Surat-1 v. Samruddhi Corporation
[Citation -2020-LL-0127-232]

Citation 2020-LL-0127-232
Appellant Name Principal Commissioner of Income-tax, Surat-1
Respondent Name Samruddhi Corporation
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 27/01/2020
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags furnishing inaccurate particulars of income • percentage completion method • construction expenses • cost of construction • registered sale deed • presumptive profit • value of property • estimated profit • work in progress • business profit • cost incurred • total cost • estimation of income • reopening of assessment
Bot Summary: The assessment under Section 143(3) read with Section 147 of the Act came to be completed on 31.03.2015 after making addition of Rs.3,38,44,000/- on account of business profit estimated at the rate of 25 of the total receipts of Rs.13,53,76,000/- and Rs.3,76,496 on account of the disallowance under Section 40 Aof the Act. We take notice of the following findings recorded by the AO in the assessment order : In view of the above discussion, an addition of Rs.3,38,44,000/- is made to the total income being 25 of the total receipts of Rs.13,53,76,000/- as business profit of the assessee for the year under consideration. The CIT while partly allowing the Appeal preferred by the assessee against the assessment order observed as under : Page 3 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER 6.2.1. No registered sale deed was executed in the year under consideration and the amount of the total area sold was also reduced from 34720 to 18954 sq, ft. First Appellate Authority has deleted the addition in dispute, we are of the view that in Page 7 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER compliance of the agreement no registered sale deed was executed in the year under consideration and the amount of total are sold was also reduced from 34720 to 18954 sq. No interference is called for in the well-reasoned order passed by the Id. First Appellate Authority in deleting the addition in dispute and we dismiss the Revenue appeal and uphold the impugned order. We take notice of the fact that the AO in the assessment order has not discussed anything or rather has not been able to justify in any manner the addition of Rs.3,38,44,000/- to the total income being 25 of the total receipts of Rs.13,53,76,000/- as the business profit of the assessee for the year.


C/TAXAP/20/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 20 of 2020 PRINCIPAL COMMISSIONER INCOME TAX, SURAT 1 Versus M/S SAMRUDDHI CORPORATION Appearance: MRS KALPANAK RAVAL(1046) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 27/01/2020 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of Income Tax Act, 1961 (for short, 'the act, 1961') is at instance of Revenue and is directed against order passed by Income Tax Appellate Tribunal, Surat dated 17th July 2019 in ITA No. 3390/AHD/2016 for A.Y. 2009- 10. 2. Revenue has proposed following questions of law for consideration of this Court : (i) Whether, on facts and in circumstances of case and in law, Hon'ble ITAT is right in upholding decision of Ld. CIT(A) deleting addition of Rs.3,38,44,000/- made by AO estimating income @25%? Page 1 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER (ii) Whether, on facts and in circumstances of case and in law, Hon'ble ITAT is right in deleting assessee's income as estimated by AO on advances received from its customers without appreciating that assessee has worked as contractor only and therefore revised provisions of AS-7 would apply for estimation of matching income on proportionate completion method? 3. It appears from materials on record that original assessment under Section 143(3) of Act was completed on 16th December 2011, determining total income at Rs. 1,32,140/-. Thereafter, case came to be reopened under Section 147 of Act by issue of notice under Section 148 of Act, dated 10.03.2014. objections raised by assessee as regards re- opening came to be overruled. assessment under Section 143(3) read with Section 147 of Act came to be completed on 31.03.2015 after making addition of Rs.3,38,44,000/- on account of business profit estimated at rate of 25% of total receipts of Rs.13,53,76,000/- and Rs.3,76,496 on account of disallowance under Section 40 (3)of Act. 4. assessee being dissatisfied with assessment order preferred Appeal before CIT(A). CIT(A) Page 2 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER allowed Appeal in part. CIT(A) deleted addition made by AO on basis of estimated profit at rate of 25% of total receipts. Revenue being dissatisfied with order passed by CIT(A), preferred cross-appeal before Tribunal. 5. Tribunal affirmed findings recorded by CIT (A) and dismissed Appeal. Being dissatisfied with impugned order passed by Tribunal, Revenue is here before this Court with present Tax Appeal. 6. We take notice of following findings recorded by AO in assessment order : In view of above discussion, addition of Rs.3,38,44,000/- is made to total income being 25% of total receipts of Rs.13,53,76,000/- as business profit of assessee for year under consideration. Penalty proceedings u/s 271[1][c] of I.T. Act are initiated for furnishing inaccurate particulars of income and concealment of income. 7. CIT (A) while partly allowing Appeal preferred by assessee against assessment order observed as under : Page 3 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER 6.2.1. Grounds of appeal-Ground No.2 pertains to making addition of Rs.3,38,44,000/- by estimating income of assessee firm at 25% on advance received by assessee from its customer amounting to Rs. 13,53,76,000/- without appreciating facts and circumstances of case in right perspective. AO reopened case u/s 147 of Act as AO noticed that appellant was having Rs.5,21,47,182/- on account of work in progress on asset side and Rs. 13,53,76,000/- as advances from customers (Pusti Enterprise Pvt. Ltd, on liability side) but matching income on percentage completion method as per provision of AS7 was not offered for taxation. AO held that appellant had entered into contract with M/s Pusti Enterprise Pvt. Ltd. for Rs.16,73,50,400/- out of which Rs.13,53,76,000/- was received as advance but income was not disclosed @25% relying on judgment of IT AT Mumbai in case of Param Anand Builders Pvt. Ltd. Vs. ITO 59 ITD 29. AO held that as per agreement average cost of construction was fixed at Rs. 1000/per sq. feet and accordingly appellant had received more than 80% of total cost as advanced on 31.03.2008 and property was to be handed over before 30.12.2008. But property was not handed over on or before 30.12.2008 and appellant had shown WIP in his balance sheet FY 2008-09, 2010-11 and 2011- 12. AO held that appellant was not Page 4 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER following accounting system as prescribed under AS-7 relating to construction contract, made addition of Rs.3,38,44,000/- @25% of total receipts of Rs. 13,53,76,000/-. appellant submitted that out of total area appellant had agreed to sell part of building i.e. 34720 sq. feet, of area at different rates to M/s Pusti' Enterprise Pvt. Ltd. for total consideration of Rs. 16,76,50,400/-. In year under construction very limited construction work was carried out of Rs. 4,39,20,677/- which included cost of land of Rs.3,44,04,150/-. It was further contended that no sale deed was executed for property in relevant assessment year. 6.2.2. On perusal of details, it is observed that during relevant assessment year very limited construction work was carried out as per audited accounts work in progress of Rs.4,39,20,677/- wherein land cost was Rs. 3,44,04,1.50/- and construction expenses was Rs.95,16,527/-. project was under construction upto 2015-16 wherein construction expenses in each financial year were as following: Financial Years Cost of Construction (Rs) 2009-10 2784218 2010-11 10899178 2011-12 7599366 2012-13 9511635 2013-14 2596548 Page 5 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER 2014-15 4274084 2015-16 7494113 6.2.3. actual construction cost incurred during year including land cost as per WIP was only 26% (43920677/167350400 * 100) of value of property agreed to be sold. As per agreement appellant was required to give clear and complete title of property after obtaining BUC/any other certificate from competent authority before execution of sale deed. terms and conditions of agreement clearly lays down that only on execution of sale deed on completion of projection property was to be transferred to Pusti Enterprise Pvt. Ltd. Initially appellant had agreed to sell 34730 sq. ft. but due to certain restrictions imposed by Government Authorities, development plan was revised and appellant was only able to build 26258 sq, ft. customer Pusti Enterprise Pvt. Ltd. also reduced requirement to 18954 sq. ft, from original requirement and sale deed was executed in FY 2015-16 for 18954 sq, ft. only for a. total consideration of Rs.117670000/-. excess amount received was refunded by appellant. total area said by appellant was as following :- Sold Area Sq. Feet Sale Value (Rs) Date of execution of sale deed Ground 6560 5,29,83,700 15.12.2015 Page 6 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER Floor First 6566 4,31,43,300 15.12.2015 Floor Part of 5828 2,15,43,000 15.12.2015 Second Floor Total 18954 11,76,70,000 6.2.4. From above facts it is evident that transfer of legal title was condition precedent to buyer. No registered sale deed was executed in year under consideration and amount of total area sold was also reduced from 34720 to 18954 sq, ft. for total consideration of Rs.11,76,70,000/- instead of original amount of Rs. 16,73,50,400/-. AO has arbitrarily determind profit @25% of Rs. 13,53,76,000/-without any basis or material in possession. AO's presumptive profit of Rs.3,38,44,000/- cannot be sustained for reasons discussed above and therefore, ground of appeal are being allowed. 7. Tribunal after referring to aforesaid finding recorded by CIT (A) ultimately held as under : After going through finding given by ld. First Appellate Authority on issues involved in Revenue appeal in which ld. First Appellate Authority has deleted addition in dispute, we are of view that in Page 7 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER compliance of agreement no registered sale deed was executed in year under consideration and amount of total are sold was also reduced from 34720 to 18954 sq.ft for total consideration of Rs.11,76,70,000/- instead of original amount of Rs.16,73,50,400/-. Therefore, Assessing Officer has wrongly determined profit @25% of Rs.13,53,76,000/- without any basis or material in position merely on basis of presumption which is not sustainable in eye of law. Even otherwise, sale deeds in dispute was executed in financial year 2015-16 for which assessee has offered its income. Therefore, ld. First Appellate Authority has rightly deleted addition in dispute by passing detailed order mention above. Therefore, no interference is called for in well-reasoned order passed by Id. First Appellate Authority in deleting addition in dispute and we dismiss Revenue appeal and uphold impugned order. 8. We take notice of fact that AO in assessment order has not discussed anything or rather has not been able to justify in any manner addition of Rs.3,38,44,000/- to total income being 25% of total receipts of Rs.13,53,76,000/- as business profit of assessee for year. No reason worth name has been assigned by AO in this regard. This exactly weighed with CIT (A) while partly allowing Page 8 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 C/TAXAP/20/2020 ORDER appeal of assessee. Tribunal ultimately concurred with findings recorded by CIT(A) and dismissed appeal preferred by Revenue. We are at one with Tribunal in taking view that AO wrongly determined profit at rate of 25%, without any basis or credible material. 9. In such circumstances referred to above, we are of view that questions of law as proposed by Revenue cannot be termed as substantial questions of law. 10. In result, this Tax Appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) KUMAR ALOK Page 9 of 9 Downloaded on : Fri Jan 31 10:35:14 IST 2020 Principal Commissioner of Income-tax, Surat-1 v. Samruddhi Corporation
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