Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs M/S. Dlf South Point, New Delhi on 11 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'B' NEW DELHI
BEFORE SHRI R.S. SYAL, HON'BLE VICE PRESIDENT
&
SHRI K.N. CHARY, JUDICIAL MEMBER
ITA No.-4244/Del/2013
(Assessment Year: 2008-09)
ACIT vs DLF South Point
Circle 31(1), 9th Floor, DLF Centre
14th Floor, Sansad Marg, New Delhi.
E-2 Block, Civic Centre, AABFU1094K
Minto Road, New Delhi.
Assessee by Sh. R.S. Singhvi, CA
Revenue by Sh. Anshu Prakash, Sr. DR
Date of Hearing 09.08.2017
Date of Pronouncement 11.08.2017
ORDER
PER SHRI K.N. CHARY, J.M.
This is an appeal by the Revenue challenging the order dated 30.04.2013 in appeal no. 55/CIT(A)XVII/Del/2011-12 passed by the Ld. Commissioner of Income Tax (Appeals)-XVII, New Delhi (for short hereinafter called "Ld. CIT(A)").
2. Briefly stated facts relevant for the disposal of this matter are that the assessee is a partnership firm which comprises of four partners of the DLF Group who are engaged in the business of real 2 ITA No. 4244/Del/2013 estate. The assessee firm came into existence on 12.04.2004. For the AY 2008-09 the assessee filed their return of income on 06.10.2008 disclosing a gross receipt/income of Rs. 11.40 crores and has claimed expenses of Rs. 14.30 crores resulting in a net loss of Rs. 2.90 crores. AO, on a perusal of ITR-V found that as per computation of income a total income was declared at loss of Rs. 3,13,16,917/-. Further, AO found that the assessee had paid an advance tax of Rs. 2.58 crores in September and December, 2007, and claimed refund of the same. In the circumstances, AO concluded that the assessee had not computed the correct amount of income for the following reasons:
i. 'Assessee has undertaken commercial project in the name of M/s DLF South Point which is part of the prestigious DLF Group and the chances of any losses are ruled out.
ii. The assessee has undertaken the completion of project by 98.35% by the end of the year.
iii. As per the working given against estimated sale value of Rs.
121.16 crores, the total cost is Rs. 81.19 crores which shows a gross margin of more 33%.
iv. As per the balance sheet and profit and loss account, the assessee is not having any financial crunch as he has also disclosed income from mutual funds and dividends. v. The assessee is having highly professional and well versed employees who are legally and technically qualified and hence the chance of any loss or any reason for deposit of advance tax till December quarter cannot be satisfactorily understood. As per the advance tax paid, the assessee would have estimated its income of Rs. 10 crores.
vi. The sudden fall in this estimated income of Rs. 10 crores to a loss of Rs. 3 crores is beyond imagination.
3ITA No. 4244/Del/2013 vii. The reasons for the decrease in profit and the huge loss declared by the assessee has not been explained satisfactorily. Rather, the assessee has tried his level best to divert attention of this office by filing a fresh chart as mentioned above in which the figure of losses claimed in the fourth quarter are completely missing." Consequently, AO computed the total taxable income of the assessee at Rs. 3,86,30,653/-. Challenging the same assessee carried the matter in appeal and the Ld. CIT (A) vide impugned order considered the contentions of the assessee and deleted the additions made by the AO and held that there is a dip in the profits of the assessee during the last quarter of AY 2008-09 attributable to the reversal of the accounting entries due to the cancellation that took place on 20.02.2008 of an agreement dated 30.06.2007 of sale of 74,216 sq.ft of property for a consideration of Rs. 34,73,30,880/- and refund of amount to the prospective purchaser. On this premises Ld. CIT (A) allowed the appeal and deleted the additions made by the AO. Challenging the same the Revenue is in appeal before us on the following grounds:
1. "In the facts and circumstances of the case, the Ld. CIT (A) has erred in deleting the estimation of income of Rs. 3,23,01,869/- i.e. 30% of the sales of Rs. 10,76,72,869/- instead of 33% gross margin declared by the assessee despite the fact that the assessee has failed to furnish any satisfactory explanation for declaring huge loss especially in the fourth quarter of the year.
2. The Ld. CIT (A) was not justified in deleting the addition amounting to Rs. 70,66,880/- when all deductions deemed to have been taken while making the estimate of the income.4
ITA No. 4244/Del/2013
3. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal."
3. It is the argument of the Ld. DR that the appellant was consistently making profit at 33% in the earlier years, and made profit as well in the succeeding year as such AO was justified in disbelieving the version of the assessee that there happened to be a loss in the AY 08-09 and in view of the fact that the assessee failed to explain the transactions and accounts, the AO is justified in estimating the profit of the assessee at 30% to reach the correct assessable income. According to the Ld. DR there are no circumstances existing in this case for the CIT (A) to interfere with the order of the AO and since the order of the Ld. CIT (A) is arbitrary and without any basis, the order of the AO has to be restored.
4. Per contra, it is the argument of the Ld.AR that the AO did not properly understand the accounting policy of the assessee and without disputing the Project Of Completion Method (POCM) adopted by the assessee and without rejecting the books of accounts, it is not open for the AO to estimate the profit of the assessee for the current assessment year alone in utter disregard 5 ITA No. 4244/Del/2013 to the fact that for the earlier years the assessee had shown the cumulative margin of 33% and for the current year also 31% of the cumulative profit. According to the Ld. AR, there is a failure on the part of the AO in understanding the reasons for the dip in the profit of the assessee which are mainly due to the reason of reversal entries in respect of the cancel the same transaction. It is submitted that despite this reversal entries still the assessee had shown a healthy cumulative profit margin at 31%.
5. We have carefully gone through the record in the light of the submissions made on either side. Absolutely there is no dispute that the assessee has been following the Project Of Completion Method (POCM) and the AO never raised any objection for the same. Undisputed facts show that as on31.12.2007 the assessee had shown the budgeted sale value at Rs. 12,116 lacs, actual sale value as 11,563.82 lacs, budgeted cost Rs. 8155.45 lacs. Actual cost incurred as on 31.12.2007 was 95.41% in relation to the total budgeted cost of Rs. 8155.45. However, there was cancellation of sale reducing the figure of actual sale value. Even during the remand proceedings, as could be found from the order of the 6 ITA No. 4244/Del/2013 Ld.CIT (A), there is no dispute raised by the AO to the fact that the agreement of the sale dated 30.06.2007 for Rs. 34,73,30,880/- in respect of the 74216 sq. ft of property was cancelled on 22.02.2008. After this cancellation of sale the actual sales value had come down to Rs. 8074.69 lacs from Rs. 11,563.82 lacs and consequently the percentage of 95.41% in relation to figure of 11,563.82 had gone up to 98.35% after the value of sales was reduced from 11,563.82 to 8074.69 because of the cancellation of the sale agreement. Due to this escalation in the percentage of the actual cost to the budgeted cost from 31.12.2007 to 31.03.2008, the cumulative profit was revised from Rs. 27.50 crores shown in the AY 2007-08 to 24.67 crores in the last quarter of the AY 2008- 09 which is corresponding to the cumulative profit at 31%.
6. This aspect of the accounting under POCM Method was placed before the AO by the Ld. CIT (A) while calling for the remand report but unfortunately the remand report of the AO does not through any light on this particular accounting method adopted by the assessee. It is pertinent to note that the assessee has been following the POCM Method of accounting for the earlier 7 ITA No. 4244/Del/2013 year also when they have declared the profits of 10.67 crores in the AY 2006-07 and 16.83 crores in the AY 2007-08. Even subsequent to the assessment year under consideration, the assessee had declared a profit of Rs. 9.05 lacs for the AY 2009-10.
Revenue accepted this method of accounting by the assessee and without rejecting the books of accounts and without pointing any fallacy in the figures furnished by the assessee, we are of the considered opinion that the AO was not justified in resorting to estimate profits at 30% of sale for the AY 2008-09 alone. We are in agreement with the findings of the Ld. CIT (A) in paragraph No. 4.2 of his order in respect of all the Seven reasons enumerated by the AO for not accepting the computation of income furnished by the assessee and enumerated at paragraph No. 4.6 of the assessment order. Further we are in agreement with the contention of the AR that the cumulative profit at Rs. 24.67 crores shown by the assessee as on 31.03.2008 shows a cumulative profit of 31% which is healthy as opened by the Ld. CIT (A). For these reasons we are satisfied with the reasoning given by the assessee for the dip in the cumulative profits to Rs. 24.67 crores as on 31.03.2008 instead of Rs. 27.50 crores shown in the AY 8 ITA No. 4244/Del/2013 2007-08 in respect of the cumulative sales of Rs. 79.42 crores, is attributable to the cancellation of sale in respect of 74,216 sq. ft and consequent reversal of accounting entries. Such a revision of cumulative profits was occasioned by the compelling reason of cancellation of sale which is not at all controverted by the AO, and we are inclined to accept the same.
7. For the reasons set forth in the preceding paragraphs, we uphold the findings of the Ld. CIT (A) and do not find any reasons to interfere with the same. Consequently, grounds of appeal are dismissed.
8. In the result, the appeal is dismissed.
Order pronounced in the open court on 11.08.2017 Sd/- Sd/-
(R.S. SYAL) (K. NARSIMHA CHARY)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 11.08.2017
*Kavita Arora
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
TRUE COPY
ASSISTANT REGISTRAR
ITAT NEW DELHI
9
ITA No. 4244/Del/2013
Draft dictated on 09.08.2017
Draft placed before author 10.08.2017
Draft proposed & placed before
the second member
Draft discussed/approved by 11.8.17
Second Member.
Approved Draft comes to the 11.8.17
Sr.PS/PS
Kept for pronouncement on 11.8.17
File sent to the Bench Clerk 11.8.17
Date on which file goes to the
AR
Date on which file goes to the
Head Clerk.
Date of dispatch of Order.