Case Law Details
Srabani Constructions Pvt Ltd. Vs ACIT (ITAT Cuttack)
In the present case, the AO has made addition of Rs.1,68,54,180/ @ 15% by considering whole amount of advance from customers i.e. closing balance as on 31.3.14 of Rs.11,23,61,227/-, which also includes opening balance from customers brought forward from earlier year as opening balance as on 1.4.2013 of Rs.8,09,01,787.64. As I have noted above that as per the decision of Hon’ble Gujarat High Court in the case of Sjhivalik Buildwell pvt Ltd (supra), the profit in its case would arise only on transfer of title of property, therefore, receipts of any advance or booking amount could not be treated as trading receipt of the year under consideration. We are also in agreement with the contention of ld counsel for the assessee on the strength of the order of ITAT Chandigarh in the case of Kuldip Industrial Corpn (supra), wherein, the Co-ordinate Bench has held that no addition could be made with regard to credit balance brought forward from earlier assessment years. In the present case also, the AO has not brought on record that the assessee has transferred the title of property during the relevant period, which accrued the business profit of the assessee. However, the AO while disputing the manner of accounting adopted by the assessee i.e. project completion method and tax the element of profit embedded in the amount received by the assessee during the relevant financial period from customers which was Rs.3,65,00,439.01 during the period. Therefore, the assessee gets part relief with regard to amount of advance from customers brought forward from financial year 2013-14 as opening balance as on 1.4.2013. The AO is directed to delete the addition @ 15% of opening balance of advance from customers of Rs.8,09,01,787.64. In view of foregoing discussion, I am of the considered opinion that the AO is entitled to make addition pertaining to the element of profit embedded in the amount of advance received from customers during the relevant financial period 2013-14 which was Rs.3,65,00,439 on which the AO has made addition @ 15% of total amount of advance from customers, which has also been confirmed by the ld CIT(A). Ld counsel vehemently argued that the revenue recognised by the AO on the amount advanced from customers @ 15% is very high, excessive and unreasonable. Therefore, same may kindly be reduced to 5% of total amount received from customers during the year under consideration and not the whole amount which includes the brought forward advance from customers. He submitted that the assessee being a builder and developer, has to incur huge expenditure on development and construction of projects on the unit allotted to the respective customers against which advance has been received. Ld counsel pointed out that in this case, the assessee has filed return declaring huge loss, therefore, the assessee would get nothing if unreasonable and excessive profit is estimated but prayed that the profit element which is reasonable, just and proper may kindly be taxed in the hands of the assessee imparting justice to the assessee. He also submitted that the assessee was not allowed to explain his stand and submission on the percentage of profit determined by the AO and ld CIT(A). Therefore, the estimation may kindly be reduced to a reasonable 5% on total receipts during the relevant financial period.
On careful of rival submission, first of all I observe that the AO is right in taking action against the assessee, wherein, he proceeded to tax the element of profit embedded in the amount of advance from customers. As I have noted that the AO was not right in taking the entire amount of advance including opening balance brought forward from earlier financial period and amount received during the relevant financial period as advance from customers. In view of above noted factual matrix, I am inclined to hold that the advance from customers at the end of the relevant preceding financial period and the opening balance brought forward from the preceding financial year(F.Y. 2012-13) cannot be taken for estimating and taxing the profit element therein in the hands of the assessee in present assessment year 2014-15. Although I have also concluded above that the profit element embedded in the amount during the financial period 2013-14 can be taxed by the AO in the hands of the assessee for assessment year 2014-15 but at the same time, I have no hesitation to hold the profit percentage of 15% of total advance amount from customers is very high, unreasonable and excessive and simultaneously I also observe that the prayer of the ld counsel for the assessee that the profit may be estimated @ 5% is also very unreasonable and thus not acceptable. Considering the entire facts and circumstances of the case and to take care of all possible leakage of revenue, I direct the AO to estimate 10% of amount of advance received from customers during the relevant financial year 2013-14 relevant to assessment year 2014-15 only. The AO is direct to recompute the profit as per the direction given above. Accordingly, Ground No.2 of appeal is partly allowed.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
This is an appeal filed by the assessee against the order of the CIT(A),1, Bhubaneswar dated 5.9. 2019 for the assessment year 2014-15.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
