ITO Vs Aarya Realties Pvt. Ltd. (ITAT Ahmedabad)
ITAT Ahmedabad held that construction cost attributable to 5 offices out of total 11 offices should be worked out on weighted basis and not on average basis as the properties mainly of the ground floor and first floor were sold out. Such properties fetches higher value in terms of sale price and hence cost is also attributable on weighted basis.
Facts-
Assessee company was appointed as a developer and accordingly AO observed that 5 out of 11 offices were sold by the assessee during the year under consideration for a total consideration of Rs.6,20,79,312/-, including the share amount; whereas the remaining 6 offices had been sold by the assessee in the earlier years.
After allowing credit of Rs.30,53,668/- on account of excess sale consideration taken by the assessee for the remaining 6 properties, the profit earned by the assessee during the year under consideration was worked out by AO at Rs.2,63,59,170/-.
Being aggrieved, assessee preferred an appeal before CIT(A), who restricted the estimation of the business profit of the assessee as made by the Assessing Officer at Rs.2,63,59,170/- to Rs.58,31,955/-. Being aggrieved, the revenue preferred the present appeal.
Conclusion-
The learned CIT(A) found that the revenue generated by the assessee from the sale of 5 offices in the year under consideration was 60 to 65% of the total revenue generated from the project. On the basis of this finding, the learned CIT(A) accepted the claim of the assessee that construction cost allocable/attributable to the 5 offices sold during the year under consideration should have been worked out on weighted basis at Rs.5,31,33,690/- as against the cost of Rs.3,26,66,474/-taken by the Assessing Officer on average basis.
It is observed that the land cost was included by the assessee in the cost of construction claimed as deduction and this being so, we are of the view that the total sale consideration of 5 offices including the share amount received towards land cost should be taken into account for determining profit of the assessee-company.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-1, Ahmedabad [“CIT(A) in short]” dated 23.05.2016 and the same is being disposed of along with Cross Objection filed by the assessee being CO No. 155/Ahd/2016.
2. In Ground No.1 raised in its appeal, the Revenue has challenged the action of the learned CIT(A) in restricting the addition of Rs. 2,63,59,170/-made by the Assessing Officer on account of estimated profit on sale of 5 units to Rs.58,31,955/-.
3. The assessee, in the present case, is a company which is engaged in the real estate business. Return of income for the year under consideration was filed by it on 14.08.2013 declaring a loss of Rs.1,29,02,944/-. The case of the assessee was selected for scrutiny on CASS basis and a notice under Section 143(2) of the Income-tax Act, 1961 (“the Act” in short) was issued by the Assessing Officer to the assessee on 04.09.2014. As noted by the Assessing Officer during the course of assessment proceedings, the assessee-company was appointed as a developer by M/s. Advait Realty Pvt. Ltd. by an agreement dated 28.06.2005 for the development of a land and with the permission of Ahmedabad Municipal Corporation, a building known as “Arya Arcade” was constructed by the assessee in terms of the said development agreement. The said building comprising of ground plus four floors was having 11 offices which were sold by the assessee for a total consideration of Rs.8,31,60,140/-, including the amount of Rs.2,57,80,674/-received towards land cost which was credited to the share amount as per the development agreement. The total consideration net of share amount amounting to Rs.5,73,79,466/- was declared by the assessee as sale in the Profit and Loss Account for the year under consideration and after debiting the cost of finished building at Rs.7,14,63,296/-, the net loss was declared by the assessee in the return of income. As noted by the Assessing Officer, 5 out of 11 offices were sold by the assessee during the year under consideration for a total consideration of Rs.6,20,79,312/-, including share amount; whereas the remaining 6 offices had been sold by the assessee in the earlier years. He worked out the average cost incurred by the assessee for construction of building at Rs.2368/- and by applying the same to the area of 5 offices sold by the assessee during the year under consideration, the cost of construction attributable to the 5 offices sold during the year under consideration was worked out by the Assessing Officer at Rs.3,26,66,474/-. After allowing credit of Rs.30,53,668/- on account of excess sale consideration taken by the assessee for the remaining 6 properties, the profit earned by the assessee during the year under consideration was worked out by the Assessing Officer at Rs.2,63,59,170/-as under:-
