Estimated Project Cost Calculated as per provision of Water and Air Act: ITAT upholds Deletion of Additional Income [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that estimated project cost calculated as per provision of Water and Air Act and upholds the deletion of Additional income.

The assessee, M/s. Toucan Real Estates engaged in the business of real estate development of a project “Hotel cum Commercial Complex”. Assessee electronically filed its return of income declaring total income at Rs.4,06,880/-. After scrutiny assessment the total income of the assessee was determined as Rs.13,63,41,560/-. Aggrieved by the order of AO, assessee filed appeal before CIT(A) who granted substantial relief to the assessee. Aggrieved by the order of CIT(A), Revenue filed appeal before ITAT.

Mr. H. K. Chaudhary, counsel for the revenue submitted that submitted that assessee had disclosed the cost of construction to various Government agencies at Rs.120 crores and therefore the assessee was not justified in considering the total cost of project at Rs.138 crore for the purpose of working out the project completion. He submitted that if the percentage completion of the project is worked out on the basis of Rs.120 crores, the project completion works out to more than 25% and therefore the AO was fully justified in estimating the net profits.

Mr. Ved Jain, counsel for the assessee submitted that due to increase in area, escalation in cost of material and change in specification by customers, the architect estimated the total cost of construction of the project as Rs 138cr.  The Counsel for the assessee further submitted that CIT(A) after considering the relevant material has decided the issue in favour of the assessee and supported the order of CIT(A).

The Coram of Mr. Anil Chaturvedi, Accountant Member and Mr. Yogesh Kumar US, Judicial Member has observed that the initial estimated cost of project and with the increase in saleable area and other factors the revised cost has been certified in the Architect certificate furnished by the assessee. Based on the total estimated construction cost the percentage of the completion works out to 24.89% which is less than the 25%, being the limit prescribed for recognition of Revenue. The Tribunal further observed that the estimated project cost of Rs.120 crores was calculated as per the provision of Water and Air Act and according to which the amount incurred in Government fee and project over head was not required to be included to the cost of project.

The Tribunal has held that “based on the reasoning given by CIT(A) in the order, he has concluded that the cost of completion of the project worked out to 24.89% which is less than 25%. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. In such a situation, we find no reason to interfere in the order of CIT(A). Thus the ground of Revenue is dismissed”.

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.