The Income Tax Appellate Tribunal (ITAT) Hyderabad bench held that no addition should be made towards part of amount received from the construction activities in Villa based on total sale consideration.
Therefore the bench directs re-adjudication in related to enquiry of percentage on recognition of revenue was in consonance with the percentage of completion of the project.
Assessee, Vessella Constructions is a partnership concern, is in the business of development of properties for the purpose of residential/commercial. The assessee firm has taken land on development basis in the month of July, 2011. The construction activity of the villas was started in the month of January, 2013.
During the scrutiny AO noted that assessee registered 20 villas in respect of which, approximately 8% of the development activity has taken place. The sale consideration of the registered villas as per the Documents is at Rs. 16,95,00,000/.
For the assessment year 2013-14, assessee filed return of income by declaring income of Rs. 23,14,944/- with turnover of Rs. 2.91 crores. However the AO noted that in the registered sale deeds assessee sold20 villas for a total consideration of Rs. 18 crores, had accounted only Rs. 2.91 crores, without disclosing the entire sale consideration as received till 31/03/2013.
Thereafter the AO concluded the assessment by making addition towards the profits/gains earned by the assessee on transfer of land pertaining to villas that were sold.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who allowed the appeal of assessee. Thereafter the revenue filed the appeal before the tribunal.
Before the bench, counsel for the assessee submitted that the assessee has followed the Percentage Completion Method for recognizing the revenue. Sale deeds contain the entire sale consideration amount and they also show the mode of payment.Further all the amount is properly accounted in the books of the assessee.
Counsel for the revenue submitted that assessee did not disclose the entire amount of sale consideration in respect of 20 villas but accounted for only Rs. 2,90,98,601/- and even if the assessee has been following the Percentage Completion Method.
Moreover the counsel for revenue argued that, as per the sale deed on the date of registration of such sale deeds, the entire construction of the villas was over and the assessee received the entire sale consideration also.
It was observed by the tribunal that many of the sale deeds registered during the year, cheques towards sale consideration were issued post dated, the fact remains for verification is about how much of money was realized during the financial year 2012-13.
Further construction activity on relevant plots had not reached even the lintels level. Thus Observations of the Assessing Officer that the entire construction work was over and vacant possession of the villas was handed over to the respective buyers is, therefore, factually incorrect. It was observed that, “it is evident from the photos appended to the sale deeds that the construction work is at preliminary level. Thus the project was not completed.”
After carefully analysing the material facts the two member bench of K. Narasimha Chary (Judicial Member) and Rama Kanta Panda (Vice-President) quashed the orders of the authorities below and restored the issue to the file of Assessing Officer to cause enquiry as to the sale consideration that was received during the relevant assessment year and also whether the percentage on recognition of revenue was in consonance with the percentage of completion of the project as on 31/03/2013.
R. Mohan Kumar appeared for assessee and M. Vijay Kumar appeared for the revenue.
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