The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the deletion of the addition on account of business income of Rs. 9.42 crore as WIP did not belong to the assessee.
Here Revenue has appealed against the order of the Commissioner of Income Tax Appeals [ CIT( A ) ], which deleted the addition made by the assessee on account of business income of Rs. 9.42 crores.
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The assessee, Navratna Organisers And Developers Pvt. Ltd. is engaged in the business of development of various projects from which it earned development fees.
The assessing officer ( AO ) observed that the income recorded in the book of accounts was not based on the percentage completion method. The AO considered the assessee as the owner of the project and reported a taxed income of Rs. 9.06 crore under the heading “liabilities” while
computing taxable income. The AO also estimated the profit at 8% of the WIP of Kings Square and made an addition of Rs. 35,45,480, and thus a total of Rs 9,42,29,188 was made by the AO.
The CIT( A ) deleted the additions, as during similar circumstances of the assessee’s case for certain assessment years, the ITAT had deleted the additions.
The CIT( A ) noted that the assessee cannot be treated as the owner just because the assessee has been associated with the projects since the beginning or it has overall control over the projects. It further observed that the AO made an addition on a hypothetical basis by treating the WIP belonged to the assessee but considering the assessee as the owner of the work-in-progress.
It was also observed that the AO erred in invoking Accounting Standard 7, which is not applicable to a developer. After going through the previous orders, the CIT (A) observed that the 8% profit on the alleged WIP cannot be estimated in this case as it was not the project’s owner.
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The ITAT, by following the Co-ordinate Bench’s decisions in assessment year 2008-09 and other years in ITA No. 2634 of 2011, dated 23/01/2019, deleted the additions made by the AO on account of business income of Rs. 9,42,29,188.
The bench, comprising Annapurna Gupta ( Accountant Member ) and T.R. Senthil Kumar ( Judicial Member ) dismissed the appeal filed by the Revenue.
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