Renaissance Realcon Pvt. Ltd., New ... vs Department Of Income Tax

Income Tax Officer, Vs. M/s Renaissance Renaissance Realcon Pvt.Ltd., Ward- Ward-15(3), D-2, Kalindi Colony, New Delhi. New Delhi - 110 065. PAN : AADCR4160Q. (Appellant) (Respondent)

Appellant by : Shri Vikram Sahay, Sr.DR. Respondent by : Shri Ravinder Agarwal, CA.

Date of hearing : 10.04.2015 10.04.2015 Date of pronouncement : 06.05.2015

ORDER

PER G.C. GUPTA, GUPTA, VP :

This appeal by the Revenue for the assessment year 2010-11 is directed against the order of learned CIT(A)-XVIII, New Delhi dated 21st August, 2013.

2. Ground No.1 of the Revenue is as under:-

"On the facts & in the circumstances of the case, the ld.CIT(A) has erred in taking the cost of construction @ Rs.700/- per square feet instead of Rs.511/- per square feet adopted by the Assessing Officer."

3. Learned DR submitted that the assessee is in the business of builder and has sold fifteen flats during the year. He submitted that the assessee has calculated the cost of construction of 15,174 sq.ft. area of these fifteen flats at a flat rate of 750/- per sq.ft. Besides this 2 ITA-6093/Del/2013

amount, the assessee has also debited labour wages and administrative expenses. He submitted that this is an arbitrary method of cost allocation, which is not permissible as per the provisions of the Act. The assessee itself has enclosed valuation report dated 27.02.2013 of Shri S.C. Gupta, M.I.E. & Chartered Engineer for the year of construction of 2008 and the cost of construction was arrived at by the valuer at `5,500/- per sq.mtr. i.e. `511 per sq.ft. He submitted that the flats sold in the FY 2009-10 were, in all likelihood, constructed during the FY 2008-09 and, therefore, the Assessing Officer adopted the same value as per assessee's valuer at `511/- per sq.ft. The learned DR submitted that the CIT(A) has enhanced the same at `700/- per sq.ft. without giving a single valid reason for the same. He submitted that the assessee has adopted the method of cost of construction by deducting the profit margin of 10% from the sale price of the flats sold by it and the balance has been shown as cost of construction of the flats. He relied on the order of the Assessing Officer.

4. The learned counsel for the assessee has opposed the submissions of the learned DR. He submitted that the flats in question were not complete and the assessee has constructed a number of flats in the preceding as well as in the succeeding years apart from the relevant accounting year. He submitted that it is not possible to arrive at the correct figure of cost of construction at a particular period and, therefore, the assessee has rightly calculated the cost of construction of the flats in question. He referred to the relevant portion of the appellate order passed by the learned CIT(A) in support of the case of the assessee. He referred to the chart showing year-wise estimation of cost of construction and cost towards contract receipts for five accounting years ending on 31.03.2012, filed in compilation before the Tribunal. The learned counsel for the assessee also referred to the 3 ITA-6093/Del/2013

assessment order passed under Section 143(3) dated 03.03.2015 for the later assessment year 2012-13 wherein, in similar facts, no addition was made by the Assessing Officer. He relied on the order of the learned CIT(A).

5. We have considered the rival submissions and have perused the order of the Assessing Officer and the learned CIT(A). We find that the assessee has adopted a novel method of arriving at the cost of construction by estimating the same on the basis of sale price minus the estimated profit etc. In reply to a specific query by the Bench, the learned counsel for the assessee submitted that Accounting Standard No.7 of the Institute of Chartered Accountants of India was only partly complied with. The assessee is maintaining regular accounts and its accounts are being audited. In these facts, we are of the view that the assessee should have come forward with some reasonable basis for estimating its cost of construction of the flats sold during the year. No such exercise was undertaken by the assessee on the pretext that it is not possible to do so. The Assessing Officer has provided opportunity to the assessee pointing out that this method of cost allocation is arbitrary and is not permissible under the Income-tax Act, but still, the assessee could not provide any basis for estimating the cost of construction. The assessee itself has submitted a valuation report dated 27.02.2013 of Shri S.C. Gupta, M.I.E. & Chartered Engineer (IND), M/s Gupta & Associates for the year of construction of 2008 giving the cost of construction at `5,500/- per square meter. The Assessing Officer has adopted the same and has arrived at the figure of `511/- per sq.ft. as the cost of construction. We find that the learned CIT(A) has determined the cost of construction of the flats at `700/- per sq.ft. as against `511/- estimated by the Assessing Officer, without giving any valid reason for the relief allowed to the assessee. The CIT(A) has allowed the relief on the ground that selling price of the flats for 4 ITA-6093/Del/2013

succeeding year has been taken at `735/- per sq.ft. We are unable to appreciate that how the selling price in the succeeding year could determine the cost of construction of the property for the preceding year. In these facts of the case, we hold that the assessee could not adduce any evidence in support of its estimate of cost of construction and no valid reason could be assigned by the CIT(A) while giving substantial relief to the assessee and there was some basis for arriving at the cost of construction at `511/- per sq.ft. by the Assessing Officer on the basis of the assessee's own valuer report, we allow ground No.1 of the Revenue's appeal.

6. Ground No.2 of the Revenue's appeal reads as under:-

"On the fact & in the circumstances of the case, the ld.CIT(A) has erred in deleting the addition of Rs.1,16,340/- made by the Assessing Officer after recording proper reason thereof in the assessment order itself."

7. Learned DR submitted that this case is not covered by the provisions of Section 44AD of the Act and, therefore, the addition was wrongly deleted by the learned CIT(A).

8. Learned counsel for the assessee submitted that the assessee never claimed for application of Section 44AD of the Act and the addition has been made only for the sake of addition. He relied on the order of the learned CIT(A).

9. We have considered the rival submissions and have perused the order of the Assessing Officer and the learned CIT(A). We find that the addition was made by estimating the net profit rate of 15% of gross contract receipts minus 8% of contract receipts by the Assessing Officer. We find that there was no basis for estimating the profit by 5 ITA-6093/Del/2013

applying the net profit rate of 15% and, accordingly, we hold that there is no mistake in the order of learned CIT(A) in holding that the Assessing Officer has adopted 15% rate without any concrete reason. Accordingly, the order of learned CIT(A) on this issue is confirmed and ground No.2 of the Revenue's appeal is dismissed.

10. In the result, the appeal of the Revenue is partly allowed.

Decision pronounced in the open Court on 6th May, 2015.

Sd/- Sd/- (INTURI RAMA RAO) RAO) (G.C. (G.C. GUPTA) GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT

VK.

Copy forwarded to: -

1. Appellant : Income Tax Officer, Ward- Ward-15(3), New Delhi.

2. Respondent : M/s Renaissance Realcon Pvt.Ltd., D-2, Kalindi Kalindi Colony, New Delhi - 110 065.

3. CIT

4. CIT(A)

5. DR, ITAT

Assistant Registrar