ITA No. 53/Jodh/2016; Asst. yr. 2011-12

B.P. Jain, A.M. & Partha Sarathi Chaudhury, J.M.

A.K. Das, for the Appellant :
Shailendra Bardia, for the Respondent

ORDER

B.P. JAIN, A.M :-This appeal of the Revenue arises from the order of learned CIT(A)-I, Jodhpur, dt. 9th Dec., 2015 for the asst. yr. 2011-12. The assessee has raised the following grounds of appeal :

"The learned CIT(A) erred on law and facts in deleting the addition of Rs. 83,96,291 made by the AO being the profit on sale of two flats.

The CIT(A) has erred on law and facts in applying ad hoc rate of Rs. 1500 per sq. feet to estimate the cost of construction of two flats and then by allowing the relief, without any basis and also without referring the case to the Valuation Officer."

The assessee has also filed the cross-objections and the grounds are reproduced hereinbelow :

"1. That the learned CIT(A) was not justified on facts and in law in holding that there was a valid notice under s. 143(2) of the IT Act, 1961 and further that the assessment order in appeal was made on the basis of a valid notice.

2. That the assessment order in appeal has been completed by the learned ITO without a valid notice and without the legal authority and therefore, not justified on facts and in law.

3. That the learned CIT(A) was not justified on facts and in law in confirming the addition to the extent of Rs. 10,19,655 on account of alleged undisclosed construction expenses.

4. That the cross-objector be allowed to add, alter, amend, modify or withdraw any of the grounds of cross-objection(s)."

2. At the outset, the learned counsel for the-assessee did (sic—not) press the Ground Nos. 1 and 2 of the cross-objection and accordingly the same are dismissed.

3. Grounds Nos. 4 and 5 of "the cross-objection are general in nature, therefore, do not require any adjudication.

4. Accordingly, the brief facts of the cases are that in the grounds of the Revenue and sole Ground No. 3 of the cross-objection for which the brief facts of the case are that the assessee has constructed a residential-cum-commercial complex named ‘Prime Home’ on the Plot No. 59, Residency Road, Jodhpur on which underground, ground floor and first floor were constructed as per the sale deed dt. 1st June, 2010. The total cost as per the details submitted is Rs. 1,52,52,434 including cost of land Rs. 80,00,000 as per the registry dt. 1st June, 2010. The constructed area of 1st and 2nd floor is 2697.5 sq. ft. at each floor. Since the entire floor and the ground floor are similar in size therefore, total constructed area is 13487.5 sq. ft. besides parking area in underground. The cost of construction is Rs. 7,25,22,434 (1,52,52,434 - 80,00,000) of total area of 13487.5 sq. ft. The cost of construction comes to Rs. 538. The sale value of 1st and 2nd floor is Rs. 60,00,000 each measuring 2697.5 per square feet for each flats therefore, the sale value per square feet is 2224. Therefore, the profit per square feet comes to Rs. 2224 - Rs. 538 + Rs. 1686 per sq. ft. Therefore profit of two sold flats on 1st and 2nd floor is 1686 x 2697.5 x 2- 90,95,970. Therefore an addition of (Rs. 90,95,970 - Rs. 6,99,679) Rs. 83,96,291 is made to the profit shown by the assessee of Rs. 6,99,679. Since the assessee has sold only flat situated on 1st and 2nd floor and remaining is lying with and as per the sale deed no rights in the land have been transferred. The cost of land will be a part of closing stock and added in the closing stock as shown by the assessee. From the perusal of prime home account it is found that assessee has debited Rs. 98,99,544 as amount spent. As per the registered sale deed dt. 1st June, 2010 construction of underground floor and flat Nos. 1 to 4 has been completed and cost has already been incurred thereon. The assessee has neither produced books of accounts nor audited statements under s. 44AB of the IT Act, 1961 of Prime Home therefore, it is not known on what the above expenditure has been incurred, whereas, the construction has already been completed. Therefore, addition of Rs. 83,96,291 is hereby made and added to the income of the assessee as concealment of income under the head income from business. The learned CIT(A) sustained the addition of Rs. l0,19,655 and deleted the rest of the addition vide para 5.2 of his order for the reasons mentioned therein.

5. We have heard the rival contentions and perused the facts of the case. The order of the learned CIT(A) is quite reasoned one and we find no infirmity in his order. The finding of learned CIT(A) are that ITO calculated the amount to be added as profit on sale of two flats in a rather peculiar manner and has committed several factual mistakes in arriving at the figure of Rs. 83,96,291 to be added to the profit shown by the assessee at Rs. 6,99,679. The AO took the total cost at Rs. 1,52,52,434, reduced from it cost of land Rs. 80,00,000, took the resultant figure of Rs. 72,52,434 to be the total cost of construction of ground floor plus four flats, dividing this figure by total carpet area of 13487.5 sq. ft. arrived at cost of construction per sq. ft. at Rs. 60,00,000 by 2697.5 sq. ft. being carpet area of one flat, arriving at sale value per sq. ft. at Rs. 2,224. Differential value of Rs. 2,224 and Rs. 538 was taken as profit per square feet which was multiplied by the total area of two flats each measuring 2697.5 sq. ft. and thus total profit on sale of two flats was arrived at Rs. 90,95,970. In doing so, the AO has totally ignored the fact that the construction of four flats was not yet complete and there was opening stock and closing work-in-progress. The AO himself has adopted the total sale value of two flats sold during the year at Rs. 1,20,00,000 and then computed profit on sale of these two flats at Rs. 90,95,970 which is 75.79 per cent of the sale value meaning thereby that the assessee incurred only Rs. 29,04,030 on construction of two flats measuring 2697.5 sq. ft. each which is impossible keeping in view the prevailing cost of building materials and labour charges. The assessee has vehemently contested the addition made at Rs. 83,96,291 made as suppressed profit towards sale of two flats. The assessee has stated that in the relevant year, the construction of the showroom and two flats was completed, the remaining two flats were under construction, the AO could have worked out the cost of construction of the showroom and two flats on the basis of Prime Home Account as submitted by the assessee. The assessee has further contended that the AO accepted the cost of construction of showroom which had been duly shown in the audited accounts of Prime Clothiers but in respect of cost of construction of two flats he acted on erroneous assumptions and incorrect facts. The assessee has worked out the cost of construction of two flats as per books of accounts of Prime Home as below :

5.1 Cost of construction of two flats at Rs. 70,73,133.21 for total built-up area of 5395 Sq. feet gives cost of construction per sq. ft. at Rs. 1311.053 which is more realistic than the average cost of construction at Rs. 538 per Sq. feet worked out by the AO. Thus, considering the various factual mistakes committed by the AO. The learned CIT(A) has rightly rejected the method of computation of taxable profits adopted by the AO.

6. In the circumstances and facts of the case, the learned CIT(A) is not justified in sustaining the addition of Rs. l0,19,655 which is purely on the conjectures and surmises and therefore,the same is directed to be deleted and accordingly the grounds of the Revenue are dismissed and the Ground No. 3 of the assessee is allowed.

7. In the result, the appeal of the Revenue in ITA No. 53/Jodh/2016 is dismissed and cross-objection of the assessee bearing C.O. No. 13/Jodh/2016 is partly allowed.