​​AO Without Rejection Of Books Of Accounts Estimated The Income Based On Profit Margin Method: ITAT Deletes Addition

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT), while upholding the addition, has held that A.O. without rejection of books of accounts under Section 145 but estimated the income based on the Profit Margin Method.

The Bench of T.R. Senthil Kumar (Judicial Member) and Waseem Ahmed (Accountant Member), while dismissing the grounds of the department, has observed that the additions made by the Assessing Officer do not survive taking into account the Tribunal decision in the assessee’s own case for the earlier Assessment Year 2014-15, as well as the A.O. accepting the Percentage Completion Method (PCM) offered by the assessee as the correct method for the Assessment Year 2017-18.

The respondent assessee is a private limited company engaged in the business of real estate development and construction. For the assessment year 2016–17, the assessee filed its Return of Income on September 28, 2015, declaring a total income of Rs. 3,11,94,560. The case was selected for scrutiny, and the assessment was completed u/s. 143(3), wherein the Assessing Officer held that the assessee in principle accepted the percentage completion method (PCM) and returned a profit of Rs. 3,11,94,560, whereas the Assessing Officer estimated the profit at 9.31% under the profit margin method (PMM) as per the earlier the assessment year 2015-16. An addition of Rs. 2,76,69,223 was made. The assessing officer also disallowed interest amounting to Rs. 1,06,64,058 and demanded tax on it.

The assessee contended that the Additional Commissioner advised the A.O. to accept the method of recognizing income, as has been offered by the assessee company, since there is no defect or shortcoming in the same, which is in consonance with the Guidance Note issued by ICAI in respect of construction activity companies.

The ITAT dismissed the appeal of the department and deleted the addition.

Case Title: DCIT Vs Sylvannus Builders and Developers Ltd.

Case No.: ITA No. 1923/Ahd/2019

Date: 08/05/2023

Counsel For Appellant: Aseem L Thakkar

Counsel For Respondent: N. J. Vyas

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