Kayji Real Estate (P.) Ltd. v. Asstt. CIT & Anr.

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The Tax PublishersTax Appeal No. 19 of 2006 2013 TaxPub(DT) 1751 (Bom-HC) : (2013) 088 DTR 0039 Income Tax Act, 1961 --Valuation of closing stock--Change in method of valuation of WIP--Assessee-company was engaged in business of constructing and sale of the flats and commercial shops and also in business of real estate development. In the earlier year, assessee-company had only one project which consisted of construction and sale of residential flats and commercial shops. Therefore, all the direct and indirect costs, which were incurred by the assessee were in respect of only one project and, all these costs were included under the head 'Work-in-progress'. During the next assessment year, assessee had started two work projects and as such, it was not possible to allocate indirect costs, including financial costs, selling costs and general administrative costs on the three projects. Therefore, it made change in the method of valuation of work-in-progress and excluded the marketing and financial costs and a portion of administrative costs. It followed Accounting Standard 7 accounting system (AS-7) and thereafter continued to follow the said system in all subsequent years. Assessing officer made additions as according to him, there was under valuation of profits by changing the method of valuation of WIP. *Held:* Was not justified as there was no sale of flats in the earlier assessment year, the assessee could have shown the said expenditure which was incurred, as loss and could have carried forward the loss in the next year. Secondly, it was admitted position that in the subsequent years, the assessee had been following AS-7 accounting system and the same was accepted by the assessing officer. In fact, thereafter, the Central Government has directed all the developers and builders to follow AS-7 accounting system. More so, the costs, in fact, were indirect costs namely financial costs, general administrative costs and marketing costs and, therefore, they had to be shared amongst three projects and had to be considered in the P&L a/c under AS-7 accounting system. Income Tax Act, 1961, Section 145A In the Bombay High Court V. M. Kanade & U. V. Bakre, J.J. Kayji Real Estate (P.) Ltd. v. Asstt. CIT & Anr. Tax Appeal No. 19 of 2006 A.Y. 1996-97 22 January, 2013 Appellant by : Ashok Kulkarni & Alisha Shirodkar Respondents by : Asha Desai JUDGMENT *V. M. Kanade, J.* The appellant has filed this appeal challenging the judgment and order passed by Tribunal, Panaji Bench dated 27-1-2006 in ITA No. 8/Pnj/1999 for assessment year 1996-97. 2. The appeal was admitted by order dated 3-10-2006 on the following two substantial questions of law : SUBSCRIBE FOR FULL CONTENT

The Tax PublishersTax Appeal No. 19 of 2006
2013 TaxPub(DT) 1751 (Bom-HC) : (2013) 088 DTR 0039

Income Tax Act, 1961

--Valuation of closing stock--Change in method of valuation of WIP--Assessee-company was engaged in business of constructing and sale of the flats and commercial shops and also in business of real estate development. In the earlier year, assessee-company had only one project which consisted of construction and sale of residential flats and commercial shops. Therefore, all the direct and indirect costs, which were incurred by the assessee were in respect of only one project and, all these costs were included under the head 'Work-in-progress'. During the next assessment year, assessee had started two work projects and as such, it was not possible to allocate indirect costs, including financial costs, selling costs and general administrative costs on the three projects. Therefore, it made change in the method of valuation of work-in-progress and excluded the marketing and financial costs and a portion of administrative costs. It followed Accounting Standard 7 accounting system (AS-7) and thereafter continued to follow the said system in all subsequent years. Assessing officer made additions as according to him, there was under valuation of profits by changing the method of valuation of WIP. Held: Was not justified as there was no sale of flats in the earlier assessment year, the assessee could have shown the said expenditure which was incurred, as loss and could have carried forward the loss in the next year. Secondly, it was admitted position that in the subsequent years, the assessee had been following AS-7 accounting system and the same was accepted by the assessing officer. In fact, thereafter, the Central Government has directed all the developers and builders to follow AS-7 accounting system. More so, the costs, in fact, were indirect costs namely financial costs, general administrative costs and marketing costs and, therefore, they had to be shared amongst three projects and had to be considered in the P&L a/c under AS-7 accounting system.

Income Tax Act, 1961, Section 145A

In the Bombay High Court

V. M. Kanade & U. V. Bakre, J.J.

Kayji Real Estate (P.) Ltd. v. Asstt. CIT & Anr.

Tax Appeal No. 19 of 2006

A.Y. 1996-97

22 January, 2013

Appellant by : Ashok Kulkarni & Alisha Shirodkar

Respondents by : Asha Desai

JUDGMENT

V. M. Kanade, J.

The appellant has filed this appeal challenging the judgment and order passed by Tribunal, Panaji Bench dated 27-1-2006 in ITA No. 8/Pnj/1999 for assessment year 1996-97.

2. The appeal was admitted by order dated 3-10-2006 on the following two substantial questions of law :