INCOME TAX ACT, 1961

Section 143(3)

Assessment - Addition to income - Addition based on budgeted estimates used in percentage of completion method (POCM) as based on Shunglu Committee Report -

Assessee company was a special purpose vehicle (SPV) incorporated primarily to execute the CGV project at New Delhi for the purpose of housing the athletes and officials participating in the CWG 2010. At incorporation, 51% equity was owned by Emaar Group of Dubai and 49% by the MGF group of Delhi. AO during the course of assessment proceedings had called for the detail of estimated cost and the actual cost incurred in the specified format. The revenue of assessee was reworked to Rs. 511.59 crores by stating that the assessee had under stated its revenue by Rs. 193.87 crores. Hence, AO made an addition of Rs. 87.97 crores to the income of the assessee. After relying on Shunglu Committee Report, the AO observed that the assessee had sub-contracted the entire construction work to ACIL at Rs. 2,875 per sq.ft. and on that basis, he inferred that the assessee had also inflated its estimated cost by Rs. 87.97 crores since there was no escalation in the contract with ACIL. The contention of the AO was that the cost cannot be more than Rs. 2,875 per square feet as per agreement with ACIL.Held: Addition had been made solely based on the Shunglu Committee Report. The object of the Shunglu Committee was to determine, if the purchase of 333 additional flats by DDA was according to the norms/rules and had not caused any loss to the exchequer. Its object was not to determine the cost or expenditure to the assessee, incurring of additional expenditure over and above the contract given to the ACIL can be accepted.Nowhere, the method of accounting standard followed by the assessee had been disputed, in fact, no grounds could be brought out by the AO to alter the percentage shown by the assessee except the document of estimated cost. The assessing officer's contention that the negligible profit declared by the assessee warrants the alteration in POCM was also cannot be accepted. The factor such as increase in the input cost, exit of the main contractor, change in the specification were not considered by the AO. In the instant case, there had been no evidence of inflation of purchases, the AO had not rejected the books of account, the accounts have been accepted but altered the profits based on the estimated project cost. This cannot be said to be legally tenable. The re-computation and the consequent addition made by the AO was therefore, directed to be deleted.

Relied:CIT v. Vikram Plastics (1999) 239 ITR 161 (Guj.) : 1999 TaxPub(DT) 810 (Guj-HC) and Winner Constructions Pvt. Ltd. ITA 796/2011 : 2013 TaxPub(DT) 198 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 4

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