Section 271B r.w. s. 44AB of the Income-tax Act, 1961 — Penalty for non-furnishing of Tax Audit Report — Assessee who was property developer, was following project completion method of accounting — During the year the project was not completed — Whether A

ITAT ‘I’ Bench, Mumbai

A.Y. : 2005-2006. Decided on : 12-1-2011

Counsel for assessee/revenue : B. V. Jhaveri/

S. K. Singh

The issue before the Tribunal was whether on the
basis of the facts, the assessee was liable to get its accounts audited u/s.44AB
of the Act. The assessee, a property developer, was following project completion
method of accounting. As per its accounts, the work in progress as at the
beginning of the year was Rs.4.35 crores and as at the end of the year was
Rs.10.07 crores. During the year it had received advances against the sale of
flats of Rs.4.03 crores. Referring to the Board Circular (No. 387, dated 6-7-1984), the
authorities below contended that the legislative intent would be defeated if the
provisions were applied only in the year when the project was completed.
According to the Revenue, if the project takes the period as long as 10 years,
then as contended by the assessee, the audit report would be filed in the said
tenth year when it would not be possible for the AO to look into the details of
10 years. Secondly, during the year under appeal, the value of the work in
progress as well as the receipt of advances from the customers had exceeded the
prescribed limit of Rs.40 lakh.

According to the Tribunal, when the assessee was
following the project completion method of accounting, the advances received
against booking of flats could not be treated as sale proceeds/turnover/gross
receipts. For the purpose it relied on the Pune Tribunal decision in the case of
ACIT v. B. K. Jhala & Associates and the views of the Institute of Chartered
Accountants of India. Accordingly, the appeal filed by the assessee against the
order for levy of penalty u/s.271B was allowed.