Law: Income Tax Act, 1961

Section: 145

Section 145, read with section 263, of the Income-tax Act, 1961 - Method of accounting - Estimation of profit - Assessment year 1992-93 - Assessee-builder purchased land for purpose of construction of flats or shops - According to method of accounting followed by assessee, when flat or shop in building was sold with proportionate share in plot of land on which building was constructed, proportionate actual cost of land was debited to profit and loss account; and out of sale proceeds received from sale of flat/shop, actual proportionate cost of land was shown as sale price of land component and balance of sale price as cost of flat/shop and difference between actual cost of construction and amount received as sale price towards construction was shown as profit of assessee - Assessing Officer adopted a different method of computation of income by invoking provisions of section 145 and determined gross value of work executed and took 8 per cent of that as profit - Commissioner, in exercise of revisional jurisdiction, under section 263, directed Assessing Officer to add cost of opening stock and cost of land to gross value of work executed for purpose of calculating profit and redo assessment - Whether since Assessing Officer had deducted value of closing stock for purpose of calculating profit for arriving at gross value of work executed, he ought to have added value of opening stock - Held, yes - Whether, therefore, failure to add value of opening stock was erroneous and prejudicial to interest of revenue - Held, yes - Whether since Assessing Officer was calculating deemed income on value of work executed and not on value of flats/shops sold, it was necessary to take value of work executed and not cost of land - Held, yes - Whether, therefore, there was no error or prejudice to interest of revenue in respect of non-inclusion of cost of land - Held, yes FACTS The assessee-builder-cum-contractor purchased land for purpose of construction of flats or shops. According to the method of accounting followed by the assessee, when the plot or shop in the building was sold with the proportionate share in the plot of land on which the building was constructed, the…

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