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2004 (8) TMI 618 - AT - Income TaxCash credits - Method of accounting - building construction activities - Addition on loan and interest - Addition on inflated purchases - HELD THAT - As seen from the facts, profits in the case of a trade adventure/project may be determinable in each year without waiting for the whole adventure/ project to be finally completely, yet there is also another method of accounting for profits of the adventure/project referred to as Completed Project method of accounting, which too is a recognized method, which the assessee has been following consistently. It may be quite relevant to observe here that we need be consciously aware that the profits of each year being determinable at the year end is one thing and that the profits of each year are essentially to be determined at the end of each year is another thing. Respectfully following Dempo Co. (P.) Ltd. s case 1993 (9) TMI 346 - BOMBAY HIGH COURT and in the case of Rajesh Construction, we are of the considered opinion that the Assessing Officer having not drawn any finding that the accounts of assessee suffer from any defect nor that from the method of accounting followed by assessee, true/correct profits of assessee cannot be deduced and the assessee having been following the Completed Project method consistently, which being a recognized method of accounting, the assessee s method of accounting cannot be rejected nor is there any justification for estimating assessee s profits of the year from the assessee s business activity of building construction by resorting to applying of percentage of profit to the work-in-progress of the year. In that view of the matter, we find no fault with the impugned order of ld. CIT(A) in deleting the addition made by Assessing Officer. We, therefore, decline to interfere with the same. Addition on loan and interest - The assessee had furnished the confirmation letters of all the creditors, addresses and G.I.R. numbers of the creditors, who are I.T. assessee s made specific request to the Assessing Officer to issue summons to the creditors but the Assessing Officer did not issue the same observing that the addresses are incomplete, the giving of loan as also the repayment of the same and the payment of interest having been through cheque, TDS having been made from interest payment and the loans being quite old and having already been repaid, we agree with the conclusion/decision drawn by ld. CIT(A) and thereby deleting the addition and the same cannot, in our opinion, be found fault with. We, therefore, decline to interfere with the same. In the result, revenue s appeal is dismissed. Addition on inflated purchases - We find that as regards purchase of goods worth Rs. 77,500 from M/s. Tiles India, the entry is incorrect and admittedly no such purchase has been made. It was only after Assessing Officer s enquiry from M/s. Tiles India and after the Assessing Officer coming to know that there is no corresponding sale entry in the books of account of seller, when the Assessing Officer put query to the assessee that the assessee explained that this money was misappropriated by their ex-accountant. However, the assessee ought to have appropriately rectifier the entries or made appropriate remarks in this regard, which was not done. The truth or falsity of the assessee s stand regarding the said money having been misappropriated by the assessee s ex-accountant remained to be examined. Mere filing of a copy of complaint is not enough. As regards business loss, the assessee ought to have claimed it as such, that is as a business loss due to that money having been misappropriated by their ex-accountant and ought to have furnished material/evidence to establish the fact, which the assessee has failed to do and seems to be content with mere filing a copy of the complaint. So many times even the complaints are found to be false; and to put a check thereon there exist a specific statutory provisions in the Indian Penal Code like sections 182 and 211 I.P.C. providing for prosecution for lodging false complaint/information. Be that as it may, we find the impugned order of ld. CIT(A) in deleting this addition to be not proper and rather we find the addition made by Assessing Officer to be quite justified inasmuch as the entry of this purchase is admittedly wrong/false. We, therefore, reverse the impugned order of ld.CIT(A) and restore that of Assessing Officer on this count. We order accordingly. In the result, revenue s appeal is partly allowed as indicated above.
Issues Involved:
1. Acceptance of 'Project Completion' method of accounting. 2. Deletion of unproved loans and interest. 3. Deletion of addition on account of inflated purchases. Summary: 1. Acceptance of 'Project Completion' Method of Accounting: The primary issue was whether the assessee's 'Completed Project/Contract' method of accounting should be accepted over the Assessing Officer's (AO) method of estimating profits annually. The Tribunal noted that the assessee consistently followed the 'Completed Project' method, a recognized accounting method. The AO did not find any defects in the assessee's accounts. Citing various precedents, the Tribunal upheld the assessee's method, stating that profits from a building construction project can be recognized either annually or upon project completion. The Tribunal found no fault with the CIT(A)'s decision to delete the addition made by the AO, emphasizing the consistency and acceptance of the 'Completed Project' method in similar cases. 2. Deletion of Unproved Loans and Interest: The second issue was the deletion of an addition of Rs. 8,90,000 and Rs. 1,07,706 made by the AO on account of unproved loans and interest. The AO argued that the creditors were untraceable due to incomplete addresses. However, the Tribunal noted that the assessee provided confirmation letters, addresses, G.I.R. numbers, and evidence of transactions through cheques. The Tribunal agreed with the CIT(A) that the assessee had discharged its initial burden of proof and found no justification for the AO's addition, thus upholding the deletion. 3. Deletion of Addition on Account of Inflated Purchases: The third issue was the deletion of an addition of Rs. 77,500 made by the AO for inflated purchases. The AO discovered a discrepancy in the purchase account, which the assessee attributed to misappropriation by an ex-accountant. The Tribunal found the assessee's explanation insufficient, noting that merely filing a complaint was not enough to substantiate the claim. The Tribunal reversed the CIT(A)'s decision, restoring the AO's addition, as the entry was deemed incorrect and unsubstantiated. Conclusion: - The Tribunal upheld the 'Completed Project' method of accounting followed by the assessee. - The deletion of the addition for unproved loans and interest was upheld. - The deletion of the addition for inflated purchases was reversed, restoring the AO's addition.
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