2013 (3) TMI 701 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of books of account u/s 145(3) of the Act.
2. Alleged receipt of on money based on documents/statements of another group.
3. Application of 'percentage completion method' of accounting.
4. Accrual of income at the time of agreement/receipt of advance.
5. Addition to total income based on AO's calculation.
6. Reference to Department Valuation Officer (DVO) u/s 142A.
7. Addition u/s 69 based on DVO's valuation report.
8. Levy of interest u/s 234B.

Summary:

Rejection of Books of Account u/s 145(3):
The Tribunal upheld that the rejection of books of account by the Assessing Officer (AO) u/s 145(3) was not justified. The AO's reasoning, including the lack of a detailed qualitative and quantitative stock register and discrepancies in direct expense vouchers, was found inadequate. The Tribunal emphasized that the assessee's accounts were audited and maintained in compliance with commercial accounting standards, and no material discrepancies were found.

Alleged Receipt of On Money:
The AO's allegation of receipt of on money based on documents/statements related to another group was dismissed. The Tribunal noted that the assessee had no involvement in the transactions of the separated group and that the statements made by members of the other group did not pertain to the assessee's business.

Application of 'Percentage Completion Method':
The Tribunal found that the AO's decision to change the accounting method from 'project completion method' to 'percentage completion method' was not warranted. The assessee had consistently followed the project completion method, which is a recognized method under the Income Tax Act. The Tribunal held that the AO could not change the method of accounting without justifiable reasons.

Accrual of Income:
The Tribunal rejected the AO's view that income accrues at the time of agreement or receipt of advance from customers. The Tribunal reiterated that the project completion method, which recognizes income upon completion and delivery of the project, was appropriate for the assessee's business.

Addition to Total Income:
The Tribunal overturned the AO's addition of Rs. 54,24,471/- for AY 2008-09 and Rs. 1,07,80,447/- for AY 2009-10, based on the percentage completion method. The Tribunal emphasized that the AO's basis for changing the accounting method was flawed.

Reference to DVO u/s 142A:
The Tribunal found the reference to the DVO u/s 142A for determining the value of the land in "Unique Destination" to be invalid. The reference was made before the initiation of assessment proceedings, which was not permissible.

Addition u/s 69 Based on DVO's Report:
The Tribunal deleted the addition of Rs. 76,93,120/- for AY 2008-09 and Rs. 11,70,242/- for AY 2009-10, made by the AO based on the DVO's valuation report. The Tribunal held that no evidence suggested that the assessee had made any unaccounted investment in the land. The primary burden of proof to show understatement of investment was on the revenue, which was not discharged.

Levy of Interest u/s 234B:
The Tribunal noted that the levy of interest u/s 234B is consequential and does not require separate adjudication.

Conclusion:
The Tribunal allowed the appeals of the assessee for AY 2008-09 and AY 2009-10 in part, rejecting the AO's changes to the accounting method and deletions based on the DVO's report. The department's appeal for AY 2009-10 was rejected.