2017 (5) TMI 1599 - HC - Income Tax

Rejecting the books of accounts of the assessee u/s 145(3) - Held that - Question governed by the decision taken in CIT Central Jaipur vs. M/s Unique Builders and Developers Jaipur (2017 (5) TMI 1505 - RAJASTHAN HIGH COURT) as held merely because of non maintenance of a detailed qualitative and quantitative register alone, the same could not be a valid reason to reach a finding that books of account do not present true and complete picture of accounts and financial transactions. The finding by the assessing authority being perverse is, therefore, set aside. - decided in favour of assessee Capital gain - assessee transferred all its rights, control and interest in the first parcel of land (measuring 114.985 acres) in the garb of Security deposit through Development Assessment - Held that - We are in complete agreement that under the Development Agreement rights will not be transferred and on specific question which has been put to counsel for the department that the transfer will not be made to signatory and owner of the developer, the view taken by the Tribunal is correct. The issue is also required to be answered in favour of the assessee against the department.

Summary

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Act.
2. Rejection of the percentage completion method by the Assessing Officer (AO).
3. Acceptance of 'on money' and specific seized documents.
4. Deletion of addition of ?29.95 crore confirmed by CIT(A), Jaipur.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3) of the Act:
The Tribunal held that the Assessing Officer (AO) and CIT(A) erred in rejecting the books of accounts of the assessee under Section 145(3) of the Act. The Tribunal reversed the findings of the AO and CIT(A), noting that the assessee failed to maintain quantitative and qualitative stock registers and vouch the expenses incurred. The Tribunal's decision in this regard was governed by a previous decision in Tax Appeal No. 23/2013 (CIT Central Jaipur vs. M/s Unique Builders and Developers Jaipur).

2. Rejection of the Percentage Completion Method by the AO:
The Tribunal rejected the application of the percentage completion method adopted by the AO. This rejection implied acceptance of the loss returns of the assessee engaged in construction and sale of residential/commercial projects, contrary to Accounting Standard-7 and Accounting Standard-9 issued by ICAT. This issue was also governed by the decision in Tax Appeal No. 23/2013.

3. Acceptance of 'On Money' and Specific Seized Documents:
The Tribunal ignored the fact that the two brothers, who were partners and actively engaged in the business of the sister concerns of the assessee firm, accepted 'on money' and specific seized documents. This issue was similarly governed by the decision in Tax Appeal No. 23/2013.

4. Deletion of Addition of ?29.95 Crore Confirmed by CIT(A), Jaipur:
The Tribunal addressed the issue of whether the addition of ?29.95 crore confirmed by CIT(A), Jaipur, should be deleted. The Tribunal examined the Development Agreement dated 25-03-2008 and found that the land was not transferred in the name of the assessee. The Tribunal noted that the AO erroneously considered the provision of Section 53A of the Transfer of Properties Act as applicable. The Tribunal concluded that the development agreement was not a sale deed, as the stamp duty paid was only 1% instead of the 11% required for a sale deed. The Tribunal observed that the security deposit received by the assessee was not sale consideration but a liability shown in the books of accounts. Consequently, the Tribunal deleted the addition of ?29.95 crore sustained by CIT(A).

Conclusion:
The Tribunal's findings favored the assessee on all issues. The Tribunal held that the rejection of books of accounts and the percentage completion method by the AO was incorrect. The Tribunal also ruled that the acceptance of 'on money' and specific seized documents could not be ignored. Finally, the Tribunal concluded that the security deposit received under the Development Agreement was not sale consideration, leading to the deletion of the addition of ?29.95 crore. The appeals were dismissed, and the judgment was placed in each file.