2016 (5) TMI 966 - AT - Income Tax

Rejection of books of accounts - Method of accounting and accounting standard - Held that - It is neither proper nor justified to hold that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. It is a case where accounts of the assessee are correct and complete. Method of accounting and accounting standard has been regularly followed. True and correct profits of the business of the assessee could be deduced from such books of accounts. In this view of the matter the assessing authority could not change the method regularly adopted by the assessee from Project Completion Method to Percentage Completion Method on irrelevant considerations. We are, therefore, satisfied that provisions of section 145(3) are not attracted in this case. The Ld. CIT (A), is found to have erred in upholding the decision of Ld. Assessing Authority to invoke section 145(3) of the Act and making assessment in the manner provided under section 144 of the Act. We, therefore, set aside the decision in this regard - Decided in favour of assessee

Issues Involved:
1. Deletion of additions made by the AO under Section 145(3) due to non-maintenance of quantitative and qualitative stock register and estimation of profits.
2. Rejection of the percentage completion method adopted by the AO.
3. Allegations of on-money received based on seized documents.
4. Deletion of additions made on account of difference in valuation of investment.
5. Involvement of individuals in business activities.

Issue-wise Detailed Analysis:

1. Deletion of Additions under Section 145(3):
The Revenue argued that the CIT(A) erred in deleting the additions made by the AO by applying Section 145(3) due to the assessee not maintaining a quantitative and qualitative stock register. The ITAT observed that similar issues had been previously decided in favor of the assessee by the Coordinate Bench, which held that the books of account maintained by the assessee presented a true and complete picture of its accounts and financial transactions. The method of accounting and accounting standards were regularly followed, allowing the true and correct profits of the business to be deduced from the books of accounts. Therefore, the provisions of Section 145(3) were not attracted, and the AO could not change the method regularly adopted by the assessee from the Project Completion Method to the Percentage Completion Method on irrelevant considerations. Consequently, the ITAT dismissed Ground No. 1 of the Revenue.

2. Rejection of Percentage Completion Method:
The Revenue contended that the CIT(A) erred in rejecting the application of the percentage completion method adopted by the AO, which would mean accepting the loss return of the assessee engaged in construction and sale of residential/commercial projects. The ITAT reiterated its stance from previous judgments, emphasizing that the method of accounting and accounting standards were regularly followed by the assessee, and the true and correct profits of the business could be deduced from the books of accounts. Hence, the provisions of Section 145(3) were not attracted, and the AO's decision to change the method was unjustified. Accordingly, the ITAT dismissed Ground No. 2 of the Revenue.

3. Allegations of On-money Received:
The Revenue raised concerns about on-money received based on seized documents. However, the ITAT noted that this issue did not arise from the order of the AO or the CIT(A). Therefore, the ITAT considered this ground infructuous and did not adjudicate it.

4. Deletion of Additions on Valuation of Investment:
The Revenue argued that the CIT(A) erred in deleting the addition made on account of the difference in valuation of investment. The ITAT referred to its previous judgment, which stated that the addition was made merely based on the DVO’s report without any documentary evidence to establish that the assessee paid any amount over and above the amount entered in the books of account. The burden of proof to prove understatement or concealment of income was on the Revenue, which was not discharged. Consequently, the ITAT held that the addition made by the authorities below, merely based on the DVO’s report, was not justified and deleted the addition. Ground No. 4 of the Revenue was dismissed.

5. Involvement of Individuals in Business Activities:
The Revenue raised concerns about the involvement of certain individuals in business activities. However, the ITAT noted that this issue did not arise from the order of the AO or the CIT(A). Therefore, the ITAT considered this ground infructuous and did not adjudicate it.

Conclusion:
The ITAT dismissed all the appeals of the Revenue, upholding the CIT(A)'s decisions in favor of the assessee. The ITAT emphasized the consistency in the method of accounting and the correctness of the books of accounts maintained by the assessee, rejecting the Revenue's grounds for additions under Section 145(3) and the percentage completion method. The ITAT also highlighted the lack of evidence to support the Revenue's claims regarding on-money received and the difference in valuation of investment. The judgment was pronounced in the open court on 13/05/2016.

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