2017 (11) TMI 1423 - HC - Income Tax

Rejecting books of accounts of the assessee - assessee has adapted the Project Completion Method for purpose of accounting of its income from building development activity - Held that - As decided in assessee s own case Under Section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income Tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income-Tax Officer may determine. In our view, as stated above consistently for 30 years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance sheet, and for the income tax return, valuation was at cost or market value whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting income tax return on the real taxable income in accordance with a method of account adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that assessee was maintaining balance sheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments) because the Bank was required to prepare balance sheet in the prescribed form and it had no option to charge it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of Books of Accounts under Section 145(3) of the Income Tax Act.
2. Application of Percentage Completion Method.
3. Acceptance of 'On Money' and Seized Documents.
4. Claim of Deduction under Section 80IB(10) without Certificate of Approval.
5. Relaxation of Conditions under Section 80IB(10) by CIT(A).

Detailed Analysis:

Issue 1: Rejection of Books of Accounts under Section 145(3)
The primary issue was whether the ITAT was justified in rejecting the books of accounts of the assessee under Section 145(3) of the Income Tax Act. The Assessing Officer (AO) had rejected the books due to the non-maintenance of quantitative and qualitative stock registers and unverifiable direct expenses. The Tribunal, however, reversed this decision, citing precedents where mere non-maintenance of a stock register was not sufficient ground for rejection of books. The Tribunal emphasized that the books of account were maintained consistently in the same manner as in previous years without any significant discrepancies in purchase or sale records. The Tribunal's decision was supported by multiple precedents, including the case of Pr. Commissioner of Income-tax vs. Bhawani Silicate Industries and Jaytick Intermediates (P.) Ltd. vs. Assistant Commissioner of Income Tax, which held that minor discrepancies or non-maintenance of certain records do not justify the rejection of books under Section 145(3).

Issue 2: Application of Percentage Completion Method
The second issue was whether the ITAT erred in rejecting the percentage completion method adopted by the AO. The AO had applied this method to calculate the profits of the project "Southern Heights," but the Tribunal favored the project completion method used by the assessee. The Tribunal's decision was based on the legal precedent that both the percentage completion method and the project completion method are recognized methods of accounting. The Tribunal cited multiple cases, including Commissioner of Income Tax vs. Bilahari Investment (P) Ltd and CIT vs. Manish Build Well (P) Ltd, where it was established that the project completion method is a valid accounting method and cannot be rejected if it has been consistently followed.

Issue 3: Acceptance of 'On Money' and Seized Documents
The third issue involved the acceptance of 'on money' received by the assessee and the reliance on specific seized documents. The AO had based his assessment on seized records from a laptop, which indicated undisclosed income. However, the Tribunal found that the addition based on such documents was not justified without corroborative evidence. The Tribunal's decision was supported by the Gujarat High Court's ruling in Tax Appeal No. 1250/2011, which held that additions based on 'on money' require concrete evidence and cannot be made on presumptions or extrapolations.

Issue 4: Claim of Deduction under Section 80IB(10) without Certificate of Approval
The fourth issue was whether the assessee was entitled to a deduction under Section 80IB(10) despite not having the certificate of approval in its name. The AO had disallowed the claim because the approval was in the name of a partner and not the firm. However, the Tribunal allowed the deduction, citing the precedent set by the same court in a previous case involving the same assessee. The Tribunal held that the absence of a certificate in the firm's name did not invalidate the claim for deduction if the project met all other statutory conditions.

Issue 5: Relaxation of Conditions under Section 80IB(10) by CIT(A)
The final issue was whether the CIT(A) had the authority to relax statutory conditions under Section 80IB(10). The AO argued that the CIT(A) had overstepped its powers by allowing the deduction. However, the Tribunal upheld the CIT(A)'s decision, reinforcing that the CIT(A) has the discretion to interpret statutory conditions in favor of the assessee if the overall compliance with the law is maintained.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decision on all counts. The Tribunal's findings were consistent with established legal precedents, and no substantial question of law was found to arise from the appeal.