2001 (12) TMI 194 - AT - Income Tax

Summary

Issues Involved:
1. Limitation of assessment order u/s 158BE.
2. Exemption of income for a housing building co-operative society.
3. Recognition of income under the completed contract method.
4. Disallowance of items debited to contractors' accounts.
5. Computation of undisclosed income from seized materials.

Summary:

1. Limitation of Assessment Order u/s 158BE:
The assessee argued that the assessment order is barred by limitation as per s. 158BE of the IT Act, 1961. The Tribunal examined the dates of the search and subsequent visits, concluding that the search should be considered completed on 23rd Feb., 1996, not 25th April, 1996. Hence, the assessment order dated 31st Oct., 1997, was beyond the permissible time and thus quashed.

2. Exemption of Income for Housing Building Co-operative Society:
The assessee claimed exemption based on mutuality, arguing that it is a co-operative society providing housing sites to its members, with no dealings with outsiders. The Tribunal agreed, noting the complete identity between contributors and participants, and found the case in line with the principles of mutuality as per the Supreme Court's decisions in Chelmsford Club vs. CIT and CIT vs. Bankipur Club Ltd.

3. Recognition of Income Under the Completed Contract Method:
The assessee followed the completed contract method of accounting, arguing that income or loss could only be computed upon project completion. The Tribunal upheld this method, recognizing it as a valid accounting practice for long-term projects, referencing the High Court of Karnataka's decision in Khoday Distilleries.

4. Disallowance of Items Debited to Contractors' Accounts:
The AO disallowed certain items debited to contractors' accounts, alleging diversion of funds by directors. The Tribunal found no evidence of personal use by directors and noted that the Government of Karnataka had exonerated the managing committee members of all charges. Hence, the disallowances were deleted.

5. Computation of Undisclosed Income from Seized Materials:
The AO added Rs. 60,70,400 as undisclosed income, claiming it was realized by a director on behalf of the society. The Tribunal found that the amount belonged to the contractor, not the society, and thus should not be treated as undisclosed income of the assessee.

Conclusion:
The Tribunal quashed the block assessment order due to time limitation and held that the assessee's income is exempt based on mutuality. It also upheld the completed contract method of accounting and deleted disallowances and additions made by the AO. The appeal was allowed in favor of the assessee.