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Issues:
Stay of demand for the assessment year 1997-98 based on accumulated expenditure on works executed, applicability of section 44AD, challenge to assessment under section 44AD, change in method of accounting, financial condition of the assessee, double taxation concern, security offered by the assessee, balance of convenience. Analysis: The case involved a petition seeking a stay of demand of Rs. 73,81,034 for the assessment year 1997-98. The assessee, a developer and builder of residential apartments, had been following the project completion method for years. However, for the first time, the Assessing Officer (AO) assessed the income based on accumulated expenditure on works executed from 1993-94 onwards till 31st March, 1997, amounting to Rs. 13,07,67,368. The AO estimated net profit at 8% of work-in-progress under section 44AD, without rejecting the books of account. The assessment was challenged on the grounds that the assessment under section 44AD was illegal and the method of accounting should not have been changed. The Commissioner of Income Tax (Appeals) upheld the assessment, leading to a tax demand of Rs. 73,81,934 due to the change in the accounting method. The counsel for the assessee argued that the assessment was against the provisions of the Income Tax Act, 1961, and cited a Bombay High Court case where a similar method change was deemed impermissible. The financial position of the assessee was highlighted, showing a lack of liquid funds and significant liabilities. Concerns were raised about double taxation as the same income was being taxed twice. The Departmental Representative contended that since the assessment order was upheld, the case's merits should not be revisited, emphasizing the need to protect the Revenue's interests. The Tribunal noted that section 44AD, applied in the assessment, was prima facie inapplicable due to the turnover exceeding the prescribed limit. Considering the assessee's consistent use of the project completion method and the financial strain, the Tribunal stayed the demand, subject to conditions. The assessee was required to provide security in the form of unsold flats worth Rs. 40 lakhs and the appeal was scheduled for an expedited hearing. The Tribunal found that the balance of convenience favored the assessee, leading to the allowance of the stay petition.
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