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TMI Blog2004 (8) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion that the Assessing Officer having not drawn any finding that the accounts of assessee suffer from any defect nor that from the method of accounting followed by assessee, true/correct profits of assessee cannot be deduced and the assessee having been following the Completed Project method consistently, which being a recognized method of accounting, the assessee s method of accounting cannot be rejected nor is there any justification for estimating assessee s profits of the year from the assessee s business activity of building construction by resorting to applying of percentage of profit to the work-in-progress of the year. In that view of the matter, we find no fault with the impugned order of ld. CIT(A) in deleting the addition made by Assessing Officer. We, therefore, decline to interfere with the same. Addition on loan and interest - The assessee had furnished the confirmation letters of all the creditors, addresses and G.I.R. numbers of the creditors, who are I.T. assessee s made specific request to the Assessing Officer to issue summons to the creditors but the Assessing Officer did not issue the same observing that the addresses are incomplete, the giving o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Appellant. F.V. Irani for the Respondent. ORDER Per S.R. Chauhan, JM - ITA Nos. 3583 3584/Bom./1995 are appeals by revenue for assessment years 1986-87 and 1990-91 and are directed against the orders of ld. CIT(A), Mumbai dated 18-1-1995 and 9-1-1995 respectively. 2. We have heard the arguments of both the sides and have also perused the records. 3. The facts, in brief, are that the assessee started constructing a building complex in Malad, known as "Vishal Complex" during the year. The assessee did not show any profits from this complex during the year. The assessee s plea has been that the assessee is following "Completed Project/Contract" method (also referred to as "Project/Contract Completion" method) wherein the profit is shown only when the project/contract is completed; and that prior thereto no profit is shown as accrued nor any profit/income therefrom is shown as taxable. The Assessing Officer however did not accept the assessee s plea holding that "it cannot be accepted that no taxes can be levied till all the sales are completed. The Assessing Officer further held that revenue cannot wait indefinitely for collection of its revenue, and the scheme of the act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder and contended that the ld. CIT(A) has accepted the assessee s project completion method of showing/accounting for profits in the assessee s business of building construction and deleted the addition made by Assessing Officer by applying percentage basis method thereby estimating profits @ 8% of work-in-progress of the year, following CIT(A) s orders for assessment years 1989-90 and 1990-91. He has contended that each year is a self-contained unit of assessment. He has contended that whatever conclusion ld. CIT(A) took in other years for assessment years 1989-90 and 1990-91 need not essentially be followed for the current year. In this regard he has cited the following decisions : (1) Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 (SC) (2) CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) (3) Vipin Kumar Khanna v. CIT [2001] 251 ITR 782 (Delhi) He has contended that the profits can be estimated even when the transaction is not completed and so in the present assessee s case, even before the project of building construction being completed, the assessee s profits could well be estimated. In this regard, he has cited the following decisions : (1) P.M. Mohammed Meerakhan v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject" method of accounting, which is a recognized method. He has also referred to the accounting standard "AS-7" (Pages 1 to 12 PB) for accounting for construction contracts. He has also referred to the decision dated 20-2-1995 of ITAT, Mumbai in the case of CIT v. Nahalchand Lalchand (P.) Ltd. (Pages 16 to 18 PB), and in particular para 3 on internal page 2 (Page 17 PB), and the decision dated 31-12-1996 of ITAT, Mumbai in the case of Billimoria Construction Co. Ltd. (Pages 36 to 53 PB) in his support. Referring to para 8 on internal page 7 (page 41 PB) he has contended that the Tribunal has upheld the change of method to Project Completion method and R.A. against the same (Pages 20 to 26 PB) stands rejected by the Hon ble High Court (Page 19 PB). He has cited the following decisions 1. Shapoorji Pallonji Co. (Rajkot) (P.) Ltd. v. ITO [1994] 49 ITD 479 (Bom.) 2. Madhuvana House Building Co-operative Society v. Asstt. CIT [2002] 76 TTJ (Bang.) 948 3. CIT v. Moghul Builders Planners [2001] 118 Taxman 898 (AP) 4. CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC) He has contended that it is not proper to pick out a word from here and there and that a decision is to be read in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined only at the time of completion of the sale of the entire estate; and for computing the true profits of the year the value of stock-in-trade at the beginning and at the end of accounting year had to be taken into account. 11. In N. Rengaswami Pillai s case ( supra ) it has been held that it is not correct to state that the profits of the business in real estate could properly be calculated only after all the estates had been sold as otherwise the assessment can only be made after an assessee finally winds up his business in real estate. 12. In P. Kannan s case ( supra ) it has been held that profits realized on sale is assessable on income and there is no need to wait till entire land was sold. 13. In Lalit R. Mangilal of Cawnpore s case ( supra ) it has been held as under : "The proposition that whenever goods are purchased in bulk, so long as the whole lot has not been sold, profits cannot be ascertained and the income does not become taxable, as a general statement of law is not correct". 14. In 26 ITR 647 ( sic ) no judgment of Patna High Court is reported. 15. In Tirath Ram Ahuja P. Ltd. s case ( supra ) it has been held as under : "i. In the case of contracts, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it would get 5% as its profit. On completion, it offered income for one building and not for the other two buildings on the ground that intending purchasers of flat may ask for additional work to be carried out. However, the Assessing Officer worked out profits from the other two buildings and made addition. The Tribunal held that the assessee s plea of liability to incur certain additional expenditure had nothing to do with its accrual of profit from contract with U and therefore sustained the additions made by Assessing Officer. 20. In Shapoorji Pallonji Co. (Rajkot) (P.) Ltd. s case ( supra ) the assessee company was engaged in civil construction work and adopted Project Completion method and accounted for profit or loss in books of account of the year in which a project was completed. The Assessing Officer completed the assessment under section 143(3) but the CIT passed revisional order under section 263 holding the assessment to be erroneous. However, the Tribunal held that the fact that the profits on the project was postponed from the year of its commencement to the year of its completion could not be basis for considering aforesaid assessment as erroneous. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not deducible therefrom, but in an otherwise position, that is where there is no adverse finding of the kind mentioned above, the aforesaid decision nowhere lays down that despite there being no defect/infirmity in the accounts of an assessee still the assessee s method of accounting be rejected because of the assessee following "Project/Contract Completion" method of accounting. In P.M. Mohammed Meerakhan s case ( supra ) it has been laid down that the profits of a trade adventure can be determined on year to year basis no doubt but it has not been laid down that following a method of accounting on "Completed Project" basis is not a correct method nor that true/fair profits cannot be determined thereby. As such the legal position emanating as above the mere fact that there does exist a method of accounting for profits of each year is no justification for rejecting an equally recognized method of accounting whereby the profits of the adventure/project are determined when the whole adventure/project is completed; being consistently followed by an assessee, without suffering from an infirmity/defect calling for a rejection of the same for the reason that true/fair profits of the adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition. He has referred to para 6.2 of ld. CIT(A) s order and contended that the ld. CIT(A) has considered the fact of these loans having been given and repayments thereof having been made by crossed account payee cheques, but the said fact is no proof of the genuineness of transaction of loan. He has contended that due to the address being incomplete, the Assessing Officer was not in a position to investigate/enquire into the transactions. He has contended that the ld. CIT(A) s action in deleting the addition made by Assessing Officer is not justified. 27. As against the above, the ld. AR of assessee has contended that the assessee has furnished chart on page 12 of PB showing details regarding mode of payment/receipt of loan/interest being by cheque, filing of confirmation letters, giving of G.I.R. Nos. and the TDS having been deducted from interest payment together with the fact that the Assessing Officer did not issue summons to the creditors. He has contended that the assessee had specifically requested the Assessing Officer to issue summons to the creditors but the Assessing Officer did not issue the summons; in this regard, he has referred to 52 PB. He has relied on Addl. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1990-91 disputes the deletion of addition of Rs. 77,500 made by Assessing Officer on account of inflated purchases. The ld. DR has referred to last para on page 3 of Assessing Officer and contended that the purchase of Rs. 77,500 from M/s. Tiles India was shown in the assessee s Tiles account but there is no corresponding entry of sale in the books of account of M/s. Tiles India. On being asked by Assessing Officer, the assessee explained that this amount was misappropriated by assessee s ex-accountant. He has contended that this amount represents inflated purchase and that the ld. CIT(A) has misunderstood the issue. He has contended that it was not required to be seen as to whether this was a business expenditure or not. He has supported the orders of Assessing Officer. As against this, the ld. AR of assessee has contended that the ex-accountant made this entry of purchases but he misappropriated the amount. He has contended that a complaint of this matter was also lodged with the police, copy of which is placed on pages 22 to 27 PB. He has contended that this is a business loss and allowable as such. He has cited G.C. Dandekar Machine Works Ltd. v. CIT [1993] 202 ITR 161 (Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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