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TMI Blog2011 (11) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment of taxes which is assessable annually under the existing tax law of the land. 3. Whether the addition of Rs.28,21,000/- made by the assessing officer to the income of the respondent for the relevant year based on percentage completion method was not correct as held by the ITAT. 4. Whether the undisclosed transfer charge/s received by the respondent from sale of space to its buyers was not liable to be added to its income @ 3.6% during the relevant year. 5. Whether the amount of Rs.3,82,94,536/- recoverable by the respondent for payment of stamp duty including the electrification charges for spaces sold out was not liable to be added back to its income being revenue in nature as held by the ITAT. 6. Whether the assessing officer incorrectly invoked the provision of Sec.68 of the Act, in the case of the respondent qua to the advances received by it for sum of Rs.1,61,67,000/- from its buyers in the relevant year though it failed to lead positive evidence to rebut the statutory presumption under the law. 7. Whether the ITAT rightly upheld the action of the CIT (A) as correct in law while taking the evidence led by the respondent before him in to consideration without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of M/s. K.K. Enterprises which was a separate assessee though belonging to the assessee's group and in that case 25% of the earnest money was forfeited for default in paying the instalments in spite of repeated demands. It was noted by the CIT (A) that it was a specific case of forfeiture and not cancellation of the booking. Thus on a factual analysis of the matter he came to the conclusion that the addition for cancellation charges was not justified. 4. On appeal by the Revenue to the Tribunal it was held in paragraph 17 of the order of the Tribunal that there was no infirmity in the order of the CIT (A) inasmuch as the addition was made by the assessing officer on the ground that the assessee ought to have charged cancellation charges from customers who cancelled their bookings and not on the basis of any material found during search. In this view of the matter, the decision of the CIT (A) was confirmed. 5. It will be seen from the above discussion that question No.1 sought to be raised by the Revenue as a substantial question of law is a pure question of fact. The income tax authorities as well as the Tribunal have decided the matter on the basis of the facts broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause they could not make full payment and take possession. On these findings the CIT (A) held that the allegation of the assessing officer that the assessee was adopting a method of accounting namely the project completion method, to suit its convenience to book income was baseless. A further finding recorded by the CIT (A) is that there was no manipulation in the books of accounts. So far as the method of accounting is concerned, the CIT (A) held that the project completion method is a well recognized and accepted method of accounting and was the only method suitable for any developer who has to deliver a completed product to the buyer. Ultimately the CIT (A) held as under:- "Thus on overall perusal of the assessment order it is seen that neither any defect has been pointed out by the assessing officer in the method of accounting followed by the appellant nor any finding has been given that true and fair profits cannot be deduced following the said method of accounting. No evidence was found during the course of search to show that the books of account are not properly maintained by the appellant. The main thrust of the assessing officer in making the addition is that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours) 9. After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. This issue is dealt with in paragraph 7 of the assessment order. The Assessing Officer stated that the seized documents revealed that the assessee was charging registration charges @ 7% and was showing the same as loans and advances recoverable from the customers. According to him this was a wrong method of accounting. A similar procedure was found to have been adopted by the assessee in respect of electrification charges which were charged @ 15% and shown to be recoverable as loans and advances. According to the assessing officer these were not items of revenue expenditure since they related to the flats/space and formed part of the cost thereof and therefore they were not adjustable against the revenue of the assessee. According to the assessing officer these items of expenditure could be capitalized and added as part of the work in progress. On these facts he called upon the assessee to explain why the registration and electrification charges collected from customers cannot be added as revenue receipts. The assessee submitted that according to the system of accounting followed, the registration and electrification charges were not included either in the cost of land or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount shown as recoverable, offer the same for income tax. The Tribunal held that the assessee has adopted the second of these two methods and both the methods were acceptable. It was also found by the Tribunal that when the assessee paid the registration and electrification charges they were not claimed as deduction in the profit and loss account. On these findings of fact the Tribunal agreed with the CIT(A) that the amount cannot be added. 15. The aforesaid discussion would show that the decision of the Tribunal is based on factual findings recorded by the CIT (A) with which it agreed. No material was brought before the Tribunal or before us to disturb the factual findings recorded by the aforesaid authorities. The decision of the Tribunal is not therefore open to the challenge as being perverse. Further since the Tribunal's decision is based on findings of fact recorded on the basis of the entries made in the books of accounts, no question of law can be said to arise from the order of the Tribunal on this point. Question No.5 is therefore not admitted. 16. Question Nos.6 and 7 can be taken together. The brief facts in this connection are that the Assessing Officer no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following manner:- "7.2 I have considered the assessment order and submissions including the evidences placed on record by the assessee. On perusal of the questionnaire dated 21/10/08 placed in the paper book, it is seen that the assessing officer asked details of advance received against sale of property otherwise than through account payee cheques and giving complete details and confirmations from such buyers/parties. The appellant submitted those and no addition has been made for the said advances received. Thus it is clear that the assessing officer never desired to submit any confirmation for the advances received against sale through account payee cheques and therefore correctly the same were not submitted by the appellant. However, the confirmations along with copies of ledger accounts of the said buyers in the books of the assessee were filed by the assessee during the course of appellate proceedings. 7.3 The same technically is fresh evidence to attract rule 46A as the assessing officer never called for the said confirmations. However, even if those are treated so yet the appellant was prevented from filing the said evidences which are relevant to the ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led a specific ground of appeal before CIT(A) challenging the AO's finding for asking such confirmations. In the circumstances, assessee produced before CIT(A) the relevant confirmations form the same customers and their ledger accounts in their books of account claiming that 19 customers have been already sold the flats by the time of first appeal. 22. In our view of these facts and circumstances it cannot be held that CIT(A) (sic) violated Rule 46A, he had acted in a judicious and proper manner and his order being based on proper appreciation of facts and record cannot be called violative of a procedural provision. CIT(A) is statutory first appellate authority and has independent power of calling for information and examination of evidences and poses conterminous power of assessment apart from appellate powers. In our view CIT(A)'s order is to be upheld. The matter should not be set aside on general ground as it amounts to causing the assessee injustice and giving the AO another innings. Besides it is not explicit that AO insisted for confirmations. In our view CIT(A) has decided the issue in just and proper manner the same is upheld." 21. In our opinion, substantial questions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the CIT (A). Once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously followed. The fact that sub-Section (4) of Section 250 confers powers on the CIT (A) to conduct an enquiry as he thinks fit, while disposing of the appeal, cannot be relied upon to contend that the procedural requirements of Rule 46A need not be complied with. If such a plea of the assessee is accepted, it would reduce Rule 46A to a dead letter because it would then be open to every assessee to furnish additional evidence before the CIT (A) and thereafter contend that the evidence should be accepted and taken on record by the CIT (A) by virtue of his powers of enquiry under sub-Section (4) of Section 250. This would mean in turn that the requirement of recording reasons for admitting the additional evidence, the requirement of examining whether the conditions for admitting the additional evidence are satisfied, the requirement that the assessing officer should be allowed a reasonable opportunity of examining the evidence etc. can be thrown to the winds, a position which is wholly unaccep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission. (3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, we are of the view that the Tribunal ought to have restored the matter to the CIT (A) with the direction to him to comply with sub-rule (3) of Rule 46A. In our opinion and with respect, the error committed by the Tribunal is that it proceeded to mix up the powers of the CIT (A) under section (4) of Section 250 with the powers vested in him under Rule 46A. The Tribunal seems to have overlooked sub-rule(4) of Rule 46A which itself takes note of the distinction between the powers conferred by the CIT (A) under the statute while disposing of the assessee's appeal and the powers conferred upon him under Rule 46A. The Tribunal erred in its interpretation of the provisions of Rule 46A vis-à-vis Section 250(4). Its view that since in any case the CIT (A), by virtue of his conterminous powers over the assessment order, was empowered to call for any document or make any further enquiry as he thinks fit, there was no violation of Rule 46A is erroneous. The Tribunal appears to have not appreciated the distinction between the two provisions. If the view of the Tribunal is accepted, it would make Rule 46A otiose and it would open up the possibility of the assessees' contending that a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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