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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 ..... 36/- being stamp duty and electrification charges recoverable by the assessee. - . It was explained that in case there is any surplus of the registration and electrification charges collected from the customers over the amounts paid to the State Government, the surplus would be shown as income in the year of receipt. The assessing officer rejected the explanation on the ground that revenue receipts and capital expenditure cannot be adjusted against each other. He, therefore, added the amount of ₹ 3,82,94,536/- as the assessee’s income. - 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. - Held that:- No substantial question of law arises - decided in favor of assessee. Acceptance of additional evidence - Held that:- 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale 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 any opportunity in rebuttal to the assessing officer which the respondent did not furnish during the assessment proceeding. 2. The assessee is a private limited company engaged in the business of development of real estate projects. On 16.3.2007 the Income Tax Department conducted a search on the assessee s premises and on the basis of the materials found durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 brought on record including the seized document. The CIT (A) has examined the facts as well as the seized document and took the decision that there was no basis for the addition. His decision was upheld by the Tribunal. In our opinion, no substantial question of law arises from the order of the Tribunal. We, therefore, decline to admit question No.1. 6. Questions Nos. 2 and 3 are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee is deferring the payment of taxes. But this allegation of the assessing officer cannot be accepted as the assessee is consistently following a method of accounting which is well recognized in development business and has been accepted by the assessing officer also in the other group cases. Thus the addition is hereby deleted. 7. The aforesaid finding of the CIT (A) was approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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 the Supreme Court (Supra), the finding of the CIT (A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year (the year under appeal) on selective basis. This will distort the computation of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the work in progress or as cost of the project and they were rightly shown to be recoverable from the buyers. It was also explained that in case there is any surplus of the registration and electrification charges collected from the customers over the amounts paid to the State Government, the surplus would be shown as income in the year of receipt. The assessing officer rejected th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 noticed that the assessee made huge investments in the purchase of land. He also noticed that a large amount of advances were shown to have been received by the assessee from its customers. In order to verify the genuineness of the advances the assessee company was asked to furnish the relevant details. The assessee filed its reply submitting the relevant details from which the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of appeal. I hereby admit the said evidence as the assessee has fulfilled the condition prescribed u/r 46A. 7.4 On perusal of the confirmations on record, it would be seen that the complete details like names, addresses, cheque number, bank details and PAN of the buyers have been duly mentioned therein. On perusal of the list submitted by the appellant, it would be seen that the sale h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances 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 of law do arise out of the order of the Tribunal in respect of its decision regarding the addition of Rs.1,61,67,600/- made under Section 68. We, accordingly, re-frame the following substantial questions of law:- 1. Whether on the facts and in the circumstances of the case and on a proper interpretation of Rule 46A of the Income Tax Rules, 1962, the Tribunal was right in law in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unacceptable and may result in unacceptable and unjust consequences. The fundamental rule which is valid in all branches of law, including Income Tax Law, is that the assessee should adduce the entire evidence in his possession at the earliest point of time. This ensures full, fair and detailed enquiry and verification. A 7-Judge Bench of the Supreme Court in Keshav Mills Co. Ltd. v. Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.] We are highlighting these aspects only to press home the point that the conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked 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- -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 any additional evidence sought to be introduced by them before the CIT (A) cannot be subjected to the conditions prescribed in Rule 46A because in any case the CIT (A) is vested with conterminous powers over the assessment orders or powers of independent enquiry under sub-section (4) of Section 250. That is a consequence which cannot at all be countenanced. 25. For the above reasons, we answer the su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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