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TMI Blog2013 (10) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... eized material in its entirety - Assessee has failed to explain the reasonable explanation with regard to the commission, therefore, confirmed the order of Commissioner(A). The issue of estimation of the profit by Revenue Authorities - Assessing Officer has not made any addition but estimated the profits - The assessee has recognized the sales of the plot when the possession of the plot is transferred to the customer and full consideration for the plot had been received. The assessee was following the project completion method which has been accepted by the department in the earlier years – Held that:- The Assessing Officer adopted percentage completion method while assessee is adopting project completion method - The plots are being sold and the payment is being received within a period of 45 days to six months. The assessee is adopting project completion method regularly. The only presumption of the Assessing Officer is differing the payment of taxes and on that basis, the Assessing Officer has adopted the percentage completion method - There was no sufficient material with the Assessing Officer which could establish that the assessee was differing the payment of taxes by adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts in raising ground no.3 in deleing the addition of Rs.38949700/- made by the AO on account of estimating the profit under percentage completion method because CIT(A) has appreciated which AO ignored that : a) The AO has not made any addition but estimated the profits. b) The AO has rejected the books of accounts u/s 145(3) without any valid reasons. c) The AO has applied method of accounting not relevant to the assessee's business while assessee has adopted and opted standard method of accounting approved by Accounting Standards of ICAI and held to be standard method by the Hon'ble Supreme Court and recently Delhi High Court in Manish Buildwell's case. d) The AO has failed to appreciate that assessee is not engaged in the business of construction of building or structures but engaged in the business of development of land/selling of plots of land. e) The AO has also failed to appreciate that sale of plot of land is made by registered documents by handing over the plot and no ownership vest in the property before final payment is made while in construction activities building is made by the buyer by making part payments on construction basis. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed income of the assessee the addition is required to be made. It is not the material, whether the seized material was found at the premises of the assessee or at the residence of the Director. The company is represented through its Directors, therefore, material found at the residence of the Director is relevant and has to be considered for making the assessments u/s 153A. As far as the scope of the assessment is concerned, we hold that wherever the issues have been considered u/s 143(3) and the assessment has been concluded prior to the initiation of the search the scope of assessment remains limited to the search material and other issues not considered at the time of making the assessment u/s 143(3) of the Act. Considering the totality of the facts and circumstances, we are unable to agree with the contention of the assessee that assessment u/s 153A has been made on the basis of outside the search material and after the change of opinion. Moreover, in this year, the assessment was made u/s 144 of the Income-tax Act, 1961 on 09.12.2009. The same was held invalid as there was a search operation at the premises of the assessee on 31.07.2008. In view of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars Amount as per Party A-1 (In Rs.) 1. A-1/16 06.07.2006 Vardhaman Associates Pvt. Ltd. 9,93,262/- 2. A-2/70 Vardhaman Associates Pvt. Ltd. 6,82,500/- Regarding a bill amount of Rs.9,93,262/- no explanation could be offered by the appellant hence confirmed. In respect of second amount the AO has made addition on account of search material annexure no. A-2/70 of Rs.6,82,500/- in this year The appellant has brought attention to S.no.6 annexure no. A-2/70 bill dated 20.09.2006 of this party amounting to Rs.6,82,500/- which has been added per pg no.3 of the assessment order of the AY 2007-08 . This has been confirmed in my order dated 31.01.2012 to the extent of Rs.5,75,879/- after giving the credit of transactions appearing in the books. Since this has been again added here under the same annexure, there is a duplicity and hence liable to be deleted. Thus the amount of 9,93,262/- is confirmed. b) Concerning accounts of M/s Unison Estates Pvt. Ltd., there are three entries of addition as under.- Unison Estates Pvt. Ltd. S.NO. Annexure no./Page Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade is inclusive of this amount of Rs.9,42,470/- This has been accounted for in the books and accounts of the appellant as such the addition is liable to be deleted. c) Concerning the account of M/s Rajnandini Estates Pvt. Ltd. there is an addition of Rs.33,83,811/- based on annexure A-2/2. The AO has made addition of Rs.30,11.580/- i.e. Rs.33,83,811 - Rs.3,72,231 (appearing as payments in the books). The appellant has stated that the bills of Rs.33,83,811/- has been credited in the books of account for the relevant period which has been completely disregarded by the AO. I find the contention correct on the basis of accounts and documents produced before me. Thus, this addition is deleted. d) Regarding the addition of Rs.2,50,200/- on account of unexplained payment to broker M/s Rahul Associates, it is noticed from the seized paper that it was a confirmation of payment received for Rs.2,50,200/-. This has been found in the ledger account with the breakup Rs.2,36,164 + TDS @ 5.61% i.e. Rs.14,036/-. Therefore no addition is called for, hence, deleted. e) With regard to commission paid to M/s Omway Buildestate Pvt. Ltd. (inadvertently mentioned as Omway Builders Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,22,634/- which is the initial bill raised by the broker at the start of the project is in the nature of advance commission @ 1% is to be ignored to avoid duplicity. Hence this addition of Rs.11,22,634/- is ordered to be deleted. Regarding the third amount as per annexure no.A-2/42 for Rs.2,74,938/-, it is found that this amount has been added twice because it was appearing in a covering letter of the broker dated 03.11.2007 at annexure no. A-2/72. This amount was in fact part of the final settlement amount of Rs.27,55,688/- which is evident from the annexure A-2/7. Since this has already been considered in the preceding para, no adverse inference should be drawn and therefore, both the amount appearing at annexure A- 2/42 and A-2/72 is required to be deleted. f) In the case of the broker M/s Shubham Projects Pvt. ltd. the following amount has been added:- S.NO Annexure no./Page Date Particulars Amount as per Party A-1 (In Rs.) 7. A-2/9 03.08.2007 Shubham Projects Pvt. Ltd. 12,22,547/- The AR of the Appellant has submitted that from the perusal of the search material annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly same. Therefore, one of the addition of Rs.68,400/- is deleted and other same amount of Rs.68,400/- is confirmed in absence of any explanation. There is an another entry of Rs.5,00,719/- at s.no.25 of the AO order for which the appellant could not give any plausible explanation, hence, confirmed. i) Regarding commission payment to M/s Jyoti Estates for Rs.46,83,990/- as detailed below, at the outset it is to mention that the AO has made duplicate additions one on the basis of the contents of the letter and other on the basis of the covering letter appearing at annexure A-2/12 and A-2/33 respectively at s.no.10 and 14. S.NO. Annexure no./Page Date Particulars Amount as per Party A-1 (In Rs.) 10. A-2/12 03.05.2007 Jyoti Estates 23,41,995/- 14. A-2/33 03.05.2007 Jyoti Estates 23,41,995/- The AR mentioned that. annexure no.A-2/33 or A-2/12 is an outstanding amount of Rs.2,57,628/- out of commission bill of Rs.23,41,995/- The broker has demanded an amount of Rs.2,57,628/- through this covering letter. The document is self speaking which is detailed below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. 2006-07 Rs.23,96,463/- 3. 2007-08 Rs.52,07,146/- Less : Already adjusted by the Assessing Officer in his order Rs.13,320/- Balance Rs.51,93,826/- The total addition made on the basis of seized material was Rs.68,84,857/- whereas, the appellant could explain only to the extent of Rs.51,93,826/-. Hence, the difference of addition of Rs.16,91,031/- is confirmed. l) With regard to payment of Rs.5,58,500/- made to the broker M/s Uttaranchal Realtors Pvt. Ltd. A-2/66 (at s.no.24 of the AO's order) the appellant could not give any explanation for this payment. Therefore, the addition of this amount is confirmed m) Concerning alleged payments to brokers where no party name is written or evident from the seized material it is found from the details and contents of the seized papers that there is duplicity The details of payments which have been added by the AO are as under- S.NO. Annexure no./Page Date Particulars Amount as per Party A-1 (In Rs.) 21. A-2/49 10.08.2007 No Party Name 17,15,440/- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l addition of Rs.4,62,09,068/- on account of brokerage for commission paid out of books, an amount of Rs.1,89,87,400/- is confirmed and balance is deleted. We have also perused the order of CIT (A) and material available on record. We find that the CIT (A) has granted part relief by deleting the addition of Rs.2,72,21,668/-. There was mistake in addition by way of duplication of same amount on account of various seized papers. There was also overlapping of addition among various financial years. CIT (A) had considered all these aspects and dealt with each and every angle while deleting/sustaining addition. Revenue s plea that there is violation of Rule 46A is also not correct. The material which CIT (A) has analysed and considered for deleting part addition was available with Assessing Officer as seized material. No fresh evidence was filed. Assessing Officer had failed to consider the seized material in its entirety. We also find that assessee has failed to explain the reasonable explanation with regard to the commission, therefore, we find no fault in the order of the CIT (A) and we sustain the same. Thus, ground no.2 of revenue s appeal and ground no.2 of assessee s appeal ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the percentage completion method. 7.1.2 The AR of the Appellant has submitted that the assessee has been following the project completion method of accounting and the same has been accepted by the department also while making assessment u/s 143(3) of the Act for the assessment year 2005-06. the department has accepted the method of accounting and not only they held it the right and appropriate method but also were convinced as not having deferred the tax liability and were pleased to follow the same for the A.Y 2006-2007. The AR also submitted the copy of assessment orders and submitted that if same has been accepted by the department earlier also, then how the same can be held as an inappropriate method to compute the income as per project completion method which the assessee has followed. Again, AR has brought the attention that even the Income Tax Act, 1961 has not made it mandatory to follow as section 145 and 145A of the Act, which is Inscribed as under :- "Section 145:- (1) Income chargeable under the head "Profits and Gains of business or profession" or "Income from Other Sources", subject to the provisions of sub-section (2), be computed in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are following project completion method. Moreover, this standard deals with the accounting for the construction contracts and not with the taxation matters. However, Accounting standard-7 states that there are two methods of accounting for contracts commonly followed by contractors are the percentage of completion method and the completed contract method. a) Under the percentage of completion method, revenue is recognized as the contract activity progresses based on the stage of completion reached. The costs incurred in reaching the stage of completion are matched with this revenue, resulting in the reporting of results which can be attributed to the proportion of work completed. Although (as per the principle of 'prudence') revenue is recognized only when realized, under this method, the revenue is recognized as the activity progresses even though in certain circumstances it may not be realized. b) Under the completed contract method, revenue is recognized only when the contract is completed or substantially completed; that is, when only minor work is expected other than warranty obligation. Costs and progress payments received are accumulated during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2.2 The AR has submitted that the assessee has carried out the business of real estate developers by developing land and then plotting it. The land has been developed in the earlier year and the plots are being sold on payment basis which is varying from 45 days to 6 Months. There is no period of 4-5 years is involved as has been envisaged by the AO in his assessment order. The observation of the AO is his own observation and has got nothing to do with the business of the assessee as the assessee have not carried out the construction works and has received installments as the construction progresses. AR stated that the observation of AO is not related with the business of the assessee, as such, the same cannot be the basis for converting the project completion method to percentage completion method. The assessee has accounted for its income on the basis of the sale of the plots as and when the full payment of the plot has been received The income has been recognized in that very year and no deferment has been made as alleged by the AO. 7.3.1 The AO has inferred that it is a well settled principle that for the purpose of income tax, income has to be determined on a year to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te sales should be recognized when the following conditions are satisfied: 1. The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership; 2. No significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate sale; and 3. It is not unreasonable to expect ultimate collection. It is also provided in the guidance note that in the case of real estate sale, all significant risks and rewards of ownership are normally considered to be transferred when legal title passes to the buyer (e.g., at the time of the registration, with the relevant authorities, of the real estate in the name of the buyer) or when the sellers enters into an agreement for sale. All significant risks and rewards of ownership are also considered to be transferred, if the seller has entered into a legally enforceable agreement for sale with the buyer even though the legal title is not passed or the possession of the real estate IS not given to the buyer. When the seller has transferred to the buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular method. Income Tax Act does not force anyone to follow any particular accounting standard. The appellant was following project completion method which is in accordance of the existing law and the same has also been accepted by the Income Tax department during assessment done earlier u/s 143(3) and it is the settled law that if one method is employed, it should regularly be employed. After considering the argument of both and in view of the judgement announced by the Hon'ble Delhi High Court in case of CIT Vs. Manish Build Well (P) Ltd. (Del.) (HC) (2011) 63 DTR 369, I am of the considered opinion that no evidences 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 AO while making the addition is that the appellant is deferring the payment of taxes. However, this allegation of the AO is devoid of merits and cannot be accepted because the appellant is consistently following a method of accounting which is recognized in real estate development business. It cannot be said that the Project Completion Method could result in deferment of payment of taxes. It has been held by the Hon'ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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