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TMI Blog2019 (6) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the revenue had also accepted project completion method and profit shown by the assessee during the assessment proceedings for AY 2014-15 in assessee s own case It is well settled that the project completion method is one of the recognized method of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can t be held that the decision of the CIT(A) was erroneous or illegal in any manner. The judgement in the case of CIT vs. Realest Builders Services Ltd. [ 2008 (5) TMI 6 - SUPREME COURT] relied by the ld. DR on method of accounting is rather in favor of the assessee and against the revenue in the peculiar facts of the present case. From computation of income and factual matrix of the case, it is evident that the AO has committed error in estimation of profit from sale of shops by wrongly adopting area sold to be 4,500 sq. yards as against 92.90 sq. mts. of actual sales which has been demonstrated by the Ld. AR before us (APB, Pgs. 1 to 4). We also find merit in the argument of the Ld. AR that during the impugned year under consideration only one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of the Assessing Officer deserves to be restored. 5. That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal." 3. Facts in brief, as stated by the lower authorities are that the AO the assessee partnership firm ("the assessee" in short), has been engaged in the business of real estate and construction of buildings for past several years, assessed total income of ₹ 3,94,62,580 u/s 143(3) of the Income Tax Act, 1961 ("the Act" in short) as against returned income shown by the assessee of ₹ 1,12,120. The AO has observed that the assessee did not produce bills/vouchers before him for ascertaining the accuracy and correctness of the books of account; that it did not furnish evidence regarding closing stock; that it could only furnish the photocopy of confirmations of advances received from customers and that the assessee is following project completion method and not percentage completion method. The AO also observed that the project completion method has no existence at all since 01.04.2003 and laid emphasis on revised AS-7 introduced by the ICAI (Institute of Chartered Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, facts of the case and the legal position in this regard. I find that the A.O. has rejected the appellant's books of account on the ground that bills and vouchers and the basis/evidences of/for valuation of closing stock was not produced by it during the assessment proceedings. Other reasons pointed out by the A.O. for applying the provisions of section 145(3) to the appellant's case are that it did not furnish satisfactory confirmations from the customers who had advanced money to it as also "the details e.g. estimated cost, estimated sales, etc. to calculate the profit as per percentage completion method." The A.O. has stated in the impugned order that that the appellant was "required" to declare profit every year in compliance to the percentage completion method and it has not shown any sales either in the impugned year or in any earlier year. The A.O. has explained in the same vein that the project completion method has lost its legal existence since 01.04.2003 and therefore the appellant's books of account do not reflect the correct profit earned by it during the year. 6.2.1 Having considered the appellant's submission on grounds no. 1 to 3, I have reached to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit on percentage completion method because according to AS-7, revised in 2002 with effect from 01.04.2003 the 'Completed Contract method' or 'Project Completion method' have been scrapped. He contended that when the project period is more than 12 months, for the purpose of accuracy in computation of profit the percentage completion method is preferred over project completion method as per the ICA guidelines in the case of builders. For this purpose, he relies on "CIT vs. Realest Builders & Services Ltd.", (2008) 22 (I) ITCL 73 (SC): where it was held that- "……………in cases where the department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting was warranted on the ground that profit is being under-estimated under the impugned method of accounting. If the assessing officer comes to the conclusion that there is under-estimation of profits, he must give facts and figures in that regard and demonstrate to the court that the impugned method of accounting adopted by the assessee results ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings and the learned AO could not point out any defect therein, thus the same should have been accepted. Further the assessee has computed the income chargeable under the head 'Profit and gains of business or profession' strictly in accordance with the method of accounting consistently employed by it since the inception of business and by following the accounting standard applicable over its case and there being no deviation from the method of accounting consistently employed by the assessee since the inception of business, which has always been accepted by the revenue in past and subsequently even in the scrutiny assessment relevant to A.Y.2014-15 which has been completed U/S 143(3) of the Act vide order dated 23rd December, 2016 therefore the learned AO has erred both in law and on facts in rejecting the books of accounts and thereafter estimating abnormally high income solely on conjectures, surmises and wild guess. 2. a) That the learned AO while rejecting the books of account and thereafter estimating the income of the assessee has assigned various arbitrary and unjust reasons for such unwarranted action in para 3 at pages 2 & 3 of the assessment order. In fact after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.10.2014 (page 81 of paper compilation) and in response to query no.1(g) at page 2 dated 27.01.2015 (page 13 and 86 of paper compilation) the assessee duly apprised about the method of valuation of closing stock and furnished details of such closing stock and value thereof. The bills/vouchers in support of valuation were also produced. 3. Confirmations of advances of customers was not done to the satisfaction of the AO. In this regard the letters sent were returned back and the assessee could furnish only photocopy of confirmations which can't be relied upon. Such allegation is completely contrary to the facts and evidences furnished. In fact though all the advances from customers aggregating to ₹ 50,10,000 were old and had simply opening old balances brought forward from earlier year but then also the assessee, during the course of assessment proceedings furnished the following documents/evidences in support thereof:- a) Complete details of advances from customers duly mentioning their names and addresses in response to query no.4 at page 2 of written submissions dated 19.12.2014 (page 83 of paper compilation). b) In response to query no.2 at page 1 of written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfers to the buyer all significant risk and reward of ownership and the seller retains no effective control of real estate transferred to a degree usually associated with its ownership. B] That it has also beeen wrongly alleged that the assessee has not shown any sale neither before nor in this year. In fact the complete details of 12 shops sold during F.Y.2010-11 ie. A.Y.2011-12 for Res.96,50,000 showing sl.no., shop no., name and address, area sold, date of sale and sale amount was duly filed before the learned AO. The same is filed at page 3 of present paper compilation. Further assessee during the course of assessment duly filed computation of total income, audit report U/S 44AB of the Act, audited balance sheet, Profit & Loss A/C etc., wherefrom the fact that such sale of shop of ₹ 96,50,000 and profit arising therefrom were duly accounted for was evident, were placed on record, before AO. These are filed at pages 14 to 38 of present paper compilation. Similarly the assessee had furnished the complete details of one shop sold during F.Y.2011-12 i.e. A.Y.2012-13 for ₹ 7,50,000 and one shop sold during F.Y.2012-13 i.e. A.Y.2013-14 for ₹ 10,00,000 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lik Buildwell (P) Ltd. (2013) 40 taxmann.com 219 has held that if as per the acounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different stand. c) That the Hon'ble ITAT Mumbai Bench 'A' in case of Aditya Builders Vs. CIT (Admn) (2013) 39 taxmann.com 178 has held that where assessee had been consistently following project completion method in respect of his two projects, Commissioner was not justified in directing AO to compute income of assessee from one project by applying percentage completion method. d) That the Hon'ble ITAT Ahmedabad Bench 'D' in case of ACIT, Circle 2(2), Baroda Vs. National Builders (2012) 22 taxmann.com 55 has held that in case of assessee, a contractor cum developer, revenue from development of a commercial complex has to be determined in terms of AS-9 guidelines. e) That the Hon'ble ITAT Chandigarh Bench in case of Hill View Infrastructure (P)Ltd. (2015) 55 taxmann.com 356 has held that where assessee was following project completion method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been consistently followed by it and therefore the provision laid down under section 145(2) of the Act have been misapplied over the assessee's case. In this regard the assessee wishes to invite your attention the judgement of Hon'ble Delhi High Court in the case of Paras Build Tech India (P) Ltd. Vs. CIT reported in (2017) 80 taxmann.com 335 (Delhi High Court) In view of the facts and circumstances of the assessee's case, considering entire conspectives of the case in the light of peculiar facts, it can be irrestibly concluded that various allegations levelled by learned AO for rejecting books of account are contrary to the facts and false. It is neither proper nor justified to hold that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. It is a case where accounts are complete and correct method of accounting and accounting standard has been regularly followed. True and correct profit of the business of the assessee could be deducted from such books of account. Thus the AO was not capable to change method regularly adopted by the assessee from project completion method to percentage complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax (1954) 26 ITR 775 has held that "the Assessing Officer is free to make enquiries at the back of the assessee but, if the material/evidence collected is sought to be used against the assessee, thus reasonable opportunity for rebuttal must be provided. The AO's failure to do so has resulted in miscarriage of justice and has thus violated the principles of natural justice." The Hon'ble Patna High Court in case of Motipur Zamindari Co.Prviate Ltd.and Another Vs. Agricultural Income Tax Officer, Muzzaffarpur reported in (1972) 83 ITR 778 has held that "Assessing authorities are not bound by technical rules of evidence but if they want to use any material which is adverse to the assessee, then the assessee must be given a chance to make his submissions. The principles of natural justice are violated if an adverse order is made on an assessee on the basis of material not brought to his notice. Where assessment was made based on local enquiry and investigation and the assessee was not given an opportunity to be heard, the assessment was liable to be quashed." The Hon'ble Supreme Court in the case of Kishinchand Chellaram Vs. Commissioner of Income-tax, Bombay City-II reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit by applying 15% rate on work in progress which is unjust. e) That in the light of past established history of assessee's case, method of accounting and accounting standard adopted since the inception of business, the book results declared by the assessee be kindly accepted." 7. The Ld. AR further submitted that the assessee has purchased a plot of land measuring 4500 sq. yards situated at Gate No. 629, Mauza Kakreta, Surajbhan Compound, Near Sikandara, Teh. & Distt. Agra vide registered deed dated 5th May, 2003 (APB, page 1); that on this plot of land it has constructed a commercial complex styled as 'Shanti Plaza' having saleable area of 4054.98 Sq. Mts. consisting of 16 shops and 3 halls; that in the Asst. Year 2011-12, it has sold 1147.96 Sq. Mts. area consisting of 12 shops and declared profit in the return for AY 2011-12 (APB pages 14 to 38), and in the impugned AY 2012-13 the assessee has sold 92.90 Sq. Mts. area consisting of 1 shop and declared profit in the return of income for Asst. Year 2012-13 (APB pages 7 to 12); that in Asst. Year 2013-14 it has sold 92.90 Sq. Mts. area consisting of 1 shop and declared profit in return of income for AY 2013-14 (APB pages 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to depart from the aforesaid methodology which has been accepted in the past". "…….we find that the Tribunal has taken a correct view by applying the principle of consistency. It has rightly placed reliance on the judgment of the hon'ble Supreme Court rendered in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC). The hon'ble the Supreme Court in that case had negated the argument regarding application of principles concerning res judicata to the income-tax proceedings. It was observed that where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and the parties had allowed that position to be sustained by not challenging that order then it would not at all be appropriate to permit that position to be changed in a subsequent year. The aforesaid view has been widely accepted, followed and applied by the hon'ble Supreme Court in various judgments including the judgment rendered in the case of Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688." 10. The Ld. AR also submitted that section 145(1) of the Act states that income chargeable under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance mentioned by the A.O. on the part of the appellant relates to the last date of hearing i.e. 31.03.2015 and the order sheet entry for it does mention that there was a genuine reason for not producing the bills and vouchers again on that date." 14. Considering the factual matrix of the case, where the AO himself has confirmed production of books of account and other details before him, there seems no reason for the AO to hold that no books of account or bills/vouchers or evidences for the impugned year were produced before him. Moreover, when the revenue could not bring before us any contrary material against the view held by the Ld. CIT(A) in the impugned order, the rejection of books of account of the assessee is uncalled for and this question is answered against the revenue. 15. As regards to the adoption of project completion method of accounting by the assessee, it is seen that the assessee's business came into existence from 11.03.2003 and since then it has been consistently following project completion method of accounting. The Ld. AR has contended that the assessee has never deviated from such method of accounting since the inception of the business and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, the Ld.AR while placed his reliance upon the order of Ld. CIT(A) (APB, Pg. 125) contending, inter alia, that- "a) That as stated in foregoing para during the course of assessment proceedings the assessee has placed on records 24 ITA No. 289/Agra/2017 (ASSESSMENT YEAR: 2012-13) and/or produced before the learned AO various evidences/material in support of advances of ₹ 50,10,000 received from customers, in the light of which genuineness of these accounts were beyond doubt established. b) That in fact in the accounts relating to advances from customers there were simply old credit balances which were brought forward from earlier years and during the year under consideration no fresh credit/addition made therein therefore in view of well settled principle of law laid down on the basis of various legal pronouncements no addition was called for with regard to advances received from customers aggregating to ₹ 50,10,000. In this regard the assessee wishes to invite your Honour's kind attention to the following authoritative decisions: - 1. M/S KULDIP INDUSTRIAL CORPN. Vs. INCOME TAX OFFICER (1987) TAXATION 84(4) - 96 (Chandigarh Bench) HELD: - No addi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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