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TMI Blog2024 (7) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer refers to the process, where the AO determines that the books of accounts maintained by the taxpayer are not reliable, accurate, or complete enough to assess the true income of the taxpayer. This rejection must be based on specific reasons and evidence that indicate discrepancies or inadequacies in the books of accounts including deviations from standard accounting practices. In our considered opinion, the AO has not provided detailed reasons and documentation to justify the rejection of the books of accounts. The addition is made on the estimated value, without substantial evidence to contradict the actual cost recorded by the assessee, which is not justifiable. Estimation exercise based on the average rate of Gross Profit for the whole project - While the Ld.CIT(A) provided partial relief, the recalculation of estimation does not rectify the fundamental issue of the improper application of section 142A of the Act without rejecting the books of accounts and without recording proper reason of assuming that the value of work-in-progress is suppressed. The AO must adhere to the provisions of sub-section (3) of the section 145 of the Act, before making an assessment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,39,61,058/- being difference in the value of work-in-progress and passed an order under section 144 r.w.s. 142A of the Act. 3.2. The assessee preferred an appeal before CIT(A), who partly allowed the appeal of assessee by granting relief of Rs. 22,18,856/- and substituted the addition by Rs. 1,17,42,202/-. 4. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us with following grounds of appeal: 1. In law and in the circumstances of the case, the impugned order passed by the Id Dy. Commissioner of Income Tax, Circle -3(1)(2), Ahmedabad and subsequently partly confirmed by the ld. CIT(A) - 9 is unlawful, against natural justice and bad in law. It deserves to be annulled. 2. On the facts and in the circumstances of the case, the Id. CIT (A) has grossly erred in confirming addition of Rs. 1,17,42,202/- out of Rs. 1,39,61,058/- made by the AO on account of valuation of WIP u/s 142A by DVO. The Id CIT (A) has recalculated the addition on the basis of Valuation of Immovable properties Guidelines, 2009. The guideline is not applicable to the appellant as the issue covered under this case is for the closing stock (WIP) and not for the immovable property. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment in reply to the show-cause notice issued by the AO and this difference was due to the fact that administrative expenses were not included in valuation by the DVO. 6.2. After hearing the rival contentions and perusing the material on record, it is observed that the primary issue revolves around the applicability of section 142A of the Act to the valuation of WIP prior to its amendment. It is noted that the AO did not reject the books of accounts or disbelieve the expenses recorded therein, which undermines the basis for invoking section 144 of the Act. The AO must first express dissatisfaction with the books of accounts before referring the valuation. The judicial precedent in the case of Sargam Cinema v. CIT reported in (2010) 328 ITR 513 (SC) supports this interpretation. 6.3. The rejection of books of accounts by the Assessing Officer refers to the process, where the AO determines that the books of accounts maintained by the taxpayer are not reliable, accurate, or complete enough to assess the true income of the taxpayer. This rejection must be based on specific reasons and evidence that indicate discrepancies or inadequacies in the books of accounts including deviations fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) in his order for AY 2013-14 has recorded observations which are as follows: 5.5.3 Since the accounts of the appellant company were ready as on the date of inspection of the above-mentioned two projects i.e. 13.04.2016 and both the projects were also found to be completed in the books of accounts for A.Y. 2014-15, therefore, the valuation officer ought to have provided the working based on the actual expenditure debited in the books of accounts and worked out the valuation for each of the financial years ending on 31.03.2011, 31.03.2012, 31.03.2013 and 31.03.2014 (year in which the project is completed) in respect of Ashirwad Dreams and as on 31.03.2013 and 31.03.2014 in respect of Abaj Paradise separately. However, the same has not been done by the valuation officer. 5.5.4 In the assessment order, the A.O. has not given the basis for arriving at the figures of Rs. 3,91,61,643/- in respect of Ashirwad Dreams and of Rs. 1,95,49,367/- for Abaj Paradise. It appears that the A.O. has included some other costs for which no basis has been made available by him in his order. Therefore, the actual expenses as debited in the books of accounts have to be believed for arriving at the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant has also not substantiated the figures of direct cost for the year under consideration during the course of appellate proceedings. Therefore, the proportionate cost over the years during which the project continued has been re-worked out without considering the indirect expenses so as to rebut the contention for making nominal variations if the indirect expenses are also considered for the purpose of working out the expenses incurred by the appellant. d) It is not ascertainable as to whether the cost of the project for the assessment year under consideration was inclusive of the opening WIP and the expenses incurred during the year under consideration were considered or not? If the proportionate cost of working is allowed in each year, it would disturb the already drawn accounts right from A.Y.2011-12 to A.Y.2016-17 for which the copies of accounts have been furnished. e) The gross profit for the entire project has been declared at 19.84% on the total receipts of Rs. 28,36,78,250/- and therefore, the total cost of the project would be Rs. 22,73,98,300/- till 31.03.2016 in respect of both the projects. By giving effect to this appellate order, the total enhancement for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to be deleted. Therefore, the appeal of the assessee for A.Y. 2013-14 is allowed. 7. In the next appeal of the assessee, i.e. ITA No.1720/Ahd/2019 for AY 2014-15, the following grounds have been raised: 1. In law and in the circumstances of the case, the impugned order passed by the Id Dy. Commissioner of Income Tax, Circle -3(1)(2), Ahmedabad and subsequently partly confirmed by the ld. CIT(A) - 9 is unlawful, against natural justice and bad in law. It deserves to be annulled. 2. On the facts and in the circumstances of the case, the Id. CIT (A) has grossly erred in confirming addition of Rs. 1,73,71,270/- out of Rs. 2,05,85,408/- made by the AO on account of valuation of WIP u/s 142A by DVO. The Id CIT (A) has recalculated the addition on the basis of Valuation of Immovable properties Guidelines, 2009. The guideline is not applicable to the appellant as the issue covered under this case is for the closing stock (WIP) and not for the immovable property. The AO may kindly be directed to delete such addition in total. 3. The appellant craves leave to add, alter, and amend any ground/s of appeal on or before hearing of the appeal. 8. After hearing the arguments presented by bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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