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TMI Blog2004 (9) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT(A) further erred in holding that the appellants were merely contractors and not builders/developers as claimed by them in respect of award of Mass Housing Project by MAHADA. 5. The learned CIT(A) in any event erred in upholding the action of the AO in estimating the profits at 4 per cent of the construction receipts. In so doing, he has totally ignored the facts and material on record. 6. The learned CIT(A) further in any event ought to have held that there was no warrant for estimating the profits for the assessment year under appeal on the facts and circumstances of the case. 7. The learned CIT(A) erred in holding that the appellants were not entitled to the deduction of depreciation as per rules of Rs. 4,02,446 (including Rs. 18,189 for asst. yr. 1991-92) from the profits as estimated by the ITO. 8. The learned CIT(A) in event ought to have allowed unabsorbed depreciation of asst. yr. 1991-92 of Rs. 18,189 against the income as confirmed by him. 9. The learned CIT(A) erred in not adjudicating upon the ground with regard to levy of interest under s. 234B as raised vide ground No. 6 of grounds of appeal and specifically argued before him as well as in the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion of the project." 5. The AO framed the assessment under s. 143(3) on 27th March, 1997, applying net profit @ 4 per cent on receipt as under: 1. Total receipts Rs. 11,38,95,644 2. Net profit at 4% Rs. 45,55,812 The reasoning given by the AO for applying net profit rate of 4 per cent is that the project completion method cannot be followed by the assessee as the assessee is only a contractor and not builder/developer. The AO also observed that the assessee is merely a contractor and he is not owner of the land and the assessee-company cannot sale the constructed tenements according to their wishes. The AO accordingly held that the assessee-company cannot follow the project completion method and the assessee is bound to estimate its profit year to year as held by the Hon'ble Patna High Court in the case of Shri Sukhdev Jalan vs. CIT (1954) 26 ITR 617 (Pat). The AO also placed reliance on the decision of P.M. Md. Meerkhan vs. CIT (1969) 73 ITR 735 (SC) for the proposition that each year is an independent unit and that the profit for each year should be computed yearwise and taxed. 6. The AO in the assessment order by referring letters dt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Area Development Board by two separate letters but the assessee got the negotiated offer vide letter dt. 31st Oct., 1990, in respect of both the phases. For the asst. yrs. 1992-93 to 1993-94, the assessee followed the project completion method which was accepted by the AO. These two years were reopened subsequently. The assessee-company has maintained regular books of account and has been consistently following the method of accounting of recording income on the basis of completed project method in the past as well as subsequent years. The AO, after examining the books of account of the assessee-company has not found any defect, omission nor mistake in the course of assessment proceedings. The books of account of the assessee-company are audited by the chartered accountants and tax audit report was also submitted along with the statutory details. No adverse comments have been given by the auditors as regards to the maintenance of books of account as well as method of accounting followed by the assessee. The method of accounting of completed project method is a recognised method of accounting accepted by the accounting standards issued by the Institute of Chartered Accountants o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er projects except that of MAHADA project. 13. The learned counsel for the assessee further invited our attention to the total receipt and expenditure in respect of MAHADA project since inception to asst. yr. 2002-03. The aforesaid statement is placed in the paper book at pp. 130 and 131; the total receipts upto the year ending 31st March, 1994, is Rs. 26,33,96,449 against which the expenditure incurred is Rs. 26,36,65,811. It was also submitted that on account of litigation between the appellant and MAHADA claims of over Rs. 15 crores are made against the appellant-company. Such disputes are pending in Court litigation and, therefore, the matter is sub-judice. On above stated facts the completed project method is the only appropriate method of accounting by which income/loss can be determined at the hands of the assessee. 14. It was submitted by the learned counsel for the assessee that the decision of the Hon'ble Patna High Court relied upon by the AO is not applicable in the facts of the present case because in the aforesaid case the assessee was not maintaining any books of account prior to the assessment year which was under dispute. In the said case there was no method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that the entire project is at one place. The boundary wall of the same is common, main sub-station and electrical cable station is common, water supply, sewerage pipelines all are common. According to him, thus finding of the AO is factually incorrect. 16. The learned counsel for the assessee further submitted that the observation of the AO that the work is completed upto 75 per cent at p. 4 of the assessment order is factually incorrect. It was submitted that the AO has not given any date as to on which date the work completed is taken by him at 75 per cent. The assessee by referring to total area of work completed and allowed submitted that buildings handed over upto 1st March, 1994, were 14.29 per cent of total work allotted. On account of escalation in prices the money value received if compared to estimate contract value the percentage was higher. It was however, submitted that the work completed physically would only be relevant to be considered for consideration of completion of project and not the receipts as compared to total contract value. It was, therefore, submitted that work completed is 14.29 per cent only and not 75 per cent as observed by the AO. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessable to tax in the case of the assessee. Following the decision of the Mumbai Tribunal in the case of Bharat Bijlee Ltd. vs. Dy. CIT (2001) 71 TTJ (Mumbai) 909 : (2000) 13 DTC 631 (Mumbai), the counsel submitted that the AO has failed to bring any material on record to show that the method of accounting is not correct. 23. The learned Departmental Representative has relied upon the orders of the authorities below. The learned Departmental Representative submitted that each year is an independent year and the profit from the business has to be determined on year to year basis. According to the learned Departmental Representative the net profit estimated by the AO is fair and reasonable. The learned Departmental Representative relied upon the decision of the Hon'ble Patna High Court in the case of Shri Sukhdev Jalan and submitted that it recognises the view adopted by the AO for determining the income. The learned Departmental Representative also placed reliance on the passage from the Advance Accounting by J.R. Batilboi which also recognises that profit can be computed on incomplete contracts. The learned Departmental Representative relied on the decision of the Mumbai Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssifications of total project of MAHADA is correct and to the extent observation of the AO that the assessee has undertaken two separate projects is not correct. The income of MAHADA project has to be determined taking the project as one only. The aforesaid project is incomplete is also undisputed. 26. We also found that the assessee has maintained regular books of account and the AO has not found any defect or omission on examination of books. When the assessee is consistently following project completion method, the AO has no power to re-write the books of account. In the absence of any adverse comment by the auditors, who has audited the books of account of the assessee under s. 44AB, the AO has estimated the income of the assessee on mere doubts and suspicion. 27. The counsel for the assessee invited attention to the facts in the case of Champion Construction Co. (1983) 5 ITD 495 (Bom) relied upon by the learned Departmental Representative to show that in the aforesaid case 90 per cent of the work was already completed in the previous year under consideration. In the aforesaid decision, it was also noted that the assessee had not shown possibility of any major event to take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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