Income Tax Appellate Tribunal - Mumbai
Ganga Developers, Mumbai vs Department Of Income Tax on 17 September, 2013
आयकर अपील य अ धकरण " " यायपीठ मंब
ु ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "" BENCH, MUMBAI
ी पी.एम. जगताप, लेखा सद य एवं डॉ. एस.ट .एम. पवलन या यक सद य के सम ।
BEFORE SHRI P.M. JAGTAP, AM AND Dr. S.T.M. PAVALAN, JM
आयकर अपील सं./I.T.A. No. 949 /Mum/
( नधारण वष / Assessment Year : 2004-05
Dy. Commissioner of बनाम/
बनाम M/s Ganga Developers,
Income Tax - Central Laalasis,
Vs.
Circle -31, Plot No. 219,
Cent range - 7, 11 t h Road, Chembur,
Room No. 409, 4 t h floor, Mumbai - 400 071.
Aayakar Bhavan,
M.K. Marg,
Mumbai - 400 020.
थायी ले खा सं . /PAN : AAAFG8230C
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Appellant by Shri O.P. Singh
Respondent by : Shri J.P. Bairagra
सनवाई
ु क तार ख / Date of Hearing : 17-9-2013
घोषणा क तार ख /Date of Pronouncement : 29-11-2013
[
आदे श / O R D E R
PER P.M. JAGTAP, A.M. :
पी.एम. जगताप, लेखा सद य This appeal is preferred by the Revenue against the order of the ld. CIT(A) - 40, Mumbai dated 25-10-2010.
2. The first issue raised by the Revenue in this appeal relates to the deletion by the ld. CIT(A) of the addition made by the A.O. by estimating the income of the assessee from following projects at higher value after rejecting the books of account as under:-
2 ITA 949/M/11 Name of the project Profit estimated by the Profit estimated by the assessee (Rs.) A.O. (Rs.) Gopala Project 29,68,807/- 35,700,636/-
Kukreja Project 5,10,325/- 26,704,191/- Ganga Tower I - 30,022,192/- Ganga Tower II - 33,635,031/-
3. The Revenue has raised the following grounds to project its grievance on this issue:-
"(a) Whether on facts and circumstances of the case and in law, the Ld.CIT(A) justified in holding that the rejection of books of account in terms of Sec.145 of the Income Tax Act, 1961 was not justified without appreciating the fact that the assessee has failed to recognize revenue in terms of revised Accounting Standard, wherein revenue has to be recognized in the year in which it has earned and the same cannot be postponed to future.
(b) Whether on facts and circumstances of the case and in law, the Ld.CIT(A) justified in deleting the addition of Rs.3,36,35,031/- on account of income from the Ganga Tower II project, holding that it cannot be taxed in the current year, when the facts of the case show that even under project completion method, income is taxable in the current year as the project of the assessee is 67.32% complete. The Ld.CIT(A) has erred in observing that Assessing Officer made no attempt to show that substantial part of the project is complete.
Further CIT(A) has erred in holding that no income from the project can be taxed in the current year as such income has been offered to tax in the subsequent year as is the present case.
(c) Whether on facts and in the circumstances of the case and in law, the LdCIT(A) is justified in holding that entire income of the assessee from Ganga Tower -- I is not taxable in this year, when facts of the case show that this project is complete in the current year and only expenses of Rs.31,513/- were incurred in the next year. This shows that this project is 100% complete in the current year.
(d) Whether on facts and circumstances of the case and in law, the Ld.CIT(A) justified in deleting the estimation of income from the project Kukreja Plaza at Rs.2,67,04,1911- which was estimated on the basis of revenue recognized during the relevant financial year as against declared income of Rs. NIL.
(e) Whether on facts and circumstances of the case and in law, the Ld.CIT(A) justified in holding that income of Rs.2,67,04,191/- is not taxable in current year without appreciating the facts that the assessee has not furnished complete details during the assessment proceedings 3 ITA 949/M/11 and without appreciating the facts that project was substantially completed.
(1) Whether on facts and circumstances of the case and in law, the Ld.CIT(A) justified in deleting the estimation of income from the project Gopala Rs.3,57,00,6361- which was estimated on the basis of revenue recognized during the relevant financial year as against declared income of Rs.NIL.
(g) Whether on facts and circumstances of the case and in law, the CIT(A) justified in allowing the expenses of Rs36,37,375/- without appreciating the fact that the assessee's books were liable to be rejected and income was estimated in terms of Sec.145 of the Income Tax Act inter-alia resulting rejection of claim of expenses.
(h) Whether on facts and circumstances of the case and in law, the Ld.CIT(A) justified in allowing 50% of depreciation amounting to Rs. 27,59,570/- without appreciating the fact that the assessee failed to discharged its onus to prove that the assets were put to use during the relevant financial year."
4. The relevant facts of the case giving rise to this issue are that the assessee is a partnership firm which is engaged in the business of real estate development, civil construction and hotelier. The return of income for the year under consideration was filed on 1-11-2004 declaring a loss of Rs. 35,80,734/-. During the said year, seven projects of the assessee under execution and in the return of income, profit of three projects namely Gopala, Atur Park and Kukreja Plaza aggregating to Rs. 35,41,190/- was offered by the assessee on estimated basis. The method of accounting stated to be followed by the assessee was mercantile and the Revenue in respect of three projects namely Atur Park, Gopala and Kukreja Plaza was claimed to be recognized by following percentage completion method. The Revenue from other projects was claimed to be recognized on project completion basis. According to the A.O., the revised Accounting Standard - 7 (AS-7) was notified and made effective from A.Y. 2004-05 and the profit of the assessee, therefore, was liable to be determined as per the said standard. He, therefore, required the assessee to furnish certain details relating to its projects under execution during the year under consideration. As stated by the A.O. in his 4 ITA 949/M/11 order, the assessee however, did not produce some of the material details required by him and furnished only some details and that too at the fag end of the assessment proceedings. He also noted that different methods of accounting were adopted by the assessee to recognize the income from different projects. According to him, even the percentage completion method adopted by the assessee on the addition of cost to the opening WIP was not correct and the same should have been applied on the projected sales basis. He, therefore, issued a show cause notice to the assessee asking its explanation in the matter. In reply, a letter dated 22-12-2006 was filed by the assessee offering its explanation as under:-
"e. There are two methods of accounting for the construction activity. One is on percentage completion method and other is completion project method, which are recognized methods of accounting by I. T. Dept. We are adopting method of accounting for project Kukreja Plaza, Atur Part & Gopala on percentage of completion method in which we are declaring profit on work in progress as fg Location on site. Market condition etc. and other factors to declare appropriate rate of estimated profit on work in progress, which has been accepted by the dept. in previous year.
We have started two new projects namely Madhuri & Ganga Tower which were small project and we have adopted the method & accounting on the basis of completion method which has also been accepted by the dept. the project Madhuri has started in year Nov - 2000 arid completed on May 2002 and have declare the profit which has been accepted by the dept. in A. Y.2003-2004.
The project Ganga Tower II which is started in A.Y. July 2001 our books are audit u/s.44AB of I.T.Act and the accounting method for construction has already been declared in the Auditors report which has been accepted by Dept. in previous year.
It has been held in number of judgement that the choice of the method of his accounting lies with the assessee and it is also open to the assessee to follow one system of accounting in respect of one source and another system in respect of one source and another system in respect of another source CIT v/s Mc Millan & Co (1950) 33 ITR 182- 188 S.C.
5 ITA 949/M/11 Bonafide change of method permissible :- An assessee is entitled to change the method of accounting regularly employed by him. What he must alter, however, his regular method, and start a new regular method and not merely a new method for a casual period (Sarupchand v. CIT, (1936) 4 ITR 420, 421 (Bom)]. When an assessee bona fide changes his method of accounting thereafter or that he has in fact intends to adopt changed method of accounting thereafter or that he has in fact adopted it thereafter, that satisfies the requirement of section 145. Neither principle nor authority bars an assessee from substituting one method of accounting for another at his choice. A change in the method of the assessee's choice or the application of the first proviso to section 145 (1) [Indo-Commercial Bank Ltd. v. CIT (1962) 44 1TR 22, 36, 37 (Mad); Forest Industries Travancore Ltd. v. CIT (1966) 61 1TR 395 (All); Dr. ITR 329 (Ker); New Victoria Mills Co. Ltd. v. CIT (1966) (ITR) 395 (All);
Once. having so changed the method of accounting, if the assessee continues with the changed method, it becomes his regularly employed method within the meaning of section 145(1) and the Assessing Officer is bound to base his assessment on the changed method provided that income can properly be deducted from such method. If, however, the changed method is not followed regularly by the assessee, the taxing authority cannot fall back upon the earlier method of accounting. This is so because in such a case it cannot be said that the assessee had followed the earlier method regularly in view of the intermediary changed method of accounting. Such a case will be a case falling under section 145(2) where no method of accounting has been regularly employed by the assessee entitling the assessing authority to make an assessment in the manner provided in section .144 (Reform Flour Mills P.Ltd. V. CIT(1978) 114 ITR 227, 230 (Cal)]"
5. After considering the explanation offered by the assessee, the A.O. recorded his observations/findings thereon as under:-
"(1) The assessee's contention that the choice of method of his accounting lies with the assessee and it is also open to the assessee to follow one system of accounting in one source and another system in respect of another source. CIT Vs. McMillan [1950] 33 ITR 182, 188 (SC) is misplaced and misguided as the same judgment of the Hon'ble Supreme Court has been delivered on the facts of cash system and mercantile system of accounting. Moreover, the assessee's source is only one and i.e. building and construction activity. There is no other source as claimed by the assessee. Therefore, the reliance of the assessee is misplaced and the said judgment does not come to the rescue of the assessee.
6 ITA 949/M/11
(ii) The assessee's second contention that the assessee's bonafide changes of method of accounting at his choice, is also misplaced and misguided as with the notification of Accounting Standard, the profit from the said activity is to be determined as per the standards and not otherwise.
(iii) From the following comparison of percentage of profit offered, it is clear that the assessee has not been adopting any valid method consistently and regularly:
Project %ge in AY. 03-04 %ge in AY 04-05 Gopala 12 20 Atur Park 12.5 12.5 Kukreja Plaza 12.5 20
(iv) It may be pertinent to mention that the assessee in its submission in the last sub-para of the para (e) of reply dated 22.12.2006 has stated as under:
"Once having so changed the method of accounting, if the assessee continues with the changed method, it becomes his regularly employed method within the meaning of section 145(1) and the Assessing Officer is bound to base. his assessment on the changed method provided that income can properly be deducted from such method. If, however, the changed method is not followed regularly by the assessee, the taxing authority cannot fall back upon the earlier method of accounting. This is so because in such a case it cannot be said that the assessee had followed the earlier method regularly in view of the intermediary changed method of accounting. Such a case will be a case falling under section 145(2) where no method of accounting has been regularly employed by the assessee entitling the assessing authority to make an assessment in the manner provided in section 144 (Reform r Mills P. Ltd. V. CIT (1978) 114 1TR 227, 230 (Cal)"
(v) The assessee has not followed the method of accounting regularly and has been changing the method of accounting from completion method to percentage method and then again, completion method for a particular project, and even in the percentage completion method, the rates are varying from year to year in the same projects. The assessee firm has estimated percentage of profit, which are even different in every year on the same project, and applied the said percentage on the work carried out during the year.
(vi) The said method cannot be accepted because it is pt bringing the real income of the respective year for tax. Tax statutes require taxing the real income of the year. The only acceptable and proven method for taxing the income of real estate developer is that estimate of profit has 7 ITA 949/M/11 to be made for entire project which is required to be revised every year depending on the prevailing cost and possible project realization. The projected profit so computed has to be adjusted pro-rata to the completion of work till the end of the relevant year and such pro-rata profit has to be treated as profit earned by the project till the end of such year and to tax the profit for the year, such prorata profit computed upto the immediately preceding year has to be reduced. The assessee has not carried out such computation and therefore, profit shown by it cannot be accepted.
(vii) The assessee's case has to be examined under the provisions of section 145 of the Act and in view of the findings given by the Hon'ble Supreme Court in the case of M/s.Challapalli Sugars Ltd. Vs. CIT [98 ITR 167 (SC)] wherein it is held that 1the accounting standard prescribed by the Institute of Chartered Accountants of India has got to be accepted. However, the Supreme Court in the case of Tuticurion Alkali Chemicals and Fertilizers Limited Vs. CIT [227 ITR 172] has cautioned that the method of accounting prescribed by ICAI should be accepted subject to the condition that it does not transgress into the provisions of the Act for computation of income under different heads. In the case of the assesses the revised AS-7 (2002) prescribed by ICAI has to be followed."
6. On the basis of above findings/observations recorded by him, the A.O. arrived at a conclusion that the assessee has not regularly employed the same method of accounting for all the projects and the annual profits could not be properly deduced from the method so employed. He therefore rejected the book results of the assessee and determined the income of the assessee for the year under consideration from the different projects under execution as under:-
"Ganga Tower II :-
6.1 It is stated on record by the assessee that except Ganga Tower II, profit of all the other projects has been shown on percentage basis on prorata completion of project.
6.2 Moreover, the profit disclosed by the assessee on estimation basis in respect of various projects does not include profit on Ganga Tower II Project i.e. the said profit does not include profit estimation on Ganga Tower II project. The assessee has adopted a method of accounting, which is partially applied on some projects and not applied at all on one project viz. Ganga Tower II. As has already been stated earlier that where the assessee has substantially realized the construction work carried out by it by making agreements and receiving considerations 8 ITA 949/M/11 under such agreements, the taxability of income on such estimation of profit on such receipts cannot be allowed to be postponed.
6.3 The assessee has not offered any profit on the sales consideration/ realisation from the Ganga Tower II project. The income under the percentage completion method discussed here-in-above is required to be computed in respect of the Ganga Tower II project. As has been discussed in the foregoing paragraphs, inspite of opportunities provided, the assessee has failed to or deliberately avoided furnishing the information and evidences regarding the projects called for vide notice u/s 142(1) issued on 10.11.2006. Even whatever sketchy and incomplete information is provided by the assessee, it has been provided only at the fag end of the year just a few days before the limitation date thereby closing all the paths to explore the genuineness of the said information. It is also not clear as to what prevented the assessee from furnishing the required information and producing the relevant evidences including the books of accounts.
6.4 As discussed in the foregoing paragraphs, the profit/income from the Ganga Tower II project is computed on total estimated sales basis in the following manner. The information gathered from the submissions of the assessee as also from the records available with the Department as on date is as follows:
Total area 50071 sq. ft.
constructed/under
construction
Total area sold upto 31-3- 8144 sq. ft.
2003
Total sales consideration of Rs. 2,27,18,350
area sold
Average rate of booking Rs. 2,474 (average of first
made during the year three and last
three bookings
Total estimated sales Rs. 12,64,45,748 (50071-8144)* Rs.
2,474 + Rs.
2,27,18,350
Total projected cost Rs. 7,64,82,838 As available from
records
Total estimated profits Rs. 4,99,62,910
6.5 From the above chart, it can be seen that the total estimated profits amount to Rs. 4,99,62,910/-. The Cost of project incurred by the -
assessee upto 31.03.2004 is Rs. 5,14,91,811/- which is 67.32% of the total projected cost. Hence 67.32% of the projected profits amounting to Rs.3,36,35,03 1/- minus the profits already declared upto the 9 ITA 949/M/11 immediately preceding year are to be taxed in the year under consideration. In relation to the Ganga Tower II project, the assessee has been following project completion method (which is not a valid method at all) and has not offered any profit from the project in the preceding years.
6.6 Hence, the whole of the profits of Rs.3,36,35,031/- as calculated here-in-above are added to the total income of the assessee and are brought to tax accordingly. Since the assessee has concealed the particulars of its income/furnished inaccurate particulars of the income, penalty proceedings u/s 271(1)(c) of the Act are hereby initiated.
7. Gopala Project.
7.1 The assessee has offered estimated profit of Rs.29,68,807/- @ 20% of the addition during the year to the cost of project on percentage completion method. As is already discussed here-in-above, the said of offering profit on some percentage of addition to cost is not a method for computing profits of the assessee's business. In the profits of Ganga Tower II project have been computed in the paragraph supra, the profits of Gopala project are also computed as under:
Total area 45094 sq. ft.
constructed/under
construction
Total area sold upto 31-3- 31090 sq. ft.
2003
Total sales consideration of Rs. 9,98,96,050
area sold
Average rate of booking Rs. 1,675 (average of first
made during the year three and last
three bookings)
Total estimated sales Rs. 12,33,52,750 (45094-31090)*
1675 + 99896050
Total projected cost Rs. 7,89,68,646 As available from
records
Total estimated profits Rs. 4,43,84,104
Total cost of project as on Rs. 7,26,85,990 92.04% of
31-03-2004 before profit estimated profits
Less: profits declared till 31- Rs. 51,50,493 As per assessee's
3-2003 submissions
Profits taxable in this year Rs. 3,57,00,636
7.2 From the above chart, it can be clearly seen that the total estimated sales have been computed taking into account the area already sold by the assessee at the amount of sale consideration shown by the assessee 10 ITA 949/M/11 and the additional area has been valued at average bookings price for the year. Thus a fair and just estimate of the total projected sales is made. On this estimate of projected sales, after taking to consideration total projected cost of the project, estimated profits of the project have been computed. But only that portion of the estimated profits is taxed in the year under consideration which bears the same proportion as the cost as on the year ending date bears to the total projected cost. Thus the taxable profits are computed on the correct percentage completion method and as per the Account Standard 7 (AS 7).
7.3 Thus, the profits of Gopala Project taxable in the year under consideration are computed at Rs. 3,57,00,636/-. Since the assessee has concealed the particulars of its income/furnished inaccurate particulars of the income, penalty proceedings u/s 271(l)(c) of the Act are hereby initiated.
8. Kukreja Plaza -
8.1 The assessee has offered estimated profit of Rs.5, 10,325/- @ 20% of the addition to the cost of project on percentage completion method. As is already discussed here-in-above, the said method of offering profit on some percentage of addition to cost is not a correct method for computing profits of the assessee's business. In the manner, profits of Ganga Tower II project have been computed in the paragraph supra, the profits of Kukreja project are also computed in the following manner.
8.2 The assessee has not furnished the basic details called for in relation to this project. No figures of the total projected sales, total projected cost, total estimated profits, total area of construction, etc. have been furnished. From the perusal of the records and information available with the Department, the following details have been ascertained and accordingly the profits of the project are being computed.
Kukreja Plaza:
Total projected cost of Rs. 14,16,07,058 Ascertained from project records Total area of construction 220228 sq. ft. Derived from information available Average rate of bookings for Rs. 850 Average of the year under consideration bookings done during the year Total area sold upto 31-3- 136354 sq. ft.
2003
11 ITA 949/M/11
Total estimated sales of the Rs. 18,89,38,190 (220228-136354)*
project Rs. 850 + Rs.
11,76,46,290
Total estimated profits Rs. 4,73,31,132
Total cost of project incurred Rs. 12,58,74,808 WIP as on 31-3-
till 31-3-2004 2004 before
profits for the year
Percentage of the above cost 88.89%
to total projected cost
Profits upto 31-3-2004 Rs. 4,20,72,643 88.89% of
estimated profits
Less: profits offered to tax Rs. 1,53,68,452 As per assessee's
upto 31-3-2003 submissions
Profits taxable in this year Rs. 2,67,04,191
8.3 Thus, the profits of Kukreja Project taxable in the year under consideration are computed at Rs. 2,67,04,191/-. Since the assessee has concealed the particulars of its income/furnished inaccurate particulars of the income, penalty proceedings u/s 271(1)(c) of the Act are hereby initiated.
9. Atur Park Project
9.1 Regarding the Atur Park Project, the assessee has shown the opening WIP at Rs.17,63,91486/-. On the additions to the cost of project during the year shown at Rs.4,96,468/-, the assessee has offered profits @ 12.5% at O697-.oeflsof the total area of construction, projected sales, projected profits, area sold, rate of sale, no. of flats constructed/sold, etc. have been furnished by the assessee. It is gathered from the records that the opening Work-In-Progress includes the WIP of three projects viz. Ganga Tower I, Ganga Estate and Ganga Green.
9.2 The Ganga Green project shows the WIP of Rs.3,86,96,904/- against which the assessee has shown advances received at Rs.l0,04,31,325/-. During the year under consideration, there has been no addition to the cost of this project. Hence, no profit needs to be computed in relation to this project for the year under consideration.
9.3 In connection with Ganga Estate Project, the position is the same as with the Ganga Green project discussed in para 10.2 supra. There is no addition to the cost of the project as also to the sales/advances shown as on 3 1.03.2003. Hence, no profit needs to be computed in relation to this project for the year under consideration.
12 ITA 949/M/11 9.4 The additions to the opening WIP of Atur Park are to the Ganga Tower I project. The same are dealt with in the following manner.
10. Ganga Tower I :-
10.1 The total advance towards sale of Ganga Tower I premises is shown at Rs.9,37,87, 104/- which is equivalent to the sales and other income booked by the assessee for the year ended 3 1.03.2005 in respect of the said project whereas the trading account prepared for the year ended 3 1.03.2005 for the Ganga Tower I project shows incurring of cost at only Rs.31,513/- against the total cost of project incurred upto 31.O3.2004 at Rs. 6,43,59,132/-. The total area constructed for the said project is 53,605 sq.ft. out of which 52,480 sq.ft. was sold on or before 31-3-2004 and full sale proceeds amounting to 8,91,66,000/-
were realized before the end of the year under assessment and other sums collected from these buyers were at Rs.40,12,025/-.
10.2 On this project, profit shown on estimate basis in earlier years has already been included in the opening WIP shown at Rs.6,43,59,132/-. Therefore, after adjusting the closing stock at cost for 1 125 sq.ft at Rs.12,36,813/-, the profit on the said project not shown by the assessee comes tq. Rs.3,00,22,193/-.The addition of Rs.31,513/- to cost has not been explained by the assessee. The said addition is nothing but just image that the project has actually completed in the next year which even otherwise does not help the cause of the assessee as the said method is not acceptable. It is relevant to mention tiat project Ganga Tower I has already been completed, has already been saltantia1ly sold and the sale proceeds of the same have been realized.
But the assessee has not shown any profit from this project in the year under consideration which is clear evasion and concealment of income.
10.3 It has already been established in the foregoing paragraphs that the assessee is not following correct method of accounting whereby., correct profit is not being declared and as a result of this, the book result has been rejected. When the project was already completed as on 31.03.2004, there was no question left regarding method of accounting to be adopted as the profits of the entire project which was completed during the year were to be compulsorily included in the total income by the assessee on its own. When the book results have been rejected and the project has already been completed, postponement of the taxability of income as per assessee's own convenience is not allowed under the law.
10.4 Hence, the profit of the project is taken at Rs.3,00,22, 193/- and added to the total income of the assessee. Since the assessee has 13 ITA 949/M/11 concealed the particulars of its income/furnished inaccurate particulars of the income, penalty proceedings u/s 271(1) (c) of the Act are hereby initiated."
Accordingly, the income of the assessee from the four projects ie. Ganga Tower II, Ganga Tower I, Kukreja Project and Gopala Project was estimated by the A.O. at Rs. 33,635,031/-, Rs. 30,022,192/-, Rs. 26,704,191/- and Rs. 35,700,636/- 3,22,192 & Rs. 2,67,41291/-, Rs. 3,57, 636 respectively in the assessment completed u/s 143(3) of the Income Tax Act, 1961.
7. Against the order passed by the A.O. u/s 143(3) of the Act, an appeal was preferred by the assessee before the ld. CIT(A) disputing inter alia the addition to its business income by estimating the income from four projects at higher values. Before the ld. CIT(A), the following arguments were mainly made by the assessee:-
"(a) The appellant is the Builder and Developer and not a contractor and hence accounting standard AS-7 is not applicable.
(b) The appellant follows mercantile system of accounting and has maintained its books of accounts and there is no change in the method of accounting.
(c) The appellant is assessed under the Central circle IV since 1995 and its books of accounts have always been accepted save and except Asst. Year 2004-05.
(d) in view of the above, the income i.e. loss of Rs. 35,80,734/-
declared by the appellant as per its books of accounts and the returns of income should be accepted."
8. In support of the above arguments, alternative submissions were made by the assessee before the ld. CIT(A) in writing vide letter dated 14-3-2010 which were as under:-
14 ITA 949/M/11 "(a) The Assessing Officer has discussed the Issue In para 4 of his order and he has correctly quoted the method of accounting as mentioned in the Tax Audit Report i.e. the assessee is following the percentage of work-in-progress method in respect of Atur Park, Gopala and Kukreja Plaza and following the completion method in respect of Ganga Tower
-- II. However, in para 4,2, the Assessing Officer has wrongly concluded that the firm is determining the revenue on various projects some times on the basis of project completion method and some times on percentage completion method.
(b) This finding of the Assessing Officer is absolutely wrong in view of the details of the various projects as mentioned above and from which, it Is very clear that the firm was earlier following the method of declaring estimated profit on the basis of percentage of work in progress during the pendency of the project which has been accepted by the department and only in respect of two projects which were newly started i.e. Madhuri - started in asst. year 2001-02 and completed in asst. year 2003-04 and Ganga Tower-Il - started in asst. year 2002-03 and completed in asst. year 2005-06, the firm has adopted the completion method, which is also accepted by the department in the asst. year 2001-02, 2002-03 and 2003-04 in which Madhuri project was completed and there is no basis for this finding that some times revenue is recognized on the basis of percentage of completion method and some times on the basis of completion method.
Regarding the argument of the Assessing Officer on parà 4.3 of his order is that revised Accounting Standard - 7/2002 (wrongly mentioned by the Assessing Officer as AS-7/2 000) issued by the Institute of chartered Accountants of India is applicable on the appellant firm, the learned AR of the appellant stated that this Accounting Standard is applicable only on the Contractors as in the scope of the Accounting Standard, it is clearly mentioned that 'This Statement should be applied in accounting for construction contracts in the financial statements of contractors." The appellant claimed that the firm is not a contractor and not taking any contract for construction. The appellant firm is a builder and constructs residential and commercial buildings for its own purposes, which are sold to the prospective buyers.
(c) Regarding the Assessing Officer's allegation that he asked for various lengthy details from the appellant vide his letter dated 10-11-2006 and against that, the appellant supplied part details and some of the details have not been supplied, it was appellant submitted that the appellant is assessed in the Central Circle since 1994 and each asst. year s a scrutiny asst. year and all these details are supplied every year. Therefore, the assessee firm was not able to compile all these lengthy details in a short period of time as the assessment itself was taken up in the month of December which was getting time barred on 31-12- 2006 and these details are having no relevance as all primary details 15 ITA 949/M/11 are filed vide three letters dated 25-11-2006, 27-11-2006 and 22-12- 2006.
(d) The learned AR further claimed that the appellant firm has changed the method in respect of the newly started Madhuri project in asst. year 2000-01 and Ganga Tower-Il project in asst. year 2002 -03 arid the same has been accepted in these two years and, therefore, this is not the year in which the method has been changed in respect Of these two newly started projects. Further, the method cannot be changed in respect of the earlier projects which were in progress as the appellant firm has already declared the income on percentage of work in progress basis in earlier years. Further, the profit in respect of these two projects is already declared in respect of Madhuri project in the asst. year 2003- 04 which has been accepted by the department and in respect of Ganga Tower-Il project in the asst. year 2005-06 and the appellant firm is following the completion method in respect of projects undertaken subsequently.
(e) The learned AR stated that the completion method for computing the profit by a builder is a very much recognized method which has been accepted by the Hon. ITAT in a number of judgments and the High Courts, some of which are listed hereinbelow:-
(i) CIT v. Guttoffungashutto Sterkrado -- 197 ITR 66 (Orissa)
(ii) Shree Nirmal Commercial Ltd. v. CIT -- 193 ITR 694 (Bom)
(iii) CIT v. V. S. Dempo & Co. Pvt. Ltd. - 131 CTR 203 (Bom)
(iv) D. K. Enterprises v. ITO - 39 ITD 394 (ITAT - Bombay Bench)
(v) Shapoorjl Pallonji & Co. (Rajkot) (P) Ltd. v. ITO -- 49 ITD 479 (Bom)
(vi) ITO v. W. D. Estate (P) Ltd. - 45 ITD 473 (Bombay)
(vii) Happy Home Developers v. ACIT- 115 Taxman 309 (Bombay)
(viii) Magnum International Trading Co. (P) Ltd. - 84 ITD 113 (TM) (Del)
(ix) H. M. Constructions v. JCIT -- 84 ITD 429 (Bangalore)
(f) For change in method of computing profit, the learned AR relied on following decisions -
16 ITA 949/M/11
(i) Calcutta High Court in the case of Snow White Food Products Co. Ltd. V. CIT -- 141 ITR 861, wherein it has been held that when it is found that an assessee has changed his regular method of accounting by another recognized method and he has followed the latter regularly thereafter, it is not open to the AO to go into the question of bona fides of the introduction and continuance of the change.
(ii) CIT v. A.V. Appu Chettiar -- 45 ITR 152 (Madras). In this case, the method of valuation of stock has been changed. New method of stock valuation cannot be rejected merely because there would be loss of revenue in the year of. change. What is relevant is to consider whether the method adopted is one of the recognized methods and further whether the changed method of valuation is followed consistently every year.
(iii) CIT V. Delta Plantation Ltd. -- 71 Taxman 329 (Calcutta). In this case, it Is held that change of method should be bona fide and must not be restricted to a particular year.
(iv) CIT v. Atul Products Ltd. -- 125 Taxman 727 (Gujarat). In this case, it is held that when an accounting method is changed with a bona fide intention, the change should be accepted by the revenue.
(g) Regarding the second objection of the Assessing Officer that while estimating profit on percentage of work in progress basis, the appellant applied different percentages in respect of different projects, and even In respect of same project, different rates in year to year, the learned AR submitted that this issue has been considered by the Tribunal In the earlier years in appellant's own case and the Tribunal has accepted this system. The percentage of work in progress to be taken as Gross Profit is decided by the appellant firm on the basis of the progress of a particular project, saleability of the project, market conditions, etc. In this regard, the following orders of the Tribunal were referred to :
(i) Order dated 29-12-2005 passed by the Tribunal in the case of assessee firm for asst. year 1999-2000 wherein the issue was estimating the profit @ 20% of work in progress in respect of the project
- Atur Park and @ 15% of the work in progress in respect of the project Kukreja Plaza as against 12.5% declared by the assessee for both projects. These two projects were in progress during this asst. year (Page Nos. 314-319).
(ii) Order dated 14-7-2004 passed by the Tribunal in the case of the assessee firm for asst. year 1997-98 wherein again the issue was estimating the profit @ 20% of work In progress in respect of the project Atur Park and @ 15% of the work in progress in respect of the project Kukreja Plaza as against 12.5% declared by the assessee for both
17 ITA 949/M/11 projects. These two projects were in progress during this asst. year. (Page Nos. 320-322).
(iii) Order dated 24-11-2003 passed by the Tribunal In the case of the assessee firm and other two group concerns for asst. year 1996-97 wherein again the issue was that AO has not accepted the profit declare @ 10% of the work in progress in respect of all four projects and mad the addition of Rs. 3,15,94,761/- which has been deleted by the Id. CII(A) and the appeal of the department is dismissed by the Tribunal. (Page 323-326).
(iv) Order dated 23-8-2006 passed by the Tribunal in the case of group concern M/s Motiram Tolaram for asst. year 2000-01. (Page Nos. 327-328).
(v) Order dated 19-3-2003 passed by the Tribunal in the case of four group concerns for asst. year 1995-96. (Page Nos. 329-334).
9. In addition to the above submissions, the action of the A.O. in rejecting its books of account was also challenged by the assessee by submitting that it had maintained all the books of account which were audited and even the tax audit report was obtained. It was contended that no defect was pointed out by the A.O. in the books of account maintained by the assessee and even the defect pointed out by the A.O. in respect of method of accounting adopted by the assessee was not based on the actual fact of the case.
10. The assessee also filed additional evidence before the ld. CIT(A) in support of its case and filed a letter dtd. 17-06-2007 seeking admission of the additional evidence on the following grounds:-
"1. In continuation to the earlier submission, we would like to hereby state that the Assessing Officer further required certain details / documents for assessment vide letter dt. 10/11/06 to furnish in writing and verified in prescribed manner, the information asked on the points and/or matters as per the annexure.
2. The required details as per the above letter has been submitted point to the assessing officer vide assessee's letter dt . 27/11/06, the copy of which was filed along with earlier submission.
18 ITA 949/M/11
3. It seems that Assessing Officer has not gone through the reply made by the assessee and has mentioned in para 4.5 of his order that the assessee has submitted the sketchy information in respect of the projects.
4. Appellant hereby submits a Chart showing the Details already submitted to the Assessing Officer and further in formation as mentioned in order as additional evidence under rule 46 A to the facts of the case.
5. The Appellant further submits that the appellant with the Department since last several years u/s.143 (3) and has submitted all the relevant details regarding projects in each assessment years. Some additions were made in the assessment orders against which appeals were filed and the additions were deleted in appeal. The Department has gone to ITAT, which was also decided in favour of the appellant.
6. In view of above, we hereby request your honour to consider the additional evidence under Rule 46 A and decide on the facts and circumstances of the case."
11. The submissions made by the assessee vide letter dated 14-3-2007 and additional evidence filed vide letter dated 17-6-2007 were forwarded by the ld. CIT(A) to the A.O. who submitted his remand report dtd. 30-1-2009 to the ld. CIT(A) offering his comments as under:-
"1. At the outset, it is submitted that the assessing officer perused the details of income returned by the appellant in respect of the projects Gopala, Atur Park, Kukreja Plaza, Ganga Tower - I, and Ganga Tower II and observed that as per Tax Audit Report, the assessee had submitted a note on the method of accounting wherein it was mentioned that the appellant firm has adopted mercantile method of accounting and that there has been no change in the method from that of the preceding previous year. In respect of revenue relating to construction work-in-progress, it was stated that the same is determined on percentage completion method of the Atur park, Gopala and Kukreja Plaza projects. In as far as Ganga Tower II project, it is stated that the revenue will be determined on completion, contract basis. The AO also observed that the appellant has been following mercantile system of accounting but has been determining the revenue in respect of various project some times on the basis of project completion method and some times on percentage completion method. It was also observed that the revised Accounting Standard AS7 (2002) was notified by the ICAI and made effective from the A.Y. 2004-05 in respect of construction contracts. He was therefore of the view that the 19 ITA 949/M/11 assessee should have determined the profits for the year in respect of various projects having regard to the said revised Accounting Standard. He there fore proceeded to estimate the profit for the year on the basis of total estimated sales as prescribed by the revised Accounting Standard.
2. In this regard, it may be mentioned that since the accounting standards have been modified by the Institute of Chartered Accounts, the enterprises engaged in developing & building have to observe the revised standards as notified by the ICAI. The Institute of Chartered Accountants of India have also issued Guidance Note 23 according to which the Accounting Standard (AS) 9 is applicable to the cases of Real Estate Developers, wherein the revenue is to be recognized in the year in which it has been earned and the same cannot be postponed to the future year on the ground of non-completion of projects.
3. It may also be mentioned that the AO, in the course of assessment proceedings, has called for various details as under: -
(1) The total estimated cost of the projects
(ii) The total estimated sales of the projects
(iii) The total estimated profits of the projects
(iv) Land cost and acquisition dates.
(v) Developer agreement, if any,
(vi) Approved plans with evidences for plots and approvals for
subdivision.
(vii) Commencement, completion and occupancy certificates.
(viii) Location addresses and site telephone numbers.
(ix) Total constructed area, built-up area, carpet area, saleable area
of each project / building
(x) Number of units constructed
(xi) Cheque numbers of payments received.
Since the aforesaid details were not submitted in toto and the required evidences were not produced and since the income / profit as per the provisions of the Act as well as that required the revised Accounting Standard had not been observed and also the method of accounting employed was such that profits could not be correctly derived at therefrom the assessee was required to explain why the account be not derived at therefrom, the assessee ws required to explain why the accounts be rpt rejected as per the provisions of section 145(3) and the accounts be not rejected as per the provisions of section 145(3) and 20 ITA 949/M/11 assessment be completed in the manner provided u/s 144. After considering the assessee's submissions on the issue, it was held that the only acceptable and proven method for taxing the income of the Real Estate Developer is that estimate of profit has, to be made for the entire project which is required to be revised every year depending on the prevailing cost and possible project realization. The projected profit so computed has to be adjusted pro-rata to the completion of work till the end of the relevant year and such pro-rata profit has to be treated as profit for the year after reducing such pro-rata profit completed upto the immediately preceding year. Accordingly, the assessing officer proceeded to work out taxable profit in respect of each project on the same lines as enunciated in the revised Accounting Standard 7 (2002) for recognizing revenue and expenses.
4. It is observed that as per Annexure-8 of Tax Audit Report, the assessee has shown the opening work-in-progress, cost of construction, estimated profit and closing work-in-progress for the year as under: -
Project Opening WIP Cost of Rate of Estimate profit Closing WIP construction Est.
profit
Gopala 57841957 14844033 20% 2968807 75654797
Atur Park 176391486 496468 12.5% 62058 176950012
Kukreja Plaza 158358429
(Less: WIP of K. -35035247
Star Hotel
Net of Kukreja Plaza 123323182 20277538 20% 510325 126385133
Ganga Tower II 31214273 20277538 - - 51491811
It is also seen that the assessee has offered percentage of profit in respect of work executed during the year in the case of the projects during the A. Y.2003-04 & 2004-05 is as under: -
Project %age in AY %age in AY
2003-04 2004-05
Gopala 12 20
Atur Park 12.5 12.5
Kukreja Plaza 12.5 12.5
It is observed from the details tabulated above that in respect of Ganga Tower
- II project that no income was declared during the year although the cost of construction of Ganga Tower - II project was considerable. It is al a seen from the above statistics as per the Tax Audit Report that the assessee has not offered any estimated profit in respect of Ganga Tower II project during the year as in the projects Gopala, Atur Park and Kukreja Plaza. It is stated in the Tax Audit Report that the revenue in respect of Ganga Tower -II site will be 21 ITA 949/M/11 determined on completion contract basis. In respect of the projects Gopala, Atur Park and Kukreja Plaza the assessee has offered revenue in respect of construction work-in-progress on percentage completion method by declaring the relevant percentages as mentioned above on the cost of construction incurred during the year at varying rates. Moreover, perusal of such percentage of profits declared during the A.Y.2003-04 & 2004-05 in respect of these 3 projects as tabulated hereinabove shows that no consistent pattern of declaring percentage profits have been followed as also no valid justification for adopting the said percentages have been submitted and evidences adduced. The assessee has declared percentage profit in respect of Gopala, Atur Park and Kukrej Plaza at varying percentages during the year. Since the assessee has decided to declare percentage profit in this year in respect of the aforesaid 3 projects, it was mandatory for it to adhere to the revised Accounting Standard 7 (2002) as mandated by the ICAI and not adopt whatever percentage it chooses according its whims and fancies. Thus, in respect of these 3 projects, the AO has correctly adopted the revised Accounting Standard 7 (2002) and ascertained the profits for the year on the basis of total estimated sales of the project as detailed in the assessment order. In respect of Ganga Tower II project, the assessee has not estimated any profit for the year. The assessee has chosen to declare profit on completion of the project. Thus there is an inconsistency in the manner of projecting profit from project to project within the same accounting year itself.
Therefore, the A.O. has correctly worked out the profit on the basis of total estimated sales in respect of this project as has been done in the other 3 projects, namely Gopala, Atur park and kukreja Plaza projects. As has been narrated in paras 2 & 3 above, the assessee has not observed the said revised Accounting Standards to arrive at the profits of each of the projects during the year and there being no consistency in the method of accounting employed, the assessing officer was right in rejecting the book results and estimating the profits of the projects on the estimated sales basis as has been done in the assessment order at paras 6,7,8 & 9 which is on the basis of the revised Accounting Standard. Thus, the assessee's contention as offered in its letter dated 14-03-2007 may not be accepted."
12. When the remand report of the A.O. was confronted by the ld. CIT(A) to the assessee, the later filed a letter dtd. 16-2-2009 offering his comments on the remand report of the A.O. as under:-
"5.16. In para 2 of the remand report, the Ld. AO has again repeated the same observations that we have been determining the revenue in respect of the various projects, sometimes on the basis of project completion method and sometime on percentage completion method, which is patently wrong.
Appellants submissions 22 ITA 949/M/11 (1) In our written submissions given vide our letter dated 14-3-2007, we have given the complete history of the firm since 1986-87 and wherein we have clearly mentioned that the firm was following the method of decla1ing estimated profit on the basis of percentage of work in progress every year. However, in respect of new projects started from asst. year 2001-02 onwards, the firm has adopted completion method of accounting for computing the profit and because of this reason, the 'Madhuri' project which was started in the asst. year 2001-02 and completed in asst. year 2003-04, the firm has followed completion method and the AO has accepted the same and thereby, not computed any profit in the asst. year .2001-02 and 2002-03 when the said project was in progress end accordingly, the profit in this project was declared in asst. year 2003-04 when he project was completed.
(2) Similarly, in the Ganga Tower - II project, which was started in asst.
Year 2002-03, the AO has not estimated any profit on the basis of percentage of work in progress in asst, years 2002-03 and 2003-04 and the firm has declared the total profit on completion of the project in the asst. year 2005-06.
_ (3) In para 6 of the said letter, we have given the complete summary as to the asst. year in which the projects were undertaken, method of computing the profit adopted and in which asst. year the projects were completed. Accordingly, in respect of the projects on which profit is declared on percentage of work in progress basis, finally the balance profit/loss is declared on completion of the project after adjusting the profit declared in the earlier years on percentage of work in progress basis.
(4) In a nutshell, in respect of all the projects which were undertaken prior to asst. year 2001-02, the firm: continued to follow percentage of work in progress method and in respect of the projects undertaken from asst. year 2001 -02 onwards, the firm has followed the completion method and continued with the same.
(5) The AO has not given any comments on these basic and true facts and instead of that, he has again repeated the finding given in the assessment order that the firm sometimes follows completion method and sometimes follows percentage of work in progress method which is not justified in law.
5.17 In para 3 of the remand report, the AO has stated that Accounting Standard (AS) 7 is applicable or AS 9 is applicable and accordingly, the firm should compute the profit on the basis of percentage of work in progress every year and not on completion method.
23 ITA 949/M/11 Appellant's submissions (6) As already submitted in our above said written submissions, in para 3.1 and 3.2 under Ground No.2, AS-7 is not applicable on the builders but it is only applicable to contractors, as it is clearly mentioned in AS- 7 that "this Statement should be applied in accounting for construction contracts in the financial statements of contractors."
(7) In this remand report, the AC has raised a new issue that AS-9 is applicable to the cases of Real Estate Developers wherein the revenue is to be recognized in the year in which it has arisen and as per the said AS-9, revenue is to be recognized when risk and reward are transferred. In the case of the firm, when the projects are under construction, the flats and shops are yet to be constructed and possession is not given to the prospective buyers and, therefore, there is no question of risk and reward being transferred in these years. In view of these circumstances, AS-9 is not applicable on the firm.
It is further submitted that even In AS-9, It Is mentioned that-
"The Statement is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from
- sale of goods
- the rendering of services, and
- the use by others of enterprise resources yielding interest, roya1ties and dividends."
Therefore, AS-9 is also not applicable on the firm.
5.18 In para 4, the AC has mentioned that the firm has not supplied the various details as called for by his predecessor during the course of' the assessment proceedings and again in view of the revised Accounting Standard -- 7, the books of accounts of the firm are rejected and provisions of Sec. 145(3) are applied.
Appellant's submissions (1) In this respect, we submit that facts mentioned In our reply, in paras 4.1 and 4.2 under Ground No. 2, are not considered by the AO as he has kept silent and not commented on the real facts mentioned therein.
24 ITA 949/M/11 In these paras, it is clearly mentioned that all the required details are filed before the AO and these unwanted details asked by the AO were not supplied as these are the lengthy details and the firm was not able to supply the same in a short period before 31-12-2006 when the assessment 'was getting time barred. As submitted in these paras, the firm is doing the business since asst. year 1986-87 and these details are supplied in the respective assessment year and which are on the record and if they were necessary, the AO could have compiled the same from the said records.
(2) Similarly, these details were only required to calculate the profit on the basis of percentage of work In progress. Since in this case it is accepted by the AO upto asst. year 2003-04 that in respect of all the projects taken up before 2001-02, percentage of work in progress method is applied by the assessee and in respect of the projects undertaken in the asst. years 2001-02 and 2002-03, completion method of accounting is being adopted and accepted by the department. Therefore, not supplying of these unwanted details in a short period cannot be reason to reject the books of accounts u/s 145(3).
5.19 Vide letter dated 15th April, 2009, the appellant further reiterated the submissions made earlier.
5.20 The Appellant vide its letter dated 27th August, 2009, further submitted the following:
"With reference to the further hearing of the above said appeal fixed before Your Honour on 28-08-2009 we have to submit as under :-
1. There is no notification of GBDT regarding applicability of revised Accounting Standard -- 7. The Accounting Standard-7 is issued by the Institute of Chartered Accountants of India, a copy of which is already given at Page Nos. 294 - 211 of the compilation filed with our letter dated 14-3 -2007.
2. We are filling herewith copy of Accounting Standard notified under Sea. 145(2) by the CBDT being No. 9949 (F No. 132/M95 FRZ) dated 25-1-1996.
3. We are filing herewith details of work-in-progress and estimated profit for every year from beginning to completion of the project in respect of 3 project i.e. (i) Gopala; (ii) Atur Park and (iii) K-Plaza.
25 ITA 949/M/11
4. The written submissions regarding the applicability of AS-7 is given in para 3.1 and 3.2 of the written submissions given vide our letter dated 14.03.20O7. Further, regarding non-applicability of AS-9, the written submissions are given in Para 2 of our letter dated .16-2-2009.
5.21 The Appellant vide its letter dated 24th December, 2009, further submitted the following : V U B. Nature of Accounting - SECTION 145 of the I.T. Act
1. Section 145 of the I. T. Act prescribes that the assessee can either follow cash or mercantile system of accounting and that the same system should be followed regularly.
2. In this case, the assessee firm has followed the t4ercn tile system of accounting since inception, for last number of years and the said method has not been changed.
3. Mercantile system of accounting means all the receipts and payments for expenses are accounted on accrual basis and not on receipts basis. The said system is being followed by the assessee firm since inception and has not been changed.
4. In the case of a builder, completion of a particular project takes 'number of years, wherein many buildings are constructed and a complete complex is also provided including amenities like garden, playground, etc. (f a project takes a number of years to be completed, there is no certainty of the expenses and receipts from the project. Due to changes in the regulations of the 8MC and other laws, there is no certainty of expenses which accrue during the work in progress of the project. Similarly, there is a variation in the price of the flats which are constructed and sold from time to time looking to the prevailing property market conditions depending upon the slump/boom in the property market.
5. As per the Accounting Standard -- 7 issued by the Institute of Chartered Accountants of India, it is provided that there are two methods of computing the profit in such type of projects where it takes number of years to be completed.
(i) Percentage of Work in Progress where a percentage of profit is estimated on V the basis of work in progress at the end of each year.
26 ITA 949/M/11
(ii) The profit or loss of the project is computed only on the completion of the project i. e. when the OC is received from the BMC In respect of all the buildings constructed in the project undertaken by the assessee.
6. The assessee as mentioned in our letter dated 14th March, 2007 has followed the method of computing profit on the basis of percentage of work in progress in respect of such projects. However, since this was not giving a true picture each year and to keep in step with the practice followed by the construction industry in general, it was decided by the assessee to adopt the completion method of profit in respect of new projects undertaken from the asst. year 2001-02 onwards. Since there were some projects in which the assessee is already following the percentage of work in progress method, the said method cannot be changed in the middle of the project and, therefore, the assessee continues to follow the percentage of work in progress method in respect of such earlier projects till they are completed in future and In respect of the new projects undertaken from asst. year 2001 -02 onwards, the assessee is following the completion method only.
7. Accordingly, there is no change in the system of accounting as prescribed In Section 145 of the I. T. Act. The assessee continues to follow the 'mercantile system of accounting and there is no change in that. It is only the method of computing of the profit in respect of the project which takes number of years to be completed and where there is no certainty of the expenses and receipts.
8. We again submit that till asst. year 2003-04, the department has accepted the method of computing the profit on the projects undertaking by the appellant. Even in respect of the projects in which the appellant was following percentage of work in progress method, which were completed after this asst. year i.e. in asst. years 2005-06 and 2006-07, the department has accepted the profit computed according to the percentage of work in progress method. Even in respect of the projects undertaken after asst. year 2001-02, profit computed on completion method has been accepted by the department in respect of the projects completed in the asst. years 2 005-06.
9. We again repeat that these are the methods of computing the profit in the case of a builder under special circumstances as mentioned above and this Is not a change in the method of accounting as the appellant is always following the mercantile system of accounting all these years."
13. After considering the submissions made by the assessee, the comments of the A.O. in the remand report, counter comments offered by the assessee and the material available on record, the ld. CIT(A) held for the following reasons given in para 5.23 that the methods of accounting followed by the 27 ITA 949/M/11 assessee to recognize its income from different projects was correct and the A.O. was not justified in rejecting the book results:-
"I have carefully considered the issues raised in the assessment order, submissions of the Appellant, comments of the Assessing Officer in the remand report and various letters of the appellant following the remand report. It is very apparent both from assessment order and the remand report on the one hand,. and various submissions made by the learned AR both before the Assessing Officer and before me on the other hand, that the appellant has been following percentage completion method for showing its profit in the returns of its income for all its projects until the year 2001. In the period relevant to A.Y.2001-02, Madhuri Project was started and from this period onwards, the appellant began to show its profit on project completion method on the new projects. Thus, profit of Ganga Tower-II project started in A.Y.2002-03, was also worked out on completion method. For projects started before this period and running over years, the appellant could not change the method of working out the profit on project completion method, since the estimated profit on percentage completion was already shown in earlier years for those projects. This change in method showing profit for A.Y.2001-02 onwards for the new project is the main reason for the Assessing officer to conclude that the appellant has not been showing consistent method of accounting profits.
5.23.2 Another related observation of the Assessing Officer is that the appellant has been showing different percentages of profit on work-in- progress, as the profit of a project in different years.
5.23.3 Further, these are issues relating to non-furnishing of complete details and application of accounting standard AS-7 to the case of the builders.
5.23.4 In this regard, it is important to consider that project completion method is a very well recognized method of revenue recognition and profit estimation in the case of builders. A builder is well within his rights to show profits on this basis for his projects. Merely because he had been following a different method earlier does not take away his rights to show his profits on project completion method from a particular date. It is not, the case of the Assessing Officer that he has been using one method or the other haphazardly or that in respect of any one project he has been switching from one method to another from year to year. For all projects started before A.Y.2OOf-O2 he had been showing profits on percentage completion method and thereafter he has it is also not the case of the Assessing Officer that substantial part, say 75% or so, of the project got completed earlier than shown by the appellant. It is also not the case of the Assessing Officer that any of
28 ITA 949/M/11 the expenses or receipts belong to year other than the one shown by the appellant. No such fallacy or incongruity in accounting of expenses or receipts was proved even during the remand proceedings.
5.23.5 The claim of the appellant that Accounting Standard AS7 is applicable only to the cases of the contractors, is absolutely correct. In a contract system, the payments are received on the basis of work-in- progress V and such receipts are irretrievably earned by the contractors. The applicability of AS-7 is clearly mentioned in the said accounting standard itself, which is reproduced as under:-
"Accounting Standard (AS)-7, Construction Contracts(revised 2002), issued by the. Council of the Institute of Chartered Accountants of India, comes into effect in respect of all contracts entered into during accounting periods commencing in ir after 1-4-
2003 and is mandatory in nature from that date. Accordingly, Accounting Standard (AS-7), Accounting for Construction Contracts issued by the Institute in December, 1983 is not applicable in respect of such contracts. Early application of this Standard is, however, encouraged:"
5.23.6 In the, case of builders, however, risk and reward are not transferred by construction. If market situation gets adversely affected, the project may not sell or even the flats In respect of which agreements are reached, may come back to the builder. Therefore, revenue 'can be recognized in the case of builders only if sales are made and actual payments are substantially received by him.
5.23.7 Thus, it is apparent in the' facts of the case that the two basic presumption on the part of the Assessing Officer, firstly that the appellant has changed method of accounting the profit at will from 'percentage completion to project completion and back, and secondly that' Accounting Standard AS-7 is applicable to the case of builders, are both wrong. Therefore, the Assessing Officer 'i led by incorrect appreciation of facts and applicability of accounting treatment, to hold the view held by him in this' assessment order.
5.23.8 It is precisely for this reason that while finalizing the assessment for AYs. 2001-02 and 2002-03, the Assessing Officer has himself allowed the completion method of declaring profit in Madhuri project which started in Asst. year 2000-01. Also in case of Ganga Tower -II, which commenced in asst. year 2002-03 the said completion method of showing profit was allowed in the Asstt. Years 2002-03 and 2003-04.
5.23.9 The Ld. AR have quoted plethora of judgments in support of the claim that the choice of the method of his accounting lies with the assessee and it is also open to the assessee to follow one system of accounting in respect of one source and another system in respect of other source, CIT v/s Mc Millan & Co. (1950) 33 ITR 182-188 S.C. 29 ITA 949/M/11 5.23.10 Under the given facts of the case, the Appellant can only be said to have consistently followed the method of accounting for a project as it has never changed the method from percentage of completion method to completion method and vice versa for a particular project.. The Assessing officer has reached the conclusion under misconceived notions about the facts.
5.20.11 Also Accounting Standard AS -- 7 is not applicable to the appellant since for a builder, the revenue has to be recognized when risk an rewards are transferred.
5.23.12 Considering the facts narrated above, it is held that the Assessing Officer has not been able to prove incorrectness or incompleteness in the accounts of the appellant even during the remand proceedings. The appellant is recognizing revenue when risk and reward are transferred and both percentage completion and project completion are well recognized methods for showing profits by the builders. Therefore, the conditions enumerated in sub-section 3 of section 145 can not be said to have been proved to be violated. The action of the learned Assessing Officer in rejecting the Books of Account of the appellant form u/s 145 of the Income tax Act was, therefore, not justified and the second ground of appeal is allowed accordingly."
14. After accepting the methods of accounting followed by the assessee, the ld. CIT(A) considered the issue of estimation of income of the assessee from different projects and found of such consideration that the income estimated by the assessee from different projects was fair and reasonable for the following reasons given in his impugned order:-
Ganga Tower :
"6.6.3 It is further seer that the income from Ganga Tower - II has been declared by the appellant in subsequent year relevant to A.Y.2004-05, and accepted by the learned Assessing Officer as such. There is nothing on record to show that any attempt is made the Assessing Officer to establish that substantial part of this, project: has been completed during the year of assessment rather than the subsequent year. This has also led to assessment of same income twice. Under the circumstances, I have no hesitation to hold that the income from the project Ganga Tower-1I has been correctly shown by the appellant on completion of the said project in the period relevant to A.Y.2005-06 and the same has been correctly accepted by the Assessing Officer in that year, leading to inescapable conclusion that the same income cannot be taxed In the year in question. It has already been established by the 30 ITA 949/M/11 appellant while dealing with ground no. 2 that revenue has been correctly recognized by them when the risk and reward are being transferred. Therefore, there is no justification for accepting the profit of the project twice, i. e., once in AY 2004-05, and again in AY 2005-06. The learned AO has not proved that a penny more than what is shown as receipt has been, received, or an expenditure not supported by evidence or hot wholly and exclusively attributable to the business has been claimed. Thus, both the receipt and payment sides have been accepted by the Ld. AD. Therefore, the entire argument veers around the allocation of profits in respect of each of the project in different Assessment Years. Therefore, the action of the Ld. AO in increasing the overall profit of the project without giving instance of extra receipt or unaccounted/unrelated expenditure can not be upheld. As a result, this ground of appeal is allowed."
7.5.3 Considering the various facts enumerated above and the decision in respect of Gr. No. 2 of this appeal, it is apparent that the Assessing Officer was not justified in rejecting the books of accounts of the appellant and consequently, making an estimate of the Income. The appellant has not changed the method arbitrarily by changing the method of estimating the profit at will from percentage completion method to completion method and vice-versa. Under the circumstances, the income of the appellant has to be worked out on the basis of the facts relating to each project.
7.5.4 It is a fact that the profits have been declared on the percentage completion basis in respect of Ganga Tower I Project from the AY 1986- 87 to AY 1994-95 and such declaration of income has been accepted co consistently by the Assessing Officer. If the appellant had under- stated its income in all these years, then the extra income not shown, will get accumulated to be included at the end of the project. Similarly, If it had overstated its income over these years, the appellant would end-up showing less income in the concluding year. In other words, if the Assessing Officer has not found any receipt other than the ones shown by the appellant in all these years, or If he has not proved any inflation of expenses in respect of the project, the over-all income of the project cannot be disturbed. Since the income as shown has been accepted by the respective Assessing Officers as such till the A.Y.2003- 04, and the project has been shown to be Completed in the period relevant to A.Y.2005-06, no useful purpose is served by merely disturbing the revenue realization in the year under consideration. It is a fact that the appellant has shown very small increment in the work- in-progress for A.Ys 2004-05 and 2005-05, but that cannot justify the income shown for AY.2005-06 to be shifted to A.Y.2004-05 in respect of this project for two reasons. The first reason is that the increment in work-in-progress is small not only for A.Y.2005-06 but also for A.Y.2004-05. The second reason is that the completion certificate in respect of the project has been received on 05.11.2004 which falls in 31 ITA 949/M/11 the financial year relevant to A.Y.2005-06. The action of the appellant of showing the balancing figure of profit in the year when technical approval for' occupation i.e. occupation certificate was received, can not be found fault with. These reasons coupled with the fact that the appellant's system of showing income has been accepted in respect of the same project for all past years leads to inescapable conclusion that there is no sufficient reason to disturb the system of estimation of profit by the appellant. Accordingly, the Assessing Officer is directed not to disturb the estimate of profit for the current year in respect of this project. It is held that the appellant has completed the project in the period relevant to A.Y. 2005-06 and has shown the balancing figure of profit of that year and therefore, the addition of Rs. 3,00,22,193/- made by the Assessing Officer being the profit of Ganga Tower-I is directed to be deleted for the current year."
Kukreja Project 8.6 The Appellant has started the project in the year 1994-95 and till 2005-06, the assessee has declared profit on percentage of work in progress method totaling to Rs.1,72,68,519/- and declared balance profit on completion of the project In the Asst, Year 2006-07 at Rs.88,61,730/-. The AO has completed the assessment for Asst. Year. 2006-07 and accepted the profit of this project without granting any deduction in respect of the additions made on estimate basis in the Asst Year 2004-05. The Ld Assessing Officer, therefore, calculated the profit of this project in the same manner as he calculated for Ganga Tower II Project.
8.7 Since the Method. of accounting the profit on percentage basos to the cost incurred on the project during the year has been accepted by the ITAT in the case of the appellant as well as group concerns and the facts are identical to the ground No. 4 of this very appeal, the AO is directed to delete the addition of Rs,2,67,04,191/-, being the estimated profit of Kukreja Plaza added by the A.O."
Gopala project The Appellant has started the Project in the Assessment Year 1989-90 and from Asst. Year 1989-90 till 2004-05, the firm had declared profit on percentage of work in progress method and when the said project was completed in the Asst. Year 2005-06 i.e. occupation certificate is received the balance profit is declared. The same was also accepted by the Assessing Officer in this subsequent year. But, the learned Assessing Officer did not accept the Appellant's method of computing profit.
32 ITA 949/M/11 9.6 Since the Method of accounting the profit on percentage basis to the cost incurred on the project during the year has been accepted by the ITAT in the case of the appellant as well as group concerns and the facts are identical to the Ground No. 4 of this very appeal, the AO is directed to delete the addition of Rs. 3,57,00,636/- being the estimated profit of Gopala Project added by the A.O.
15. The ld. CIT(A) thus accepted the income offered by the assessee from different projects by following the methods of accounting consistently over the years and deleted the addition made by the A.O. by estimating the income from the said projects at higher values. Aggrieved by the order of the ld. CIT(A) giving relief to the assessee on this issue, the Department has raised its grievance in the present appeal filed before the Tribunal.
16. The ld. D.R. submitted that the seven projects of the assessee under execution during the year under consideration for which different methods were followed to recognize the income. He submitted that in respect of three projects, percentage completion method was followed by the assessee while project completion method was followed in respect of one project. He submitted that in respect of the remaining three projects, the assessee had followed mixed methods. He contended that as per the AS VII followed in A.Y. 2004-05, project completion method was barred and therefore the A.O. rightly adopted the project completion method to estimate the income of the assessee from the four projects which were executed during the year under consideration. He invited our attention to the specific findings/observations recorded by the A.O. at page 4 to 6 of the assessment order and submitted that the methods of accounting followed by the assessee to recognize the income from different projects were rejected by the A.O. on the basis of the specific adverse findings. He submitted that even the basis of estimation of income of the assessee from different projects was specifically given by the A.O. in the assessment order. He contended that the ld. CIT(A), however, overlooked these specific basis given by the A.O. and accepted the methods 33 ITA 949/M/11 adopted by the assessee as well as income computed by the assessee from projects by adopting such method relying on the submissions made by the assessee. He contended that the impugned order of the ld. CIT(A) giving relief to the assessee on this issue thus is liable to be set aside and that of the A.O. is deserved to be restored.
17. The ld. counsel for the assessee, on the other hand, submitted that the assessee is in the business of builder and developer for the last 35 years and the project completion method followed by it to recognize the income from various projects up to 31-3-2002 was regularly accepted by the Department. He submitted that the assessee adopting project completion method to recognize the income of the projects started after 31-3-2000 after having found that the same was a better method in the change scenario. He invited our attention to the relevant details furnished by the assessee before the ld. CIT(A) and reproduce page 18 of the impugned order of the ld. CIT(A) to show that the project completion method was found to be no more appropriate to recognize the income of the different projects in the changed marketing conditions. He submitted that the project completion method, on the other hand, was found to be more appropriate and the same accordingly was adopted by the assessee to recognize the income from the projects which started after 31-3-2000. He contended that the methods adopted by the assessee for different projects, however, were consistently maintained by the assessee project-wise and, therefore, the entire income from the said projects was finally assessed to tax. He submitted that even the project completion method followed by the assessee in respect of certain projects commencing after 1-4-2000 was accepted by the A.O. in A.Y. 2003-04 as well as assessment years 2005-06 and 2006-07. He contended that there was thus no justification in the action of the A.O. to change the said method only in A.Y. 2004-05 which resulted in double addition. He invited our attention to the copies of assessment orders for assessment years 2003-04, 2004-05, 34 ITA 949/M/11 2005-06 & 2006-07 placed in his paper book to show that there was no addition made by the A.O. on account of income offered by the assessee from different projects thereby accepting the method followed by the assessee. As regards AS VII relied upon by the A.O. to reject the method of accounting followed by the assessee as well as book results declared in accordance with such methods, the ld. counsel for the assessee submitted that the same is applicable to the contractors and not to the builders. He also contended that the said AS VII in any case has not been notified by the Central Government u/s 145(2) of the Act.
18. We have considered the rival submissions and also perused the relevant material available on record. The assessee in the present case is engaged, inter alia, in the business of real estate development and book results declared by it showing profits from the different projects under execution during the year under consideration were rejected by the A.O. mainly on the ground that there was a change in method adopted by the assessee to recognize the income of different projects from percentage completion method to project completion method. It was also noted by the A.O. in this context that different methods were simultaneously followed by the assessee to recognize the income of different projects for the year under consideration. It is, however, observed that the method of recognizing income from housing projects was changed by the assessee from percentage completion method to project completion method in the earlier years by deciding to follow project completion method in respect of all the projects which commenced after 31-3- 2000. the new method adopted by the assessee was consistently followed to recognize the income of all the projects which started after 31-3-2000 and the method was adopted by the assessee was also accepted by the A.O. in the earlier years up to A.Y. 2003-04. During the year under consideration, some of the projects under execution had started prior to 31-3-2000 while some of the projects were commenced after 31-3-2000. Since the method adopted by 35 ITA 949/M/11 the assessee was consistently followed project-wise, the revenue of the projects which had started prior to 31-3-2000 was recognized by the assessee by following percentage completion method whereas the revenue of the projects which were started after 31-3-2000 was recognized by the assessee by following the project completion method. In our opinion, the method changed by the assessee in respect of project commenced after 31-3-2000 thus was consistently followed by the assessee and as rightly held by the ld. CIT(A), the A.O. was not justified in rejecting the book results of the assessee on the basis of change in the method adopted by the assessee or to different method allegedly followed by the assessee. It was also observed that even the change in the method of accounting adopted by the assessee was properly justified before the ld. CIT(A) by explaining with the help of results of one project to show that how the project completion method was more proper method to recognize the income from the projects in the change market condition. It was also pointed out by the assessee before the ld. CIT(A) that the revised AS VII relied upon by the A.O. was not applicable in the case and the same not being notified by the Central Government u/s 145(2), it was not mandatory. We, therefore, uphold the impugned order of the ld. CIT(A) accepting the method of accounting followed by the assessee to recognize its income from business income after holding that the A.O. was not justified to reject the book result declared by the assessee as per the said method.
19. Having held that the method adopted by the assessee to recognize the income from the project under execution during the year under consideration were proper, the next issue that arising is whether the income declared by the assessee from the said projects as per the method adopted by it was fair and reasonable vis-à-vis the estimates made by the A.O. It is observed in this regard that this aspect of the matter has been considered by the ld. CIT(A) in detail in his impugned order wherein he has given finding in respect of each and every project which was under execution during the year under 36 ITA 949/M/11 consideration after discussing the stand of the assessee as well as that of the A.O. As noted by him, Ganga Tower II project was commenced in A.Y. 2002- 03 i.e. after 31-3-2000, the entire profit of the said project amounting to Rs. 4.23 crores was declared by the assessee in A.Y. 2005-06 when it was completed by following the project completion method. This method consistently followed by the assessee for the said project was accepted by the A.O. in A.Y. 2002-03. Even in the assessment completed for A.Y. 2005-06, the entire profit offered by the assessee from Ganga Tower II project on project completion method was accepted by the A.O. bringing to tax the entire profit of the said project in that year. The A.O., however, disturbed this method in the year under consideration i.e. A.Y. 2004-05 and assessed the income of Rs. 3.36 crores as profit from the said project in the hands of the assessee by following percentage completion method. This clearly resulted in the double addition of the said income once in A.Y. 2004-05 and again in A.Y. 2005-06 which was totally unjustified. As regards Ganga Tower I project, it is observed that the same was commenced in the previous year relevant to A.Y. 1986-87 i.e. prior to 31-3-2000 and income from the said project was offered by the assessee in A.Y. 1986-87 to A.Y. 1994-95 by following percentage completion method which was consistently accepted by the A.O. The completion certificate in respect of the said project was finally received by the assessee on 5-11-2004 and accordingly the balance profit of the said project was offered by the assessee in A.Y. 2005-06 which was also accepted by the A.O. The entire income of the said project thus was brought to tax in the hands of the assessee as per percentage completion method consistently followed by the assessee in respect of the said project and the A.O., in our opinion, was not justified in bringing to tax the profit of Rs. 3 crores from the said project in the year under consideration by treating the said project as completed in that year when the said profit was duly offered by the assessee in A.Y. 2005-06 on the basis of completion certificate received and the same was accepted by the A.O. This action of the A.O. also resulted in double addition of the same 37 ITA 949/M/11 income in the hands of the assessee which was not justified as rightly held by the ld. CIT(A). Similarly, the profit from Kukreja Plaza project was declared by the assessee in A.Y. 1994-95 by following percentage completion method aggregating to Rs. 1.73 crores and the balance profit from the said project amounting to Rupees 0.89 crores was offered by the assessee in A.Y. 2006-07 when the said project was completed. The entire income of the assessee from the said project thus was already assessed to tax in the hands of the assessee as per the method consistently followed and there was no justification in the action of the A.O. in bringing to tax the said profit again in the hands of the assessee in the year under consideration which clearly resulted in double addition of the same income. The position as regards to Gopala Project was also found to be the same by the ld. CIT(A) inasmuch as the profits of the said project was offered by the assessee to tax on A.Y. 1989-90 to 2004-05 by following the percentage completion method which was accepted consistently by the Department. Even the balance profit of the said project offered by the assessee in A.Y. 2005-06 on the receipt of the occupation certificate was also accepted by the A.O. Still he again brought to tax the profit of the said project in the hands of the assessee in the year under consideration which clearly resulted in double addition of the same income in the hands of the assessee.
20. Having considered all the facts of the case as discussed by the ld. CIT(A) in his impugned order and remained uncontroverted/rebutted by the ld. D.R., we find that the income from different projects under execution during the year under consideration was offered by the assessee to tax by following consistently the well recognized method and there was no justification in the action of the A.O. in estimating the profit of the said projects at higher value by disturbing the method consistently followed by the assessee which clearly resulted in double addition of the same income. In our opinion, the addition made by the A.O. on this issue thus was not sustainable 38 ITA 949/M/11 either in law or in the facts of the case and the ld. CIT(A) was fully justified in deleting the same. We, therefore, uphold the impugned order of the ld. CIT(A) on this issue and dismiss ground No. a to f of the Revenue's appeal.
21. As regards ground No. 'g', it is observed that the issue involved therein relating to assessee's claim for deduction on account of business expenses of Rs. 36,37,375/- is consequential to the main issue involved in ground No. 'a' to 'f' of the Revenue's appeal inasmuch as after rejecting the book results, the A.O. estimated the income of the assessee from the real estate development without allowing any deduction on account of business expenses of Rs. 36,37,375/- incurred by the assessee. The ld. CIT(A), however, held the action of the A.O. in rejecting the book results as unsustainable and deleted the addition made by the A.O. by estimating the income of the assessee from the business of real estate development on higher side. Consequently, he allowed the business expenses of Rs. 36,37,375/- claimed by the assessee holding that there was nothing brought on record by the A.O. to establish that the expenses so claimed by the assessee were either bogus or were not incurred for the purpose of business. Since the impugned order of the ld. CIT(A) deciding the main issue in favour of the assessee upheld by us, the consequential relief allowed by him to the assessee by allowing the deduction on account of business expenses of Rs. 36,37,375/- is liable to be sustained as a corollary. We order accordingly and dismiss ground No. 'g' of Revenue's appeal.
22. In ground No. (h), the Revenue has challenged the action of the ld. CIT(A) in allowing 50% of depreciation amounting to Rs. 27,59,570/- claimed by the assessee in respect of hotel business.
23. During the year under consideration, the assessee had started a new business in the name of K. Stars Hotel. Investment of Rs. 8,34,82,152/- in 39 ITA 949/M/11 fixed assets was stated to be made by the assessee for the said business and depreciation thereon was claimed by the assessee to the extent of Rs. 55,19,141/-. While examining the claim of the assessee for the said depreciation, the A.O. found that purchases of Air conditioners and equipments were made by the assessee before 1-10-2003 whereas addition to the premises was shown to be made after 1-10-2003. Since the assessee could not offer any satisfactory explanation in this regard and also failed to establish how the assets purchased were put to use immediately for the purpose of hotel business, the A.O. disallowed the claim of the assessee for depreciation.
24. The disallowance made by the A.O. on account of depreciation was disputed by the assessee in the appeal filed before the ld. CIT(A) and the following evidence was produced by the it before the ld. CIT(A) to show that the hotel business was commenced during the year under consideration and all the assets were put to use for the said business:-
"(I) Fire NOC from Navi Mumbai Municipal Corporation dated 03.01.2004 for Hotel K Plaza D wing. - V
(ii) Licence for Eating House for K Star Hotel from NMMC
(iii) Licence fo Lodging, for K Star Hotel from NMMC
(iv) Shop & Establishment Licence of the K Star Hotel
(v) Permission from NMMC for displaying cloth banners on electricity polls of NMMC from 14.01.2004 to 11.02.2004 & 15.01.2004 to L4,02.2004 in Belapur & Nerul
(vi) Sale Bill No. 6 dated 19.01.2004 of K Star".
25. When the additional evidence filed by the assessee was forwarded by the ld. CIT(A) to the A.O. for his comments, the A.O. did not offer any material adverse comment to dispute the claim of the assessee made on the basis of the said additional evidence. The ld. CIT(A) also found that the said evidence was sufficient to establish that hotel K. Stars had started functioning on 17- 40 ITA 949/M/11 1-2004 and keeping in view of the same as well as the fact that gross receipts from the occupancy of the hotel has been shown at Rs. 18,23,766/-, he held that the assessee was entitled to claim depreciation on the assets put to use for hotel business. He, however, held that the said assets having been used by the assessee for less than 180 days during the year under consideration, the assessee was entitled to claim depreciation only to the extent of 50%. Accordingly, he directed the A.O. to allow the claim of the assessee for depreciation to the extent of 50%.
26. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that sufficient evidence was placed on record by the assessee before the ld. CIT(A) to show that the hotel business was started on 17-1-2004 and the assets thus were put to use for the said business from that date. Neither the A.O. in his remand report submitted to the ld. CIT(A) nor the ld. D.R. at the time of hearing before us has been able to bring anything on record to dispute this position. We, therefore, find no justifiable reason to interfere with the order of ld. CIT(A) directing the A.O. to allow the claim of the assessee for depreciation on the assets put to use for hotel business to the extent of 50% as the use of the said asset was for less than 180 days during the year under consideration. We, therefore, uphold the order of ld. CIT(A) dismissing ground No. "h" of the Revenue's appeal.
27. As regards ground No. (i), it is observed that the issue involved therein relating to assessee's claim for loss pertaining to the hotel business is similar to the one involved in ground No. (h) inasmuch as the ld. CIT(A) after having accepted that the hotel business of the assessee was commenced during the year under consideration, allowed the claim of the assessee for Rs. 8,18,327/- for the year under consideration. As we have upheld the findings of ld. CIT(A) that the hotel business of the assessee was commenced during the year under 41 ITA 949/M/11 consideration while deciding ground No. (h), we uphold his impugned order allowing the consequential relief to the assessee in terms of the loss claimed in respect of hotel business of Rs. 8,18,327/-. The impugned order of the ld. CIT(A) on this issue is upheld and ground No. (i) of Revenue's appeal is dismissed.
28. In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 29th November, 2013. .
आदे श क घोषणा खले
ु यायालय म दनांकः 29-11-2013 को क गई ।
Sd/- sd/-
(Dr. S.T.M. PAVALAN) (P.M. JAGTAP)
या यक सद य JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मंुबई Mumbai; दनांक Dated 29-11-2013
व. न.स./ RK , Sr. PS
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)--40, Mumbai.
4. आयकर आयु / CIT - Central II, Mumbai
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR, ITAT, Mumbai GBench
6. गाड फाईल / Guard file.
ु / BY ORDER,
आदे शानसार
स या पत त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.
उप/ Registrar)
आयकर अपील य अ धकरण,
धकरण, मंुबई / ITAT, Mumbai