Income Tax Appellate Tribunal - Jaipur
Unique Builders & Developers (Realty), ... vs Assessee on 30 April, 2015
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, JAIPUR
Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k
BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 464, 465 & 466/JP/2012
fu/kZkj.k o"kZ@Assessment Years : 2006-07 to 2008-09
M/s. Unique Builders & cuke The DCIT
Developers (Reality) C- Vs. Central Circle- 2
116, Janpath, Lal Kothi Jaipur
Scheme, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFU 7549 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 620, 621 & 622/JP/2012
fu/kZkj.k o"kZ@Assessment Years : 2006-07 to 2008-09
The DCIT cuke M/s. Unique Builders &
Central Circle- 2 Vs. Developers (Reality) C-116,
Jaipur Janpath, Lal Kothi Scheme,
Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFU 7549 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 467, 468, 469 & 470/JP/2012
fu/kZkj.k o"kZ@Assessment Years : 2006-07 to 2009-10
M/s. Unique Builders & cuke The DCIT
Developers (Ajit) C-116, Vs. Central Circle- 2
Janpath, Lal Kothi Scheme, Jaipur
Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFU 8858 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
2
vk;dj vihy la-@ITA No. 614, 615,616 & 617/JP/2012
fu/kZkj.k o"kZ@Assessment Years : 2006-07 to 2009-10
The DCIT cuke M/s. Unique Builders &
Central Circle- 2 Vs. Developers (Ajit) C-116,
Jaipur Janpath, Lal Kothi Scheme,
Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFU 8858 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri O.P. Agarwal &
Shri Manish Agarwal, C.A.
jktLo dh vksj ls@ Revenue by : Mrs. Rolee Agarwal, CIT - DR
lquokbZ dh rkjh[k@ Date of Hearing : 16/03/2015
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 30/04/2015
vkns'k@ ORDER
PER R.P. TOLANI, JM
This is a set of cross appeals in the cases of above two group concerns of Unique group, against the assessment orders passed u/s 153A r/w sec 143(3) for the assessment years mentioned above. The impugned assessments were framed consequent to search operations carried out on 28.01.2009 u/s 132 on various entities of Unique group engaged in various real estate projects as developers and builders. Detailed grounds are filed; for the sake of brevity and convenience they are concised as under:
1.0 Assessee's Grounds in Unique Builders & Developers (Reality) & Ajit for all years:3
''1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in a. Upholding the rejection of books of accounts by applying provisions of section 145(3) of the Income Tax Act, 1961 without appreciating the material on record b. Upholding "Percentage Completion Method" in place of "Project Completion Method" regularly followed by appellants which has been accepted by department in past.
c. Holding the flat booking advances as income, ignoring the fact that receipts were only advances against flat bookings and actual sale had not take place. Ld. CIT(A) erred in drawing an untenable conclusion that the ownership of property gets transferred on receipt of booking itself which is contrary to provisions of the Transfer of Property Act.
d. Drawing adverse inference from the contents of 'Annexure A Exhibit 2'in respect of laptop of third party Shri Navin Bhutani and using it against the assessee while making impugned additions.
2. Unique Builders and Developers ( AJIT) in AYs 07-08 to 09-10 -
Regarding reference of under construction projects held as stock in trade to DVO u/s 142A; Grounds :-
a. That the Ld. CIT(A) has further erred in upholding the action of the Ld. AO in making a reference to the DVO for valuation of the cost of construction of ongoing project of the assessee when in fact the project was under construction and AO had no right with regard to such reference as the precise valuation on a particular day in respect of property under construction is not practically feasible, hence the addition of Rs. 35,51,427/- for assessment year 2007- 08, Rs. 53,34,393/- for assessment year 2008-09 and Rs. 53,34,393/- (correct figure of Rs. 24,46,368/- subject to rectification by the AO) for the assessment year 2009-10 so uphold being difference between declared cost of construction and valued by DVO deserves to be deleted.
b. That the Ld. CIT(A) has further erred in not considering the fixed cost incurred by the assessee for working out the difference 4 between the declared cost of construction and the valuation done by DVO and if the same is considered the resultant difference would be lower than by 5% and thus the minor difference, if any, deserves to be ignored.
c. In the alternative the Ld. CIT(A) has also erred in ignoring the submission made and evidences adduced before him and furthermore by ignoring the fact that the DVO has made the valuation based on CPWD rates as against the State PWD rates and further not allowing the credit for self supervision @ 15% and if the credit of these factors is allowed, the resultant valuation is either equal to or less than the declared cost of construction, thus the addition of Rs. 35,51,427/- for assessment year 2007-08, Rs. 53,34,393/- for assessment year 2008-09 and Rs. 53,34,393/- (correct figure of Rs. 24,46,368/- subject to rectification by the AO) for the assessment year 2009-10 deserves to be deleted.
d. On the facts and in the circumstance of the case, Ld. CIT(A) has grossly erred in upholding the reference made to the DVO by ADIT u/s 142A as no proceedings were pending before the ADIT, Inv.-1, Jaipur, thus no cognizance could be taken of such report in assessment proceedings and the consequent addition made based on the DVO's report deserves to be deleted.
3. Revenue's Grounds - Unique Builders & Developers Reality & Ajit"
1 In the facts and circumstances of the case the Ld. CIT(A) Central, Jaipur has erred in law as well as on facts:
a. In relying on Guidance Note on Recognition of Revenue by Real Estate Developers issued by the ICAI, New Delhi in Nov. 2011 which would be applicable on or after 01.04.2012 and also on Discussion paper on tax accounting standards published by the CBDT in Oct. 2011 which has not yet been made applicable.
b. In holding that less than 25% of the stage of completion was to be treated as early stage of completion when revenue could not be reliably estimated and profit was to be taken as NIL despite the fact that there was no such provision in AS-7.
2a Ld. CIT(A) Central, Jaipur has erred in law and facts in directing the AO to allow deduction u/s 80IB of the Act on the profits and gains of 5 the business finally computed after modification even though no such claim was made in the return of income filed.
2b Ld. CIT(A) Central, Jaipur has erred in law and on facts in admitting additional evidences u/r 46A in support of the assessee's claim of deduction u/s 80IB of the Act even though ample opportunities were provided by the AO and no such evidences were filed.
4. Remaining ground i.e. Ground No. 1(i) of the revenue for A.Y. 2006-07 is as under:-
Whether on the facts and circumstances of the case the CIT(A) Central, Jaipur has erred in law as well as on facts in deleting the addition of Rs. 37,05,428/- (correct figure 34,00,259/-) even though the AO's action of determining income based on percentage completion method as per Accounting Standard (AS) 7 after invoking the provisions of section 145(3) of the IT Act, has been approved.
5. Remaining one Revenue ground for A.Y. 2006-07 & 2007-08 is as under:-
Whether on the facts and circumstances of the case the CIT(A) Central, Jaipur has erred in law as well as on facts in deleting the addition of Rs. 43,24,900/- (correct figure 40,68,865/-) for A.Y. 2006-07 and Rs. 3,99,12,551/- (correct figure Rs. 3,98, 92,405/-) even though the AO's action of determining income based on percentage completion method as per Accounting Standard (AS) 7 after invoking the provisions of section 145(3) of the IT Act, has been approved.
6. In the back drop of these grounds, brief facts are both assessee's are partnership firms consisting of respective partners, named and styled as:-
M/s Unique Builders & Developers (Realty) M/s Unique Builders & Developers (Ajit) (For the sake of brevity referred to as Realty and Ajit hereinafter) 6
7. Both the firms are part of Unique group which has many other entities for different real estate projects and came into existence on 01.04.2005. They also are engaged in the business of real estate and development of commercial / residential buildings. Since commencement they have regularly followed the "Project Completion Method" for its accounting which is one of the well recognized for the real estate builders. Returns of income were accordingly filed by the assessees. After the completion of search proceedings, ld ADIT in the case of AJIT sent a reference u/s 142A to DVO for estimating the cost of construction of its under construction projects for deferent valuation dates. The reference was objected by assesse as untenable and in violation of the mandatory conditions of sec. 142A, as no proceedings were pending before him.
In due course DVO sent his valuation report which was adopted by AO for additions in Ajit's case. Consequent to search conducted on 28.01.2009 notices u/s 153A were issued in response to which, returns of income were filed declaring same income as declared in original returns filed by them.
8. During the course of search assessments proceedings various issues were raised. Apropos the method of accounting - It was submitted by the assessees that they has been following mercantile system of accounting on the basis of 'Project Completion Method'. The books of accounts of assessee are subject to audit and the auditor has endorsed the adoption of 'Project Completion Method', veracity of books and declared profits. All the purchases and construction expenses are duly vouched and supported by requisite record. They 7 were produced before the Ld. AO as and when required from time to time which were examined by AO, no specific or material defects in the books or adoption of project completion method were found. According to assessee ld. AO objected to Project Completion Method; assessee filed detailed explanations and justifications which were rejected on hypothetical considerations. AO without proper justification truncated some of minor and irrelevant issues as defects in the audited books and rejected them u/s 145(3). Additionally AO substituted the method of accounting to Percentage Completion Method. Beside estimation of income was made by relying on the laptop contents of third party Mr. Navin Bhutani and extrapolating the same. In case of Ajit under construction projects held as stock in trade were illegally referred by ADIT to DVO u/s 142A for estimating the cost of construction. This action was without any basis as assesees no proceedings were pending before ADIT. Consequently very high pitched assessments were accordingly framed by ld. AO by very curious methodologies; in case of REALTY additions were estimated on the basis of extrapolation of the laptop printout of Shri Bhutani and in case of AJIT additions were estimated on the basis of Bhutani paper as well as valuation report.
9. Aggrieved assesses preferred first appeals, where it was vehemently contended that the 'Project completion Method' was one of the well-recognized method by ICAI, accepted in assessee's own group entities by department in 8 past. Method has been upheld by a catena of judicial precedents. Assessee's regular assessments were framed in the past by accepting the a/c books maintained on same method and following 'Project completion Method' as a proper method. Ld. CIT(A) however rejected the pleadings advanced by assesse and upheld the order of the ld. AO substituting the method of accounting and rejecting the books.
10. Apropos the valuation process ld. CIT(A) upheld the reference u/s 142A in the case of AJIT and upheld the AO's estimates of income in both cases.
11. However ld. CIT(A) allowed following claims:-
i. For initial years i.e. 2006-07 to 07-08 the projects were not developed even to 25% stage, therefore, no profits even on WIP method was held to have accrued in these years (it has no revenue implications as the relevant profits will be taxable in subsequent year; revenue has challenged this action).
ii. Alternative grounds that assessee's for eligiblility to for deduction u/s 80IB (which was not claimed in original returns as by following Project Completion Method there was no taxable income to claim deduction) was allowed and the WIP estimated income was set off against 80IB.
12. Aggrieved both assessee as well as department are in appeals raising respective grounds. Assessee has challenged the action of Ld. CIT(A) in upholding the rejection of books of accounts under section 145(3); change of accounting method to WIP; Reference to valuation officer in case of Ajit and 9 upholding of estimate of cost of construction and consequent additions in both the case. Department has challenged holding of initial two years of projects below 25% of completion as accruing no income in changed WIP method and allowance of deduction u/s 80IB in the years of profitability.
13. At the outset ld. Counsel for the assesse contends that Unique group as originally constituted was bifurcated into two branches due to some disputes amongst the stake holders. The search operations were carried out in all the entities of both divisions. All of the entities were following 'Project Completion Method" as their method of accounting; department has been accepting their method of accounting as recognized and approved method; assessments were made accordingly. Similar issues i.e. method of accounting and estimation of income consequent to same search of other Unique group cases reached to the level of ITAT Jaipur Bench. Consequently most of the grounds of assesse and revenue in these appeals are squarely covered by the decision of ITAT, Jaipur vide consolidated order dated 14.03.2013 in ITA No. 73/JP/2012 and 211/JP/2012 in the cases of M/s Unique Builders & Developers and M/s Unique Builders & Developers (Krishna). ITAT after considering similar facts, circumstances and judicial precedents held that "Project Completion Method" is a recognized, accepted by department and is an appropriate method for computing the income in these cases as against the Percentage of Completion Method applied by Ld. AO. It has been further held that no specific defects have 10 been pointed out by ld. AO to reject books of accounts and resort to estimate of income; consequently books of accounts were upheld by concluding that provisions of section 145(3) are not applicable to these cases. The relevant observations as contained in para 12 from pages 48 to 64 of the order are as under:
"12. We have heard parties with reference to material on record. The rival submissions as well as case laws brought to our notice have duly been considered. The assessee is engaged in the business of construction as a builder/real estate developer. The appellant has maintained complete books of account which are duly audited by a qualified Chartered Accountant. The assessee maintains its accounts on mercantile basis by regularly employing Project Completion Method. The closing stock has been valued consistently at lower of cost or net realizable value. The auditors have reported no change in method adopted by the assessee. The revenue has accepted this method in regular assessments made from year to year. An action under section 132 of the IT Act ("Act" for short) was taken on its business premises on 28.01.2009. On the same very day the members of the appellant group as well as of the separated group and their business /residential premises were also searched by the department. The assessee-appellant furnished return of income in response to notice issued under section 153A of the Act. The return of income was furnished on the basis of books of account maintained by it as no document giving rise to undisclosed income was found or detected by the search party. The books of account seized during the course of search were considered in making the assessment pursuant to notices issue under section 153A of the Act. The Assessing Officer reached a finding that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. The Assessing Officer after making elaborate discussion has rejected the books of account of the assessee by application of provisions of section 145(3) of the Act as they failed to depict the complete picture of accounts and moreover do not follow the method of accounting standard as specified under section 145(2) of the Act. The Assessing Officer has drawn support from few judgments rendered by the Appellate Tribunal and also by the judgment in the case of Kachwala Gems vs. JCIT, 288 ITR 10 (SC) for invoking provisions of section 145(3) of the Act.11
12.1. Section 145 as is relevant in the year under appeal is reproduced as under:- Sec. 145.
(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.
12.2. The first basis taken by the Assessing Authority in reaching a finding that the assessee's accounts do not depict correct and complete picture of its accounts is that the assessee has not maintained a detailed qualitative and quantitative stock register and failed to get the valuation of its closing stock verified with the detailed day-wise qualitative cum quantitative stock register. The appellant's case before the authorities below has, however, been that the assessee had kept both quantitative and qualitative details of material purchased by it as is evident from various ledger accounts related to construction material that were forming part of the seized material available with the assessing authority. All the expenses relating to the project including material purchased were charged to project/work-in-progress and directly taken to the balance sheet. In other words, the materials purchased for the project are issued to site immediately after its purchase and transferred to project in progress for determining profit at the time of completion of the project. No expenditure is charged to Profit & Loss account. The quantity so issued to the sites/projects is recorded in separate records maintained for each item of building material used therein. There was thus no need to maintain a detailed quality-wise quantitative register by the appellant. The lower authorities have not pointed out any defect in the valuation of project/work-in-progress. It is also not the case of the Assessing Officer that there have been omission or failure to record any purchases or direct expenses to the project in process nor even the 12 case is that the assessee has inflated the cost of such stock held and disclosed by the assessee in the financial statements presented along with the return of income. In fact, this is a case where the accounts were found duly audited by a qualified Chartered Accountant with no adverse comments with respect to correctness and completeness of the accounts maintained by the assessee or the method of valuation adopted by him. The appellant has valued the stock of project in process at cost as all the purchases of materials and direct expenses were charged to this account. The books of account stood seized as a result of search on assessee-appellant and the same were available with the Assessing Officer. The assessee had also produced requisite vouchers and other documents as were demanded by the Assessing Officer from time to time. It was, therefore, his own duty to verify quantity of each quality of goods purchased by the assessee and correctness of valuation disclosed in the accounts. For the remissness on the part of the Assessing Officer, assessee cannot be blamed. The Assessing Officer also appears to have casually stated that as per AS-2 it is essential that the details of both quality as well as quantity of different items of stocks including details of direct expenses and costs are required to be maintained meticulously. In fact, the AS-2 notified by the CBDT relates to disclosure of prior period and extra ordinary items and change of accounting policies. The accounts maintained by the assessee-appellant conform to the commercially accepted accounting standards and true profits of assessee's business could be deduced therefrom. The findings reached by the Assessing Officer are thus not factually correct with respect to the lacuna pointed out by him on maintenance of stock record as well as valuation of inventory held by the assessee.
12.3. In the case of Pandit Brothers vs. CIT, 26 ITR 159, the Hon'ble Punjab & Haryana High Court has held that the mere fact that there is no stock register, it only cautions him against the falsity of the return made by the assessee. He cannot say that merely there is no stock register, the accounts book must be false. The Hon'ble Supreme Court took note of this judgment in the case of S.N. Namasivayam Chettiar vs. CIT, 38 ITR 570 (SC) and held that it is for the Income-tax authorities to consider the material which is placed before him and if after taking into account in any case the absence of stock register coupled with other material, are of the opinion that correct profits and gains could not be deduced then they would be justified in applying the proviso to section 13 of the IT Act, 1922. On the peculiar facts in the present case in appeal 13 before us, merely because of non-maintenance of a detailed qualitative and quantitative register alone, the same could not be a valid reason to reach a finding that books of account do not present true and complete picture of accounts and financial transactions. The finding by the assessing authority being perverse is, therefore, set aside.
12.4. The second issue raised by the assessing authority for invoking provisions of section 145 of the Act is about non verification of some of the vouchers relating to payment in respect of direct expenses. The perusal of the impugned order reveals that this was only a prima facie view which the assessing authority entertained before issuing a show cause notice to the assessee for rejecting its accounts by invoking provisions of section 145(3) of the Act. He has not been able to point out as to which of these payments in respect of direct expenses could not be verified by him nor the Assessing authority is shown to have required the assessee to get payment of any specific amount of direct expenses verified. Merely for saying it could not be taken a lacuna in the books of account of the assessee and take the same as a reason for rejecting the books of account that were maintained by assessee in regular course of its business.
12.5. to 12.8
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12.9. There is also a feeble observation in the orders of the authorities below for rejecting the accounts that in the trade of real estates 'notorious trade practices' are prevailing. The Ld. Counsel for the assessee has placed reliance on the judgment by Hon'ble Apex Court in the case of Lalchand Bhagat Ambica Ram vs. CIT, 37 ITR 288 (SC) and also by Hon'ble Delhi High Court in the case of CIT vs. Discovery Estate Pvt. Ltd. 2013-TIOL-139-High Court-DEL-IT in which the practice of making additions in the assessment on mere suspicions and surmises or by taking note of the 'notorious trade practices' prevailing in trade circles has been disapproved. Having considered the aforesaid view, the finding of "on-money transactions" in the appellant's case by the authorities below is found without any basis and found perverse on facts. It, therefore, could not be a reason for rejecting the books of account maintained by the assessee in regular course of business.
1412.10. The last reasoning taken by the assessing authority as also stood confirmed by the Ld. CIT (A) is that the assessee has not followed Accounting Standards 9 & 7 which tantamount to not following Accounting Standard-1 as prescribed under section 145(2) of the Act in view of the exercise undertaken by the Assessing Authority to apply percentage of project method that gave a different and positive results revealing more profits taxable in the years under consideration. The Assessing Officer, therefore, changed the method to percentage completion method as against the project completion method regularly employed by the assessee. The admitted position and also the fact is that the appellant has regularly employed project completion method from year to year and the assessments prior to the date of search were also made by accepting project completion method. Both Project Completion method and the Percentage Completion method are recognized methods for assessment of correct income of the assessee under the IT Act, 1961. The choice of method of accounting, however, lies with the assessee. It is not open to the Assessing Officer to change his own opinion or change the method of accounting because he finds another method of accounting better than the one adopted regularly by the assessee and by rejecting his accounts substitute the same with another method of accounting without any just and reasonable cause. In the present case the exercise so undertaken being imaginary and rested on irrelevant considerations could not constitute a just or reasonable cause empowering the authority to change the method of accounting regularly adopted by the appellant. The revenue has also not been able to successfully demonstrate that the method of accounting provided under sub- section (1) or Accounting Standard notified under sub section (2) of section 145 of the Act have not been regularly followed by the assessee. Even for the first year, the method of accounting is deemed to have been employed if the same is shown to have been regularly employed in subsequent years. The decision by Hon'ble Delhi High Court in the case of CIT vs. Smt. V. Sikka & Another (1984) 149 ITR 73 (Del.) is relevant. The real estate developer is not a pure contractor but is a seller of flats/goods. The revenue recognition in the case of sale of goods is triggered on completion of performance as provided in para 11 of AS-9 "revenue recognition". It is not mandatory for a real estate developer to follow percentage of completion method as prescribed by the Institute of Chartered Accountants of India under AS-7. AS-7 issued by the Institute of Chartered Accountants of India, 15 recognizes the position that in the case of construction contracts the assessee can follow either the project completion method or the Percentage completion method. The judgment by Hon'ble Delhi High Court in the case of CIT vs. Manish Buildwell (P) Ltd. in ITA No. 928/2011 dated 15.11.2011 is relevant. Neither the revised Guidance Notes 2012 issued by Institute of Chartered Accountants of India nor the Exposure Draft for Guidance Note on Recognition of Revenue issued by the Institute of Chartered Accounts of India in 2011 are mandatory. The completed contract method followed by the appellant, therefore, could not be faulted with by the revenue and the assumptions made by the Assessing Officer that by not following AS-9 & 7 the same tantamount to not following prescribed AS-1 under section 145(2) of the Act are found misplaced, unnecessary and uncalled for besides being contrary to principles of interpretation of the statutory provisions. The same, therefore, could not be taken a valid basis for change of method regularly employed by the appellant. The Income-tax Authority, therefore, has no option or jurisdiction to meddle in the matter either by directing the assessee to maintain its account in a particular manner or adopting a different method for valuing work-in-progress. It also cannot re-compute income by adopting any method other than that regularly employed by the assessee- appellant in a case like this nor make the same as basis to reject its accounts.
12.11. The Apex Court in the case of CIT vs. McMillan & Co. 33 ITR 182 (SC) has also entertained this opinion which is evident from the following passage :-
"The section enacts that for the purposes of section 10 (profits of business, profession or vocation) and section 12 (income from other sources) income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. The choice of the method of accounting lies with the assessee ; but the assessee must show that he has followed the method regularly for his own purposes. The section and the proviso read together clearly make such a method of accounting regularly employed by the assessee a compulsory basis of computation unless, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom. If the true income, profits and gains cannot be ascertained on the basis of the assessee's method, or where no method of accounting has been regularly employed, the income must be computed upon such basis and in such manner as the Income-tax Officer may determine."16
12.12. Again the Apex Court in the case of Investment Ltd. vs. CIT 77 ITR 533 (SC) has taken a view that the tax payer is free to employ any method of accounting but the same should be consistently and regularly followed by him. This is so evident from the following passage :-
"In the balance-sheet, it is true, the securities and shares are valued at cost, but no firm conclusion can be drawn from the method of keeping accounts. A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities, income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods."
12.13. The Apex Court in the case of United Commercial Bank vs. CIT 1999 240 ITR 355 (SC) after considering the judgement in the case of British Paints India Ltd. 188 ITR 44 (SC) which is also relied upon by the authorities below against the appellant before us is found to have entertained a view that a method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping of accounts or of valuation. The Revenue's reliance upon the decision in CIT vs. British Paints India Ltd. (supra) in no way advanced the case of the revenue. The Apex court while dealing with the contention of the assessee in that case for valuation of the raw material without taking into account any portion of the cost of manufacture, held that:-
"the question of fact which the Assessing Officer must necessarily decide is whether or not the method of accounting followed by the assessee discloses the true income and observed thus) : "It is a well- recognised principle of commercial accounting to enter in the profit and loss account the value of the stock-in-trade at the beginning and at the end of the accounting year at cost or market price, which-ever is the lower."
The court further considered section 145 of the Act and observed that what is to be determined by the officer in exercise of the power 17 is a question of fact, that is, whether or not income chargeable Under the Act can be properly deduced from the books of account and the question must be decided with reference to the relevant material and in accordance with the correct principles. The court also observed : "Where the market value has fallen before the date of valuation and, on that date, the market value of the article is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods. Valuation of the stock-in- trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But which-ever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand, he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the true income of the assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to section 145, which concerns a correct and complete account but which, in the opinion of the officer, does not disclose the true and proper income." Hence, for the purpose of income-tax whichever method is adopted by the assessee, a true picture of the profits and gains, that is to say, the real income is to be disclosed. For determining the real income, the entries in a balance-sheet require to be maintained in the statutory form, may not be decisive or conclusive. In such cases, it is open to the Income- tax Officer as well as the assessee to point out the true and proper income while submitting the income-tax return."
12.14. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Margadarshi Chit Funds (P) Ltd., 155 ITR 442 (AP) did not find any justification in the entertainment of the view by the Assessing Officer that there could be a better system of accounting. This is no reason to the application of the provisions of section 145 of the Act. The relevant passage as contained at page 447 of the report is reproduced as under :-
"The ITO's view that there could be a better system of accounting is no reason to the application of the provisions of s. 145 of the I. T. Act, especially in view of the fact that this system of accounting is followed by the assessee uniformly and regularly for the past several years, and was accepted by the Department without quarrel. It is not open to the ITO to intervene and substitute a 18 system of accounting different from the one which is followed by the assessee, on the ground that the system which commends to the ITO is better. Attention may be invited to the decisions in:
(i) CIT & EPT v. Chari and Rant [1949] 17 ITR I (Mad) ;
(ii) CIT v. Srimati Singari Bai [ 1945] 13 ITR 224 (All) ;
(iii) CIT v. K. Doddabasappa [1964] 54 ITR 221 (Mys) ; and
(iv) Juggilal Kamlapat, Bankers v. CIT [1975] 101 ITR 40 (All).
These are all decisions which lend support to the proposition that the Department is bound by the assessee's choice of accounting regularly employed unless it can be said that the method of accounting followed by the assessee does not reflect the true income. The AAC, as well as the Income-tax Appellate Tribunal, after a careful scrutiny, came to the conclusion that the system of accounting employed by the assessee is consistent and regular and the ITO, therefore, is not entitled to interfere with the system of accounting followed by the assessee, unless it is possible for him to make out and bring the case within the terms of s. 145 of the I. T. Act. On this basic issue itself, the Department's contention that the dividend should be assessed in the hands of the assessee as and when it is received, in substitution of the method of accounting followed by the assessee, should fail. Even otherwise, we are not persuaded to accept the view that the system of accounting followed by the assessee is in any way defective."
12.15. The Apex Court had also an occasion to consider the Percentage of completion method and Completed Project Method in the case of CIT vs. Bilahari Investment Pvt. Ltd., 299 ITR 1 (SC). In this judgment it has taken a view that recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The Completion Contract method is one of such methods. Under the Completed contract method, the revenue is not recognized until the contract is completed. Under the said method, costs are accumulated during the course of the contract. The Profit and Loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. The method leads to objective assessment of the results of the contract. On the other hand the Percentage of Completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method 19 is determined by reference to the stage of completion and can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The Apex Court again in the case of CIT vs. Hyundai Heavy Industries Co. Ltd., 291 ITR 482 (SC) took the similar view and held at page 495 as under :-
"Lastly, there is a concept in accounts which called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No. 7. They are "completed contract method" and "percentage of completion method". Thus, as both the methods of accounting are recognized methods of accounting, the assessee is at liberty to choose any of the above and if any one of the method of accounting is consistently followed by the assessee, the assessing officer cannot change the method of accounting to the "percentage of completion method."
12.16. The Hon'ble Delhi High Court while dealing with the similar situation in the case of CIT vs. Manish Buildwell Pvt. Ltd. in ITA No. 928/2011 dated 15.11.2011 held that 'after the above judgement of Supreme Court in CIT vs. Bilahari Investment Pvt. Ltd., 299 ITR 1, it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of taxes which are to be assessed annually under the Income-tax Act. Accounting Standard AS-7 issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (supra), the findings of CIT (A), upheld by the Tribunal does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year on selective basis. This will distort the true profits and gains of business."
2012.17. The judgment rendered by Apex Court in the case of Kachwala Gems vs. JCIT, 288 ITR 10 (SC) the Hon'ble Apex Court has observed that several cogent reasons have been given on facts by Income-tax authorities for rejecting the books of account and that is the reason no different view could be taken on this issue. This case as well as other case laws brought on record by revenue are distinguishable on the peculiar facts of this case in hand and the same do not advance revenue's case.
13. Considering entire conspectus of the case in the light of the peculiar facts and findings reached herein before in this case, it is neither proper nor justified to hold that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. It is a case where accounts of the assessee are correct and complete. Method of accounting and accounting standard has been regularly followed. True and correct profits of the business of the assessee could be deduced from such books of accounts. In this view of the matter the assessing authority could not change the method regularly adopted by the assessee from Project Completion Method to Percentage Completion Method on irrelevant considerations. We are, therefore, satisfied that provisions of section 145(3) are not attracted in this case. The Ld. CIT (A), is found to have erred in upholding the decision of Ld. Assessing Authority to invoke section 145(3) of the Act and making assessment in the manner provided under section 144 of the Act. We, therefore, set aside the decision in this regard and allow ground nos. 2 & 3 raised in appeal by the assessee in assessment year 2003-04".
14. Further this judgment has been followed by this very bench in one of the other group concern M/s Unique Builders (Rama) Vs. DCIT, Circle-2, Jaipur, ITA No. 649/JP/12 & 650/JP/12 for AYs 2008-09 & 2009-10 vide order dtd. 16-1-15. ITAT reversed the action of AO in rejecting the books of account u/s 145(3) and applying percentage of completion method. Post minor rectification u/s 254(2) by the ITAT vide order dated 13.02.2015 in M.A. No. 12 & 13/JP/2015, reads as under:-
21''2.1 The ld. Counsel for the assessee at the outset contends that the issue in question is squarely covered by ITAT Jaipur Bench consolidated order dated 14-03-2013 in the assessee's own group cases i.e. M/s. Unique Builders & Developers vs. DCIT (ITA Nos. 73 to 77/JP/12, 689 to 690/JP/12 for assessment year 2003-04 to 2006-07, 2009-10, 2007-08 & 2008-09) and Unique Builders & Developers (Krishna) (ITA No. 78 to 80/JP/12 for the assessment year 2007-08 to 2009-10) wherein the rejection of books of account u/s 145(3) of the Act have been held to be not proper and assessee's method of accounting i.e. project completion method has been upheld by following observations by this Bench of ITAT in its group cases (supra).
''13. Considering entire conspectus of the case in the light of the peculiar facts and findings reached herein before in this case, it is neither proper nor justified to hold that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. It is a case where accounts of the assessee are correct and complete. Method of accounting and accounting standard has been regularly followed. True and correct profits of the business of the assessee could be deduced from such books of accounts. In this view of the matter the assessing authority could not change the method regularly adopted by the assessee from Project Completion Method to Percentage Completion Method on irrelevant considerations. We, are, therefore, satisfied that provisions of section 145(3) are not attracted in this case. The learned CIT(A), is found to have erred in upholding the decision of learned Assessing Authority to invoke section 145(3) of the Act and making assessment in the manner provided under section 144 of the Act. We, therefore, set aside the decision in this regard and allow ground Nos. 2 & 3 raised in appeal by the assessee in assessment year 2003-04.
14. In the light of our decision in assessee's appeal, the grounds raised in appeal by revenue become infructuous and stand rejected.
15. Parties have fairly admitted that there being identical facts in the appeals for the assessment years 2004- 22 05 to 09-10 and identical issues have been raised, the same may therefore be disposed off in the light of decision and conclusions that is taken for assessment year 2003-04. That being so the facts and circumstances being parameteria same in assessment years 2004-05 to 09-10 and no new fact or reasoning is shown to have been taken by the learned CIT(A) in taking the decision, we for the parity of reasons and respectively following our decision for assessment year 2003-04, allow assessee's ground Nos. 2 & 3 in all these years in appeal whereas Revenue's grounds in appeal for assessment years 2004-05 to 06-07 and 09-10 become infructuous and stand rejected. Charting of interest under section 234B being mandatory and consequential, the assessing authority shall re-compute the same accordingly.
16. In the result, all the appeals by assessee stand partly allowed and that by revenue stand dismissed. '' 2.2 The ld. DR is heard.
''2.3 We have heard the rival contentions and perused the materials available on record. The facts and circumstances of the assessee's case and its other group cases are similar. Thus in view thereof and respectfully following the consolidated ITAT order referred to above, we uphold the books of account of the assessee and also uphold method of accounting of project completion method as followed by this Bench of ITAT in assessee's group of cases. Thus in the entirety of the facts and circumstances, the additions are deleted and the appeals of the assessee are allowed. ''
15. It is thus vehemently argued that in the cases of both separated group entities of Unique group involving identical set of facts and circumstances, the action of AO in rejecting books of account, changing the "percentage of completion method" in place of "project completion method" and the estimated additions stand squarely deleted by above detailed ITAT orders.
2316. To reiterate the similarity of facts and issues it is contended that:
a. The grounds for rejection of books of account u/s 145(3) were identical as under:
i. That, the assessees could not produce day-wise qualitative- cum-quantitative stock register, therefore, valuation of closing stock was not possible as required under Accounting Standard
- 2 (AS-2).
ii. That, some vouchers relating to payment of direct expenses could not be verified.
iii. That, during the course of search certain incriminating documents were found which contained noting of cash out of books by the members of Unique Group on the basis of which the members of the unique group had surrendered income.
b. "Project completion method" regularly followed by assessees was substituted with "Percentage of completion method" in all the cases. Thus the issues and grounds being same, it is submitted that the observations of this Tribunal in above referred group cases are squarely applicable in the present appeals also. On principles of judicial discipline these observations deserve to be followed by upholding the Project Completion Method; upholding books of accounts and deleting additions.
17. On merits of the appeals ld. Counsel for the assesse submitted as under:
2.3 It has not been disputed that assesse group entities in past have been regularly following the "project completion method" for accounting its income from the building development activities. Following it the total amount spent on the construction of the residential project undertaken was transferred to "Work In Progress" (WIP) account which is duly reflected as current assets as appearing in the balance sheet. Ld. AO citing vague and immaterial reasons arbitrarily held that assessee's books do not present true and fair picture of accounts thereby unjustifiably invoked the provisions of section 145(3) of the Income Tax Act.24
2.4 The vague and unsustainable reasons cited by Ld. AO are as under:
i. That, the assessee could not produce day-wise qualitative-cum-
quantitative stock register, therefore, valuation of closing stock was not possible as required under Accounting Standard - 2 (AS-2).
ii. That, some vouchers relating to payment of direct expenses could not be verified.
iii. That, during the course of search certain incriminating documents were found which contained noting of cash out of books by the members of Unique Group on the basis of which the members of the unique group had surrendered income.
2.5 Ld. AO gave these findings without appreciating the copious explanation and submissions filed in support of the method of accounting and absence of any defects in the books. Ld. CIT(A) also in a summary manner upheld the AOs rejection of method of accounting by making following observations:
i. The income need to be determined on the basis of percentage of completion method in the manner explained in AS-7-Construction Contract.
ii. That, other firms of the assessee's group had received on money on sale of flats which were allegedly found noted in the loose papers / documents found and seized during the course of search iii. That, in case of other firms of assessee's group including assessee the recorded sale price of different flats on different locations and different projects showed variation.
It is contended by ld. Counsel that AOs allegation of non-maintenance of stock register and consequent non-compliance with AS-2 is without any basis or merit. In the Project Completion Method the stock consists of capitalized value of land and other expenditures towards construction and development of project.25
Since no question has been raised about expenditure the day to day capitalized value represents the day to day stock. Complete records thereof are maintained, since the project was not complete and the entire construction expenditure is treated as Work In Progress (WIP) and which is always valued "at cost". The Accounting Standard - 2 (AS-2) issued by the Institute of Chartered Accountants (ICAI for short) with regard to "Valuation of Inventories" clearly states that in case of construction business, the valuation of WIP should be done in accordance with Accounting Standard- 7 (AS-7) related to 'Construction Contracts'. As per AS-7, the cost directly attributable to the construction activity should be recognized in construction account. Thus, all the expenses relating to the project, including the material purchased, were charged to the WIP account and were directly taken to the Balance Sheet and no expenditure is charged to the Profit and Loss Account except the indirect expenses. AO also for estimating the profits has adopted the same figure for estimation of income as per his own imposed method i.e. percentage completion method. Thus there is no effective merit in the allegation of the Ld. AO that the stock records are not properly maintained or valued. In these facts and circumstances, the provisions of section 145(3) are not at all applicable at all. Section 145(3) prescribes only two Accounting Standards which have no relevance with the valuation of closing stock. The Accounting Standards which are prescribed u/s 145 are:
1) AS-1 : Relating to disclosure of Accounting Policies 26
2) AS-2 : Disclosure of prior period and extraordinary items and change in accounting policies.
Ld. AO has misdirected himself by erroneously resorting to AS-7 and AS-9 to somehow invoke the provisions of section 145(3) even when no defects whatsoever have been found in the books of accounts regularly maintained. In support of these submissions, reliance is placed on the following case laws:-
a) Das's Friends Buliders (P) Ltd. Vs. DCIT (2004) 88 TTJ (Agra) 651:
that it was settled law that the books of accounts could be rejected on cogent reasons. The addition to trading results could be made only when the proviso to section 145(1) and provisions of section 145(3) are invoked. The only reasoning for invoking section 145(3) appearing to be non- maintenance of separate issue of stock register is not so grave to warrant rejection of books of accounts.
b) Income Tax officer Vs Prakash Chand 2006 (100) TTJ(Jd) 639: that when the AO had not pointed any specific defect in the books of account and had also not found out any inflated purchases or suppressed sales. The mere non-maintenance of stock register would not warrant rejection of books of account.
c) The Hon'ble Rajasthan High Court in the case of Gotan Lime Khanij Udyog resorted in 256 ITR 243 has held that mere non maintenance of stock records does not leads to the addition.
18. Apropos AO's allegation of non-verification of certain vouchers pertaining to direct expenses, ld. Counsel referred to various written submissions filed with AO showing that all the vouchers, including vouchers relating to direct expenses were produced. Besides books of accounts and records were seized and in the remained in the custody of ld. AO. Therefore, this finding of the ld. AO is not correct and adverse inference drawn to reject 27 books of accounts on this score is also not tenable. The finding is contrary to the facts on record and based on surmises and conjectures.
19. Apropos the allegations about admission of income by group members as a result of search and seizure of some incriminating papers the same are claimed to be incorrect and contrary to record. It is contended that from the perusal of the record and assessment order it can be observed that not a single incriminating paper whatsoever was found and seized during the search. This is further demonstrable from the fact that ld. AO has not pointed out any single document found as a result of search indicating any undisclosed income of the assessee. In the absence of any reliance on incriminating material in the entire length and breadth of the order there is no merit in the allegations of ld. AO in this behalf to justify rejection of the books of accounts of assessee. Thus the action of rejection of books u/s 145 is arbitrary and devoid of any merit, justification or tenability as per set judicial principles. In support of these contentions, reliance is placed on the following case laws:
a) Vishal infrastructure ltd. Vs. ACIT (2007) 107 TTJ (Hyd) 484: that when the AO had not pointed out any specific defect or had not made any specific addition and the AO had only made general observations could not be a valid reason for rejection of books.
b) Dhiraj lal Ghirdarilal vs. CIT (26 ITR 736 SC) that addition cannot be sustained where the finding of the tribunal were vitiated by reason of its having relied upon suspicions and surmises, not supported by any evidence on the record or upon partly inadmissible material.
c) The Hon'ble Gauhati High Court held in the case of Aluminium Industries Pvt. Ltd. Vs. CIT (80 Taxman 184) that in the absence of any 28 specific finding that accounts of the assessee were not correct and complete and/or that income could not be properly deduced from accounting method employed by assessee, the books of accounts cannot be rejected merely because of fall in gross profit rate. Similar view was taken in the case of Pushpanjali Dyeing & Printing Mills Pvt. Ltd. Vs. J.C.I.T [72 TTJ 886 (Ahd)].
d) The Hon'ble Allahabad high Court held in the case of CIT vs. Mascot (India) Tools & Forgings (P) Ltd. (2010) 36 DTR 336 that in the absence of any specific instances of mistakes in the books of account and other records, the book result cannot be rejected on the basis of any hypothetical calculations based on erroneous presumptions.
20 It is submitted that the Ld. AO as well as Ld. CIT(A) erred in rejecting the books of account in leveling baseless allegations and unfounded observations. The rejection of books of account is based purely on the basis of assumptions, presumption, conjectures and contradictory findings and the action is unsustainable in the eyes of law. It is prayed that the action of Ld. AO and Ld. CIT(A) in making / upholding the rejection of books of accounts deserves to be held as bad in law and liable to be reversed.
21. Apropos the application of Percentage of Completion method by Ld. AO in order to compute the income of assessee, it is submitted that, for the purpose of accounting the income from construction business, two methods have been suggested by the Institute of Chartered Accountants of India (ICAI) -
(1) Project Completion Method (2) Percentage of Completion Method 29 Both are recognized methods for maintaining the books of accounts in respect to the construction business. Thus, the project completion method regularly followed by assessee's entities could not be disturbed merely by observing that it does not result into significant income for a particular assessment year; it has been lost sight of a crucial fact that in project completion method, the entire income is computed and offered to tax in the year when the project is substantially completed. Thus, by choosing either of the methods in absolute terms there is no denial of taxability of the income earned by assessee from a particular project and the impugned exercise of changing the method of accounting by ld. AO has no revenue implications in effective terms. Unless the Assessing Officer can show that the method of accounting regularly followed by assessee is defective or unrecognized, section 145(3) does not entitle the Assessing Officer to the methods of accounting regularly followed by assessessee which also is in accordance with the Accounting Standards recognized by the ICAI. Therefore, a vague and unsubstantiated allegation by AO that significant income is not offered to tax in a particular assessment year is neither suggestive of avoidance of tax nor it can be a valid basis for rejection of books and arbitrary conversion to %completion method. In this regard reliance is placed on the following decisions delivered by Hon'ble Apex Court and various High Courts:
a. 41 DTR 233 - CIT vs. Walfort Share & Stock Brokers (P.) Ltd. (SC) TAX AVOIDANCE - TAX PLANNING - Colourable device - Even assuming that the transaction was pre-planned, there is nothing 30 to impeach the genuineness of the transaction, hence loss arising in the course of a dividend stripping transaction before the insertion of s. 94(7) w.e.f. 1st April, 2002, cannot be disallowed - Dividend stripping transaction cannot be said to be "abuse of law" even if it was pre-planned.
b. 263 ITR 706 Union of India v. Azadi Bachao Andolan (SC) The question whether a particular delegated legislation is in excess of the power of the supporting legislation conferred on the delegate, has to be determined with regard not only to specific provisions contained in the relevant statute conferring the power to make rule or regulation, but also to the object and purpose of the Act as can be gathered from the various provisions of the enactment. It would be wholly wrong for the court to substitute its own opinion as to what particular principle or policy would serve the objects and purposes of the Act; nor is it open to the court to sit in judgment over the wisdom, the effectiveness or otherwise of the policy, so as to declare a regulation to be ultra vires merely on the ground that, in the view of the court, the impugned provision will not help to carry through the object and purposes of the Act.
c. 187 Taxman 242 CIT Vs. Rockman Cycle Industries (P) Ltd. (Punj. & Har.) Interest on borrowed capital - Assessment year 1986-87 - Whether though tax planning is permissible even if it results in avoidance of tax, yet legitimacy of claim for deduction has still to be made out on principles of business expediency - Held, yes - Assessee borrowed money from its sister concern on interest at rate of 18 per cent per annum and purchased shares from other sister concern which carried dividend at rate of 4 per cent - Assessing Officer held that there was no justification to borrow funds at rate of 18 per cent interest for making investment in shares, which would give a dividend of 4 per cent only and having regard to fact that borrowing was made from sister concern and investment was also in another sister concern, claim for interest was to be disallowed - Commissioner (Appeals) upheld order of Assessing Officer - However, on second appeal, Tribunal allowed assessee's claim holding that it could not be prevented from making investment only because return from shares was low; and that it was in wisdom of assessee to have entered into transactions even if such transactions were not prudent - Whether since Tribunal, while taking its decision, had not applied test of business expediency, its order was to be set aside - Held, yes - [Question as to whether having regard to relationship between 31 different concerns, where a transaction, which is patently imprudent, takes place, taxing authority should examine question of business expediency and not go merely by fact that assessee had taken a decision in its wisdom which may be wrong or right, was referred to a Larger Bench of High Court].
d. 37 DTR 297 Porrits & Spencer (Asia) Ltd. Vs. CIT (P&H) TAX AVOIDANCE-TAX PLANNING- Colourable devise vis-à-vis transaction in securities--Once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification.
e. 44 DTR 97 Vodafone International Holdings B.V. Vs. Union of India & Anr. (Bom.) Tax avoidance - Tax planning - Legitimate transaction vis-à-vis colourable device - Citizens and business entities are entitled to structure or plan their affairs with circumspection and within the framework of law with a view to reduce the incidence of tax - However, a transaction which is sham or a colourable device cannot be countenanced.
f. 46 DTR 339 CIT Vs. Pivet Finance Ltd. (P&H) Tax avoidance - Tax planning - Colourable device vis-à-vis transactions in shares - Assessee's act of transferring shares to another group of companies at prevailing market rate, to reduce its taxable income, cannot be dubbed as colourable device to evade taxes.
g. In United Commercial Bank Vs. CIT [1999] Taxman 601/240 ITR 355 (SC) it was held that:
(1) for valuing the closing stock, it is open to the assessee to value it at cost or market value, whichever is lower, (2) in the balance sheet even if the securities and shares are valued at cost, from that no firm conclusion can be drawn; a taxpayers is free to employ for the purpose of his trade his own method of keeping accounts and, for that purpose, to value stock-in-trade either at cost or market price;
(3) a method of accounting adopted by the taxpayers consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation;32
(4) whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation; (5) under section 145 of the Income Tax Act, 1961, in a case where accounts are correct and complete but the method employed is such that in the opinion of the ITO the income cannot be properly deduced there-from, the computation shall be made in such manner and on such basis as the ITO may determine, Preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting the income tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly.
That could not be discarded by the departmental authorities, on the ground that the assessee was maintaining balance sheet in the statutory form on the basis of cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments).
22. Ld. CIT(A) failed to appreciate that guidance notes issued by ICAI are merely recommendatory in nature and assessee has a legal option to opt one of them a fact has been acknowledged by the ICAI. The guidance note cannot be considered to override a legislation so as to assume that it can overrule the rulings of the Hon'ble Apex Court. Thus, by giving overriding preference to guidance note in a vague manner to convert the method of accounting, ld.
CIT(A) has subdued the authority of the Hon'ble Supreme Court of India which itself make his action as bad in law. Ld. AO while referring to AS-9 has observed that the revenue from the sale of goods has to be recognized when the seller of goods has transferred to the buyer, the property in goods or all significant risks and reward associated with the ownership have been transferred to the buyer and the seller does not retain any effective control of the goods to a degree usually associated with ownership. These observations have been upheld 33 by the Ld. CIT(A). Both the ld. Authorities have erroneously put the assessee builder at par with the civil contractors who carried out construction activity in terms of the specific work awarded to it. In case of assessees, being builders, all the risks remain vested with it till the date of ultimate sale to the buyer through registered sale deed and handing over of physical possession and prior to that it is the property of the builder. The sale is liable to be cancelled and assessee has to repay the booking amounts including the eventuality of failure or abandonment of any project. Besides in para 3 of the Guidance note itself contain a clear answer to recognition of revenue in such a situation in following terms:-
"The real estate sale takes place in variety of ways and may be subject to different terms and conditions as specified in the agreement for sales. Accordingly, the point of time at which all significant risks and rewards of ownership can be considered as transferred is required to be determined on the basis of the terms and conditions of the agreement for sale. ..."
Thus, it can be seen that the Guidance note itself mentions that the point of time when all risks and rewards are transferred is required to be determined in accordance with the terms and conditions of the advance booking agreement for sale. Clause 4 of Agreement to Sale made by assessee is reproduced as under
4. Nothing contained in these presents shall be construed to confer upon the Purchaser any right, title or interest of any kind whatsoever in, to or over the said premises or common areas or common amenities. Such conferment shall take place only upon the execution of sale deed in favour of the Purchaser.34
It is clear that in the advance booking agreement to sale relied by the Ld. AO and Ld. CIT(A), the parties specifically agreed that no right, title or interest of any kind shall be conferred upon the buyer until the sale deed is executed in favour of the purchaser. Therefore, the allegation of the Ld. AO and CIT(A) that as per the Guidance note the risks and rewards of ownership are transferred at the time of advance booking agreement of sale is executed is self-contradictory, baseless, unfounded and any adverse inference drawn in this behalf has no legs to stand. Ld. AO has failed to appreciate the vital fact that merely by making advance booking of a flat it cannot be assumed that any income has arisen to the assessee. The advance received remain a liability till the sale transaction is completed by delivering possession and sale deed is executed. That is the precise reason that the amount of advance received by builder is recorded in the liability side of the Balance Sheet; accordingly there is no element of accrual of income these circumstances. Since the assessee does not transfer the title or ownership to proposed buyer at the time of booking by receiving advance and both parties are at liberty to cancel the booking, any income neither accrues nor arises and as such the ratio laid down by Hon'ble Apex Court in 56 ITR 612 in case of CIT Vs. Ashok Bhai Chimanbhai and followed by Karnataka High Court in CIT Vs. ABU Ganda 157 ITR 697 are not applicable as in these cases, the entry towards such income was made in the books of accounts as the performance in consideration of which income was received had already been carried out. Whereas in the case of assessee, neither the performance was 35 completed nor the receipt stood ascertained, thus no income did either accrue or arose. A plethora of judgments including the following have upheld the application of Project Completion Method in the case of real estate builders:
V . S. Dempo & Co. Pvt Ltd. 103 CTR 203 (Bom) Nirmal Commercial Co. 193 ITR 694 Shapoorji Pallonji & Co. P Ltd. 49 ITD 479 In the light of these facts, circumstances and judicial precedents it is vehemently argued that the Ld. AO rejected the method of accounting regularly followed by assessee on an unfounded reason that no substantial income was offered for taxation in these years. The action of the Ld. AO is not only capricious, against the provisions of law but also arbitrary and deserves to be reversed and the method of accounting employed by the assessee "Project Completion Method"
deserves to be upheld.
Ground of Appeal Nos. 02 to 2.2 [For A.Y. 2006-07 to 2008-09]:
23. These grounds of appeal relate to the additions based on seized paper "A-
2 Page 51" which have been seized from the possession of a third person namely one "Shri Naveen Bhutani". Along with the search on the members of unique group on 28.01.2009, a search u/s 132 was simultaneously conducted at the residential premises of one 'Shri Naveen Bhutani', an ex-employee of the assessee. In terms of the panchnama drawn during the course of search at the said premises of Shri Naveen Bhutani, total 3 exhibits were found and seized which includes the following:
36a. Annexure A-1 : containing 9 loose papers, b. Annexure A-2 : being 2 computer CDs containing data downloaded from Laptop Soni Vio and Pen Drive of Shri Naveen Bhutani and; c. Annexure A-3 : containing data unloaded from Laptop HP Pavilion 2046 of Shri Gurusharan.
24. During the course of assessment proceedings, Ld. AO vide letter No. 48 supplied the photocopies of two pages, one page bearing No. A-2/108 and other bearing no number and the same were claimed to be the copies of printouts taken from the data recorded in the CDs downloaded from laptop and Pen Drive of Sh. Naveen Bhutani during the course of search at his residential premises.
None of the two pages bear signature or initials of the person from whose possession they were allegedly seized. It has been claimed by Ld. AO that, on being confronted with these papers by ADIT on 16.03.2009, Shri Naveen Bhutani allegedly accepted that the said papers are the print outs taken from the CDs prepared during the course of search at his residence. The relevant question No. 7 of the statements recorded on 16.03.2009 has been reproduced at page 36 of the assessment order, however, no copies of the said statements were ever supplied to assessee in spite of the specific requests made by assessee. In reply to Q. No. 7, a reference to the total number of pages i.e. 215 was made however, these copies were never provided even though the said papers as well as the statements have been used against the assessee.
3725. During the assessment proceedings, assessee furnished following replies:
-First reply (APB 86-87, relevant page 87):-
2. As regard Annexure 'A' Exhibit-2 stated to be seized from the possession of Shri Naveen Bhutani, it is submitted that as per the panchnama prepared during the course of search at the residence of Shri Naveen Bhutani at F-499, Gandhi Nagar, Jaipur, the total loose papers seized only 9 (Annexure A-1) besides the seizure of two computer CD's containing data from laptop Sony Vio and PAN drive of Shri Naveen Bhutani (As per Annexure A-2) and data from Laptop HP Pavalion 2046 of Shri Gurusharan (As Annexure A-3)) thus no such papers as stated in the above referred letter and copy of pages bearing No. A-2/108 and other pages having no number, appears to have been seized, (copy of panchnama enclosed). It is further requested that the copies of the Annexure A-2 if any having any pages, as stated may kindly be supplied so that the necessary reply after perusal and verification in consultation with the person searched i.e. Shri Naveen Bhutani could be submitted. This is without prejudice to our legal right to cross examine Shri Naveen Bhutani. You may also rely kindly supply us the version and stand of Shri Naveen Bhutani in the matter.
a. Second reply (APB 76-80):
That during the course of search conducted at the residential premises of Shri Naveen Bhutani (an ex-employee of the assessee) at F-499, Gandhi Nagar, Jaipur, print outs of certain papers stated to have been taken from the computer laptops found with Shri Naveen Bhutani were taken. Further in the statements recorded of Shri Naveen Bhutani on 28.01.2009, a question was asked to explain the nature of the data available in the said laptops, the relevant question No. 20 and answer thereof are reproduced herein below for ready reference:
iz'u% 20 vkids ;gka ryk'kh dh dk;Zokgh ds nkSjku nks Laptop o ,d iSu Mªkbo ik, x, ftuds MkVk nks CD ij Copy fd, x, ftUgsa Annexure A/2 o A/3 ekdZ fd;k x;kA mDr nksuks CD annexure A/2 o A/3 tCr Hkh dh xbZ] d`i;k crk,sa dh mDr nksuksa CD esa tks Data gS og fdlls lEcfU/kr gSA mÙkj% buesa ls ,d Laptop o PAN Drive esjs gSa ftudk Data ,d CD A/2 ij Copy fd;k x;k o lHkh Data esjs ls ;wfud Mªhe fcYMlZ ls lEcfU/kr gSA nwljk Laptop gekjh dEiuh ds deZpkjh Jh xq: 'kj.k 38 lkguh dk gS ftlds Data ,d vU; CD Annexure A/3 esa Copy fd, x, gSa os Jh xq:'kj.k o ;wfud Mªhe fcYMlZ ls lEcfU/kr gSA mDr nksuks CD esa account ls lEcfU/kr dksbZ Data ugha gS] blesa dsoy O;fDrxr data o ;wfud Mªhe fcYMlZ ds izkt s Ds V~l ls lEcfU/kr Presentation o fcØh ls lEcfU/kr tkudkjh lekfgr gSA eSa viuh dksbZ ys[kk iqLrdsa ugha fy[krk gWAw From the perusal of the answer, your goodself would observe that out of two laptops found, one was related to the person searched i.e. Shri Naveen Bhutani and the other one was related to Shri Gurusharan Sahni. Shri Naveen Bhutani further stated that the data available in the said laptops contained their personal information besides the information related to the sales and presentation of the projects of Unique Dream Builders and no specific information whatsoever was asked nor has been pointed out during the course of search.
In your letter dated 22.09.2010, copies of two pages bearing No. A- 2/108 and other pages having no number, have been supplied stating that the same were the print outs taken from the CDs prepared during the course of search at the residential premises of Shri Naveen Bhutani containing the data available in the computer laptops.
As has been submitted earlier, the said papers were never shown to the assessee nor the copies of the same were ever supplied, and it is further submitted that none of the paper supplied by your goodself contained signature of any of the partner / employee or the person from whose possession the papers as alleged have been found, thus no cognizance of the paper could be made and accordingly no adverse inference be drawn based on these papers.
Without in any manner admitting the papers relating to the assessee, it is submitted as under:
From the perusal of the papers containing No. A-2/108 your goodself would observe that it is a projection of various projects computed after 01.04.2001 and the precise details of the entries contained therein could not be submitted as Shri Naveen Bhutani was presently not in service of the assessee and therefore we are unable to understand the nature of entries from him.
The paper contains the projection of the cost as well as the realization and profits of total 9 projects out of which three 39 projects namely "The Milestone", "Unique Sanghi Apartment" and "Southern Heights" are the projects promoted and developed by the group headed by Shri Ajit Singh and known as UDB group.
In the case of "The Milestone" the project was developed and completed by the company M/s Mohindra Ajit Builders & Constructions Pvt. Ltd. and the project was completed in assessment year 2005-06 wherein after accounting for all the revenues and cost incurred to assessee the net profit of Rs. 18,25,721/- was declared in the assessment year 2005-06 after claiming the loss of Rs. 6,39,507/- as declared in the immediately preceding year. The return of income was filed u/s 139(1) within the statutory permissible time limit. It is further submitted that if both the papers i.e. page No. A-2/108 and the other paper having bearing no number are read together your goodself would observe that at in one page the average per sq. ft. sale rate is mentioned at Rs. 1,242/ in one page and in another page it is mentioned at Rs. 3500/-. Further the total cost of the project in one page has been mentioned at Rs. 1.344 (figures assumed as crores) and in the other page the cost has been worked out at Rs. 4.8672 crore. Further the realization in one page has been mentioned at estimated project revenue - 3.726 (figure assumed as crore) as against the other page having net realization at Rs. 10,50,00,000/- which is purely a hypothetical figure based on no actual basis.
In the case of project Unique Sanghi Apartments, in one page the developer share has been mentioned at 56% as against the actual share of 54% based on the builder developer agreement already submitted before your goodself. Further the total receipts and the profits projected has been worked out on the basis of the total area constructed without being considering the fact that the assessee's share in the said project was only to the extent of 54% and the cost as incurred and recorded in the books of accounts based on the respective bills and vouchers has not been considered at all. Further the average sale rate has been mentioned at Rs. 1500/- sq. ft. in one page and in another page it is mentioned at Rs. 1800/- sq. ft. as against the actual yearly average rate of more than Rs. 2000/- per sq. ft. as recorded by the assessee in his books of accounts. It is further submitted that as on the date of search the project was under construction and approximately 75% of the work was completed and since the assessee has followed the project completion method for recognize its revenue therefore, the entire expenses has been claimed as work-in-progress.40
With regard to the third project "Southern Heights", it is submitted that as on the date of search less than 50% work was completed and as such no profits whatsoever could be ascertained, since neither the sale has been effected nor the possession was given as not a single flat was completed and ready to delivery.
In the circumstances it is submitted that the details contained in the said papers are merely the projected workings made in a normal course of business and has no bearing on the assessee more particularly when the person from whom possession the same were seized has also deposed in his statements that the data contains in the computer laptop are merely related to the representation and personal work.
The method as adopted by the assessee is a recognized method and since the sales in the case of assessee has taken place when the physical delivery of flat / office constructed is transferred to the buyer thus, the method adopted by assessee to recognize the income deserves to be accepted.
It is also submitted that only real income could be taxed and any income based on the hypothetical figures could not be fastened to the assessee. Since the assessee has followed the project completion method of accounting, any liability towards the payment of tax could not be fastened on any projection or hypothecation of figures. S. 145 of the Act prescribes that business income shall be computed in accordance with " ... system of accounting regularly employed by the assessee". The choice of method of accounting is with the assessee and unless conditions prescribed in S. 145(3) are satisfied, profits have to be computed in accordance with the method of accounting followed by the assessee. [CIT v. McMillan & Co., (1958) 33 ITR 182 (SC), CIT v. A. Krishnaswami Mudaliar and Others, (1964) 53 ITR 122 (SC)}. S. 5 provides for scope of income chargeable to tax and to the extent relevant to the issue it reads: "accrues or arises or is deemed to accrue or arise to him . . . .". What is chargeable to tax is income, which has accrued or arisen to a person. The concept of accrual was considered in E. D. Sassoon & Co. v. CIT, (1954) 26 ITR 27 (SC) and it was held: "What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called income".41
It is thus submitted that the papers as referred by your goodself are mere rough working, thus no adverse inference on the basis of the papers is called for.
Reliance is also placed on the following caselaws:
1. 225 ITR 746 Godhara Electricity Co. Vs. CIT (SC) Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialize.
2. 170 Taxman 238 CIT Vs. Federal Bank Ltd. [2008] (Ker.) That only real income is assessable under the Act.
3. 207 ITR 364 CIT V/s S.M.S. Investment Corporation (P) Ltd.
(Raj.) Calculation on a slip of paper could not be treated as the income of the assessee.
4. 39 ITD 183 Ashwani Kumar V/s ITO (Del.) Where the document found during the course of search did not indicate whether figures mentioned therein refer to quantities of money or quantities of goods it was a dumb document and therefore, no addition could be made on the basis of such a document.
5. 67 TTJ 838 Jagdamba Rice Mills V/s ACIT (Chd.) Documents seized during search not being as to whether item were payments or receipts or some other calculations, so no additions could be made on the basis of such a dumb document.
6. 71 ITD 245 Chander Mohan Mehta V/s ACIT (Pune) Since the loose papers did not indicate name of assessee, from list of persons given in loose papers it could not be inferred that either any loan or any advance was given to or received from those persons, and since total amount on those loose sheets indicated a very small amount, those loose papers alone would have to be considered as dumb papers 42 having no evidentiary value and no addition could be sustained on the basis of them.
7. 21 TW 125 Chandalal Kalayanmal V/s ACIT (ITAT, Jaipur) 233 ITR 588 Jayantilal Patel and Dr. Balvir Singh Tomar V/s ACIT & Otrs. (Raj.) 25 Tax World 87 (Raj. High Court) Where seized paper are not found from the possession of the assessee no can be made on the basis of the papers found.
b. Third reply (APB 71-75):
From the bare perusal of the said papers it would be observed that the papers as titled are the unauthorized compilation of the information on the ongoing projects of UB as well as UDB group. The figures mentioned are fanciful and statistical fallacies which will be proved from the following examples:
Name of Net realization Total
Per sq. Estimate Value
project sellabl
ft. sale d sq. ft.
e area
price per
without 2BHK
profit flat
Southern 4,84,90,00,000. 3,40,00 14,261.7 1100 ft. 1,56,87,940.
Heights 00 (Four 0 sq. ft. 6 00
hundred Eighty
Four crores
and Ninety lacs
of rupees)
From the perusal of the above table it would come to surface that the sale price of a 2BHK flat in Jagatpura has been worked out at Rs. 1,56,87,940/- say Rs. 1.56 crores which is an impossibility as even in today circumstances such flats are available in Jagatpura 13 to 14 lacs of rupees which is a verifiable fact. Thus making any reliance on such papers would not only lead to an absurd and unrealistic fantasy stories but would result into a mockery of the taxing system and the law of interpretation. We are also enclosing herewith the DLC rates which fully commensurate and confirm the working presented by the assessee before the department.
The example given above is not only a solitary case but would also match with other assertions in the above stated incriminating papers wherein if the second paper is referred the profit worked 43 out in C-2 Plaza (commercial) is 3,55,55,00,000/- i.e. Three hundred fifty five crores and fifty five lacs on a constructed area of 11000 sq. ft. It may also be noticed that the figure of 3,55,55,00,000/- is only a profit figure and what may have possibly be the sale price should go into few thousand crores.
Taking the other example on the same page in the Unique Sanghi Apartment project, a profit of Rs. 32,76,00,000/- has been worked out at a net realization figure of Rs. 7,10,00,000/- as against these projections the assessee has worked out and have offered the realistic incurrence of expenditure with entire details supported by vouchers coupled with the sale consideration arrived at from actual purchasers whose names and addresses are also available in the seized record in the same search.
Further, both the papers as referred to in your above stated letter does not reconcile with each other which is evident from the following examples:
1. In page titled as A-2/108 in column No. 1 details of project of Royal Paradise are mentioned wherein the cost of the project is mentioned as 1.389 crore as against this the cost based on the figures mentioned in another page in the same project, if calculated comes to Rs. 3.5150 crores [(1500 × 10000) + (31000 × 650)]. Further the average sale rate is mentioned at Rs. 756/- per sq. ft. as against the selling rate of Rs. 1,200/- per sq. ft. mentioned on the other paper for the same project. Likewise the project revenue is mentioned at Rs. 2.31 crore with G.P. of Rs. 0.9548 crore in one page as against the figure of sale at Rs. 40.50 crore with profit of Rs.
53,50,000/- in another page for the same project.
Similar type of errors as mentioned in point No. 1 above are appearing in the other projects also which clearly establish that both the papers contained different figures for a single project therefore, neither these two papers could be read together nor their contents could be considered as authentic in any manner and be verified with records based on which any adverse inference could be drawn.
The group headed by Shri Ajit Singh and known as UDB group has owned and completed three projects appearing in the said pages 44 named as (1) The Milestone Commercial, (2) Unique Sanghi Apartment and (3) Southern Heights and the comparison of the figures noted in the said pages and the actual figures based on the books of accounts maintained in the regular course of business, the registered sale deeds executed between the parties for purchases and sales and the builder developer agreements can be tabulated as under:
Particulars The Milestone Unique Sanghi Apartments Southern Heights Paper Actual Paper Actual Paper Actual Land Area 1,444 1,475.30 15,225 15,225 13,900 12,773 (Sq. Yds.) Land Cost 1,73,28,000 1,27,89,993 18,27,00,000 Not 8,34,00,000 42,00,000 Applicable Construction 30,000 34,707 3,57,000 4,73,200 3,40,000 3,73,717 Area (Sq.
Ft.) Construction 950 1,006 725 582 725 1,036 Cost Per Sq. Ft. Selling 3,500 1,820 1,800 2,033 1,250 1,266 Price Per Sq. Ft. Net 10,50,00,000 3,72,58,809 7,10,00,000 30,89,80,011 4,84,90,00,000 41,52,96,226 Realisation in Rs. Profit in Rs. 5,91,72,000 23,40,650 32,76,00,000 3,36,80,930 `,00,000 2,83,10,185
From the perusal of the aforesaid table your goodself would observe that the figures as found noted on the papers are not at all matching with the real figures as neither the land area nor the constructed area, the cost of construction, the sale price mentioned are not matching nor they are correct and actual figures as the same are fanciful and vague figures noted for the purpose best known to the person making the same as till date the department is not in a position to bring on record the person, who admitted the said papers prepared by whom and contained the entries based on the actual state of affairs.
Your kind attention is invited to the events tabulated below which relates to the entirety of the incriminating papers stated to be related to the assessee M/s UDB group.45
Important status of the incriminating papers under question:
Incriminating Whether Whether Seized from Version on Version on Treatment Examination paper signed by signed by the person these papers of these papers of these of Shri anybody anybody Shri Naveen of Shri papers in Naveen from the from the Bhutani Gurusharan the hands of Bhutani and assessee's department Shri Shri side Naveen Gurusharan Bhutani in post and / or search Shri enquiries, if Gurusharan any A-2/108 No No Not known as Q.No. 20 of the No version Not Not informed to whether it statements available informed to to us inspite is seized dated us inspite of of request from Naveen 28.01.2009 as request Bhutani or reproduced in Gurusharan our submission of even date Un-numbered No No Not known as Q.No. 20 of the No version Not Not informed photocopy of to whether it statements available informed to to us inspite a paper is seized dated us inspite of of request from Naveen 28.01.2009 as request Bhutani or reproduced in Gurusharan our submission of even date From the perusal of the above table your goodself would observe that the department has miserably failed to establish the fact that the figures as found noted in the said papers are in anyway be the actual figures based on some authentic or logical material either found as a result of search or brought on record in post search inquiries or even at the stage of assessment proceedings in progress.
We therefore once again humbly pray that these papers on law as well as on merit deserves to be discarded from consideration in the assessment proceedings or in the alternative if the department continues to rely upon these papers we may kindly be supplied a reasoned show cause notice with reference to each project on all its as is where is figures in the incriminating papers and the other corroborative and contemporary evidences available with the department and further the customers etc. alongwith the so called persons having made such papers be brought on record for our cross examination, failing which the assessee reserves its right to challenge such an absurdity under article 226 of the constitution as any reliance on such papers would not only send the assessee group into liquidation but would make undesirable precedents for the future as well as existing entities in building construction line.46
We may also incidentally mention here that the projects mentioned in such papers have also undergone the valuation and re-valuation by the department and the results of such DVO reports are matching 95.7 to 100% with that of the figures recorded in the books of accounts of the assessee and offered / tendered for verification from time to time wherein no mistake as so far being pointed out. Though they may not be any statutory provision in the act that the assessee could force the department to purchase any property however, to relieve the pain in our heart we offer the entire property to the department on a valuation substantially lower than the values stated in these papers. It will also not be out of place to mention that making such projections is nothing and unusual exercise and the error of few digits is also nothing uncommon, thus any reliance on such papers would be nothing but an overstretching of the things at the end of the department which is not legal.
Although we are mindful that the assessments in hand are subject to the time barring limitations yet for any such limitation or other thing the justice cannot be murdered thus the service of show cause notice on every pointed issue and the cross examination is not only a legal right granted to the assessee by the Income Tax Act, 1961 and the constitution of India but it is also incumbent upon the department to observe every legal formality which leads to the determination of a rational and realistic income in the case of every assessee small or big.
26. It is contended that ld. AO failed to appreciate the fact that the entries found noted on the seized papers are nothing but some projective figures compiled probably by the person from whose possession they were stated to have been found / seized for some presentation purposes. The entries are full of errors / omissions / guess work and are totally imaginary having no logical impact as they are absolutely unmatchable to the real state of any project or actual transactions. Ld. AO failed to appreciate the settled legal preposition that presumption u/s 132(4) is rebuttable. Besides the material was not seized from 47 the assessee against whom it is used. More importantly there is no indication or evidence that they ever prepared under instructions / knowledge of the assessee.
Nevertheless assessee rebutted the presumption if any which can be attributed to it by proper explanation; in this eventuality the burden was on ld AO to prove with cogent and corroborative material that the entries are in fact that they were made at the instance of the assessee and are relatable to its business. The additions have been made by fastening burden of wrong presumptions on assessee, without controverting its rebuttal and by bringing on record any corroborative evidence in this behalf. In spite of repeated requests, neither the copies of the seized papers, the alleged statements which are used against assessee nor any opportunity of cross examination was provided. This reflects the predetermined approach to willy nilly make the imaginary and arbitrary additions. Besides the ld. AO has allegedly decoded the figures appearing in the seized papers based on wild guess work resulting in astronomical additions which are impossible to be earned in competitive real estate market. It is further submitted that after receiving the assessment order, partners of the assessee firm made an effort to locate and communicate with Shri Naveen Bhutani from whose possession the alleged papers were stated to have been found, and on enquiry the facts as gathered are enumerated as under:
1) That, after the search Shri Naveen Bhutani met with an accident on 24.02.2009 and had to undergo a major surgery of his left leg and was confined to total bed-rest under medical advice, this is mentioned in the statements recorded on 16.03.2009.48
2) He was not in a position to move and on 16.03.2009, the ADIT namely Shri Jai Singh along with few other persons, visited his house carrying a bunch of papers and his statement was also recorded on 16.03.2009.
3) As per Shri Naveen Bhutani, the ADIT had brought a bunch of loose papers stating that these are the printouts taken from the CDs written during the course of search from the data contained in his laptop, however, no printout whatsoever was taken either in front of Shri Naveen Bhutani and he was never allowed to verify whether the data available in the CD is the same, thus the veracity of these papers is highly doubtful and questionable, they can't be relied against assessee as an evidence.
4) The books of accounts are fully reliable and cost of construction incurred ia supported by authentic third party bills and vouchers which have not been questioned. No independent enquiries were made to cross verify the genuineness of expenditure similarly none of the buyers were questioned about payment of any on money. Thus the entire exercise comprising of rejection of books, change in method of accounting, reference to valuation and estimation of income is without any justification. The exercise which has been undertaken to willy nilly make additions and by summarily brushing aside the evidence, explanations, legal provisions, judicial precedents and verification of relevant aspects.
5) It is contended that the alleged papers are neither found in the possession of the assessee nor any entry is co related to assessee's books in any manner. Cost of construction is an allowable expenditure and no prudent builder will deliberately reduce the cost as has been assumed by the AO. Assessee has duly discharged its onus which if at all lay upon it about the alleged contents from Mr. Bhutani's laptop. They have been demonstrated to be some theoretical projections of ex employee Mr. Bhutani in respect of some other project which is not at all related to the assessee. No entry therefrom has been ever correlated to assessee's books. A duly sworn affidavit of Shri Naveen Bhutani confirming these details, facts was submitted before Ld. CIT(A) which also remains wholly uncontroverted.
6) Thus the thoratical projections attributable to third party Mr. Bhutani, for which assessee has discharged its onus which not effectively controverted by ld. AO or CIT(A) cannot be used against 49 assessee for any addition. Besides ITAT has already held this view and cannot be changed in assesses case going by judicial discipline.
7) Further reliance is placed on the following decisions:-
8) 207 ITR 364 CIT V/s S.M.S. Investment Corp. (P) Ltd. (Raj.) -
Presumption u/s 132(4) that contents of documents seized in search is rebuttable.
9) 41 ITD 97 Kishan Chand Sobhrajmal Vs ACIT (JP) (ITAT,Jaipur) u/s 132(4) presumption about documents seized contents in search is rebuttable.
10) 72 ITD 340 DA Patel V/s DCIT (Mumbai) ITAT - An interest calculation sheet was found seized in search but no hundies were found in support of receipt of said interest amount it could not be said that those amounts were actually received and, therefore, no addition could be sustained in respect of those amounts.
11) 107-Taxman-44 (Mag.) Ramakant Umashanker Khetan V/s. ACIT ITAT Nagpur - Whether addition to undislcosed income for alleged receipt/ payment of on money to different parties based on records seized from another person and statement made by such person without confronting assessment therewith and without conclusive supporting evidence to prove said transactions had to be deleted - Held, yes - Whether addition for alleged payment for acquiring tenancy right in metrocity without conclusive evidence of assessee having made such payment in face of denial by recipient of said sum, had to be deleted, Held, yes.
12) 211-ITR-178 CIT Vs. R.Y. Durlabhji (Raj.) [Page 189]- In Dhakeswari Cotton Mills Ltd. V. CIT (1954) 26 ITR 775 (SC), Omar Salay Mohamed Sait V. CIT (1959) 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram V. CIT (1959) 37 ITR 288 (SC), it has clearly been held by the apex court that there must be something more than mere suspicion in support of an assessment and mere suspicion cannot take the place of proof for the purpose of passing an order of assessment.
13). 99 ITD 183 Bansal Strips (P) Ltd. Vs. Asstt. CIT (Delhi) - There was force in the contention of the assessee that there was no provision of law under which the impugned addition could be made to the income declared by the assessee. It is trite law that if an income not admitted by an assessee is to be assessed in the hands of the assessee, the burden to 50 establish that there is such income chargeable to tax is on the Assessing Officer. With a view to assist the Assessing Officer and to reduce the rigour of the burden that lay upon the Assessing Officer, provisions of sections 68, 69, 69A to 69D have provided for certain deeming provisions, where an assumption of income is raised in the absence of satisfactory explanation from the assessee. As these are deeming provisions, the conditions precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The Assessing Officer cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income could not be assessed in the hands of the assessee merely by arithmetically totaling various figures jotted down on the loose documents. In other words, for the purpose of resorting to deeming provisions, dumb documents or documents with no certainty have no evidentiary value. After consideration of the matter, the contentions of the assessee had to be agreed with. The impugned addition had been made by the Assessing Officer on grossly inadequate material. The same was, therefore, directed to be deleted. [ Para 36]
14) 34 TW 226 Jai Kumar Jain Vs. ACIT (ITAT, Jaipur Bench) - Whether addition can be made in a block assessment on the basis of loose papers found during search of third parties without establishing those transactions as related to assessee ? - Held No - Further held that no presumption can be drawn against the assessee u/s 132 (4A) of the Act in respect of a paper not found from him.
15.) 130 TTJ 42 Sheth Akshay Pushpavadan Vs. Dy. CIT (Ahd 'A') (UO) - Payment of on-money vis-à-vis seizure of diary from third party - Whether there is no incriminating evidence available against the assessee on record, addition for so called on-money could not be made on suspicion and surmises - Presumption under section 132(4A) is not available when the seized paper is recovered from third party and not from the assessee.
16). 300 ITR 372 Mangilal Agarwal (Late) Va. ACIT (Raj.) - S.68 - Search and seizure - Presumption that goods seized belong to assessee - Scope of - Income from undisclosed sources - Seizure of primary gold and gold ornaments by customs authority - CEGAT finding assessee not owner of gold and released gold from confiscation - Assessing authority failing to establish ownership - Presumption of ownership cannot be 51 drawn on possession - Necessity of nexus between conclusion and primary facts - Value of gold not taxable in hands of assessee.
17.) 308 ITR 230 CIT Vs. D.K. Gupta (Delhi) - Search and seizure - Presumption about notings and jottings in documents seized - Explanation by assessee alongwith documents, evidence and affidavit - Burden toprove assessee wrong on department - Finding of fact by Tribunal that no evidence to presume notings materialized into transactions - Assessee liable to tax only on receipts proved to be income of assessee - Income Tax Act, 1961, s. 132(4A).
18.) 287 ITR 209, 221 (SC) P.R. Metrani Vs. CIT - The presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in section 132 or any other provision of the Act to indicate that the presumption provided under section 132 which is a self-contained code for search and seizure and retention of books, etc. can be raised for the purposes of framing of the regular assessment as well. Wherever the Legislature intended the presumption to continue, it has provided so. Reference may made to section 278D of the Act which provides that where during the course of any search under section 132, any money, bullion, jewellery or other valuable articles or things or any books of account etc. are tendered by the prosecution in evidence against the person concerned, then the provisions of sub-section (4A) of section 132 shall, so far as may be, apply in relation to such assets or books of account or other documents. This clearly spell out the intention of the Legislature that wherever the Legislature intended to continue the presumption under sub-section (4A) of section 132, it has provided so. It has not been provided that the presumption available under section 132 (4A) would be available for framing the regular assessment under section 143 as well.
It is thus prayed that the additions having been made in untenable manner and without cogent material deserve to be deleted.
27. Apropos ground of Appeal No. 04 for A.Y. 2007-08 to 2009-10 in case of AJIT assessee has challenged the action of Ld. CIT(A) in upholding the reference made u/s 142A to the DVO. A reference was made to the DVO by the ADIT, Inv.-1, Jaipur, vide letter dated 13.05.2009 for estimation of value of 52 investment made by the Unique Group in construction of its various projects.
DVO submitted its Valuation Report which makes a clear mention of referring officer and section 142A as "Assistant, Director of Income Tax (Inv.) - 1, Room No. 242, NCRB, Statue Circle, Jaipur". No assessment or reassessment was pending before ADIT (Inv) - 1, Jaipur so as to authorize him for making such reference. It is vehemently contended that the reference to DVO made by ADIT (Inv) - 1, Jaipur was invalid as the conditions prescribed by section 142A were not fulfilled and the ADIT (Inv) - 1, Jaipur had no jurisdiction / authority to make such reference under this section for estimation of cost of construction. The provisions of section 142A read as under:
142A. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B [or fair market value of any property referred to in sub-section (2) of section 56] is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.
(2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957).
(3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment:
Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A.53
Explanation.-- In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).]
28. A bare perusal of the above provisions would reveal that no action u/s 142A can be taken unless following conditions are fulfilled as:-
a. The words used in the opening part of section 142A are 'for the purpose of making an assessment or reassessment under the Act', which clearly shows that a reference u/s 142A to DVO can be made by the Assessing Officer only when assessment / reassessment proceedings are pending before the him. When no such proceedings are pending, no reference to DVO can be made u/s 142A. This contention of assessee is supported by the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Umiya Co-op. Housing Society Ltd. reported in (2009) 314 ITR 272 (Guj) wherein, the Hon'ble Court has observed as under:
Reassessment - Cost of construction - Reference to valuation officer - No assessment proceeding pending before Assessing Officer - Assessing Officer has no jurisdiction to refer property for valuation to Valuation Officer - Income Tax Act, 1961, S. 147. In the opening part of section 142A the words used are "for the purposes of making an assessment or reassessment under the Act". The intent of the legislation is that the matter can be referred to the Valuation Officer only when the proceedings of assessment or reassessment are pending before the Assessing Officer. When no such proceedings are pending, the Assessing Officer has no jurisdiction to refer any property for assessment.
Further, in the case of ITO Vs. Vijeta Educational Society reported in (2009) 118 ITD 382 (Lucknow), the Hon'ble Tribunal having followed the judgment in CIT Vs. Umiya Co-op. Housing Society Ltd (supra) had observed as under:
The word "making" referred to under section 142A of the Income- tax Act, 1961, should be presumed to be associated with both "assessment" or "reassessment". There cannot be any reference 54 under section 142A of the Act when there is no process of assessment which is initiated after filing of the return of income or issuance of notice under section 142(1) of the Act. Similarly, the process of reassessment could be initiated only after issuance of notice under section 148(1) of the Act after duly fulfilling the formalities mentioned therein. The invoking of section 142A is a process after the reopening of the assessment. A reference to the Departmental Valuation Officer can be made only when a requirement is felt by the Assessing Officer for making such reference. The requirement would arise or could be felt only when there is some material with the Assessing Officer to show that whatever estimate the assessee had shown is not correct or not reliable. The use of the word "require" is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the Assessing Officer is necessary which requires him to make a reference to the Departmental Valuation Officer under section 142A of the Act. Therefore, it is apparent that a reference to the valuation cell under section 142A of the Act can be made during the course of assessment and reassessment and not for the purpose of initiating reassessment.
These judgments were followed in the case of Gopi Apartments Vs. ACIT reported in [2010] 132 TTJ 249, by the Tribunal by observing as under:
Income form undisclosed sources - Addition u/s 69 - Reference to Valuation Officer u/s 142A - Reference to valuation cell u/s 142A can be made only when the proceedings of assessment or reassessment are pending before the AO and not otherwise - since no assessment or reassessment proceedings were pending on 27.09.2007, reference made to the DVO on that date for obtaining valuation report of the building constructed by the assessee was invalid and no addition could be mqad eon the basis of the valuation report - Even otherwise, the reference to DVO cannot be said to have been made u/s 142A as the period for which the estimate of investment was called for, was not specified therein -
Hence, the DVO's report could not have been made the basis for making the addition.
In the present case, no assessment / reassessment proceeding was pending either before ADIT (Inv.)-1, Jaipur as on the date of making reference i.e. 13.05.2009 55 or even the Assessing Officer i.e. DCIT, Central Circle-2, Jaipur since the notice u/s 153A was served upon assessee on 18.07.2009. Thus ld. ADIT(Inv)-
1, Jaipur, who was neither the Assessing Officer, nor before whom any assessment proceeding was pending on the date of making reference, therefore, the same is illegal in terms of sec u/s 142A, this is a settled legal position in view of the judicial precedents enumerated above.
b. Section 142A empowers only the Assessing Officer as authorized to make reference to DVO u/s 142A as the term specifically used in the provision is "Assessing Officer" and not any other officer including ADI. consequently the section being clear and unambiguous word of law cannot be misinterpreted by forcibly applying external aids of construction.
c. bare perusal of the section would reveal that reference to DVO for estimation of value u/s 142A can be made only with respect to the following items:
i. Any investment referred to in section 69 or section 69B ii. Any bullion, jewellery or any other valuable article referred to in section 69A or section 69B iii. Fair market value of any property referred to in sub-section (2) of section 56 In these cases in the DVO reference there is no allegation or mention of estimation of any 'unexplained investment', 'unexplained money', 'investment not fully disclosed in books of account', nor is there any reference to property specified u/s 56(2). Therefore, no reference u/s 142A could have been made to the DVO on this count also. Reliance is placed on:
ME & Mummy Hospital Vs. ACIT & Ors. [2014] 107 DTR (Guj) 209, holding as under:56
Common thread which runs through all these three provisions is that the assessee has made certain investments or expenditure or is found to be the owner of any billion, jewellery etc. and the same are not recorded in the books of account. The Valuer's report under section 142A of the Act is for the purpose of estimating value of such investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B of the Act. Unless, therefore, there is prima facie application of sections 69, 69A and 69B of the Act, reference to the valuer is simply not permissible. It is only when there is some material before the Assessing Officer to hold that in case of an assessee falls under sections 69, 69A and 69B as the case may be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc., call for the report of the Valuer.
Initial starting point for triggering a reference to the Valuer, therefore, has to be invocation of sections 69,69A or 69B of the Act. It is only when any of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation under section 142A of the Act.
In view of the clear legal position, it is submitted that there being no reference to the any of such section i.e. section 69, 69A, 69B or 56(2), there was no occasion for the ADIT(Inv.)-1, Jaipur to invoke the provisions of section 142A and for DVO to make such estimate, who is also an authority under the Act.
Hence, it is prayed that the action of ADIT (Inv.)-1, Jaipur in making reference to DVO u/s 142A may be held as bad in law. Further reliance is placed on the following case laws:57
304 ITR 354 Smt. Saraswati Devi Gehlot Vs. ITO (Jodhpur) Appellate Tribunal Supplement - Assessment - Enquiry before assessment - Sale of shops - Cost of construction - Reference under section 142A to valuation cell on premise that lower cost of acquisition of shops sold by assessee - Section 142 NOT CONTEMPLATING SUCH A SITUATION - Reference to valuation cell void ab initio - No dispute about cost of construction shown by assessee - Cost of construction declared by assessee warrants no interference - Income Tax Act, 1961, S. 142A.
307 ITR 244 Tej Pratap Singh Vs. Asst. CIT (Delhi) Assessment - Powers of income tax authorities - Power to issue commission - Condition precedent - Existence of pending proceeding - Assessing Officer must apply his mind - Neither pending proceedings existing nor Assessing Officer applying judicial mind at time of reference - Reference to Valuation Officer to estimate value of property prior to assessment proceedings - Invalid -
Income tax Act, 1961, ss. 131, 143.
29. Apropos Ground of Appeal Nos. 05 to 5.3 For A.Y. 2007-08 to 2009-10 in respect of merits of valuation, the assessee's business comprises of the sale of constructed flats over land owned by it, the land and construction projects are held as goods in trade which cannot be referred for valuation u/s 142A. In any case if there is any increase in valuation of stock the same becomes opening stock of the next assessment years. Further the ld. DVO erroneously adopted CPWD Rates against the prescribed State PWD which are reliable for valuation as held by the ITAT, Jaipur and also by the Jurisdictional High Court. This correction of 5.5% would bring the difference to NIL calling for no addition at all. The valuation as done by DVO in original report and in modified report and cost of construction disclosed by the assessee is tabulated as under:-:
(Amount in Rs.) 58 A.Y. Cost declared Valuation as Valuation as Difference between by assessee per original per revised declared cost and report report modified report 2007-08 6,35,83,428 8,16,82,723 6,71,34,855 35,51,427 (5.5%) 2008-09 9,56,41,365 12,28,88,108 10,09,75,758 53,34,393 (5.5%) 2009-10 4,39,16,411 5,62,59,402 4,63,62,779 24,46,368 (5.5%) The Ld. AO by considering the modified report made the addition of the difference between the cost declared by assessee and determined by DVO. It can be seen that the difference between the cost declared by assessee and the cost estimated in the revised valuation report is merely is only 5.5%. Value determined by DVO is merely an estimation and an expression of opinion an application of state PWD rates and taking into consideration that opinion or estimate may vary from person to person demonstrate that there is no justification in additions in this behalf. Besides in the original as well as in the modified valuation report the DVO has allowed too low rebate of self supervision only @ 2.5% and 2.5% for self procurement of material, without appreciating that assessee is firm is experienced builder employing own qualified engineers and staff. Payment of their salary is included in the construction cost reflected in books. Further, Shri Ajit Singh and Shri Ravinder Pal Singh, partners of the assessee firm are qualified engineers and Shri Ajit Singh is having experience of more than 40 years of working. If the proper rebate of self supervision is allowed and State PWD rates are applied, the resultant estimated valuation will lead to no addition at all. In this regard a detailed reply was made before the Ld. AO during the course of assessment proceedings, which is reproduced at page 38 of the assessment order wherein 59 the decisions of binding nature, reproduced below, were relied upon but Ld. AO without appreciating and by simply observing that the facts are different, opted not to follow them which is a serious disrespect to the orders of higher appellate forum. Reliance is placed on:
Commissioner of Income Tax Vs. Hotel Joshi 242 ITR 478 (Rajasthan) - The Assessing Officer made an addition of Rs. 6,30,807/- as unexplained investment in the hotel on the basis of the valuation made by the District Valuation Officer. On appeal the Tribunal held that if the books of account kept by the assessee did not show any infirmity they had to be accepted. However, in the instant case, since the assessee had procured the report of the registered valuer, the Tribunal directed that the same may be adopted. The Tribunal also observed that the registered valuer had rightly adopted the rates of the Rajasthan PWD.
Ravi Mathur & Others Vs. ACIT 22 Tax World 245 (ITAT, Jaipur Bench) - Whether cost of construction should be determined on local PWD rates ? - Held yes. Further held that CPWD valuation should be scaled down by 20%. Also held that in facts of the case, 12% self supervision allowance would be justifiable.
Sandeep Loomba Vs. ACIT 26 Tax World 288 (ITAT, Jaipur Bench) 196 Taxman 415 CIT Vs. Mahesh Kumar (Delhi) - Assessment year 2004-05 - Assessee had purchased two plots for Rs. 2 lacs and Rs. 3 lacs, respectively - A search operation was conducted on assessee's premises - No incriminating document or material was found or seized during search operation in respect of aforesaid two plots purchased by assessee - However, Assessing Officer referred those two plots for valuation under section 142A - On basis of valuation report submitted by DVO, Assessing Officer made certain addition to assessee's income - On appeal, Commissioner (Appeals) deleted a part of that addition - On second appeal, Tribunal finding that instances of sale taken into account by Valuation Officer were not comparable as they were situated for away from location of plots purchased by assessee, deleted entire addition - Whether primary burden of proof regarding under-statement or concealment of income is on revenue and it is only when such a burden is discharged that it would be permissible to rely upon valuation given by DVO - Held, yes - Whether since, in instant case, no evidence, much less 60 incriminating evidence, was found as a result of search to suggest that assessee had made any payment over and above consideration mentioned in registered sale deeds, Tribunal was justified in deleting entire addition
- Held, yes.
198 Taxman 93 CIT Vs. Naveen Gera (Delhi) (Mag.) Block period 01.04.1988 to 20.08.1998 - Whether in matter of valuation of properties, opinion of DVO, per se, is not an information and cannot be relied upon in absence of other corroborative evidence - Held, yes.
32 DTR 92 CIT Vs. Aar Pee Apartments (P) Ltd. (Del.) Section 69 C & 142A - Section 142A(1) enables AO to get the valuation done from the valuation officer in certain specified cases. These would be the cases wherein an estimate of the value of any investment referred in section 69 or 69B or the value of any bullion, jewellery or any other valuable articles referred in section 69A or 69B is required. There is no mention about S. 69C. Thus the AO cannot refer matter regarding cost of construction of project to DVO u/s 142A and then make addition u/s 69C on that basis because there is no mention of S. 69C in S. 142A.
188 Taxman 39 CIT Vs. Aar Pee Apartments (P) Ltd. (Delhi) - Assessment - Estimate by valuation officer in certain cases - Assessment year 1998-99 - Whether powers under section 142A extend to estimating amount of unexplained expenditure referred to in section 69C - Held, no
- Whether, therefore, Assessing Officer was not justified in exercising powers under section 142A for purpose of getting himself satisfied about cost of construction claimed by assessee as revenue expenditure - Held, yes.
30. Ld. CIT(DR) in reply relied on the orders of AO and contends that:
a. Incriminating documents indicating suppression and postponement of income were seized during the search proceedings. AO in order to make proper assessment in these circumstances rejected the method of accounting followed by the assessee and adopted Project Completion Method which is also a recognized method and works out taxable income of every year instead of waiting for the project to be substantially complete which is contingent on many eventualities. Ld. CIT(A) though upheld the same but for AY 2006-07 and 07-08 held that there is no accrual of income as the projects were not even developed to the stage of 25%.61
b. Ld. AO and CIT(A) rightly held that as per the Guidance note the risks and rewards of ownership are transferred at the time of advance booking agreement of sale is executed. It is pleaded that on execution of agreement to sale, handing over of allotment letter and payment of booking amount and/or installments the constructive ownership in the property in flat stands transferred to buyer. It is contended that constructive transfer of ownership has been held to be liable for capital gains by Hon'ble Supreme Court in the cases of Poddar Cement 226 ITR 625 and Mysore Minerals 239 ITR 775. Thus CIT(A) was right in holding that booking of flat with above documentation amounted to transfer of property.
c. Ld. CIT(A) was right in observing that the decisions relied upon by the assessee were not applicable since they pertain to the period prior to the issuance of the guidance note. That, income needs to be determined on the basis of percentage of completion method in the manner explained in AS-7-Construction Contract. Besides other firms of the assessee's group had received on money on sale of flats which were allegedly found noted in the loose papers / documents found and seized during the course of search. Besides in case of other firms of assessee's group including assessee the recorded sale price of different flats on different locations and different projects showed variation.
d. Assessee could not produce relevant vouchers and stock registers. In addition the paper recovered from the lap top of Mr. Navin Bhutani revealed that assessee group of firms was indulging in the wide spread manipulations of the receipt and expenses. In view of these facts and circumstances, it was not possible to ascertain the correct taxable profits of assessee, consequently the rejection of books was rightly made by AO and upheld by ld. CIT(A).
e. Apropos the estimation of income it is pleaded that once books are rejected and method of accounting is changed to WIP method, estimation of percentage of profit is inevitable. It is trite law that estimate requires some element of guess work and shouldn't be interfered with unless it is shown to be arbitrary or capricious. The estimate of income has been made on the basis of projections of the print out of the lap top of Shri Butani only, the same cannot be termed as capricious or arbitrary. Therefore, there is no basis to interfere with the estimate.
f. Apropos applicability of ITAT orders in other cases, it is pleaded that each entity was working in different fashion and facts of 62 each of them are different, consequently ITAT judgment is not squarely applicable.
31. In rejoinder ld. Counsel for assessee contends that:-
a. Except making some vague and generalized observations, no incriminating document has been specifically referred by authorities below to impinge on assessee, ld DR also has not pointed to any such documents. The print out of excel sheet recovered from Mr. Navin Bhutani has been held by ITAT in detailed manner to be related to a third party document. Besides even if these projection figures are considered to be relevant then also the information applies to Unique Dream Builders and not the assessee's in question. The presumption cannot be extrapolated in a wild manner to involve assessee's when nothing is referable to them. Mr. Bhutani never ever stated that these projections or estimates apply to any other group entities. ITAT in its order at page 54 has made clear observations that AO in his order also has referred to alleged annexure A-2/51 as projecting only estimates and not the actual state of affairs of the Unique group. With these observations and findings it is futile on the part of revenue to make out an unfounded case of recovery of any incriminating information qua the assesses. Thus the department relying on a third party statement, without affording cross examination has resorted to an estimate which is fantastic and bereft of any support. The arbitrariness and capriciousness of the estimate is writ large on the observations of authorities below and profoundly dispelled by the ITAT in above order.
b. Guidance notes of the ICAI cannot override the statutory provisions; therefore, there is no merit in the department's reliance on case laws cited by assessee being prior to them. c. Apropos transfer in property on booking of flats it is contended that the edifice of department's logic is grossly contrary to settled legal position. Any documentation without transfer of possession to buyer cannot amount to transfer of property. The cases of Mysore Mineral and P{Odar Cement holds the facts of transfer of possession to be amounting to constructive possession. Thus under no circumstances income can be held to accrue merely at the time of booking of flat or receipt of mere instalment.63
Departmental Appeal Ground of Appeal No. 2(i) to 2(iii) (For A.Y. 2006- 07 to 2008-09):
32. Assessee filed its return at NIL income following Project Completion Method consequently no claim of deduction was made u/s 80IB. AO changed the method of accounting by applying Percentage of Completion Method resulting into huge additions. Going by CBDT circulars deduction u/s 80IB should have been allowed by ld. AO as a logical consequence, however it was not allowed. During the course of appellate proceedings, the claim was made along with necessary details; ld. CIT(A) verified the same and called for the remand report from the Assessing Officer. After due examination ld. CIT(A) allowed deduction u/s 80IB which is appealed by department.
33. Ld. CIT(DR) submitted that the Hon'ble Apex Court in the case of Goetz (India) Ltd. 284 ITR 323 has held that the no fresh claim could be made by assessee, otherwise than by way of a valid revised return. Therefore, ld. CIT(A) erred in allowing the claim of the assessee u/s 80IB. Orders of ld. AO are relied on.
34. Ld. Counsel for the assessee contends that Hon'ble Supreme Court in same judgment has further clarified that the limitation of revised return is applicable to the power of the assessing authority and does not impinge on the powers of appellate authorities to allow any consequential claim due to assessee in accordance with law. It is submitted that the revenue ground based on the Hon'ble Apex Court rather supports the assessee's case. In this case, fresh claim 64 was consequential to changing of the method of accounting by AO, there is no challenge the eligibility of the assessee for availing the deduction. Revenue is in appeal under mistaken interpretation of Goetze judgment, it rather elaborates that the appellate authorities which includes the CIT (Appeal) can entertain and adjudicate upon any new or consequential claim. Reliance is further placed on the following judicial pronouncements:
1. In Chicago Pheumtic India Ltd. v. DCIT (2007) 15 SOT
252) (Mum), it has been observed and held by the Tribunal (Page
274):
"......As far as the decision of the Hon‟ble Apex Court in the case of Goetze (India) Ltd. (supra) is concerned, there is no dispute that the same is binding on everybody concerned. In the said decision, the Hon‟ble Apex Court has also ruled that Appellate Tribunal may adjudicate the issue if a claim is made by any party subject to satisfaction of prescribed rules, hence, even the Hon‟ble Apex Court has not barred the assessee raise it‟s legal claim before Appellate authorities...."
2. In the case of CIT v. Jai Parabolic Springs Ltd. (2008) 306 ITR 42 (Delhi) the AO disallowed the claim of the assessee on the ground that "since the claim for the deferred revenue expenditure of ` 15,58,500/- was not claimed by the assessee in the return of income for the assessment year 1990-91, the same is not allowed". Their Lordships after considering the decision of the Hon‟ble Apex Court in the case of Goetze (India) Ltd. has held (Head note) "Held, dismissing the appeal, that there was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for the just decision of the case. There was no infirmity in the order of the Tribunal".
3. In Kisan Discretionary Family Trust reported in 113 TTJ 918 (Ahd) it has been held that the assessee returning certain interest in the revised return on accrual basis is not precluded from claiming the same as exempt during the course of assessment without filing 65 revised return, on the ground that there was no contract for payment of interest on accrual basis. The Tribunal after considering the decision of the Hon‟ble Apex Court in Goetze (India) Ltd. and CBDT Circulars held that such claim of exemption/non-taxability of particular income can be entertained by the Tribunal.
4. In National Thermal power Co. Ltd. vs. CIT (1998) 229 ITR 383(SC), it has been held that "The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. ..... We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income tax(Appeals). Both the assessee was well as the Department have a right to file an appeal/cross objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier".
5. In the case of CIT v. Ramco International (2011) 332 ITR 306 (P&H) Their Lordships after considering the decision of the Hon‟ble Supreme Court in the case of Goetze (India) Ltd., (2006) 284 ITR 323(SC) has held (head note) "Held, dismissing the appeal, that the Tribunal had considered that issue and found that according to Form 10CCB filed during the assessment proceedings, the claim of the assessee was admissible. The assessee was not making any fresh claim and had duly furnished and submitted the Form for the claim under section 80-IB, there was no requirement of filing any revised return".
6. The CBDT as back as in 1955 issued a circular No. 14(XL-
35),dated 11th April, 1955 wherein the Board has recognized the fact that responsibility for claiming refunds and relief rests with the assessee as imposed by law, even then the Board has directed the officers to draw the attention of the assessees in respect of any refunds or reliefs to which they are eligible, which they have not claimed for some reason or other.
7. The Board issued Circular F.No.81/27/65-IT(B) dated 18thMay,1965, defining the duties of PROs in providing assistance to the public in filing correct return and making eligible claims.
668. In the case of Essar Oil Ltd. (ITA No. 3661 & 2827/M/2000) the Tribunal after considering various CBDT Circulars and the decision of the Hon‟ble Apex Court in the case of NTPC Ltd. (229 ITR 303); UCO Bank (237 ITR 889) and in the case of Shelly Products and Anr. (261 ITR 367) and various decisions and Circulars have held as under: -
"Having regard to these decisions, in our view the order of the CIT(A) cannot be found fault with. The learned Departmental Representative to the query from the Bench has fairly admitted that there is nothing in Goetze (India) Ltd., which prevents the Tribunal from entertaining any fresh claim if the same can be entertained in the light of the available material on the face of the record. Anything to the contrary of the proposition will only negate the principle laid down by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra). We therefore confirm his order. It may be mentioned that we have taken this view after considering the fact that in all other years the department has accepted these expenses and allowed deduction as claimed by the assessee"
9. In the case of Mr. Gnanesh V. Lakhia v. Addl. CIT (ITA No. 1823Mum/2010 - A.Y. 2006-07) Order dated 8th April, 2011, in which one of the Judicial Member was a party, the Tribunal after considering all the decisions including the CBDT Circulars has held that merely because the assessee has made claim of short term capital gain as against correct claim of long term capital gain on sale of shares by filing belated re-revised return is not sufficient to hold that that the assessee is not entitled to the claim the sale of shares as long term capital gain.
10. In the case of Mahindra Engg. & Chemical Products Ltd. (ITA Nos. 1258 to 1261/Mum/2010 for the assessment years 2001- 02 to 2004-05) the Tribunal after considering the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. has held that in the case before us the claim was disallowed not merely because the agreement was terminated in the financial year 2000- 01, but it was disallowed because it was held to be capital in nature and that the issue is still pending for adjudication as pointed out by the learned counsel for the assessee before the Learned CIT(A). Therefore, the interest of the assessee is not affected.
6735. It is vehemently contended that several courts have held that Income Tax proceedings are not adversarial in nature; ld. AO by CBDT circulars is expected to frame a proper assessment in judicious manner. Courts based on CBDT circulars have held that any lawful claim eligible to assessee and even though not claimed in return, is to be brought to the notice of the assessee by AO and adjudicated upon. AO has to assess and collect proper amount of tax from assessee and not fleece it. Thus the CBDT circulars and catena of judgment enjoin on the AO to suo-motu allow the lawful claims eligible to assessee.. In this regard reliance is also placed on following judicial pronouncements: -
105 ITR 212 CIT Vs. Simon Carves Ltd. (SC) -The taxing authorities exercise quasi judicial powers and in doing so they must act in a fair and proper manner. It is impossible to subscribe the view that unless these authorities exercise the powers in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in proper and judicious manner.
252 ITR 653 (Mad.) CIT Vs. Ramnath Goenka (Decd.) and Others
- Appeal to Appellate Tribunal - Duty of Tribunal - To prevent miscarriage of justice and correct grave and palpable errors- Duty to grant relief even when there is no plea in that regard 142 ITR 13 (MP) CIT Vs. K.N. Oil Industries - Held, on the facts of the case, that if it apparent from record that the assessee was entitled to relief admissible under sec. 35B, that relief can be granted to him by an order under s. 154 by rectifying the assessment even though relief under that section had not been claimed by the assessee in the original assessment proceedings.
301 ITR 304 (2008) CIT V/s Jindal Drilling & Industries Ltd (Delhi) - Assessment--Order on revision directing Assessing Officer to re-compute income--Claim of assessee for deduction--
Assessing Officer holding deduction allowable in earlier year--
68Assessing Officer while re-computing income must consider claim in earlier year--Income-tax Act, 1961, s. 263.
234 ITR 541(1998) CIT V/s Geo Industries And Inseticides (I) P. Ltd. (Guj.) - Revision--Powers of Commissioner--Commissioner of Income-tax setting aside assessment order and directing ITO to make fresh assessment--Power of ITO to make assessment not confined or restricted to direction given by CIT--ITO bound to examine claim made by assessee which was not a matter which had become final in original assessment--Income-tax Act, 1961, Ss. 143, 263.
116 TAXMAN 132 (Mag. ITAT, Guahati) PrabhatChandra Paul Vs. ACIT - Whether by simply leaning on technicalities, a lawful claim could not be denied and, hence, assessee's second appeal deserved to be allowed - held Yes.
115 ITR 524, 530 (SC) Brij Bhushan Lal Parduman Kumar etc. Vs. CIT - ".......that the authority making a best judgment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case........"
135 TAXMAN 525 (P&H) CIT Vs. Gheru Lal Bal Chand - Section 254 of the Income Tax Act, 1961- Appellate Tribunal - Power of - Whether setting aside an ex parte order on ground that assessee for valid reasons could not attend hearing of the case would not amount to review at all - Held, Yes Further in case of percentage completion method, allow ability of deduction u/s 80IB has also been approved by the CBDT vide its instruction No. 4 of 2009 dated 30.06.2009, copy is placed on the record. As the assessee firm is engaged in the business of construction and development of commercial / residential buildings, the provisions of section 80IB(10) assessee is squarely eligible for deduction. Revenue has not challenged the assessees' eligibility for claim u/s 80IB, as the claim was allowed by ld. CIT(A) on the basis of a proper 69 remand report from AO. The necessary permission was granted by the competent authority prior to 31.03.2008. Reliance is placed on the following judgments for 80IB eligibility:
1. 113 TTJ 300 Radhe Developers & Ors. Vs. ITO & Ors. (Ahd 'A') Deduction u/s 80IB - Income from developing and building housing project - Land not registered in assessee's name -
Contention of the Revenue that in order to claim deduction u/s 80IB(10) the assessee must be the owner of the land on which the housing project is constructed is not sustainable - There is no such condition in the provisions of s. 80IB(10) - Development and building work carried out by the assessee in pursuance of a tripartite agreement with the landowners - Mere fact that the landowners and the assessee undertaking are two different entities does not make any difference - Though the assesee was obviously a contractor, it does not derogate it from being a developer as well
- Term 'contractor' is not contradictory to the term 'developer' - Assessee is not working on remuneration for the landowners but is working for itself in order to exploit the potential of its business in its own interest - Deduction u/s 80IB is allowable to an undertaking developing and building housing project, whether it is developed by it as a contractor or as an owner - Thus is evident from sub-ss. (1) and (2) and also sub-s. (12) of s. 80IB - Even otherwise, assessee can also be said to be the owner of the land as it has made part payment to the landowners and taken possession of the land for development and building the housing project - Once the assessee has taken possession of the immovable property or retained it in part performance of a contract of a nature referred to in s. 53A of Transfer of Property Act, 1882, it amounts to transfer u/s 2(47)(v) - There is definitely a dominion of the assessee developer over the land to the exclusion of others inasmuch as possession of the land is given to the assessee by the landowners to carry out the construction activity of the housing project - Therefore, assessee has complied with all the conditions as provided u/s 80IB(10) and it is entitled for deduction.
2. ACIT Vs. M/s Mahalaxmi Builders ITA No. 161/Ahd./2008, Apropos the eligibility conditions, construction of the building (Unique Sanghi apartment) commenced after 1st Oct., 1998; and as 70 regard to the completion of the project, as per the condition laid down the construction should have been completed within 5 years from the end of financial year in which the housing project is approved by the local authority which expired on 31st march 2011. The assessee completed the project on 25.12.2009, and filed its return of income for A.Y. 2010-11 declaring total income by following Project Completion Method. Thus assessee otherwise satisfies relevant conditions for and has claimed deduction u/s 80IB of the Income Tax Act, 1961.
In the circumstances, it is contended that there is no infirmity in the order of ld.CIT(A) in allowing the deduction u/s 80IB after considering remand report from Ld. AO and verification of relevant provisions.
36. We have heard the rival contentions, perused the material available on record, ITAT orders in the appeals of other entities of the same group and other judicial precedents cited by the assessee. The main issues as considered in other cases posed before us are:-
a. Whether the authorities below are justified in changing the recognized method of revenue generation based from Project Completion to % Completion Method.
b. Whether the authorities below are justified in rejecting the books of accounts of the assessee u/s 145(3) by holding that they are defective and thereafter resorting to estimation of income based on:
a. Whether authorities below are justified in using the laptop contents of third party Mr. Navin Bhutani and extrapolation thereof to justify their estimates.
b. Holding that property in flats stood transferred at the booking level and thus revenue was generated at the flat booking level itself.71
c. In case of AJIT whether the reference by ADIT to DVO is correct in terms of sec. 142A inasmuch as ld. ADIT is neither a prescribed authority nor proceedings of assessment or reassessment were pending before him & reference for valuation of stock in trade of assessee's business cannot be made u/s 142A.
d. Whether on merits DVO's valuation report cannot be relied on as it suffers from various inconsistencies like - arbitrary adoption of CPWD rates instead of PWD rates, low rebate for self-supervision and self and bulk material procurement. Besides there is marginal 5.5% variation in the estimated valuation and cost of construction recorded in the books of accounts.
37. Revenues grounds pose consequential issues i.e. whether:
(a) Ld. CIT(A) was right in holding that in initial years when less than 25% construction is done no revenue is generated at early construction stage and no income can be estimated in these years. This ground in real terms is practically revenue as when project goes beyond 25% the WIP will be taxable in that year, therefore, it is more academic in nature.
(b) Ld. CIT(A) should not have allowed claim of deduction of income u/s 80IB as no such claim was made in the return as it brings the income of the assessee to NIL.
38. As already mentioned the main issues in question have already been considered by us and earlier bench the appeals of other group entities. Relevant extracts f the judgments have been extracted above. The first reason attributed for rejecting books of accounts is to the effect that assessees have not maintained a detailed qualitative and quantitative stock register and failed to value its closing stock on such qualitative cum quantitative stock register. The 72 assessees contends that they have kept both quantitative and qualitative details of material purchased by it as is evident from various ledger accounts related to construction material that were forming part of the seized material available with the assessing authority. All the expenses relating to the project including material purchased were charged to project/work-in-progress and directly taken to the balance sheet. In other words, the materials purchased for the project are issued to site immediately after its purchase and transferred to project in progress for determining profit at the time of completion of the project. No expenditure is charged to Profit & Loss account as they were under construction and the relevant construction expenses were capitalized. The quantity so issued to the sites/projects is recorded in separate records maintained for each item of building material used therein. There was thus no practical need to maintain a detailed quality-wise quantitative register by the appellant more so when the valuation on cost basis could be accurately made from the ledgers. It is neither the case of the Assessing Officer that there have been omission or failure to record any purchases or direct expenses to the project in process nor even a case that the assessees inflated the cost of such stock which is basically capitalized cost of construction in the ledgers. The accounts are duly audited by a qualified Chartered Accountant as per past accounting practices, policies and revenue recognition method on approved method i.e. Project Completion Method. The books of account were seized and the same were available with the Assessing Officer. The assesses claim to have also produced requisite vouchers and record 73 as required by the Assessing Officer from time to time. The Assessing Officer also appears to have casually stated that as per AS-2 it is essential that the details of both quality as well as quantity of different items of stocks including details of direct expenses and costs are required to be maintained meticulously.
In fact, the AS-2 notified by the CBDT relates to disclosure of prior period and extra ordinary items and change of accounting policies. The accounts maintained by the assesses conform to the commercially accepted accounting standards which enable determination of correct profits of assessee's business as done in past years. The findings reached by the lower authorities with respect to the deficiencies as pointed out for rejection of books as well, valuation of inventory, change of method of accounting to % Completion Method are neither factually correct nor grave enough to sustain them. Reliance placed on Pandit Brothers vs. CIT (supra) supports assessee's proposition that merely because stock register is not maintained, it cannot be said that the accounts book must be false. More so in these cases are adopting Project Completion Method and profits were ascertainable only at the completion of the respective project.
Besides it had eligibility for deduction of all its project profits u/s 80IB. In these circumstances we are unable to infer that any valid and persuasive reasons existed for assesses to falsify their books of accounts. This exercise has no benefits rather it puts them in controversies which are glaring enough. besides such widespread mismanagement will yield some incriminating material during the search, seizure and survey operations. Ld. AO has not relied on any specific 74 material in this behalf; the issue of Mr. Bhutani will be dealt hereinafter.
Assessee has further relied on the Hon'ble Supreme Court judgment in the case of S.N. Namasivayam Chettiar vs. CIT, supra holding that Income-tax authorities have to consider the material which is placed before them and only after taking into account in any case the absence of stock register coupled with other material, are of the opinion that correct profits and gains could not be deduced then they would be justified in applying the provisions of rejection of books. Viewing the facts of assesses case in the light of these findings our foregoing observations about correctness of books become very material inasmuch as there is neither any gain nor motive for assesses to indulging in such practices when all the profits were deductible u/s 80IB. Besides the entire evidence and material has not been considered to come to a justiciable conclusion to reject the books of regularly audited accounts. A generalized observation about the 'notorious trade practices' in real estate business cannot be a reason for rejecting the books of accounts. Hon'ble Apex Court in the case of Lalchand Bhagat Ambica Ram (supra) and Hon'ble Delhi High Court in the case of CIT vs. Discovery Estate Pvt. Ltd. (supra) held that practice of making additions on mere suspicions and surmises or by taking note of the 'notorious trade practices' prevailing in trade circles cannot be relied for making additions.
Consequently and finding of "on-money transactions" based on assumption and in the absence of any incriminating material or examination of buyers is without any basis and justification. These observations, therefore, cannot be valid 75 reasons for rejecting the audited books of account maintained by the assessee in regular course of its business as per past practices and accounting policies.
39. Apropos substituting the method of accounting from Project Completion to % Completion by the authorizes below is by observations that assessee's have not followed Accounting Standards 9 & 7 which tantamount to not following Accounting Standard-1 as prescribed under section 145(2) of the Act.
It is admitted position that the appellant were regularly following project completion method from year to year and the assessments prior to the date of search were also framed by accepting project completion method. As per ICAI guide lines real estate developer has an option to choose from Project Completion method or the Percentage Completion method as both are recognized methods for revenue recognition in such cases. Once the option is exercised by asssessee, it is not open to the Assessing Officer to substitute his own opinion to change the method of accounting because mid way it is found that other method of accounting better suits the revenue. It is the accounting principle, consistent following of method and its earlier adoption which decides the issue and not the suitability or revenue.
40. We have already mentioned that in any case assesssee's are eligible for deduction u/s 80IB against their income, in this eventuality, take this method or that, the result is NIL taxable profits after deduction. Thus in these cases the substitution of method to % Completion Method is based on surmises, 76 unwarranted facts, irrelevant considerations and a fruitless exercise. Except making some academic and theoretical rhetoric's, the revenue has not been able to demonstrate that the method of accounting adopted by assessee is not in conformity with set accounting guidelines, provisions of sec. 145. Hon'ble Delhi High Court in the case of CIT vs. Smt. V. Sikka & Another (1984) 149 ITR 73 (Del.) held that if the method of accounting is accepted in first year and regularly followed in subsequent year it cannot be substituted at the whims of AO. It is not mandatory for a real estate developer to follow percentage of completion method as prescribed by the Institute of Chartered Accountants of India under AS-7. AS-7 issued by the Institute of Chartered Accountants of India, recognizes the position that in the case of construction contracts the assessee can follow either the project completion method or the Percentage completion method. Neither the revised Guidance Notes 2012 issued by Institute of Chartered Accountants of India nor the Exposure Draft for Guidance Note on Recognition of Revenue issued by the Institute of Chartered Accounts of India in 2011 are mandatory or override the statutory provisions. Ld. CIT(A) has also taken contradictory stand; on one hand it is held that there can be no revenue recognition unless 25% project is complete, rightly so as no builder can earn from plinth or pillars on other hand it is held that the property in flats stands transferred by booking amount. This clearly implies completion of sale and revenue generation. We may hasten to add that the stubborn stand of authorities below has lead to unimaginable contradictions and anomalies.
77Whereas the assessee's method does not lead to any such eventualities as it was regularly followed and accepted by department besides being one of the well followed method among real estate builders. The project completion method followed by the appellants, therefore, could not be faulted with by the revenue.
The assumptions made by the authorities below that by not following AS-9 & 7 the same tantamount to not following prescribed AS-1 under section 145(2) of the Act is profoundly misplaced, unnecessary and uncalled for besides being contrary to principles of accountancy and interpretation of the statutory provisions. The same, therefore, could not be taken a valid basis for change of method regularly employed by the appellant. Thus we uphold the method of revenue recognition adopted by the assessee's as "Project Completion Method.
The other judicial precedents cited by the assessee mentioned in ITAT orders as well as written submissions support our view.
41. Apropos Annexure A-2/51 as well as the statement of Shri Naveen Bhutani recorded on 28.01.2009 under section 132(4) of the Act regarding a print out taken from his laptop; he stated that it was in relation to Unique Dream Builders only and not the assessee entities. This person was not produced for cross examination by the appellants and AO himself admits that the print out inventorized as seized Annexure A-2/51 revealing net realization of Rs. 17.91 crores and a profit of Rs. 5.17 crores reflects only the estimates. The said document does not reveal the actual state of affairs of the projects done by the assessees. No corroborative evidence has been found as a result of search on 78 him or from either side of separated group to support that figures written therein for the area constructed, sold or transferred nor about the net realization or profits earned in any such projects. The said excel sheet data was prepared for marketing of Unique Builder's projects products and could not be taken as a relevant and reliable information of business operations or earning any extra money or "on money" was received by the appellant which could enable the Assessing Officer to reject the accounts maintained in regular course. In fact, this document as such did not have any evidentiary value against the assessee-
appellant. The authorities below made some projections to convert these hypothetical figures into assessee's business operations on hypothetical assumptions. The booking agreements of these flats were reached at different timings at different locations with different specifications. The appellants have made detailed submissions in the synopsis on this factual circumstances, inconsistencies in laptop projections, impossibility of such profits in real estate trade as extrapolated by department and explained variation in rates. The explanation is bonafide and remains uncontroverted by the revenue. The observation as well as findings reached by authorities below cannot be upheld as they lack in credibility being based on irrelevant considerations and pure conjectures. Looking at the gamut of inconsistencies and infirmities in the projections of department vis a vis laptop found from Mr. Bhutani, therefore, could not be a reason sufficient to endorse that the accounts maintained by the assessee are unreliable or they were not verifiable. Consequently assesses 79 ground in this behalf deserve to be allowed. On these facts the ITAT Jaipur in similar group cases have already decided these issues in favor of the assessee, which we respectfully follow.
42. Adverting to the issue of reference u/s 142A by the ADIT to DVO, the relevant provisions have been mentioned above. It is clear that this Section empowers only the Assessing Officer as authorized officer to make reference to the DVO u/s 142A of the Act. This Section does not use any term like ADIT being an authorized officer. Further it has not been disputed that what has been referred to for valuation of stock in trade of the assessee and not any investment referred u/s 69A or 69B; buillion, jewellery or any other valuable article referred to in Section 69A or 69B; is not a property referred u/s 56(2) of the Act. In these eventualities, the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Umiya Co-op Housing Society Ltd. , 314 ITR 272 (Guj) and ME & Mummy Hospital vs. ACIT 107 DTR 209 (Guj) and various other judgements cited before us support the contentions of the assessee. Thus DVO reference is held to be invalid. We also find merit in the contention of the assessee that DVO ought to have applied the PWD rates in place of CPWD rates. Besides 2.5% rebate on account of self supervision and self bulk procurement of material is too meager. In our view this rebate ought to have been to at least to the scale of 5% as the assessees are the professional builders having their own engineering staff. Going by DVO valuation, the difference of valuation comes to 5.5% which amounts to nominal difference when viewed 80 from the angle that its comparisons of two estimates which basically are two opinions. If the PWD rates are applied alongwith 5% rebate as mentioned above then it will leave no scope for any diferrence or addition on account of valuation report. Thus DVO's reference is bad in law being void ab initio besides it has no merit. Consequently, any addition in respect of valuation cannot be made under the assessee's case.
43. Apropos revenue appeal we have already upheld that Project Completion Method adopted by the assessee being proper; books of accounts have been upheld, Projections of Mr. Bhutani having been found as not representing the actual business operations of the assessee. Consequently the findings of ld.
CIT(A) about there being no revenue recognition unless 25% project if completed become redundant. Therefore, revenue ground becomes inconsequential. Besides we have already held that in any case the WIP would have become taxable in subsequent year making the observations practically revenue neutral. In view of all these observations revenue grounds in this behalf are dismissed as inconsequential and academic.
44. Apropos the allowability of sec. 80IB deduction to assesses, we find no infirmity in the orders of ld. CIT(A) in as much as per material available on record assesses have complied with relevant conditions of sec. 80IB. Besides revenue grounds challenge admission of additional evidence u/r 46A and relief based thereon. Thus assessee's eligibility on merits is not specifically challenged. In view thereof we see no infirmity in the order of ld. CIT(A) on the 81 issue of allowing deduction u/s 80IB, furthermore it will be eligible in the year of revenue recognition. By upholding the Project Completion Method of accounting and upholding of books of accounts and rejection of estimates; there will be no taxable profits.
45. Consequently revenue grounds are dismissed.
46. In the result, the appeals of the assessee are allowed and that of the Revenue are dismissed.
Order pronounced in the open court on 30/04/2015.
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fnukad@Dated:- 30th APRIL, 2015
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Unique Builders & Developers, Realty), Jaipur and M/s. Unique Builders & Developers, (Ajit), Jaipur
2. izR;FkhZ@ The Respondent- The DCIT , Central Circle- 2, Jaipur
3. vk;dj vk;qDr¼vihy ) @ CIT(A),
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.415/JP/2012) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar