TMI Blog2013 (11) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... of business of the assessee. Disallowance on the basis of cash payments of amount of Rs. 1,84,60,000/- AO has made addition of Rs.1,84,60,000/- on the basis of entries of the cash deposits in the bank accounts of Shri Kalyan Sahai and Shri Kalicharan Yadav and their family members - Two persons in their retracted statements stated that cash deposits in their bank accounts as also in the bank accounts of their family members was consisted of agricultural income, gifts from other family members and sale of land to Shri Babu Lal and others – Held that:- Reliance has been placed on the judgment of Hon'ble Gujarat High Court in the case of Laxmanbhai S Patel vs. CIT,[ 2008 (7) TMI 544 - GUJRAT HIGH COURT], wherein it has been held that legal effect of the statement behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross examination and the additions if made, the same is required to be deleted on the ground of violation of principles of natural justice. In view of the facts, AO is not justified to make the said addition of Rs. 1,84,60,000/- merely on the basis of the statements of Shri Kalyan Sahai and Shri K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als are same, we heard these appeals together and dispose them off by a common order for the sake of convenience. 3. We consider it prudent firstly to take appeals for the assessment year 2008-09 and discuss the facts relating thereto. 3.1 The grounds of appeal taken by the assessee being in ITA No. 589/JP/2012. are as under 1. Under the facts and circumstances of the case and in law, the order of Ld. CIT (A), Central Jaipur dated 23.03.2012 is arbitrary, perverse and bad in law. 2. Under the facts and circumstances of the case and in law, Ld. CIT(A) Central, Jaipur has erred in: I Upholding the rejection of books of account by the Assessing Officer u/s 145(3) of the Act. II Upholding the application of percentage completion method of accounting for determining the business income of the appellant as against the completed project method regularly and consistently followed by the appellant. 3. Under the facts and circumstances of the case and in law, Ld. CIT(A), Central, Jaipur has erred in sustaining the addition to the extent of Rs. 25 lakhs in respect of alleged undisclosed payments made to the seller agriculturists for purchase of project l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of the cash deposits at the relevant period of time in the Bank accounts of the sellers and the statements were recorded only of 2 sellers and the land was purchased from more persons. 3(i) Whether on the facts an circumstances of the case the CIT(A) (Central), Jaipur was justified in deleting the addition of Rs. 52.74 crores out of total addition of Rs. 82.69 crores on account of business income even after holding that the development agreement entered by the Assessee with M/s Uniqque Affordable Homes Pvt. Ltd. And M/s Rosewood Investment Limited was in fact an agreement to sale and ignoring the fact that the development agreement should be read as a whole for AY 2008-09. 3(ii) Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur has erred in law and on facts in dividing the DA in two parts ignoring the fact that once the DA was executed it was binding upon the parties concerned and revenue was to be recognized in full. 4(i) Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur was justified in deleting the addition of Rs. 19,28,401/- made by the AO on account of non-deduction of TDS as per the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or our consideration. 6. In respect of first ground of appeal, the AO has stated that during the course of assessment proceedings, it was noticed that the assessee made payments to M/s. Aspiac Project (P) Ltd., Bangalore ( Asipac ). The assessee was asked to furnish the details of in respect of payments so made to Asipac. On perusal of the detailed filed by the assessee, it was noticed that the assessee had made payment amongst others, for marketing and sales of the residential/ commercial units of the project being developed by one of the Unique Group Concern viz. M/s. Unique Affordable Homes (P) Ltd. (hereinafter to be refereed in short UAHPL ) at village Ramchandrapura, Jaipur, a substantial amount of Rs. 75.00 lacs was paid to Asipac as a fee @ 3% of the amount of Foreign Direct Investment (FDI) received by the assessee from M/s. Rosewood Investment Ltd. , Mauritius. The assessee debited in the book on 31-03-2008. That an amount of Rs. 62.95 lacs was finally paid vide cheque no. 276473 dated 07-04-208 after deducting TDS of Rs. 8.61 lacs. The AO has stated that in respect of said payment to Asipac, assessee was issued a show cause vide letter dated 06-12-2010. requiring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. Accordingly, the AO disallowed the amount of Rs. 75.99 lacs u/s 37 of the Act and added to the income of the assessee firm. Being aggrieved, assessee filed appeal before the first appellate authority. 8.1 On behalf of the assessee, it was submitted that there was two independent professional fee/ expense payments by the assessee to Asipac for two independent services as per following details.(CITA s order page 9). A. Selling marking services Amount Remarks AO (i) Professional fee 81,64,123/- Service agreement at page No. 397-409 of PB Vol. II Allowed (ii) Reimbursement of expenses 19,28,401/- All evidence on record Disallowed on account of non deduction of tax at source FDI facilitation services Professional fee 75,99,364/- Bill submitted as additional evidence, replies of WP Group Disallowed. 8.2 It was submitted that the AO issued show cause notices dated 16-02-2010, 21-09- 2010 and 6-12-2010 in which details of payments made to Asipac was asked alongwith justification for the same. The assessee submitted copies of service agreement and led ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason that the issue of FDI arose much later than service agreement with Asipac was framed. It was also contended that Asipac is not a related party whatsoever and association of the assessee with them was well and truly for the promotion of business only. It was submitted that as far as the question that why such substantial sum of money was paid by the assessee firm when the FDI was received by Unique Affordable Homes (P) Ltd. (hereinafter to be referred as UAHPL) that the FDI was routed through UAHPL and the amount of FDI received was to be transferred to the assessee firm as security deposit for developing the land as agreed in the development agreemnt dated 25-03-2008. The said arrangement was intended to secure the interst of the assessee firm as land owner. The ultimate beneficiary was land owner i.e. the assessee firm itself. Moreover, UAHPL did not have any right to retain the amount of FDI as agreed to. Hence, the said payment of Rs. 75.99 lacs as fee for procuring FDI was made by assessee firm and not by UAHPL. It was contended that even otherwise the AO has no business to question the commercial wisdom of the assessee, the AO cannot sit into commercial wisdom of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to them outside the books of accounts of the assessee firm. All payments were made well and truly for serving business purposes of the assessee firm and the same stands fully justified in view of the materials/ evidences on record. The payment of Rs. 75.99 lacs (being 3% of amount of FDI) was made to Asipac for arranging FDI into the project in addition to their professional fees for publicity of the project which was allowed as business expenses by the AO. It was stated that the AO made disallowance of Rs. 75.99 lacs merely on the ground that the said payment does not figure in the service agreement dated 24-08-2007. It was stated that Asipac took over the responsibility of arranging private equity through FDI. The proposal for FDI into the project materialized in a series of transaction documents from 08-02-2008 to 25-03-2008. M/s. Asipac liaisioned with the New York based Warburg Pincus Group and convinced them about the investment opportunity in My Haveli project. Since a sum of Rs. 56,89,31,300/- was agreed to be invested by the investor as private equity in two instalments at the time of first closing and at the time of second closing, and only a sum of Rs. 22,54,46,90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.1 So far as the allowability of the amount paid to M/s Asipac for facilitating the FDI transaction is concerned, the first and foremost issue to examine is whether at all any services were provided by M/s Asipac for facilitating the transaction with Warburg Pincus Group. In answer to Q No. 6 of submissions dated 07.01.2011 filed by Warburg Pincus Group, it was submitted that: Q. No. 6. What was the basis- in terms of business prospects, returns on investment etc. on which the said fund/money was transferred by Warburg to RIL? Copies of documents etc. may be given. ASIPAC Projects Pvt. Ltd. ( Asipac ), having its address at 75, Residency Road, Bangalore had contacted WPIPL regarding a potential investment opportunity in Unique, Mr. Amit Bagaria of ASIPAC liaised with WPIPL on the above opportunity. WPIPL renders investment advisory services to WP LLC, which is the investment manager of WPRE. WPIPL had referred the aforesaid investment opportunity in Unique to WPLLC. WPPLLC, in turn, recommended this investment opportunity in Unique to WPRE and WPRE finance for their consideration. Thereafter, RIL, which is promoted, wholly owned and controlled by WPRE and WPRE financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly (first sale) to end users. 12) Pearl and Unique have built maximum apartments, but Pearl s are more mid upper and upper end products. 13) Amongst local developers, only Narayan, Managalam and Unique have the financial muscle to undertake large projects (1 million SFT). Narayan has not delivered a single project till date and Managalam is more into plotting, plus their quality is pretty ordinary. 14) The only 2 other developers (part from Unique) who have the vision to do large projects and build good quality products are Mahima and ARG, but Mahima is just NOT interested in mass (affordable) housing. ARG, in our mind, will become the closest competitor in 2-3 years. Asipac has done its homework before choosing to partner with Unique. Let me know what else you want to know. 8.3 Even thereafter, M/s Asipac made a detailed presentation about the Jaipur residential project and about Unique Group to the Warburg Pincus Group which is available as document titled Investment Memo-15th November, 2007 as the enclosure to the letter dated 09.03.2009. The said detailed presentation about the project, about Unique Group, about Jaipur and about Jaipur homes m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at (2002) 174 CTR (Del) 188 and Commissioner of Income Tax Vs Padmini Packaging (P) Ltd. Reported at (2006) 155 Taxmann 268 (Del). In view of this, this ground of the appellant is allowed and disallowance of Rs. 75.00 Lakhs is hereby deleted. ' Hence, this appeal by the Department before the Tribunal. 10. The ld. DR submitted that the main issue involved is as to whether any service was rendered by Asipac to the assessee and if so whether the said payment is wholly and exclusively for the purpose of business of the assessee. The ld. DR submitted that Asipac was engaged in marketing and selling agency for the project My Haveli vide service agreement dated 24th Aug. 2007 and in the said agreement there was no stipulation to pay any fee for arranging FDI by Asipac. He submitted that said FDI was received by UAHPL and not by the assessee and accordingly it could not be said that the said expenditure paid is incurred by the assessee wholly and exclusively for the purpose of its business. The ld. DR referred to the decision of Hon'ble Kerala High Court in the case of CIT v. Premier Breweries Ltd., 279 ITR 51 and submitted that the mere fact that the payment has been made is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the order of the ld. CIT(A) be reversed by confirming the disallowance made by the AO. 11. On the other hand, the ld. AR supported the order of the ld. CIT(A) and submitted that assessee appointed Asipac an India s leading living spaces consultant as sole marketing and selling agent for the project My Haveli vide service agreement dated 24-08-2007. In terms of the said agreement, Asipac was required to render marketing and selling services. While rendering such services, Asipac approached Warburg Pincus Group, a leading global real estate fund for investment in the project My Haveli . The ld. AR submitted that it was decided to form the special purpose vehicle (SPV) to facilitate equity investment by Warburg Pincus Group through its investment arm vis. RIL, Mauritius Therefore, UAHPL was incorporated and RIL ,Mauritius made investment of Rs. 22,54,46,900/- as FDI for acquiring 75% of the equity of special purpose vehicle i.e. UAHPL. The ld. AR submitted that the main observation of the AO to doubt the genuineness of payment was that there was no mention of professional fee for arranging FDI in the service agreement but it was because of the fact that service agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6%. We observe that the AO has doubted the genuineness of the said payment on the ground that there is no stipulation in such payment in the service agreement entered into by the assessee dated 24-08-2007 and there is no basis of payment @ 3% by assessee firm to Asipac. The AO further stated that FDI was not even received by the assessee but was received by UAHPL. We observe that the assessee firm filed its detailed submission before the Ld. CIT(A) and also filed certain additional documents in the form of information and the ld. CIT(A) sought a remand report from the AO. Not only this we observe that the AO also issued a notice u/s 133 (6) to Warburg Pincus Group and Warburg Pincus Group in its reply dated 7.1.2011 confirmed that Asipac was instrumental in arranging FDI into the project through its investment arm viz. RIL Mauritius. We also observe that ld. CIT(A) in para 8 of his order has also referred the details of the invoice received, submissions made by Warburg Pincus Group and has given a categorical finding on the basis of said correspondence that it is incorrect to say that no services were provided by Asipac in relation to arranging FDI. The ld. CIT(A) has also held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies to the claim of the assessee that FDI received by UAHPL is for the benefit of the assessee which has come to the assessee in the form of security deposit as land owner of the project My Haveli . The cases cited by the ld. DR (supra), we are of the considered view, are not relevant to the facts of the case before us. In the case of CIT vs. Premier Breweries Ltd. (supra), the payment was disallowed which was claimed as liasoning work with the corporation after considering the fact that the firm to whom 'payment was made under an agreement as service charges for liasioning work was having two lady partners who in their sworn statement stated that they had absolutely no knowledge about the marketing of any product and they were not at all involved with the business activities of the firm and the business activities were being looked after by their husbands. In that context, it was held that mere existence of an agreement does give rise to claim for payment of commission and income tax authorities can go into the question whether the commission paid is properly deductible u/s 37 of the Act. Further, it was found on enquiries made by the AO that there was no liaison work carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se before us and it was found that device was adopted to minimize the tax liability and it was not genuine business arrangement and in those circumstances, the claim was disallowed, which is not case of the assessee before us. We also observe that the case of Jaipur Electro (P) Ltd. vs. CIT (supra) relied on by the ld. DR is also not applicable to the facts of the present case before us as in that case the Hon'ble High Court of Rajasthan held that Tribunal after considering all the relevant material on record came to the conclusion that work incentive paid only to some of the employees for the first time was not out of business expediency and therefore, the same was rightly disallowed. We also observe that the case of Brooke Bond India Ltd. vs. CIT (supra) on which ld. DR placed reliance is also not applicable to the facts of the case as in that case the expenditure was directly incurred for expansion of capital base of the assessee company and whereas in the case before us the said FDI had come to special purpose vehicle i.e. UAHPL for the purpose of giving security deposit to the assessee as land owner of the project . Hence, it cannot be said that expenditure has been incurred f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 21-09-2010 was asked to explain as to why a sum of Rs. 1.85 crores should not be treated as its unexplained expenditure. The assessee filed its reply vide letter dated 4-10-2010 wherein he submitted as under:- (Page 9 of AO) 11.3 In response, the counsel of the Assessee furnished the reply vide letter dated 04.10.2010 wherein he submitted that the land for project My Haveli admeasuring 52.874 bighas was purchased from Kalyan Sahay and Lallu Ram Yadav for which consideration was paid by cheque. The details in respect of land purchased and dates of registry with consideration thereof and enclosed herewith as Annexure D . No payment has been made in case as alleged, to any of the persons mentioned in the notice. It has not been stated in the questionnaire as to what is the basis for alleging that certain payments were made in cash. Unless any such basis is confronted to the Assessee, no addition can be made on this account. Addition if any, made on this account will be on mere suspicion, conjectures and surmise and will be legally untenable. In case, there is any evidence with your goodself, kindly supply the same and afford an opportunity of cross examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (at page 12 of the assessment order ) has stated that during the course of statement of Shri Kalyan Sahai and other members of his family stated that they are having agricultural income. However, a perusal of the bank account did not show any substantial deposits in their accounts except during the period of sale of land. The AO has stated that they had very little balance in the bank account prior to the period when transaction relating to the sale of land took place. The AO has stated that those persons were asked to filed the copies of return of income and sources of deposits of cash in the bank accounts. In response to query raised, Shri Kalyan Sahay filed revised return on 06-03-2009 showing capital gains. They submitted that the source of cash deposits in the accounts of Shri Kalyan Sahai and Shri Kali Charan is on account of sale of some other land to Shri Babu Lal and others. In the case of ladies and other members of their families, the source of cash deposits is through gifts from Shri Kalyan Sahai and Shri Kali Charan. The AO has stated that the said persons failed to provide any documentary or supporting evidence in respect of their claim, therefore, explanation filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that assessee in reply to show cause notice dated 21-09-2010 submitted its reply on 04-10-2010 and stated that no such payment in cash was made and requested the AO to supply the copies of the evidences available with the Department and to afford an opportunity of cross examination. However, neither copies were made available to the assessee nor any opportunity of cross examination was provided. The assessee had no option but to press for the copies of statements recorded and the same were provided only after assessment order was passed. The AO had pre-conceived notion against assessee firm as far as impugned order is concerned. It was contended that on receipt of copies of statements which were provided to the assessee only after assessment were completed, were examined and it was observed that agriculturists (sellers) have mentioned receipt of Rs. 20 to Rs. 25 lacs in cash as Sai (token money). The assessee stated there is no truth in these facts in as much as no sum was paid in cash to these farmers either as token money/ advance or otherwise. It was contended that the AO has not accepted their statement in toto otherwise he would not have made the addition of an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese statements were recorded by the department on 28.01.2009 being the date of search in case of the appellant group at 11.30 am while the search in case of the appellant was going on. 11.1 Although no opportunity of cross examination was granted to the appellant but these statements appear to be independent particularly when statements of two persons were recorded by the department and both of them stated almost the same facts. Although, subsequently these persons retracted from their statements recorded on 28.01.2009 and stated before the department that they have received payment only through cheques but such retraction is not worthy of reliance in my view as there is a possibility of same being un afterthought. In my view, the evidentiary value of statements recorded on 28.01.2009 is very high. Therefore, this issue has to be decided on the basis of the statements of the sellers recorded on 28.01.2009 during the course of search at the premises of the appellant. 11.2 On careful examination of the two statements viz. the statement of Shri Kalyan Sahay Yadav and the statement of Shri Kalicharan Yadav available to page no. 555-559 and 560-567 of PB respectively, it is ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble ITAT, Mumbai Bench in the case of Manoj Kumar Gupta Vs. Deputy Commissioner of Income Tax (2006) 100 TTJ (Mumbai) 588 and Delhi Bench of ITAT in Bansal Strips (P) Ltd. Vs Assistant Commissioner of Income Tax (2006) 100 TTJ Dl 665 wherein it was held the AO has to accept the seized material as a whole or he has to reject it as a whole. He cannot adopt a pick and choose method in accepting a part of seized materials and rejecting the other part of the seized materials. If the AO disbelieves the statements of Mr. Kalicharan Yadav and Mr. Kalayan Sahay Yadav dated 28.01.2009, then no addition could have been made and when he believes these statements, the addition of Rs. 25,00,000/- only could have been made. For making this addition, reliance has to be placed on most reliable and independent evidence which according to me in the present case is the statement of the sellers. Accordingly, addition to the extent of Rs. 25 lakhs is sustained and balance addition is deleted. Hence, the Department as well as assessee are in appeals before the Tribunal 20. The ld. DR submitted that the assessee purchased land for its project My Haveli in two phases admeasuring 57.849 bigha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the addition to Rs. 25.00 lacs as against Rs. 1,84,60,000/- made by the AO on the basis of cash deposited in bank accounts of said persons and their family members. He submitted that the addition made by the AO may be confirmed. 21. On the other hand, the ld. AR filed a synopsis at the time of hearing of the appeal giving his submissions He submitted that assessee purchased land admeasuring 28.62 bigha @ Rs. 30 lacs per bigha and a total payment of Rs. 8,58,81,600/- was made to them in instalemnts as and when registries were done and the entire payment was made by cheques. The ld. AR referred to page 613 and 614 of the paper book filed by the assessee which is a copy of letter dated 4-10-2010 and denied vide said letter of making any cash payment to Shri Kalyan Sahai and Shri Kalicharan Yadav in cash for purchase of land. He further submitted that the assessee was not provided with copies of the statements on which AO as well as ld. CIT(A) have placed reliance despite making specific request. He submitted that the AO made available copies of the statement of aforesaid two persons after completion of assessment. He further submitted that said persons subsequently retracted thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd without furnishing the copy thereof to the assessee or without giving an opportunity to cross examination and the addition if made, the same is required to be deleted on the ground of violation of principles of natural justice. The ld. AR further submitted that when Section 69 is invoked against the assessee for alleged undisclosed investment, the onus lies on the Revenue to prove that impugned investment belonged to the assessee. He submitted that the addition made by the AO on the basis of deposits in bank account of third persons is not justified and cannot be basis for making such huge addition especially when no opportunity for cross examination was given and the copies of the statements of sellers were not provided to the assessee despite request. He further submitted that there is a contradiction in the statement of said persons and they should not have been believed without giving opportunity to cross examine them. However, the AO has justified the denial of opportunity to the assessee stating that cross examination is not necessary. The ld. AR submitted that the AO made said addition without making direct enquiry or giving finding merely relating to circumstantial facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the above named two persons and their family members to the assessee, concluded that cash deposits in their bank accounts is cash payment received by them from the assessee towards purchase of land by the assessee from them. We observe that said two persons in their retracted statements stated that cash deposits in their bank accounts as also in the bank accounts of their family members was consisted of agricultural income, gifts from other family members and sale of land to Shri Babu Lal and others. We observe that the AO merely disbelieved said statements and without making any enquiry as to whether it is factually correct or not and whether there was any sale of land by aforesaid two persons to Shri Babu Lal and others in an around said period has made the addition in the hand of assessee of cash deposited in their bank accounts. We observe that the AO has gone merely on the basis of statement recorded on 28-01-2009 and the bank statements of said persons, without giving any opportunity to the assessee to confront those persons and/ or of providing opportunity to cross examine them. Not only, this, we observe that the AO did not even provide copies of the statements to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kalyan Sahai and Shri Kalicharan Yadav dated 28-01- 2009 wherein they stated that they received Rs. 20-25 lacs in cash as token money for sale of their land, without giving copies of the statements to the assessee and without giving an opportunity to confront those persons on whose statements, an addition was made. Therefore, there is a violation of principles of natural justice and the cases cited hereinabove (supra) squarely apply to the facts of the case before us. Accordingly we are of the considered view that no addition can be made in the hands of the assessee alleging that there was cash payments made by the assessee to the sellers of the land. Therefore, we hold that the addition of Rs. 1,84,60,000/- made by the AO is not legal and unsustainable. Hence, we uphold the order of the ld. CIT(A) in deleting the addition of Rs. 1,59,60,000/- and also set aside the order of the ld. CIT(A) to sustain the addition of Rs. 25.00 lacs which is disputed by the assessee in its appeal. 24. In view of the above, we reject ground no. 2of the appeal taken by the Department and allow Ground No. 3 of the appeal taken by the assessee. 25 In third ground of appeal, the Department has dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. the assessee firm as per the conditions laid down in para 7.3.1 to 7.3.5 of the said Development Agreement. Besides these there are several clauses in the said DA which not only restrict the rights of usage as well as the disposal of the land by the assessee firm, but also place restrictions in terms of the acts to be performed by the assessee firm such as those relating to singing of documents, handing over and keeping of original records pertaining to the land etc. thereby suggesting that the developer had acquired irrevocable and exclusive rights in respect of said land. A careful examination of the terms and conditions of the DA suggested that the DA was in fact agreement to sale in respect of the land for a consideration of Rs. 105.85 Crores to be paid by the developer to the assessee firm. 12.5 The assessee firm has talked of a supplemental agreement dated 11.06.2008 ( the SA ) vide which the area of the project land was substantially reduced from the originally agreed 30.25 acres to the revised/modified 11.985 acres and therefore, the amount of Rs. 105.85 crores becomes irrelevant. In this regard, it is submitted that the SA itself is a very weak document in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment on the rights of the land as stipulated in the various clauses of the DA. Even if it is to be treated as security deposit as contended by the assessee, it still remains a receipt . 12.8 Thus the gist of the whole argument is that the document on which the assessee is relying has no locus standi for the elaborate discussion made above and therefore worth rejecting. Needless to mention that the assessee is relying upon the Sa as against the DA while the latter was not only notarized but also registered is stronger piece of evidence as compared to the former and the Assessee if chooses to rely on a different document superseding he original DA should know that the said SA should be a stronger document. On the contrary, the SA is on a weak footing as discussed above. 12.9 The assessee by arguing that there is no buyer in the transaction and both the parties (UBD Ajay UAHPL) are sellers is landing, itself in a state of confusion. Before disposing of this argument it is essential to highlight the clauses of the development agreement which clearly point out that the development agreement is nothing but an agreement to sale and the developer is the one who is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of the agreement are so categorical in respect of cessation of the rights of the owner whether it is usage of land, sale proceeds, mode of construction and design of units, litigation, title deeds etc. that there is no reason to treat this agreement other than as AGREEMENT TO SALE. Further, from above it is also seen that the three conditions as stipulated in AS-9 also stand satisfied which have already been discussed elaborately in para 4.8 of the order. So once the conditions as stipulated in AS-9 stand satisfied, it entails revenue recognition which in turn means that the sale has taken place and for the settled/agreed consideration, therefore, Rs.105.85 crores stand recognize as per AS-9. Now since the assessee is in the business of real estate therefore, they are business/revenue receipts. 12.12 Without prejudice to the above, the undersigned also relies on the provisions of section 28 (va) of the Act which deals with non-compete fee- Section 28(va) spells. 28. Profits and gains of business or profession- The following income shall be chargeable to income tax under the head Profits and gains of business or profession . **(va) any sum, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business income of the assessee. Further, proviso 1 of the Section. 28 (va) states that this clause is not applicable for capital gain. In the instant case also, since the assessee is in the business of sale and purchase of land and real estate activity and the said land is stock in trade, hence there is no question of chargeability as capital gain. So, the case of assessee rightly falls within the ambit of Section. 28(va) of the IT Act also. 12.14 This stand of the undersigned in respect of treating the DA as agreement to sale is further fortified by the applicability of provisions of Section 53A of the Transfer of Property Act also, which pertains to part performance of the contract. In this regard, it is stated that mere mention of the non applicability of part performance of the contract u/s 53A of Transfer of Property Act in the agreement does not mean that the statute is not applicable. In fact if the terms and conditions of the development agreement are such that they necessitate the invocation of provisions of Transfer of Property Act, the mere mention of the non applicability of the same in DA does not prohibit the AO to analyse the terms and conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of development). 27.3 It was submitted that out of consideration receivable from flats buyers, one part shall be reserve for the assessee firm and the other part shall be for the Developer Company in lieu of cost of development, efforts and marketing. Thus as per the Development Agreement and other transaction documents the project land which was part and parcel of project under development or stock in trade remained with the assessee firm whereas development expenditure as well as advance sale proceeds were transferred to Development Company. This was done with the stipulation that whenever the flat is required to be sold to a buyer by way of execution of sale deed, the same will have to be done by the assessee firm in the capacity as the owner of the project land. However, in the agreement itself, an option was given to the Developer that if it decides it could purchase the entire project land but the developer company never opted for that and rather the whole project went into a rough weather from May 2008 itself when acquisition notices were issued to the assessee firm under the Land Acquisition Law by the Govt. authorities. Consequently, the second closing envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no sale transaction took place, there is no question of any income accruing to the assessee in the garb of security deposit as alleged. Therefore, there is no reason to consider the security deposit as sale consideration. Further it was contended that the assessee firm has never parted with the ownership rights and only the development rights were transferred under the agreement and nowhere in the development agreement or related transaction document, the ownership of the land had been transferred to any party or person. It was also contended that the AO ignored certain additional evidences by making impugned addition of Rs. 105.85 crores. There was an acquisition notification issued by the Govt. of Rajasthan on 07-05-2008 under the Land Acquisition Act for the acquisition of land at project site. Thus the project suffered a set back and the stake holders of the project entered into a Supplementary Development Agreement dated 11-06-2008 where the Investor i.e. RIL was discharged of all its obligation under the transaction documents and an option was also given to go ahead with the remaining part of the project as and when the acquisition notification was withdrawn. Subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. It was contended that the on the one hand AO is taxing entire amount and on the other , a part of the same amount.. The AO has treated the development agreement as an agreement to sale and made an addition of Rs. 82.69 crores treating the security deposit of Rs. 105 crores as sale consideration and on the other hand, he has made another addition of Rs. 46,69,128/- in the hand of the assessee for the same assessment year after applying percentage completion method in respect of the same project land. It was contended that this result in multifarious, contradictory and overlapping additions which are not sustainable at all. 27.5 It was also stated that the AO has not taken into consideration the fact that while making addition in respect of real estate income, the assessee is entitled to get deduction u/s 80IB of the Act as it fulfills all the essential conditions laid down in the said Section. In this regard, the assessee also placed reliance on the decision of ITAT Pune Bench in the case of B.K. Patel Enterprises vs. DCIT, (2009) 125 TTJ 974. It was also contended that the AO has attempted to drag the issue of security deposit within the anvil of Section 28(va) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 52.74 lacs relating to second trench of the project. The ld. CIT(A) has observed at pages 45 to 53 vide para 14 to 14.9 as under:- 14. I have considered the submissions of the Ld. AR and perused the material on record. On careful examination of the registered development agreement dated 25.03.2008 between the appellant and M.s Unique Affordable Homes Pvt. Ltd. (UAHPL), it is very much clear that the appellant does not have any further obligations in respect of development of My Haveli project after execution of Development Agreement as the entire project is to be developed and sold by UAHPL. The Development Agreement dated 25.03.2008 is, therefore, affectively an agreement between the appellant and UAHPL whereby the appellant agreed to transfer all his rights and interest in these two parcels of land to UAHPL, the first parcel of land aggregating to 11.985 acres and second parcel of land aggregating to 18.26 acres. In consideration of such transfer of all rights and interests, the company agreed to pay aggregate an amount of Rs. 105.85 crores and on proportionate basis the same works out to Rs. 41.94 Crores for the first parcel of land and Rs. 63.91 crores for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd or any part thereof can be used for purposes of construction and development of the initial project, which lease deed in the opinion of the investor, is not subject to any condition which is prejudicial to the interests of the initial projects and/or the investment by the investor in the company. 14.2 The appellant has fulfilled all the conditions of first closing and therefore it received the substantial portion of the security deposit amount (Rs. 39.55 crores out of Rs. 41.94 Crores) referable to the first parcel of land aggregating to 11.985 acres. Receipt of such amount itself means that the appellant has fulfilled all the conditions in respect of the first parcel of land measuring around 11.985 acres at the time of first closing and no obligation of the appellant remained pending with reference to this parcel of land. As mentioned earlier, the transaction was in the nature of agreement to sell, where owner completed and discharged its entire obligations and the developer also substantially discharged its obligation of making payment of Rs. 39.55 crores to the owner in respect of 11.985 acres of land out of total consideration of Rs. 41.94 crores. The judgment of Honora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2.1. Subject to the promoters and the company not being in breach of any warranty, covenants or undertaking under this agreement, within seven (7) business days of receipt of a confirmation by the Investor from the Company and the promoters that the Second Closing Conditions Precedent have been satisfied ( Second Closing Date ), the Parties shall consummate the transactions contemplated in this Article 4.2 ( Second Closing ) at the registered office of the Company, or at such other place as may be mutually agreed to between the parties in writing. 4.2.2 All transactions contemplated by this agreement to be consummated at Second Closing shall be deemed to occur simultaneously and no such transaction shall be deemed to be consummated unless all such transactions are consummated. 4.2.4 The parties agree that the obligation of the Investor to subscribe to the aforesaid 3,434,844 Investor Preference Sharers is subject to the fulfillment of the following conditions ( Second Closing Conditions precedent ) and delivery and execution of the following items in form and substance satisfactory to the Investor, unless any one or more of the following is waived in writing by the Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 48519.55 sq meters (11.985 acres) forming part of the project land, bearing Khasra Nos. 66/345, 66,67,68,69,60,71,72,79. 2. Schedule of timelines for consents to be received Sl.No. Consent Obtained Competent Authority Estimated timeline for receipt of consent 1. Change in land use Jaipur Development Authority 25 days from the effective date 2. Conversion approval for Part B of project land Jaipur Development Authority Applications made within one month from change in land use 3. Environmental Clearance Ministry of Environment and Forest, Government of India Application submitted Clearance to be received within 48 days of the effective date 4. Approval of project maps for balance project land Jaipur Development Authority After environmental clearance 5. No objection Certificate from the Fire Department Jaipur Nagar Nigam After approval of maps by BPC Part B of project land shall mean land admeasuring 73932.57 sq meters (17.89814 acres) forming part of the project land, bearing Khasra Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcel of land. Under these circumstances, in my view, it is unjustified to tax the profits in respect of second parcel of land in the hands of the appellant during year under consideration by presuming that income thereof accrued to the appellant in advance at the time of execution of the development agreement even though the various conditions/obligations stipulated in the agreement have not been fulfilled. What has been envisaged to be transacted is the converted and approved land for residential use whereas the same could not be converted since agricultural land became subject matter of acquisition proceedings. Moreover, the AO himself has considered the aggregate project revenue only in respect of first parcel of land by adopting the sale consideration at Rs. 41.94 crores, while applying the percentage completion method to determine the profits of My Haveli project. Accordingly, so called security deposit in respect of second parcel of land, which is neither receivable nor has accrued on account of failure of the appellant to fulfill the various conditions as stipulated in the development agreement and rather subsequently by supplementary agreement dated 11.06.2008, transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment agreement and particularly clause 4 and of clause 7.3.1 to 7.3.5 of the said agreement that said so called security deposit as advance payment is the sale consideration to the assessee. The ld. DR submitted that said development agreement is a registered document. He submitted that so called Supplemental Agreement dated 11-06- 2008 stated to be entered into by the assessee with the Developer is not a genuine agreement vide which assessee stated that it was agreed upon that said development agreement would be restricted to develop to the first trench of the land admeasuring 11.985 acres instead of entire project land admeasuring around 29.847 acres. He submitted that Supplemental Agreement is neither a registered agreement nor it is notorized and it is merely on a stamp paper of Rs. 20/-. The ld. DR referred to pages 100 to 107 of the paper book filed by the Department which contain a copy of the said Supplemental Agreement dated 11-06-2008. The ld. DR referred to clause 4.1 of the development agreement and submitted that the parties agreed that development agreement granted to the developer is irrevocable and exclusive license permission to use the project land. He submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT(A) vide which the ld. CIT(A) worked out the income in respect of first trench of land as under:- Consideration as per development agreement in respect of first parcel of land measuring around 11.985 acres Rs. 41.94 Crores Less-Cost of first parcel of land as per appellant s own record (PB page no. 55) Rs. 11.99 Crores Profit Rs. 29.95 Crores. 30.1 On the other hand, the ld. AR submitted that assessee was constituted for the performance of the group housing project during the month of Dec. 2006. The assessee purchased first parcel of land admeasuring 11.85 acres during the month of Dec. 2006.The assessee firm applied to JDA for change of land i.e. conversion. After change of land use on 28th May, 2007, single patta was issued to the assessee firm by JDA on 14-06-2007. He submitted that the firm acquired second parcel of land admeasuring 17.889 acres during the month of Nov. 2007 to Jan. Feb/2008. The assessee conceivd a Mega Housing Project on the above residential plot of land and started marketing and selling the same. The construction of residential units under project commenced in the month of Sept. 2007. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument and the sum referable to each trench was agreed to be invested in UAHPL by RIL, Mauritius. He submitted that in proportion, the amount of Rs. 22.54 crores was released by RIL, Mauritius in favour of UAHPL towards first trench which is termed as on the first closing on 2-4-2008. The assessee received an amount of Rs. 39,55,95,900/-as security deposit out of the total amount payable amounting to Rs. 105.85 crores. The ld. AR submitted that as on 7-5-2008, the Govt. of Rajasthan u/s 4(1) of the Land Acquisition Act, issued a Notification for acquisition of land and as a result, the project suffered set back. Therefore, the Supplemental Agreement was entered into on 11-6- 2008 whereby Warburg Pincus Group restricted its investment to Rs. 22.54 crores only which was already paid and option was also given to go ahead with the project in case notification is withdrawn and other acquisition conditions are satisfied. Consequently, the payment of security deposit was also confined to initial amount paid at the time of first closing only and no contract took place between the parties in respect of second trenche land. The ld. AR submitted that on 29-09-208, the Govt.of Rajasthan issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per development agreement is not a sale consideration. 30.4 The ld. AR further referred to clause 5.1 of the said development agreement and submitted that it stipulates clearly that if the developer requires, the assessee shall transfer the project land alongwith transfer approval and the project approval in favour of the developer at a price not exceeding Rs. 3.50 crores per acre. Therefore, this clause gives option to the developer to buy the land if it so desires. He submitted that if the land had been sold to the developer while signing the development agreement there would not have been any need for such a clause for giving option to the developer to buy the land. The ld. AR referred to clause 5.3 of the development agreement and submitted that transfer of project land could take place in favour of developer as contemplated vide clause 5 and will occur through a deed of conveyance and the same shall be executed on proper value of stamp paper and will be registered with the office of Sub-Registrar. He submitted that as per clause 5.4 of the agreement if the owner i.e. assessee refuses to execute and / or cause registration of the deed of conveyance or sale deed in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the developer permission. He submitted that irrevocable and exclusive license and permission to use project land was given by the assessee to the developer for use of project land for development purposes and had the assessee not given such permission to the developer, the very purpose of development would have been defeated. He submitted that reliance placed by the AO on clause 4.6 of the agreement is misplaced as it has to be read alongwith other clauses like clauses 5, 6,7, and 12 of the development agreement. He further submitted that the assessee need not to object to the sale consideration of the units because assessee's interest is duly secured by virtue of clauses 7.1.1, 7.1.2 and 7.2 of the development agreement which provides that assessee will be provided the fixed amount of Rs. 105.85 crores out of receivable on sale of residential units. The ld. AR submitted that the AO himself was confused as he also made an attempt to apply provision of Section 28(va) of the Act which has no application as Section 28(va) applies only in cases where lumpsum consideration is paid by a party to another to abstain from carrying out a business activity similar to the business carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as sale consideration ignoring the fact that entire project execution did not materialize. The AO accordingly made addition of Rs. 82,69,66,103/- as business profit from sale of project land. On perusal of the document on record and considering the submissions of the ld. representatives of the parties, it is a fact that the AO has taken contrary stand in the case of the assessee before us. He has doubted the genuineness of Supplemental Agreement dated 11-06-2008 in the case of assessee herein but in the hands of UAHPL he considered the Supplemental Agreement dated 11-06-2008 as genuine and thereby treated the consideration for land payable by UAHPL to the assessee at Rs. 41,94,75,000/-. We observe that ld. CIT(A) after considering the Supplemental Agreement dated 11-06-2008 has taken sale consideration in respect of first parcel of land in para 14.3 of the impugned order and after deducting the cost as per assessee record of Rs. 11.99 crores has considered profit at Rs. 29.95 crores . Hence this Supplementary Agreement dated 11-06-2008 could not be ignored and is a genuine document on the peculiar facts of the case. Therefore, the Department as well as assessee have filed appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as sale consideration for transfer of land. 31.3 We also agree with the ld. AR that provision of Section 28(va) of the Act are not applicable to the case before us as it applies only when lumpsum consideration is paid by a party to another to abstain from carrying out the business activity similar to the business carried on by the first party. We agree with the ld. AR that this is not a case here. 31.4 Before, we part with this ground, we may state that the case cited before us are not relevant and do not consider it necessary to discuss superficially in view of our our findings. 31.5 In view of the above, we are of the considered view that said security deposit received by the assessee cannot be considered as sale consideration for transfer of land in the assessment year under consideration. Hence, we not only confirm the order of the ld. CIT(A) in deleting the sum of Rs. 52.74 crores by disallowing ground no. 3 of the appeal taken by the Department but also delete the balance addition of Rs. 29.95 crores sustained by ld. CIT(A) by allowing the Ground No. 4 of the appeal taken by the assessee. Accordingly, the Ground No. 3 of the appeal of the Department is rejected and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the order of the AO. 36. On the other hand, the ld. AR made his submissions on the lines of the submissions made before the authorities below. 37. We have carefully considered the arguments of ld. representatives of the parties and orders of the authorities below. Since it has not been disputed by the ld. DR that said payment of Rs. 19,28,401/- made to Asipac was towards reimbursement of expenses and not for professional charges and the details of which were also filed by the assessee before the AO, we hold that provision of Section 194J of the Act for deduction of TDS are not applicable on such payments. Therefore, the assessee was not required to deduct TDS. Hence, the ld. CIT(A) is justified to delete the disallowance made by the AO as per Section 40(a)(ia) of the Act. Accordingly, we uphold the order of the ld. CIT(A) and reject Ground No. 4 of the appeal taken by the Department. 38. In Ground No. 5 of the appeal, the Department has disputed the order of the ld. CIT(A) in deleting the addition of Rs.46,69,928/- ,made by the AO by holding it to be double taxation and ignoring the fact that addition by applying percentage method was on account of profit and embedded in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther stated that the assessee is engaged in the business of real estate including development and construction of residential / commercial building. The AO at page 40 of the assessment order has given a table stating that the assessee group has launched numerous real estate projects from assessment year 2003-04 to 2009-10 and some projects out of which are complete and some of them are in the process of completion. The AO has stated that on perusal of the said table and taking bird eye s view of the income by the group in each project and ventures and in each financial year, it is seen that no income is offered for taxation and most of the projects are lurking in loss in all the years in which project is spread out. The AO discussed the two Accounting Approach which are followed in the construction normally project completed method and percentage of completion method. The AO has stated that first approach i.e. project completed method which does not recognize any profit until construction of project is complete and in the second approach i.e. percentage of completion method recognizes the profit at piecemeal. He has stated that difference between these two methods simply is the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) has deleted said addition of Rs. 46,69,928/- relating to assessment year 2008-09. Hence, these appeals by the Department as well as by the assessee. 43. At the time of hearing, ld. representatives of the parties submitted that facts and issue in respect of rejection of books of accounts and applying percentage completion method as against the completed project method followed by the assessee are similar to the facts and issue as submitted in another group concern of the assessee in ITA No. 73/JP/2012 (appeal filed by the assessee) and in ITA No. 211/JP/2012 (appeal filed by the Department) relating to assessment year 2003-04 of M/s. Unique Group and Developers, Jaipur. Therefore, whatever finding is given therein will ipso facto apply to the issue under consideration in the assessee s case. 44. In view of the above submissions of ld. representatives of the parties and on perusal of the orders of the authorities below, we agree with them that the discussions made by the AO as well as ld. CIT(A) for rejecting the books of accounts and to compute the profit of the assessee by applying percentage completion method instead of project completed method as followed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued in June, 2006 by the Institute of Chartered Accountants of India in respect of guidelines to be followed by the Real Estate Developers/Builders for recognition of revenue. This Guidance Note requires recognition of revenue by real estate developers/builders as per provisions of AS-9 wherein following three conditions are required to be fulfilled :- i. The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with the ownership. ii. No significant uncertainty exits regarding the amount of consideration that will be derived from real estate sales. iii. It is not unreasonable to expect ultimate collection. The guidance note further states that once the seller has transferred all the significant risks rewards of ownership to the buyer other conditions for recognition of revenue are satisfied, any further acts on the real Estate performed by the seller are in substance performed on behalf of the buyer in manner similar to a contractor. So here it is very categorically stated that whatever activities are performed by the seller on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst project completion method regularly followed by the assessee. The assessee has not declared complete and correct profits and at the same time by not following AS-7 and AS-9 it tantamounts to not following AS-1 notified pursuant to section 145(2) of the Act. He held that the books of account do not reflect true and correct picture and, therefore, the same stood rejected in terms of provisions of section 145(3) of the Act. The Assessing Officer thereafter proceeded to apply percentage completion method in order to assess the true profits of assessee s business 45. Further the Ld. CIT(A) has also upheld the action of the Assessing Officer on the similar reasoning as given in the aforesaid order of the Tribunal in para 6.2, which reads as under:- 6.2 The Ld. CIT (A) considering the position as contained in paras 31 32 of AS-7 for recognizing the revenue and profit found that during early stage of contract when the outcome of the contract cannot be estimated reliably, revenue is to be recognized to the extent of cost incurred and ultimately no profit is to be recognized. For taking this view, he placed reliance on the Exposure draft for Guidance Note on Recogniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fully accounted. The reason so taken by the Assessing Officer for rejecting the accounts is thus vitiated and unfounded. ------------- ------------ ------------ 12.8. The Hon'ble Kerala High Court in the case of St. Teresa s Oil Mills vs. State of Kerala, 76 ITR 365 (Ker.) has entertained a view that the accounts regularly maintained by the assessee in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that the accounts books are unreliable, incorrect or incomplete before rejecting the accounts. The rejection of books is not a matter to be done light heartedly. 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. in which the practice of making ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. 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, 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 Reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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) = (2007-TII-02-SC-INTL) 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 perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as completely distinct from the sale of land 51.2 The assessee has filed the appeal on the following grounds:- 1. Under the facts circumstances of the case and in law, the order of Ld. CIT(A), 2. Under the facts circumstances of the case and in law, Ld. CIT(A), Cental, Jaipur has erred in: I. Upholding the rejection of books of accounts by the AO u/s 145(3) of the Act. II upholding the application of percentage completion method of accounting for determining the taxable income of the appellant who is a builder and developer and not the contractor. 3. Under the facts circumstances of the case and in law, the order of Ld. CIT(A) has erred in upholding levy of interest u/s 234B of the Act. 52. In respect of appeal filed by the Department, the ground is similar to Ground No. 5 of the appeal of the Department for the assessment year 2008-09 and Ground No. 2 of the appeal filed by the assessee is also similar to Ground No. 2 of the appeal of the assessee for the assessment year 2008-09. 53. Since the facts and issues are identical to the assessment year 2008-09 which we have discussed in para 39 to 47 hereinabove and for the reasons mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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