TMI Blog2014 (4) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... ation i.e. 2007-08 - the income declared by the assessee on sale proceeds gives rise to the profit rate of 3.30%, which is very low in case of a builder and contractor. Even though the mistakes pointed out by the AO is not so fatal and sufficient to reject the entire book results of the assessee, but the observation made by the AO to the effect that vouchers do not tally with the amount mentioned in the profit and loss account, some of the expenses are not routed through P&L account, means payments were made outside the profits and loss account, expenses debited in the P&L account was not supported by proper vouchers, cannot be brushed aside out rightly, in view of very low profit declared by the assessee as a builder and developer – thus, the order is modified and the AO is directed to take profit @ 5% of the sale proceeds – Decided partly in favour of Revenue. - ITA No. 1841/Mum/2011, C. O. 188/Mum/2013 - - - Dated:- 4-4-2014 - Shri R. C. Sharma, AM And Dr. STM Pavlan, JM,JJ. Fort the Petitioner : Mr. M. L. Perumal For the Respondent : Mr. K. Gopal ORDER Per R. C. Sharma (A. M.) : This is an appeal filed by the Revenue and Cross Objection filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-06 is of Rs.1,12,35,262/- which does not tally with cost of construction shown in return of income. Further, AO also observed that during the year project has been completed and total cost of the project has been shown to the extent of Rs.9,08,63,346/- whereas, bills and vouchers produced during the assessment proceedings is only of Rs.17,73,105/- and 1,12,35,262/-, therefore. according to the AO, assessee is not having sufficient evidence to prove the genuineness and reasonability of such huge expenses debited in Profit Loss A/c. Further it is observed by the AO that some of the flats/shops are not sold out at the same price as is charged in respect of other flats/shops. Thus, there is a variation in selling price.. Therefore, Appellant was asked through order sheet having dated 16.12.2009 for explanation of variation in selling price and low profit ratio. In response to the query Appellant has submitted reply which is according to the AO unsatisfactory, hence Ld. AO has summarized his findings in para 8 of assessment order and thereafter has rejected the book result and has estimated the net profit @ 15% of the total sale value and closing Work-In-Progress and has therefore e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onciliation was is at page No.15 of the paper book. 5.3. It is very evident from the reconciliation or clarification that Ld. AO has wrongly taken figure of purchase at Rs.l,12,35,262/- against the actual debit of expenditure under head material and labour of Rs.l,77.35,956/- in A.Y. 2006-07. It is also relevant to mention that in A.Y. 2005-06 case was also in scrutiny and regular order u/s 143(3) dated 11.12.2007 was passed by the Assessing Officer accepting the genuineness and correctness of claim of cost of construction. When cost of construction has been accepted by Assessing Officer in A. Y. 2005-06,and further in A.Y. 2006-07, there is no visible discrepancy, there is no point for the AO to confuse himself and then presume otherwise than a correct claim of the Appellant. It is therefore, very apparent that Ld. AO has based his judgement on mis-reference, miscalculation and mis-appreciation of facts of the case. 5.4 It is however, pertinent to mention that observation of Ld. AO in respect of variation of selling price is correct to the extent that there is no valid reason for selling out the flats/shops at lower price in subsequent years against the minimum expected sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market price. Therefore, the argument in respect of flat No. D-401/C-101, D-403/C-03, C-604, C-502, C-503 and C-504 is not tenable at all. As such, considering the facts and circumstances of the case and locality of the area, it can be concluded that selling price of the flat would have not been on lower side as compared to the market price being a minimum fixed price by revenue authority, hence accordingly, difference of selling price as appearing at Sr. No.4 to 10 reproduced at page 8 of this order is to be taken as additional income. Accordingly, total of difference of these items barring item No.8 being a minor difference, comes to Rs.8,34,648/- is @ required to be added to the total income against the un-substantiated general estimation of net profit of Rs.1,40,59,278/-. With a view to remove doubt, it is hereby made clear that variation in selling price as compared to the price as per ready reckoner adopted by the Stamp duty authority taken for addition because of the only reason that explanation of the Ld. AR is not acceptable or convincing one as later on there cannot be less selling price than expected minimum market price of the shops/flats. However, this finding does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment were made out of books from undisclosed sources. c. The expenses debited to the P L account like labour charges during the F.Y.2006-07 are not supported with any of the documentary evidence as no such evidence is produced in spite of specifically asked to the assessee. d. For earlier years also, the bills vouchers produced do not match with the cost of construction claimed to have been incurred. e. No proper justification/explanation was furnished regarding variation in selling price. f. All these exercise is done by the assessee to suppress the sale and to book some unreasonable expenses to evade the taxes which finally resulted into low profit ratio. 6.1 The CIT(A) has dealt with the observation of the AO with regard to the reasons for rejection of books of account and stated that assessee has regularly maintained accounts which were audited and found that there is no such mistake which empowered the AO to reject the entire book results and apply net profit rate on the gross sales. The CIT(A) also observed that the AO has not properly verified the labour charges and material purchases expenses and found that the reconciliation statement submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry same time, the observation made by the AO to the effect that vouchers do not tally with the amount mentioned in the profit and loss account, some of the expenses are not routed through P L account, means payments were made outside the profits and loss account, expenses debited in the P L account was not supported by proper vouchers, cannot be brushed aside outrightly, in view of very low profit declared by the assessee as a builder and developer. Hence, we modify the order of both the lower authorities and direct the AO to take profit at 5% of the sale proceeds which results in net profit of Rs.43.43 lakhs. Thus, we uphold addition of Rs.14.78 lakhs (Rs.43.43 - 28.65) as against the addition of Rs.8.34 lakhs upheld by CIT(A) keeping in view the totality of facts and circumstances of the case as well as defects pointed out by the AO in the expenditure vouchers as well as expenses not routed through profit and loss account. In the result, instead of sustaining addition of Rs.8,34,648/-, we sustain addition of Rs.14.78 lakhs. 7. In the result, appeal filed by the Revenue and Cross the Objection filed by the assessee are allowed in part in terms indicated hereinabove. Order pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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