TMI Blog2014 (7) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... ions/disallowance, there is no impact on the assessable income of the assessee even if the books are not rejected and on this aspect, there was no reason to interfere in the order of CIT(A) – Decided against Revenue. Direct expenses disallowed – Details not furnished related to development of flats – Held that:- CIT(A) noted that the assessee had to incur major expenditure on infrastructural development such as leveling of land, landscaping, construction of roads, erection of street light polls, construction of overhead water tank etc. for 1st phase of the project - assessee furnished copy of bills and other details along with nature of work done in the paper book filed before him – the AO’s objection is that the assessee has not developed the flats because the assessee has sold plots in the present year - In the details of the expenses incurred by the assessee, reproduced by the CIT(A), it is not coming out that these expenses are not in relation to development of plots and the same are for construction of flats – AO is making a general observation that in absence of proper evidence in the shape of vouchers and details as well as name and complete address to whom this amount ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) and the only basis for making the disallowance is that for the balance amount, no reply was received in reply to notice u/s 133(6) of the Act - making disallowance on the basis of the fact alone that some parties did reply, is not justified – Decided in favour of Assessee. Deduction u/s 80IB – Held that:- The assessee did not construct the residential units in the plots and these plots were sold after basic infrastructural development of the project - the plots were sold to the buyers and it was not the concern of the assessee whether the construction had to be carried out or not by the buyers - the assessee did not obtain completion certificate of construction of the housing project from the competent local authority as required in the explanation to section 80IB(10)(a) of the Act – there merit in the claim of the assessee that the assessee is eligible for deduction u/s 80IB(10) of the Act – Decided against Assessee. - ITA No.704/LKW/2010, ITA No.705/LKW/2010, ITA No.761/LKW/2011, ITA No.655/LKW/2011 - - - Dated:- 17-7-2014 - Shri Sunil Kumar Yadav And Shri A. K. Garodia,JJ. For the Petitioner : Shri Yogesh Agarwal, Advocate For the Respondent : Shri Manoj Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f WIP. In view of the above discrepancies, I am not satisfied about the correctness and completeness of the accounts of the assessee, therefore, I am making an assessment in the manner provided in Section 144 of the Income Tax Act, 1961 as envisaged in Section 145(3) of the I. T. Act, 1961. The A.R. of the assessee submitted that That the application of provision section 145(3) to make assessment as envisaged in section 144 was incorrect. That the assessee has maintained proper books of accounts which were duly audited by the Auditor of the Company M/s Anil Sushil Co., Chartered Accountants, New Delhi. The Learned Addl. Commissioner of Income Tax Range-1, Bareilly has himself asserted in Para-1 of Assessment Order that Sri Rajen Vidyarthi, FCA, Sri Apoorv Mishra, CA Sri Arvinder Singh, MD of the company attended from time to time along with books of accounts. Further in Para-4 of assessment order he has mentioned that during the course of assessment proceedings, the assessee has filed the details of various expenses under the head purchase, direct expenses, selling and distribution expenses, administrative expenses, etc. It may be observed that no defect has been pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. There was no dispute that the assessee was maintaining books of account. The A.O. was satisfied about the correctness and completeness of books and method of accounting regularly employed by the assessee. The provisions of section 145(3) could be invoked if the assessing officer was not satisfied about the correctness and completeness of the' accounts and method of accounting followed. For these purposes, the assessing officer has to find out not only the figures in the books of account but the incorrectness of accounts. The Kerala High Court in the case of St, Terasa's Oil Mills Vs. State of Kerala (1970) 76 ITR 365 has observed that the accounts regularly maintained 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 account books are unreliable, incorrect or incomplete before it can reject accounts which may be done by showing that the important .purchases were omitted there from or proper particulars or vouchers were not forthcoming. The proceedings before the ITO are of a judicial nature and in making assessment he should procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. Ground No. 2 is as under: 2. Whether on the facts and in the circumstances of the case the CIT(A) was justified in deleting the disallowance of ₹ 1,69,45,090/- out of direct expenses by the Assessing Officer as the same was made on the ground that the assessee had not furnished details of direct expenses related to development of flats which were not sold during the year and hence, such expenses were to be included in work-in-progress (WIP) and may not be debited to P L a/c as per accounting policy followed by the assessee. 8. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of learned CIT(A). 9. We have considered the rival submissions. We find that this issue was raised before the CIT(A) as per ground No. 7 of the appeal and it was decided by CIT(A) in favour of the assessee by making following observations: The 7th ground of appeal is regarding addition of ₹ 1,69,45,090/-. The A.O. mentioned in the assessment order that The assessee has debited ₹ 16,94,50,896/- as direct expenses. These expenses include expenses on account of material purchase (like brick, cement, marble an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of street light polls and construction of over head water tank. In all these process company has used purchased, used and consumed mud, sand, bricks, cement, stone and marbles, which have been claimed as direct expenses. They also include construction expenses, development fees, dumper repair and maintenance, freight and cartage, map approval fees, and site development fees, JCB repair and maintenance, store consumables, job work charges. Details of these direct expenses along with the nature of work done, is as under:- Particulars Total Material-Bricks 27281041 Material-cement 21011400 Material Marbles 3648973335 Material-Mud 28587833 Material-sand 37703105.65 Construction Expenses 12523526 Development Fees 406891 Dumper repairs main. 18289 Freight cartage - 34770 JCB Repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had failed to produce the full details about the plots sold and the flats developed during the period under consideration. In absence of proper evidences in the shape of vouchers and details as well as name and complete addresses to whom an amount of ₹ 16,94,50,896/- had been paid. Therefore, a token amount of ₹ 01,69,45,090/- which is 10% of total amount of expenses is disallowed. Now the submission of the assessee before your good self is general in nature, however, the assessee has furnished vouchers and copy of accounts .which are examined. On examination of these vouchers it appears that the assessee has tried to keep and maintain vouchers. After taking into account the contention of the appellant and the remand report of the A.O., it is my considered view that the A.O. made addition without having any material on record. In view of such facts and circumstances of the case, the action of the A.O. was not justified. Accordingly, the appeal on this ground is allowed. 9.1 From the above Paras reproduced from the order of CIT(A), we find that the main basis of the A.O. for making this disallowance was that the assessee did not furnish bifurcation of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of commission and brokerage was specific to sale of plot and booking of plot and hence, had to be debited to the P L a/c on specific basis and since the assessee had failed to give the details at the time of assessment proceedings and also during the course of appeal proceedings, the addition made by the Assessing Officer was justified and the order of the CIT(A) may be cancelled . 11. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of learned CIT(A). 12. We have considered the rival submissions. We find that this issue was raised by the assessee before CIT(A) as per ground No. 5 of the appeal and the same was decided by CIT(A) in favour of the assessee by making following observations: The 5th ground of appeal is regarding addition of ₹ 3,36,87,110/-. The A.O. mentioned in the assessment order that The assessee had incurred expenses of ₹ 8,17,01,938/- on account of commission and brokerage paid to brokers. The assessee had debited these expenses under the heading of Selling Distribution expenses. As per notes to the account under the heading significant accounting policy, the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06-2007, it is very much clear that an amount of ₹ 5,71,91,357/- was paid on sales of plots and the balance commission of ₹ 2,45,10,581/- has rightly been carried forward as work in progress. Name wise details of brokers with their addresses, date wise details of payment and TDS thereon and plot wise details of commission are being furnished for your kind perusal, It may further be submitted that in this particular line of business of real estate, payment of commission and brokerage to brokers and booking agents is a regular and common practice. Moreover, all these payments have been made by cheques after deducting due TDS, some of the brokers have also confirmed for the payment of commission and-brokerage to them. In view of this the action of the Addl. Commissioner of Income Tax, Range-I, Bareilly in allowing commission and brokerage on estimate basis @ 6% on sales is unjustified and against the fact of this case. There was no basis as well as reason for estimate of commission and brokerage when specific details were available with him. It is therefore requested that entire amount of ₹ 5,7l,91,357/- , as claimed in the Profit Loss account, be allowed as busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 3,36,87,110/- has been disallowed. However, as discussed in my remand report dated 28.07,2010 submitted to your good self the notice u/s 133(6) were issued to the Company's to whom commission, brokerage and incentives were paid by the assessee. In response to above notices the maximum companies have sent their confirmation till date which are placed on record and same are verified. Further, the A,O. attended appeal proceedings on 23.8.2010 along with case records. He furnished written submission dated 23.8,2010. The relevant extract of the submission is reproduced as under:- The total commission and brokerage debited in the profit and loss a/c out of ₹ 8,17,01,838/- was only ₹ 5,71,91,353/-. Therefore, the figures mentioned in the last paragraph of page no. 3 of my Remand Report dated 28.07.2010 should be considered accordingly. 2. It is further reported that against the total brokerage and commission debited in the Profit and Loss account, ₹ 6,40,81,183/- was verified by obtaining the information u/s 133(6) of the I.T. Act, 1961, from the beneficiary parties, including two confirmations received from M/s Nidhi Estate, New Delhi and M7s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the claim has been established. Therefore, this ground of appeal is allowed. 12.1 From the above Paras from the order of CIT(A), we find that it is noted by CIT(A) that the assessee has filed confirmation from certain brokers. As per the details of commission payment available on page No. 107 to 127 of the paper book, total commission expenses debited in the profit loss account of ₹ 5,71,91,357/- is in respect of total sales accounted for in the books of account of ₹ 50,04,22,750/- and balance commission of ₹ 2,45,10,581/- was taken to WIP out of total commission expenditure of ₹ 8,17,01,938/-. It was explained by Learned A.R. of the assessee before us that in the profit loss account, available on page No. 23 of the paper book, total sales is shown at the same figure of ₹ 50,04,22.750/- from which a discount of ₹ 10,86,85,300/- was reduced and in this manner, net sale income was considered in the P L Account at ₹ 39,17,37,450/- but while furnishing the details of brokerage and commission, gross sales figure was shown because gross sale figure was the basis for making payment of commission and discount was allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2, it was submitted by him that it is noted by the CIT(A) on page No. 11 that this includes ₹ 21,000/- being expenses incurred by the assessee in respect of Kushti Dangal and ₹ 1.50 lac in respect of Sikh Club, Rudrapur. He submitted that Kushti Dangal was organized in Rudrapur and it was sponsored by the assessee company and it was purely a business expenditure as by sponsoring any sports or cultural events, company gets publicity and builds it brand image. Regarding the payment made to Sikh Club, Rudrapur , he submitted that it was made for sponsoring the cultural events on the occasion of Vaishakhi Mela at Rudrapur. 16. Learned D.R. of the Revenue supported the orders of learned CIT(A). 17. We have considered the rival submissions. We find that this was the only objection of the Assessing Officer in the remand report that these expenses of ₹ 21,000/- and ₹ 1.50 lac were in the nature of charity and donation. The decision of CIT(A) is also on the basis that the nature of expenses were charity and donation. But in our considered opinion, sponsoring Kushti Dangal and making some payment to a club for sponsoring cultural events on the occasion of Bais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions filed by the Assessing Officer before the CIT(A) on 23/08/2010, it is not the case of the Assessing Officer that even a single person has intimated that the incentive was paid to him in respect of work in progress. The entire amount for which reply was received by the Assessing Officer for ₹ 22,29,632/- has been allowed by CIT(A) and the only basis for making the disallowance is that for the balance amount of ₹ 4,30,873/-, no reply was received in reply to notice u/s 133(6) of the Act. When the initial objection of the Assessing Officer that part of the amount of incentive payment made is in relation to project in progress and this objection is not finding support from even one reply of the payee even after obtaining reply from major amount of the payment, i.e. ₹ 22,29,632/- out of total enquiry of ₹ 26,60,505/-, then making disallowance on the basis of this fact alone that some parties did reply, is not justified considering the totality of facts of the present case. We, therefore, delete the same. This ground is also allowed. 21. In the result, the appeal of the assessee is partly allowed. 22. Now we take up the appeal of the Revenue for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al basis to estimate addition out of direct and indirect expenses u/s 145(3) of the Act. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue. This is also not brought on record by Learned D.R. of the Revenue that the change in accounting policy adopted by the assessee in the present year has not been consistently followed by the assessee in subsequent years and therefore, the change is not justified. Considering all these facts, we do not find any reason to interfere in the order of CIT(A) on this isue. This ground is rejected. 25. In the result, the appeal is dismissed. 26. Now we take up the appeal of the assessee for assessment year 2008- 09 i.e. I.T.A. No.761/Lkw/2011. In this appeal the assessee has raised the following grounds: 1. The Learned Commissioner of Income Tax-(Appeals), Bareilly [here-in-after referred to as the Ld. CIT] grossly erred on facts and in law in upholding the disallowance made by rejecting the claim of deduction u/s 80IB (10) of the Income Tax Act, 1961. 2. On the facts and in the peculiar circumstances of the preset case the Ld. CIT was not at all justified in holding that the appellant Co. did not fulfill all t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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