TMI Blog2012 (12) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... out at the business premises of the assesseefirm on 23.04.2008. During the course of this search, incriminating documents /evidence in the form of cash alongwith loose papers, diaries showing the receipts/expenditure relating to the projects were found. The project is at Ram Singh Ji Bari, Sector No. 11, Udaipur in the name of Surya Estate. The work was started to develop 92 Plots Bungalows but later the assessee had to leave more area for facilities and the plan of 88 bungalows was finally approved by the authorities. The assessee got booking for all these bungalows which remained at different stages of construction during the various years. The construction work was carried out by giving a contract to the civil contractors M/s Sharma Foundation Architects Builders, which is a proprietorship concern of Shri Lalit Sharma, who also happens to be one of the partners of the assessee firm M/s Surya Estate. Simultaneously, a survey u/s 133A was also conducted at the business premises on 23.4.2008 and in this survey, cash, stock and incriminating documents/books of account were found and impounded as per their respective Annexures. Consequently, notice u/s 153A was issued on 22.8.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm has shown NIL turnover. On perusal of balance-sheet as well as seized material, it was found that the assessee had actually entered into sale agreement with various buyers and sale price of all projects with the name M/s Surya Estate was ascertainable with reasonable certainty. Accordingly, the A.O. concluded that the assessee must have followed Percentage of Completion Method [POCM] and should have paid taxes accordingly over a period of project execution. As a result, show-cause notice was issued to the assessee seeking explanation as to why it had not followed POCM for revenue recognition. The authorized representative of the assessee filed a written submission on 10.12.2010 which was considered by the A.O. In this submission, it was mentioned that the assessee was following Mercantile System of Accounting and revenue is recognized on sale of goods when all significant risks and rewards of ownership have been transferred to the buyers, and that the firm did not retain any effective control of the goods transferred. It was explained that in assessee s case, sales are only effected when bungalow is transferred by way of registered sale deed and handing over of possession ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm for the current F.Y. were not maintained in the office of the firm but are maintained in the office of their authorized representative Shri Pankaj Nevatia, CA, whose office is situated adjacent to the office of the firm in Indraprasth Complex. Consequently, statement of Shri Pankaj Nevetia was also recorded u/s 131 of the Act who stated that no books of account of the assesseefirm were maintained in his office. Finally, Shri Lalit Sharma admitted that, in fact, no books of account of the firm for the current F.Y. had been prepared till the date of survey. List of registers, receipt books, documents, loose papers found at the business premises of the firm were inventorised as per Annexure A. During survey, cash amount of ₹ 833000/- was physically found at the business/office premises which was inventorised. As books of account were not maintained, this cash could not be verified. Later, the assessee offered this amount for taxation as its unexplained income. Shri Lalit Sharma also stated that house constructed on the plots of 30 the sizes 30 x 60 and 25 x 60 were sold at the price of 13.13.5 lakhs and 13.15 lakhs, respectively. The assessee offered an amount of ₹ 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate, purchase/sale of lands/plots and construction of bungalows/flats at Udaipur. A Major part of construction of bungalows and sale of plots lands has been undertaken at Ram Singh Ji Bari, Sector No 11, Udaipur. You were developed the lands/plots and constructions of 92 bungalows were in progress. The total 92 Bungalows have been sold out, which were at different stages of construction. However, since the plots/land on which these bungalows were constructed, was not converted for residential purposes by the UIT, Udaipur, the lands/plots have been registered in bungalows have been booked in the names of various persons and some amounts have been received on this account by M/s Surya Estate M/s Sharma Foundation, which was handling the construction work of this project. In this connection, you are requested to explain/furnish the followings: Please explain as to how the lands have been acquired by you for this project. Furnish supporting evidences. Please explain the source of investment in these lands supported by documentary evidence failing which unexplained investment in these assets will be brought to tax in your hand in the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Returned income 0 Add : As per para No. 8.25 2120208 Total taxable income 2110208 Rounded off 2110110 10. Being aggrieved, the assessee filed appeal before the ld. CIT(A) who has dealt with A.Ys. 2004-05 to 2009-10, conjointly, and has given a part relief in all A.Ys. except for A.Y. 2007-08 in which he has enhanced income from ₹ 1,93,07,729/- to ₹ 2,28,55,213/-. Now both the parties are aggrieved. 11. In all appeals issues are almost identical and the decision of A.Y. 2004-05 will also apply to other A.Ys. 12. Grounds for A.Y. 2004-05 raised by the assessee are as under: 1 Whether on the facts and circumstances of the case the CIT(A)Central), Jaipur has erred in law as well as on facts in deleting the addition of ₹ 21,10,208/- even though the AO's action of determining income based on percentage completion method as per Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts/expenditure but the assessee had completed books of account later on, on the basis of evidence/document found during search and on that basis Return of Income was filed in compliance of notice issued u/s 153A of the Act. A financial statement was also prepared on the basis of books of account. He argued that after initiation of proceedings u/s 153A, all assessment proceedings u/s 153A, all other assessment proceedings in vogue relating to these very A.Ys. would not survive. In this background, the main argument advanced by the ld. A.R. was that the books are prepared on the basis of documents found during search/survey have to be relied and considered. Since no specific defect, much less any material defect, is pointed out by the department in these books of account, there is no question of their rejection and the same have to be accepted. It was also argued that there is no dispute in respect of method of allocation of profits in various years while preparing Annual Financial Statement. He even suggested that in both situations, when profit is determined for various years on proportionate basis at various stages of project or in one go in a year when various units are handed ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the members of the ICAI. As per these guidance-notes recognition of revenue on POCM arises only in cases where there is a legally enforceable contract having effect of transferring all significant risks and rewards. Thus, we are satisfied that developer/builder works like a contractor who performs construction work on behalf of buyers only. This income can be recognized in the manner provided in AS-7 which applies to contractors who do not take up construction on their own but take on behalf of their principal. The guidance-note does not apply when seller keeps no effective control on the sold property. Thus, the price risk is one of the factors which is relevant for determining whether the builder/developer is working on his own behalf or on behalf of the buyer. Other relevant factors are (i) if the buyer would be responsible for losses by natural calamities during construction period?; (ii) if the buyer would be responsible for major costs escalation during construction period?, and (iii) if the land is legally transferred in the name of buyer or only this construction activity is taken up. Admittedly, there is no written agreement in respect of the transactions of sale of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received in S.Y. 2027 and the balance of the sale price which it had received in S.Y. 2028 became the profit of the assessee. The amounts which the assessee received from the society after deducting the price of the land represented the assessee's profit or income earned by it in S.Y. 2028. The entire amount which included the sum received by the assessee in S.Y. 2027, was the income earned by the assessee in S.Y. 2028. This amount, represents the difference between the price paid by the society to the assessee and the price paid by the assessee. In other words, this difference is the profit which the assessee earned on completion of the sale transaction with the society. The ITO and the AAC were, therefore, right in including the amount in the assessee's total income for the assessment year under reference. 17. The above decision supports the claim of the assessee. We are also convinced that there is no defect, much less any material defect, which is pointed by the A.O. in the books and entries which were prepared on the basis of documents found during search. Recognition of revenue and its break-up is in controversy. In the background of these facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
