TMI Blog2007 (1) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the computation of profit should be on a correct basis. The admitted position is that during the year under consideration, the assessee has not sold a single flat and this fact has not been denied by the Revenue, hence, it is not clear that on what basis the Revenue Department has arrived at a conclusion that there was a difference in the value of work-in-progress on account of sale price. This is also not the case of the Revenue that comparable sale instances were examined and on that basis it was suggested to the assessee to make a declaration on account of the value difference in work-in-progress. Merely on the basis of the possibility, as mentioned by the AO, in our opinion, an addition is not warranted. The settled law is that an assessee appreciates in its books of account the value of his stock-in-trade artificially, it is held as a unilateral transaction and since there could not be any sale of the stock at that point of time, hence, the said artificial appreciation does not result into a profit. Further, the one thing that is essential is that there should be a definite method of valuation adopted which could be carried through from year to year. In case of any de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the only issue is in respect of an addition of Rs. 18,00,000 which was alleged to be a declaration made by the assessee during the course of a survey action and in this regard, he has mainly pressed ground No. 1 and ground No. 4 of the concised grounds reproduced below : 1. In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in mechanically confirming the addition of Rs. 18 lakhs made by the learned Assessing Officer to the returned income of the appellant solely on the basis of the declaration made by the appellant at the time of sur vey action carried on March 18, 1998, when the alleged declaration was retracted by the appellant for valid, cogent and legal reasons by filing a revised return of income. 4. The learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that neither the survey party nor the learned Assessing Officer has brought on record an iota of evidence to show that the appellant had made any undisclosed investment in the work in-progress. Even there is no admission on the part of the appellant that he had made any such unrecorded investment. In the circumstances, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found and the survey party had not observed any defect in the books of account. It was explained that the retraction was on account of the fact that the valuation as agreed upon by the assessee was only an imaginary figure and the part of the stock was sold subsequently at an average rate of Rs. 1,800. The learned Commissioner of Income-tax (Appeals) has called for a remand report from the Assessing Officer wherein the Assessing Officer has reiterated all those facts which were already stated in the assessment order and further remarked that the retraction was made after a said long period, hence, the said retraction was an afterthought to evade the tax liability. The learned Commissioner of Income-tax (Appeals) has thus concluded that the disclosure in the statement during the course of survey was made voluntarily by the assessee which was later confirmed on a stamp paper and further a final seal of acceptance was given by the assessee by filing a return wherein included the said offer and an additional income was declared. After the lapse of two years, a revised return was filed and in the opinion of the learned Commissioner of Income-tax (Appeals), it was an afterthought. In his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorised representative has drawn our attention on the accounting policy adopted by the assessee in the past years. He has mentioned that all the indirect costs such as interest, etc., were debited to the scheme which were under development. If there were more than one scheme under development, then interest other than indirect cost was apportioned to the various schemes. The value of each work-in-progress of a scheme is used to be worked out at the end of each year. The work-in-progress consisted of land price, direct expenses and capitalized cost debited to this scheme. He has made a remark that it was not the case of the Revenue that the value of the work-in-progress was alleged to be inflated by the assessee. On completion of a scheme, the profit or loss for such scheme is used to be arrived at by deducting the work-in-progress from the sale price on completion of the project. The learned authorised representative has tried to establish from the accounts of the assessee of the past years that it was always the cost price which was made basis for the valuation of the work-in-progress and not the market price. On page 40 of the compilation, there is an year-wise bifurcation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the retraction was also not immediate but after a considerable delay. The impugned revised return was also filed belatedly. Hence, he has vehemently argued that such type of behaviour of a taxpayer should not be encouraged and retraction should be dismissed. He has also made a passing remark that on the question of statement recorded during the survey operation that the Revenue authorities were duly authorized to conduct the survey operation, hence, empowered to take a statement on oath, he has concluded. 6. We have heard the submissions of both the sides at length and carefully perused the orders of the authorities below in the light of the compilation filed and case law cited. As per the observation made hereinabove, we have noted that admittedly no incriminating material was found during the course of survey operation. In the impugned assessment order, there is no observation that defects were noted in the books of account either at the time of survey or during the course of assessment proceedings. Once the survey party has visited the site, then, in our opinion, it was proper and justifiable to ascertain the correct value of the cost of construction which was held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the respected coordinate Bench in the case of Champion Construction Co. [1983] 5 ITD 495 (Bom), but on reading, we have found the difference in the facts and the issues. It is true that an assessee is liable for taxation of the profit in respect of a project which is near to completion or major part of the project is completed but the computation of profit should be on a correct basis. The admitted position is that during the year under consideration, the assessee has not sold a single flat and this fact has not been denied by the Revenue, hence, it is not clear that on what basis the Revenue Department has arrived at a conclusion that there was a difference in the value of work-in- progress on account of sale price. This is also not the case of the Revenue that comparable sale instances were examined and on that basis it was suggested to the assessee to make a declaration on account of the value difference in work-in-progress. Merely on the basis of the possibility, as mentioned by the Assessing Officer, in our opinion, an addition is not warranted. 8. The settled law is that an assessee appreciates in its books of account the value of his stock-in-trade artificially, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) provision should be made for foreseeable losses and allowance should be made as far as practicable for penalties, guarantees and other contingencies ; (c) a clear basis for including a profit element should be established and adhered to consistently. 9. From the above discussion, we can safely arrive at a conclusion that in the instant case, since the assessee was regularly maintaining the books of account and valuing the work-in-progress on cost basis, then the Revenue had no reason to arbitrarily adopt the market price basis for the valuation of their said work-in-progress in a particular accounting period. 10. The method of accounting cannot be substituted by the Assessing Officer merely because it is unsatisfactory. What is material for the purpose of section 145 is that the method should be such that the real income, profits and gains can be properly deduced therefrom. If the method adopted does not afford a true picture of the profits, it could be rejected, but such rejection should be based on cogent evidence and would be done with caution. The power can be exercised by the Assessing Officer to choose the basis and manner of computation of income but he must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the legal right. It is always open to take the plea that the figure, though shown in his return of total income, is not taxable in law. In the light of the said proposition of law, we hold that the assessment of total income of the assessee is required to be made as per the provisions of law contained in the Income-tax Act. 12. The view expressed by the respected co-ordinate Bench is a correct position of law and to be applied in the instant appeal as well. Merely because an offer was made having no cogent basis or an approval of law that should not estop a taxpayer from correcting his mistake. Rather, it is a duty of the Revenue Department to tax the legitimate amount from a taxpayer. This is what exactly was directed by the Central Board of Direct Taxes in a very old administrative instructions for guidance of the Income-tax Officer on matters pertaining to assessment vide Circular No. 14 (XL-35), dated April 11, 1955. 13. Next is the question of issue of retraction whether permissible after a long gap. The learned authorised representative has advanced few arguments and also given certain reasons, which according to us, are not convincing and are dismissed. Naturally, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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