TMI Blog2009 (3) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. In the course of survey, one of the partners of the assessee-firm had stated that a profit of Rs. 64 lakhs was estimated by the firm for the financial year 2002-03 on recognition of income as percentage on completion method. In the course of survey, the partner further stated that the profit of the assessee-firm was worked out under the said method and it was found that the total profit would be around Rs. 165 lakhs as against Rs.64 lakhs, earlier estimated by the assessee-firm. Accordingly, the firm had offered an additional income of Rs. 1.01 crore with an undertaking to pay the corresponding advance tax. The impugned assessment year is 2002-03. The survey related to the assessment year 2003-04. The survey has no direct application for the impugned assessment year. But the Assessing Officer observed that the statement made by the partner of the firm at the time of survey has demolished the argument of the assessee on correct computation of income on the basis of the method of recognition of income employed by it. He noticed that in spite of an accepted method of recognition of income stated to be followed by the assessee firm, the survey has resulted in yielding an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a project crosses over 25 percent of the construction, income is worked out on the basis of the percentage of completion arrived at the end of the every previous year. At that point of time, the assessee is showing unsold portion of the saleable flats as closing stock of the assessee. That stock is valued at cost. The assessee explained that this is an accepted method of accounting. The assessee-firm further explained that almost all the construction activities of the assessee-firm are segmented and sub-contracted to different parties. Therefore, the primary details and evidence regarding the payments towards purchase of materials and labour are mainly maintained by those sub-contractors. All the payments have been made through cheques. The assessee has deducted tax at source on every payment made to subcontractors. The Assessing Officer has not pointed out any specific defect with reference to any specific item of purchase or expenditure. The assessee further explained the authenticity of the profit returned by the assessee. The assessee explained that the Assessing Officer has computed the working profit of the assessee-firm without considering the profit earned on the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts produced by the assessee and on that ground in rejecting the books of account and invoking section 145(3) for the purpose of assessment. Regarding the evidence and clarity of expenses, the Commissioner of Income-tax (Appeals) accepted the contention of the assessee in the light of the decision of the Madras High Court in CIT v. S. I. Property Development Ltd. reported in [2002] 256 ITR 601 where the court has held that allocation of overhead expenses are not required unitwise. He also accepted the contention of the assessee regarding the method of accounting employed by the assessee. The Commissioner of Income-tax (Appeals) also laid stress on the details of work-in-progress furnished by the assessee, projectwise and on all other ingredients of performance and profitability of the assessee firm. He finally concluded that there is no reason to reject the books of account of the assessee. Accordingly, he directed the Assessing Officer to accept the returned income. He allowed the appeal filed by the assessee. The Revenue is aggrieved by the order of the Commissioner of Incometax (Appeals) and therefore the second appeal before the Tribunal. The grounds raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted so many projects and has undertaken various projects in hand. In spite of all these positive features, the income returned by the assessee is abysmally low when compared to the turnover by way of gross receipts accounted by the assessee in the previous year relevant to the assessment year under appeal. The learned Additional Commissioner contended that the Assessing Officer has not rejected the accounts of the assessee-firm on flimsy grounds. He has pointed out that the assessee has not maintained any primary evidence regarding various expenditure claimed by way of deductions, mainly for purchase of materials and also for labour. The assessee has not furnished quantitative particulars so as to verify whether the expenditure by way of purchase of materials were reasonable and comparable. In the absence of any of these basic details, it is not possible to rely on the veracity of the accounts maintained by the assessee firm. The assessee has a duty to support the accounts maintained by it. The learned Additional Commissioner relied on the decision of the Supreme Court in the case of Kachwala Gems v. Joint CIT [2007] 288 ITR 10 where a similar case was considered by the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts on advertisements and if this expenditure is taken out of consideration for a moment, the income computable in the hands of the assessee-firm would be very reasonable. He submitted that heavy expenditure on advertisement was necessitated because of slump and depression in the industry and the assessee-company was surviving against all odds. The learned chartered accountant has furnished before us comparative details of the turnover and income returned by the assessee-firm for the assessment years 1993-94 to 2002-03. He has pointed out that for the assessment years 1993-94, 1995-96, 1997-98, 1998-99 and 2001-02, assessments were completed under section 143(3). In none of these years, the assessing authority did reject the books of the assessee. The disallowances made by the Assessing Officer related to section 43B, advertisement and publicity expenses and disallowance and car running expenses. Apart from the above, only partial disallowances of certain other expenditure were made but there was no rejection of accounts. It shows that the method of accounting followed by the assessee in a consistent manner is accepted by the Department. In order to deviate from the accepted pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such. The assessee is basically developing real estates. The business is carried out through a number of staff, employed at different levels. The overhead expenses of the assessee-firm are very much higher than the overhead expenses of a civil contractor or a builder simplicitor. The assessee being in a competitive industry has to carry on the business against stiff competition for which heavy amounts are to be spent towards advertisement and publicity. The slump and depression reflected in this particular industry has caused huge interest cost as well as cost over-run liabilities on the assessee-firm which also contributed to make the profit element almost sluggish. As the assessee is carrying on the business of a builder-realtor, the business of the assessee cannot be compared to that of a civil contractor as the Assessing Officer has erroneously made an attempt. Almost all the works are executed by the assessee-firm in different projects through the medium of sub-contractors. Even if the rate of income is reasonably estimated at 8 per cent., the entire profit will not be generated in the hands of the assessee-firm as the entire work has been sub-contracted. So, at any rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal, Delhi Bench "I", in the case of Deputy DIT v. Bumi Hiway (M) SDN BHD [2008] 21 SOT 311. In that case, the argument of the Revenue was that the assessee should have disclosed profits on the receipts of contract on the basis of percentage completion method of accounting. As against that, it was the case of the assessee that the initial price for which the contract was awarded was later on found to be unreliable as it was increased to 29 percent and the percentage completion method was not applicable even according to the Accounting Standard AS7. The Tribunal observed that the Assessing Officer was not justified in rejecting the books of account by invoking the provisions of section 145(3) without bringing on record any cogent reasons. We heard both sides in detail and perused the orders of the lower authorities and records of the case. We have also considered the citations advanced by either side. First of all we make it clear that we do not have any quarrel with the argument of the assessee-firm that the activities carried on by the assessee-firm were not in the nature of a civil contractor as such. The assessee on the other hand, is carrying on the business of procuring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained by the assessee himself, but to be supported by external evidences in the form of vouchers, bills, etc. Basically all the receipts and payments must be properly vouched and supported. The primary condition is that the clarity of receipts and expenses booked by the assessee in the books of account must be the above board. In the present case, the Assessing Officer has specifically pointed out that the assessee has not furnished quantitative particulars of the materials, consumed in executing various projects. In the nature of activities carried on by the assessee, the quantum of materials likely to be consumed are estimated in advance and it is on the basis of those estimates, that the cost aspect of a project is worked out. In every such project, the cost sheet is always supported by the materials' requirement details. The availability of these quantitative estimates has to be compared thereafter with the actual quantum of materials consumed by the assessee in the course of executing the projects. These are necessary not only for the purpose of internal control and for the purpose of checking cost over-run, but also necessary to establish the genuineness of the quantitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not substitute the necessity of maintaining records and evidences in a proper manner so as to support the accounting entries. Even where the assessee is maintaining all the records, vouchers, bills and details, including the quantitative details, the assessee is very much bound to make the payments by way of cheques and deduct tax at source wherever applicable. So performing of those legitimate duties does not entitle the assessee firm to claim that proper disclosures have been made by the assessee firm. The assessee has relied heavily on the history of past assessments of the assessee ; since the assessment year 1993-94 onwards. It has been stated before us that assessments for many of the earlier assessment years were completed under section 143(3) and the assessing authorities have accepted the returns of the assessee-firm except for certain disallowance of expenses. Therefore, it is the contention of the assessee that the chain of consistency cannot be broken if sufficient reasons are not established. We find that there is sufficient reason to break the consistency, if any. First of all we have to accept the basic legal proposition that there is no res judicata for matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerns only in case of projects from which income is recognised by the assessee on the ground that the construction has crossed 25 percent of bench-mark. As already stated elsewhere, wherever the percentage of completion is less than 25 percent at the year-end, the direct expenditure is carried forward as "contract pending commencement". In the above method of computing work-in-progress which relates to income recognisable projects, the segments of saleable area from the total area available in the hands of the assessee under different projects are not clarified. The determination of saleable area is not governed by any accepted or verifiable method to ascertain the correctness. This saleable area is one of the crucial elements, which contributes to recognising of income as well as operating expenditure. At the same time it is not open for scrutiny through the accounts maintained by the assessee. The saleable area and the unsold area furnished by the assessee-firm are not verifiable with any reconciled particulars available on record. We find that this is a very crucial flaw in the actual computation of income even though the method explained by the assessee is a recognised meth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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