TMI Blog2011 (9) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... of cost made initially. However, such estimation has been accepted in past and it forms the basis of assessment for three preceding years. Therefore, any change in this estimation would lead to disturbing past assessments which have been accepted. - AO could not have rejected the books of account and taken recourse to the provision contained in section 44BBB for estimating the income, especially when the provision is not applicable to the case of the assessee. - I.T.A. No.3310/Del/2011 - - - Dated:- 22-9-2011 - SHRI C.L. SETHI, AND SHRI K.G. BANSAL, JJ. Assessee by : S/Shri S.R. Wadhwa, Asit K. Das, Advoates Sumeet Sareen, FCA Department by : Shri Ashwani Kumar Mahajan, CIT-DR ORDER PER K.G. BANSAL: AM This appeal of the revenue and the cross objection of the assessee are in relation to the order passed by the CIT(A)-VII, New Delhi, on 26.04.2011 in Appeal No.51/2010-11 for assessment year 2006-07. 1.1 The revenue has taken two grounds in the appeal questioning the findings of the learned CIT(A) in regard to rejection of books of account and the consequent deletion of the addition made by the Assessing Officer. On the other hand, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the Act and section 27 of General clauses Act, it has to be shown that the envelope has been properly addressed, requisite stamps have been affixed and it has been posted by registered post acknowledgement delivered. The facts of the case of CIT Vs. Madhsy Films (P) Ltd. have been distinguished by stating that the notice dated 25.10.2002 was duly posted at the correct address and it was not received back, therefore, a presumption was raised that it had been served within two to three days of its posting. The assessee had not filed affidavit to the effect that it had not received the notice. Thus, the presumption u/s 27 of the General Clauses Act had not been rebutted by the assessee. In this case, the presumption has been rebutted. 2.1 The learned CIT(A) considered the facts of the case and submissions made before him. It is mentioned that assessment records clearly indicate that the notice was correctly addressed and it was sent by speed post on 04.10.2007. There is nothing on record to indicate that the notice was not served or it was served on an unauthorized person. Therefore, a statutory presumption is to be drawn that it has been served. Accordingly, it has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has to issue a number of notices every day. The practice followed is that these notices are taken to the post office, entered into a sheet supplied by the post office and handed over to the post office after obtaining acknowledgment from the concerned clerk. Such acknowledgment is available on the sheet by way of initials of the clerk, which is being shown to the members of the Tribunal. The office copy of the notice shows that it has been properly addressed. The acknowledgment from the clerk shows that it has been properly stamped. There is no evidence of return of the notice as un-served by the postal department. Therefore, it is argued that the notice has been served on the assessee as per presumption of the General Clauses Act. 3.2 In the rejoinder, the learned counsel submitted that there is no legal necessity for taking objection before the Assessing Officer in respect of service of the notice and the issue can be raised for the first time before the CIT(A). 4. We have considered the facts of the case and the submissions made before us. The facts are that a notice u/s 143(2) was prepared on 28.09.2007, the office copy of which is on record. This notice has been properl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnection in the assessment order are that the auditors made a number of observations in respect of the accounts. These observations have been reproduced in paragraph no. 3 of the assessment order. In order to ensure that the loss has been correctly declared, the AO verified a number of expenses debited to profit and loss account, which are briefly discussed hereunder: (i) expenses in connection with addition to site office at camp were verified and thereafter it has been mentioned that the assessee is constructing the dam and not the building. Although the building is required for the office, labour quarters, staff quarters etc., but the site office construction expenses exceeding Rs. nine crore do not appear commensurate with the requisite facility. Proper documents have not been maintained in respect of these expenses. Therefore, 50% of these expenses, amounting to Rs. 4,71,66,300/- have been disallowed; (ii) purchases and outstanding sundry creditors were examined. After considering the explanation of the assessee, it has been mentioned that the assessee could not submit stock register in respect of diesel and lubricant purchased from parties other than HPCL and Bharat Shell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no firm data regarding the estimation of total cost at Rs. 951,83,67,460/-. In view of this and non-verifiability of expenses mentioned earlier, the books of account have been rejected and the profit of this year has been estimated at 10% of the bills raised in this year. 6. Various submissions were made before the ld. CIT(Appeals). He considered the facts of the case and the submissions made before him. It is mentioned that the assessee has maintained regular books of account, which are audited by the accountant as defined under the Act. The books of account maintained in the regular course of business, which have been audited, and the report does not contain any adverse remark by the auditor have normally be accepted as correct unless there are adequate reasons to come to the conclusion that these are incorrect or unreliable. The burden to prove that such books are incorrect or unreliable is on the AO. The AO had not recorded any finding that the assessee has not maintained any stock record of diesel and lubricant. Otherwise also, non-maintenance of stock register of these items would not render the accounts incomplete and would not be sufficient ground to reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because in past no discrepancy was found in the books. In this year, the AO has found discrepancies and, therefore, the method of completing assessment in earlier years was not binding for computing profits of this year. In particular, he referred to the site expenses for which there were no invoices, purchases made by the assessee for which payment was not made in this year leading to sundry credit at the end of the year, discrepancy in the serial number of the bills from Central Tyres and the comments of the auditors. As mentioned earlier, these comments have been reproduced on page numbers 2 and 3 of the assessment order. The ld. DR referred to the query raised by the AO in respect of some of the comments. He enquired about the documents maintained for control of inventory of material consumed and deduction of tax at source from wages and salary. No satisfactory explanation was furnished. Therefore, the AO issued a show cause notice for rejecting the books of account and thereafter recorded findings in this matter. It is argued that the AO was right in rejecting the books of account and estimating the profits. On the other hand, the ld. CIT(Appeals) merely stated that the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the contract. In view of the same, the cost is estimated before commencement of the project and is revised regularly on the basis of actual performance. Therefore, objection to the total project cost on the basis of 25% work completed does not hold good. At this stage, we may also reproduce the calculation submitted by the assessee and reproduced by the AO on page nos. 19 and 20 of the assessment order:- Computation of revenue as per Accounting Standard-7 Calculation of revenue on the basis of Percentage of Completion Method Information available Amount (Rs.) Amount (Rs.) (A) Total fixed price Revenue as per Agreement - As agreed originally (as per Agreement) 718,99,91,590 - Others-Escalation, claims etc. 102,01,84,939 821,01,76,529 (B) Total Estimated cost 951,83,67,460 951,83,67,460 (C) Total estimated profit/(loss) (130,81,90,931) Calculation of Percentage Completion (D) Cost incurred till date -2003-04 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were also duly vouched and payments were made by way of cheques. Obviously, the assessee cannot be and is not in a position to explain as to why there are two series of invoices bearing three digit numbers and five digit numbers. The expenditure also cannot be held to be bogus simply because on some bills stamp of sales-tax department has not been affixed. Looking to all these facts, it is argued that the AO erred in making disallowances and thereafter covering these disallowances by estimating income at 10% of the receipts. On the other hand, the ld. CIT (Appeals) has properly appreciated the facts of the case that proper books have been maintained. The books have been duly audited, percentage completion method has been followed for accounting revenues on the basis of the expenditure and, thus, neither any disallowance could have been made nor the profit could have been estimated. 8.3 At this juncture, we may examine various cases cited before us in the course of hearing. The ld. DR relied on the decision of Mumbai Bench of the Tribunal in the case of DCIT Vs. Samir Diamond Exports (P) Ltd., (1999) 71 ITD 75. In this case, the AO had noted that there was a sharp decline in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. In regard to the aforesaid, the case of the ld. counsel is that the books are audited and a regular system of accounting has been followed, which has been accepted in past. On revenue account, the AO has pointed out only minor discrepancies in respect of purchase of lubricant and tyres. In fact, these are not discrepancies but only doubts raised by the AO. In such a situation, the books could not have been rejected. 10. We have considered the facts of the case and submissions made before us. The facts are that the assessee is executing a turn-key project involving civil works for construction of a dam. It has maintained books of account on a regular basis in the course of business on the same basis as in past. These books have been duly audited also. Therefore, it is claimed that the provision contained in section 44BBB are not applicable and the income or loss has to be determined on the basis of the books of account. We are of the view that these submissions are in conformity with the provision contained in section 44BBB(2). Thus, the assessee can claim that the profit ought to be assessed on the basis of the books and presumptive rate of 10% is not applicable to this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in past and it forms the basis of assessment for three preceding years. Therefore, any change in this estimation would lead to disturbing past assessments which have been accepted. No evidence has been brought on record that such estimation was not bona-fide. Therefore, adopting a new basis of assessment will be against the rule of consistency. Having accepted a particular amount of estimate for expenditure on the whole project, it is not now open to the revenue to challenge this cost and thereafter follow a totally different method for assessment. The facts of the case of Samir Diamond Exports (P) Ltd. (supra) are distinguishable, inasmuch as the books of account were incomplete and corroborative and contemporaneous evidence had admittedly been destroyed. Therefore, it was held that the books should be rejected in this year in spite of the fact that the books were accepted in past. Further, the facts of the case of S.N. Namasivayam Chettiar (supra) are also distinguishable because the Tribunal had recorded a finding that true profits cannot be determined for various reasons mentioned in its order. Such reasons do not exist in this case. The facts of the case of Bhai Sunder Das ..... X X X X Extracts X X X X X X X X Extracts X X X X
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