TMI Blog2009 (12) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year under consideration being the year of completion of project – matter remanded to AO Addition on account of amount claimed to be received by the assessee as advance treated as its contract receipt – Held that:- Only profit element of the value of work done could be brought to tax as its income and not the entire contract receipts - partner of the assessee-firm is also the managing director of DCCPL and the returns of income filed by the assessee as well as by DCCPL were signed and verified by Shri Santobarao Desai. It, therefore, cannot be said that wrong claim was made by DCCPL on the basis of which adverse inference cannot be drawn against the assessee - entire amount of contract receipts cannot be treated as its income and it is only the profit element thereof which could be brought to tax in its hands - aggregate profit of the contract work done by the assessee for DCCPL over the years should be taken into account to ascertain the reasonability or the profit. The profit arising out of execution of contract work in the earlier years as declared by the assessee was already accepted by the Department and addition on account of the said profit being lower, if any, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied the books of account and other relevant record maintained by the assessee which were produced before him during the course of assessment proceedings. On such verification, he pointed out various defects in the books of account maintained by the assessee. One of the main defects so pointed out by the Assessing Officer was in regard to the method followed by the assessee to recognise its income which was subsequently changed to project completion method from the percentage completion method followed in the earlier years. No satisfactory explanation in this regard could be offered on behalf of the assessee except stating that the method followed by it was partly percentage completion and partly project completion. On the basis of independent enquires got conducted through inspector, it was also found by the Assessing Officer that the two projects namely "Fatorda project" and "Porvorim project" were substantially completed by the assessee and even the possession of flats and shops in the said building was already handed over to the purchasers after obtaining occupancy certificate from the local panchayats. He, therefore, did not accept the stand of the assessee that the said proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject and work done for DCCPL. On the third issue, i.e., sundry creditors, the assessee s authorised representative has requested to take a lenient view. ( ii )The assessee s submissions are considered. As regards work done for DCCPL, they have stated that the actual work to this extent was not carried out. No proof or evidences for this statement nor any evidence to prove that the facts brought out in the special audit report are false were furnished before me. The assessee s authorised representative has stated that the DCCPL has capitalised the work done only the profit portion should be brought to tax in the hands of the assessee. I do not agree with the assessee s contention. The assessee is not able to substantiate his claim by way of any proof and no evidences for expenses are produced. Since the amount of Rs. 27,11,203 represents the unaccounted sales/work done, the entire amount has to be brought to tax, since the assessee had not offered the same for the tax. Accordingly, Rs. 27,11,203 is brought to tax. ( iii ) Vide its detailed reply to the show cause notice dated March 14, 2007, and during the course of hearing on March 28, 2007, the assessee had argued addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessment year it should rightly be brought to tax in this year itself since the project has been treated as completed during this year only. Moreover, if the assessee claims that opening work-in-progress is undervalued, how is it going to pass entries in respect of this undervaluation in its books of account? The stock account has to be debited and therefore the profit and loss account has to be credited to that extent which would result in increase in closing stock figure leading to the profits which were undervalued being offered to tax. Therefore, the assessee s arguments are meaningless and do not negate the fact that the understatement of profits has occurred which has to be set right now. In view of the above explanation, the assessee s arguments not to make any adjustments to income on account of valuation of closing work-in-progress is not accepted and the undervaluation reported in the report on special audit under section 142(2A) of Rs. 18,68,014 is brought to tax. ( iv )With regard to sundry creditors the assessee was asked to give the full postal address of the creditors. During the course of hearing the assessee has stated that they would obtain confirmation fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals), however, did not find any merit in the contentions raised on behalf of the assessee while challenging the said additions and after rejecting the same for the reasons elaborately given in his impugned order, he confirmed the said additions made by the Assessing Officer. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals), the assessee has preferred this appeal before the Tribunal. 6. In ground No. 1 raised in this appeal, the assessee has challenged the additions of Rs. 18,12,615 and Rs. 3,76,173 made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) on account of sale proceeds of the flats and extra work done respectively. 7. The amount of Rs. 18,12,615 received against sale of flats was shown by the assessee as advance. Similarly, the amount received against extra work done in the flats was also shown as advance by the assessee. As found by the Assessing Officer, not only the construction of the said flats was already completed by the assessee but even the possession thereof was given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds realised, no separate addition on account of sale proceeds of. the flats or extra work done was called for. He submitted that similar is the position with regard to the "Porvorim project" in respect of which work done to the tune of Rs. 39,06,770 was already declared by the assessee as against the actual sale proceeds of Rs. 36,57,068 realised till 31-3-2004. He also submitted that the amount of Rs. 18,12,614, in any case, was received by the assessee as against sale of flats the possession of which was given in the earlier years as per the Assessing Officer s own stand and not in the year under consideration. He contended that the said amount, therefore, could not be treated as income of the assessee for the year under consideration and addition made thereof is not sustainable on this count also. As regards the addition of Rs. 3,76,173 made on account of extra work done, learned counsel for the assessee pointed out that the working made by the Assessing Officer to arrive at the said amount suffers from many mistakes. 9. The Learned Departmental representative, on the other hand, strongly relied on the orders of the authorities below in support of the revenue s case on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant to ascertain the exact year of accrual of such income. As already observed, it was duly established by the Assessing Officer that the projects were substantially completed by the assessee in the year under consideration and the income of the said project thus was liable to be brought to tax in the hands of the assessee in that year. We also do not find merit in the contention of learned counsel for the assessee that the value of work already completed by the assessee as declared in the returns of income being more than the sale consideration of flats actually sold, no further addition was required to be made to its total income on this count as done by the Assessing Officer. In our opinion, the method followed by the Assessing Officer himself in determining the income of the assessee from the projects completed in the year under consideration by making the addition on account of sale consideration of flats already handed over by the assessee and shown as advances itself was not correct. 11. In order to ascertain the profit arising to the assessee from the execution of the projects on completion, the proper method which, in our opinion, should be followed is to identify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork assigned to the assessee was already completed. The contrary stand taken by the assessee that the said work was not done by it for the year under consideration, therefore, was not accepted by the Assessing Officer and the entire amount of Rs. 27,11,203 representing value of work done during the year under consideration was brought to tax by him in the hands of the assessee. The learned Commissioner of Income-tax (Appeals) confirmed the said addition made by the Assessing Officer rejecting the stand of the assessee that no work was actually done by it for DCCPL for the year under consideration. He also declined to accept the alternative contention raised on behalf of the assessee that only profit element of the value of work done amounting to Rs. 27,11,203 could be brought to tax as its income and not the entire contract receipts of Rs. 27,11,203. In this regard, the learned Commissioner of Income-tax (Appeals) held that similar contracting work was done by the assessee for DCCPL even in the earlier years on a lower margin of profit and after taking into consideration the entire amount of Rs. 27,11,203 as profit, the overall profit margin was working out to 13 per cent., which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s alone and not in the year under consideration. In our opinion, the expenses incurred in connection with the execution of contract are therefore required to be allowed as deduction. The onus in this regard, however, is on the assessee to establish the factum and quantum of such expenses by filing the necessary supporting evidence to claim the said deduction. Further, the assessee is also required to establish the source of funds for meeting the said expenses failing which the amount thereof would be liable to be added this income under section 69C. We therefore, restore this issue to the file of the Assessing Officer with a direction to allow the claim of the assessee for deduction of expenses if he is able to establish the factum and quantum of such expenses incurred in connection with the execution of contract and also the source of funds utilised to meet the said expenses. Ground No. 2 of the assessee s appeal is accordingly treated as partly allowed for statistical purposes. 15. Ground No. 3 relates to the addition of Rs. 18,68,014 made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) on account of alleged undervaluation of work-in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has allowed relief of Rs. 15,90,982. As regards the balance addition of Rs. 7,55,465, learned counsel for the assessee has submitted that the said amount to the extent of Rs. 4,67,655 represents opening balance in the accounts of the concerned creditors. He has contended that the credits to that extent thus pertained to the earlier year and not to the year under consideration and the addition to that extent, therefore, cannot be made under section 68 in the year under consideration. The learned Departmental representative agreed with this contention of learned counsel for the assessee in principle. He, however, has urged that the Assessing Officer may be given an opportunity to verify the stand of the assessee that credits to the extent of Rs. 4,67,655 pertained to the earlier year and not to the year under consideration. Accordingly, this issue is restored to the file of the Assessing Officer for the limited purpose of verifying the contention of learned counsel for the assessee that credits in question to the extent of Rs. 4,67,655 pertained to the earlier years and not to the year under consideration. If it is found on such verification that some of the amounts added under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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