TMI Blog2013 (3) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... Central, Jaipur has erred in: (I) Upholding the rejection of books of account by the Assessing Officer u/s 145(3) of the Act. (II) Alleging the receipt of on money by the appellant based on certain documents/statements in respect of another group, without even providing the copies of such documents/statements. (III) Upholding the application of percentage completion method of accounting prescribed under Accounting Standard-7 read with Accounting Standard-9 issued by the Institute of Chartered Accountants of India for determining the taxable income of the appellant who is a builder developer and not the contractor. (IV) Upholding that the agreement/commitment to sell with the customer, or booking of a property yet to be constructed and delivered on a future date results in accrual of income at the time of such agreement/receipt of advance from the customer. (V) Upholding the addition of ₹ 54,24,471/- to the total income of the appellant as per the calculation of appellant s profits done by the Assessing Officer. 3. Under the facts circumstances of the case and in law, Ld. CIT(A), Central, Jaipur has erred in: I. Holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d-9 issued by the Institute of Chartered Accountants of India for determining the taxable income of the appellant who is a builder developer and not the contractor. (IV) Upholding that the agreement/commitment to sell with the customer, or booking of a property yet to be constructed and delivered on a future date results in accrual of income at the time of such agreement/receipt of advance from the customer. (V) Upholding the addition of ₹ 1,07,80,447/- to the total income of the appellant as per the calculation of appellant s profits done by the Assessing Officer. 3. Under the facts and circumstances of the case and in law, Ld. CIT(A), Central, Jaipur has erred in holding that reference was correctly made for valuation to the Department Valuation Officer (DOV) u/s 142A of the Act for determining the correct value of the land in the property Unique Destination , before initiation of assessment proceedings. 4. Under the facts circumstances of the case and in law, the Ld. CIT(A), Central, Jaipur has erred in upholding the levy of interest u/s 234B of the Act. 5. The appellant craves to alter, amend and modify any ground of appeal on or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of ground No. 2 of both the appeals, we consider it relevant to consider the facts of assessment year 2008-09. The assessee is a Real Estate Developer and Builder. There was search and seizure action u/s 132 of the Income Tax Act on the members of Unique Group on 28th January, 2009, of which, this assessee is one of the member. Pursuant thereto, notice u/s 153A of the Act was issued requiring the assessee to file return of income. In response thereto, the assessee filed the return declaring an income of Rs. Nil on 30th September, 2009. 7. During course of assessment proceedings, the Assessing Officer asked the assessee to furnish stock register basis of valuation of closing stock as well as details/ information including original vouchers for payment made in respect of direct expenses. The AO has stated that the assessee could not produce such a stock register and argued that the basis of closing stock is lower of cost or net of reliazable value. The AO has stated that some vouchers relating to payment in respect of direct expenses could not be verified. Further during the course of search proceedings, incriminating documents were found which contained not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted construction method defers the entire profit until completion. The AO after considering that the assessee group is invariably following the completion method in order to work out the profits of the firm but on perusal of the chart ( as stated at page 5 of AO), the assessee group has declared loss or marginal profit in each of its real estate project over the year. The AO after considering the Accounting Standards AS-1, AS-7, AS-8, AS-9 and AS-10 has held that percentage completion method is a better method and accordingly percentage method is to be allowed for various projects taken by the assessee group. In view of above basis, the AO has stated that net profit for the assessment year under consideration i.e. 2008-09 on the basis of percentage completion method is ₹ 22,93,900/- as against declared loss of ₹ 31,30,571/- in the return of income filed by the assessee on the basis of project completion method. Therefore, the AO made addition of ₹ 54,24,471/-.Being aggrieved, the assessee filed an appeal before the first appellate authority. 9. The ld. CIT(A) has confirmed the action of the AO to reject the books of accounts by the AO. Further, the ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght but also the duty of the Assessing Officer to consider whether or not the books of account disclosed the true state of affairs and correct income can be deduced therefrom. For this proposition he took support from the judgment in the case of CIT vs. British Paints India Ltd. 188 ITR 44 (SC) and stated the principles laid therein as under :- a. It is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in past. There is no estoppel in these matters and the officer is not bound by the method followed in earlier years. b. The A.O. has to consider the material placed before him/her and, if, upon such consideration, he/she is of the opinion that correct profits and gains could not be derived from the accounts, the A.O. would then be obliged to have recourse to the proviso to section 145, which provides that the opportunity shall be given by the A.O. by serving a notice for best judgement assessment. c. A particular method of accounting regularly employed by the Assessee is certainly subject to question. 5.5. The Assessing Officer then p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer also was of the opinion that the income has accrued to the assessee when it accepted bookings from the customers for its residential/commercial units because the assessee has acquired the right to receive the payment from the buyer and once the income has accrued, it is liable to be taxed. 5.7. He also rejected assessee s argument that income accrues to a builder only when the transaction is complete which means that the unit is ready for occupation and the possession is handed over since the assessee acquires the right to receive payment as per terms and conditions of agreement. He made further elaborate discussion on each and every issue raised by the assessee in assessment proceedings before him. In view of the elaborate discussion, the rejection of books of account of the assessee under section 145(3) was pressed because they failed to depict the complete picture of accounts and moreover do not follow the accounting standards as specified under section 145(2) of the Act. The Assessing Officer, therefore, was of the firm opinion that the change in method of accounting is necessary as the same is logical and in order to depicts true and correct picture of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee herein before us and the same decision be followed. The Tribunal vide its order dated 14th March, 2013 after considering the orders of the authorities below and submissions of Ld. representatives of both the parties and the other material placed on record in the said case has held that the Assessing Officer could not change method regularly adopted by the assessee from project completed method to percentage completion method on irrelevant consideration. The Tribunal has held that the provision of Section 145(3) are not attracted. It is further held by the Tribunal that the Ld. CIT(A) has also erred in upholding the decision of the Assessing Officer to invoke Section 145(3) of the Act and to make the assessment in the manner provided u/s 144 of the Act. We consider it prudent to reproduce the relevant paragraph of the said order of the Tribunal, which are as under:- 12. We have heard parties with reference to material on record. The rival submissions as well as case laws brought to our notice have duly been considered. The assessee is engaged in the business of construction as a builder/real estate developer. The appellant has maintained complete books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. 12.2. The first basis taken by the Assessing Authority in reaching a finding that the assessee s accounts do not depict correct and complete picture of its accounts is that the assessee has not maintained a detailed qualitative and quantitative stock register and failed to get the valuation of its closing stock verified with the detailed day-wise qualitative cum quantitative stock register. The appellant s case before the authorities below has, however, been that the assessee had kept both quantitative and qualitative details of material purchased by it as is evident from various ledger accounts related to construction material that were forming part of the seized material available with the assessing authority. All the expenses relating to the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-appellant conform to the commercially accepted accounting standards and true profits of assessee s business could be deduced therefrom. The findings reached by the Assessing Officer are thus not factually correct with respect to the lacuna pointed out by him on maintenance of stock record as well as valuation of inventory held by the assessee. 12.3. In the case of Pandit Brothers vs. CIT, 26 ITR 159, the Hon'ble Punjab Haryana High Court has held that the mere fact that there is no stock register, it only cautions him against the falsity of the return made by the assessee. He cannot say that merely there is no stock register, the accounts book must be false. The Hon'ble Supreme Court took note of this judgment in the case of S.N. Namasivayam Chettiar vs. CIT, 38 ITR 570 (SC) and held that it is for the Income-tax authorities to consider the material which is placed before him and if after taking into account in any case the absence of stock register coupled with other material, are of the opinion that correct profits and gains could not be deduced then they would be justified in applying the proviso to section 13 of the IT Act, 1922. On the peculiar facts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint business carried with his separated brother Shri Ajit Singh and his son. The separation had occasioned in the year 2006 which is a date much prior to the date of action taken under section 132 of the Act on the appellant. From the record produced, we find that it is a correct fact that these two groups have separated from joint business in the year 2006 and thereafter carried business with no interest or involvement of the other brother. This fact, the appellant also disclosed by way of a foot note on the computation of income filed along with return of income. The statements given by Shri Ajit Singh and Shri Ravinder Singh during the course of search admittedly were with regard to receipt of extra money with respect to the flats sold by them. These sales were not of the projects done jointly with the appellant, its constituents or family members. The on-money so received by them has been disclosed and applied to explain the transactions of their independent business unrelated to the appellant and its constituents. The statements so taken, therefore, did not constitute a material or evidence for rejecting the books of account maintained by the assessee in saying that the mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gularly employed by the assessee. The admitted position and also the fact is that the appellant has regularly employed project completion method from year to year and the assessments prior to the date of search were also made by accepting project completion method. Both Project Completion method and the Percentage Completion method are recognized methods for assessment of correct income of the assessee under the IT Act, 1961. The choice of method of accounting, however, lies with the assessee. It is not open to the Assessing Officer to change his own opinion or change the method of accounting because he finds another method of accounting better than the one adopted regularly by the assessee and by rejecting his accounts substitute the same with another method of accounting without any just and reasonable cause. In the present case the exercise so undertaken being imaginary and rested on irrelevant considerations could not constitute a just or reasonable cause empowering the authority to change the method of accounting regularly adopted by the appellant. The revenue has also not been able to successfully demonstrate that the method of accounting provided under sub-section (1) or Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT vs. McMillan Co. 33 ITR 182 (SC) at page 188 has also entertained this opinion which is evident from the following passage :- The section enacts that for the purposes of section 10 (profits of business, profession or vocation) and section 12 (income from other sources) income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. The choice of the method of accounting lies with the assessee ; but the assessee must show that he has followed the method regularly for his own purposes. The section and the proviso read together clearly make such a method of accounting regularly employed by the assessee a compulsory basis of computation unless, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom. If the true income, profits and gains cannot be ascertained on the basis of the assessee's method, or where no method of accounting has been regularly employed, the income must be computed upon such basis and in such manner as the Income-tax Officer may determine. 12.12. Again the Apex Court in the case of Investment Ltd. vs. CIT 77 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be determined by the officer in exercise of the power is a question of fact, that is, whether or not income chargeable Under the Act can be properly deduced from the books of account and the question must be decided with reference to the relevant material and in accordance with the correct principles. The court also observed (page 52) : Where the market value has fallen before the date of valuation and, on that date, the market value of the article is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods. Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But which-ever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand, he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee does not reflect the true income. The AAC, as well as the Income-tax Appellate Tribunal, after a careful scrutiny, came to the conclusion that the system of accounting employed by the assessee is consistent and regular and the ITO, therefore, is not entitled to interfere with the system of accounting followed by the assessee, unless it is possible for him to make out and bring the case within the terms of s. 145 of the I. T. Act. On this basic issue itself, the Department's contention that the dividend should be assessed in the hands of the assessee as and when it is received, in substitution of the method of accounting followed by the assessee, should fail. Even otherwise, we are not persuaded to accept the view that the system of accounting followed by the assessee is in any way defective. 12.15. The Apex Court had also an occasion to consider the Percentage of completion method and Completed Project Method in the case of CIT vs. Bilahari Investment Pvt. Ltd., 299 ITR 1 (SC). In this judgment it has taken a view that recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be said that the project completion method followed by the assessee would result in deferment of the payment of taxes which are to be assessed annually under the Income-tax Act. Accounting Standard AS-7 issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (supra), the findings of CIT (A), upheld by the Tribunal does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year on selective basis. This will distort the true profits and gains of business. 12.17. The judgment rendered by Apex Court in the case of Kachwala Gems vs. JCIT, 288 ITR 10 (SC) the Hon'ble Apex Court has observed that several cogent reasons have been given on facts by Income-tax authorities for rejecting the books of account and that is the reason no different view could be taken on this issue. This case as well as other case laws br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcentage completion method instead of project completion method as adopted by the assessee. Respectfully following the said order of the Tribunal (supra), we allow ground No. 2 of the appeal taken by the assessee for the assessment year 2008-09. 15. In ground No. 3 of the appeal, the assessee has disputed the reference to the DVO u/s 142A of the Act and to make the addition of ₹ 76,93,120/- u/s 69 of the Act on the basis of the DVO s report. 16. The assessee purchased land at Rochees Garden, Tonk Road, Jaipur, presently known as Unique Destination, showing the value of the land in its books of account for the assessment year 2008-09 at ₹ 8,08,71,483/-. A reference was made to the DVO u/s 142A of the Act to ascertain the value of investment of the assessee in respect of that property. The DVO vide its letter dated 04th November, 2010, estimated the value of said property at ₹ 8,85,64,603/-. In view of the above difference in value of land of ₹ 76,93,120/-, the assessee was asked to furnish reasons. The assessee vide its letter dated 30th November, 2010, submitted that the difference in value of land was primarily on account of location of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions of the Ld. representatives of both the parties. It is a fact that the said addition of ₹ 76,93,120/- has been made merely on the basis of the DVO s report and considering that the assessee has not fully explained the investment and/or there is unexplained expenditure . No document or evidence have been brought on record to establish that the assessee has paid any amount over and above the amount entered in the books of account to purchase the said land presently known as Unique Destination. It is a fact that onus is on the department for making any addition u/s 69, Section 69B or Section 69C of the Act that there is understatement of investment or unexplained expenditure/investment. Only when such burden is discharged by the revenue, the onus shift on the assessee to prove that there is no unexplained expenditure/investment. The Hon ble Delhi High Court in the cases of CIT Vs. Naveen Gera 328 ITR 516 and in the case of CIT Vs. Smt. Suraj Devi 328 ITR 607 have held that in absence of any incriminating material, the actual consideration as per agreement has to be accepted and no addition can be made in the case of buyer because of difference between stamp duty v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2009-10, for the reasons mentioned hereinabove in paras 10 to 21 of this order are allowed. 25. Now we take up the appeal of the department being ITA No. 350/JP/2012. 26. In the ground of the appeal, the department has disputed the order of the Ld. CIT(A) for deleting the addition of ₹ 11,70,242/- made by the Assessing Officer on the basis of DVO s report. The facts for making the said addition by the AO are identical as we have discussed in respect of ground No. 3 of appeal for the assessment year 2008-09 hereinabove in para 16 Since this issue we have considered in paras 19 and 20 and have held that the addition made by the Assessing Officer on the basis of DVO s report was not justified and deleted the addition made by the authorities below. Following the reasoning as given in paras 19 to 21, we uphold the order of Ld. CIT(A) and reject the ground of appeal taken by the department. 27. In the result, both the appeals of the assessee for the assessment years 2008-09 and 2009-10 are allowed in part and whereas appeal of the department for assessment year 2009-10 is rejected. The order is pronounced in the open court on 15th March, 2013 - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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