TMI Blog2016 (6) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not prove that these purchases were bogus and are accommodation entries as set out above by Revenue Even for the sake of argument it is assumed that the assessee has not obtained the approval from CIDCO for doing this major and extensive structural repair and modification work to the factory Building, this technical breach will not in itself disentitle the assessee from claiming the same under the Act as cost of improvement and more-so it is a case of major and extensive structural repair and modification to the existing factory building and not a case of construction of altogether new factory building. - No addition - Decided in favor of assessee. Accrual of income - project completion method - assessee has submitted that merely by receiving occupation certificate on 30/03/2009 , does not by itself mean that the project is complete as there are several other work which are done post receipt of this occupancy certificate dated 30-03-2009, such as applying for electrical connection, water connection, drainage connection etc and also finishing work is to be done in these flats to complete construction of these flats, as also there are other relevant factors to be kept in mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) Reasons given by the learned CIT(A) for confirming the addition made by the A. O. of ₹ 77,99,056/- by way of alteration and addition to work in progress over that determined by the appellant, are wrong insufficient and contrary to the facts and evidence on record. (5) In the facts and circumstances of the case and in law the learned CIT (A) erred in confirming the act of the A.O. of making addition of ₹ 77,99,056/- to the profit disclosed by the appellant without pointing out defects in the Books Of Accounts. (6) Reasons given by the learned CIT (A) for confirming the act of the A. O. of making addition of ₹ 77,99,056/- to the profit disclosed by the appellant without pointing out defects in the Books Of Accounts, are wrong, insufficient and contrary to the facts and evidence on record. 3. The brief facts of the case are that the assessee is a proprietor of M/s Vicky Electrical Corporation and M/s E.V. Homes. M/s Vicky Electrical Corporation is engaged in the business of contractor and M/s E.V. Homes is engaged in the business of builders and developers. 4. During the course of assessment proceedings u/s. 143(3) read with Section 143(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has spent ₹ 48,22,390/- towards the above work and necessary copies of the bills with respect to the work done have also been submitted before the A.O. The A.O. rejected the contentions of the assessee on the grounds that the assessee has not obtained any approval from the local authority for carrying out the alteration and strengthening of existing structure and such a huge amount will not be required to carry out the said work. The constructed area is only 250 sq. meter and compared to the construction expenses of ₹ 48,22,390/-, it could not be possible to do such huge work without obtaining the approval from local authority. Secondly, no written agreement between the assessee and buyer has been furnished to prove that the construction work of ₹ 48,22,390/- was to be done prior to sale of the factory building, hence, it is unlikely that assessee has invested such a huge amount for repair before sale of the building. The MOU dated 17th August, 2007 was entered into between the assessee and the buyer wherein it was agreed to transfer the factory building at a consideration of ₹ 1.16 crores , but there is no mention of expense of ₹ 48,22,390/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO that purchases of steel from M/s Payal Enterprises and M/s Bhumi Enterprises are bogus and are not genuine purchases. The A.O. observed that the amount of purchases from various parties is not matching with the bill amount and the assessee being engaged in the building activities and electrical contractor, managed to get the bills for showing investment in construction. The AO further observed that the cement purchased from Thakkar Popatlalji Velji shown of ₹ 2,85,000/- but the bill amount submitted was ₹ 61,251/-. Similarly, there were other discrepancies which were noted by the A.O.in the amounts of the bills claimed and the amount as per the bills submitted , as the invoices of lesser amount in aggregate were submitted vis- -vis the claim of ₹ 48,22,390/- of having been spent on the repairs to the factory building . Thus, the A.O. held that the expenses are found to be not genuine and accordingly the claim of additions to the fixed assets of ₹ 48,22,390/- was denied to the assessee, vide assessment orders dated 28.12.2011 passed by the AO u/s. 143(3) of the Act. 4. Aggrieved by the assessment orders dated 28.12.2011 passed by the A.O. u/s. 143(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied by them. It was contended by the assessee that because of the said expenditure , the assessee was able to realize a consideration more than the market value of the said factory building and the expenditure was incurred wholly and exclusively in connection with the cost of improvement which was a precondition laid down by the buyer. The assessee submitted that because of the said expenditure, the assessee was able to realize the sum of ₹ 49,40,027/- for the factory building as against the cost of the said factory at ₹ 25,69,500/- as on 31-03- 2002. The assessee has submitted the copies of balance sheet which shows that the land and factory building in the block of their share from the year 2001 onwards , the copy of deed of assignment entered between the assessee and the buyer and a copy of MOU dated 03-09-2007 vide clause No. 2 stipulates that to make the building fit and in proper usable condition , the buyer required repairing and modification before handing over the possession. The learned CIT(A) after going through the same, rejected the contentions of the assessee and held that the MOU dated 3rd September, 2007 is entered on one hundred rupee stamp paper and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prises and M/s Bhumi Enterprises never existed at the given addresses and some other persons were staying for many years. When it was confronted to the assessee, it was stated by the assessee that the payments were made through the banking channel and copy of bank statements were furnished before the A.O. . The CIT(A) , thus, concluded that construction expenses are not genuine. During the appellate proceedings, the assessee has not disputed the finding of the A.O. made by physical and on the spot enquiries conducted in the case . The discrepancies found by the AO were not explained by the assessee rather the assessee accepted that all the parties are supplying material to the assessee and the assessee is also the proprietor of E.V. Homes which is in building business and it is possible that these building material could be for building business of the assessee carried on by E. V. Homes. In view of the above observations, the learned CIT(A) held that the cost of improvement of an amount of ₹ 48,22,390/- claimed by the assessee cannot be taken as addition to the factory building and the claim of the assessee was rejected, vide appellate orders date 09.11.2012 6. Aggrieved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement to lease dated 21st January, 1999 and 14th May, 2008 did find mention in the deed of assignment dated 20-01-2009. The ld. Counsel submitted that the payment has been made by account payee cheques to all the suppliers of the material and labour , and where-ever applicable under Chapter XVII-B of the Act, even taxes were deducted at source and deposited with government treasury .He drew our attention to page 166 of paper book to contend that tax of ₹ 31,765/- was deducted at source on labour charges of ₹ 15,42,000/- paid for structural repair and modification work carried on by the assessee in the factory building. Further, the ld. Counsel relied upon the submission made before the authorities below which are not repeated for the sake of brevity. 8. The ld. D.R. submitted that the factory area was only around 255 sq. meters and the expenses has been incurred for ₹ 48,22,390/- on repairs which is disproportionately excessive. The building was given on rent since assessment year 2004-05 and it is not possible to carry out extensive repairs on the rented premises. The purchases are bogus from whom the material was supplied. The ld. DR relied upon the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se expenses for the extensive structural repairs and modifications in the factory building apart from repairs to the compound wall and leveling of plot, for which the assessee submitted the details/documents including invoices regarding the material cost and labour charges etc. incurred for these extensive structural repairs and modifications towards the factory building apart from repairs to the compound wall and leveling of plot, in terms of the MOU dated 03-09-2007. The payments for this work carried on by the assessee, have been stated to be made through banking channel by account payee cheque s and even the taxes were also stated to be deducted at source on these payments as covered by provisions of Chapter XVII-B of the Act. We have observed that the authorities below have made the addition merely on the basis of surmises and conjectures on suspicion by terming the invoices of material and labour submitted by the assessee as bogus and accommodation entries. No cogent incriminating material has been brought on record by the authorities below to prove that assessee has made bogus purchases except inspector report which is not sufficient to fasten the liability to tax on the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inspector report, which is not sufficient enough to come to the conclusion that the entire theory of extensive structural repair and modification of the factory building as brought out by the assessee is a farce , in-fact the reliance by the Revenue on the inspector report without conducting further probe to conclusively disprove and demolish the contentions of the assessee, has led the revenue conclusions fall into the realm of conjectures and surmises on suspicion which is not permissible. Suspicion howsoever strong cannot take the place of the proof is a settled proposition of law. Thus, in nut-shell, no proper and adequate enquiry has been conducted by the Revenue to rebut , disprove and demolish the contentions of the assessee as no cogent incriminating material has been brought on record by the Revenue against the assessee. The ground which has been taken by the ld. CIT(A) to reject the contention of the assessee such as MOU dated 3rd September, 2007 is entered on one hundred rupee stamp paper and it does not talk about any schedule of payment and only says that the entire balance payment will be made within a period of six months from the date of signing of the MOU are irre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers requirement, architect certificate dated 10-09-2007 pointing out deficiencies in the factory building structure to avoid the collapsing of building, invoices for material and labour expenses incurred by the assessee towards extensive repairs and modification to the factory building during the period April November 2008 , payments of these invoices by account payee cheque s, deduction of tax at source on these payments where-ever applicable under Chapter XVII-B of the Act, permission vide approval dated 31-10-2008 from the CIDCO to sell the said land and building, receipt of payment from the same buyer starting from 15-10-2007 and ending on 01-01-2009 in all aggregating to ₹ 1.16 crores as agreed in the MOU dated 03-09-2007 and finally execution of deed of assignment in favour of the same buyer vide deed dated 20-01-2009, which completes full chain of event of the transaction for sale of land and factory building for which necessary structural repairs and modifications were done by the assessee as contended, on the touch stone of preponderance of probabilities which cannot be simply brushed aside or demolished by the Revenue based on conjectures and surmises on suspi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. observed that the Project Carmel at Kamothe is completed during the previous year 2008-09 relevant to the assessment year 2009-10. The occupancy certificate of the said project issued by the CIDCO was obtained on 30th March, 2009. The assessee has already taken booking advance from the buyers and agreement to sale was also executed still no sale booked for many buyers by the assessee . The assessee has booked sale of ₹ 1,98,47,560/- in the Project Carmel and advance against the booking of ₹ 2,55,68,200/- was shown in the balance sheet as at 31-03-2009. The details of booking advance have been given in the assessment order page No. 12. With respect to the reasons of not booking sales when the project is completed and the entire sale consideration received by the assessee, the assessee submitted that the assessee has received the occupation certificate from CIDCO of the Project Caramel on 30-03-2009 and the building is completed but for certain practical purposes, the building construction need not be 100% complete at the time of the receipt of the occupation certificate. The assessee submitted that there could be certain items which would be incomplete and unfinish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale consideration has been received and since the assessee is following percentage completion method, the profit are to be brought to tax as the project is completed before the end of the previous year relevant to the assessment year and the chargeability to tax cannot be postponed to when the full consideration is received and possession is handed over as now there is no risk of loss in future for the assessee. The A.O. held that as per the guidance note on recognition of revenue by the real estate developers issued by ICAI, the revenue should be recognized when (i) the seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with the ownership (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate and it is not unreasonable to expect ultimate collection. The AO held that , in the instant case, the assessee has received almost the entire consideration and the buyer has the legal right to sell or transfers his interest in the property and no significant uncertainty remains in realizing the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding occupation certificate is a mere formality in order to get the water connection, electric connection, drainage connection etc.. The assessee submitted that detailed cost of the material and construction expenses were duly given to show that the construction of the building continued till the assessment year 2010-11. The assessee submitted the details of profit shown in the return of income filed with the Revenue since inception of the Project Carmel till the assessment year 2011-12, which is reproduced hereunder: A.Y. Closing WIP Sale Book Profit 2007-08 46,94,166.00 -- -- 2008-09 1,33,28,780.00 -- 11,35,720.00 2009-10 2,59,86,410.00 1,98,47,560.00 57,78,545.00 2010-11 -- 4,27,34,291.00 1,35,68,710.00 2011-12 -- -- -- The assessee submitted that the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timate collection of revenue from the buyer. The said method also recognizes following indicator of such transactions and activities:- (i) The revenue is recognized based on the stage of completion reached (ii) The cost incurred in reaching the stage of completion is matched or compared with the revenue. (iii) Reporting of the result which can be attributed to the proportion of the work completed. (iv) Based on the principle of prudence the revenue is recognized on realization (v) The stage of completion is measured in an appropriate manner. No weightage is given to a single factor, instead of all the relevant factors are considered. (vi) While recognizing the profit under this method and appropriate allowance for future unforeseeable factors which may affect the ultimate quantum of profit is generally made. The assessee submitted that the assessee is following the said accounting standard AS-9 and is disclosing the profits on percentage completion method in the past as well as in the future. The assessee submitted that he has already booked profit of ₹ 11,35,720/- from Project Carmel during the assessment year 2008-09 when there were no sales and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of accounting which reflects true and correct profit, therefore, as a rule of consistency the same method may be accepted. The book results have not been rejected by the A.O.. Thus the assessee prayed that the addition of ₹ 77,99,056 is required to be deleted. In support, the assessee relied upon the decision of ITAT , Mumbai Bench in the case of Awadhesh Builders v. ITO, (2010) 37 SOT 122(Mum.) and ITAT , Ahmadabad Benches in ACIT v. National Builders, (2012) 137 ITD 277(Ahd. Trib.). The assessee also relied on the decision of Hon ble Supreme Court in the case of CIT v. Realest Builders Services Ltd.(2008)307 ITR 202(SC) , wherein the Hon ble Supreme Court held that in the absence of any specific finding to demonstrate that there is an underestimation of income, the presumption would be that the entire exercise is a revenue natural. The assessee also relied upon the decision of Hon ble Gujarat High Court in the case of CIT v. Advance Construction Co. Pvt. Ltd.,(2005)275 ITR 30(Guj.) whereby Hon ble Gujarat High Court held that position of the law is further settled that regular method adopted by the taxpayer cannot be rejected merely because it gives benefit to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when later on flats were cancelled , the cancelled flats will come back to the stock and further sale will be considered in the year in which they are resold and hence the CIT(A) agreed with the contentions of the AO in recognizing sale of the flats which were subsequently cancelled by the buyers. With respect to the contention of the assessee that in case same is accounted as revenue in the assessment year 2009-10, then the expenses incurred in subsequent years should be allowed, the ld. CIT(A) rejected the contention of the assessee as the projects have been completed and all the flats are sold ,revenue recognized, there is nothing left to allow as expenses pertaining to the same project in the subsequent year. , vide orders dated 09-11-2012. 14. Aggrieved by the orders dated 09-11-2012 of the ld. CIT(A), the assessee is in second appeal before the Tribunal. 15. The ld. Counsel for the assessee submitted that the asessee is following percentage completion method by following Accounting standard 7 and 9 prescribed by the ICAI. It is submitted that the A.O. has made addition of ₹ 77,99,056/- but the corresponding benefit has not been given in the WIP. The same is adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being percentage completion method adopted by the assessee and the assessment order is placed at paper book,page 82-84 . The ld. Counsel relied upon the decision of Hon ble Supreme Court in the case of CIT v. Realest Builders and Services Ltd. [2008] 307 ITR 202 (SC) ,wherein the Hon ble Supreme Court held that in the absence of any specific finding to demonstrate that there is an underestimation of income, the presumption would be that the entire exercise is a revenue neutral. The ld. Counsel for the assessee submitted that if the entire income from this Project Carmel is to be treated as income of this year and brought to tax, the benefit of cost which is incurred subsequently in the succeeding year with respect to this Project Carmel should be allowed while computing the income of the assessee for the impugned assessment year. It is submitted that Income is taxed twice with this additions so made by the AO and sustained by the CIT(A), once in the impugned assessment year and again in the succeeding assessment year 2010-11 which is not permissible under the Act , as the assessee of his own volition has offered for tax the entire income in three assessment years i.e. 2008-09,2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-03-2009 from CIDCO which is placed at paper book page 118-119. The assessee has deferred the sale to the assessment year 2010-11 with respect to 13 flats on the ground that construction and finishing work was not completed till 31st March, 2009 with respect to these 13 flats and the possession was also given with respect to these 13 flats in the financial year 2009-10 and 2010-111, although almost entire sales consideration has been received till 31-03-2009 with respect to these flats barring one flat where very little amount vis- -vis total consideration has been received . The assessee has stated to have incurred expenses of ₹ 31,79,171/- in the financial year 2009-10 towards these 13 flats as these flats were not finished by the end of the relevant previous year i.e. 2008-09 and details furnished to the Revenue during the assessment proceedings. The assessee has submitted that merely by receiving occupation certificate on 30/03/2009 , does not by itself mean that the project is complete as there are several other work which are done post receipt of this occupancy certificate dated 30-03-2009, such as applying for electrical connection, water connection, drainage connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments were framed u/s. 143(3) of the Act for the assessment year 2010-11 accepting the method of accounting followed by the assessee, which has not been disturbed by the Revenue in assessment year 2010-11.The said assessment order dated 01/03/2013 passed by the AO u/s 143(3) of the Act is placed in paper book page 82-84. We have observed that the Revenue has not rejected the books of accounts . Thus, keeping in view the peculiar facts and circumstances of the case and in the interest of substantial justice, we are setting aside this matter to the file of the A.O. with a direction to verify the contentions of the assessee that the entire profit from this Project Carmel with respect to all 27 flats so constructed is duly offered for taxation by the assessee albeit in the assessment year 2008-09,2009-10 and 2010-11. In case the contention of the assessee is found to be correct that the entire profit of this Project Carmel with respect to all 27 flats so constructed is duly offered for taxation in these three years and the entire due taxes thereon are paid to the Revenue, then the addition so made of ₹ 77,99,076/- by the Revenue in the impugned assessment year by the AO and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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