TMI Blog2011 (2) TMI 1466X X X X Extracts X X X X X X X X Extracts X X X X ..... g additions on grounds and reasons as mentioned in the order dated 31.01.2006 against which this appeal is being made. 2. The Learned CIT(Appeals) I Baroda has erred in upholding the issuance of notice by the learned A.O. u/s.148 and carrying out assessment and passing and order u/s.143(3) r.w.s.147 even thought Block Assessment for the entire period which includes the A.Y. 1998-99 has been done in the case of the Company and assessment order u/s.158 BC r.w.s. 143(3) has been passed. 2. Assessee is in the business of construction. For the year under consideration, Assessment Year 1998-99, income declared at ₹ 1,55,793/- which was processed u/s.143(1) of the I.T.Act vide intimation dated 22/03/1999. Thereafter, a notice u/s.148 was served on 28/12/2004. In response, a return was filed on 28/01/2005 declaring the same income which was already assessed. The assessee has asked for the reasons recorded which have also been supplied. The basic reason for the re-opening of the assessment as assigned by the Assessing Officer was that for Assessment Year 1998-99 substantial work of contract was completed, however, the profit was deferred to subsequent assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company, namely Vrudavan Township, Gotri Road, Baroda. From the Assessment Years 1997-98 upto 2004-05 the assessee had disclosed closing WIP. However, the first and the foremost reason for reopening was that for Assessment Year 1998-99 the assessee has disclosed WIP at ₹ 4,11,26,557/- but no substantial expenditure was incurred in rest of the years, therefore, it was concluded that the project was substantially completed during the Assessment Year 1998-99. As per Assessing Officer, the work-in-progress for Assessment Year 2004- 05 was at ₹ 4,13,24,419/- which was very nominal comparing the WIP for Assessment Year 1998-99. As per Assessing Officer, WIP for Assessment Year 1998-99 was approximately 99.52% comparing the closing stock WIP for Assessment Year 2004-05. On the basis of the details furnished it was found by the Assessing Officer that the total advance received from customer upto Assessment Year 1998-99 was ₹ 4,02,11,121/- and thereafter ₹ 28,83,001/- was receivable from the customer. The amount which was receivable thus added in the total receipt of advance from the customers and arrived at the figure of ₹ 4,30,94,122/-. As against that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption, Assessing Officer has held that the project was substantially completed for Assessment Year 1998-99 though the fact was that for Financial Year 2004-05 (Assessment Year 2005-06), the assessee has incurred development expenditure of ₹ 14,24,251/-. Finally, he has concluded that the first appellate authority had gone wrong in misunderstanding the method of accounting which was followed by the assessee, therefore, he has arrived at a wrong conclusion. He has pleaded that the finding of Learned CIT(Appeals) that the assessee has followed percentage completion method thus deserves to be reversed. Reliance was placed on the decision of Shapoorji Palanji Co.( Rajkot) P.Ltd.49 ITD 479 ( Bom.). 7. From the side of the Revenue Ld. DR Smt.Shalini Verma appeared and supported the orders of the authorities below. It was contested that once the work-in-progess for Assessment Year 1998-99 was finished upto the extent of 99.52% and only paltry work-in-progress was disclosed in Assessment Year 2004-05, then it was a very normal and convincing conclusion that the work had substantially been completed in Assessment Year 1998-99. She has pleaded that though the projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted a construction as is evident from the work-in-progress details, then whether he is still entitled to adopt project completion method or he has to follow the percentage completion method . To get the answer we have to see the Accounting Standard. For the purpose of recognition of income for the construction business certain guide lines are issued by the Institute of Chartered Accountants and prescribed Accounting Standard-7 ( in short A.S.-7) titled as Accounting for Construction Contract and as per clauses 7.1 7.2 two methods of accounting for construction , now commonly followed by the Contractors, are prescribed :- a) Percentage of completion method ( in common language project percentage completion method ) b) Completed contract method ( in common language Project completion method ) Therefore as per Accounting Standards both the methods are recognized. Because of the nature of the activity undertaken in the construction contract business, the date at which the contract activity is entered into and the date when the activity is completed, usually fall into different- accounting periods. Therefore, the primary issue in accounting for const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plots on which the contract for construction was assigned were owned by the members of Vrundaven Society. Hence the payments were stated to have been received by the assessee from individual members on the basis of the work done as agreed upon. The argument was that the income was thus not simply based upon the payments received. Collection of payment did not indicate the contract was performed. At this juncture it is worth to note that the A.O. himself has mentioned that an amount of ₹ 28,83,001/- was received after the period ended on 31.3.1998, refer page 3 sub-para 2. The A.O. was quite categorical in stating that the Assessee had shown the figure of amount received from the customer after 31.3.98 at ₹ 28,69,231/- but the correct figure was 28,83,001/-. Once it was an undisputed fact that the amounts from the customer were received as advance after 31.3.98 then it was pretty illogical to allege that the construction work was finalized by that date. No contractor shall finish the construction first and then keep on demanding the balance payment. This fact itself demonstrate that there was some work pending for which the payments have been received subsequently i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d opening work-in-progress assessed at ₹ 16,33,943/- (which includes expenditure ₹ 14,40,534/-) by not allowing expenses incurred for the project of the company which are as per the terms of contract, genuine business expenses and regular method of accounting consistently followed. 2. Without Prejudice to the above learned CIT(Appeals)-I has erred in not giving relief to the profit of the year ₹ 1,983,409/- and also of Assessment years subsequent to A.Y. 1998-99, subjecting the profit to tax and thereby double taxation by not allowing relief on the profit. The learned CIT(Appeals)-I has also erred in not giving relief to double taxation of profits for earlier years after the project was closed on the same grounds. 11. Brief facts for the year under consideration as appeared from Assessment Year 2004-05 passed u/s.143(3) of the I.T.Act dated 22/01/2007 were that the Assessing Officer has discussed the past history of the case and narrated that the project had already been completed in Assessment Year 1998-99. A question was asked that if the project was completed in the past, then why there was an addition in the work-inprogress of ₹ 16,34,933/-. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as completed and the income was computed and taking the difference of advances from customers, deducted from the development expenditure plus opening WIP. He has made an observation that after showing NIL development expenditure in last 4-5 years, all of a sudden the assessee has shown development of ₹ 14,24,251/-. In his opinion, the explanation of the assessee for this sudden expenditure was not convincing specially when the assessee has failed to provide the necessary evidences. Thus, Learned CIT(Appeals) has upheld the said observation of the Assessing Officer, however, he has given relief on account of the fact that the year under consideration was not correct year to assess the same as per following observation: 2.3.1 After holding as above, the A.O. taxed the difference between the advances from customers and the opening WIP as income of Financial Year 2005-06. When the project had already been treated as completed/closed in A.Y. 1998-99 by substituting closing WIP by advances received from the customers upto 31/03/2004, the full profits of the project already stood taxed in A.Y. 1998-99. In Financial Year 2004-05, there was no increase in the advances from c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd thereafter in A.Y. 05-06 ₹ 14,24,251/-. In between years only nominal Administrative exp. and Finance charges were incurred. It is now vehemently contested that the complete details were filed and in support pg. 42 of the compilation was referred. This contains the names of the Suppliers such as Balaji Agencies for glazed tiled , Narandas Sons for colours , Sunil Electricals for electricity material , other parties for kota stone, sand etc. The contention is that genuineness was not questioned but disallowed on the ground that it had not been incurred for the construction being already completed. We are of the view that once we have already taken a decision that it was not justifiable on the part of the Revenue to hold that the contract was completed in the past in A.Y 98-99, hence in consequence thereof, the expenditure in question must not be disallowed on the ground that it did not relate to the said construction. But simultaneously the assessee is under strict obligation to demonstrate that the said expenditure had in fact been incurred for the construction in question and also to prove the genuiness of the claim . Therefore we direct that if proved on both the count ..... X X X X Extracts X X X X X X X X Extracts X X X X
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