TMI Blog2019 (6) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... essee during the assessment proceedings for AY 2014-15 in assessee s own case It is well settled that the project completion method is one of the recognized method of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can t be held that the decision of the CIT(A) was erroneous or illegal in any manner. The judgement in the case of CIT vs. Realest Builders Services Ltd. [ 2008 (5) TMI 6 - SUPREME COURT] relied by the ld. DR on method of accounting is rather in favor of the assessee and against the revenue in the peculiar facts of the present case. From computation of income and factual matrix of the case, it is evident that the AO has committed error in estimation of profit from sale of shops by wrongly adopting area sold to be 4,500 sq. yards as against 92.90 sq. mts. of actual sales which has been demonstrated by the Ld. AR before us (APB, Pgs. 1 to 4). We also find merit in the argument of the Ld. AR that during the impugned year under consideration only one shop measuring 92.90 sq. mts. was sold for ₹ 7,50,000 as against sale of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued for verification were received back unserved. 4. That the order of Ld. CIT(A)-1, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored. 5. That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal. 3. Facts in brief, as stated by the lower authorities are that the AO the assessee partnership firm ( the assessee in short), has been engaged in the business of real estate and construction of buildings for past several years, assessed total income of ₹ 3,94,62,580 u/s 143(3) of the Income Tax Act, 1961 ( the Act in short) as against returned income shown by the assessee of ₹ 1,12,120. The AO has observed that the assessee did not produce bills/vouchers before him for ascertaining the accuracy and correctness of the books of account; that it did not furnish evidence regarding closing stock; that it could only furnish the photocopy of confirmations of advances received from customers and that the assessee is following project completion method and not percentage c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any reason to support the action of the AO to add this amount to assessee s income. The relevant para of the impugned order is reproduced hereunder. 6.2 I have carefully considered the appellant s submission, facts of the case and the legal position in this regard. I find that the A.O. has rejected the appellant s books of account on the ground that bills and vouchers and the basis/evidences of/for valuation of closing stock was not produced by it during the assessment proceedings. Other reasons pointed out by the A.O. for applying the provisions of section 145(3) to the appellant s case are that it did not furnish satisfactory confirmations from the customers who had advanced money to it as also the details e.g. estimated cost, estimated sales, etc. to calculate the profit as per percentage completion method. The A.O. has stated in the impugned order that that the appellant was required to declare profit every year in compliance to the percentage completion method and it has not shown any sales either in the impugned year or in any earlier year. The A.O. has explained in the same vein that the project completion method has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on grounds of rejection of books of account U/S 145(3) of the Act as well as in deleting the additions of ₹ 3,24,93,594 and ₹ 15,56,866 without appreciating the fact that the project completion method has no existence since 01.04.2003. He submitted that the assessee should have declared profit on percentage completion method because according to AS-7, revised in 2002 with effect from 01.04.2003 the Completed Contract method or Project Completion method have been scrapped. He contended that when the project period is more than 12 months, for the purpose of accuracy in computation of profit the percentage completion method is preferred over project completion method as per the ICA guidelines in the case of builders. For this purpose, he relies on CIT vs. Realest Builders Services Ltd. , (2008) 22 (I) ITCL 73 (SC): where it was held that- in cases where the department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting was warranted on the ground that profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent from the assessee s case records and thus the various allegations levelled by the learned AO are totally incorrect, false and have got no legs to stand. e) That the income and book results declared by the assessee are fully supported with reference to the complete and correct books of accounts, bills, vouchers and other records, which were duly produced before the learned AO during the course of assessment proceedings and the learned AO could not point out any defect therein, thus the same should have been accepted. Further the assessee has computed the income chargeable under the head Profit and gains of business or profession strictly in accordance with the method of accounting consistently employed by it since the inception of business and by following the accounting standard applicable over its case and there being no deviation from the method of accounting consistently employed by the assessee since the inception of business, which has always been accepted by the revenue in past and subsequently even in the scrutiny assessment relevant to A.Y.2014-15 which has been completed U/S 143(3) of the Act vide order dated 23rd December, 2016 therefore the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that on 31.03.2015 the AR of the assessee duly apprised the learned AO that though books of account, bills, vouchers etc. were produced during earlier hearing but as Mr. Krishan Murari Khandelwal, C.A. on account of time barring matter(s) is occupied in his prefixed professional engagement thus these could not be produced on even date. 2. No evidence regarding the valuation of closing stock has been furnished by the assessee. Such allegation is also contrary to the facts of the case of the assessee. In response to query no.5 at page 3 of written submissions dated 13.10.2014 (page 81 of paper compilation) and in response to query no.1(g) at page 2 dated 27.01.2015 (page 13 and 86 of paper compilation) the assessee duly apprised about the method of valuation of closing stock and furnished details of such closing stock and value thereof. The bills/vouchers in support of valuation were also produced. 3. Confirmations of advances of customers was not done to the satisfaction of the AO. In this regard the letters sent were returned back and the assessee could furnish only photocopy of confirmations which can t be relied upon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in response to query no.5 at page 2 of written submissions dated 19th December, 2014 (page 83 of paper compilation), in response to query no.3 at pages 3 to 6 of written submissions dated 27th March, 2015 (pages 90 to 93 of paper compilation), in response to query nos.7, 8 9 at pages 5 to 8 of written submissions dated 30th March, 2015 (pages 99 to 102 of paper compilation) had duly apprised the learned AO that it since the inception of business has been consistently following mercantile system of accounting and it has adopted project completion method as specified in accounting standard-9 (AS-9) because it is a builder and promoter and accordingly the revenue has been recognized at the time when sales take place i.e. when the seller transfers to the buyer all significant risk and reward of ownership and the seller retains no effective control of real estate transferred to a degree usually associated with its ownership. B] That it has also beeen wrongly alleged that the assessee has not shown any sale neither before nor in this year. In fact the complete details of 12 shops sold during F.Y.2010-11 ie. A.Y.2011-12 for Res.96,50,000 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applicable to builders and developers and accordingly since the inception of business the assessee is regularly and consistently following project completion method. iii) a) That Hon ble Punjab Haryana High Court in case of CIT Vs. Principal Officer Hill View Infrastructure (P)Ltd. (2016) 384 ITR 451 has held that the assessee has been consistently following one of the recognized method of accountancy i.e. project completion method for computation of its income. In the absence of any prohition or restriction under the Act for doing so, it cannot be held that approach of the CIT(A) and tribunal deleting addition made by AO by applying percantage completion method was erroneous or illegal in any manner so as to call for interference by this Court. b) That the Hon ble Gujarat High Court in case of CIT-IV Vs. Shivalik Buildwell (P) Ltd. (2013) 40 taxmann.com 219 has held that if as per the acounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the revenue in the earlier years, in the present year, the Assessing Officer could not have taken a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change has brought about in section 145(2) of the Act which permits the Central Government to notify in the Official Gazette from time to time the income computation and disclosure standard, to be followed by a class of assessee or in respect of any class of income. Such change is prospective and in any event does not apply to the case on hand. v) a) That the settled legal position as far as section 145 of the Act is concerned is that it is not open to an AO to reject the accounts of an assessee unless he comes to a determination that notified accounting standard, have not been regularly followed by the assessee. The accounting standard of the Institute of Chartered Accountant of India did not have any statutory recognition under the Act although it is binding under the Companies Act 1956. The method of accounting followed by the assessee in the present case i.e. project completion method is certainly one of the recognized methods and has been consistently followed by it and therefore the provision laid down under section 145(2) of the Act have been misapplied over the assessee s case. In this regard the assessee wishes to invite your attention the judgement of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ₹ 7,50,000 in A.Y.2012-13 (year under consideration) and the assessee has duly declared the relevant sale and profit there from in its return of income. It is settled law that if AO wants to use any material collected by him which is adverse to the appellant, then appellant must be given a chance to make submissions thereon. The principles of natural justice are violated if any adverse order is made on an appellant on the basis of the material not brought to his notice. If AO proposes to make an estimate in disregard of the evidence, oral or documentary, led by the appellant, he should in fairness disclose to the appellant the material on which he is going to found that estimate. He must communicate to the appellant the substance of the information proposed to be utilized to such an extent as to put the appellant in possession of full particulars of the case he is expected to meet and to further give an ample opportunity to meet it. The Hon ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income-tax (1954) 26 ITR 775 has held that the Assessing Officer is free to make enquiries at the back of the assessee but, if the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted in (1962) 45 ITR 206 has held that if ITO desires to use the material so collected to facilitate assessment from private enquiry, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. The Hon ble Kerala High Court in the case of Capricorn Shopping Complex Vs. Income Tax Officer reported in (1996) 218 ITR 721 has held that if any document is relied on against an assessee to assess him to higher rate of tax, such document shall be disclosed to him and it cannot be withheld. c) That the allegation of the learned AO that actually entire project has been handed is contrary to the facts of assessee s case. In fact out of saleable area of 4054.98 sq.mts. consisting of 16 shops and 3 halls, only area of 1333.76 sq.mts. consisting of 14 shops could be sold and as the remaining area of 2721.22 sq.mts. comprising of 2 shops and 3 halls could not be sold, has been leased out on 17th April, 2014. Relevant lease deeds are filed. d) That the learned AO has further erred both in law and on facts in making addition of ₹ 15,56,866 towards alleged net profit by applying 15% rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting Standard No. 7. They are completed contract method and percentage of completion method . Thus, as both the methods of accounting are recognized methods of accounting, the assessee is at liberty to choose any of the above and if any one of the method of accounting is consistently followed by the assessee, the assessing officer cannot change the method of accounting to the percentage of completion method. 9. Further, He referred to the Hon ble High Court of Punjab and Haryana in the case of Commissioner of Income-tax v . Haryana State Industrial Development Corporation Ltd. , (326 ITR 640) that while following the principle of consistency as laiddown by the Apex Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) and Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. [2007] 9 RC 521; [2007] 8 SCC 688 observed that .. the stand of the assessee respondent was not controverted when it had claimed that methodology adopted in the assessment years in question was consistent with the past. Moreover, there was no change in the circumstances in respect of the assessment years in question requiring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings owing to which books of account of the assessee were rejected by him. However, the Ld. AR in this regard, while drawing our attention to APB pages 87 and 96 of his paper book, which are replies dated 27.01.2015 and 03.03.2015 filed by the assessee before the AO, stating therein that the assessee has produced books of account/bills/vouchers and other records maintained and produced by it before the AO which has not been denied by the AO. This is evident from Para 1st at page 1 of the assessment order itself where AO has observed as follows: ............ In response to these notices U/S 143(2) and 142(1), Shri Pradeep Sahgal, Advocate/AR of the assessee, attended from time to time and filed written submissions and details. The Books of Account were produced and test checked. The assessee filed the required information which is placed on record after verification. The case was discussed with him. 13. Further, the Ld. CIT(A) at para 6.2.1 of the impugned order has held that . Further, I also find from a perusal of the assessment folder that the appellant had regularl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 sq. yards as against 92.90 sq. mts. of actual sales which has been demonstrated by the Ld. AR before us (APB, Pgs. 1 to 4). We also find merit in the argument of the Ld. AR that during the impugned year under consideration only one shop measuring 92.90 sq. mts. was sold for ₹ 7,50,000 as against sale of ₹ 6,77,26,260 wrongly worked out by the AO in his order. 17. In the above view, we do not find any merit and substance in the submissions of the revenue. Under the circumstances and following the various judgments relied upon by the Ld. AR, the additions of ₹ 3,24,93,594 and ₹ 15,56,866 made by the AO has been rightly deleted by the Ld. CIT(A). As such, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and therefore, ground nos. 1 and 2 of the departmental appeal are dismissed. 18. In Ground no. 3, the department has challenged order of the Ld. CIT(A) regarding deletion of the addition of ₹ 50,10,000 made by the AO because the assessee could not establish the genuineness of advances from customers as the letters issued for verification were received back unserved. 19. The Ld. DR r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is prayed that your Honour kindly delete the arbitrary and unjust addition of ₹ 50,10,000 treating advances received from customers as bogus. 21. The Ld.AR further filed a paper book (APB pages 47-48, 83,88-89 and 96-98) to support his contention that assessee had furnished complete details and documents to substantiate the genuineness of advance of ₹ 50,10,000 from the customers, which had simply opening old balances in their accounts in the impugned year and therefore, the Ld. CIT(A) has rightly deleted arbitrary and unjust addition of ₹ 50,10,000. 22. We find that the assessee in fact has not taken any advances from customers during the impugned assessment year but these were old balances brought forward from previous assessment years which is supported by the copies of ledger accounts of the advances received from customers. Considering the facts of the case and the various judicial precedents relied upon by the assessee, it is a trite principle of law that addition of ₹ 50,10,000 regarding credit balances brought forward from earlier assessment years cannot be made. 23. We do not find merit in the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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