TMI Blog2019 (7) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The onus was equally placed on the assessee to point out exact area of difference and explanation thereon. CIT(A) has apparently abdicated his responsibilities and shifted the onus again on the AO without any cogent reason. In the absence of objective comparison available for the resultant profits declared by the assessee and computed by the AO, we consider it befitting and expedient to restore the matter back to the file of the CIT(A). CIT(A) shall call for the comparative analysis and other factual details and look into all the aspects afresh objectively and in accordance with law. Needless to say, proper opportunity shall be provided to assessee in this regard. The issue is accordingly set aside to the file of the CIT(A) for de novo adjudication. While coming to aforestated conclusion, we also take note of the objection raised on behalf of the assessee for rejection of books by invoking Section 145(3). However, we are unable to notice any such objection has been raised before lower authorities. In the Revenue s appeal, it will be difficult to appreciate such technical aspect without notice to other side. Thus, such ground requires to be shunned. Be it as it may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income was filed after the date of search on 30th September, 2012. However, in respect of preceding six assessment years, the original return of income were already filed by the assessee within time permitted under s.139(1) of the Act. In response to the notices issued under s.153A of the Act, the return of income for AY 2011-12 in question was again filed declaring the same income in parity with original return of income. The assessment proceedings relating to AY 2011-12 falling within the period of six assessment years referred to under s.153A of the Act and pending on the date of initiation of search under s.132 of the Act stood abated and the assessment was framed under s.153A(1)(b) of the Act. 5.1 In the course of the assessment proceedings under s.153A of the Act, the AO inter alia raised queries regarding correctness of profits declared as per the books of accounts, the replies thereof were not found satisfactory by him. It was observed by the AO that books of accounts were inconsistent vis- -vis the closing stock valuation shown by the assessee. It was alleged that the assessee has arbitrarily claimed expenses without justification and also did not capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling within the specified period in search assessment on the basis of re-computation of cost of goods sold and closing work in-progress on year to year basis. 5.3 The books of accounts were rejected by invoking Section 145(3) of the Act and the cost of sales and closing stock was re worked whereby the additions were made in respect of understatement of profits to the extent of ₹ 1,70,39,124/- to the total income of the assessee for AY 2011-12 in question. Similar additions were made in respect of other assessment years as tabulated above. 6. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) after consideration of the detailed submissions made on behalf of the assessee and the comments of the AO thereon in the remand report, found the action of the AO to be unsustainable. The relevant operative para of the order of the CIT(A) is reproduced hereunder for ready reference: 7. The appellant contended that the A.O. recast construction account on cast basis and when there was plus difference, the same was added to the closing work in progress as disclosed in the audited accounts of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the profit. The appellant furnished a tabular chart for A.Y. 2008-09 and 2009-10 to substantiate his contention. 7.4 The AO, in the remand report, gave his comment that the contention of the assessee was factually correct, however, after considering the same, the addition was made. 7.5 The appellant submitted that the land area in respect of project SP-1 was wrongly adopted by the AO as 33 sq. mtr. whereas the correct measurement of the area was 82.43 sq. mtr. Similar mistakes were committed by the A.O. for the project SP-4 also wherein the actual area of the land sold was 907.65 sq. mtr. but the A.O. adopted the figure at 780.65 sq. mtr. only. Regarding the sale of constructed area the actual area sold was 54880 sq. ft. whereas the AO adopted the figure of sold area at 51250 sq. ft. only. The average cost of the land and construction were also wrongly adopted. Therefore, the factually wrong facts and figures were adopted by the AO for working of cost of work in progress which resulted into distorted and unrealistic additions. The appellant furnished a tabular chart of SP4 to point out the aforesaid facts and errors committed by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made u/s 143(3) wherein the issues including method of accounting were already dealt with. The Department had accepted the method of accounting followed by the assessee and assessed the project income as shown by the assessee. In view of the same, it was evident that the books of account were correct and gave true and fair view of the state of business affairs, therefore, there was no question to recast the total P L account by rejecting the books of account. To the best of Knowledge of the assessee, the method suggested by the A.O. did not have any locus standi as it was not-prescribed under any accounting standard nor was it prescribed under any of the provisions of the Income Tax act. 8.2 The method of accounting suggested by the A.O. could only be possible after completion of the project. Therefore, it was the duty of the A.O. to suggest the assessee some manner as to how the assessee should have adopted the actual cost of the project in the first year when the very project was to be completed in subsequent years. If the same method cannot be adopted as suggested by the A.O., the assessee did not know how to determine the income to be offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and erroneous assumptions were applied in the recasting of construction account so much so that the AO conveniently ignored the result of recast construction account when the working resulted into minus figures and on the other hand, when the working resulted into the figure of profit, the same was considered for addition. It seems that the AO adopted totally casual approach in handling the issue and arrived at the findings which were not even remotely having any relevance to the facts of the case. 9.1 As discussed in detail in the foregoing paras, the A.O. adopted a unique method which could possibly be applicable for the past business activity only in future. In other words, there is a lot of force in the contention of the assessee that the A.O. was having information about the actual expenditure incurred for each Assessment Year under consideration, because the projects were almost completed when he recast the construction account and made the working of the value of work in progress. It is also a fact on the record that the A.O. adopted pick and choose method despite the fact that his working was patently wrong and contrary to the facts of the case. The findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.1 It was submitted that the AO has totally misconstrued and misconceived the factual matrix for subject assessment years. It was submitted that the accounts of the assessee are audited and the AO has not found any understatement of sales or over statement of expenses per se. The AO has merely indulged in re-adjustment of cost of land, cost of construction, cost of sales and closing stock in the construction account from the very figures available in the books of accounts. The interest costs have been reallocated arbitrarily and without any sound basis resulting in double charge at places. The learned Senior Counsel strongly hoisted that the method adopted by the AO while computing the estimated net profit is patently wrong and beyond contemplation. The learned senior counsel inter alia referred to the net profit determined by the AO to be in negative i.e. at loss of ₹ 1,76,41,935/- for AY 2010-11 as against the actual profit of ₹ 20,89,570/- offered by the assessee himself and consequently, determined loss at ₹ 1,97,31,505/- for the immediately preceding assessment year 2010-11. However, oddly enough, the AO has ultimately conveniently ignored the favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses by the AO is in controversy. The question is essentially factual in nature. 10.1 It is the case of the Revenue that the action of the AO in making enhancement to the declared net profits by re-calculating the cost of sales and closing stock of various projects is fully justified in view of the exhaustive working made by the AO as annexed to the assessment order. The assessee, on the other hand, has found fault with the action of the AO on multiple counts both on facts as well as on first principles and contended that the action of the AO is not sustainable on facts or in law. It is the case of the assessee that allegation of the AO towards incorrect reflection of business profits derived from construction business by assessee is without any foundation. The AO has merely proceeded on assumptions and surmises in a most arbitrary manner and rejected the books of accounts and applied his own arbitrary method for working out the profits of the assessee during AYs. 2006-07 to 2012-13. It is the contention of the assessee that books of accounts are audited by the independent auditors equipped with requisite expertise and well versed with principles of accountancy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e positive difference was added to the closing work-in progress as disclosed in the audited accounts whereas the negative difference in the work-in-progress was also added to the closing work-in-progress. The action of the AO implies that where the cost of sales are overstated the closing stock would be correspondingly understated. But, however it was simultaneously assumed that in the case of loss, the closing stock is also under valued to this extent. Such action of the AO is contrary to rudimentary principles of accounting. It is the case of the assessee that as per the accepted accounting principles as applicable to the construction business, the cost is required to be estimated at the end of each year on the basis of technical estimation and after estimating the project cost, the assessee is required to determine the cost of sale to be charged profit and loss account against the sale value. The sale value has been recognized on a percentage completion basis regardless of pendency in completion of work of the project. 10.4 Having taken note of the principal contentions led on behalf of the assessee, we however find that while adjudicating the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the result, the appeal of the Revenue is allowed for statistical purposes. CO No. 134/Ahd/2015 AY 2011-12 12. The grounds of appeal raised by the assessee read as under: 1. On the facts and in the circumstances of the case, the CIT(A) erred in not appreciating the contentions raised before him by the respondent that the addition of ₹ 1,70,39,124 made by the Assessing Officer by rejecting the books of account, was bad in law for the reason that the said addition is not based upon any incriminating material found during the course of the search, notwithstanding the fact that the learned C.I.T. (Appeals] has deleted the addition on merits. 13. At the time of hearing, it was fairly submitted on behalf of the assessee that the legal objection towards validity of assessment under s.153A of the Act raised in the cross objection is not sustainable for the impugned assessment years and therefore the same may be treated as not pressed. 14. In the result, cross objection in CO No. 134/Ahd/2015 is thus dismissed as not pressed. IT(SS)A No. 180/Ahd/2015 AY 2012-13 15. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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