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TMI Blog2023 (3) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.22,86,644/- made on account of estimated profit on WIP. (4) That the ld.CIT(A) erred in (aw and on facts in deleting the addition of R.S. 7,79,32,338/- made on account of unexplained credits. (5) That the ld.CJT(A) erred in law and on facts in deleting the addition of Rs.8,10,355/- made on account of disallowance of labour expenses. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 3. The 1st issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,92,54,271/- on account of unexplained cash credit under section 68 of the Act. 4. The facts in brief are that the assessee in the present case is an individual and en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of the assessee on the reasoning that there was no evidence furnished by him (the assesse) that he was having the capital of Rs. 87,03,758/- in the personal capacity. As such the assessee by way of passing the journal entries has incorporated various assets without furnishing any supporting vouchers/bills of such asset. No detail was furnished w.r.t. when such assets were acquired and what was the source of money for having acquired such assets in personal capacity. 4.5 Likewise, the assessee has not furnished the source for making the investment in the land for a value of Rs.1.96 crores. Similarly, there was no information furnished by the assessee when the investment was made in the impugned piece of land. In view of the above, the AO treated the net credit entries in the capital account for Rs. 2,92,54,271/- as unexplained cash credit under section 68 of the Act and accordingly made the addition to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A). 5.1 The assessee before the learned CIT(A) submitted that he has been maintaining different set of books of accounts since F.Y. 2004-05 which were duly audited and disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order and the remand report of the AO and the submission filed by the appellant carefully. The AO has) stated in Remand Report that the appellant could not explain the issue inspite of number of opportunities during assessment proceedings- The appellant is doing business as a proprietor of M/s. Silver Construction Company. The books of accounts for this! proprietorship business are maintained separately. Books of accounts of other transactions are maintained separately in personal books of accounts till Financial Year: 2009-2010. During financial Year 2010- 2011, i.e. AY 2011-12 the personal books of accounts have been merged with proprietorship accounts. So for merging the accounts, the respective assets were debited and capital account was credited. In this backdrop, appellant claimed that it was explained during the course of assessment proceedings. All these assets and liabilities pertain to appellant's individual books of accounts and accumulated over the years and duly reflected in earlier year's financials. In other words, the appellant has been maintaining two different sets of books of accounts, one for his proprietorship business in the name of M/s Silver Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01/- in the name of Baracatali Narsidani Capital a/c which was on account of transfer of personal assets in AY 2010-11 for which there is no adverse comment in Remand Report. The appellant has also claimed that debit entry to Classic heights land by Rs.1,96,00,000/- and credit entry to capital a/c i.e. due to mistake, Appellant has reversed this entry in F.Y. 2014-15 and copy of capital account is in Paper book-2 (PP 103 to 104). During remand proceedings copy of account of Classic Heights land for A,Y.2004-05 to 2010-11 in which all payments for the land have been made, has been submitted. The explanation of the appellant is accepted as there is no evidence on record to show that there is unexplained investment of Rs..1,96.00.000/- in A.Y.2011-12. It is further seen and as explained by the appellant that the profit for the year of Rs.22,61,0167- has also been transferred to the capital account which cannot be added as income as the tax has already been paid on this amount. In view of these facts, the issue gets explained for following amounts: Sr. No Particulars Amount (Rs) 1 Capita addition due to merging of personal books with that of Silver Constn. Company. 87,03,7587- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial statements. One set of financial statement pertains to his proprietary concern namely "Silver Construction Co" and other financial statement pertains to his personal capacity. Both the financial statements, pertaining to the years 2004-05 to 2009-10 are placed on pages 177 to 272 of the paper book. The assessee while disclosing the income in the return of income tax has merged the income from his proprietary concern as well as personal capacity. This fact can be verified from the copies of the income tax return along with the statement of income which are placed on pages 172 to 272 of the paper book. However, we could not find any clarity from the details available in the paper book whether the assessee while preparing the financial statements of his proprietary concern and personal capacity have merged into one. It seems to us, the assessee has not merged the financial statements of his proprietary concern and personal capacity. 10.2 Be that as it may be, we note that all the assets and liabilities in the personal capacity, have been merged by the assessee as on 1 April 2010. In other words, all the personal assets and liabilities shown in the personal financial statement as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the facts in totality, we uphold the finding of the learned CIT (A). Hence the ground of appeal of the revenue is held by dismissed. 11. The 2nd issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs.71 lakhs after rejecting the books of accounts under section 145(3) of the Act on the reasoning that the profit was not determined as per accounting standard 7 i.e. construction contract issued by the ICAI. 12. The assessee in the year under consideration has shown gross turnover of Rs.6,47,46,780/- only on which he has shown net profit of Rs. 22,61,017/- only. However, the assessee was to recognize the revenue in the books of accounts as per accounting standard 7 i.e. accounting for construction business issued by the ICAI. But the assessee during the assessment proceedings failed to justify whether the revenue of Rs.6.47 crores was computed as per the accounting standard. On question by the AO, the assessee submitted that the estimated cost of the project stands at Rs.16 crores against which he has shown an income of Rs.1.86 crores till the year 2013-14 which constitute 11.62% of the gross receipts. As per the assessee such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available in this case therefore < the application of AS-7 is not possible. On the other hand, the appellant has submitted that the total project cost is at Rs. 11,78,27,697/-. It is further brought on record during remand1 proceedings that the appellant has booked revenue of Rs.1,43,01,162/- form A.Y.2010-11 to A.Y.2016-17. If is further brought on record that the book results have been accepted in all the years and the appellant filed a copy of order u/s.143(3) for A.Y.2012-13 and A.Y. 2013-14. The relevant documents PP 105 to 234/PB-2 have been perused. I have gone through the guidance note AS-7 as revised in 2012 in respect of real estate and find that following parameters can be applied in percentage completion method, if to be followed. i) All critical approvals necessary for commencement of the project have been obtained. : ii) Each project should reach a reasonable level of development If the construction and development costs as defined and explained in the Guidance Note incurred on a project are less than 25% of the total such costs, which exclude costs on land and borrowing costs the project is not have achieved a reasonable level of progress. iii) At least 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I, the assessee was under the obligation to show the income with respect to such work in progress. 17. On the contrary the learned AR before us submitted that that the AO has estimated the profit with respect to the project in dispute at Rs. 94,42,551.00 only whereas the assessee has already declared the income of Rs. 1,43,01,162.00 in the assessment years 2010-11 to 2016-17 which is substantially higher than the profit estimated by the AO. In the earlier and later years, the profit declared by the assessee was accepted by the revenue. Accordingly, the ld. AR contended that the principles of consistency needs to be adopted. 17.1 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 18. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has already recognized the gross revenue taking into consideration the 30% completion of the project and 45% of the booking amount which is as per the accounting standard 7 issued by the ICAI. Besides the above the assessee has already offered income in different assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred to personal account and no income is liable to be offered. Likewise, WIP - Maratha Society represents amount paid toward purchase of land and expenses in relation to such purchases. The project is yet to start, hence no income offered. 20.3 However, the AO not was satisfied with the explanation furnished by the assessee. The AO found that if WIP - Height represent expenses incurred in connection with the project of the company namely Classic Build Project Pvt Ltd then there was no occasion for the assessee to show such project as WIP in his book. Further, if entire WIP was transferred by the assessee to the company in the year under consideration then again the assessee was required to offer profit on such transfer. 20.4 The explanation of the assessee that demolition notice was issued against project at Kankariya, therefore he transferred the same to personal account is not acceptable for the reason that the AMC has issued demolition notice on 13-03- 2013 whereas the books of account for the year under consideration finalized much before the date of issue of notice by AMC. Further, the project to the date of assessment was not demolished, therefore the assessee was requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of accounting standard 7 issued by the ICAI. 25. On the contrary, the learned AR with respect to the WIP- Maratha Society submitted that there was no activity carried out on such project and no approval was also obtained for the impugned project. Thus the question of estimating the income on such the WIP does not arise. 25.1 The learned AR with respect to the WIP- Kankaria submitted that the expenses on such project has been incurred which is less than 10% of the total project cost and therefore no income with respect to such WIP was recognized. Besides the above the project was illegal and the notice for the demolition of the same was received. 25.2 The learned AR with respect to the WIP- Heights submitted that such project belongs to M/s Classic Build Projects Private Ltd which have been transferred accordingly. Furthermore, no work has been done on such project. 25.3 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 26. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has shown certain WI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing dated 14-03-2014 submitted that he has also received amount aggregating to Rs. 5,96,03,000/- over and above the amount of Rs. 4,24,51,046/- but the same not recorded in the books. The AO from the bank statement found that the above amount of Rs. 5,96,03,000/- was utilized against purchase of land for Rs. 1.96 Crores and Bank FD for Rs. 4,00,03,000/-. The AO also found that the assessee has not furnished documentary evidences in support of his claim. Further, from the inquiry with registrar of society, it was found that the books of account of the society was never audited. Therefore, the AO held that the source of credit of Rs. 1,83,29,338/- and 5,96,03,000/- (total 7,79,32,338/-) was not established and remained unexplained. Hence, the AO treated the same income of the assessee under section 68 of the Act and added to his total income. 29. The aggrieved assessee preferred an appeal before the learned CIT(A). 29.1 The assessee before the learned CIT(A) submitted that he was acting as developer for the society namely The Classic Homes Co-operative Housing Society Ltd in the name and style of "Classic Homes". The Society being owner and promoter of the project was collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provision because the corresponding sale value is already credited to profit and loss account by way of closing work in progress. Appellant relied on the ratio in the case of Bhagyanagar Oil Industries vs. ITO (ITAT Hyderabad), ITA No. 1178 of 2012, Date of Pronouncement - June 12, 2015. I have gone through the judgment of ITAT, Hyderabad and is having guidance value to the issue involved, the relevant portion is reproduced as under: "However, as rightly submitted by the Id. Counsel for the assessee, the impugned credits being trade credits of the assessee on account of purchase of sunflower seeds are not in the nature of cash credits as envisaged under section 68 and the same therefore cannot be added lo the income of the assessee by invoking the said provision. Moreover, as pointed by him from the trading account of/he assessee for the year under consideration placed at page No. 2-f of the paper hook, the corresponding seeds purchased from the seven farmers far Rs, 54,49,961 were sold in the year under consideration itself for Rs. 58,89,195 and the said sale was duly credited to the trading account of the assessee. As rightly contended by the Ld. Counsel for the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has shown Rs. 7,79,32,338/- from the party namely Classic Homes Cooperative Housing Society Limited which was treated as unexplained cash credit under section 68 of the Act, and therefore the AO made the addition to the total income of the assessee. However, the learned CIT(A) found that the society is developing a project under the name of the scheme as 'Classic Homes' and the assessee is acting as a developer of the impugned scheme. Whatever amount was received by the society has been transferred to the assessee and the same was utilized for the purpose of the construction/development of the scheme by the assessee. The assessee out of the amount received from the society incurred on construction/ development of impugned project of the society which has been shown work-in-progress in his financial statement. The assessee has furnished the necessary details during the remand proceedings about the source of money received from the customers/members of the society. To that effect, the assessee has furnished the list of the parties/customers/members durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has disallowed 20% of the labour expenses incurred in cash on the reasoning that the necessary supporting details of the cash expenses were not available whereas the Learned CIT(A) restricted the same to the tune of Rs.1 lakh only. It is the admitted position that the construction industry is labour intensive industry. Generally, the labourers are disorganized and not educated. Thus, under the common parlance, it is difficult to find necessary supporting evidence for the Labour expenses which are incurred in cash. Thus the question arises how to determine the genuineness of the Labour expenses in the absence of supporting documents. In such facts and circumstances the expenses and the construction activity carried out by the assessee over the period of time should be taken as the benchmark and after considering the inflation in the industry. Accordingly, the same should be compared. In other words, the AO in the absence of necessary supporting vouchers should have made reference to the earlier year and subsequent year labour expenses in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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