TMI Blog2015 (4) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... ery material inasmuch as there is neither any gain nor motive for assesses to indulging in such practices when all the profits were deductible u/s 80IB. Besides the entire evidence and material has not been considered to come to a justiciable conclusion to reject the books of regularly audited accounts. A generalized observation about the notorious trade practices in real estate business cannot be a reason for rejecting the books of accounts. Hon'ble Apex Court in the case of Lalchand Bhagat Ambica Ram [ 1959 (5) TMI 12 - SUPREME COURT] and Discovery Estate Pvt. Ltd. [ 2013 (3) TMI 124 - DELHI HIGH COURT] held that practice of making additions on mere suspicions and surmises or by taking note of the notorious trade practices prevailing in trade circles cannot be relied for making additions. Consequently and finding of on-money transactions based on assumption and in the absence of any incriminating material or examination of buyers is without any basis and justification. These observations, therefore, cannot be valid reasons for rejecting the audited books of account maintained by the assessee in regular course of its business as per past practices and accounting pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exposure Draft for Guidance Note on Recognition of Revenue issued by the Institute of Chartered Accounts of India in 2011 are mandatory or override the statutory provisions. CIT(A) has also taken contradictory stand; on one hand it is held that there can be no revenue recognition unless 25% project is complete, rightly so as no builder can earn from plinth or pillars on other hand it is held that the property in flats stands transferred by booking amount. The project completion method followed by the appellants, therefore, could not be faulted with by the revenue. The assumptions made by the authorities below that by not following AS-9 7 the same tantamount to not following prescribed AS-1 u/s 145(2) is profoundly misplaced, unnecessary and uncalled for besides being contrary to principles of accountancy and interpretation of the statutory provisions. The same, therefore, could not be taken a valid basis for change of method regularly employed by the appellant. Thus we uphold the method of revenue recognition adopted by the assessee s as Project Completion Method. The other judicial precedents cited by the assessee mentioned in ITAT orders as well as written submissions suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not verifiable. Consequently assesses ground in this behalf deserve to be allowed. On these facts the ITAT Jaipur in similar group cases have already decided these issues in favor of the assessee, which we respectfully follow. Reference u/s 142A by the ADIT to DVO , the relevant provisions have been mentioned above. It is clear that this Section empowers only the AO as authorized officer to make reference to the DVO u/s 142A of the Act. This Section does not use any term like ADIT being an authorized officer. Further it has not been disputed that what has been referred to for valuation of stock in trade of the assessee and not any investment referred u/s 69A or 69B; buillion, jewellery or any other valuable article referred to in Section 69A or 69B; is not a property referred u/s 56(2) of the Act. In these eventualities, the judgment of Umiya Co-op Housing Society Ltd. [ 2006 (7) TMI 200 - GUJARAT HIGH COURT] and ME Mummy Hospital vs. ACIT [ 2014 (2) TMI 898 - GUJARAT HIGH COURT] and various other judgements cited before us support the contentions of the assessee. Thus DVO reference is held to be invalid. We also find merit in the contention of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years mentioned above. The impugned assessments were framed consequent to search operations carried out on 28.01.2009 u/s 132 on various entities of Unique group engaged in various real estate projects as developers and builde Rs. Detailed grounds are filed; for the sake of brevity and convenience they are concised as under: 1.0 Assessee's Grounds in Unique Builders Developers (Reality) Ajit for all years: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in a. Upholding the rejection of books of accounts by applying provisions of section 145(3) of the Income Tax Act, 1961 without appreciating the material on record b. Upholding Percentage Completion Method in place of Project Completion Method regularly followed by appellants which has been accepted by department in past. c. Holding the flat booking advances as income, ignoring the fact that receipts were only advances against flat bookings and actual sale had not take place. Ld. CIT(A) erred in drawing an untenable conclusion that the ownership of property gets transferred on receipt of booking itself which is contrary to provisions of the Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognizance could be taken of such report in assessment proceedings and the consequent addition made based on the DVO's report deserves to be deleted. 3. Revenue s Grounds - Unique Builders Developers Reality Ajit 1 In the facts and circumstances of the case the Ld. CIT(A) Central, Jaipur has erred in law as well as on facts: a. In relying on Guidance Note on Recognition of Revenue by Real Estate Developers issued by the ICAI, New Delhi in Nov. 2011 which would be applicable on or after 01.04.2012 and also on Discussion paper on tax accounting standards published by the CBDT in Oct. 2011 which has not yet been made applicable. b. In holding that less than 25% of the stage of completion was to be treated as early stage of completion when revenue could not be reliably estimated and profit was to be taken as NIL despite the fact that there was no such provision in AS-7. 2a Ld. CIT(A) Central, Jaipur has erred in law and facts in directing the AO to allow deduction u/s 80IB of the Act on the profits and gains of the business finally computed after modification even though no such claim was made in the return of income filed. 2b Ld. CIT(A) Central, Jaipur has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing before him. In due course DVO sent his valuation report which was adopted by AO for additions in Ajit s case. Consequent to search conducted on 28.01.2009 notices u/s 153A were issued in response to which, returns of income were filed declaring same income as declared in original returns filed by them. 8. During the course of search assessments proceedings various issues were raised. Apropos the method of accounting - It was submitted by the assessees that they has been following mercantile system of accounting on the basis of Project Completion Method . The books of accounts of assessee are subject to audit and the auditor has endorsed the adoption of Project Completion Method , veracity of books and declared profits. All the purchases and construction expenses are duly vouched and supported by requisite record. They were produced before the Ld. AO as and when required from time to time which were examined by AO, no specific or material defects in the books or adoption of project completion method were found. According to assessee ld. AO objected to Project Completion Method; assessee filed detailed explanations and justifications which were rejected on hypothetical consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment are in appeals raising respective grounds. Assessee has challenged the action of Ld. CIT(A) in upholding the rejection of books of accounts under section 145(3); change of accounting method to WIP; Reference to valuation officer in case of Ajit and upholding of estimate of cost of construction and consequent additions in both the case. Department has challenged holding of initial two years of projects below 25% of completion as accruing no income in changed WIP method and allowance of deduction u/s 80IB in the years of profitability. 13. At the outset ld. Counsel for the assesse contends that Unique group as originally constituted was bifurcated into two branches due to some disputes amongst the stake holde Rs. The search operations were carried out in all the entities of both divisions. All of the entities were following Project Completion Method as their method of accounting; department has been accepting their method of accounting as recognized and approved method; assessments were made accordingly. Similar issues i.e. method of accounting and estimation of income consequent to same search of other Unique group cases reached to the level of ITAT Jaipur Bench. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer reached a finding that the books of account maintained by the assessee did not present true and complete picture of its accounts and financial transactions. The Assessing Officer after making elaborate discussion has rejected the books of account of the assessee by application of provisions of section 145(3) of the Act as they failed to depict the complete picture of accounts and moreover do not follow the method of accounting standard as specified under section 145(2) of the Act. The Assessing Officer has drawn support from few judgments rendered by the Appellate Tribunal and also by the judgment in the case of Kachwala Gems vs. JCIT, 288 ITR 10 (SC) for invoking provisions of section 145(3) of the Act. 12.1. Section 145 as is relevant in the year under appeal is reproduced as under:- Sec. 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se comments with respect to correctness and completeness of the accounts maintained by the assessee or the method of valuation adopted by him. The appellant has valued the stock of project in process at cost as all the purchases of materials and direct expenses were charged to this account. The books of account stood seized as a result of search on assessee-appellant and the same were available with the Assessing Officer. The assessee had also produced requisite vouchers and other documents as were demanded by the Assessing Officer from time to time. It was, therefore, his own duty to verify quantity of each quality of goods purchased by the assessee and correctness of valuation disclosed in the accounts. For the remissness on the part of the Assessing Officer, assessee cannot be blamed. The Assessing Officer also appears to have casually stated that as per AS-2 it is essential that the details of both quality as well as quantity of different items of stocks including details of direct expenses and costs are required to be maintained meticulously. In fact, the AS-2 notified by the CBDT relates to disclosure of prior period and extra ordinary items and change of accounting policies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and take the same as a reason for rejecting the books of account that were maintained by assessee in regular course of its business. 12.5. to 12.8 ------------- ------------ ------------ 12.9. There is also a feeble observation in the orders of the authorities below for rejecting the accounts that in the trade of real estates notorious trade practices are prevailing. The Ld. Counsel for the assessee has placed reliance on the judgment by Hon'ble Apex Court in the case of Lalchand Bhagat Ambica Ram vs. CIT, 37 ITR 288 (SC) and also by Hon'ble Delhi High Court in the case of CIT vs. Discovery Estate Pvt. Ltd. 2013-TIOL-139-High Court-DEL-IT in which the practice of making additions in the assessment on mere suspicions and surmises or by taking note of the notorious trade practices prevailing in trade circles has been disapproved. Having considered the aforesaid view, the finding of on-money transactions in the appellant s case by the authorities below is found without any basis and found perverse on facts. It, therefore, could not be a reason for rejecting the books of account maintained by the assessee in regular course of business. 12.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in para 11 of AS-9 revenue recognition . It is not mandatory for a real estate developer to follow percentage of completion method as prescribed by the Institute of Chartered Accountants of India under AS-7. AS-7 issued by the Institute of Chartered Accountants of India, recognizes the position that in the case of construction contracts the assessee can follow either the project completion method or the Percentage completion method. The judgment by Hon'ble Delhi High Court in the case of CIT vs. Manish Buildwell (P) Ltd. in ITA No. 928/2011 dated 15.11.2011 is relevant. Neither the revised Guidance Notes 2012 issued by Institute of Chartered Accountants of India nor the Exposure Draft for Guidance Note on Recognition of Revenue issued by the Institute of Chartered Accounts of India in 2011 are mandatory. The completed contract method followed by the appellant, therefore, could not be faulted with by the revenue and the assumptions made by the Assessing Officer that by not following AS-9 7 the same tantamount to not following prescribed AS-1 under section 145(2) of the Act are found misplaced, unnecessary and uncalled for besides being contrary to principles of interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities, income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods. 12.13. The Apex Court in the case of United Commercial Bank vs. CIT 1999 240 ITR 355 (SC) after considering the judgement in the case of British Paints India Ltd. 188 ITR 44 (SC) which is also relied upon by the authorities below against the appellant before us is found to have entertained a view that a method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping of accounts or of valuation. The Revenue s reliance upon the decision in CIT vs. British Paints India Ltd. (supra) in no way advanced the case of the revenue. The Apex court while dealing with the contention of the assessee in that case for valuation of the raw material without taking into account any portion of the cost of manufacture, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, it is open to the Incometax Officer as well as the assessee to point out the true and proper income while submitting the income-tax return. 12.14. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Margadarshi Chit Funds (P) Ltd., 155 ITR 442 (AP) did not find any justification in the entertainment of the view by the Assessing Officer that there could be a better system of accounting. This is no reason to the application of the provisions of section 145 of the Act. The relevant passage as contained at page 447 of the report is reproduced as under :- The ITO's view that there could be a better system of accounting is no reason to the application of the provisions of s. 145 of the I. T. Act, especially in view of the fact that this system of accounting is followed by the assessee uniformly and regularly for the past several years, and was accepted by the Department without quarrel. It is not open to the ITO to intervene and substitute a system of accounting different from the one which is followed by the assessee, on the ground that the system which commends to the ITO is better. Attention may be invited to the decisions in: (i) CIT EPT v. Chari and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to the stage of completion and can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The Apex Court again in the case of CIT vs. Hyundai Heavy Industries Co. Ltd., 291 ITR 482 (SC) took the similar view and held at page 495 as under :- Lastly, there is a concept in accounts which called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, completed contract method and percentage of completion method . To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting 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 consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly adopted by the assessee from Project Completion Method to Percentage Completion Method on irrelevant considerations. We are, therefore, satisfied that provisions of section 145(3) are not attracted in this case. The Ld. CIT (A), is found to have erred in upholding the decision of Ld. Assessing Authority to invoke section 145(3) of the Act and making assessment in the manner provided under section 144 of the Act. We, therefore, set aside the decision in this regard and allow ground nos. 2 3 raised in appeal by the assessee in assessment year 2003-04 . 14. Further this judgment has been followed by this very bench in one of the other group concern M/s Unique Builders (Rama) Vs. DCIT, Circle-2, Jaipur, ITA No. 649/JP/12 650/JP/12 for AYs 2008-09 2009-10 vide order dtd. 16-1-15. ITAT reversed the action of AO in rejecting the books of account u/s 145(3) and applying percentage of completion method. Post minor rectification u/s 254(2) by the ITAT vide order dated 13.02.2015 in M.A. No. 12 13/JP/2015, reads as under:- 2.1 The ld. Counsel for the assessee at the outset contends that the issue in question is squarely covered by ITAT Jaipur Bench consolidated order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) in taking the decision, we for the parity of reasons and respectively following our decision for assessment year 2003-04, allow assessee s ground Nos. 2 3 in all these years in appeal whereas Revenue s grounds in appeal for assessment years 2004-05 to 06-07 and 09-10 become infructuous and stand rejected. Charting of interest under section 234B being mandatory and consequential, the assessing authority shall re-compute the same accordingly. 16. In the result, all the appeals by assessee stand partly allowed and that by revenue stand dismissed. 2.2 The ld. DR is heard. 2.3 We have heard the rival contentions and perused the materials available on record. The facts and circumstances of the assessee's case and its other group cases are similar. Thus in view thereof and respectfully following the consolidated ITAT order referred to above, we uphold the books of account of the assessee and also uphold method of accounting of project completion method as followed by this Bench of ITAT in assessee's group of cases. Thus in the entirety of the facts and circumstances, the additions are deleted and the appeals of the assessee are allowed. 15. It is thus v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antitative stock register, therefore, valuation of closing stock was not possible as required under Accounting Standard 2 (AS-2). ii. That, some vouchers relating to payment of direct expenses could not be verified. iii. That, during the course of search certain incriminating documents were found which contained noting of cash out of books by the members of Unique Group on the basis of which the members of the unique group had surrendered income. 2.5 Ld. AO gave these findings without appreciating the copious explanation and submissions filed in support of the method of accounting and absence of any defects in the books. Ld. CIT(A) also in a summary manner upheld the AOs rejection of method of accounting by making following observations: i. The income need to be determined on the basis of percentage of completion method in the manner explained in AS-7-Construction Contract. ii. That, other firms of the assessee s group had received on money on sale of flats which were allegedly found noted in the loose papers / documents found and seized during the course of search iii. That, in case of other firms of assessee s group including assessee the recorded sale price o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case laws:- a) Das s Friends Buliders (P) Ltd. Vs. DCIT (2004) 88 TTJ (Agra) 651: that it was settled law that the books of accounts could be rejected on cogent reasons. The addition to trading results could be made only when the proviso to section 145(1) and provisions of section 145(3) are invoked. The only reasoning for invoking section 145(3) appearing to be non- maintenance of separate issue of stock register is not so grave to warrant rejection of books of accounts. b) Income Tax officer Vs Prakash Chand 2006 (100) TTJ(Jd) 639: that when the AO had not pointed any specific defect in the books of account and had also not found out any inflated purchases or suppressed sales. The mere non-maintenance of stock register would not warrant rejection of books of account. c) The Hon ble Rajasthan High Court in the case of Gotan Lime Khanij Udyog resorted in 256 ITR 243 has held that mere non maintenance of stock records does not leads to the addition. 18. Apropos AO s allegation of non-verification of certain vouchers pertaining to direct expenses, ld. Counsel referred to various written submissions filed with AO showing that all the vouchers, including vouchers relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86 (Ahd)]. d) The Hon ble Allahabad high Court held in the case of CIT vs. Mascot (India) Tools Forgings (P) Ltd. (2010) 36 DTR 336 that in the absence of any specific instances of mistakes in the books of account and other records, the book result cannot be rejected on the basis of any hypothetical calculations based on erroneous presumptions. 20 It is submitted that the Ld. AO as well as Ld. CIT(A) erred in rejecting the books of account in leveling baseless allegations and unfounded observations. The rejection of books of account is based purely on the basis of assumptions, presumption, conjectures and contradictory findings and the action is unsustainable in the eyes of law. It is prayed that the action of Ld. AO and Ld. CIT(A) in making / upholding the rejection of books of accounts deserves to be held as bad in law and liable to be reversed. 21. Apropos the application of Percentage of Completion method by Ld. AO in order to compute the income of assessee, it is submitted that, for the purpose of accounting the income from construction business, two methods have been suggested by the Institute of Chartered Accountants of India (ICAI) (1) Project Completion Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the Act as can be gathered from the various provisions of the enactment. It would be wholly wrong for the court to substitute its own opinion as to what particular principle or policy would serve the objects and purposes of the Act; nor is it open to the court to sit in judgment over the wisdom, the effectiveness or otherwise of the policy, so as to declare a regulation to be ultra vires merely on the ground that, in the view of the court, the impugned provision will not help to carry through the object and purposes of the Act. c. 187 Taxman 242 CIT Vs. Rockman Cycle Industries (P) Ltd. (Punj. Har.) Interest on borrowed capital Assessment year 1986-87 Whether though tax planning is permissible even if it results in avoidance of tax, yet legitimacy of claim for deduction has still to be made out on principles of business expediency Held, yes Assessee borrowed money from its sister concern on interest at rate of 18 per cent per annum and purchased shares from other sister concern which carried dividend at rate of 4 per cent Assessing Officer held that there was no justification to borrow funds at rate of 18 per cent interest for making investment in shares, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res are valued at cost, from that no firm conclusion can be drawn; a taxpayers is free to employ for the purpose of his trade his own method of keeping accounts and, for that purpose, to value stock-in-trade either at cost or market price; (3) a method of accounting adopted by the taxpayers consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation; (4) whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation; (5) under section 145 of the Income Tax Act, 1961, in a case where accounts are correct and complete but the method employed is such that in the opinion of the ITO the income cannot be properly deduced there-from, the computation shall be made in such manner and on such basis as the ITO may determine, Preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting the income tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That could not be disca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen that the Guidance note itself mentions that the point of time when all risks and rewards are transferred is required to be determined in accordance with the terms and conditions of the advance booking agreement for sale. Clause 4 of Agreement to Sale made by assessee is reproduced as under 4. Nothing contained in these presents shall be construed to confer upon the Purchaser any right, title or interest of any kind whatsoever in, to or over the said premises or common areas or common amenities. Such conferment shall take place only upon the execution of sale deed in favour of the Purchaser. It is clear that in the advance booking agreement to sale relied by the Ld. AO and Ld. CIT(A), the parties specifically agreed that no right, title or interest of any kind shall be conferred upon the buyer until the sale deed is executed in favour of the purchaser. Therefore, the allegation of the Ld. AO and CIT(A) that as per the Guidance note the risks and rewards of ownership are transferred at the time of advance booking agreement of sale is executed is self-contradictory, baseless, unfounded and any adverse inference drawn in this behalf has no legs to stand. Ld. AO has failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een Bhutani , an ex-employee of the assessee. In terms of the panchnama drawn during the course of search at the said premises of Shri Naveen Bhutani, total 3 exhibits were found and seized which includes the following: a. Annexure A-1 : containing 9 loose papers, b. Annexure A-2 : being 2 computer CDs containing data downloaded from Laptop Soni Vio and Pen Drive of Shri Naveen Bhutani and; c. Annexure A-3 : containing data unloaded from Laptop HP Pavilion 2046 of Shri Gurusharan. 24. During the course of assessment proceedings, Ld. AO vide letter No. 48 supplied the photocopies of two pages, one page bearing No. A-2/108 and other bearing no number and the same were claimed to be the copies of printouts taken from the data recorded in the CDs downloaded from laptop and Pen Drive of Sh. Naveen Bhutani during the course of search at his residential premises. None of the two pages bear signature or initials of the person from whose possession they were allegedly seized. It has been claimed by Ld. AO that, on being confronted with these papers by ADIT on 16.03.2009, Shri Naveen Bhutani allegedly accepted that the said papers are the print outs taken from the CDs prepared du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer, your goodself would observe that out of two laptops found, one was related to the person searched i.e. Shri Naveen Bhutani and the other one was related to Shri Gurusharan Sahni. Shri Naveen Bhutani further stated that the data available in the said laptops contained their personal information besides the information related to the sales and presentation of the projects of Unique Dream Builders and no specific information whatsoever was asked nor has been pointed out during the course of search. In your letter dated 22.09.2010, copies of two pages bearing No. A-2/108 and other pages having no number, have been supplied stating that the same were the print outs taken from the CDs prepared during the course of search at the residential premises of Shri Naveen Bhutani containing the data available in the computer laptops. As has been submitted earlier, the said papers were never shown to the assessee nor the copies of the same were ever supplied, and it is further submitted that none of the paper supplied by your goodself contained signature of any of the partner / employee or the person from whose possession the papers as alleged have been found, thus no cognizance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the profits projected has been worked out on the basis of the total area constructed without being considering the fact that the assessee s share in the said project was only to the extent of 54% and the cost as incurred and recorded in the books of accounts based on the respective bills and vouchers has not been considered at all. Further the average sale rate has been mentioned at Rs. 1500/- sq. ft. in one page and in another page it is mentioned at Rs. 1800/- sq. ft. as against the actual yearly average rate of more than Rs. 2000/- per sq. ft. as recorded by the assessee in his books of accounts. It is further submitted that as on the date of search the project was under construction and approximately 75% of the work was completed and since the assessee has followed the project completion method for recognize its revenue therefore, the entire expenses has been claimed as work-in-progress. With regard to the third project Southern Heights , it is submitted that as on the date of search less than 50% work was completed and as such no profits whatsoever could be ascertained, since neither the sale has been effected nor the possession was given as not a single flat was compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialize. 2. 170 Taxman 238 CIT Vs. Federal Bank Ltd. [2008] (Ker.) That only real income is assessable under the Act. 3. 207 ITR 364 CIT V/s S.M.S. Investment Corporation (P) Ltd. (Raj.) Calculation on a slip of paper could not be treated as the income of the assessee. 4. 39 ITD 183 Ashwani Kumar V/s ITO (Del.) Where the document found during the course of search did not indicate whether figures mentioned therein refer to quantities of money or quantities of goods it was a dumb document and therefore, no addition could be made on the basis of such a document. 5. 67 TTJ 838 Jagdamba Rice Mills V/s ACIT (Chd.) Documents seized during search not being as to whether item were payments or receipts or some other calculations, so no additions could be made on the basis of such a dumb document. 6. 71 ITD 245 Chander Mohan Mehta V/s ACIT (Pune) Since the loose papers d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit worked out in C-2 Plaza (commercial) is 3,55,55,00,000/- i.e. Three hundred fifty five crores and fifty five lacs on a constructed area of 11000 sq. ft. It may also be noticed that the figure of 3,55,55,00,000/- is only a profit figure and what may have possibly be the sale price should go into few thousand crores. Taking the other example on the same page in the Unique Sanghi Apartment project, a profit of Rs. 32,76,00,000/- has been worked out at a net realization figure of Rs. 7,10,00,000/- as against these projections the assessee has worked out and have offered the realistic incurrence of expenditure with entire details supported by vouchers coupled with the sale consideration arrived at from actual purchasers whose names and addresses are also available in the seized record in the same search. Further, both the papers as referred to in your above stated letter does not reconcile with each other which is evident from the following examples: 1. In page titled as A-2/108 in column No. 1 details of project of Royal Paradise are mentioned wherein the cost of the project is mentioned as 1.389 crore as against this the cost based on the figures mentioned in another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 582 725 1,036 Selling Price Per Sq. Ft. 3,500 1,820 1,800 2,033 1,250 1,266 Net Realisation in Rs. 10,50,00,000 3,72,58,809 7,10,00,000 30,89,80,011 4,84,90,00,000 41,52,96,226 Profit in Rs. 5,91,72,000 23,40,650 32,76,00,000 3,36,80,930 `,00,000 2,83,10,185 From the perusal of the aforesaid table your goodself would observe that the figures as found noted on the papers are not at all matching with the real figures as neither the land area nor the constructed area, the cost of construction, the sale price mentioned are not matching nor they are correct and actual figures as the same are fanciful and vague figures noted for the purpose best known to the person making the same as till date the department is not in a position to bring on record the person, who admitted the said papers pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to each project on all its as is where is figures in the incriminating papers and the other corroborative and contemporary evidences available with the department and further the customers etc. alongwith the so called persons having made such papers be brought on record for our cross examination, failing which the assessee reserves its right to challenge such an absurdity under article 226 of the constitution as any reliance on such papers would not only send the assessee group into liquidation but would make undesirable precedents for the future as well as existing entities in building construction line. We may also incidentally mention here that the projects mentioned in such papers have also undergone the valuation and re-valuation by the department and the results of such DVO reports are matching 95.7 to 100% with that of the figures recorded in the books of accounts of the assessee and offered / tendered for verification from time to time wherein no mistake as so far being pointed out. Though they may not be any statutory provision in the act that the assessee could force the department to purchase any property however, to relieve the pain in our heart we offer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of cross examination was provided. This reflects the predetermined approach to willy nilly make the imaginary and arbitrary additions. Besides the ld. AO has allegedly decoded the figures appearing in the seized papers based on wild guess work resulting in astronomical additions which are impossible to be earned in competitive real estate market. It is further submitted that after receiving the assessment order, partners of the assessee firm made an effort to locate and communicate with Shri Naveen Bhutani from whose possession the alleged papers were stated to have been found, and on enquiry the facts as gathered are enumerated as under: 1) That, after the search Shri Naveen Bhutani met with an accident on 24.02.2009 and had to undergo a major surgery of his left leg and was confined to total bed-rest under medical advice, this is mentioned in the statements recorded on 16.03.2009. 2) He was not in a position to move and on 16.03.2009, the ADIT namely Shri Jai Singh along with few other persons, visited his house carrying a bunch of papers and his statement was also recorded on 16.03.2009. 3) As per Shri Naveen Bhutani, the ADIT had brought a bunch of loose papers sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 132(4) that contents of documents seized in search is rebuttable. 9) 41 ITD 97 Kishan Chand Sobhrajmal Vs ACIT (JP) (ITAT, Jaipur) u/s 132(4) presumption about documents seized contents in search is rebuttable. 10) 72 ITD 340 DA Patel V/s DCIT (Mumbai) ITAT - An interest calculation sheet was found seized in search but no hundies were found in support of receipt of said interest amount it could not be said that those amounts were actually received and, therefore, no addition could be sustained in respect of those amounts. 11) 107-Taxman-44 (Mag.) Ramakant Umashanker Khetan V/s. ACIT ITAT Nagpur - Whether addition to undislcosed income for alleged receipt/ payment of on money to different parties based on records seized from another person and statement made by such person without confronting assessment therewith and without conclusive supporting evidence to prove said transactions had to be deleted - Held, yes - Whether addition for alleged payment for acquiring tenancy right in metrocity without conclusive evidence of assessee having made such payment in face of denial by recipient of said sum, had to be deleted, Held, yes. 12) 211-ITR-178 CIT Vs. R.Y. Durlabhji ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those transactions as related to assessee ? Held No Further held that no presumption can be drawn against the assessee u/s 132 (4A) of the Act in respect of a paper not found from him. 15) 130 TTJ 42 Sheth Akshay Pushpavadan Vs. Dy. CIT (Ahd A ) (UO) - Payment of on-money vis- -vis seizure of diary from third party Whether there is no incriminating evidence available against the assessee on record, addition for so called on-money could not be made on suspicion and surmises Presumption under section 132(4A) is not available when the seized paper is recovered from third party and not from the assessee. 16). 300 ITR 372 Mangilal Agarwal (Late) Va. ACIT (Raj.) - S.68 Search and seizure Presumption that goods seized belong to assessee Scope of Income from undisclosed sources Seizure of primary gold and gold ornaments by customs authority CEGAT finding assessee not owner of gold and released gold from confiscation Assessing authority failing to establish ownership Presumption of ownership cannot be drawn on possession Necessity of nexus between conclusion and primary facts Value of gold not taxable in hands of assessee. 17.) 308 ITR 230 CIT Vs. D.K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, Room No. 242, NCRB, Statue Circle, Jaipur . No assessment or reassessment was pending before ADIT (Inv) 1, Jaipur so as to authorize him for making such reference. It is vehemently contended that the reference to DVO made by ADIT (Inv) 1, Jaipur was invalid as the conditions prescribed by section 142A were not fulfilled and the ADIT (Inv) 1, Jaipur had no jurisdiction / authority to make such reference under this section for estimation of cost of construction. The provisions of section 142A read as under: 142A. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B [or fair market value of any property referred to in sub-section (2) of section 56] is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Ltd (supra) had observed as under: The word making referred to under section 142A of the Incometax Act, 1961, should be presumed to be associated with both assessment or reassessment . There cannot be any reference under section 142A of the Act when there is no process of assessment which is initiated after filing of the return of income or issuance of notice under section 142(1) of the Act. Similarly, the process of reassessment could be initiated only after issuance of notice under section 148(1) of the Act after duly fulfilling the formalities mentioned therein. The invoking of section 142A is a process after the reopening of the assessment. A reference to the Departmental Valuation Officer can be made only when a requirement is felt by the Assessing Officer for making such reference. The requirement would arise or could be felt only when there is some material with the Assessing Officer to show that whatever estimate the assessee had shown is not correct or not reliable. The use of the word require is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the Assessing Officer is necessary which requires him to make a referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other valuable article referred to in section 69A or section 69B iii. Fair market value of any property referred to in sub-section (2) of section 56 In these cases in the DVO reference there is no allegation or mention of estimation of any unexplained investment , unexplained money , investment not fully disclosed in books of account , nor is there any reference to property specified u/s 56(2). Therefore, no reference u/s 142A could have been made to the DVO on this count also. Reliance is placed on: ME Mummy Hospital Vs. ACIT O Rs. [2014] 107 DTR (Guj) 209, holding as under: Common thread which runs through all these three provisions is that the assessee has made certain investments or expenditure or is found to be the owner of any billion, jewellery etc. and the same are not recorded in the books of account. The Valuer s report under section 142A of the Act is for the purpose of estimating value of such investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B of the Act. Unless, therefore, there is prima facie application of sections 69, 69A and 69B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at time of reference Reference to Valuation Officer to estimate value of property prior to assessment proceedings Invalid Income tax Act, 1961, ss. 131, 143. 29. Apropos Ground of Appeal Nos. 05 to 5.3 For A.Y. 2007-08 to 2009-10 in respect of merits of valuation, the assessee s business comprises of the sale of constructed flats over land owned by it, the land and construction projects are held as goods in trade which cannot be referred for valuation u/s 142A. In any case if there is any increase in valuation of stock the same becomes opening stock of the next assessment yea Rs. Further the ld. DVO erroneously adopted CPWD Rates against the prescribed State PWD which are reliable for valuation as held by the ITAT, Jaipur and also by the Jurisdictional High Court. This correction of 5.5% would bring the difference to NIL calling for no addition at all. The valuation as done by DVO in original report and in modified report and cost of construction disclosed by the assessee is tabulated as under:- (Amount in Rs. ) A.Y. Cost declared by assessee Valuation as per original report Valuation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained investment in the hotel on the basis of the valuation made by the District Valuation Officer. On appeal the Tribunal held that if the books of account kept by the assessee did not show any infirmity they had to be accepted. However, in the instant case, since the assessee had procured the report of the registered valuer, the Tribunal directed that the same may be adopted. The Tribunal also observed that the registered valuer had rightly adopted the rates of the Rajasthan PWD. Ravi Mathur Others Vs. ACIT 22 Tax World 245 (ITAT, Jaipur Bench) - Whether cost of construction should be determined on local PWD rates ? Held yes. Further held that CPWD valuation should be scaled down by 20%. Also held that in facts of the case, 12% self supervision allowance would be justifiable. Sandeep Loomba Vs. ACIT 26 Tax World 288 (ITAT, Jaipur Bench) 196 Taxman 415 CIT Vs. Mahesh Kumar (Delhi) - Assessment year 2004-05 Assessee had purchased two plots for Rs. 2 lacs and Rs. 3 lacs, respectively A search operation was conducted on assessee s premises No incriminating document or material was found or seized during search operation in respect of aforesaid two plots purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld, yes. 30. Ld. CIT(DR) in reply relied on the orders of AO and contends that: a. Incriminating documents indicating suppression and postponement of income were seized during the search proceedings. AO in order to make proper assessment in these circumstances rejected the method of accounting followed by the assessee and adopted Project Completion Method which is also a recognized method and works out taxable income of every year instead of waiting for the project to be substantially complete which is contingent on many eventualities. Ld. CIT(A) though upheld the same but for AY 2006-07 and 07-08 held that there is no accrual of income as the projects were not even developed to the stage of 25%. b. Ld. AO and CIT(A) rightly held that as per the Guidance note the risks and rewards of ownership are transferred at the time of advance booking agreement of sale is executed. It is pleaded that on execution of agreement to sale, handing over of allotment letter and payment of booking amount and/or installments the constructive ownership in the property in flat stands transferred to buyer. It is contended that constructive transfer of ownership has been held to be liable for capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pointed to any such documents. The print out of excel sheet recovered from Mr. Navin Bhutani has been held by ITAT in detailed manner to be related to a third party document. Besides even if these projection figures are considered to be relevant then also the information applies to Unique Dream Builders and not the assessee s in question. The presumption cannot be extrapolated in a wild manner to involve assessee s when nothing is referable to them. Mr. Bhutani never ever stated that these projections or estimates apply to any other group entities. ITAT in its order at page 54 has made clear observations that AO in his order also has referred to alleged annexure A-2/51 as projecting only estimates and not the actual state of affairs of the Unique group. With these observations and findings it is futile on the part of revenue to make out an unfounded case of recovery of any incriminating information qua the assesses. Thus the department relying on a third party statement, without affording cross examination has resorted to an estimate which is fantastic and bereft of any support. The arbitrariness and capriciousness of the estimate is writ large on the observations of authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for availing the deduction. Revenue is in appeal under mistaken interpretation of Goetze judgment, it rather elaborates that the appellate authorities which includes the CIT (Appeal) can entertain and adjudicate upon any new or consequential claim. Reliance is further placed on the following judicial pronouncements: 1. In Chicago Pheumtic India Ltd. v. DCIT (2007) 15 SOT 252) (Mum), it has been observed and held by the Tribunal (Page 274): ......As far as the decision of the Hon ble Apex Court in the case of Goetze (India) Ltd. (supra) is concerned, there is no dispute that the same is binding on everybody concerned. In the said decision, the Hon ble Apex Court has also ruled that Appellate Tribunal may adjudicate the issue if a claim is made by any party subject to satisfaction of prescribed rules, hence, even the Hon ble Apex Court has not barred the assessee raise it s legal claim before Appellate authorities.... 2. In the case of CIT v. Jai Parabolic Springs Ltd. (2008) 306 ITR 42 (Delhi) the AO disallowed the claim of the assessee on the ground that since the claim for the deferred revenue expenditure of ₹ 15,58,500/- was not claimed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim under section 80-IB, there was no requirement of filing any revised return . 6. The CBDT as back as in 1955 issued a circular No. 14(XL35),dated 11th April, 1955 wherein the Board has recognized the fact that responsibility for claiming refunds and relief rests with the assessee as imposed by law, even then the Board has directed the officers to draw the attention of the assessees in respect of any refunds or reliefs to which they are eligible, which they have not claimed for some reason or other. 7. The Board issued Circular F.No.81/27/65-IT(B) dated 18thMay,1965, defining the duties of PROs in providing assistance to the public in filing correct return and making eligible claims. 8. In the case of Essar Oil Ltd. (ITA No. 3661 2827/M/2000) the Tribunal after considering various CBDT Circulars and the decision of the Hon ble Apex Court in the case of NTPC Ltd. (229 ITR 303); UCO Bank (237 ITR 889) and in the case of Shelly Products and Anr. (261 ITR 367) and various decisions and Circulars have held as under: - Having regard to these decisions, in our view the order of the CIT(A) cannot be found fault with. The learned Departmental Representative to the query ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suo-motu allow the lawful claims eligible to assessee.. In this regard reliance is also placed on following judicial pronouncements: - 105 ITR 212 CIT Vs. Simon Carves Ltd. (SC) -The taxing authorities exercise quasi judicial powers and in doing so they must act in a fair and proper manner. It is impossible to subscribe the view that unless these authorities exercise the powers in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in proper and judicious manner. 252 ITR 653 (Mad.) CIT Vs. Ramnath Goenka (Decd.) and Others - Appeal to Appellate Tribunal Duty of Tribunal - To prevent miscarriage of justice and correct grave and palpable errors- Duty to grant relief even when there is no plea in that regard 142 ITR 13 (MP) CIT Vs. K.N. Oil Industries - Held, on the facts of the case, that if it apparent from record that the assessee was entitled to relief admissible under sec. 35B, that relief can be granted to him by an order under s. 154 by rectifying the assessment even though relief under that section had not been claimed by the assessee in the original assessment proceedings. 301 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligibility: 1. 113 TTJ 300 Radhe Developers O Rs. Vs. ITO O Rs. (Ahd A ) Deduction u/s 80IB Income from developing and building housing project Land not registered in assessee s name Contention of the Revenue that in order to claim deduction u/s 80IB(10) the assessee must be the owner of the land on which the housing project is constructed is not sustainable There is no such condition in the provisions of s. 80IB(10) Development and building work carried out by the assessee in pursuance of a tripartite agreement with the landowners Mere fact that the landowners and the assessee undertaking are two different entities does not make any difference Though the assesee was obviously a contractor, it does not derogate it from being a developer as well Term contractor is not contradictory to the term developer Assessee is not working on remuneration for the landowners but is working for itself in order to exploit the potential of its business in its own interest Deduction u/s 80IB is allowable to an undertaking developing and building housing project, whether it is developed by it as a contractor or as an owner Thus is evident from sub-ss. (1) and (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Whether authorities below are justified in using the laptop contents of third party Mr. Navin Bhutani and extrapolation thereof to justify their estimates. b. Holding that property in flats stood transferred at the booking level and thus revenue was generated at the flat booking level itself. c. In case of AJIT whether the reference by ADIT to DVO is correct in terms of sec. 142A inasmuch as ld. ADIT is neither a prescribed authority nor proceedings of assessment or reassessment were pending before him reference for valuation of stock in trade of assessee s business cannot be made u/s 142A. d. Whether on merits DVO s valuation report cannot be relied on as it suffers from various inconsistencies like - arbitrary adoption of CPWD rates instead of PWD rates, low rebate for self-supervision and self and bulk material procurement. Besides there is marginal 5.5% variation in the estimated valuation and cost of construction recorded in the books of accounts. 37. Revenues grounds pose consequential issues i.e. whether: (a) Ld. CIT(A) was right in holding that in initial years when less than 25% construction is done no revenue is generated at early construction stage an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. Project Completion Method. The books of account were seized and the same were available with the Assessing Officer. The assesses claim to have also produced requisite vouchers and record as required by the Assessing Officer from time to time. The Assessing Officer also appears to have casually stated that as per AS-2 it is essential that the details of both quality as well as quantity of different items of stocks including details of direct expenses and costs are required to be maintained meticulously. In fact, the AS-2 notified by the CBDT relates to disclosure of prior period and extra ordinary items and change of accounting policies. The accounts maintained by the assesses conform to the commercially accepted accounting standards which enable determination of correct profits of assessee s business as done in past yea Rs. The findings reached by the lower authorities with respect to the deficiencies as pointed out for rejection of books as well, valuation of inventory, change of method of accounting to % Completion Method are neither factually correct nor grave enough to sustain them. Reliance placed on Pandit Brothers vs. CIT (supra) supports assessee s proposition that mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations, therefore, cannot be valid reasons for rejecting the audited books of account maintained by the assessee in regular course of its business as per past practices and accounting policies. 39. Apropos substituting the method of accounting from Project Completion to % Completion by the authorizes below is by observations that assessee s have not followed Accounting Standards 9 7 which tantamount to not following Accounting Standard-1 as prescribed under section 145(2) of the Act. It is admitted position that the appellant were regularly following project completion method from year to year and the assessments prior to the date of search were also framed by accepting project completion method. As per ICAI guide lines real estate developer has an option to choose from Project Completion method or the Percentage Completion method as both are recognized methods for revenue recognition in such cases. Once the option is exercised by asssessee, it is not open to the Assessing Officer to substitute his own opinion to change the method of accounting because mid way it is found that other method of accounting better suits the revenue. It is the accounting principle, consistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with by the revenue. The assumptions made by the authorities below that by not following AS-9 7 the same tantamount to not following prescribed AS-1 under section 145(2) of the Act is profoundly misplaced, unnecessary and uncalled for besides being contrary to principles of accountancy and interpretation of the statutory provisions. The same, therefore, could not be taken a valid basis for change of method regularly employed by the appellant. Thus we uphold the method of revenue recognition adopted by the assessee s as Project Completion Method. The other judicial precedents cited by the assessee mentioned in ITAT orders as well as written submissions support our view. 41. Apropos Annexure A-2/51 as well as the statement of Shri Naveen Bhutani recorded on 28.01.2009 under section 132(4) of the Act regarding a print out taken from his laptop; he stated that it was in relation to Unique Dream Builders only and not the assessee entities. This person was not produced for cross examination by the appellants and AO himself admits that the print out inventorized as seized Annexure A-2/51 revealing net realization of Rs. 17.91 crores and a profit of Rs. 5.17 crores reflects only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Further it has not been disputed that what has been referred to for valuation of stock in trade of the assessee and not any investment referred u/s 69A or 69B; buillion, jewellery or any other valuable article referred to in Section 69A or 69B; is not a property referred u/s 56(2) of the Act. In these eventualities, the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Umiya Co-op Housing Society Ltd. , 314 ITR 272 (Guj) and ME Mummy Hospital vs. ACIT 107 DTR 209 (Guj) and various other judgements cited before us support the contentions of the assessee. Thus DVO reference is held to be invalid. We also find merit in the contention of the assessee that DVO ought to have applied the PWD rates in place of CPWD rates. Besides 2.5% rebate on account of self supervision and self bulk procurement of material is too meager. In our view this rebate ought to have been to at least to the scale of 5% as the assessees are the professional builders having their own engineering staff. Going by DVO valuation, the difference of valuation comes to 5.5% which amounts to nominal difference when viewed from the angle that its comparisons of two estimates which basically are two opi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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