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TMI Blog2024 (9) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (Appeals) deleting the addition of Rs. 2,12,95,900/- is perverse on facts in as much as the same has been reached on an incorrect conclusion that the assessment had to be completed based on documentary evidences on record ignoring the clear statements given by the contractees during assessment proceedings before the assessing officer. 4. The decision of the Ld. CIT (Appeals) deleting the addition of Rs. 2,12,95,900, is bad in law in as much as it is evident from various sub-paras of para 6.6 of the appellate order that the learnt CIT (Appeals) chose to delete the addition, despite being not satisfied with the enquiries conducted by the Assessing Officer during remand proceedings, ignoring the trite law that being a fact finding authority the Ld. CIT (Appeals) ought to have got the required enquiries made to her full satisfaction. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in deleting the addition of Rs. 2,12,95,900 for the reason that the Assessing Officer did not reject the books of accounts under s. 145(3) of the I.T. Act, 1961. 6. The Ld. CIT(Appeals) has grossly erred in holding that the postponement of accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miti Waghora Rs. 28,58,000/-, Samiti Mohadi Rs. 80,53,000/-, Samiti Tadegaon Rs. 22,20,000/- and Samiti Wizora Rs. 81,64,900/-)were shown as creditors as the work is not yet complete. In this regard statements of the Secretaries/President of these Samiti were recorded u/s 131 of the Income Tax Act, 1961. The assessee himself and his counsel were present during the recording of these statements. All the Secretaries/President, without any exception, said that the money was released only after completion of the work and payments for the works which were not yet completed have been withheld. They stated categorically that the assessee was NOT given any advance against the work orders issued to him. The assessee or his counsel who were present has not raised any objection to these contentions recorded in the statement. The assessee was asked, vide order sheet entry dated 14-11-2017, as to why the contract amount received from these Samiti and shown as advances or Sundry Creditors should not be added to your total income. The case was fixed for hearing on 21-11-2017. On 21-11-2017 neither anybody attended nor filed any written reply. The assessee was again requested vide show cause notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,12,95,900. The observations made by the learned CIT(A), vide Para-6.6 to 6.8 of its order, which are relevant to note, are quoted herein below:- "6.6 I have carefully considered the facts of the case and submissions made by the appellant. I find considerable force in submissions of the appellant. The AO has made the addition merely on the basis of the statement recorded of Secretaries/President of the Samiti. The AO did not corroborate the statement with the facts emanating from documentary evidences placed on record by the appellant. The AO has believed the statement of Samiti members as gospel of truth and rejected all the documentary evidences including the audited financial statements without giving any cogent reasoning. The appellant has submitted that, the statements of samiti members were self-contradictory & also contrary to the evidences on record and hence were not reliable. The appellant has provided a tabular chart highlighting the various contradictions in the statement's vis-s-vis undisputed facts & documentary evidences available on record. The chart is enclosed as Annexure-A to this order. For the sake of brevity, the key assertions of appellant are rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.6.8 The Inspector did not take any acknowledgement of refusal of the parties over the alleged documents shown to them. Further, the party Shri. Baliram Sampatrac Darade and Shri. Karbhari Zagre did not refuse or deny the contents of alleged additional evidence which is evident from the report. The said parties have informat the AO that, they will furnish the details in due course. 6.6.9 The Inspector has not recorded statement of the parties and has merely mentioned that they refused to certify the correctness of the unspecified letter. Further the entire exercise was carried out at the back of the assessee and without providing the assessee an opportunity of cross examination of the aforesaid parties in response to summons issued during remand proceedings. 6.7 I find merit in appellant's submission that, he was following mercantile system of accounting, revenue was recognized only when particular stage of contract work was completed and the corresponding contract receipt has been received by the appellant. That this was a consistent accounting practice regularly followed by the appellant disclosed in the financials. The appellant had been following similar accounting p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sofar as the question is whether a particular income is to be taxed in either of the two years. In fact, the AO has acknowledged this principle in the remand report in respect of Ground of Appeal No. 3 having similar facts. Reliance placed by appellant on following judicial precedent support his contention * CIT v. Excel Industries Ltd (358 ITR 295) (SC) wherein the Hon'ble Court has observed as under: "32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax, There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax, We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Appeal No.2 is allowed." The Revenue being aggrieved by the order so passed by the learned CIT(A), filed appeal before the Tribunal. 5. Before us, the learned Departmental Representative vehemently argued that the order passed by the learned CIT(A) be and the addition be confirmed. 6. The learned Counsel for the assessee furnished a detailed Paper Book containing the documents, which formed part of the record before the learned CIT(A) and the Assessing Officer as well and the same are listed below:- "i) Summary chart showing Samiti wise (i.e project wise) details of tender issued, advances received in current & subsequent years, work done stagewise shown in P&L account in current & subsequent years as per work done statement, date of completion of project as per completion certificate along with documentary evidences: (a) Waghora (b) Tadegaon (c) Vizora (d) Mohadi ii) Copy of bank statements of the Samitis (sample basis); iii) Copy of clarifications received from Secretaries / President of the Samitis; iv) Copy of Audited Financials for F.Y. 2014-15, F.Y. 2015-16, F.Y. 2016-17; v) Chart showing the GP/NP rate for the various years; vi) Copy of Form 26AS ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department and released the same to the Assessee on the same day or as soon as possible. The copy of bank statements of the Samiti is enclosed at Pages 33 to 36 of Factual Paper Book. Thus, the role of Samiti was limited to release of the funds to the Assessee as and when the same were received by the Samiti from the Government Department. After receiving the advances from the Samiti, it took considerable time to start the work of laying pipelines from water tank to the households due to various reasons such as (i) objections from the farmers over whose land the pipelines have to be laid (ii) sometimes crops are standing on the land and hence pipelines could not be laid until the crops have been harvested (iii) various permissions to be taken from the concerned local authorities, etc. Therefore, though the advance had been received the work could not be started immediately and it extended over to the subsequent financial year when the work was completed. 1.4 The Assessee undertakes stage wise completion of project and recognizes the revenue only after completion of particular stage of the project. The advances shown in the Balance Sheet as on 31/03/2015 have been utilized for sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement recorded before the learned AO. Therefore, the Assessee submits that, the statements recorded by the learned AO is unreliable in light of aforesaid circumstances and being contrary to the facts and documents such as work order, bank statement, work completion certificate etc. Thus, the Assessee submits before your Honour that, statements are not credible and should not be relied upon while deciding the present issue. 3. Documentary evidences filed by the assessee in support of his contentions 3.1 The Assessee has filed a summary chart showing the Samiti wise (i.e project wise) details of tender issued, advances received in current & subsequent years, work done stagewise shown in P&L account in current & subsequent years as per work done statement, date of completion of project as per completion certificate alongwith documentary evidences as under: Copies of: a) Initial work order b) Ledger accounts for FY 2014-15, FY 2015-16, FY 2016-17 (as applicable) c) Financials for FY 2014-15, FY 2015-16, FY 2016-17 (Schedule A - Work Done) (as applicable) d) Work done statement for FY 2014-15 FY 2015-16, FY 2016-17 (as applicable) e) Work completion certificate (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is abnormal and unrealistic to earn in the line of construction business. 6. Books of accounts not rejected by learned AO 6.1 The Assessee submits that only real income can be subjected to tax and not any hypothetical income. The Assessee maintains regular books of account. The books of account are duly audited by a chartered accountant. The learned AO has not found any defect in the books of account. The learned AO has not doubted the correctness of books of accounts. Therefore, the profits as per profit and loss account cannot be simply brushed aside without rejecting the books of the Assessee. 6.2 Without prejudice to the above, according to section 145, in case the learned AO was not satisfied about the accounting policy followed by the Assessee or about the correctness or completeness of the accounts, then the learned AO should have first rejected the books of account and proceeded to make a best judgement assessment as per section 144 of the Act. However, the learned AO has not rejected books of account but has erred in treating the advances received as unaccounted receipts which is unjustified and bad in law. There is no provision under the Act or authority under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. In fact the impugned order of the Tribunal has relied upon the decision of this Court in CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 and in that context reproduced the decision of Delhi High Court in CIT v. Vishnu Industrial Gases (P.) Ltd. [IT Reference No. 229 (Delhi) of 1988, dated 6-5-2008] as under:-'' (Emphasis Supplied) 7.2 The Assessee places reliance on the decision of Hon'ble Gujarat HC wherein, the Hon'ble Court had deleted the similar addition made in respect of ''mobilization advance'' treated as revenue receipt by the Income-tax Officer: * Copy of CIT v. Narayansingh Gulabsinghji (63 taxmann.com 335) (Gujarat HC) wherein it has been held as under (Refer Pages 160 to 165 of Legal Paper Book): ''8. At the outset, it is required to be noted and it has come on record that the assessee was following the system regularly showing the mobilization account and the amount of advance were always stated in the subsequent AY against bills in that year and the revenue had not raised any objection for that treatment. Considering the aforesaid facts and circumstances, when the learned CIT (Appeals) as well as the learned Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Water Supply, was looking after the matter. Various work completion certificates clearly denotes that the work was completed subsequently and the income was also offered for taxation in subsequent years. We find force in arguments of the learned Counsel for the assessee that; (a) Books of Account were not rejected by the Assessing Officer; (b) Reasonable Gross Profit / Net Profit ratio have not been offered to tax for part and subsequent years; and (c) Accounting Policy has been consistently followed by the assessee over a number of years and the same has not been objected by the Revenue. 10. The learned Counsel for the assessee placed reliance on the following judicial precedents in support of his arguments:- i) CIT v/s Excel Industries, 358 ITR 295 (SC); and ii) CIT v/s Millenium Estates Pvt. Ltd., 93 Taxmann.com 41 (Bom.). 11. We further find that it is beyond comprehension as to how the non-commensurate amount of work-in-progress amounting to Rs. 69,31,666, convert the advances as an income. The Assessing Officer has ultimately added Rs. 2,00,95,900, as an unaccounted receipts from Samiti. The Assessing Officer has failed to note that the same has already been show ..... 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