2004 (8) TMI 618 - AT - Income Tax

Tribunal Upholds 'Completed Project' Method; Supports Deletion of Unproved Loans, Restores Addition for Inflated Purchases.

Assistant Commissioner of Income-tax Versus Rajesh Builders

Assistant Commissioner of Income-tax Versus Rajesh Builders - [2004] 3 SOT 917 (MUM.) Issues Involved:1. Acceptance of 'Project Completion' method of accounting.2. Deletion of unproved loans and interest.3. Deletion of addition on account of inflated purchases.Summary:1. Acceptance of 'Project Completion' Method of Accounting:The primary issue was whether the assessee's 'Completed Project/Contract' method of accounting should be accepted over the Assessing Officer's (AO) method of estimating profits annually. The Tribunal noted that the assessee consistently followed the 'Completed Project' method, a recognized accounting method. The AO did not find any defects in the assessee's accounts. Citing various precedents, the Tribunal upheld the assessee's method, stating that profits from a building construction project can be recognized either annually or upon project completion. The Tribunal found no fault with the CIT(A)'s decision to delete the addition made by the AO, emphasizing the consistency and acceptance of the 'Completed Project' method in similar cases.2. Deletion of Unproved Loans and Interest:The second issue was the deletion of an addition of Rs. 8,90,000 and Rs. 1,07,706 made by the AO on account of unproved loans and interest. The AO argued that the creditors were untraceable due to incomplete addresses. However, the Tribunal noted that the assessee provided confirmation letters, addresses, G.I.R. numbers, and evidence of transactions through cheques. The Tribunal agreed with the CIT(A) that the assessee had discharged its initial burden of proof and found no justification for the AO's addition, thus upholding the deletion.3. Deletion of Addition on Account of Inflated Purchases:The third issue was the deletion of an addition of Rs. 77,500 made by the AO for inflated purchases. The AO discovered a discrepancy in the purchase account, which the assessee attributed to misappropriation by an ex-accountant. The Tribunal found the assessee's explanation insufficient, noting that merely filing a complaint was not enough to substantiate the claim. The Tribunal reversed the CIT(A)'s decision, restoring the AO's addition, as the entry was deemed incorrect and unsubstantiated.Conclusion:- The Tribunal upheld the 'Completed Project' method of accounting followed by the assessee.- The deletion of the addition for unproved loans and interest was upheld.- The deletion of the addition for inflated purchases was reversed, restoring the AO's addition.