2019 (6) TMI 463 - AT - Income Tax

Tribunal upholds CIT(A)'s order in favor of assessee, rejects revenue's appeal

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order in favor of the assessee. The rejection of books of account under Section 145(3) ... Rejection of books u/s 145(3) - applicability of method of accounting - project completion method OR percentage completion method - HELD THAT:- Where the AO himself has confirmed production of books of account and other details before him, there seems no reason for the AO to hold that no books of account or bills/vouchers or evidences for the impugned year were produced before him. Moreover, when the revenue could not bring before us any contrary material against the view held by the Ld. CIT(A) in the impugned order, the rejection of books of account of the assessee is uncalled for and this question is answered against the revenue. Adoption of project completion method of accounting by the assessee - Assessee’s business came into existence from 11.03.2003 and since then it has been consistently following project completion method of accounting - assessee has never deviated from such method of accounting since the inception of the business and that the revenue had also accepted project completion method and profit shown by the assessee during the assessment proceedings for AY 2014-15 in assessee’s own case It is well settled that the project completion method is one of the recognized method of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can’t be held that the decision of the CIT(A) was erroneous or illegal in any manner. The judgement in the case of “CIT vs. Realest Builders & Services Ltd.” [2008 (5) TMI 6 - SUPREME COURT] relied by the ld. DR on method of accounting is rather in favor of the assessee and against the revenue in the peculiar facts of the present case. From computation of income and factual matrix of the case, it is evident that the AO has committed error in estimation of profit from sale of shops by wrongly adopting area sold to be 4,500 sq. yards as against 92.90 sq. mts. of actual sales which has been demonstrated by the Ld. AR before us (APB, Pgs. 1 to 4). We also find merit in the argument of the Ld. AR that during the impugned year under consideration only one shop measuring 92.90 sq. mts. was sold for ₹ 7,50,000 as against sale of ₹ 6,77,26,260 wrongly worked out by the AO in his order. No merit and substance in the submissions of the revenue. Addition u/s 68 - assessee could not establish the genuineness of advances from customers as the letters issued for verification were received back unserved - HELD THAT:- The assessee in fact has not taken any advances from customers during the impugned assessment year but these were old balances brought forward from previous assessment years which is supported by the copies of ledger accounts of the advances received from customers. Considering all it is a trite principle of law that addition of ₹ 50,10,000 regarding credit balances brought forward from earlier assessment years cannot be made. No merit in the ground raised by the revenue in respect old credit balances and therefore we upheld the order of the CIT(A) in deleting the addition. - Decided in favour of assessee. Issues Involved:1. Rejection of books of account under Section 145(3) of the Income Tax Act, 1961.2. Deletion of additions amounting to Rs. 3,24,93,594 and Rs. 15,56,866.3. Deletion of addition of Rs. 50,10,000 for alleged bogus advances from customers.Issue-wise Detailed Analysis:1. Rejection of Books of Account under Section 145(3) of the Income Tax Act, 1961:The Assessing Officer (AO) rejected the books of account maintained by the assessee, a partnership firm engaged in real estate and construction, on the grounds that the assessee did not produce bills/vouchers, evidence regarding closing stock, and satisfactory confirmations from customers. The AO also observed that the assessee followed the project completion method rather than the percentage completion method, which the AO claimed had no existence since 01.04.2003 due to the revised AS-7 introduced by the ICAI in 2002.However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the AO’s reasons for rejecting the books of account were not supported by facts. The CIT(A) noted that the assessee had been consistently following the project completion method since its inception in 2003, which was accepted by the revenue in the past and in the assessment proceedings for AY 2014-15. The CIT(A) also noted that the assessee had regularly attended the assessment proceedings and produced books of account and other details before the AO.The Tribunal upheld the CIT(A)’s decision, stating that the rejection of books of account was uncalled for, as the AO himself confirmed the production of books of account and other details. The Tribunal emphasized that the project completion method is a recognized method of accounting, and the AO’s assertion that it was not a legal method for AY 2012-13 was incorrect.2. Deletion of Additions Amounting to Rs. 3,24,93,594 and Rs. 15,56,866:The AO made additions of Rs. 3,24,93,594 by estimating the business profit based on the assumed sale of 4,500 sq. yards of constructed area and Rs. 15,56,866 by estimating the closing work in progress at 15%. The AO’s estimation was based on the adoption of the percentage completion method, which the AO claimed was the only acceptable method post-01.04.2003.The CIT(A) deleted these additions, noting that the AO’s estimation was based on incorrect figures and assumptions. The CIT(A) observed that the assessee had sold only one shop measuring 92.90 sq. mts. for Rs. 7,50,000 during the impugned year, contrary to the AO’s assumption of 4,500 sq. yards. The CIT(A) also highlighted that the AO had accepted the project completion method and the profit shown by the assessee in the assessment proceedings for AY 2014-15.The Tribunal agreed with the CIT(A), stating that the AO’s estimation of profit was erroneous and based on incorrect assumptions. The Tribunal emphasized that the project completion method is a recognized method of accounting, and the AO’s assertion that it was not a legal method for AY 2012-13 was incorrect. The Tribunal upheld the deletion of the additions of Rs. 3,24,93,594 and Rs. 15,56,866.3. Deletion of Addition of Rs. 50,10,000 for Alleged Bogus Advances from Customers:The AO made an addition of Rs. 50,10,000, claiming that the assessee could not establish the genuineness of advances from customers, as the letters issued for verification were received back unserved.The CIT(A) deleted this addition, noting that the advances from customers were old balances brought forward from earlier years and no part of it was received during the impugned year. The CIT(A) held that there was no reason to support the AO’s action to add this amount to the assessee’s income.The Tribunal upheld the CIT(A)’s decision, stating that the addition of Rs. 50,10,000 regarding credit balances brought forward from earlier assessment years cannot be made. The Tribunal emphasized that the assessee had furnished complete details and documents to substantiate the genuineness of the advances from customers, which were old balances and not fresh credits.Conclusion:The Tribunal dismissed the revenue’s appeal, upholding the CIT(A)’s order in favor of the assessee on all grounds. The Tribunal confirmed that the rejection of books of account under Section 145(3) was unwarranted, the additions of Rs. 3,24,93,594 and Rs. 15,56,866 were rightly deleted, and the addition of Rs. 50,10,000 for alleged bogus advances was also correctly deleted.