TaxTMI 
TaxTMI 
2007 (1) TMI 243
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....ion made by the appellant at the time of sur vey action carried on March 18, 1998, when the alleged declaration was retracted by the appellant for valid, cogent and legal reasons by filing a revised return of income. 4. The learned Commissioner of Income-tax (Appeals) has failed to appreciate the fact that neither the survey party nor the learned Assessing Officer has brought on record an iota of evidence to show that the appellant had made any undisclosed investment in the work in-progress. Even there is no admission on the part of the appellant that he had made any such unrecorded investment. In the circumstances, the impugned addition made solely on the basis of the declaration of the appellant is devoid of any merit and hence deserves to be deleted." 2. Briefly stated, facts of the case were that the assessee is an " individual" and engaged in the business of construction and sale of flats. A survey was conducted under section 133A on March 18, 1998. In the impugned order passed under section 143(3) dated November 3, 2000, it was noted by the Assessing Officer that a statement of the assessee was recorded and vide an answer to question No. 23, the assessee has declared Rs. 1....
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....fter a said long period, hence, the said retraction was an afterthought to evade the tax liability. The learned Commissioner of Income-tax (Appeals) has thus concluded that the disclosure in the statement during the course of survey was made voluntarily by the assessee which was later confirmed on a stamp paper and further a final seal of acceptance was given by the assessee by filing a return wherein included the said offer and an additional income was declared. After the lapse of two years, a revised return was filed and in the opinion of the learned Commissioner of Income-tax (Appeals), it was an afterthought. In his words, the assessee was the best judge to know about his affairs, therefore, admitted the additional income, hence, the Assessing Officer was justified to assess the said income in the hands of the assessee. Being aggrieved, now the assessee is further in appeal. 4. From the side of the assessee, the learned authorised representative, Mr. Sunil Ganoo appeared and opened his argument that in the absence of any incriminating material found even when the survey was conducted, the addition was unjustifiable merely on the basis of a statement made by the assessee when t....
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....scheme. He has made a remark that it was not the case of the Revenue that the value of the work-in-progress was alleged to be inflated by the assessee. On completion of a scheme, the profit or loss for such scheme is used to be arrived at by deducting the work-in-progress from the sale price on completion of the project. The learned authorised representative has tried to establish from the accounts of the assessee of the past years that it was always the cost price which was made basis for the valuation of the work-in-progress and not the market price. On page 40 of the compilation, there is an year-wise bifurcation of work-in-progress, according to which, as on March 31, 1995, it was reflected in the books of account at Rs. 29.50 lakhs, as on March 31, 1996, at Rs. 35.40 lakhs, as on March 31, 1997, at Rs. 44.90 lakhs and as on March 31, 1998, at Rs. 70.68 lakhs (the year under consideration). The authorised representative has explained that year-wise, the proportionate expenditure was capitalized and added to the opening balance of the work-in-progress. For the year under consideration, the work-in- progress was Rs. 70.68 lakhs and the same was enhanced by Rs. 18 lakhs, and accor....
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....th and carefully perused the orders of the authorities below in the light of the compilation filed and case law cited. As per the observation made hereinabove, we have noted that admittedly no incriminating material was found during the course of survey operation. In the impugned assessment order, there is no observation that defects were noted in the books of account either at the time of survey or during the course of assessment proceedings. Once the survey party has visited the site, then, in our opinion, it was proper and justifiable to ascertain the correct value of the cost of construction which was held as work-in-progress. The survey action was devoid of this exercise. A question was asked and the same was answered, reproduced verbatim as follows : "Question 23 : Do you have anything else to say before we conclude the survey : Answer : The Ajit Apartment-II Project is nearing completion and as pointed out by you during inspection/visit to site the building is almost completed and the sale price will be different than the work in-progress. Keeping this in view I will declare an additional net profit of Rs. 18 lakhs over and above the net profit of Rs. 343 as shown in ten....
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.... basis the Revenue Department has arrived at a conclusion that there was a difference in the value of work-in- progress on account of sale price. This is also not the case of the Revenue that comparable sale instances were examined and on that basis it was suggested to the assessee to make a declaration on account of the value difference in work-in-progress. Merely on the basis of the possibility, as mentioned by the Assessing Officer, in our opinion, an addition is not warranted. 8. The settled law is that an assessee appreciates in its books of account the value of his stock-in-trade artificially, it is held as a unilateral transaction and since there could not be any sale of the stock at that point of time, hence, the said artificial appreciation does not result into a profit. Further, the one thing that is essential is that there should be a definite method of valuation adopted which could be carried through from year to year. In case of any deviation, i.e., switchover from cost price to market price, an explanation and reasoning is essential to be recorded. There should be a cogent basis and neither the assessee nor the Revenue be allowed to arbitrarily change the method of a....
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....ss in a particular accounting period. 10. The method of accounting cannot be substituted by the Assessing Officer merely because it is unsatisfactory. What is material for the purpose of section 145 is that the method should be such that the real income, profits and gains can be properly deduced therefrom. If the method adopted does not afford a true picture of the profits, it could be rejected, but such rejection should be based on cogent evidence and would be done with caution. The power can be exercised by the Assessing Officer to choose the basis and manner of computation of income but he must exercise his discretion and judgment judicially and reasonably. This is the view expressed by the hon'ble apex court in the case of Sanjeev Woollen Mills v. CIT [2005] 279 ITR 434. The learned authorised representative has also touched the issue of legality of the statement recorded during the survey operation and argued that such a statement had no evidentiary value and in support, referred the decision in Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker), but we are not on this issue because, in view of the above discussion, whatever was the statement but an income has to be as....