TaxTMI 
TaxTMI 
2012 (12) TMI 281
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....n the circumstances of the case and law, the Learned CIT(A) has erred in law in deleting the addition ofRs.41,35,900/- on the ground that assessee is following project-completion method, overlooking the facts that the assessee has been maintaining mercantile system of accounting and the assessee has shown substantial work-in-progress at Rs.8.58 crores and substantial advances received to the tune of Rs.4,13,59,000/- towards sale of project wherein income can not be awaited to accrue". 3. The solitary issue involved is against the deletion of Rs. 41,35,900/- by the CIT(A). 4. The facts are that during the year the assessee was involved in two projects and both of them were under construction. The assessee during the year had shown net closing balance in work-in-progress at Rs. 8,58,20,129/-. From the details submitted, the AO came to the conclusion that since the turnover/receipt has exceeded Rs. 40,00,000/-, the assessee was supposed to get its accounts audited which he had failed to do. The AO, on this pretext, rejected the claim of declaring the profit on project completion method and rejected the books of accounts under the provisions of section 145. The AO observed from t....
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....ce, requested that addition so made deserves to be deleted". 7. Considering the arguments of the assessee, the CIT(A) held as under (extracted portion) : "..........I find no genuine reason whatsoever with advances received by the appellant against the prospective housing project known as 'Evershine project' related to redevelopment of housing project which were in existence in dilapidated condition. It is very apparent that initially redevelopment agreement was executed with 16 members on 14.7.2006 and negotiation with other 5 members was not materialized on this date. Out of 5 remaining members, 4 have agreed for redevelopment in subsequent year relevant to A.Y. 2008-09. Further, it is a matter of record that redevelopment permission was not received by the appellant for start of any such project, therefore, advance so received from prospective buyers cannot be presumed to be sale for estimation of profit 10%. The finding of the Ld. AO regarding applicability of provisions of law us. 145 is also not on sound footing. Merely on the basis of non-audit of books of account, provisions of section 145 can not be invoked unless substantial defect was unearthed from the booked of a....
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....building been completed and 80 per cent of the area was sold and, therefore, it is possible to estimate the income of the assessee from the project." 6.4 In the case of D.K. Enterprises v. ITO 39 ITD 394 (Born), Hon'ble Tribunal has not regarded such advance from the prospective buyers as sales. Head notes of the reported decision is as under :- "In the instant case, for the assessment year 1985-86, the ITO had accepted the business income at nil almost on the same set of facts and although some income was brought to tax, it was income from other sources being unexplained loans etc. but no estimate of profit on the figure of work-in-progress was made. From the scrutiny of accounts for the assessment year in question, it was found that the balance brought forward from earlier year of the expenses incurred amounted to Rs. 2,59,32,292/-. Out of the expenses incurred for the calendar year, the major expenditure was Rs. 90 lakhs towards plot purchased and an amount of interest paid to the vendor of Rs.10 lakhs for late payments. There was no evidence of any construction activity having been started not of any amounts received from the prospective buyers. An amount of Rs. 2,90,15,8....
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....d the order of the CIT(A). 11. We have heard the arguments of either sides and have also gone into the orders passed by the two revenue authorities and the provisions of section 44AB. We do not find any equation between advances and turnover/receipts. The mischief of section 44AB shall only become operative if the "turnover or business receipts" exceed Rs. 40,00,000/-. The section does not mention anything with regard to advances received from its customers and that too conditional [as per clause 17 of the Agreement (extracted by the CIT(A) in his order)]. We, therefore, hold that the CIT(A) had correctly interpreted the provisions of section 44AB and also reversed the decision of the AO for rejecting the books of accounts of the assessee, solely on the ground that the books had not been audited by the C.A. 12. Coming to the deletion of adhoc addition, we find that the CIT(A) has not only accepted the system of accounting followed by the assessee, but has also relied upon decisions of the co-ordinate Benches at Mumbai, in the case of D. K. Enterprises v/s ITO, reported in 39 ITD 394, wherein the Bombay Tribunal had held as under: "In the instant case, for the assessment....