TaxTMI 
TaxTMI 
2013 (11) TMI 571
X X X X Extracts X X X X
X X X X Extracts X X X X
....n law. 2. Under the facts and circumstances of the case and in law, Ld. CIT(A) Central, Jaipur has erred in: I Upholding the rejection of books of account by the Assessing Officer u/s 145(3) of the Act. II Upholding the application of 'percentage completion method' of accounting for determining the business income of the appellant as against the completed project method regularly and consistently followed by the appellant. 3. Under the facts and circumstances of the case and in law, Ld. CIT(A), Central, Jaipur has erred in sustaining the addition to the extent of Rs. 25 lakhs in respect of alleged undisclosed payments made to the seller agriculturists for purchase of project land. 4. Under the facts and circumstances of the case and in law, Ld. CIT (A) has erred in:- I Confirming the addition to the extent of Rs. 29.95 crores by taking into account proportionate security deposit amounting to Rs. 41.94 crores in respect of first tranche land. II Upholding the observation of Ld. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; 3(i) Whether on the facts an circumstances of the case the CIT(A) (Central), Jaipur was justified in deleting the addition of Rs. 52.74 crores out of total addition of Rs. 82.69 crores on account of business income even after holding that the development agreement entered by the Assessee with M/s Uniqque Affordable Homes Pvt. Ltd. And M/s Rosewood Investment Limited was in fact an agreement to sale and ignoring the fact that the development agreement should be read as a whole for AY 2008-09. 3(ii) Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur has erred in law and on facts in dividing the DA in two parts ignoring the fact that once the DA was executed it was binding upon the parties concerned and revenue was to be recognized in full. 4(i) Whether on the facts and circumstances of the case the CIT(A) (Central), Jaipur was justified in deleting the addition of Rs. 19,28,401/- made by the AO on account of non-deduction of TDS as per the provisions of section 194J from the payments made to M/s Asipac Projects Pvt. Ltd. (Asipac) which were made in accordance with a service agreement liable for TDS. &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iced that the assessee made payments to M/s. Aspiac Project (P) Ltd., Bangalore ('Asipac'). The assessee was asked to furnish the details of in respect of payments so made to Asipac. On perusal of the detailed filed by the assessee, it was noticed that the assessee had made payment amongst others, for marketing and sales of the residential/ commercial units of the project being developed by one of the Unique Group Concern viz. M/s. Unique Affordable Homes (P) Ltd. (hereinafter to be refereed in short ''UAHPL') at village Ramchandrapura, Jaipur, a substantial amount of Rs. 75.00 lacs was paid to Asipac as a fee @ 3% of the amount of Foreign Direct Investment (FDI) received by the assessee from M/s. Rosewood Investment Ltd. , Mauritius. The assessee debited in the book on 31-03-2008. That an amount of Rs. 62.95 lacs was finally paid vide cheque no. 276473 dated 07-04-208 after deducting TDS of Rs. 8.61 lacs. The AO has stated that in respect of said payment to Asipac, assessee was issued a show cause vide letter dated 06-12-2010. requiring the assessee inter alia to establish reasonableness of the payment so made with documentary evidence. The assessee was also asked to furnish copy ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the income of the assessee firm. Being aggrieved, assessee filed appeal before the first appellate authority. 8.1 On behalf of the assessee, it was submitted that there was two independent professional fee/ expense payments by the assessee to Asipac for two independent services as per following details.(CITA's order page 9). A. Selling & marking services Amount Remarks AO (i) Professional fee 81,64,123/- Service agreement at page No. 397-409 of PB Vol. II Allowed (ii) Reimbursement of expenses 19,28,401/- All evidence on record Disallowed on account of non deduction of tax at source FDI facilitation services Professional fee 75,99,364/- Bill submitted as additional evidence, replies of WP Group Disallowed. 8.2 It was submitted that the AO issued show cause notices dated 16-02-2010, 21-09- 2010 and 6-12-2010 in which details of payments made to Asipac was asked alongwith justification for the same. The assessee submitted copies of service agreement and ledger account evidencing payment of professional fees for marketing and selling services supported by copies of bills issued by Asipac. Asipac was appointed as sole marketing and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee with them was well and truly for the promotion of business only. It was submitted that as far as the question that why such substantial sum of money was paid by the assessee firm when the FDI was received by Unique Affordable Homes (P) Ltd. (hereinafter to be referred as UAHPL) that the FDI was routed through UAHPL and the amount of FDI received was to be transferred to the assessee firm as security deposit for developing the land as agreed in the development agreemnt dated 25-03-2008. The said arrangement was intended to secure the interst of the assessee firm as land owner. The ultimate beneficiary was land owner i.e. the assessee firm itself. Moreover, UAHPL did not have any right to retain the amount of FDI as agreed to. Hence, the said payment of Rs. 75.99 lacs as fee for procuring FDI was made by assessee firm and not by UAHPL. It was contended that even otherwise the AO has no business to question the commercial wisdom of the assessee, the AO cannot sit into commercial wisdom of the assessee and advise as to how the business is to be carried out or a particular expense is to be incurred. 9.1 In view of the above submissions, the ld. CIT(A) sought remand rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly justified in view of the materials/ evidences on record. The payment of Rs. 75.99 lacs (being 3% of amount of FDI) was made to Asipac for arranging FDI into the project in addition to their professional fees for publicity of the project which was allowed as business expenses by the AO. It was stated that the AO made disallowance of Rs. 75.99 lacs merely on the ground that the said payment does not figure in the service agreement dated 24-08-2007. It was stated that Asipac took over the responsibility of arranging private equity through FDI. The proposal for FDI into the project materialized in a series of transaction documents from 08-02-2008 to 25-03-2008. M/s. Asipac liaisioned with the New York based Warburg Pincus Group and convinced them about the investment opportunity in 'My Haveli' project. Since a sum of Rs. 56,89,31,300/- was agreed to be invested by the investor as private equity in two instalments - at the time of first closing and at the time of second closing, and only a sum of Rs. 22,54,46,900/- was agreed to be invested at the time of first closing which was released by the investor at the time of first closing, a sum of Rs. 75,99,364/- (being 3% of FDI i.e. Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilitating the FDI transaction is concerned, the first and foremost issue to examine is whether at all any services were provided by M/s Asipac for facilitating the transaction with Warburg Pincus Group. In answer to Q No. 6 of submissions dated 07.01.2011 filed by Warburg Pincus Group, it was submitted that: " Q. No. 6. What was the basis- in terms of business prospects, returns on investment etc. on which the said fund/money was transferred by Warburg to RIL? Copies of documents etc. may be given. ASIPAC Projects Pvt. Ltd. ('Asipac'), having its address at 75, Residency Road, Bangalore had contacted WPIPL regarding a potential investment opportunity in Unique, Mr. Amit Bagaria of ASIPAC liaised with WPIPL on the above opportunity. WPIPL renders investment advisory services to WP LLC, which is the investment manager of WPRE. WPIPL had referred the aforesaid investment opportunity in Unique to WPLLC. WPPLLC, in turn, recommended this investment opportunity in Unique to WPRE and WPRE finance for their consideration. Thereafter, RIL, which is promoted, wholly owned and controlled by WPRE and WPRE finance decided to invest in Unique. Some....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... developers are heavily dependent on brokers for selling. 11) Hardly anyone has targeted or sold directly (first sale) to end users. 12) Pearl and Unique have built maximum apartments, but Pearl's are more mid upper and upper end products. 13) Amongst local developers, only Narayan, Managalam and Unique have the financial muscle to undertake large projects (1 million SFT). Narayan has not delivered a single project till date and Managalam is more into plotting, plus their quality is pretty ordinary. 14) The only 2 other developers (part from Unique) who have the vision to do large projects and build good quality products are Mahima and ARG, but Mahima is just NOT interested in mass (affordable) housing. ARG, in our mind, will become the closest competitor in 2-3 years. Asipac has done its homework before choosing to partner with Unique. Let me know what else you want to know." ''8.3 Even thereafter, M/s Asipac made a detailed presentation about the Jaipur residential project and about Unique Group to the Warburg Pincus Group which is available as document titled" Investment Memo-15th Nov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uestion the quantum of expenditure as held in various cases including by Honorable Delhi High Court in the case of Commissioner of Income Tax Vs Dalmia Cement (Bharat) Ltd. Reported at (2002) 174 CTR (Del) 188 and Commissioner of Income Tax Vs Padmini Packaging (P) Ltd. Reported at (2006) 155 Taxmann 268 (Del). In view of this, this ground of the appellant is allowed and disallowance of Rs. 75.00 Lakhs is hereby deleted.''' Hence, this appeal by the Department before the Tribunal. 10. The ld. DR submitted that the main issue involved is as to whether any service was rendered by Asipac to the assessee and if so whether the said payment is wholly and exclusively for the purpose of business of the assessee. The ld. DR submitted that Asipac was engaged in marketing and selling agency for the project 'My Haveli' vide service agreement dated 24th Aug. 2007 and in the said agreement there was no stipulation to pay any fee for arranging FDI by Asipac. He submitted that said FDI was received by UAHPL and not by the assessee and accordingly it could not be said that the said expenditure paid is incurred by the assessee wholly and exclusively for the purpose of its business. The ld. DR ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s instrumental in bringing FDI into project by introducing RIL, it came in the form of share capital and accordingly the said expenditure if at all was capital expenditure. He submitted that the order of the ld. CIT(A) be reversed by confirming the disallowance made by the AO. 11. On the other hand, the ld. AR supported the order of the ld. CIT(A) and submitted that assessee appointed Asipac an India's leading living spaces consultant as sole marketing and selling agent for the project 'My Haveli' vide service agreement dated 24-08-2007. In terms of the said agreement, Asipac was required to render marketing and selling services. While rendering such services, Asipac approached Warburg Pincus Group, a leading global real estate fund for investment in the project 'My Haveli'. The ld. AR submitted that it was decided to form the special purpose vehicle (SPV) to facilitate equity investment by Warburg Pincus Group through its investment arm vis. RIL, Mauritius Therefore, UAHPL was incorporated and RIL ,Mauritius made investment of Rs. 22,54,46,900/- as FDI for acquiring 75% of the equity of special purpose vehicle i.e. UAHPL. The ld. AR submitted that the main observation of the AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....FDI from Warburg Pincus Group through its investment arm viz. Rosewood Investment ltd, Mauritius of Rs. 22,54,49,900/- and the payment had been made @ 3% of FDI plus service tax @ 12.36%. We observe that the AO has doubted the genuineness of the said payment on the ground that there is no stipulation in such payment in the service agreement entered into by the assessee dated 24-08-2007 and there is no basis of payment @ 3% by assessee firm to Asipac. The AO further stated that FDI was not even received by the assessee but was received by UAHPL. We observe that the assessee firm filed its detailed submission before the Ld. CIT(A) and also filed certain additional documents in the form of information and the ld. CIT(A) sought a remand report from the AO. Not only this we observe that the AO also issued a notice u/s 133 (6) to Warburg Pincus Group and Warburg Pincus Group in its reply dated 7.1.2011 confirmed that Asipac was instrumental in arranging FDI into the project through its investment arm viz. RIL Mauritius. We also observe that ld. CIT(A) in para 8 of his order has also referred the details of the invoice received, submissions made by Warburg Pincus Group and has given a cat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... carrying on of the business, may yet be expended wholly and exclusively for the purpose of trade. We are of the considered view that above decisions of the Hon'ble Apex Court squarely applies to the claim of the assessee that FDI received by UAHPL is for the benefit of the assessee which has come to the assessee in the form of security deposit as land owner of the project 'My Haveli'. The cases cited by the ld. DR (supra), we are of the considered view, are not relevant to the facts of the case before us. In the case of CIT vs. Premier Breweries Ltd. (supra), the payment was disallowed which was claimed as liasoning work with the corporation after considering the fact that the firm to whom 'payment was made under an agreement as service charges for liasioning work was having two lady partners who in their sworn statement stated that they had absolutely no knowledge about the marketing of any product and they were not at all involved with the business activities of the firm and the business activities were being looked after by their husbands. In that context, it was held that mere existence of an agreement does give rise to claim for payment of commission and income tax authoritie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Department. We also observe that cases of Lachminayan Madan Lal vs. CIT and Lakshmiratan Cotton Mills Co. Ltd. (supra) refered by the ld. DR are not relevant to the fact of the case before us and it was found that device was adopted to minimize the tax liability and it was not genuine business arrangement and in those circumstances, the claim was disallowed, which is not case of the assessee before us. We also observe that the case of Jaipur Electro (P) Ltd. vs. CIT (supra) relied on by the ld. DR is also not applicable to the facts of the present case before us as in that case the Hon'ble High Court of Rajasthan held that Tribunal after considering all the relevant material on record came to the conclusion that work incentive paid only to some of the employees for the first time was not out of business expediency and therefore, the same was rightly disallowed. We also observe that the case of Brooke Bond India Ltd. vs. CIT (supra) on which ld. DR placed reliance is also not applicable to the facts of the case as in that case the expenditure was directly incurred for expansion of capital base of the assessee company and whereas in the case before us the said FDI had come to s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....during the period Aug. 2007 to Feb. 2008 which was precisely the period when the land for project 'My Haveli" was bought by the assessee. The AO has stated that the assessee vide show cause letter dated 21-09-2010 was asked to explain as to why a sum of Rs. 1.85 crores should not be treated as its unexplained expenditure. The assessee filed its reply vide letter dated 4-10-2010 wherein he submitted as under:- (Page 9 of AO) ''11.3 In response, the counsel of the Assessee furnished the reply vide letter dated 04.10.2010 wherein he submitted that "the land for project "My Haveli" admeasuring 52.874 bighas was purchased from Kalyan Sahay and Lallu Ram Yadav for which consideration was paid by cheque. The details in respect of land purchased and dates of registry with consideration thereof and enclosed herewith as "Annexure D". No payment has been made in case as alleged, to any of the persons mentioned in the notice. It has not been stated in the questionnaire as to what is the basis for alleging that certain payments were made in cash. Unless any such basis is confronted to the Assessee, no addition can be made on this account. Addition if any, made on this account wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his retraction by the above named persons in the subsequent statement is nothing but an after thought, perhaps an outcome of them being tutored by the assessee group. The AO after stating the details of the cash deposits in assessment order (at page 12 of the assessment order ) has stated that during the course of statement of Shri Kalyan Sahai and other members of his family stated that they are having agricultural income. However, a perusal of the bank account did not show any substantial deposits in their accounts except during the period of sale of land. The AO has stated that they had very little balance in the bank account prior to the period when transaction relating to the sale of land took place. The AO has stated that those persons were asked to filed the copies of return of income and sources of deposits of cash in the bank accounts. In response to query raised, Shri Kalyan Sahay filed revised return on 06-03-2009 showing capital gains. They submitted that the source of cash deposits in the accounts of Shri Kalyan Sahai and Shri Kali Charan is on account of sale of some other land to Shri Babu Lal and others. In the case of ladies and other members of their families, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same. It was also contended before the first appellate authority that before taking adverse inference against the assessee, the copies of the statements recorded were not provided to the assessee during assessment proceedings. It was contended that assessee in reply to show cause notice dated 21-09-2010 submitted its reply on 04-10-2010 and stated that no such payment in cash was made and requested the AO to supply the copies of the evidences available with the Department and to afford an opportunity of cross examination. However, neither copies were made available to the assessee nor any opportunity of cross examination was provided. The assessee had no option but to press for the copies of statements recorded and the same were provided only after assessment order was passed. The AO had pre-conceived notion against assessee firm as far as impugned order is concerned. It was contended that on receipt of copies of statements which were provided to the assessee only after assessment were completed, were examined and it was observed that agriculturists (sellers) have mentioned receipt of Rs. 20 to Rs. 25 lacs in cash as Sai (token money). The assessee stated there is no truth in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....I have considered the submission of Ld. AR and have perused the material on record. In respect of the present issue the department has placed reliance upon statement of Shri Kalyan Sahay Yadav and Shri Kalicharan Sahay Yadav recorded u/s 131 of the Act being the sellers of agricultural land purchase by the appellant. These statements were recorded by the department on 28.01.2009 being the date of search in case of the appellant group at 11.30 am while the search in case of the appellant was going on. 11.1 Although no opportunity of cross examination was granted to the appellant but these statements appear to be independent particularly when statements of two persons were recorded by the department and both of them stated almost the same facts. Although, subsequently these persons retracted from their statements recorded on 28.01.2009 and stated before the department that they have received payment only through cheques but such retraction is not worthy of reliance in my view as there is a possibility of same being un afterthought. In my view, the evidentiary value of statements recorded on 28.01.2009 is very high. Therefore, this issue has to be decided on the basis ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appellant but when it comes to amount of such cash, learned AO does not want to rely upon the same statements. When any evidence is to be relied upon for drawing any adverse inference, either the entire evidence should be believed or should be disbelieved. It is incorrect to pick and choose the inference from the same evidence only to the extent it favours one's case. This view was held by the Hon'ble ITAT, Mumbai Bench in the case of Manoj Kumar Gupta Vs. Deputy Commissioner of Income Tax (2006) 100 TTJ (Mumbai) 588 and Delhi Bench of ITAT in Bansal Strips (P) Ltd. Vs Assistant Commissioner of Income Tax (2006) 100 TTJ Dl 665 wherein it was held the AO has to accept the seized material as a whole or he has to reject it as a whole. He cannot adopt a pick and choose method in accepting a part of seized materials and rejecting the other part of the seized materials. If the AO disbelieves the statements of Mr. Kalicharan Yadav and Mr. Kalayan Sahay Yadav dated 28.01.2009, then no addition could have been made and when he believes these statements, the addition of Rs. 25,00,000/- only could have been made. For making this addition, reliance has to be placed on most reliable and indepe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....were out of agricultural income, gifts from other family members and sale of land to Shri Babu Lal and others but the AO rightly disbelieved their subsequent statements as it was not supported by any documents. He submitted that ld. CIT(A) has merely gone on the basis of the statement of two persons namely Shri Kalyan Sahai and Shri Kalichran and on the basis of their statements, has restricted the addition to Rs. 25.00 lacs as against Rs. 1,84,60,000/- made by the AO on the basis of cash deposited in bank accounts of said persons and their family members. He submitted that the addition made by the AO may be confirmed. 21. On the other hand, the ld. AR filed a synopsis at the time of hearing of the appeal giving his submissions He submitted that assessee purchased land admeasuring 28.62 bigha @ Rs. 30 lacs per bigha and a total payment of Rs. 8,58,81,600/- was made to them in instalemnts as and when registries were done and the entire payment was made by cheques. The ld. AR referred to page 613 and 614 of the paper book filed by the assessee which is a copy of letter dated 4-10-2010 and denied vide said letter of making any cash payment to Shri Kalyan Sahai and Shri Kalicharan Y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty to confront should be given to the assessee; else it cannot be used and no adverse inference can be drawn on such materials. The ld. AR also referred to the decision of Hon'ble Gujarat High Court in the case of Heirs and Legal Representatives of Late Laxmanbhai S. Patel v. CIT, 327 ITR 290 wherein their lordships have held that legal effect of the statement behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity to cross examination and the addition if made, the same is required to be deleted on the ground of violation of principles of natural justice. The ld. AR further submitted that when Section 69 is invoked against the assessee for alleged undisclosed investment, the onus lies on the Revenue to prove that impugned investment belonged to the assessee. He submitted that the addition made by the AO on the basis of deposits in bank account of third persons is not justified and cannot be basis for making such huge addition especially when no opportunity for cross examination was given and the copies of the statements of sellers were not provided to the assessee despite request. He further submitted that there is a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... he placed reliance, he also denied the opportunity to cross examine them, stating that possibility of those persons to be tutored by the assessee could not be ruled out and the exercise would be infructuous and would not serve any purpose. We observe that the AO relying on the bank statements and considering the fact that said cash deposits were made in an around period when the land was sold by the above named two persons and their family members to the assessee, concluded that cash deposits in their bank accounts is cash payment received by them from the assessee towards purchase of land by the assessee from them. We observe that said two persons in their retracted statements stated that cash deposits in their bank accounts as also in the bank accounts of their family members was consisted of agricultural income, gifts from other family members and sale of land to Shri Babu Lal and others. We observe that the AO merely disbelieved said statements and without making any enquiry as to whether it is factually correct or not and whether there was any sale of land by aforesaid two persons to Shri Babu Lal and others in an around said period has made the addition in the hand of assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd Fatehchand Nursing Das vs. Settlement Commission (IT And WT) and another, 176 ITR 169 held that an order passed without granting proper opportunity to the assessee is a nullity. 23. Considering the facts of the case before us and the cases referred hereinabove, we hold that the AO is not justified to make the said addition of Rs. 1,84,60,000/- merely on the basis of the statements of Shri Kalyan Sahai and Shri Kalicharan Yadav dated 28-01- 2009 wherein they stated that they received Rs. 20-25 lacs in cash as token money for sale of their land, without giving copies of the statements to the assessee and without giving an opportunity to confront those persons on whose statements, an addition was made. Therefore, there is a violation of principles of natural justice and the cases cited hereinabove (supra) squarely apply to the facts of the case before us. Accordingly we are of the considered view that no addition can be made in the hands of the assessee alleging that there was cash payments made by the assessee to the sellers of the land. Therefore, we hold that the addition of Rs. 1,84,60,000/- made by the AO is not legal and unsustainable. Hence, we uphold the order of the ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... DA) with another group concern, M/s Unique Affordable Homes (P). Ltd. ("UAHPL" and "the Developer") as the Developer and M/s Rosewood Investment Ltd. ("RIL" and "the Investor"),, Mauritius, a company incorporated under the laws of Mauritius. 12.4 As per the terms of the said DA, the developer was to deposit a sum of Rs. 105.85 crores with the assessee firm as security deposit as advance amount to secure the owners consideration amount and which would be payable by the developer to the owner i.e. the assessee firm as per the conditions laid down in para 7.3.1 to 7.3.5 of the said Development Agreement. Besides these there are several clauses in the said DA which not only restrict the rights of usage as well as the disposal of the land by the assessee firm, but also place restrictions in terms of the acts to be performed by the assessee firm such as those relating to singing of documents, handing over and keeping of original records pertaining to the land etc. thereby suggesting that the developer had acquired irrevocable and exclusive rights in respect of said land. A careful examination of the terms and conditions of the DA suggested that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hether termed as security deposit or otherwise, which would not be equivalent to the value of land in question or anything less than that. Therefore, simply to secure itself, the assessee asked for a security deposit as owners consideration which is in fact the fair market value of the land. Thus the amount received/receivable by the assessee firm is actually owners consideration itself and not a security deposit.; 12.7 Therefore, this contention of the assessee is baseless because the mere wording of the DA cannot change the real nature of the transaction. The underlying fact of the transaction is that the assessee firm shall receive Rs. 105.85 crores in lieu of relinquishment on the rights of the land as stipulated in the various clauses of the DA. Even if it is to be treated as security deposit as contended by the assessee, it still remains a 'receipt'. 12.8 Thus the gist of the whole argument is that the document on which the assessee is relying has no locus standi for the elaborate discussion made above and therefore worth rejecting. Needless to mention that the assessee is relying upon the Sa as a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of the transaction. So even if the mention is security deposit in the DA it does not change the nature of transaction it anyways remains a receipt. There are a plethora of judgment by various Courts which state that the way the entries are made by the assessee in his books of account are not determinative of the true nature and quality of the receipts and it would not prevent assessing authority from assessing it under the right head. It is the true nature and quality of the receipt and not the head under which it is entered in the books of account which is decisive. 12.11 A plain reading of the terms and conditions of the DA as discussed above makes it amply clear that the assessee vide agreement has granted an unqualified, uninterrupted and irrevocable right of possession to the developer and in lieu of which has received a consideration of Rs. 105.85 crores. In fact some of the terms of the agreement are so categorical in respect of cessation of the rights of the owner whether it is usage of land, sale proceeds, mode of construction and design of units, litigation, title deeds etc. that there is no reason to treat this agreement other t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n concept- (A) whether or not such arrangement, understanding or action is formal or in writing or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; (ii) 'service' means service of any description which is made available to potential users and includes the provision of service in connection with business of any industrial or commercial nature such as accounting, banking communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging." 12.13 The idea or the concept or the intention of the section 28(va) is that when a person receives any consideration in lieu of withdrawing it's rights/claim in relation to any business, he if compensated for the same by certain consideration, the said consideration is the business income of the assessee. In the instant case also the assessee on ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld. CIT(A) that the AO has misquoted and misunderstood the whole concept of the Development Agreement. The amount of security deposit actually received was only Rs. 39.55 crores. The AO has made attempts to cloth the whole Development Agreement with the element of sale without going into its spirit, necessity and background.. He was merely got influenced by the figures mentioned in the agreement and not appreciated terms thereof. There is no justification /reasoning with the AO to term/ treat the development agreement as an agreement to sale. It was contended that by virtue of said agreement, the project in progress of the assessee firm at Ajmer Road, which was its stock in trade and a part of this stock was already agreed to be sold by way of booking of flats, was handed over for the purchase of development of the project to its group concern UAHPL. 27.2 The private equity contributor RIL, Mauritius became stake holder in this company with the contribution and commitment to contribute the development expenditure and the security deposit. As per the mutual negotiations, it was agreed that the assessee firm shall continue to be the owner of the project land, development work shal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sideration received including sale proceeds, lease rentals or other fees and receivables generated from the project wherein the developer i.e. UAHPL would retain all consideration received for development expenditure and marketing efforts and owner shall receive a sum of Rs. 105.85 crores as security deposit out of such consideration of safe guard its interest.'' 27.4 On behalf of the assessee, it was contended that AO failed to appreciate whole transaction. The agreement has to be read as a whole and not in piecemeal to establish that it was an agreement to sale. The amount of Rs. 105.85 crores indeed to be received as security deposit to secure the owners consideration amount cannot by any stretch of imagination said to be sale consideration. Even the same was not received fully owing to subsequent modification. It was also contended that receipt of a certain sum of money is in itself not sufficient to levy of tax, it is only receipt of income which can attract levy of tax. That no income accrued to the assessee at the time of outsourcing the development work and the security deposit received against the development work is also a liability and cannot constitute income unless ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....UAHPL to the assessee firm after the first closing. Hence, in all a sum of Rs. 39,55,95,900/- was received by the assessee as security deposit. It was stated that supporting documents including ledger accounts were furnished to the AO during the course of assessment proceedings which has not been disputed. It was contended that this supports the fact of supplementary agreement and also that the transaction did not materialize completely. However, the AO has out rightly rejected the validity of supplementary agreement by holding that the same does not hold any validity since it was neither registered nor notorized. It was also contended that the AO has adopted contradictory stand in respect of the same transaction in the hands of the assessee and UAHPL. On the one hand, the AO has made addition of Rs. 82.69 crores treating security deposit of Rs. 105.85 crores as sale consideration in the hands of this assessee and on the other hand the AO has treated the consideration of Rs. 41,94,75,000/- payable by UAHPL to the assessee while applying percentage completion method in the hands of UAHPL According to the AO's own working of income under percentage of completion method, the maximum R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich entire security deposit becomes refundable by the assessee to the developer. Thus the security deposit cannot be considered to be sale consideration of land particularly when no sale deed was executed by the assessee in favour of UAHPL. It was also contended that where the land is treated to be capital asset, the development agreement cannot be treated at part with sale of land as held by Hon'ble Delhi High Court in the case of CIT vs. Atam Prakash, 219 CTR 164. It was also contended that in view of initiation of acquisition proceedings of project land by the Govt. of Rajasthan vide Notification dated 07-05-2008, the project land got confined to first parcel of land admeasuring 11.985 acres and the amount of security deposit for such land got confined to Rs. 41.94 lacs being the proportionate amount referable to first parcel of land measuring around 11.985 acres. However, the assessee actually received only a sum of Rs. 39.55 crores out of Rs. 41.94 crores at the time of first closing in the month of April, 2008 and the same position remains uptill now and no further sum of money was received by the assessee. 28. The ld. CIT(A) considered the above submissions of the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is a matter of fact that the project approvals for the first parcel of land measuring around 11.985 acres was in place at the time of execution of development agreement dated 25.03.2008 as mentioned in Schedule 2 of the Development Agreement. However, all the project approvals and even the change in land use, conversion of land and NOC of fire department was pending in respect of second parcel of land at the time of execution of Development Agreement, which is evident from Schedule 2 of the development agreement at page 96 of PB. For this reason, the transaction was divided into two parts and the transaction was kept pending for the second parcel of land. 14.1 The area of second parcel of land is around 18.26 acres but due to measurement difference on account of exclusion of certain khasra Nos., the same is shown as 17.89 acres in Schedule 2 of the Development Agreement. The conditions of second closing as per para 4.2.4 of Share Subscription Agreement dated 08.02.2008, which has been referred in the development agreement stipulates that before the second closing the appellant should have obtained the 'licence' for the purpose of development of second parcel of la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee is to be adjusted towards assessee's profit margin on receipt of goods by the buyer. Security deposit is not refundable even if the agreement is not honoured by the second party. The transaction is really an outright sale and the amount received is taxable as income in the year of receipt." 14.3 On the facts and in the circumstances of the case and particularly going through the various observations and findings of the A.O. and also considering the legal position, it is held that the appellant has earned profit on transfer of all his rights, control and interest in the first parcel of land by agreeing to receive consideration of Rs. 41.94 crores, on completion of all the conditions of first closing as per development agreement, which has already been completed (out of which Rs. 39.55 crores being actually received). The income in respect of this part of land is worked out as follows:- Consideration as per development agreement in respect of first parcel of land measuring around 11.985 acres Rs. 41.94 Crores Less-Cost of first parcel of land as per appellant's own record (PB page no. 55) Rs. 11.99 Crores Profit Rs. 29.95 Crores.  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nse" shall mean the lease deed executed by the Jaipur Development Authority in terms of Section 90B of the Rajasthan Land Revenue Act, 1956 and the rules made there under pursuant to which the project land or any part thereof can be used for purposes of construction and development of the initial project, which lease deed in the opinion of the investor, is not subject to any condition which is prejudicial to the interests of the initial projects and/or the investment by the investor in the company. 14.6 It is also evident from Schedule 2 of the Development Agreement that first parcel of land (Part A land) was ready for possession at the time of Development Agreement whereas second parcel of land was still agricultural land and change in land use as well as conversion were pending in respect thereof. Schedule 2 of the Development Agreement is reproduced herein: Schedule 2 Project Approvals 1. List of consents obtained with respect to the Project Sl.No. Consent Obtained Competent Authority Area of land in respect of which consent obtained 1. Conversion from agricultural to residential/ commercial use Jaipur Development Author....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng and therefore this land could never be given for development to UAPHL. Although subsequently after about 4 months, the second parcel of land was de-acquired by Government of Rajasthan but by then the foreign shareholders had lost interest in second parcel of land and therefore a supplementary agreement was also executed between UAHPL, the appellant firm, foreign shareholder and the promoters on 08.02.2008. The A.O. has tried to make the addition by not taking cognizance of supplementary agreement A.O. was of the view that supplementary agreement is not as authentic as development agreement because, same is not duly notarized. However, even without considering the supplementary agreement, from the perusal of various clause of development agreement, wherein conditions for second closing in respect of second parcel of the land are mentioned and considering the facts which remain uncontroverted that the various stipulated conditions have not been fulfilled in respect of second parcel of the land and moreover, the amount so receivable though as security deposit has not even approved and due as it would have been accrued and due on completion of stipulated conditions, which have not b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....truction of flats on the land admeasuring 29.874 acres of land and against which the assessee was to receive security deposit of Rs. 105.85 crores as advance amount. The ld. DR submitted that the said land was purchased by the assessee in two trenches and first trenche comprise of the land admeasuring 11.985 acres and started construction of a residential units in respect of said first trench of land in the month of Sept. 2007.. He submitted that second trench of land admeasuring 17.889 acres was also purchased. He submitted that development agreement dated 25-03-2008 was for the entire land. He submitted that second trench of land could not be developed as there was an acquisition notification issued by the Govt. of Rajasthan u/s 4(1) of the Land Acquisiton Act. However, the Govt. of Rajasthan, subsequently issued a Notification releasing project land from acquisition. The ld. DR submitted that the assessee had entered into an agreement with Asipac vide Service Agreement dated 24th Aug. 2007 to market and to sell project being developed by the assessee. The ld. DR submitted that Tripartite Development Agreement dated 25-03-2008 entered into by the assessee as owner with another gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eof is to be effected by the developer. The ld. DR referred to page 28 to 32 of the assessment order and submitted that the AO after considering relevant clauses of the development agreement stated that the said development agreement granted an unqualified, uninterrupted and irrevocable right to the developer and in lieu of which the assessee received a consideration of Rs. 105.85 crores . The ld. DR submitted that the AO has rightly stated that as per terms of the said agreement, there is a cessation of the rights of the owner whether its usage of land, sale proceeds, mode of constructin and design of units. He submitted that the AO has rightly stated that this development agreement is nothing but an agreement to sell. The ld. DR submitted that for transfer of land, it is not necessary that there should be transfer of legal title. The ld. DR relied upon the following case laws. 1. CIT vs. Panipat Woollen & General Mills Co.ltd, 103 ITR 66 (SC) 2. Neorath Mills Ltd. vs. CIT , 166 ITR 418 (ker.) 3. Mysore Minerals Ltd. vs. CIT 239 ITR 775 (SC) 29.2 The ld. DR further submitted that the ld. CIT(A) has considered Supplemental Agreemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2008) (v) Project Management Agreement (vi) Supplemental Agreement to Shares Subscription Agreement/ Shareholders Agreement 30.2 The ld. AR submitted that on 25-03-2008, a Tripartite Development Agreement was executed on 8-2-2008 between the assessee, UAHPL and RIL, Mauritius and was registered. He submitted that under the said agreement dated 25-03-2008 assessee continued to be land owner, though development of project was taken over and required to be carried out by UAHPL. He submitted that the said development agreement could not be considered as sale deed because at the time of registration the stamp duty paid is 1% and on the other hand on the sale deed, stamp duty payable is @ 11% The ld. AR at the time of hearing also filed the Schedule of Rajasthan Stamp Act, 1998 to substantiate his above submission. He further submitted that said development agreement was registered as agreement as per Article 5 (bbbb)and whereas the stamp duty payable on conveyance deed on immovable property is as per Article 21(1). He further submitted that as per said development agreement the assessee was to receive security deposit of Rs. 105.85 crores in respect of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovision of Section 53A of Transfer of Properties Act is applicable. He submitted that such land is stock in trade and not capital assets. Therefore, the provision of Section 53A of Transfer of Properties Act cannot be extended to stock in trade as Section 2(47) of the I.T. Act is artificially extended to the definition of capital assets only. He further referred to the provision of Section 54 of the Transfer of Property Act, 1882 and submitted that land being an immovable property and 'sale' is governed by Transfer of Property Act. Section 54 of the said Act defines sale as under:- "Sale" is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. He further submitted that it further defines how the sale is made and the same is as under:- ''Sale how made: Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.'' '' In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....und to refund all proceeds to the developers pursuant to the sale of the project land including but not limited to an amount equivalent to the security deposit. He submitted that in the event of breach of contract, the land has to be sold by the assessee and not by the developer as the land is owned by the assessee only. The ld. AR further submitted that the AO misunderstood the development agreement because as per buyer's agreement, the copies of which were also filed before the authorities below as well as placed in the paper book filed before the us, it provides that sale of flat has to be executed by the owner and developer jointly. He submitted that until, unit is sold, the assessee i.e. owner of the land shall remain the owner of the land and developer shall remain the owner of the development of the land. He submitted that the said development agreement is only to develop land and not to buy land. He submitted that security deposit has wrongly been considered by the authorities below as sale consideration but the same is to protect assessee's interest during the period and on completion of the project to realize sale proceeds adjust against the security deposit and balance t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the ld. CIT(A) 31.1 We have carefully considered the submissions of ld. representatives of the parties, orders of the authorities below and have also considered the cases cited before us by the authorities below as well as ld. representatives of the parties. We have also gone through carefully the relevant clauses of the development agreement as well as Supplemental Agreement. We observe that under said development agreement dated 25-03-2008, the assessee has permitted the developer not only to develop the land and complete the project, but also to sell the same to which assessee would also be a party to the sale. At the time of execution of the said development agreement, the assessee was to receive a sum of Rs. 105.85 crores but the assessee received Rs. 39,55,95,900/- as security deposit. It is a fact that due to initiation of acquisition proceedings by the State Govt. of Rajasthan, in respect of land on which project My Haveli is to come up became subject to acquisition under Land Acquisition Act. Subsequently the Govt. of Rajastan released project land from acquisition on 29-09-2008 but in the meanwhile RIL, Mauritius restricted its investment to Rs. 22.50 crores which was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relevant clauses of the Development Agreement, we are of the considered view that this agreement is entered into only for the purpose of protecting the respective rights of the parties and to ensure smooth development of the project and thereafter to sell to the prospective buyers of the developed project. We agree with the ld. AR that provision of Section 53A of the Transfer of Property Act cannot be made applicable to the land under consideration as undisputedly the said land is stock in trade of the assessee and not a capital asset. . We observe that authorities below have considered the said development agreement which amount to transfer of land particularly in view of clause 4.1 thereof as it gives an irrevocable and exclusive license and permission to use the project land to the developer. But we are of the considered view that said permission has been given to the developer for the limited purpose of development of the project and not with the intention to transfer of land. The above facts are fortified in the light of clause 5 of the development agreement which gives an option to the developer to purchase the land if they want @ Rs. 3.50 crores per acre. It is also a fact ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs. 19,28,401/- paid to Asipac was not professional fee for rendering professional services rather it was reimbursement of expenditure to Asipac for incurring out of pocket expense like boarding, lodging and traveling expenses of its employees to and fro Jaipur. Hence it was outside scope of Section 194J of the Act. The assessee filed details of reimbursement of various expenses incurred by the executives / employees of Asipac on account of traveling boarding and lodging etc. and stated that the same was supported by ledger account which was also submitted to the AO in reply to show cause notice dated 6th Dec. 2010 filed on 10th Dec. 2010. It was also contended that clause 13 of service agreement dated 24-08-2007 also provides for reimbursement of the expenses. 34. The ld. CIT(A) after considering the submissions of the assessee observed that the AO has also not disputed the amount of expenses of reimbursement by the assessee to Asipac and details of such expense were on record which submitted before the AO to hold that TDS was not required to be deducted from such reimbursement. The ld. CIT(A) also stated that CBDT circular no. 715 dated 08-08-1995 which was considered by IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee to furnish the stock register, basis of valuation of closing stock as well as details/ information including original vouchers for payment made in respect of direct expenses. The AO has stated that the assessee could not produce such a stock register and argued that the basis of closing stock is lower of cost or net of reliazable value. The AO has stated that some vouchers relating to payment in respect of direct expenses could not be verified. Further during the course of search proceedings, incriminating documents were found which contained notings of receipt of cash 'out of books' by members of Unique Group of which assessee is an important member. The members of M/s. Unique Group also surrendered their undisclosed income on the basis of such evidence of 'out of books, cash sales, and purchases/ expense. The AO stated that assessee firm did not maintain its books as required by law and that its books did not present true and fair picture of the accounts and financial transaction thereby contravening the accounting standards (AS-I) issued by Institute of Chartered Accountants of India (ICAI) as well . The assessee was asked to show cause as to why books of accounts for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the AO has stated that net profit for the assessment year under consideration i.e. 2008-09 on the basis of percentage completion method is Rs. 39,68,028/- as against declared loss of Rs. 7,03,900/- in the return of income filed by the assessee on the basis of project completion method. Therefore, the AO made addition of Rs. 46,69,928/-.Being aggrieved, the assessee filed an appeal before the first appellate authority. 42. The ld. CIT(A) has confirmed the action of the AO to reject the books of accounts by the AO. Further, the ld. CIT(A) has also confirmed the action of the AO to apply percentage completion method to compute the assessee's income. However, in regard to the addition of Rs. 46,69,928/- made by the AO, the ld. CIT(A) has stated vide para 20 of the impugned order that the assessee is land owner who has entered into agreement with UAHPL wherein the AO has held that the money given to the assessee is basically the consideration for the land though shown as security deposit and the AO has already added the profit by treating that the assessee has effectively sold the land to the developer. Thus the ld. CIT(A) has confirmed the profit earned on transfer of right, contro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opted by the assessee to recognize its income deserves to be accepted. The assessee also made elaborate submissions and justified its claim by placing reliance on various judgments which have been reproduced by the Assessing Officer in the assessment order. The Assessing Officer after considering the detailed submissions took that the assessee's contention in respect of method of accounting is misplaced as it is not only the right but also the duty of the Assessing Officer to consider whether or not the books of account disclosed the true state of affairs and correct income can be deduced therefrom. For this proposition he took support from the judgment in the case of CIT vs. British Paints India Ltd. 188 ITR 44 (SC) and stated the principles laid therein as under :- a. " It is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in past. There is no estoppel in these matters and the officer is not bound by the method followed in earlier years. b. The A.O. has to consider the material placed before him/her and, if, upon such consideration, he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 i.e. percentage completion method to work out the profits at the end of each financial year as the projects are spread in series of financial years. The Assessing Officer further stated that though section 145(2) of the Act talks of notified Accounting Standards in official gazette of Central Government which are AS-1 and AS-II only but nevertheless true and fair picture of accounts is not possible unless the Chartered Accountant follows Accounting Standard 1, 7, 8, 9 & 10 and in the instant case it being AS-9 and AS- 7. 5.6. The Assessing Officer also was of the opinion that the income has accrued to the assessee when it accepted bookings from the customers for its residential/commercial units because the assessee has acquired the right to receive the payment from the buyer and once the income has accrued, it is liable to be taxed. 5.7. He also rejected assessee's argument that income accrues to a builder only when the transaction is complete which means that the unit is ready for occupation and the possession is handed over since the assessee acquires the right to receive payment as per terms and conditions of agreement. He made further elaborate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rther envisaged that the early stage of a contract shall not extend beyond 25% of the stage of completion. Since these two documents though applicable from prospective dates, provide sound and reasonable guidelines, therefore, he held that profit has to be taken as Nil where expenditure incurred is less than 25% of the construction and development cost...'' 46. At the time of hearing as mentioned hereinabove that Ld. representatives of both the parties submitted that whatever submissions have been made in those appeals be considered their submissions in respect of above grounds in the case of assessee herein before us and the same decision be followed. The Tribunal vide its order dated 14th March, 2013 after considering the orders of the authorities below and submissions of Ld. representatives of both the parties and the other material placed on record in the said case has held that the Assessing Officer could not change method of regularly adopted by the assessee from project completing method to percentage completing method on irrelevant consideration. The Tribunal has held the provision of Section 145(3) are not attracted. It is further held by the Tribunal that the Ld. CIT(A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT, 288 ITR 10 (SC) for invoking provisions of section 145(3) of the Act. 12.1. Section 145 as is relevant in the year under appeal is reproduced as under :- Sec. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144. 12.2. The first basis taken by the Assessing Authority in reaching a finding that the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., therefore, his own duty to verify quantity of each quality of goods purchased by the assessee and correctness of valuation disclosed in the accounts. For the remissness on the part of the Assessing Officer, assessee cannot be blamed. The Assessing Officer also appears to have casually stated that as per AS-2 it is essential that the details of both quality as well as quantity of different items of stocks including details of direct expenses and costs are required to be maintained meticulously. In fact, the AS-2 notified by the CBDT relates to disclosure of prior period and extra ordinary items and change of accounting policies. The accounts maintained by the assessee-appellant conform to the commercially accepted accounting standards and true profits of assessee's business could be deduced therefrom. The findings reached by the Assessing Officer are thus not factually correct with respect to the lacuna pointed out by him on maintenance of stock record as well as valuation of inventory held by the assessee. 12.3. In the case of Pandit Brothers vs. CIT, 26 ITR 159, the Hon'ble Punjab & Haryana High Court has held that the mere fact that there is no stock register, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g that the group is owned and controlled by two brothers, namely, Shri Ajay Pal Singh and Shri Ajit Singh and their sons. During the search and seizure operation evidence of "on money" received on sale of different flats of this firm were found and were also admitted by the partners of the firm Shri Ravinder Singh/Shri Ajit Singh. Moreover, the "onmoney" so received was also included as undisclosed income in the return of income so filed by one of the partners. We, therefore, required the Ld. D/R to produce such material and evidence so as to test the correctness of the veracity of the authorities below as the appellant has categorically denied of receipt of any "on-money" in the joint business carried with his separated brother Shri Ajit Singh and his son. The separation had occasioned in the year 2006 which is a date much prior to the date of action taken under section 132 of the Act on the appellant. From the record produced, we find that it is a correct fact that these two groups have separated from joint business in the year 2006 and thereafter carried business with no interest or involvement of the other brother. This fact, the appellant also disclosed by way of a foot note o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d perverse on facts. It, therefore, could not be a reason for rejecting the books of account maintained by the assessee in regular course of business. 12.10. The last reasoning taken by the assessing authority as also stood confirmed by the Ld. CIT (A) is that the assessee has not followed Accounting Standards 9 & 7 which tantamount to not following Accounting Standard-1 as prescribed under section 145(2) of the Act in view of the exercise undertaken by the Assessing Authority to apply percentage of project method that gave a different and positive results revealing more profits taxable in the years under consideration. The Assessing Officer, therefore, changed the method to percentage completion method as against the project completion method regularly employed by the assessee. The admitted position and also the fact is that the appellant has regularly employed project completion method from year to year and the assessments prior to the date of search were also made by accepting project completion method. Both Project Completion method and the Percentage Completion method are recognized methods for assessment of correct income of the assessee under the IT Act, 1961....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot following prescribed AS-1 under section 145(2) of the Act are found misplaced, unnecessary and uncalled for besides being contrary to principles of interpretation of the statutory provisions. The same, therefore, could not be taken a valid basis for change of method regularly employed by the appellant. The Income-tax Authority, therefore, has no option or jurisdiction to meddle in the matter either by directing the assessee to maintain its account in a particular manner or adopting a different method for valuing work-inprogress. It also cannot recompute income by adopting any method other than that regularly employed by the assessee-appellant in a case like this nor make the same as basis to reject its accounts. 12.11. The Apex Court in the case of CIT vs. McMillan & Co. 33 ITR 182 (SC) = (2002-TII-52-SC-LB-INTL) at page 188 has also entertained this opinion which is evident from the following passage :- "The section enacts that for the purposes of section 10 (profits of business, profession or vocation) and section 12 (income from other sources) income, profits and gains must be computed in accordance with the method of ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of valuation. The Revenue's reliance upon the decision in CIT vs. British Paints India Ltd. (supra) in no way advanced the case of the revenue. The Apex court while dealing with the contention of the assessee in that case for valuation of the raw material without taking into account any portion of the cost of manufacture, held that :- "the question of fact which the Assessing Officer must necessarily decide is whether or not the method of accounting followed by the assessee discloses the true income and observed thus (page 51) : "It is a well-recognised principle of commercial accounting to enter in the profit and loss account the value of the stock-in-trade at the beginning and at the end of the accounting year at cost or market price, which-ever is the lower." The court further considered section 145 of the Act and observed that what is to be determined by the officer in exercise of the power is a question of fact, that is, whether or not income chargeable Under the Act can be properly deduced from the books of account and the question must be decided with ref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to the application of the provisions of s. 145 of the I. T. Act, especially in view of the fact that this system of accounting is followed by the assessee uniformly and regularly for the past several years, and was accepted by the Department without quarrel. It is not open to the ITO to intervene and substitute a system of accounting different from the one which is followed by the assessee, on the ground that the system which commends to the ITO is better. Attention may be invited to the decisions in: (i) CIT & EPT v. Chari and Rant [1949] 17 ITR I (Mad) ; (ii) CIT v. Srimati Singari Bai [ 1945] 13 ITR 224 (All) ; (iii) CIT v. K. Doddabasappa [1964] 54 ITR 221 (Mys); and (iv) Juggilal Kamlapat, Bankers v. CIT [1975] 101 ITR 40 (All). These are all decisions which lend support to the proposition that the Department is bound by the assessee's choice of accounting regularly employed unless it can be said that the method of accounting followed by the assessee does not reflect the true income. The AAC, as well as the Income-tax Appellate Trib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No. 7. They are "completed contract method" and "percentage of completion method". Thus, as both the methods of accounting are recognized methods of accounting, the assessee is at liberty to choose any of the above and if any one of the method of accounting is consistently followed by the assessee, the assessing officer cannot change the method of accounting to the "percentage of completion method." 12.16. The Hon'ble Delhi High Court while dealing with the similar situation in the case of CIT vs. Manish Buildwell Pvt. Ltd. in ITA No. 928/2011 dated 15.11.2011 held that 'after the above judgement of Supreme Court in CIT vs. Bilahari Investment Pvt. Ltd., 299 ITR 1, it cannot be said that the project completio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t aside the decision in this regard and allow ground nos. 2 & 3 raised in appeal by the assessee in assessment year 2003-04". 47. Since the Ld. representatives of both the parties at the time of hearing submitted that the facts and issues and the reasoning given by the authorities below in the case of the assessee before us are identical as in the case of another group concern of the assessee viz Unique Builders and Developers, Jaipur, in which, we heard both the parties at length. On perusal of orders of the authorities below, we agree with the representatives of the parties that the reasoning given by the authorities below to invoke the provision of Section 145(3) of the Act and to apply the 'percentage completion method' instead of 'project completion method' as adopted by the assessee by rejecting the books of account of the assessee are on similar lines. The Tribunal vide its order dated 14th March, 2013 in the said group concern of the assessee for the reasons mentioned hereinabove has reversed the orders of the authorities below in rejecting the books of account of the assessee and to apply 'percentage completion method' instead of 'project completion method' as adopted b....