TaxTMI 
TaxTMI 
2019 (6) TMI 463
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....on of Rs. 3,24,93,594/- and Rs. 15,56,866/- without appreciating the fact that the project completion method has no existence since 01.04.2003. 3. That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 50,10,000/- without appreciating the fact that assessee could not establish the genuineness of advance to customers and letter issued for verification were received back unserved. 4. That the order of Ld. CIT(A)-1, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored. 5. That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal." 3. Facts in brief, as stated by the lower authorities are that the AO the assessee partnership firm ("the assessee" in short), has been engaged in the business of real estate and construction of buildings for past several years, assessed total income of Rs. 3,94,62,580 u/s 143(3) of the Income Tax Act, 1961 ("the Act" in short) as against returned income shown by the assessee of Rs. 1,12,120. The AO has observed that the assessee did not produce bills/....
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....th regard to addition of Rs. 50,10,000 for bogus advances from customers the ld.CIT(A) deleted such addition by holding that the advances from customers shown by the appellant as on 31.03.2012 were all old balances and no part of it was received during the impugned year and thus, he did not find any reason to support the action of the AO to add this amount to assessee's income. The relevant para of the impugned order is reproduced hereunder. "6.2 I have carefully considered the appellant's submission, facts of the case and the legal position in this regard. I find that the A.O. has rejected the appellant's books of account on the ground that bills and vouchers and the basis/evidences of/for valuation of closing stock was not produced by it during the assessment proceedings. Other reasons pointed out by the A.O. for applying the provisions of section 145(3) to the appellant's case are that it did not furnish satisfactory confirmations from the customers who had advanced money to it as also "the details e.g. estimated cost, estimated sales, etc. to calculate the profit as per percentage completion method." The A.O. has stated in the impugned order that that the appe....
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....upport the action of the AO to add this amount to its income." 5. Apropos Ground Nos.1 and 2, the learned DR relied upon the assessment order and contended that the Ld. CIT(A) has erred in accepting the appeal of the assessee on grounds of rejection of books of account U/S 145(3) of the Act as well as in deleting the additions of Rs. 3,24,93,594 and Rs. 15,56,866 without appreciating the fact that the project completion method has no existence since 01.04.2003. He submitted that the assessee should have declared profit on percentage completion method because according to AS-7, revised in 2002 with effect from 01.04.2003 the 'Completed Contract method' or 'Project Completion method' have been scrapped. He contended that when the project period is more than 12 months, for the purpose of accuracy in computation of profit the percentage completion method is preferred over project completion method as per the ICA guidelines in the case of builders. For this purpose, he relies on "CIT vs. Realest Builders & Services Ltd.", (2008) 22 (I) ITCL 73 (SC): where it was held that- "...............in cases where the department wants to tax an assessee on the ground of the liability a....
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....d made proper compliance to each and every notice issued and queries by the learned AO and such facts are evident from the assessee's case records and thus the various allegations levelled by the learned AO are totally incorrect, false and have got no legs to stand. e) That the income and book results declared by the assessee are fully supported with reference to the complete and correct books of accounts, bills, vouchers and other records, which were duly produced before the learned AO during the course of assessment proceedings and the learned AO could not point out any defect therein, thus the same should have been accepted. Further the assessee has computed the income chargeable under the head 'Profit and gains of business or profession' strictly in accordance with the method of accounting consistently employed by it since the inception of business and by following the accounting standard applicable over its case and there being no deviation from the method of accounting consistently employed by the assessee since the inception of business, which has always been accepted by the revenue in past and subsequently even in the scrutiny assessment relevant to A.Y.2014-15 whi....
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.... is evident that on 31.03.2015 the AR of the assessee duly apprised the learned AO that though books of account, bills, vouchers etc. were produced during earlier hearing but as Mr. Krishan Murari Khandelwal, C.A. on account of time barring matter(s) is occupied in his prefixed professional engagement thus these could not be produced on even date. 2. No evidence regarding the valuation of closing stock has been furnished by the assessee. Such allegation is also contrary to the facts of the case of the assessee. In response to query no.5 at page 3 of written submissions dated 13.10.2014 (page 81 of paper compilation) and in response to query no.1(g) at page 2 dated 27.01.2015 (page 13 and 86 of paper compilation) the assessee duly apprised about the method of valuation of closing stock and furnished details of such closing stock and value thereof. The bills/vouchers in support of valuation were also produced. 3. Confirmations of advances of customers was not done to the satisfaction of the AO. In this regard the letters sent were returned back and the assessee could furnish only photocopy of confirmations which can't be relied upon. Such allegatio....
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....83 of paper compilation), in response to query no.3 at pages 3 to 6 of written submissions dated 27th March, 2015 (pages 90 to 93 of paper compilation), in response to query nos.7, 8 & 9 at pages 5 to 8 of written submissions dated 30th March, 2015 (pages 99 to 102 of paper compilation) had duly apprised the learned AO that it since the inception of business has been consistently following mercantile system of accounting and it has adopted project completion method as specified in accounting standard-9 (AS-9) because it is a builder and promoter and accordingly the revenue has been recognized at the time when sales take place i.e. when the seller transfers to the buyer all significant risk and reward of ownership and the seller retains no effective control of real estate transferred to a degree usually associated with its ownership. B] That it has also beeen wrongly alleged that the assessee has not shown any sale neither before nor in this year. In fact the complete details of 12 shops sold during F.Y.2010-11 ie. A.Y.2011-12 for Res.96,50,000 showing sl.no., shop no., name and address, area sold, date of sale and sale amount was duly filed before the learned AO. ....
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....n method. iii) a) That Hon'ble Punjab & Haryana High Court in case of CIT Vs. Principal Officer Hill View Infrastructure (P)Ltd. (2016) 384 ITR 451 has held that the assessee has been consistently following one of the recognized method of accountancy i.e. project completion method for computation of its income. In the absence of any prohition or restriction under the Act for doing so, it cannot be held that approach of the CIT(A) and tribunal deleting addition made by AO by applying percantage completion method was erroneous or illegal in any manner so as to call for interference by this Court. b) That the Hon'ble Gujarat High Court in case of CIT-IV Vs. Shivalik Buildwell (P) Ltd. (2013) 40 taxmann.com 219 has held that if as per the acounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different stand. c) That the Hon'ble ITAT Mumbai Bench 'A' in case of Aditya Builders Vs. CIT (Admn) (2013) 39 taxmann.com 178 has held that where assessee had been con....
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....or in respect of any class of income. Such change is prospective and in any event does not apply to the case on hand. v) a) That the settled legal position as far as section 145 of the Act is concerned is that it is not open to an AO to reject the accounts of an assessee unless he comes to a determination that notified accounting standard, have not been regularly followed by the assessee. The accounting standard of the Institute of Chartered Accountant of India did not have any statutory recognition under the Act although it is binding under the Companies Act 1956. The method of accounting followed by the assessee in the present case i.e. project completion method is certainly one of the recognized methods and has been consistently followed by it and therefore the provision laid down under section 145(2) of the Act have been misapplied over the assessee's case. In this regard the assessee wishes to invite your attention the judgement of Hon'ble Delhi High Court in the case of Paras Build Tech India (P) Ltd. Vs. CIT reported in (2017) 80 taxmann.com 335 (Delhi High Court) In view of the facts and circumstances of the assessee's case, considering entire conspectives....
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....s thereon. The principles of natural justice are violated if any adverse order is made on an appellant on the basis of the material not brought to his notice. If AO proposes to make an estimate in disregard of the evidence, oral or documentary, led by the appellant, he should in fairness disclose to the appellant the material on which he is going to found that estimate. He must communicate to the appellant the substance of the information proposed to be utilized to such an extent as to put the appellant in possession of full particulars of the case he is expected to meet and to further give an ample opportunity to meet it. The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income-tax (1954) 26 ITR 775 has held that "the Assessing Officer is free to make enquiries at the back of the assessee but, if the material/evidence collected is sought to be used against the assessee, thus reasonable opportunity for rebuttal must be provided. The AO's failure to do so has resulted in miscarriage of justice and has thus violated the principles of natural justice." The Hon'ble Patna High Court in case of Motipur Zamindari Co.Prviate Ltd.and....
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.... ITR 721 has held that "if any document is relied on against an assessee to assess him to higher rate of tax, such document shall be disclosed to him and it cannot be withheld." c) That the allegation of the learned AO that actually entire project has been handed is contrary to the facts of assessee's case. In fact out of saleable area of 4054.98 sq.mts. consisting of 16 shops and 3 halls, only area of 1333.76 sq.mts. consisting of 14 shops could be sold and as the remaining area of 2721.22 sq.mts. comprising of 2 shops and 3 halls could not be sold, has been leased out on 17th April, 2014. Relevant lease deeds are filed. d) That the learned AO has further erred both in law and on facts in making addition of Rs. 15,56,866 towards alleged net profit by applying 15% rate on work in progress which is unjust. e) That in the light of past established history of assessee's case, method of accounting and accounting standard adopted since the inception of business, the book results declared by the assessee be kindly accepted." 7. The Ld. AR further submitted that the assessee has purchased a plot of land measuring 4500 sq. yards situated at Gate No. 629, Mauza....
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....'ble High Court of Punjab and Haryana in the case of "Commissioner of Income-tax v. Haryana State Industrial Development Corporation Ltd.", (326 ITR 640) that while following the principle of consistency as laiddown by the Apex Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) and Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. [2007] 9 RC 521; [2007] 8 SCC 688 observed that "........the stand of the assessee respondent was not controverted when it had claimed that methodology adopted in the assessment years in question was consistent with the past. Moreover, there was no change in the circumstances in respect of the assessment years in question requiring the Assessing Officer to depart from the aforesaid methodology which has been accepted in the past". ".......we find that the Tribunal has taken a correct view by applying the principle of consistency. It has rightly placed reliance on the judgment of the hon'ble Supreme Court rendered in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC). The hon'ble the Supreme Court in that case had negated the argument regarding application of principles concerning res j....
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....here AO has observed as follows: " ............ In response to these notices U/S 143(2) and 142(1), Shri Pradeep Sahgal, Advocate/AR of the assessee, attended from time to time and filed written submissions and details. The Books of Account were produced and test checked. The assessee filed the required information which is placed on record after verification. The case was discussed with him." 13. Further, the Ld. CIT(A) at para 6.2.1 of the impugned order has held that "....Further, I also find from a perusal of the assessment folder that the appellant had regularly attended the assessment proceedings on nine dates and books of account as well as other details were produced before the A.O. The alleged noncompliance mentioned by the A.O. on the part of the appellant relates to the last date of hearing i.e. 31.03.2015 and the order sheet entry for it does mention that there was a genuine reason for not producing the bills and vouchers again on that date." 14. Considering the factual matrix of the case, 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 accou....
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....y the Ld. CIT(A). As such, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and therefore, ground nos. 1 and 2 of the departmental appeal are dismissed. 18. In Ground no. 3, the department has challenged order of the Ld. CIT(A) regarding deletion of the addition of Rs. 50,10,000 made by the AO because the assessee could not establish the genuineness of advances from customers as the letters issued for verification were received back unserved. 19. The Ld. DR relied upon the order of the AO and contended that the Ld. CIT(A) has erred in deleting the addition of Rs. 50,10,000 made by the AO though the assessee could not establish the genuineness of advances from customers. 20. On the other hand, the Ld.AR while placed his reliance upon the order of Ld. CIT(A) (APB, Pg. 125) contending, inter alia, that- "a) That as stated in foregoing para during the course of assessment proceedings the assessee has placed on records 24 ITA No. 289/Agra/2017 (ASSESSMENT YEAR: 2012-13) and/or produced before the learned AO various evidences/material in support of advances of Rs. 50,10,000 received from customers, in the light of which genuineness of these acco....