TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 742
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.... 4. The grounds of appeal raised by the Revenue read as under: "1) The Ld. CIT(A) has erred on law and on facts and circumstances of the case in deleting the addition of Rs. 1,70,39,124/- being increase in the net profit by rejecting books of account u/s.145(3) of the Act." 5. Briefly stated, the assessee is engaged in the business of construction of Real Estate and follows Percentage Completion Accounting Method (PCAM) for working out the profits. A search under s.132 of the Act was carried out in the case of Sewani Group on 20th December, 2011. The assessee, an individual, is one of the entities of the Sewani Group. Following the aforesaid search, proceedings under s.153A of the Act were initiated in the case of the assessee for the specified period covered under first proviso to Section 153A of the Act i.e. in respect of AYs. 2006-07 to 2012-13. With regard to the AY 2012-13 (also subject matter of appeal), the return of income was filed after the date of search on 30th September, 2012. However, in respect of preceding six assessment years, the original return of income were already filed by the assessee within time permitted under s.139(1) of the Act. In response to the not....
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....putation of ' cost of goods' sold and 'closing work in-progress' on year to year basis. 5.3 The books of accounts were rejected by invoking Section 145(3) of the Act and the 'cost of sales' and 'closing stock' was re worked whereby the additions were made in respect of understatement of profits to the extent of Rs. 1,70,39,124/- to the total income of the assessee for AY 2011-12 in question. Similar additions were made in respect of other assessment years as tabulated above. 6. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) after consideration of the detailed submissions made on behalf of the assessee and the comments of the AO thereon in the remand report, found the action of the AO to be unsustainable. The relevant operative para of the order of the CIT(A) is reproduced hereunder for ready reference: "7. The appellant contended that the A.O. recast construction account on cast basis and when there was plus difference, the same was added to the closing work in progress as disclosed in the audited accounts of the appellant, however, even when the difference was in minus in work in progress, the same was also added to closing work in progress disclosed i....
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....e assessee was factually correct, however, after considering the same, the addition was made. 7.5 The appellant submitted that the land area in respect of project SP-1 was wrongly adopted by the AO as 33 sq. mtr. whereas the correct measurement of the area was 82.43 sq. mtr. Similar mistakes were committed by the A.O. for the project SP-4 also wherein the actual area of the land sold was 907.65 sq. mtr. but the A.O. adopted the figure at 780.65 sq. mtr. only. Regarding the sale of constructed area the actual area sold was 54880 sq. ft. whereas the AO adopted the figure of sold area at 51250 sq. ft. only. The average cost of the land and construction were also wrongly adopted. Therefore, the factually wrong facts and figures were adopted by the AO for working of cost of work in progress which resulted into distorted and unrealistic additions. The appellant furnished a tabular chart of SP4 to point out the aforesaid facts and errors committed by the AO 7.6 In the remand report the A.O. made a very casual remark that the contention of the assessee was factually incorrect without clarify the reason. 7.7 The appellant furnished the working of the A.O., regarding the cost of goods ....
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....siness affairs, therefore, there was no question to recast the total P&L account by rejecting the books of account. To the best of Knowledge of the assessee, the method suggested by the A.O. did not have any locus standi as it was not-prescribed under any accounting standard nor was it prescribed under any of the provisions of the Income Tax act. 8.2 The method of accounting suggested by the A.O. could only be possible after completion of the project. Therefore, it was the duty of the A.O. to suggest the assessee some manner as to how the assessee should have adopted the actual cost of the project in the first year when the very project was to be completed in subsequent years. If the same method cannot be adopted as suggested by the A.O., the assessee did not know how to determine the income to be offered for tax in the first year. Therefore, the method proposed by the A.O. was erroneous and could not be applied in the real word. 8.3 The contents of the Assessment Order, submission of the appellant and remand report of the A.O. were analyzed. The assessee was engaged in the business of developing and constructing housing and commercial projects. He adopted the method of work in....
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....ngs which were not even remotely having any relevance to the facts of the case. 9.1 As discussed in detail in the foregoing paras, the A.O. adopted a unique method which could possibly be applicable for the past business activity only in future. In other words, there is a lot of force in the contention of the assessee that the A.O. was having information about the actual expenditure incurred for each Assessment Year under consideration, because the projects were almost completed when he recast the construction account and made the working of the value of work in progress. It is also a fact on the record that the A.O. adopted pick and choose method despite the fact that his working was patently wrong and contrary to the facts of the case. The findings of the A.O. to justify his action of rejecting books of account were totally distorted and factually unsustainable. 9.2 Therefore, after having regard to all the facts of the case, submission of the appellant and remand report of the A.O. in my considered opinion, the action of the A.O. was not sustainable, accordingly, these grounds of appeal are allowed." The CIT(A) accordingly reversed the action of the AO and deleted the addit....
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....nd without any sound basis resulting in double charge at places. The learned Senior Counsel strongly hoisted that the method adopted by the AO while computing the estimated net profit is patently wrong and beyond contemplation. The learned senior counsel inter alia referred to the net profit determined by the AO to be in negative i.e. at loss of Rs. 1,76,41,935/- for AY 2010-11 as against the actual profit of Rs. 20,89,570/- offered by the assessee himself and consequently, determined loss at Rs. 1,97,31,505/- for the immediately preceding assessment year 2010-11. However, oddly enough, the AO has ultimately conveniently ignored the favourable position emerging in some years and thus not assessed the total income at loss wherever there is a loss or wherever there is a decrease in the profit in the earlier assessment years. The learned senior counsel thus submitted that such instances would vindicate the stance of the assessee that the approach of the AO is wholly without rationale. The learned senior counsel thereafter referred to the remand report dated 13.12.2014 and pointed out that the AO himself found the contention of the assessee to be factual correct at several places but t....
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.... assessee that allegation of the AO towards incorrect reflection of business profits derived from construction business by assessee is without any foundation. The AO has merely proceeded on assumptions and surmises in a most arbitrary manner and rejected the books of accounts and applied his own arbitrary method for working out the profits of the assessee during AYs. 2006-07 to 2012-13. It is the contention of the assessee that books of accounts are audited by the independent auditors equipped with requisite expertise and well versed with principles of accountancy and accounting standards and therefore a normal presumption would arise that the books are reliable and gives true picture of his business affairs. Thus, the onus would shift heavily on the AO for discarding the books results. It is further case of the assessee that the assessments for AYs. 2006 07, 2008-09 & 2009-10 were framed under s.143(3) of the Act wherein the book results drawn following the prescribed method of accounting on similar lines was duly accepted in the scrutiny assessment. 10.2 A perusal of the order of the CIT(A) gives an impression that the AO has committed some factual errors while determining the ....
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....st is required to be estimated at the end of each year on the basis of technical estimation and after estimating the project cost, the assessee is required to determine the cost of sale to be charged profit and loss account against the sale value. The sale value has been recognized on a percentage completion basis regardless of pendency in completion of work of the project. 10.4 Having taken note of the principal contentions led on behalf of the assessee, we however find that while adjudicating the issue, the approach of the CIT(A) appears to be quite generic and devoid of objectivity. While pointing out some errors of lesser impact here and there, the CIT(A) has not compared the project-wise working as per the assessee and as per the AO to locate the area of difference. The CIT(A) has merely set aside the working of the AO without bringing on board, the comparison with the working shown by the assessee. We do not find reference to such working anywhere either in the assessment order or in the CIT(A)'s order. It is thus difficult to exactly gauge purported anomaly and deviation in the working of the AO qua that of assessee. The CIT(A) has merely found fault with the remand report....
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.... legal objection towards validity of assessment under s.153A of the Act raised in the cross objection is not sustainable for the impugned assessment years and therefore the same may be treated as not pressed. 14. In the result, cross objection in CO No. 134/Ahd/2015 is thus dismissed as not pressed. IT(SS)A No. 180/Ahd/2015 - AY 2012-13 15. The grounds of appeal raised by the Revenue read as under: "1) The Ld. CIT(A) has erred on law and on facts and circumstances of the case in deleting the addition of Rs. 1,79,98,200/- being increase in the net profit by rejecting books of account u/s.145(3) of the Act." 16. The issue towards addition of Rs. 1,79,98,200/- to the net profit flowing from the recast of construction account by AO by rejecting books of accounts is identical and in continuation to AY 2011-12. We therefore, in parity, hold that similar treatment be given to the AY 2012-13 as well. The order of the CIT(A) is accordingly set aside to the file of the AO and the CIT(A) is directed to examine the issue de novo in accordance with law also after obtaining relevant facts in this regard from the assessee as may be considered expedient for disposal of the appeal. 17. In th....