TaxTMI 
TaxTMI 
2026 (9) TMI 770
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....78/Ahd/2023: A.Y. 2014-15 2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2014-15 on 12.09.2014 declaring loss of Rs. 41,60,727/-. The case was selected for scrutiny and a notice u/s. 143(2) of the Act was issued on 01.09.2015. The assessee is engaged in realty business and developing a project names Eshanya Floreza. The assessee was following the completed contract method of accounting which, according to the AO, did not reflect the correct profit. The AO noticed that the assessee had received 90% of sale price in respect of 26 flats, whereas revenue was recognized in respect of 4 flats only, on the basis of sale deeds executed during the year. The AO also noticed that though the specification of flats was identical, the construction agreement was entered into with the buyers at different rates. The AO, therefore, rejected the books of accounts of the assessee and worked out the profit at the rate of 8% of the receipt of Rs 7,09,86,589/- as disclosed in the books of accounts and accordingly made addition of Rs. 56,78,927/-. The AO also rejected the explanation of the assessee regarding difference in the booking rate of different flat....
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....ch was regularly followed by the assessee and the AO was not correct in rejecting the same. The Ld. AR further submitted that the finding of the Ld. CIT(A) while upholding the rejection of books of accounts was self-contradictory. He explained that since the Ld. CIT(A) had deleted the estimation of profit at the rate of 8% of the receipts, he was not correct in upholding the rejection of books of accounts. 6. Per contra, Shri Amit Pratap Singh, the Ld. SR-DR submitted that the AO had rejected the books of accounts not only for the method of accounting as adopted by the assessee but also for the reason that there was a wide variation in the rate of agreement with different buyers for identical flats. He explained that though a nominal variation in the rate of booking might be acceptable, the variation in the case of the assessee was much wider, which was not explained by the assessee. The Ld. SRDR further submitted that the AO had made inquiry with some of the buyers which reflected that assessee had received certain amount over and above the documented price. He, therefore, strongly supported the order of the AO in rejecting the books of accounts and estimating the income at the....
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.... is not the case of the Revenue that the project completion method is not a recognized method of accounting. Therefore, the method as adopted by the assessee wherein the revenue was recognized on the basis of sales effected during the year cannot be faulted. The mere preference of the AO for another method of revenue recognition cannot constitute a sufficient ground for rejection of the books of accounts. 9. It is also material that the AO did not proceed to determine the income under the percentage completion method after rejecting the project completion method. Instead, he applied an estimated profit rate of 8% to the receipts of Rs. 7,09,86,589/- already disclosed by the assessee in its books. Thus, the AO has not demonstrated how the accounts maintained by the assessee were incapable of yielding the correct profit. Further, the receipts recorded in the books, which were relied upon for estimating the profit, were not shown to be incorrect or incomplete. The second reason cited by the AO relates to variation in the rates of construction agreements for different flats. It is certainly open to the AO to examine substantial variation in the consideration of ostensibly identical ....
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....e same reinforces the absence of a sustainable basis for the estimation adopted by the AO. Once the specific method of estimation adopted by the AO has not been found sustainable, the Revenue is required to demonstrate independently that the accounts were so defective or unreliable that the true income could not be deduced therefrom. We do not find such demonstration in the materials available on record. 11. Considering the totality of the facts and circumstances, we are of the view that the AO was not justified in rejecting the books of account merely on the ground that the assessee had followed the completed contract/project completion method or merely on account of variation in the rates of different flats, without bringing sufficient material on record to establish suppression of sale consideration or any other specific defect which rendered the accounts unreliable for determination of the true profit. The Ld. CIT(A) too had held that accounting of income using project completion method instead of percentage completion method, cannot be a sufficient reason for rejection of books of accounts. If so, he was not correct in upholding the rejection of books of accounts by the AO,....
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....the hands of the assessee company. The Ld. AR had also relied upon the following decisions: i. PCIT Vs. Shri Pushkar Construction Co. [ 154 taxmann.com 22 (Gujarat)] ii. DCIT Vs. Era Realtors (P.) Ltd. [ 175 taxmann.com 180 (Mumbai - Trib.)] iii. Prashant Arjunrao Kolhe v. DCTI [ 75 taxmann.com 156 (Mumbai - Trib.)] 13. Per contra, Shri Amit Pratap Singh, the Ld. SR-DR supported the order of the lower authorities. He submitted that the AO had made inquiries in the course of assessment proceeding which clearly indicated that the assessee was receiving additional amount in the guise of extra work which was undisclosed income of the assessee. 14. We have considered the rival submissions and perused the material available on record. The AO noticed variation in the rates at which different flats were booked and, taking Rs. 16.75 lakh as the base price of all the flats, worked out proportionate undisclosed receipts with reference to the percentage of sale consideration received by the assessee. The resultant addition was quantified at Rs. 1,94,04,869/-. The moot question that requires answer in the present case is whether the AO had brought sufficient evi....
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....s made by cheque as well as by cash. The AO had concluded that payment for extra work as per agreement with Jay Ambay Construction was part of sale consideration received by the assessee. However, no inquiry was made as to whether the extra work consideration received by Jay Ambay Construction was accounted for the proprietor Shri S B Patel, in his own hands. Since there was a separate agreement for extra work executed with Jay Ambay Construction, the consideration received towards extra work could not have been subjected to tax in the hands of the assessee company. The explanation of the assessee is specific: the additional payments referred to by the purchasers were towards extra work, the agreements for such extra work were with Jay Ambay Construction and the corresponding receipts were accounted for in the hands of its proprietor, Shri S. B. Patel. The Revenue has not brought any material before us to establish that the amounts paid for such extra work were actually received by the assessee-company. The mere fact that Shri S. B. Patel was also a director of the assessee-company cannot, in our view, be sufficient to automatically attribute the receipts of a separate proprietorsh....