Vraj Contractor, Gandhinagar V. The ACIT.,GNR Circle, Gandhinagar

CO 106/AHD/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9002 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY RANJAN
• Assessee Lawyers: O P BATHEJA
• Section: 143(3); 80IB; 145

Judgement Text

ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 677/AHD/2013 & CO. NO. 106/AHD/2013 (ASSESSMENT YEAR: 2009-10) THE A.C.I.T, (GNR) CIR- GANDHINAGAR (APPELLANT) VS. VRAJ CONTRACTOR 440, MANSAROVAR TOWNSHIP, POST CHATTRAL, TAL. KALOL, DIST: GANDHINAGAR. 382721 (RESPONDENT) VRAJ CONTRACTOR 440, MANSAROVAR TOWNSHIP, POST CHATTRAL, TAL. KALOL, DIST: GANDHINAGAR. 382721 (APPELLANT) VS. THE A.C.I.T, (GNR) CIR- GANDHINAGAR (RESPONDENT) PAN: AABCG 1813F APPELLANT BY : SHRI O.P. BATHEJA SR. D.R. RESPONDENT BY : SHRI VIJAY RANJAN, A.R. ( )/ ORDER DATE OF HEARING : 19-09-2013 DATE OF PRONOUNCEMENT : 04-10-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AND C.O. BY ASS ESSEE AGAINST THE ORDER OF CIT(A), AHMEDABAD DATED 21.12.2012 FOR A.Y . 2009-10. ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 2 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUT HORITIES ARE AS UNDER: 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF DEVEL OPING HOUSING PROJECTS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 29.09.2009 DECLARING TOTAL INCOME OF RS. 21,93,970/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE A SSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12.2011 AN D THE TOTAL INCOME WAS DETERMINED AT RS. 93,57,404/-. AGGRIEVED BY TH E ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 21.12.2012 GRANTED PARTIAL RELIEF TO THE ASSE SSEE. AGGRIEVED BY HE AFORESAID ORDER OF CIT(A), THE REVENUE IS NOW IN AP PEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED A CO. THE GROUND RAISED BY REVENUE READS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN TAKING GROSS PROFIT OF RS. 8,00,000/- INSTEAD OF RS. 1,03,16,684/- TAKEN BY TH E ASSESSING OFFICER AS CORRECT PROFIT HAS TO BE SHOWN AT THE TIME OF COMPLETION OF PROJEC T VIS A VIS GROSS PROFIT OFFERED IN IMMEDIATE PRECEDING YEAR. 4. THE C.O. OF THE ASSESSEE READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE REJECTION OF ACCOUNTS ON THE BASIS THAT THE APPELLANT HAS NOT BEEN EVEN REASONABLY ACCURATE IN ESTIMATING THE PRO FITS INCLUDIBLE IN WORK IN PROGRESS FROM YEAR TO YEAR AND ALSO IT HAS FAILED TO GIVE A VERIFIABLE BASIS FOR SUCH RECOGNITION OF REVENUE IN EARLIER YEARS. 5. SINCE THE ISSUE IN THE APPEAL OF REVENUE AND C.O. O F ASSESSEE ARE INTERCONNECTED, BOTH ARE CONSIDERED TOGETHER. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER NOTED THAT THE ASSESSEE HAD FAILED TO PRODUCE THE BOOKS O F ACCOUNTS TO ENABLE HIM TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE. H E THEREFORE CONCLUDED ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 3 THAT THE ASSESSEE HAS FAILED TO MAINTAIN BOOKS OF A CCOUNTS PROFIT U/S. 44AA READ WITH SECTION 2 (12A) OF THE ACT. HE ALSO NOTICED THAT THE GROSS PROFIT RATIO OF THE ASSESSEE IN THE IMMEDIATE LY PRECEDING YEAR WAS 79% THAT IS WHEN THE ASSESSEE WAS ELIGIBLE FOR DEDU CTION UNDER SECTION 80IB (10) OF THE ACT. HE WAS OF THE VIEW THAT NO S OONER THE ASSESSEE WAS REMOVED FROM THE HIGHER BENEFIT OF DEDUCTION UN DER 80IB(10) IN THE IMPUGNED YEARS, THE BUSINESS RESULT DRASTICALLY RED UCED AND THE GP MARGIN WAS 15% AND WITHOUT ANY JUSTIFIABLE REASONS. HE ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145 AND THEREAFTER CONSIDERING THE AVERAGE GROSS PROFITS OF A.Y. 07-08 & 08-09 CONCLUDED THAT THE GROSS PROFIT FOR THE YEAR SHOULD BE AT 51. 13%. HE ACCORDINGLY WORKED OUT THE GROSS PROFIT AT RS. 1,03,16,684/- (5 1.13% OF SALES OF RS. 2,01,77,360/-) AS AGAINST RS. 30,51,194/- SHOWN BY ASSESSEE AND AFTER ALLOWING EXPENDITURE OF RS. 8 LAKHS ON ACCOUNT OF A DMINISTRATIVE EXPENSES ON VARIOUS COUNTS MADE AN ADDITION OF RS. 95,16,684/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DECIDED THE ISSUE BY HOLDING AS UNDER: 6.2. I HAVE GONE THROUGH THE FACTS OF THE CASE, THE DECISIONS ON THE ISSUE, THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLA NT DISCUSSED EARLIER IN THE ORDER. AFTER THOROUGH CONSIDERATION, THE FOLLOWING PERTINE NT OBSERVATIONS ARE MADE ON THE ISSUES COVERED. (A) NEITHER THE AO NOR THE AUDITOR HAS POINTED OUT ANY DEFECT OF THE NATURE OF EXPENSES BEING INFLATED, NOT SUPPORTED BY BILLS AND VOUCHERS, NOT BEING REASONABLE ETC. THERE IS EVEN NO ALLEGATION THAT THERE IS SUPP RESSION OF CONSIDERATION IN RESPECT OF ANY OF THE PROPERTIES (STOCK) WHICH HAS BEEN SOL D. THIS IS TRUE NOT ONLY FOR THE ASSESSMENT YEAR UNDER APPEAL, BUT ALSO IN THE EARLI ER YEARS SOME OF WHICH WERE ASSESSED UNDER SCRUTINY ALSO. (B) THE APPELLANT HAS CLAIMED THAT IT WAS FOLLOWING PER CENTAGE COMPLETION METHOD FOR SHOWING ITS PROFITS. IT IS CLAIMING THAT THE ST OCK IN TRADE IN EACH OF THE YEAR WAS SHOWN TO INCLUDE THE PROFITS AS PER THEIR ESTIMATIO N OF PROJECT PROFITS. THE AO IS ALSO NOT DISPUTING AT LEAST THE METHOD OF ACCOUNTING CLA IMED EMPLOYED BY THE APPELLANT. THE FOLLOWING REMARKS OF THE AO ARE PERTINENT IN TH IS REGARD: ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 4 4.4 HOWEVER TO MAKE IT MORE CLEAR AND JUSTIFIABLE THE OTHER COMPONENT OF GROSS PROFIT RATIO I.E. CLOSING WIP HAS TO BE CONSIDERED. IN THE A.Y. 2008-09, IT WAS MORE THAN SALES VALUE THEREFORE PROFIT RESULT WAS VERY H IGH. THEREFORE, THE AO HIMSELF AGREES THAT THE CLO SING WIP SHOWN INCLUDED COMPONENT OF PROFIT WHICH IS THE BASIC REQUIREMENT IF BEFORE ACTUAL SALES THE REVENUE IS TO BE RECOGNIZED. IN THIS CASE, THE APPELLANT HAS AT LEAS T TRIED TO FOLLOW THE PERCENTAGE COMPLETION METHOD AND HAS INCLUDED PROFITS WHILE SH OWING THE WIP. (C) ONCE THE WIP IS ACCEPTED TO INCLUDE PROFITS MEANING THEREBY THAT CERTAIN REVENUE HAS BEEN RECOGNIZED ON COMPLETION OF THE PROJECT EV EN PRIOR TO SALES; THE APPELLANT IS PERFECTLY JUSTIFIED TO SAY THAT THE AO HAS ERRED IN WORKING OUT THE GROSS PROFIT BASED ON THE SALES ALONE. THE CORRECT METHOD WOULD BE TO TAKE INCREASE IN SALES RECOGNIZED + WIP (WHICH INCLUDES ESTIMATED PROFITS) DURING THE YEAR, AS DENOMINATOR TO WORK OUT THE GROSS PROFIT RATE. (D) THE APPELLANT HAD ALSO ITSELF IN THE STATEMENT OF F ACTS HAD MADE CERTAIN MISTAKES WHICH WERE POINTED OUT. THE CORRECTED FIGURES IN TH E FINAL SUBMISSIONS AS REPRODUCED EARLIER IN THE ORDER, ARE AS FOLLOWS: A.Y. GP AS PER BOOKS OF A/C SALES RECOGNIZED DURING THE YEAR CLOSING WIP OPENING WIP TOTAL OF SALES AND INCREMENTAL WIP CORREC T % OF GROSS PROFIT GROS S PROFIT ADOPT ED BY AO 2007- 08 19,86,70 3 85,40,878 1,02,51,500 40,47,844 1,47,44,534 13.47 23.26 2008- 09 99,17,48 5 1,25,66,328 1,52,49,000 1,02,51,500 1,75,63,828 56.47 79.00 AVERAGE GROSS PROFIT OF FIRST TWO YEARS CONSIDERED BY AO 34.97 51.13 FURTHER IT IS ALSO CLEAR THAT ON REDUCING THE VALUE OF OPENING WORK IN PROGRESS SHOWN AT RS.L,52,49,000/- FROM CURRENT REVENUE OF R S.2,01,77,360/-, INCREMENTAL REVENUE OFFERED DURING THE YEAR WILL COME TO RS. 49 ,28,360/-. ACCORDINGLY, THE APPELLANT HAS SHOWN GROSS PROFIT OF RS 30,51,194/- AND GROSS PROFIT RATIO WILL COME TO 62%. THEREFORE, CLEARLY, THE PROFIT MARGIN SHOWN FOR THE CURRENT YEAR ARE MORE THAN IN EARLIER YEARS ON THE BASIS OF REVENUE RECOGNIZED. HOWEVER, THE WILD VARIATIONS IN PROFIT MARGINS SHOW THAT THE APPELLANT HAS NOT BEEN EVEN REASONABL Y ACCURATE IN ESTIMATING THE PROFITS INCLUDABLE IN WORK IN PROGRE SS FROM YEAR TO YEAR . IT IS ALSO CORRECT THAT LOOKING TO THE FIGURES OF ASSESSMENT Y EAR 2007-08, IF THE APPELLANT HAD RECOGNIZED LOWER PROFITS IN ASSESSMENT YEAR 2008-09 ; THE REVENUE RECOGNIZED IN THE CURRENT ASSESSMENT YEAR WHICH IS SUBJECT TO TAX WOU LD HAVE BEEN HIGHER. IT IS ALSO A FACT THAT THE DEPARTMENT HAS NOT DISTU RBED THE MANUFACTURING RESULTS IN THE EARLIER YEARS; AND THE PERCENTAGE COMPLETION METHOD AND RECOGNITION OF REVENUE ON ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 5 PART COMPLETION OF PROJECT IS AT BEST BASED ON ESTI MATE ONLY. IN THESE CIRCUMSTANCES, THE CASE REQUIRES A HOLISTIC AND REASONABLE VIEW FR OM ALL ANGLES. I UPHOLD THE REJECTION OF ACCOUNTS ON THE BASIS THAT THE APPELLA NT HAS NOT BEEN EVEN REASONABLY ACCURATE IN ESTIMATING THE PROFITS INCLUDABLE IN WO RK IN PROGRESS FROM YEAR TO YEAR AND ALSO IT HAS FAILED TO GIVE A VERIFIABLE BASIS F OR SUCH RECOGNITION OF REVENUE IN EARLIER YEARS. HOWEVER, WHEN WE LOOK AT THE MARGINS DISCLOSED THIS YEAR AND THE ENTIRETY OF FACTS DISCUSSED EARLIER IN DETAIL, IN M Y CONSIDERED OPINION, A GROSS PROFIT ADDITION (WHICH BASICALLY IS RELATED TO REVENUE REC OGNITION AND NOT EXACTLY THE RATE) OF ESTIMATED RS. 8,00,000/- IS ONLY HELD REASONABLE AND IS UPHELD. THE REMAINING ADDITION WHICH IS BASED ON INCORRECT WORKING OF GRO SS PROFIT RATES BY THE ASSESSING OFFICER AND IN THE LIGHT OF THE FACTS DISCUSSED EAR LIER, IS DIRECTED TO BE DELETED. THE ADDITION WOULD BE OVER AND ABOVE THE NET PROFIT DEC LARED BY THE APPELLANT IN ITS RETURN. 7. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. 8. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF ASSE SSING OFFICER, ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT THE ASSESSEE WAS FOLLOWING THE SAME BASIS OF ACCOUNTING IN THE EARLIER YEARS AND I N THE ASSESSMENTS FRAMED U/S 143(3) IN THE PAST THE ASSESSEE HAS BEEN ALLOWED THE DEDUCTION OF 80IB. HE FURTHER SUBMITTED THAT THE B OOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED AND NO SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER. SINCE NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN THE BOOKS, THE BOOKS OF ACCOUNTS CANNOT BE REJECTED. HE ALSO PLACED RELIANCE ON THE DECISION OF GUJ. HIGH COURT IN THE CASE OF CIT VS. SYMPHONY COMFORT SYSTE MS LIMITED (2013) TAXMANN. COM 533 (GUJ). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT N EITHER THE A.O. NOR THE AUDITOR HAS POINTED OUT ANY DEFECT IN THE NATURE OF EXPENSES AND FURTHER ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 6 THERE WAS NO ALLEGATION THAT THERE WAS SUPPRESSION OF CONSIDERATION IN RESPECT OF THE PROPERTIES WHICH HAS BEEN SOLD BY TH E ASSESSEE. HE HAS ALSO NOTED THAT THE ASSESSEE WAS FOLLOWING PERCENTA GE COMPLETION METHOD AND HAS INCLUDED THE PROFITS WHILE SHOWING T HE WORK IN PROCESS AFTER EXCLUDING THE VALUE OF OPENING WORK IN PROCES S. HE HAS ALSO NOTED THAT THE GROSS PROFIT RATIO SHOWN BY THE ASSESSEE F OR THE CURRENT YEAR WAS MORE THAN IN EARLIER YEARS. THE AFORESAID FINDINGS OF CIT(A) HAS NOT BEEN CONTROVERTED BY REVENUE BY BRINGING ANY CONTRARY MA TERIAL ON RECORD. CIT(A) HAS HOWEVER ESTIMATED RS. 8 LAKHS TO BE REAS ONABLE DISALLOWANCE AND ACCORDINGLY UPHELD THE SAME. WE ARE OF THE VIEW THAT SINCE NO SPECIFIC DEFECTS HAS BEEN POINTED OUT BY THE ASSESS ING OFFICER IN THE BOOKS OF ACCOUNTS AND SINCE THE ASSESSEE HAS BEEN C ONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD OF ACCOUNTING IN THE YEAR UNDER APPEAL AND IN EARLIER YEARS AND ON THE BASIS OF THE SAME, THE ASSESSEE HAS BEEN ALLOWED DEDUCTION UNDER 80IB IN THE PAST IN THE ASS ESSMENT FRAMED U/S. 143(3). WE ARE OF THE VIEW THAT THE A.O. WAS NOT J USTIFIED IN REJECTING THE BOOKS OF ACCOUNTS. FURTHER EVEN THE ESTIMATED AN A DDITION OF RS. 8 LAKHS UPHELD BY CIT(A) IS NOT SUPPORTED BY ANY SPECIFIC F INDING OF CIT(A) OR MATERIAL ON RECORD. WE ARE THEREFORE OF VIEW THAT N O REJECTION OF BOOKS IS CALLED FOR YEAR UNDER APPEAL. WE ALSO DERIVE SUPPO RT FROM THE DECISION OF HON. GUJ. HIGH COURT IN THE CASE OF CIT VS SYMPHONY COMFORTS SYSTEM LTD. (2013) 35 TAXMANN. COM 533 WHEREIN IT HAS BEE N HELD AS UNDER: 1. SECTION 145 OF THE INCOME-TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF INCOME [GROSS PROFIT RATE] - ASSESSMENT YEAR 2005-0 6 - ASSESSING OFFICER NOTICED THAT THERE WAS FALL IN GROSS PROFIT RATE DECLARED BY ASS ESSEE AS COMPARED TO PRECEDING YEAR AND HE MADE ADDITION ON ACCOUNT OF LOW GROSS / PROF IT RATE TO ASSESSEE'S INCOME - HOWEVER, NO SPECIFIC DEFECT IN MAINTENANCE OF BOOKS OF ACCOUNT BY ASSESSEE HAD BEEN POINTED OUT BY ASSESSING OFFICER -WHETHER ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING BOOK RESULTS AND ENHANCING GROSS PROFIT R ATE - HELD, YES [PARA 2] [IN FAVOUR OF ASSESSEE] ITA NO 677/A/2013 & CO. NO.106/A/ 2013 . A.Y. 2009- 10 7 10. CONSIDERING THE TOTALITY OF FACTS AND RELYING ON TH E AFORESAID DECISION OF HON. GUJ. HIGH COURT , WE ARE OF THE VIEW THAT THE A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ASSESSEE AND THUS THIS GR OUND OF THE REVENUE IS DISMISSED AND THUS THE C.O. OF THE ASSESSEE IS ALLO WED. 11. IN THE RESULT THE APPEAL OF REVENUE IS DISMISSED AN D CO OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 04 -10 - 2013. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD