DCIT, UDAIPUR V. M/s. Surya Estate, UDAIPUR

ITA 110/JODH/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8015 (ITAT-JODHPUR)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-12-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Keywords: Unexplained investment; Income from undisclosed sources; Loose papers; Corroborative evidences
• Section: 133A; 153A; 32; 131; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NOS. 112 TO 116/JU/2012 ASSESSMENT YEARS: 2004-05 TO 2007-08 AND 2009-10 M/S SURYA ESTATE VS. THE DY. C.I.T 98 - INDRAPRASTH COMPLEX CENTRAL CIRCLE - 1 DELHI GATE, UDAIPUR UDAIPUR PAN NO. AAVFS 4003 N ITA NOS. 106 TO 110/JU/2012 ASSESSMENT YEARS: 2004-05 TO 2007-08 AND 2009-10 THE DY. C.I.T VS. M/S SURYA ESTATE CENTRAL CIRCLE - 98 - INDRAPRASTH COMPLEX UDAIPUR DELHI GATE, UDAIPUR PAN NO. AAVFS 4003 N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANDEEP JHANWAR DEPARTMENT BY : SHRI A.K. KHANDELWAL DATE OF HEARING : 03.12.2012 DATE OF PRONOUNCEMENT : 12.12.2012 2 ORDER PER BENCH :- THIS IS A BUNCH OF TEN APPEALS - FIVE APPEALS FILED BY THE ASSESSEE AND FIVE CROSS-APPEALS FILED BY THE RE VENUE IN RELATION TO A.YS. 2004-05 TO 2007-08 AND 2009-10 . ALL THESE APPEALS ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. CIT(A) DATED 21.12.2011. IN ALL THESE APPEA LS, ALMOST IDENTICAL ISSUES ARE INVOLVED. THEREFORE, FO R THE SAKE OF CONVENIENCE AND BREVITY, WE ARE DECIDING TH EM ALL BY THIS COMMON ORDER. 2. FOR THE SAKE OF CONVENIENCE, WE WILL NARRATE FAC TS OF A.Y. 2004-05. THE ASSESSEE IS A PARTNERSHIP FIRM AND DOES BUSINESS OF BUILDER. SEARCH & SEIZURE ACTION U/S 1 32 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT', FOR SHORT] WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE- FIRM ON 23.04.2008. DURING THE COURSE OF THIS SEARC H, INCRIMINATING DOCUMENTS /EVIDENCE IN THE FORM OF C ASH ALONGWITH LOOSE PAPERS, DIARIES SHOWING THE RECEIPTS/EXPENDIT URE RELATING TO 3 THE PROJECTS WERE FOUND. THE PROJECT IS AT RAM SINGH JI BARI, SECTOR NO. 11, UDAIPUR IN THE NAME OF SURYA ESTATE. THE WORK WAS STARTED TO DEVELOP 92 PLOTS & BUNGALOWS BUT LATER T HE ASSESSEE HAD TO LEAVE MORE AREA FOR FACILITIES AND THE PLAN OF 88 BUNGALOWS WAS FINALLY APPROVED BY THE AUTHORITIES. THE ASSESS EE GOT BOOKING FOR ALL THESE BUNGALOWS WHICH REMAINED AT DIFFERENT STAGES OF CONSTRUCTION DURING THE VARIOUS YEARS. THE CONSTRUC TION WORK WAS CARRIED OUT BY GIVING A CONTRACT TO THE CIVIL CONTR ACTORS M/S SHARMA FOUNDATION ARCHITECTS & BUILDERS, WHICH IS A PROPRI ETORSHIP CONCERN OF SHRI LALIT SHARMA, WHO ALSO HAPPENS TO B E ONE OF THE PARTNERS OF THE ASSESSEE FIRM M/S SURYA ESTATE. SI MULTANEOUSLY, A SURVEY U/S 133A WAS ALSO CONDUCTED AT THE BUSINESS PREMISES ON 23.4.2008 AND IN THIS SURVEY, CASH, STOCK AND INCRI MINATING DOCUMENTS/BOOKS OF ACCOUNT WERE FOUND AND IMPOUNDED AS PER THEIR RESPECTIVE ANNEXURES. CONSEQUENTLY, NOTICE U /S 153A WAS ISSUED ON 22.8.2008 DEMANDING FROM THE ASSESSEE TO PREPARE A TRUE AND CORRECT RETURN ON ITS TOTAL INCOME INCLUDI NG UNDISCLOSED INCOME IN RESPECT OF WHICH IT IS ASSESSABLE FOR A.Y . 2004-05, IN THE PRESCRIBED FORM AND DELIVER IT IN THE OFFICE OF THE ACIT, CENTRAL CIRCLE, UDAIPUR WITHIN 30 DAYS OF SERVICE OF THIS N OTICE DULY 4 VERIFIED AND SIGNED IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 140 OF THE ACT. IN COMPLIANCE OF THIS NOTICE, RETU RN OF INCOME [ROI] DECLARING INCOME AT NIL WAS FILED ON 24.11.20 09. THE ASSESSEE HAD NOT EVEN FILED RETURN OF INCOME ORIGIN ALLY FOR THIS YEAR ON THE REASONING THAT THE FIRM HAD STARTED CON STRUCTION OF THE BUNGALOWS AND ALL THE EXPENDITURE INCURRED WAS TAKE N TO WORK-IN- PROGRESS [WIP]. 3. THE ASSESSEE IS A REGISTERED FIRM AND IS ENGAGED IN THE BUSINESS OF REAL ESTATE WHEREIN IT IS DEVELOPING A HOUSING PROJECT OF BUILDING BUNGALOWS AND ALSO SELLING THEM. A MAJ OR PART OF THIS CONSTRUCTION OF BUNGALOWS AND SALE OF PLOTS AND LAN D HAD BEEN UNDERTAKEN AT RAM SINGH JI BARI, SECTOR NO. 11, UDA IPUR, IN THE NAME OF SURYA ESTATE. THE FIRM HAD DEVELOPED 92 PLO TS AND BUNGALOWS WHICH WERE IN PROGRESS. A TOTAL NUMBER O F 92 BUNGALOWS HAD BEEN SOLD OUT AT DIFFERENT STAGES OF CONSTRUCTION AT THE TIME OF SEARCH PROCEEDINGS. DURING THE YEAR UNDER CONSTRUCTION [F.Y. 2003-04] THE FIRM HAD STARTED CO NSTRUCTION OF BUNGALOWS AND ALL EXPENDITURE INCURRED WAS TAKEN AS WORD-IN- PROGRESS [WIP]. FOR ACCOUNTING OF THE BUSINESS TRA NSACTIONS, ASSESSEE ADOPTED PROJECT COMPLETION METHOD AS PER THE BOOKS 5 OF ACCOUNT SUBMITTED ALONGWITH RETURN OF INCOME [RO I]. THE ASSESSEE STARTED RECEIVING ADVANCE FROM ALMOST ALL THE PURCHASERS AND HAD ENTERED INTO SALE AGREEMENTS AT PRE- DETERMINED PRICES FOR EACH BUNGALOW. THIS FACT WAS FOUND CORROBORATED WITH PAPERS FOUND DURING SEARCH AND SE IZURE OPERATION. 4. AFTER EXAMINING THE RELEVANT DOCUMENTS, THE A.O. VALUED THE TOTAL PROJECT AT RS. 15 CRORES. THE ASSESSEE H AD HIRED A CONTRACTOR SHRI LALIT SHARMA, WHO IS ONE OF THE PAR TNERS OF THE ASSESSEE FIRM M/S SURYA ESTATE AND RESPONSIBLE FOR CONSTRUCTION OF BUNGALOWS ALONGWITH MATERIAL. BOOKS OF THE ASSES SEE REFLECTED IN THE BALANCE SHEET FOR INITIAL PERIODS SALE PROCE EDS W.E.F 2008- 09, ONWARDS. IN THE ORIGINAL RETURN OF INCOME [ROI ] FOR A.Y. 2007-08, THE ASSESSEE-FIRM HAD DISCLOSED TURNOVER A ND PROFIT & LOSS ACCOUNT, BUT IN THE RETURN FILED U/S 153A, THE FIRM HAS SHOWN NIL TURNOVER. ON PERUSAL OF BALANCE-SHEET AS WELL AS SEIZED MATERIAL, IT WAS FOUND THAT THE ASSESSEE HAD ACTUAL LY ENTERED INTO SALE AGREEMENT WITH VARIOUS BUYERS AND SALE PR ICE OF ALL PROJECTS WITH THE NAME M/S SURYA ESTATE WAS ASCER TAINABLE WITH REASONABLE CERTAINTY. ACCORDINGLY, THE A.O. CONCLU DED THAT THE 6 ASSESSEE MUST HAVE FOLLOWED PERCENTAGE OF COMPLETI ON METHOD [POCM] AND SHOULD HAVE PAID TAXES ACCORDINGLY OVER A PERIOD OF PROJECT EXECUTION. AS A RESULT, SHOW-CAUSE NOTICE WAS ISSUED TO THE ASSESSEE SEEKING EXPLANATION AS TO WHY IT HAD N OT FOLLOWED POCM FOR REVENUE RECOGNITION. THE AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE FILED A WRITTEN SUBMISSION ON 10.12.20 10 WHICH WAS CONSIDERED BY THE A.O. IN THIS SUBMISSION, IT WAS M ENTIONED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING AND REVENUE IS RECOGNIZED ON SALE OF GOODS WHEN ALL SIG NIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO T HE BUYERS, AND THAT THE FIRM DID NOT RETAIN ANY EFFECTIVE CONT ROL OF THE GOODS TRANSFERRED. IT WAS EXPLAINED THAT IN ASSESS EES CASE, SALES ARE ONLY EFFECTED WHEN BUNGALOW IS TRANSFERRED BY W AY OF REGISTERED SALE DEED AND HANDING OVER OF POSSESSION TAKES PLACE. IT WAS FURTHER STATED THAT PROFIT/LOSS IS ARRIVED A T AFTER VALUING CONSTRUCTION PROGRESS AND FOR THAT FIRM HAD DULY CO MPLIED WITH ALL MANDATORY ACCOUNTING STANDARDS AND ITS BOOKS AR E DULY AUDITED AS REQUIRED U/S 44AB OF THE ACT. AFTER PER USING ASSESSEES REPLY, THE A.O. WAS NOT SATISFIED BECAUS E, ACCORDING TO HIM, THE NATURE OF BUSINESS OF THE ASSESSEE AND MOD E OF 7 PREPARATION OF ITS ACCOUNTS ARE NOT ACCORDING AS PE R SECTION 145(2) OF THE ACT, AND THUS, TRUE AND FAIR PICTURE OF PROFITS HAS NOT BEEN DISCLOSED TO THE DEPARTMENT. THE A.O. HAS REFERRED TO THE GUIDANCE NOTE ISSUED BY THE COUNCIL OF INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA [ICAI] ON RECOGNITION OF REVEN UE BY REAL ESTATE DEVELOPERS AS PUBLISHED IN THE MONTH OF JUNE 2006 ISSUE OF THE CHARTERED ACCOUNTANT. THE A.O. HAS FOUND T HE FOLLOWING CONDITIONS SATISFIED IN ASSESSEES CASE. 5. ACCORDINGLY HE HAS TAKEN SALES OF BUNGALOWS AT R S. 15 CRORES WITH REFERENCE TO ANNEXURES A-18 AND A-25 PREPARED ON THE BASIS OF INCRIMINATING EVIDENCE FOUND AND SEIZED I N THE BUSINESS PREMISES OF SHRI LALIT SHARMA, SITUATED AT 98, INDR APRASTH COMPLEX, WHICH IS ALSO THE OFFICE OF ASSESSEE. AS PER PAGE NOS. 1 ,2 AND 3 OF ANNEXURE A-38, FOUND FROM THIS PREMISE, IT HAS BEEN GATHERED THAT THE ASSESSEE HAS TAKEN TOTAL AMOUNT O F SALES FROM THE 92 BUNGALOWS AT RS. 13,63,62,000/-. THE NOTING S ON THESE PAPERS REFLECTED RECEIPTS, DUES AND EXTRA WORK DONE FOR BUNGALOW NO. 1 AT RS. 3,50,000 + 154500 + 9000. ON THE BASIS OF ANNEXURE A-18 AND A-25, THE EXTRA WORK DONE, COS T OF EXTRA 8 LAND EXTRA CHARGES HAVE BEEN WORKED OUT TO RS. 1,21 ,75,813/- WHICH IS EXCLUDED WITH TOTAL SALE VALUES OF THESE B UNGALOWS. 6. AFTER THAT, THE A.O. TOOK COST OF CONSTRUCTION/E XPENDITURE AS DECLARED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AND SHOWN AS WIP AS WELL AS SALE RESPECTIVELY IN DIFFERENT YE ARS AND TOTAL COST OF CONSTRUCTION WAS TAKEN AT RS. 9,62,76,238/- FOR THE PERIOD 2004-05 TILL 2011-12. WITH REFERENCE TO DVO S REPORT, THE A.O. ALSO INFERRED POCM. DURING SURVEY, STATEM ENT OF SHRI LALIT SHARMA, WHO IS ALSO A PARTNER OF THE ASSESSEE -FIRM AND WHOSE CONCERN, NAMELY, M/S SHARMA FOUNDATION ARCHIT ECTS & BUILDERS, WAS GIVEN CONTRACT FOR CONSTRUCTION @ RS. 450/- PER SQFT. WAS ALSO RECORDED. IN HIS STATEMENT, SHRI LA LIT SHARMA STATED THAT THE BOOKS OF ACCOUNT OF THE FIRM FOR TH E CURRENT F.Y. WERE NOT MAINTAINED IN THE OFFICE OF THE FIRM BUT ARE MAINTAINED IN THE OFFICE OF THEIR AUTHORIZED REPRES ENTATIVE SHRI PANKAJ NEVATIA, CA, WHOSE OFFICE IS SITUATED A DJACENT TO THE OFFICE OF THE FIRM IN INDRAPRASTH COMPLEX. CON SEQUENTLY, STATEMENT OF SHRI PANKAJ NEVETIA WAS ALSO RECORDED U/S 131 OF THE ACT WHO STATED THAT NO BOOKS OF ACCOUNT OF THE ASSESSEE- FIRM WERE MAINTAINED IN HIS OFFICE. FINALLY, SHRI LALIT SHARMA 9 ADMITTED THAT, IN FACT, NO BOOKS OF ACCOUNT OF THE FIRM FOR THE CURRENT F.Y. HAD BEEN PREPARED TILL THE DATE OF SUR VEY. LIST OF REGISTERS, RECEIPT BOOKS, DOCUMENTS, LOOSE PAPERS F OUND AT THE BUSINESS PREMISES OF THE FIRM WERE INVENTORISED AS PER ANNEXURE A. DURING SURVEY, CASH AMOUNT OF RS. 8330 00/- WAS PHYSICALLY FOUND AT THE BUSINESS/OFFICE PREMISES WH ICH WAS INVENTORISED. AS BOOKS OF ACCOUNT WERE NOT MAINTAIN ED, THIS CASH COULD NOT BE VERIFIED. LATER, THE ASSESSEE OFF ERED THIS AMOUNT FOR TAXATION AS ITS UNEXPLAINED INCOME. SHR I LALIT SHARMA ALSO STATED THAT HOUSE CONSTRUCTED ON THE PL OTS OF 30 THE SIZES `30 X 60 AND 25` X 60 WERE SOLD AT THE PR ICE OF 13.13.5 LAKHS AND 13.15 LAKHS, RESPECTIVELY. THE ASSESSEE OFFERED AN AMOUNT OF RS. 53.13 LAKHS AS PROFIT ON S ALE OF HOUSES FOR HE CURRENT YEAR ON THE GROUND THAT PROFI T OF RS. 1.25 LAKHS PER BUNGALOW WAS ARRIVED AT ON ESTIMATE BASIS. THUS, TOTAL PROFIT FROM ALL BUNGALOWS WAS TAKEN ON ESTIMATE BASIS WAS WORKED OUT AT RS. 106.25 LAKHS AND BECAUS E 50% OF THE PROJECT HAD BEEN COMPLETED DURING THE CURRENT Y EAR, A TOTAL PROFIT FOR CURRENT YEAR WAS WORKED OUT AT RS. 53.13 LAKHS. 10 7. AS PER THESE IMPOUNDED LOOSE PAPER ANNEXURE A-8 AND A- 10, THE ASSESSEE UNDERTOOK SOME EXTRA WORK APART FR OM NORMAL PROJECT WORK AT THE SITE, WHICH WORKED OUT A T RS. 27,05,285/-. THE ASSESSEE ESTIMATED PROFIT @ 15% O N THIS RECEIPT AND OFFERED AN AMOUNT OF RS. 4.05 LAKHS AS ITS UNDISCLOSED INCOME FOR THE CURRENT YEAR. AS PER PA GE 11 OF IMPOUNDED A-8 AND PAGE 6 & 7 OF ANNEXURE A-10, A DI FFERENCE IN THE PRICE OF BUNGALOW WAS ALSO NOTICED. THIS DI FFERENCE CAME TO RS. 15.55 LAKHS. IN THIS REGARD, IT WAS ST ATED THAT THIS AMOUNT FOR WHICH NO RECEIPTS HAD BEEN ISSUED WAS BE ING OFFERED AS ASSESSEES UNDISCLOSED INCOME FOR THE CU RRENT YEAR. THE STATEMENT OF SHRI LALIT SHARMA WAS RECORDED ON 16.3.2007. AS A RESULT OF SURVEY AND THE STATEMENT RECORDED AS WELL AS DOCUMENTS FOUND, THE ASSESSEE HAS OFFERE D TOTAL UNDISCLOSED INCOME OF RS. 81.08 LAKHS FOR A.Y. 2007 -08 AND AGREED TO PAY TAX THEREON. ANOTHER PARTNER, SHRI J ITENDRA SINGH, IN HIS STATEMENT RECORDED ON 17.3.007 AND SH RI VINOD JAIN IN HIS STATEMENT RECORDED ON 16.3.2007 ALSO AG REED WITH THIS DISCLOSURE OF UNDISCLOSED INCOME MADE BY SHRI LALIT SHARMA. THEREFORE, THE A.O. FOUND THAT PROJECT WAS 11 COMPLETED 50% ON THE DATE OF SURVEY AND THE ASSESSE E HAD RECEIVED ADVANCE FROM THE CUSTOMERS BUT HAD NOT DIS CLOSED PROFIT IN IS RETURN OF INCOME. 8. TO SUMMARIZE, DURING SEARCH ON 23.4.2008, VARIOU S INCRIMINATING EVIDENCE WERE FOUND AND SEIZED. THES E DOCUMENTS WERE CONFRONTED TO SHRI LALIT SHARMA WHER EIN HE ACCEPTED THE NON-MAINTENANCE OF BOOKS OF ACCOUNT. IT WAS ALSO NOTICED THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON ESTIMATION. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN ALL THE ABOVE ANO MALIES THROUGH OFFICE LETTER DATED 18.2.2010 WHICH IS AS U NDER: 'FROM THE ABOVE ANNEXURES AND DURING SEARCH AND SUR VEY, IT WAS FOUND THAT YOU ARE A REGISTERED FIRM AND ENGAGE D IN THE BUSINESS OF REAL ESTATE, PURCHASE/SALE OF LANDS/PLO TS AND CONSTRUCTION OF BUNGALOWS/FLATS AT UDAIPUR. A MAJOR PART OF CONSTRUCTION OF BUNGALOWS AND SALE OF PLOTS LANDS H AS BEEN UNDERTAKEN AT RAM SINGH JI BARI, SECTOR NO 11, UDAI PUR. YOU WERE DEVELOPED THE LANDS/PLOTS AND CONSTRUCTION S OF 92 BUNGALOWS WERE IN PROGRESS. THE TOTAL 92 BUNGALOWS HAVE BEEN SOLD OUT, WHICH WERE AT DIFFERENT STAGES OF CONSTRUCTION. HOWEVER, SINCE THE PLOTS/LAND ON WHIC H THESE BUNGALOWS WERE CONSTRUCTED, WAS NOT CONVERTED FOR 12 RESIDENTIAL PURPOSES BY THE UIT, UDAIPUR, THE LANDS /PLOTS HAVE BEEN REGISTERED IN BUNGALOWS HAVE BEEN BOOKED IN THE NAMES OF VARIOUS PERSONS AND SOME AMOUNTS HAVE BEEN RECEIVED ON THIS ACCOUNT BY M/S SURYA ESTATE & M/S SHARMA FOUNDATION, WHICH WAS HANDLING THE CONSTRUCT ION WORK OF THIS PROJECT. IN THIS CONNECTION, YOU ARE R EQUESTED TO EXPLAIN/FURNISH THE FOLLOWINGS: PLEASE EXPLAIN AS TO HOW THE LANDS HAVE BEEN ACQUIR ED BY YOU FOR THIS PROJECT. FURNISH SUPPORTING EVIDENCES. PLEASE EXPLAIN THE SOURCE OF INVESTMENT IN THESE LA NDS SUPPORTED BY DOCUMENTARY EVIDENCE FAILING WHICH UNEXPLAINED INVESTMENT IN THESE ASSETS WILL BE BROU GHT TO TAX IN YOUR HAND IN THE RELEVANT ASSESSMENT YEAR AS INCOME FROM UNDISCLOSED SOURCES. PLEASE GIVE THE MODE OF PAYMENT OF CONSIDERATION AM OUNT AND DETAILS OF OTHER RELATING EXPENSES IN RESPECT O F ABOVE MENTIONED PROPERTIES BE FURNISHED. AFTER PURCHASING THE LANDS FOR THIS PROJECT, YOU HA VE CONSTRUCTION 92 BUNGALOWS ON THESE LANDS. IN THIS R EGARD, YOU ARE REQUESTED PLEASE FURNISH BUNGALOW-WISE DETA ILS OF EXPENSES INCURRED ON CONSTRUCTION AND OTHER RELATED ACTIVITIES. PLEASE ALSO EXPLAIN THE SOURCES OF THES E EXPENDITURES. 13 PLEASE FURNISH BOOKING LIST OF THESE BUNGALOWS ALON GWITH COPIES OF APPLICATIONS. PLEASE ALSO GIVE DETAILS OF ADVANCES RECEIVED FROM THE CUSTOMERS. PLEASE FURNISH THE NAME AND COMPLETE ADDRESS OF THE CONTRACTOR WHO DONE THE CONSTRUCTION WORK FOR THIS PROJECT. FILE COPY OF ACCOUNT. PLEASE ALSO FILE COPY OF ANY AGREEMENT EXECUTED FOR THIS PURPOSE. FILE COMPLETE PARTICULARS OF SALE CONSIDERATION OF EACH BUNGALOW SUCH AS COMPLETE NAMES, ADDRESSES, PAN AND NAMES OF A.O. OF THE BUYERS OF THESE BUNGALOWS, AMO UNT OF SALE CONSIDERATION, MODE OF RECEIPT, BANK ACCOUN TS IN WHICH AMOUNT/CHEQUES, COPY OF SALE DEED, COPY OF RE GISTRY, DATE OF TRANSACTIONS, DATE OF PAYMENTS RECEIPTS, RE ASONS VARIATION IN RATE AS PER DLC AND SALE CONSIDERATION , NAME OF MEDIATOR ETC. ALL THESE INFORMATION SHOULD BE SUPPORTED WITH DOCUMENTARY EVIDENCE. 9. THE ASSESSEE DID NOT FILE ANY REPLY. THUS THE A .O. ON THE BASIS OF DOCUMENTS AVAILABLE BEFORE HIM AND WITH RE FERENCE TO ACCOUNTING POLICY REGARDING RECOGNITION OF REVENUE ARISING OUT OF REAL ESTATE SALES AND TAKING INTO ACCOUNT THE TIME OF TRANSFER OF SIGNIFICANT RESULTS AND REWARD ON REAL ESTATE WHICH IS SUBJECT MATTER OF SALE, REJECTED THE BOOKS OF ACCOUNT U/S 1 45(3) AND 14 AFTER APPLYING ACCOUNTING STANDARD 7 COMPUTED THE ACTUAL PROFIT OF THE ASSESSEE FOR A.YS. 2004-05 TO 2009-10 AS UNDER, AND MADE ADDITION OF RS. 21,10,208/-: PERIOD OF EXPENDITUR E % OF COST OUT PROFIT PROFIT PROFIT TO CONSTRUCT SHOWN BY COMPLETION OF TOTAL WORKED DECLARED BE ADDED ON (A.Y.) THE OUT TOTAL 15 CRORES OUT IN RETURN IN THE ASSESSEE COMPLETION OF HANDS OF 81.03% DURING THE THESE YEAR ASSESSEE. (I.E. A Y 2004 - 05 TILL 2009 - 10) 1 2 3 4 5 6 7 2004-05 2029792 2.76 4140000 2110208 0 2110208 2005-06 6407954 8.02 12030000 5622046 0 5622046 2006-07 3250018 3.89 5835000 2584982 305923 2279059 2007 - 08 27232271 31.16 46740000 19507729 200000 19307729 2008-09 23043935 23.37 35055000 12011065 10703202 1307863 2009-10 13533375 11.83 17745000 4211625 135715 4075910 ADDITION OF RS. 2110208/- 8.26. ADDITION ON ABOVE COUNT IS CONSIDERED AS CONC EALED INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME U /S 271 (L)(C) OF THE IT. ACT AND PENALTY PROCEEDINGS FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME U/S 271 (L)(C) ARE INITIATED SEPARATELY. 9. COMPUTATION OF INCOME RETURNED INCOME 0 15 ADD : AS PER PARA NO. 8.25 2120208 TOTAL TAXABLE INCOME 2110208 ROUNDED OFF 2110110 10. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFO RE THE LD. CIT(A) WHO HAS DEALT WITH A.YS. 2004-05 TO 2009-10, CONJOINTLY, AND HAS GIVEN A PART RELIEF IN ALL A.YS. EXCEPT FOR A.Y. 2007-08 IN WHICH HE HAS ENHANCED INCOME FROM RS. 1,93,07,729/- TO RS. 2,28,55,213/-. NOW BOTH THE PARTIES ARE AGGRIEVED. 11. IN ALL APPEALS ISSUES ARE ALMOST IDENTICAL AND THE DECISION OF A.Y. 2004-05 WILL ALSO APPLY TO OTHER A.YS. 12. GROUNDS FOR A.Y. 2004-05 RAISED BY THE ASSESSEE ARE AS UNDER: 1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE CIT(A)CENTRAL), JAIPUR HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE ADDITION OF RS. 21,10,208/- EVEN TH OUGH THE AO'S ACTION OF DETERMINING INCOME BASED ON PERCENTA GE COMPLETION METHOD AS PER ACCOUNTING STANDARD (AS) 7 HAS BEEN APPROVED. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE 16 CIT(A)(CENTRAL), JAIPUR HAS ERRED IN LAW AS WELL AS ON FACTS IN TAKING SUPPORT OF GUIDANCE NOTE ON RECOGNITION OF R EVENUE BY REAL ESTATE DEVELOPERS ISSUED BY THE ICAI, NEW DELH I IN NOV. 2011 WHICH WILL BE APPLICABLE ON OR AFTER 0 1.04.2012 AND ALSO ON DISCUSSION PAPER ON TAX ACCOUNTING STANDAR DS PUBLISHED BY THE CBDT IN OCT.2011 WHICH HAS NOT YET MADE APPLICABLE AND HOLDING THAT LESS THAN 25% OF THE ST AGE OF COMPLETION IS TREATED AS EARLY STAGE OF COMPLETION WHEN REVENUE COULD NOT BE RELIABLY ESTIMATED AND PROFIT IS TO BE TAKEN AS NIL DESPITE THE FACT THAT THERE IS NO SUCH PROVISION IN AS-7. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A)(CENTRAL), JAIPUR HAS ERRED IN LAW AS WELL AS ON FACTS DESPITE THE FACT THAT THERE WERE SUBSTANTIAL RECE IPTS FROM CUSTOMERS AND HUGE EXPENSES WERE INCURRED ON CONSTRUCTION ACTIVITIES THUS THE PROPORTIONATE PROF IT HAS TO BE TAXED IN THE HANDS OF THE ASSESSEE. 4 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E THE CIT(A)(CENTRAL), JAIPUR HAS ERRED IN LAW AS WELL AS ON FACTS IN ADOPTING THE VALUE OF TOTAL REVENUES AT RS. 14,53,4 3.822/- AS AGAINST THE VALUE TAKEN BY THE AO OF RS. 15 CRORE S PREAD OVER THE PERIOD OF A.Y. 2004-05 TO 2010-11. 17 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A)(CENTRAL), JAIPUR HAS ERRED IN LAW AS WELL AS ON FACTS IN ALLOWING CLAIM OF ADMINISTRATIVE EXPENSES TO THE AS SESSEE WHEN SUCH CLAIM HAD NOT BEEN RAISED 13. GROUNDS RAISED BY THE ASSESSEE IN ALL OTHER APP EALS AS WELL AS GROUNDS RAISED BY THE REVENUE IN ALL OTHER APPEA LS ARE ALMOST IDENTICAL AND, THEREFORE, WHATEVER DECISION IS TAKE N IN THIS APPEAL WILL ALSO APPLY MUTATIS MUTANDIS TO ALL OTHE R APPEALS. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. IT WAS ARGU ED BEFORE US BY THE LD. A.R. THAT THE MAIN AND SOLE DISPUTE IN A LL APPEALS IS REGARDING APPLICATION OF PERCENTAGE OF COMPLETION METHOD [POCM] WHICH HAS BEEN ADOPTED BY THE A.O. IN ARRIVI NG AT UNDISCLOSED INCOME IN ALL THE YEARS UNDER APPEAL. IT WAS FURTHER ARGUED THAT IT IS A FACT THAT PROFIT IN BOOKS OF AC COUNT WERE NOT FOUND RECORDED AT THE TIME OF SEARCH AS THEY DID NO T INCLUDE ENTIRE RECEIPTS/EXPENDITURE BUT THE ASSESSEE HAD CO MPLETED BOOKS OF ACCOUNT LATER ON, ON THE BASIS OF EVIDENCE /DOCUMENT FOUND DURING SEARCH AND ON THAT BASIS RETURN OF INC OME WAS FILED 18 IN COMPLIANCE OF NOTICE ISSUED U/S 153A OF THE ACT. A FINANCIAL STATEMENT WAS ALSO PREPARED ON THE BASIS OF BOOKS O F ACCOUNT. HE ARGUED THAT AFTER INITIATION OF PROCEEDINGS U/S 153A, ALL ASSESSMENT PROCEEDINGS U/S 153A, ALL OTHER ASSESSME NT PROCEEDINGS IN VOGUE RELATING TO THESE VERY A.YS. W OULD NOT SURVIVE. IN THIS BACKGROUND, THE MAIN ARGUMENT ADV ANCED BY THE LD. A.R. WAS THAT THE BOOKS ARE PREPARED ON THE BAS IS OF DOCUMENTS FOUND DURING SEARCH/SURVEY HAVE TO BE REL IED AND CONSIDERED. SINCE NO SPECIFIC DEFECT, MUCH LESS AN Y MATERIAL DEFECT, IS POINTED OUT BY THE DEPARTMENT IN THESE B OOKS OF ACCOUNT, THERE IS NO QUESTION OF THEIR REJECTION AN D THE SAME HAVE TO BE ACCEPTED. IT WAS ALSO ARGUED THAT THERE IS NO DISPUTE IN RESPECT OF METHOD OF ALLOCATION OF PROFITS IN VA RIOUS YEARS WHILE PREPARING ANNUAL FINANCIAL STATEMENT. HE EVE N SUGGESTED THAT IN BOTH SITUATIONS, WHEN PROFIT IS DETERMINED FOR VARIOUS YEARS ON PROPORTIONATE BASIS AT VARIOUS STAGES OF P ROJECT OR IN ONE GO IN A YEAR WHEN VARIOUS UNITS ARE HANDED OVER TO BUYERS AFTER THEIR COMPLETION ARE SUM AND EQUAL IN ALL RES PECTS. IT WILL NOT AFFECT THE PROFITABILITY AND WILL NOT BE A DIST ORTED PICTURE OF INCOME OF THAT PARTICULAR YEAR[S]. HE FURTHER ARGU ED THAT BASIC 19 PRINCIPLE INVOLVED IN APPLICATION OF POCM FOR DETER MINING INCOME OF ANY ASSESSEE IS BASED ON SIGNIFICANT RISK AND REWARD OF ASSET WHICH ARE SUBJECT MATTER OF CONSTRUCTION AND SALE. WHEN RISK AND REWARD ARE TRANSFERRED, THE ASSESSEE CONTI NUES TO WORK ON THEIR BEHALF. IN NUT-SHELL, THE CONTENTION OF T HE LD. A.R. IS THREE-FRONGED - (I) THAT POCM IS NOT MANDATORY MET HOD TO BE FOLLOWED BY REAL ESTATE DEVELOPERS IN TERMS OF VARI OUS GUIDELINES ISSUED BY ICAI WHICH ARE ALWAYS RECOMMENDATORY IN N ATURE; (II) THE PRINCIPLES PROPOUNDED UNDER POCM ARE NOT MANDAT ORY TO BE FOLLOWED UNDER THE I.T. ACT, 1961, AND (III) PRINCI PLES PROPOUNDED ARE NOT APPLICABLE TO THE FACTS AND CIRC UMSTANCES OF THE ASSESSEES CASE. 15. PER CONTRA, THE LD. CIT, DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW. HE HAS REPEATED REASONS GIVEN BY THE A.O. AND THE LD. CIT(A) SUITING TO REVENUE BUT HAS CONTE STED THE FINDING OF LD. CIT(A) TO THE EXTENT THE REVENUE IS IN APPEAL. 20 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS VIS-A-V IS THE ENTIRE EVIDENCE AVAILABLE ON RECORD IN THE LIGHT OF ORAL S UBMISSION OF THE PARTIES, WE HAVE FOUND IT FOR A FACT THAT LAND CONVERSION FROM AGRICULTURE TO NON-AGRICULTURE TOOK PLACE IN T HE MONTH OF OCTOBER, 2008 AND CONVERSION CHARGES WERE PAID BY T HE ASSESSEE WHICH ARE ALSO RECORDED. SO, RISK AND REWARD IN TH ESE ASSETS WERE TRANSFERRED ONLY ON THOSE DATES OR THEREAFTER BUT NOT BEFORE THIS DATE. IN OUR CONSIDERED OPINION, APPLI CATION OF METHOD OF POCM IS NOT JUSTIFIED. THE ASSESSEE HAD TAKEN OVER PROJECT OF CONSTRUCTION OF BUNGALOW FOR SELLING THE M TO PROSPECTIVE BUYERS AND ALSO RECEIVED ADVANCE FROM T HEM. THESE AMOUNTS ARE SHOWN AS LIABILITY IN ASSESSEES BOOKS OF ACCOUNT AND FINANCIAL STATEMENTS. NO WRITTEN AGREEMENTS WE RE FOUND RELATING TO THESE TRANSACTIONS OF SALE OF BUNGALOWS WHICH WERE ADMITTEDLY UNDER CONSTRUCTION. WE HAVE NOTICED THA T POCM IS NOT MANDATORY METHOD TO BE FOLLOWED BY ANY REAL EST ATE DEVELOPER. GUIDANCE-NOTES ISSUED BY ICAI ARE ALWAY S RECOMMENDATORY IN NATURE AND THESE CANNOT BE MANDAT ORY. THEY DIFFER FROM THE ACCOUNTING STANDARD WHICH ARE MANDATORY IN NATURE AND ARE TO BE FOLLOWED BY ANY OF THE MEMB ERS OF THE 21 ICAI. AS PER THESE GUIDANCE-NOTES RECOGNITION OF R EVENUE ON POCM ARISES ONLY IN CASES WHERE THERE IS A LEGALLY ENFORCEABLE CONTRACT HAVING EFFECT OF TRANSFERRING ALL SIGNIFIC ANT RISKS AND REWARDS. THUS, WE ARE SATISFIED THAT DEVELOPER/BUI LDER WORKS LIKE A CONTRACTOR WHO PERFORMS CONSTRUCTION WORK ON BEHALF OF BUYERS ONLY. THIS INCOME CAN BE RECOGNIZED IN THE MANNER PROVIDED IN AS-7 WHICH APPLIES TO CONTRACTORS WHO D O NOT TAKE UP CONSTRUCTION ON THEIR OWN BUT TAKE ON BEHALF OF THEIR PRINCIPAL. THE GUIDANCE-NOTE DOES NOT APPLY WHEN S ELLER KEEPS NO EFFECTIVE CONTROL ON THE SOLD PROPERTY. THUS, T HE PRICE RISK IS ONE OF THE FACTORS WHICH IS RELEVANT FOR DETERMININ G WHETHER THE BUILDER/DEVELOPER IS WORKING ON HIS OWN BEHALF OR O N BEHALF OF THE BUYER. OTHER RELEVANT FACTORS ARE (I) IF THE B UYER WOULD BE RESPONSIBLE FOR LOSSES BY NATURAL CALAMITIES DURING CONSTRUCTION PERIOD?; (II) IF THE BUYER WOULD BE RESPONSIBLE FOR MAJOR COSTS ESCALATION DURING CONSTRUCTION PERIOD?, AND (III) I F THE LAND IS LEGALLY TRANSFERRED IN THE NAME OF BUYER OR ONLY TH IS CONSTRUCTION ACTIVITY IS TAKEN UP. ADMITTEDLY, THERE IS NO WRIT TEN AGREEMENT IN RESPECT OF THE TRANSACTIONS OF SALE OF BUNGALOWS WHICH WERE UNDER CONSTRUCTION. IT IS FOUND FOR A FACT THAT RE SPONSIBILITY OF 22 THE CONVERSION OF LAND IS THAT OF THE ASSESSEE AND CONVERSION TOOK PLACE IN THE MONTH OF OCTOBER 2008. OBVIOUSLY , RISK AND REWARD OF TRANSACTION WAS TRANSFERRED IN FAVOUR OF THE CUSTOMER ONLY AFTER THE CONVERSION OF LAND TITLE. TILL THEN , ENTIRE RISKS RELATING TO NON-CONVERSION, DAMAGES AND RISK OF GOV ERNMENT ACQUISITION, TILL ITS POSSESSION IS HANDED OVER TO THE BUYER AND REGISTRATION IN THEIR FAVOUR ARE OF THE ASSESSEE. ANY ADVANCE MONEY RECEIVED OR SHOWN IN THE FINANCIAL STATEMENT HAS TO BE GIVEN BACK IF THE ASSESSEE FAILS TO GIVE POSSESSION OF THE PROPERTY AND TRANSFER THE LEGAL TITLE. THUS, IT IS AMPLY CL EAR THAT ALL RISKS AND REWARDS IN THIS PROPERTY GETS TRANSFERRED ON TR ANSFER OF POSSESSION OR WHEN POSSESSION IS HANDED OVER TO BUY ER AND NOT BEFORE THAT. THUS, REVENUE RECOGNITION WOULD TAKE PLACE ONLY THEREAFTER. THE LD. A.R. HAS RELIED ON THE DECISIO N OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. M OTI LAL C. PATEL REPORTED IN 173 ITR 666, WHEREIN IT HAS BEEN HELD AS UNDER: UNLESS AND UNTIL THE SALE IN FAVOUR OF THE SOCIETY WAS COMPLETED, THE ASSESSEE COULD NOT HAVE CLAIMED ANY PART OF THE AMOUNT WHICH IT HAD RECEIVED BY WAY OF EARNE ST 23 MONEY AND TOWARDS THE PRICE AS ITS PROFIT. . THE AS SESSEE WOULD HAVE EARNED PROFIT ONLY ON COMPLETION OF THE SALE IN FAVOUR OF THE SOCIETY. AFTER CORRECTLY APPRECIATING THE POSITION IN LAW AN D HOLDING THAT THE ONLY RIGHT WHICH THE AGREEMENT FOR SALE CONFERS IS THE RIGHT TO OBTAIN ANOTHER DOCUMENT, NA MELY, THE SALE DEED, THE TRIBUNAL FELL INTO AN ERROR IN R EACHING THE CONCLUSION THAT THE AMOUNT WHICH THE ASSESSEE H AD RECEIVED IN S.Y. 2027 REPRESENTED ITS INCOME EARNED IN THAT YEAR. SUCH A CONCLUSION COULD NOT HAVE BEEN REACHED WITHOUT FIRST DECIDING WHETHER THE SAID AMOUNT REPR ESENTED PROFIT EARNED BY THE ASSESSEE IN S.Y. 2027. THE AMO UNTS WHICH THE ASSESSEE HAD RECEIVED IN S.Y. 2027, WERE AMOUNTS OR ADVANCES TOWARDS THE PRICE OF THE LAND AND THEY WOULD NOT BECOME OR REPRESENT THE ASSESSEE'S PROFIT UNLES S AND UNTIL THE SALE TRANSACTION IN FAVOUR OF THE SOCIETY WAS COMPLETED AS PROVIDED IN THE AGREEMENT. THE ASSESSE E RECEIVED THE BALANCE OF THE SALE PRICE IN S.Y. 2028 ON COMPLETION OF THE SALE. IT WAS ON COMPLETION OF THE SALE THAT THE AMOUNTS WHICH THE ASSESSEE HAD RECEIVED IN S.Y. 2027 AND THE BALANCE OF THE SALE PRICE WHICH IT HAD RECEIVED IN S.Y. 2028 BECAME THE PROFIT OF THE ASSE SSEE. THE AMOUNTS WHICH THE ASSESSEE RECEIVED FROM THE SO CIETY AFTER DEDUCTING THE PRICE OF THE LAND REPRESENTED T HE ASSESSEE'S PROFIT OR INCOME EARNED BY IT IN S.Y. 20 28. THE 24 ENTIRE AMOUNT WHICH INCLUDED THE SUM RECEIVED BY TH E ASSESSEE IN S.Y. 2027, WAS THE INCOME EARNED BY THE ASSESSEE IN S.Y. 2028. THIS AMOUNT, REPRESENTS THE DIFFERENC E BETWEEN THE PRICE PAID BY THE SOCIETY TO THE ASSESS EE AND THE PRICE PAID BY THE ASSESSEE. IN OTHER WORDS, THI S DIFFERENCE IS THE PROFIT WHICH THE ASSESSEE EARNED ON COMPLETION OF THE SALE TRANSACTION WITH THE SOCIETY. THE ITO AND THE AAC WERE, THEREFORE, RIGHT IN INCLUDING THE AMOUNT IN THE ASSESSEE'S TOTAL INCOME FOR THE ASSES SMENT YEAR UNDER REFERENCE. 17. THE ABOVE DECISION SUPPORTS THE CLAIM OF THE AS SESSEE. WE ARE ALSO CONVINCED THAT THERE IS NO DEFECT, MUCH LE SS ANY MATERIAL DEFECT, WHICH IS POINTED BY THE A.O. IN TH E BOOKS AND ENTRIES WHICH WERE PREPARED ON THE BASIS OF DOCUMEN TS FOUND DURING SEARCH. RECOGNITION OF REVENUE AND ITS BREA K-UP IS IN CONTROVERSY. IN THE BACKGROUND OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, IT HAS BEEN ESTABLISHED THAT REJECTION OF BOOKS OF ACCOUNT AND REJECTION OF METHOD OF ACCOUNTING APPLI ED BY THE ASSESSEE TO DRAW ANNUAL FINANCIAL STATEMENT AND TOT AL INCOME FOR ALL THESE YEARS IS NOT JUSTIFIED AT ALL. WHEN ONCE REJECTION OF BOOKS IS FOUND TO BE NOT PROPER AND BOOK RESULTS IS APPLIED, THE BOOK RESULTS HAS TO BE ACCEPTED BY THE A.O. THE A. O. HAS TO 25 COMPUTE INCOME OF THE ASSESSEE RELYING ON THE BOOKS OF ACCOUNT AND TAKING INCOME ON THE BASIS OF POCM. ACCORDINGL Y, NO ADDITION ON THE IMPUGNED BASIS CAN BE MADE OR SUSTA INED IN ALL THESE YEARS. WE ORDER ACCORDINGLY. OUR ABOVE CONCL USION TAKES CARE OF OTHER GROUNDS OF APPEAL, EVEN RAISED BY THE REVENUE. WHEN THE CORRECTNESS OF BOOKS OF ACCOUNT IS UPHELD, ANY FURTHER ADDITION MADE AFTER REJECTION OF BOOKS OF ACCOUNT, WOULD NOT SURVIVE. ALL FIVE APPEALS OF THE REVENUE WILL BECO ME ACADEMIC NOW. 18. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED WHEREAS ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 12 TH DECEMBER, 2012. SD/- SD/- (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12 TH DECEMBER, 2012 VL/- 26 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) BY ORDER 5. THE DR ASSISTANT REGISTRAR ITAT, JODHPUR