ACIT, CHENNAI V. M/s. S.Subramanyan Construction Co. Pvt. Ltd., CHENNAI

ITA 1130/CHNY/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7946 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 12-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: DEVENDRA KUM AR BHANDARI
• Section: 143(3); 143(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI U.B.S. BEDI, J.M. AND SHRI ABRAHAM P. GEORGE, AM .. I.T.A. NOS. 1130 & 1131/MDS/2008] ASSESSMENT YEARS 2005-06 & 2006-07 THE A.C.I.T COMPANY CIRCLE VI (1) CHENNAI VS. M/S S. SUBRAMANYAN CONSTRUCTION CO. PVT. LTD. 20, SIR C.V. RAMAN ROAD ALWARPET CHENNAI PAN : AAFCS 3911 A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEVENDRA KUMAR BHANDARI DEPARTMENT BY : SHRI P.B. SEKARAN O R D E R PER U.B.S. BEDI, J.M: THESE TWO APPEALS OF THE DEPARTMENT ARE DIRECTED A GAINST THE SEPARATE ORDER PASSED BY THE CIT(A)-V, CHENNAI, BOT H DATED 21.4.2010, RELEVANT TO ASSESSMENT YEARS 2005-06 AND 2006-07 WHEREBY THE LD. CIT(A)S ACTION IN HOLDING THAT EST IMATION OF ADDITIONAL INCOME IN RELATION TO THE INCOMPLETE PRO JECTS CANNOT AT PAGE 2 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 ALL BE SUSTAINED THEREBY DELETING ADDITION OF `. 75 ,50,571/- AND `. 63,42,056/- FOR THE ASSESSMENT YEARS 2005-06 & 2006 -07 RESPECTIVELY HAS BEEN CHALLENGED. 2. THESE APPEALS WERE HEARD TOGETHER, INVOLVE SIMIL AR FACTS AND IDENTICAL ISSUE, THEREFORE, THEY ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. SINCE FACTS IN BOTH CASES ARE ALMOST SIMILAR BUT DIFFERENCE IN AMOUNT, THEREFORE, CASE FOR ASSESSMENT YEAR 2005-06 IS BEING DISCUSSED FIRST. 4. FOR ASSESSMENT YEAR 2005-06, ASSESSEE COMPANY WA S ENGAGED ON CONTRACT BUSINESS FOR CIVIL CONSTRUCTIONS. IT W AS INCORPORATED ON 15.12.1989. IT TOOK OVER THE BUSINESS OF PARTNERSH IP FIRM STYLED M/S SUBRAMANYAN AND COMPANY DURING THE F.Y. 1996-97. A SSESSEE FOLLOWS COMPLETED PROJECT METHOD OF ACCOUNTING RIGH T FROM ITS INCEPTION. RETURN DECLARING INCOME OF `. 2,25,10,4 63/- FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 31.10.2005. CASE OF THE ASSESSEE WAS SELECTED AND ASSESSMENT ORDER WAS FINALLY FRAME D ON PAGE 3 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 14.12.2007 ON TOTAL INCOME OF `. 3,00,61,034/- AS A RESULT OF WHICH DEMAND OF `. 37,19,757/- WAS DEMANDED. IN THE SCRU TINY ASSESSMENT ORDER, ASSESSING OFFICER ESTIMATED ADDIT IONAL INCOME OF `. 75,54,571/- IN RELATION TO ASSESSEES INCOMPLETE D PROJECTS WHICH WAS SHOWN BY ASSESSEE IN THE FORM OF WORK-IN-PROGRE SS. 5. SIMILAR TYPE OF ASSESSMENT FOR THE ASSESSMENT YE AR 2006-07 WAS MADE IN WHICH RETURN DECLARING INCOME OF ` . 88 ,53,072/- WAS FILED FOR ASSESSMENT YEAR 2006-07 ON 29.11.2006 WHI CH WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 [I N SHORT, THE ACT] AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS FINALLY FRAMED ON 23.12.2008 ON TOTAL INCOME OF `. 1,51,95,128/- THEREBY ESTIMATED ADDITIONAL INCOME O F `. 63,42,056/- IN RELATION TO ASSESSEES INCOMPLETED P ROJECTS WHICH WAS SHOWN BY IT IN THE FORM OF WORK-IN-PROGRESS. 4. FOR BOTH THE YEARS APPEALS WERE FILED AND LD. CI T(A) THROUGH SEPARATE ORDERS, WHILE DISCUSSING ALL THE ASPECTS I N DETAIL IN HIS ORDER, HAS CONCLUDED TO DELETE THE IMPUGNED ADDITIO NS FOR BOTH THE YEARS WHILE NOTHING THAT ITAT C BENCH IN ITA NOS. 2411 AND PAGE 4 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 2412/MDS/2007 FOR THE ASSESSMENT YEAR 2003-04 AND 2 004-05 VIDE ORDER DATED 11.7.2008 HAS UPHELD THE COMPLETED PROJ ECT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WHILE UPHOLDING THE ORDER OF THE LD. CIT(A) AND IN APPEAL PROCEEDINGS ASSESSEE H AS ALSO SUBMITTED THAT FOR ASSESSMENT YEAR 2004-05 THE HON' BLE MADRAS HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE IN APPEAL NO. 166 OF 2010 AND MP NO. 1 OF 2010 DATED 15.3.201 0 AND BY EXTRACTING THE RELEVANT PORTION OF THE CONCLUSION D RAWN BY HON'BLE MADRAS HIGH COURT, LD. CIT(A) HAS FOLLOWED THE SAID DECISION AND DIRECTED THE ASSESSING OFFICER TO MODIFY THE ORDERS ACCORDINGLY FOR BOTH THE YEARS UNDER APPEAL, THOUGH THROUGH SEPARAT E ORDERS. 5. AGAINST SUCH ORDERS OF THE LD. CIT(A), DEPARTMEN T HAS COME UP IN APPEAL AND AGITATED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER FOR BOTH TH E YEARS. 6. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE, WHILE FILING THE COPIES OF HON'BLE HIGH COURT ORDER DATED 15.3.2010 AND TRIBUNAL ORDERS IN 2411 AND 2412/MDS/2007 FOR ASSES SMENT YEARS 2003-04 AND 2004-05 HAS PLEADED THAT SINCE THE ISSU E IS COVERED IN PAGE 5 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 FAVOUR OF THE ASSESSEE, THEREFORE, APPEALS OF THE R EVENUE SHOULD BE DISMISSED FOR BOTH THE YEARS. 7. THE LD. D.R., WHILE RELYING UPON THE ORDERS OF T HE ASSESSING OFFICER, HAS PLEADED FOR REVERSAL OF THE ORDER OF T HE LD. CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER. 8. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AS WELL AS THE PRECEDENTS RELIED UPON BY THE LD. COUNSEL FOR ASSESSEE AND FIND THAT THE LD. CIT(A) HAS DRAWN HIS CONCLUSION WHILE FOLLOWING PRECEDENTS RELIED UPON BY THE ASSESSEE IN PARAS 5 TO 7 OF HIS SEPARATE ORDERS AND SAME AS CONTAINED IN ONE OF THE ORDERS IS REPRODUCED AS UNDER: 5. BEFORE US, THE LEARNED D.R. HAS CONTENDED THAT S INCE THE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM OF ACCO UNTING, BUT IT HAS ADOPTED THE COMPLETED CONTRACT METHOD IN ITS ACCOUNTS FOR THE PURPOSE OF INCOME-TAX ACT. IN ADOPT ING THIS METHOD FOR THE PURPOSE OF INCOME-TAX ACT, THE ELEMEN T OF PROFIT ARISING/ACCRUING FROM THE ON-GOING INCOMPLETE PROJECTS IS IGNORED, AND THEREBY GIVES RISE TO A DISTORTED P ICTURE OF PAGE 6 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 INCOME OF THE RELEVANT YEARS. HE HAS RELIED UPON T HE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. N.M. ASSOCIATES (2002) 256 ITR 141 (MAD.). 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESS EE HAS SUBMITTED THAT THE ASSESSEE-COMPANY HAS STARTED ITS OPERATION IN THE YEAR 1996-97. THE ASSESSEE IS A W ORKS CONTRACTOR CARRYING ON THE BUSINESS OF BUILDING FACTO RIES AND COMMERCIAL BUILDINGS. THE ASSESSEE SINCE ITS OPERAT IONS HAS BEEN FOLLOWING COMPLETED PROJECT METHOD OF ACCOUNTIN G AS PRESCRIBED UNDER ACCOUNTING STANDARD 7 AS LAID DOWN B Y THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE BOO KS OF ACCOUNTS OF THE ASSESSEE ARE PROPERLY MAINTAINED AND AUDITED BY THE QUALIFIED AUDITOR. THE RETURNS FILED BY THE A SSESSEE FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99 WERE P ROCESSED AND COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT AND THE REVENUE ACCEPTED AND RECOGNISED THE COMPLETI ON OF CONTRACT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESS EE AS PER ACCOUNTING STANDARD 7. HE THUS SUBMITTED THAT ME RELY BECAUSE THE PROFIT ON A PROJECT IS POSTPONED FROM TH E YEAR OF COMMENCEMENT OF THE PROJECT TO THE YEAR OF COMPLETI ON OF THE PROJECT, THE SAME WOULD NOT BE THE BASIS FOR TRE ATING THE ASSESSMENT MADE AS PREJUDICIAL TO THE INTERESTS OF T HE REVENUE. THE ASSESSEE HAS BEEN FOLLOWING REGULARLY A CONSISTENT METHOD OF ACCOUNTING AND THEREFORE, THE PROVISIONS OF SECTION 145 OF INCOME-TAX ACT WOULD AP PLY AND PAGE 7 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 THE DEPARTMENT IS ALSO BOUND BY THE CHOICE OF THE AS SESSEE IN ADOPTING THE ACCOUNTING METHOD. HE HAS RELIED UPON THE JUDGEMENT OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF MKB (ASIA) P. LTD V. CIT (2007) 294 ITR 655. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS AND MATE RIAL ON RECORD, WE FIND THAT THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING THE COMPL ETE CONTRACT METHOD OF ACCOUNTING SINCE ITS INCEPTION AN D FILING ITS RETURNS OF INCOME ACCORDING TO THE SAID METHOD OF ACCOUNTING WHICH WERE BEING ACCEPTED BY THE DEPARTME NT TILL THE ASSESSMENT YEAR 2003-04. WE FURTHER FOUND THAT T HE DEPARTMENT HAS NOT POINTED OUT ANY DEFECT OR INCONSI STENCY IN THE ACCOUNTING METHOD ADOPTED BY THE ASSESSEE. T HE ASSESSEE HAS SHOWN THE INCOMPLETE PROJECT IN THE FO RM OF WORK-IN-PROGRESS IN THE BOOKS OF ACCOUNTS UPON WHICH THE ASSESSING OFFICER ESTIMATED THE INCOME AT THE RATE OF 10% AND ADDED TO THE INCOME OF THE ASSESSEE AT THE TIME OF FRAMING THE ASSESSMENT BY ADOPTING THE METHOD OF INCOMPLETE PROJECT. SINCE THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E AND NEITHER ANY MATERIAL OR EVIDENCE CONTRARY TO THE SAME HAS BEEN PRODUCED NOR ANY HIGHER COURTS ORDER IN THIS REGARD HAS BEEN FI LED WHEN PRECEDENTS RELIED UPON BY ASSESSEES COUNSEL IS IN ASSESSEES OWN PAGE 8 OF 8 ITA NOS. 1130 & 1131 /MDS/2010 CASE. SINCE THERE IS NO CHANGE OF FACTS AND ISSUE I NVOLVED IS IDENTICAL, THEREFORE, FOLLOWING THE HON'BLE JURISDI CTIONAL HIGH COURT DECISION, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS BOTH THE APPEALS OF THE REVENUE. 9. IN THE RESULT, APPEALS FILED BY THE REVENUE STAN D DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.11.2010. SD/- SD/- (ABRAHAM P. GEORGE ) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 03 RD NOVEMBER 2010. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE