The Dy. Commissioner of Income Tax, Circle-3(1), Hyderabad V. M/s.R.K.Township Promoters Pvt., Ltd., Hyderabad

ITA 1305/HYD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6613 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 27-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Search and seizure; Loose papers; Cost of acquisition; Corroborative evidences; Assessment record; Revised return
• Section: 44AD; 40A(3); 143(3); 153A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1255, 1256, 1257, 1258, 1259, 1260 & 1261/ HYD/2013 A.YS.: 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 & 2006-07 R.K. TOWNSHIP PROMOTERS PVT. LTD., HYDERABAD. PAN AACCR 3049 K VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 1306, 1307, 1308, 1309, 1310, 1311 & 1305/ HYD/2013 A.YS. : 2000-01, 2001-02, 2002-03, 2003-04, 2004-05 , 2005-06 & 2006-07 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), HYDERABAD. VS. R.K. TOWNSHIP PROMOTERS PVT. LTD., HYDERABAD. PAN AACCR 3049 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SHRI B. KURMI NAIDU DATE OF HEARING 03-03-2016 DATE OF PRONOUNCEMENT 29-04-2016 O R D E R PER BENCH: THIS GROUP OF APPEALS FILED BY THE ASSESSEE AND RE VENUE ARE AGAINST A COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) IV, DATED 10/07/2013 FOR AYS 2000- 01 TO 2006-07. AS THE ISSUES INVOLVED ARE COMMON, THESE APPEALS ARE D ISPOSED IN THIS COMBINED ORDER. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PRIVATE LIMITED COMPANY PROMOTED IN THE YEAR 1995 AND REGUL ARLY ASSESSED TO 2 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. TAX. THE ASSESSEE COMPANY CONSISTS OF TWO DIRECTORS BY NAME SRI MALA KONDAIAH AND SMT BALA KONDAMMA. THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE I.E. PURCHAS E OF LANDS, DEVELOPING OF THE PLOTS AND SELLING OF THE SAME ON INSTALLMENT BASIS. THE ASSESSEE LAID OUT VENTURES AT VARIOUS PLACES AT VIZAG, RAJAMUNDRY, VIJAYAWADA AND HYDERABAD. THE ASSESSING OFFICER MADE A REFERENCE U/S.142(2A) OF THE INCOME TAX ACT (IN S HORT ACT) FOR SPECIAL AUDIT. AFTER RECEIPT OF THE SPECIAL AUDIT R EPORT THE ASSESSING OFFICER FINALIZED THE ASSESSMENT PROCEEDINGS FOR AL L THE ASSESSMENT YEARS 2000-2001 TO 2006-07 VIDE ORDER U/S.143(3) R. W.S 153A R.W.S. 254 OF THE IT ACT DATED 16.08.2012. WHILE COMPLETIN G THE ASSESSMENT, THE ASSESSING OFFICER NOT ONLY ADOPTED THE INCOME FIGURES AS SUGGESTED IN SPECIAL AUDIT REPORT BUT AL SO MADE CERTAIN OTHER ADDITIONS. THE PRESENT APPEALS ARE AGAINST TH E ABOVE ORDERS OF THE ASSESSING OFFICER FOR THE ASST. YEARS 2000-01 T O 2006-07. 2.1 THERE WAS A SEARCH AND SEIZURE OPERATION CONDUC TED IN THE BUSINESS PREMISES OF THE ASSESSEE AT VIJAYAWADA, VI ZAG, RAJAMUNDRY AND HYDERABAD AND ALSO RESIDENTIAL PREMISES OF THE DIRECTOR AS WELL AS CONNECTED EMPLOYEES ON 12.12.2005. DURING THE CO URSE OF SEARCH AND SEIZURE OPERATION, THE OFFICIALS OF THE DEPARTM ENT IDENTIFIED CERTAIN ACCOUNT BOOKS AND OTHER MATERIALS AND SEIZE D THEM. IN RESPONSE TO NOTICES ISSUED U/S.153A OF THE IT ACT, THE ASSESSEE COMPANY FILED RETURNS OF INCOME FOR THE ASST. YEARS 2000-01 TO 2006- 07. SCRUTINY ASSESSMENTS WERE COMPLETED VIDE ORDERS U/S.153A OF THE IT ACT DATED 31.12.2007. ON APPEALS, THE CIT(A) DIR ECTED THE ASSESSING OFFICER TO ESTIMATE THE PROFIT REJECTING THE BOOK RESULTS. ON FURTHER APPEALS FILED BY THE ASSESSEE AS WELL AS TH E DEPARTMENT, THE HON'BLE ITAT, VIZAG VIDE ORDER DATED 24.01.2011 SET ASIDE THE ASSESSMENTS WITH A DIRECTION TO THE ASSESSING OFFIC ER FOR REDOING THE ASSESSMENTS AFRESH. WHILE SETTING ASIDE THE ASSESSM ENTS, THE HON'BLE ITAT, VIZAG OBSERVED THAT THE ASSESSING OFF ICER IF CONSIDERED 3 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. NECESSARY CAN AVAIL THE SERVICES OF A CHARTERED ACC OUNTANT IN ACCORDANCE WITH PROVISIONS OF SECTION 142(2A) OF TH E IT ACT. 2.2 AFTER GOING THROUGH THE ACCOUNTS OF THE ASSESS EE, THE ASSESSING OFFICER ARRIVED AT A CONCLUSION THAT INCO ME CANNOT BE COMPUTED BASING ON THE ACCOUNT BOOKS AND OTHER SEIZ ED MATERIAL AS THE SAME WERE COMPLEX IN NATURE. THE ASSESSING OFFI CER VIDE HIS LETTER DATED 21.12.2011 COMMUNICATED VARIOUS FACTS RELATIN G TO ACCOUNTS MAINTAINED BY THE ASSESSEE AS ENUMERATED IN THE ORD ER OF THE HON'BLE !TAT, VIZAG DATED 24.01.2011: I) THE TRADING RESULT IS NOT FULLY SUPPORTED BY BI LLS AND VOUCHERS. II) SUBSTANTIAL PORTION OF PURCHASES AND SALES WER E CARRIED OUT IN CASH. III) THE BASIS OF APPORTIONMENT OF RECEIPTS (GROSS SALES) FROM VARIOUS BUYERS WAS FAULTY IN AS MUCH AS A PORTION OF THE RECEIPTS WAS TAKEN INTO THE BALANCE SHEET INSTEAD OF THE SAME BEING REFLECTED AS SALES IN THE ORIGINAL RETURN. L ATER THE SAME WAS REGROUPED AFTER SEARCH. IV) THE FIGURES OF PURCHASES, SALES, OPENING AND C LOSING STOCK WERE ADOPTED BY THE AUDITOR WITHOUT PROPER VERIFIC ATION. V). THERE WAS SUPPRESSION OF SALES IN RESPECT OF LANKEPALEM LAND. VII). THE ASSESSEE HIMSELF REVISED THE SALES FIGUR E CONSEQUENT TO SEARCH WHICH ACCORDING TO THE ASSESSING OFFICE R, AMOUNTED TO SUPPRESSION OF SALES. VIII) THE ASSESSEE DELIBERATELY MANIPULATED THE OP ENING AND CLOSING STOCK FIGURE TO NEUTRALIZE PROFIT ON ACCOU NT OF SUPPRESSION OF SALES. IX) IN THE ORIGINAL RETURN PURCHASES WERE SHOWN IN CLUSIVE OF OTHER ALLIED EXPENSES AND THE SAME WAS CHANGED IN THE REVISED RETURN TO A HIGHER FIGURE. X) IN COURSE OF HEARING, THE ASSESSEE CLAIMED HUGE MARKETING COMMISSION PAID TO VARIOUS AGENTS. IT WAS OBSERVED THAT 4 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. MARKETING COMMISSION RELATED TO SALES AND UNDER NO CIRCUMSTANCES THE SAME CAN BE TREATED AS A COMPONE NT OF PURCHASES. [XI] THE ACCOUNTS ARE MAINTAINED BRANCH WISE IN DI FFERENT FORMATS VIZ., ACCOUNTS AT VISAKHAPATNAM IN 'TALLY 6.3 PACKAGE', GAJUWAKA IN 'ACCOUNTRIX' PACKAGE, RAJAHMUNDRY MANU ALLY ETC. IT WAS CLAIMED THAT THE ACCOUNTS WERE CORRUPTED AND O NLY PART COULD BE RETRIEVED. [XII] AS PER THE SWORN DEPOSITION OF SRI P. DURGA RAO, CA, THERE WAS NO BASIS FOR THE FIGURES OF PURCHASES, SALES, OPENING AND CLOSING BALANCES OF THE STOCK ETC ADOPTED IN THE TRIAL BALANCES AND HE HAS ADOPTED THE SAME BASING ON TH E TRIAL BALANCES PREPARED BY THE ASSESSEE. 2.3. RE-ASSESSMENT PROCEEDINGS WERE INITIATED BY IS SUE OF NOTICE U/S.143(2), DATED 01-07-2011 BY THE ASST. COMMISSIO NER OF INCOME TAX, CIRCLE-2(1), VIJAYAWADA. CONSEQUENT TO CHANGE OF JURISDICTION OVER THE CASE, ASSESSMENT PROCEEDINGS WERE CARRIED FURTHER BY THE JCIT(OSD), CIRCLE-3(1), HYDERABAD. 2.4 DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER FOUND THAT VARIOUS TRANSACTIONS A ND OTHER EVIDENCES RELATING TO THE ACCOUNTS OF THE ASSESSEE COMPANY FO UND DURING THE COURSE OF SEARCH OPERATIONS WERE NOT PROPERLY ACCOU NTED FOR IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED MAKING IT DIFFI CULT TO EXAMINE THE VARIOUS INCRIMINATING EVIDENCES FOUND AND SEIZED WI TH THAT OF THE REGULAR BOOKS OF ACCOUNT. THE DEFICIENCIES NOTICED BY THE ASSESSING OFFICER ARE ENUMERATED AS UNDER: [A] THE ACTUAL AMOUNT COLLECTED FROM THE CUSTOMERS ARE RECORDED IN THE BOOKS AS RECEIPT BUT NOT AS SALES WHEREAS A CTUAL AMOUNT PAID TO LANDLORDS WAS RECORDED AS PURCHASES. THE L EDGER ACCOUNTS OF NUMEROUS CUSTOMERS FOR PLOT PURCHASES AND ALSO LEDGER ACCOUNTS OF LANDLORD HAVE REVEALS THE SAME FACTS. [B] THE ACCOUNTS ARE MAINTAINED BRANCH-WISE IN DIF FERENT FORMATS, VISAKHAPATNAM CITY IS MAINTAINED IN COMPUT ER (TALLY PACKAGE), GAJUWAKA BRANCH IS MAINTAINED IN A DIFFER ENT PACKAGE 5 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. KNOWN AS 'ACCOUNTRIX' AND ASSESSEE CLAIMED THAT THE ACCOUNTS ARE CORRUPTED BEFORE THE DATE OF SEARCH AND ONLY PA RT OF IT COULD BE RETRIEVED. ACCOUNTS FOR RAJAHMUNDRY BRANCH WERE MAINTAINED MANUALLY. [C] THOUGH ASSESSEE HAS ELABORATE. ARRANGEMENTS FO R MAINTENANCE OF ACCOUNTS, NO PROPER ACCOUNTS WERE M AINTAINED BY THE ASSESSEE AND THERE ARE NO SUPPORTING VOUCHER S AND BILLS. ALL THE TRANSACTIONS FOR PURCHASE AND SALES WERE CA RRIED OUT IN CASH EXCEPT A FEW THROUGH BANKING CHANNELS D] THE SALE CONSIDERATIONS RECEIVED THROUGH VARIOU S MODES VIZ., INSTALLMENTS AND OUTRIGHT SALES WERE ACCOUNTED AS ADVANCE RECEIVED FROM CUSTOMER AND GROUPED AS CURRENT LIABI LITIES IN THE BALANCE SHEET. IN THE P & L A/C. ONLY CERTAIN PORTI ON OF THESE COLLECTIONS WERE ACCOUNTED AS SALES AND THAT THERE IS NO BASIS FOR APPORTIONMENT OF THESE RECEIPTS AS SALES AND ADVANC ES. IN THE SWORN DEPOSITION DURING THE. COURSE OF ORIGINAL ASS ESSMENT (POST SEARCH), THE C.A FIRM 'DURGARAO & CO' WHO AUDITED T HESE ACCOUNTS HAS ADMITTED TO SUCH INCONSISTENCIES. RELE VANT PORTION IS REPRODUCED BELOW: 'I CONFIRM THAT I HAVE EXAMINED LEDGER AND CASH BO OK OF VIJAYAWADA AND RAJAHMUNDRY BRANCHES WHICH WERE MAI NTAINED MANUALLY AND ALSO COMPUTERIZED. FOR THE TWO BRANCH ES AT VIZAG AND HYDERABAD I HAVE DONE AUDIT ON THE BASIS OF CO MPUTERIZED STATEMENTS AND PARTY LEDGERS MAINTAINED MANUALLY A S WELL AS COMPUTERIZED WHICH WERE SUBMITTED BY THE ASSESSEE. ' 2.5 THUS IT WAS ADMITTED BY THE AUDITOR THAT ONLY F OR RAJAHMUNDRY BRANCH, WHERE THE BOOKS OF ACCOUNT ARE MANUALLY MAI NTAINED WERE EXAMINED BY HIM. BUT FOR TWO BRANCHES AT VIZAG AUDI T WAS MADE ON THE BASIS OF COMPUTERIZED STATEMENTS ONLY. IT WAS N OT BASED UPON ANY OTHER SUPPORTING EVIDENCES AS VOUCHERS OR BILLS. SR I DURGARAO, C.A HAS CLARIFIED THAT THERE IS NO BASIS FOR SALES FIGU RE SHOWN IN THE RETURN AS STATED ON OATH REPRODUCED BELOW: 'I AM NOT AWARE OF THE BASIS FOR THE FIGURES OF PUR CHASES, SALES, OPENING STOCK AND CLOSING STOCK BALANCES ETC., ADOP TED IN THE TRIAL BALANCE. I HAVEN'T EXAMINED THE SUPPORTING EV IDENCES FOR THOSE' FIGURES IN THE TRIAL BALANCES SUBMITTED BEFO RE ME BY THE ASSESSEE. FURTHER, HE ADDED THAT I CONFIRM THAT THE FIGURES OF 6 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. PURCHASE AND SALES REFLECTED IN THE REVISED PROFIT AND LOSS ACCOUNT ALONG WITH THE OPENING AND CLOSING BALANCES OF THE STOCK WERE ADOPTED BY ME BASING ON THAT TRIAL BALANCES PR EPARED BY THE ASSESSEE.' E] THAT THE FIGURES OF PURCHASE OF LAND AS WELL AS SALE OF PLOTS HAVE UNDERGONE A TOTAL CHANGE IN THE REVISED RETUR NS OF INCOME. F] THE QUANTIFICATION OF CLOSING STOCK DISCLOSED I N THE RETURN OF INCOME IS NOT AUTHENTICATE AND THAT THERE IS NO BR EAK UP IN THE CASE OF PURCHASES OF LAND AND SALE OF PLOTS VENTUR E-WISE. G] IN THE REVISED TRADING AND PROFIT & LOSS A/C., THE SALES, PURCHASES, MARKETING COMMISSION, CLOSING STOCK AND GROSS! PROFIT FIGURES HAVE UNDERGONE A TOTAL CHANGE. 2.6 IN VIEW OF THE ABOVE FACTS, THE ASSESSING OFFI CER FELT THAT THE ACCOUNTS OF THE ASSESSEE COMPANY ARE RENDERED COMPL EX AND DIFFICULT TO COMPREHEND AND THAT THE TRANSACTIONS AS WELL AS THE ACCOUNTS CONNECTED THEREWITH NEED TO BE VERIFIED AFRESH VIS- A-VIS VOUCHERS BY AN INDEPENDENT AUDITOR IN ACCORDANCE WITH THE PROVI SIONS OF SECTION 142(2A) OF THE I.T. ACT. 2.7 ACCORDINGLY, A LETTER DATED 16-12-2011 WAS ISS UED TO THE ASSESSEE SEEKING ITS OBJECTION, IF ANY, FOR THE PRO POSED REFERENCE OF THE ASSESSEE'S CASE FOR SPECIAL AUDIT U/S.142(2A) O F THE IT .ACT. ALSO, IN PURSUANCE OF THE ORDER OF HON'BLE ITAT, VIZAG SE TTING ASIDE THE ASSESSMENTS U/S.153A OF THE IT ACT FOR THE ASST. YE ARS 2000-2001 TO 2006-07 VIDE ORDER DATED 24.01.2011, THE ASSESSING OFFICER TOOK UP THE CASE FOR MAKING FRESH ASSESSMENTS. IN THAT PROC ESS, AS CAN BE SEEN FROM THE RECORDS, THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE LETTER DATED 16.12.2011 PROPOSING TO REFER T HE CASE FOR SPECIAL AUDIT U/S.142(2A) OF THE IT ACT. THE CASE WAS POSTE D FOR HEARING 20.12.2011. THE ASSESSEE FILED A DETAILED LETTER OB JECTING FOR THE PROPOSED ACTION OF THE ASSESSING OFFICER FOR INVOKI NG THE PROVISIONS OF SECTION 142(2A) OF THE IT ACT ON 20/12/2011. OVERRU LING THE OBJECTIONS, THE ASSESSING OFFICER MADE A REFERENCE U/S.142(2A) OF THE 7 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. IT ACT VIDE LETTER DATED 21.12.2011. SRI T.S.AJAI C HARTERED ACCOUNTANT WAS APPOINTED FOR PREPARATION OF THE REPORT U/S.142 (2A) OF THE IT ACT. 2.8 IN SHORT, THE CONTENTION OF THE ASSESSEE WAS TH AT THERE IS NO COMPLEXITY IN THE ACCOUNTS OF THE ASSESSEE AND THER EFORE REFERENCE U/S.142(2A) OF THE IT ACT WAS NOT WARRANTED. 2.9 AFTER TAKING INTO CONSIDERATION THE OBJECTIONS FILED BY ASSESSEE COMPANY, THE SAME WERE REJECTED FOR THE DETAILED RE ASONS GIVEN IN THIS OFFICE LETTER DATED 21-12-2011 AND A SPECIAL A UDIT U/S.142[2A] WAS ORDERED AND THE TERMS OF REFERENCE OF THE SPECI AL AUDIT WAS AS UNDER: '1) PLEASE EXAMINE WHETHER THE CLAIM OF EXPENDITUR E UNDER ALL HEADS IS BASED ON PROPER EVIDENCES / VOUCHERS FOR ALL THE VENTURES FOR THE ASSESSMENT YEARS UNDER CONSIDERA TION. 2) PLEASE VALIDATE THE FIGURES OF OPENING STOCK AN D CLOSING STOCK (QUANTITATIVE DETAILS AND VALUES). 3) PLEASE EXAMINE THE CORRECTNESS OF PURCHASES AND SALES FOR ALL THE YEARS IN QUESTION. 4) PLEASE EXAMINE THE SALES IN RESPECT OF LANKAPAL EM LAND. 5) PLEASE EXAMINE THE BILLS AND VOUCHERS IN RESPEC T OF MARKETING COMMISSION PAYMENTS. 6) PLEASE ALSO EXAMINE THE SALE OF PLOTS ON 'OUTRI GHT BASIS' AS WELL AS ON 'INSTALMENT BASIS' . 7) PLEASE EXAMINE THE TRANSFER ENTRIES FROM 'ADVAN CE FROM CUSTOMERS ACCOUNT' TO 'SALES ACCOUNT' 8) PLEASE VERIFY ALL BANK STATEMENTS VIS-A-VIS THE BANK ACCOUNTS IN THE BOOKS OF THE ASSESSEE. 8 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 9) IT IS REQUESTED TO RECAST THE PROFIT & LOSS ACC OUNTS AND BALANCE SHEETS SHOWING TRUE STATE OF THE ASSESSEE FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. 10) PLEASE ALSO COVER ALL ITEMS COVERED IN THE TAX AUDIT U/S 44AB OF INCOME TAX ACT, 1961.' 2.10 THE SPECIAL AUDITOR HAS FURNISHED A REPORT U/ S.142[2A] ON 18- 06-2012 ALONG WITH THE RE-CASTED PROFIT & LOSS A/C. BASED ON THE RECASTED P&L A/C, THE TAXABLE INCOME OF THE ASSESS EE WAS COMPUTED. IN THE SAID REPORT, THE SPECIAL AUDITOR H AS MADE THE OBSERVATIONS AND ASSUMPTIONS TO COMPLETE THE RECAST ED P&L A/C. FOR CONVENIENCE, WE ARE REPRODUCING THE OBSERVATIONS AN D ASSUMPTIONS AS UNDER: [AS PER ANNEXURE 9 OF THE SPECIAL AUDIT R EPORT] '2.0 STATUS OF BOOKS OF ACCOUNTS AND OTHER RECORDS 2.1 SINCE THIS IS A CASE WHERE SEARCH AND SEIZURE OPERATIONS WERE CARRIED OUT BY THE DEPARTMENT, AND FURTHER SI NCE THE ASSESSEE HAD FILED REVISED RETURNS DURING THE COUR SE OF THE ASSESSMENT UNDER SECTION 153A, WE HAVE CALLED UPON THE ASSESSEE TO FURNISH COPIES OF BOOKS OF ACCOUNTS, DE TAILS AND BASIS OF REVISED RETURN AND THE EVIDENCE RELIED UPO N BY THE ASSESSEE IN SUPPORT OF ITS RETURNS. 2.2 HOWEVER, THE APPROACH OF THE ASSESSEE FROM THE BEGINNING HAS BEEN NON COOPERATIVE. THE ASSESSEE DID NOT RES POND TO THE MAILS OR TO THE TELEPHONIC CALLS MADE BY US. AFTER MUCH PERSUASION AND FOLLOW UP, THE ACCOUNTANT OF THE COM PANY APPEARED AND FURNISHED ONLY COPIES OF AUDITED FINAN CIAL STATEMENTS (WITHOUT COMPLETE SCHEDULES), RETURNS OF INCOME FILED, ASSESSMENT ORDERS AND APPEAL ORDERS. THE MAN AGING DIRECTOR OF THE COMPANY ALSO MET US AND EXPLAINED H IS INABILITY TO PROVIDE ANY DETAILS CALLED FOR BY US ON THE GROUND THAT THE ENTIRE BUSINESS OPERATIONS OF THE COMPANY HAVE COME TO A S TANDSTILL AND AT PRESENT THEY HAVE ONLY FEW ACCOUNTANTS. THE MANAGING DIRECTOR OF THE COMPANY ALSO INFORMED US THAT THEY DO NOT HAVE THE COPIES OF SEIZED MATERIAL AND THAT THE SPECIAL AUDIT HAS TO BE COMPLETED WITH WHATEVER MATERIAL IS AVAILABLE WITH THE DEPARTMENT. THE MANAGING DIRECTOR ALSO EXPRESSED HI S INABILITY TO FURNISH VOUCHERS OR OTHER SUPPORTINGS ON THE GRO UND THAT DUE TO PASSAGE OF TIME AND SHIFTING OF THE BUSINESS PRE MISES, ADVERSE BUSINESS CIRCUMSTANCES AND SUCH OTHER REASO NS. THE 9 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. VOUCHERS AND RECORDS HAVE BEEN EITHER MISPLACED OR LOST. THE MANAGING DIRECTOR HAS EXPRESSED HIS INABILITY TO PR ODUCE EVEN A SINGLE VOUCHER OR OTHER RECORD FROM THEIR SIDE OTHE R THAN WHATEVER IS AVAILABLE WITH THE DEPARTMENT. 2.3 THE CORRESPONDENCE WITH THE ASSESSEE COMPANY A T VARIOUS POINTS OF TIME WITH REGARD TO THE FURNISHING OF BO OKS OF ACCOUNTS AND OTHER EVIDENCE IN CONDUCTING THE SPECIAL AUDIT IS ENCLOSED HEREWITH. (ANNEXURE - 2 ). 2.4 IN VIEW OF NON COOPERATION OF THE ASSESSEE AND NON AVAILABILITY OF ANY INFORMATION FROM THE ASSESSEE, WE HAVE WITH THE PERMISSION OF THE ASSESSING OFFICER PERUSED TH E ENTIRE SEIZED MATERIAL AND COLLATED THE VARIOUS INFORMATI ON REQUIRED FOR THE PURPOSE OF CONDUCTING THE SPECIAL AUDIT. IN AC CORDANCE WITH THE SCOPE AND MANDATE. 3.0 : DETAILS OF SEIZED MATERIAL RELIED UPON FOR T HE SPECIAL AUDIT 3.1 IT IS OBSERVED FROM THE DETAILS OF THE SEIZED MATERIAL AS PER ANNEXURE - 3 THAT IT CONTAINS VARIOUS BOOKS OF ACC OUNTS AND LOOSE SHEETS ETC. HOWEVER NO VOUCHERS ARE AVAILABL E IN THE SEIZED MATERIAL. 3.2 IN RESPECT OF BOOKS OF ACCOUNTS NAMELY CASH BO OK AND LEDGERS, IT IS FOUND THAT FEW BOOKS OF ACCOUNTS WE RE AVAILABLE. IT IS OBSERVED THAT NO BOOKS OF ACCOUNTS RELATING TO HYDERABAD BRANCH ARE AVAILABLE IN THE SEIZED MATERIAL. THESE BOOKS OF ACCOUNTS TO THE EXTENT AVAILABLE WERE PERUSED AND RELIED UPON BY US. 3.3 IT IS OBSERVED THAT THE SEIZED MATERIAL CONTAI NS CUSTOMERS LEDGER WHEREIN THE DETAILS OF MONIES RECEIVED FROM THE CUSTOMERS ARE RECORDED. THE PERUSAL OF THE SAME SHOWS THAT TH E SAID RECORDS ARE GENUINE AND HAVE BEEN MAINTAINED CONTEMPORANEOUSLY. HOWEVER, THE CUSTOMER LEDGERS AR E NOT AVAILABLE FOR SOME PROJECTS / PERIODS. WE HAVE RELI ED UPON THE ABOVE SAID CUSTOMERS LEDGER TO THE EXTENT AVAILABLE FOR THE PURPOSE OF ARRIVING AT THE COLLECTIONS FROM THE CUS TOMERS AND THE INCOME TO BE RECOGNIZED YEAR WISE. 3.4 PERUSAL OF THE SEIZED MATERIAL SHOWS THAT LAND PAYMENTS REGISTER HAS BEEN MAINTAINED IN RESPECT OF PAYMENT S MADE FOR THE PURCHASE OF LAND FROM VARIOUS VENDORS. THESE R ECORDS HAVE 10 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. BEEN MAINTAINED AT THE RESPECTIVE BRANCHES. IT IS ALSO SEEN THAT THESE RECORDS ARE GENUINE AND HAVE BEEN MAINTAINED CONTEMPORANEOUSLY. WE HAVE RELIED UPON THE ABOVE SA ID RECORDS TO THE EXTENT AVAILABLE FOR THE PURPOSE OF ARRIVING AT COST OF LAND AND THE DETAILS OF PAYMENTS MADE IN CASH FOR PURCHA SE OF LAND. 3.5 SINCE THE LAND PAYMENTS REGISTER ARE NOT AVAIL ABLE IN RESPECT OF ALL PURCHASES, WE HAVE ALSO RELIED UPON ON CERTAIN FINANCIAL STATEMENTS FORMING PART OF THE SEIZED MA TERIAL, WHICH PROVIDES THE DETAILS OF PURCHASE OF LAND. 3.6 THE SEIZED MATERIAL CONTAINS FINANCIAL STATEME NTS NAMELY PROFIT AND LOSS ACCOUNT AND BALANCE SHEET' IN RESPE CT OF VARIOUS VENDORS OF THE COMPANY. IT IS OBSERVED THAT THE SAI D FINANCIAL STATEMENTS ARE PREPARED FROM THE BOOKS OF ACCOUNTS AND ARE RELIABLE. WE HAVE USED THE SAID FINANCIAL STATEMENT S, SUBJECT TO NECESSARY MODIFICATIONS WHEREVER REQUIRED AND AS DI SCUSSED IN' DETAILED HEREIN BELOW IN THE RELEVANT PARAS, FOR TH E PURPOSE OF OUR SPECIAL AUDIT. 3.7 IN ADDITION TO THE ABOVE, THERE WERE ALSO CER TAIN LOOSE PAPERS AND OTHER STATEMENTS WHICH ALSO HAVE A BEAR ING ON THE FINANCIAL STATEMENTS AND WHICH HAVE BEEN RELIED UP ON BY US. 3.8 THE INDEX OF PANCHNAMA OF THE SEARCH CONDUCTED AT VARIOUS PLACES, THE DETAILS OF THE MATERIAL SEIZED AT SUCH LOCATIONS, THE RELIANCE OR OTHERWISE OF THE SEIZED MATERIAL FOR T HE PURPOSE OF SPECIAL AUDIT ARE DETAILED IN (ANNEXURE - 3 ) HERE TO. 4.0 METHODOLOGY OF SPECIAL AUDIT 4.1 IN VIEW OF THE DIFFICULTIES AND CONSTRAINTS EX PLAINED IN THE EARLIER PARAS, ESPECIALLY NON AVAILABILITY OF VOUCH ERS, WE HAVE NOT BEEN ABLE TO CARRY OUT ANY VERIFICATION OF THE GENU INENESS OF THE EXPENSES RECORDED IN THE BOOKS OF ACCOUNTS. ACCORDI NGLY WE DO NOT EXPRESS ANY OPINION ON THE GENUINENESS AND OTHE RWISE OF THE EXPENSES CLAIMED BY THE ASSESSEE. 4.2 WE HAVE RELIED UPON THE AUDITED FINANCIAL STAT EMENTS FILED ALONG WITH THE ORIGINAL RETURN OF INCOME FILED BEF ORE THE SEARCH FOR THE ASSESSMENT YEARS 2000-01 TO 2005-06 AND AU DITED FINANCIAL STATEMENTS FILED SUBSEQUENT TO SEARCH ALO NE WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, THE STARTING POINT TO RECAST THE PROFIT AND LOSS ACCOUNT GIVING EFFECT TO THE SPECIFIC FINDINGS OF THE SPECIAL AUDIT. 11 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 4.3 THE INFORMATION PERTAINING TO MONIES RECEIVED FROM THE CUSTOMERS HAVE BEEN COLLATED FROM THE CUSTOMERS LE DGER AND SUMMARIZED PROJECT WISE AND YEAR WISE. IN RESPECT O F PROJECTS WHERE CUSTOMERS LEDGER ARE NOT AVAILABLE, THE BREAK UP IS COLLATED FROM OTHER EVIDENCES SUCH AS BRANCH WISE F INANCIAL STATEMENTS, AGENT WISE SUMMARY STATEMENTS OF COLLEC TIONS ETC. THE AGGREGATE ADVANCES CLASSIFIED AS CURRENT LIABIL ITY IN THE BALANCE SHEET AND THE AMOUNTS DISCLOSED AS SALES IN THE PROFIT AND LOSS ACCOUNT IS RECONCILED WITH THE AGGREGATE O F COLLECTIONS, AS ARRIVED AT ABOVE. 4.4 AS ADMITTED BY THE ASSESSEE, THE COLLECTIONS F ROM THE CUSTOMERS ARE FULLY RECORDED IN THE BOOKS OF ACCOU NTS. HOWEVER THE CLASSIFICATION OF THE SAME BETWEEN CAPITAL AND REVENUE WAS NOT CARRIED OUT PROPERLY IN THE AUDITED FINANCI AL STATEMENTS. THEREFORE, AFTER RECONCILING THE FIGURES AS ABOVE, WE HAVE RE-CAST THE AMOUNTS RECEIVED FROM THE CUSTOMERS BETWEEN ADV ANCES AND SALES ON THE BASIS OF CERTAIN ASSUMPTIONS AND PRINC IPLES AND IN ACCORDANCE WITH THE APPLICABLE ACCOUNTING STANDARDS AS DISCUSSED IN DETAIL IN THE SUBSEQUENT PARAS. 4.5 IN RESPECT OF HYDERABAD BRANCH, NO MANUAL CUSTO MERS LEDGER WERE AVAILABLE IN THE SEIZED MATERIAL. IT APPEARS T HAT THE COLLECTIONS FROM CUSTOMERS HAVE BEEN MAINTAINED IN A DATA BASE AT THE HYDERABAD BRANCH. DURING THE COURSE OF ASSES SMENTS MADE EARLIER, THE ASSESSING OFFICER HAS SUMMARIZED THE COLLECTIONS FROM THE CUSTOMERS, ON THE BASIS OF SAI D DATA BASE. THE ASSESSEE HOWEVER EXPRESSED RESERVATIONS ABOUT T HE METHOD BY WHICH THE ASSESSING OFFICER ARRIVED 'AT THE COL LECTIONS FROM THE CUSTOMERS. HOWEVER NO OBJECTION WAS RAISED ABOU T THE RELIABILITY OR CORRECTNESS OF THE DATA BASE ITSELF. IN FACT ON THE BASIS OF THE VERY SAME DATA BASE, THE ASSESSEE RECO NCILED COLLECTIONS FROM THE CUSTOMERS AND FURNISHED A STAT EMENT THEREOF. THE DIFFERENCE BETWEEN THE GROSS COLLECTIO NS ARRIVED AT BY THE ASSESSING OFFICER AND AS COMPILED BY THE ASS ESSEE ON ACCOUNT OF PROPER ADJUSTMENTS OF THE REFUNDS GIVEN TO THE CUSTOMERS. THEREFORE IN EFFECT THE REVISED STATEMEN T, COMPILED BY THE ASSESSEE, OF COLLECTIONS FROM CUSTOMERS PROJ ECT WISE AND YEAR WISE WITH REFERENCE TO HYDERABAD BRANCH IS COR RECT AND RELIABLE. THE STATEMENT IS ENCLOSED AS PART OF PAPE R BOOK 2, THE SAID STATEMENT HAS BEEN USED FOR THE PURPOSE OF REC OGNIZING THE SALES/REVENUE OF HYDERABAD PROJECTS. 4.6 FURTHER, THE TOTAL COLLECTIONS AS ARRIVED AT A BOVE IS CORROBORATED AND CROSS VERIFIED WITH THE AGGREGATE OF SALES DISCLOSED BY THE ASSESSEE IN THE PROFIT AND LOSS AC COUNT FROM 12 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 2000-01 TO 2005-06 PLUS THE OUTSTANDING ADVANCES FR OM THE CUSTOMERS AS PER THE AUDITED BALANCE SHEET AS ON 31 .3.2006 AND OR COLLECTIONS FROM THE CUSTOMERS. THE SAID CON SOLIDATED STATEMENT OF COLLECTIONS FROM THE CUSTOMERS IN PROJ ECT WISE AND YEAR WISE IS ENCLOSED AS (ANNEXURE - '4 ) . 5.0 PURCHASES AND ALLIED EXPENSES 5.1 THE ASSESSEE HAS MADE PURCHASE OF LAND FOR ITS VARIOUS PROJECTS FROM TIME TO TIME THROUGH THE RESPECTIVE B RANCHES. THE RECORDS OF SUCH LAND PAYMENTS WERE ALSO MAINTAINED AT THE RESPECTIVE BRANCHES. IT IS OBSERVED THAT IN RESPECT OF ITS BRANCHES AT VISAKHAPATNAM AND OTHERS DETAILED MANUA L LEDGERS TITLED AS LAND PAYMENT REGISTERS WERE MAINTAINED. W E HAVE SUMMARIZED THE SAID PURCHASES AS YEAR WISE AND PROJ ECT WISE AS IS ENCLOSED IN (ANNEXURE -5). IN SO FAR AS THE HYDE RABAD BRANCH VENTURES ARE CONCERNED THE SEIZED MATERIAL DOES NOT CONTAIN ANY MANUAL REGISTERS/ SINCE THE DETAILS SEEM TO HAVE BE EN MAINTAINED IN THE COMPUTER HARD DISK. HOWEVER EVEN THE SOFT COPY IS NOT AVAILABLE IN THE SEIZED MATERIAL. THE A SSESSEE IMMEDIATELY AFTER THE SEARCH HAS COMPILED DETAILED STATEMENTS OF PURCHASE OF LAND GIVING THE PARTICULARS OF EACH TRA NSACTION OF PURCHASE AND THE VALUE THEREOF. ON VERIFICATION OF THE SAME WITH THE BOOKS OF ACCOUNTS, IT IS FOUND THAT THE STATEME NTS ARE CORRECT AND ARE RELIABLE. THEREFORE WE HAVE ADOPTED THE COS T OF PURCHASE OF LAND FROM THE SAID STATEMENTS WHICH ARE ENCLOSED IN PAPER BOOK 2. 5.2 THE TWO OTHER MAJOR DIRECT EXPENSES CLAIMED BY THE ASSESSEE ARE COMMISSION PAYMENTS FOR PURCHASE OF LA ND AND FOR COLLECTIONS FROM CUSTOMERS AND SITE DEVELOPMENT EXP ENSES. THESE EXPENDITURE HAVE BEEN PARTLY DEBITED TO THE P ROFIT AND LOSS ACCOUNT AS ALLIED EXPENSES AND THE BALANCE HAS BEEN SHOWN AS ADVANCES IN THE BALANCE SHEET. THE PROJECT WISE/ YE AR WISE BREAK UP OF SUCH EXPENSES AS IS AVAILABLE IN THE AU DITED FINANCIAL STATEMENTS IS TAKEN INTO ACCOUNT. 5.3 THE AGGREGATE OF LAND PURCHASE & ALLIED COSTS FOR EACH PROJECT IS CALCULATED ON THE BASIS OF ABOVE SAID M ETHODOLOGY WHICH IS AVAILABLE IN (ANNEXURE 6). 6.0 VALUATION OF OPENING AND CLOSING STOCK 6.1 IT IS OBSERVED THAT IN THE BOOKS OF ACCOUNTS, THE ASSESSEE HAS FULLY RECORDED THE COLLECTIONS FROM THE CUSTOM ERS AND 13 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. PAYMENTS MADE TOWARDS PURCHASE OF LAND, COMMISSION AND OTHER EXPENSES. HOWEVER WHILE PREPARING THE FINANC IAL STATEMENTS, THE CORRECT AMOUNT OF INCOME/EXPENSES H AVE NOT BEEN ACCRUED; FOR EXAMPLE/ IF THE TOTAL COLLECTIONS ARE 100 ONLY 25 IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AS SA LES INCOME AND THE BALANCE IS SHOWN AS ADVANCES FROM THE CUSTOMERS . THIS AMOUNT SHOWN BALANCE SHEET REPRESENTS THE DIFFERENC E BETWEEN ACTUAL SALE VALUE OF THE PLOTS AND STAMP DUTY VALUE OR THE REGISTRATION VALUE. IN OTHER WORDS ONLY REGISTRATIO N VALUE IS SHOWN AS SALES INCOME IN THE PROFIT AND LOSS ACCOUNT AND THE BALANCE IS CARRIED FORWARD AS ADVANCES FROM CUSTOMERS. THE ABSURDITY OF SUCH ACCOUNTING TREATMENT CAN BE SEEN FROM THE FACT THAT THESE ADVANCES ARE CARRIED YEAR AFTER YEAR EVEN LONG AFTE R THE PURCHASES ARE COMPLETED, WHICH CANNOT BE A REAL SIT UATION SINCE NO CUSTOMER WOULD LEAVE THE MONIES WITH THE ASSESSE E LONG AFTER THE TRANSACTIONS ARE OVER. SINCE THE REVENUES ARE U NDER STATED IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE IS FORCED TO UNDERSTATE THE EXPENDITURE ALSO IN THE PROFIT AND LOSS ACCOUNT THOUGH ACTUALLY INCURRED BY IT. IN THE CASE FOR EXAMPLE AS AGAINST REVENUE OF 100 IF THE ACTUAL EXPENDITURE INCURRED I S 80, IN THE FINANCIAL STATEMENTS THE OUTFLOW OF 80 ON ACCOUNT O F PURCHASE AND OTHER EXPENSES AND OTHER EXPENSES IS SHOWN UNDE R THREE HEADS NAMELY A) ADVANCES WITH LANDLORDS - 10 B) GRO SS PURCHASE AND ALLIED EXPENSES DEBITED TO PROFIT AND LOSS ACCO UNT - 70 AND C) CLOSING STOCK CREDITED TO PROFIT AND LOSS ACCOUNT - 50. THUS IN EFFECT DEBITING ONLY 20 TO THE PROFIT AND LOSS ACCO UNT. IT IS TO BE NOTED THAT THE AMOUNT OF 10 SHOWN AS ADVANCE TO LAN DLORDS REPRESENTS THE CONSIDERATION PAID IN CASH. SIMILARL Y THE CONSIDERATION PAID IN CASH WHICH CANNOT BE VERIFIED OR JUSTIFIED IS CARRIED FORWARD AS CLOSING STOCK. BY THIS MODUS OPE RANDI, THE INCOME IS SUPPRESSED I.E. AS AGAINST ACTUAL INCOME OF 20 ONLY 5 IS SHOWN AS INCOME. FURTHER THE VALUE OF CLOSING ST OCK IS INFLATED WITHOUT ANY REFERENCE TO THE REALITY OR THE ACTUAL UNDERLYING QUANTITATIVE FACTORS. IT IS CLARIFIED THAT THE ABOV E IS ONLY AN ILLUSTRATION TO EXPLAIN THE MODUS OPERANDI OF THE A SSESSEE, AND DOES NOT REPRESENT THE ACTUAL FIGURES. THE ABOVE IL LUSTRATION IS MADE ONLY TO EXPLAIN THE MODUS OPERANDI OF THE ASSE SSEE AND THE CONSEQUENCES THEREOF ON THE PROFIT AND LOSS ACC OUNT AND THE INCOME OFFERED TO TAX. THE ABOVE MODUS OPERANDI IS ACCEPTED BY THE ASSESSEE ALSO AND IN FACT REVISED AUDITED FINAN CIAL STATEMENTS WERE SOUGHT TO BE FILED BY CORRECTING TH E ABOVE WRONG PREPARATION OF FINANCIAL STATEMENTS. HOWEVER SUCH REVISED AUDITED FINANCIAL STATEMENTS FILED DURING T HE COURSE OF SEARCH ASSESSMENT PROCEEDINGS ARE ALSO NOT CORRECT SINCE THE ASSESSEE COULD NOT FURNISH PROPER DETAILS FOR THE A MOUNTS RECLASSIFIED FROM THE BALANCE SHEET INTO THE PROFI T AND LOSS ACCOUNT. 14 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 6.2 THE SAID ABERRATIONS IN THE PREPARATION OF FIN ANCIAL STATEMENTS ARE RECTIFIED TO THE EXTENT POSSIBLE ON THE BASIS OF INFORMATION AVAILABLE TO US, IN THE SPECIAL AUDIT AND CORRECT STATE OF AFFAIRS ARE BEING ARRIVED AT. HOWEVER IN VIEW OF THE NON COOPERATION OF THE ASSESSEE IN FURNISHING THE PART ICULARS, AND IN VIEW OF NON AVAILABILITY OF PART OF THE RECORDS, TH E RE-CASTING EXERCISE CARRIED OUT BY US IN THE SPECIAL AUDIT REP ORT IS BASED ON CERTAIN REASONABLE AND NECESSARY ASSUMPTIONS. TH E MODEL FOR RECAST FOLLOWED BY US IS BASED ON FAIR AND EQUITABL E PRINCIPLES AND IS IN-LINE WITH THE RELEVANT ACCOUNTING STANDAR DS AND THEREFORE IN OUR OPINION THE BEST POSSIBLE MODEL UN DER THE GIVEN FACTS AND CIRCUMSTANCES. THE ONUS IS ON THE ASSESSE E TO SUPPLY THE MISSING PARTICULARS / INFORMATION SO THAT ANY C ONSEQUENT CHANGES TO THE INCOME AS COMPUTED IN THE SPECIAL AU DIT REPORT CAN BE MADE. 6.3 DURING THE COURSE OF SPECIAL AUDIT THE ASSESSE E DID NOT FURNISH ANY PARTICULARS REGARDING THE QUANTITATIVE DETAILS AND VALUE OF OPENING STOCK AND CLOSING STOCK WITH RESPE CT TO VARIOUS PROJECTS CARRIED OUT BY IT. THE SEIZED MATERIAL ALS O DID NOT CONTAIN SUFFICIENT DATA TO RE-COMPUTE THE OPENING A ND CLOSING STOCK VALUE. THE PROJECTS OF THE ASSESSEE ON AN AVE RAGE ARE SPREAD OVER FROM 3 TO 4 YEARS. THE COLLECTION/SALES ARE PROGRESSIVE. HAVING REGARD TO THE FACTS AND CIRCUMS TANCES OF THE CASE, WE ARE OF THE OPINION THAT THE CLOSING STOCK BE VALUED AT 30% OF THE GROSS AMOUNT OF PURCHASES, ALLIED EXPENS ES AND THE OPENING STOCK VALUE. 6.4 IT CAN BE SEEN THAT THE CLOSING STOCK VALUE AS DECLARED BY THE ASSESSEE ARE MUCH HIGHER THAN THE VALUE REASONA BLY ESTIMATED AT 30%. IF THE VALUE OF CLOSING STOCK AS ARRIVED AT BY THE ASSESSEE IN THE AUDITED BALANCE SHEET ARE ADOPT ED, IT WOULD RESULT IN A HUGE PROFIT AND FOLLOWING FAIR PRINCIPL ES OF PROFIT ESTIMATION, PARTICULARLY HAVING REGARD TO THE PROFI TABILITY IN THE REAL ESTATE INDUSTRY, WE IGNORE THE VALUE OF CLOSIN G STOCK AS ARRIVED AT BY THE ASSESSEE. 6.5 AS FAR AS THE OPENING STOCK AS ON 1.4.1999 BEI NG THE FIRST YEAR OF THE SPECIAL AUDIT IS CONCERNED, THE SAME HA S BEEN ADDED TO THE TOTAL PURCHASE COST AND ALLOWED AS DEDUCTION IN THE RECAST PROFIT AND LOSS ACCOUNT, SINCE THE SAME WAS ACCEPTE D IN THE ASSESSMENT FOR THE ASSESSMENT YEAR I999-2000 AND HA S BECOME FINAL. THE VALUE ADOPTED IS RS. 2,53,99,150/- AS PE R THE ORIGINAL AUDITED BALANCE SHEET. THE CLAIM OF THE ASSESSEE FO R REVISED AND ENHANCED OPENING STOCK VALUE AS ON 1.4.1999, MA DE DURING THE ASSESSMENT PROCEEDINGS COULD. NOT BE VERIFIED B Y US SINCE DURING THE COURSE OF SPECIAL AUDIT SINCE THE ASSESS EE DID NOT FURNISH ANY PARTICULARS, NOR MADE ANY SUCH CLAIM. T HE ASSESSEE 15 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. DID NOT INSIST ON ANY REVISION OF THE OPENING STOCK VALUE AS ON 1.4.1999 DURING THE SPECIAL AUDIT AND HENCE THE SAM E IS IGNORED. 7.0 RECASTING THE PROFIT AND LOSS ACCOUNT 7.1 IT IS TO BE NOTED THAT THE ASSESSEE HAS MAINTA INED CONTEMPORANEOUSLY BOOKS OF ACCOUNT IN WHICH ALL ITS TRANSACTIONS ARE RECORDED. PART OF THE RECORDS WERE ALSO MAINTAI NED IN THE COMPUTER SYSTEM PARTICULARLY IN RESPECT OF HYDERABA D BRANCH AND VIJAYAWADA BRANCH. IT IS ALSO OBSERVED THAT SUBSEQU ENT TO THE SEARCH THE ASSESSEE HAS FILED DETAILED STATEMENTS C OMPILED FROM THE SAID BOOKS OF ACCOUNTS / COMPUTER DATA BASE. IT IS ALSO NOTED THAT THE ASSESSEE HAS RECORDED ALL ITS TRANSACTIONS IN ITS BOOKS OF ACCOUNTS, BUT HAS ONLY MADE A MISTAKE IN RECOGNIZIN G THE REVENUE AND EXPENSES APPROPRIATELY. WHILE A PART OF THE COLLECTIONS, NAMELY AMOUNT REFERABLE TO THE STAMP D UTY VALUE, IS RECOGNIZED AS INCOME IN THE AUDITED PROFIT AND LOSS ACCOUNT AND THE BALANCE OF COLLECTIONS HAVE BEEN ACCUMULATED AN D SHOWN IN THE BALANCE SHEET AS ADVANCES COLLECTED FROM THE CU STOMERS. SIMILARLY IN RESPECT OF LAND PAYMENTS ALSO THE COST OF PURCHASE REFERABLE TO THE STAMP DUTY VALUE HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD PURCHASE, A PORTION OF THE COMMISSION HAS BEEN DEBITED TO PROFIT AND LOSS ACCO UNT AND THE BALANCE HAS BEEN ACCUMULATED AND SHOWN UNDER THE HE AD LOANS AND ADVANCES IN THE BALANCE SHEET. NEVERTHELESS, TH E AGGREGATE FIGURES AS PER PROFIT AND LOSS ACCOUNT AND BALANCE SHEET REFLECT THE ACTUAL RECEIPTS / PAYMENTS BY THE ASSESSEE, WHI CH IN-FACT IS ALSO CORROBORATED FROM OTHER SUBSIDIARY RECORDS SUC H AS COLLECTIONS REGISTER, LAND PAYMENTS REGISTER, STATE MENT COMPILED AND FILED DURING ASSESSMENT PROCEEDINGS, BRANCH WIS E FINANCIAL STATEMENTS AND OTHER SUCH SEIZED MATERIAL. THEREFOR E THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE NEED NOT BE REJECTED AND CAN BE USED FOR RECASTING OR RE-COMPUTATION OF THE INCOME AND EXPENSES APPROPRIATELY AND ARRIVE AT THE REVISE D FINANCIAL STATEMENTS. 7.2 THE AUDITED PROFIT AND LOSS ACCOUNT OF THE ASS ESSEE CONSISTS OF A) SALES REVENUE B) PURCHASE AND ALLIE D COSTS (COST OF LAND, COMMISSION, SITE DEVELOPMENT EXPENSES), 'C) OTHER INCOME D) ADMINISTRATION EXPENSES E) INTEREST AND FINANCIAL EXPENSES F) DEPRECIATION AND G) MISCELLANEOUS EXPE NSES. 7.3 THE ONLY ITEMS WHICH REQUIRE RECASTING ARE THE SALES INCOME AND THE PURCHASE AND ALLIED COSTS AND CLOSING STOC K. THE OTHER ITEMS DEBITED TO PROFIT AND LOSS ACCOUNT ARE CORRE CT AND DOES NOT REQUIRE ANY CHANGE. THEREFORE THEY ARE ADOPTED AS IT IS AS PER THE AUDITED FINANCIAL STATEMENTS. 16 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 7.4 IN SO FAR AS THE SALES REVENUE IS CONCERNED, T HE QUESTION OF INCOME RECOGNITION IS IMPORTANT. THE ASSESSEE HAS ADOPTED AN EXTREME STAND OF RECOGNIZING THE INCOME ONLY AT THE TIME OF REGISTRATION OF THE SALE DEED. IT HAS BEEN HELD BY THE COURTS THAT REGISTRATION OF THE SALE DEED IS NOT CORRECT CRITER IA FOR IDENTIFYING THE ACCRUAL OF INCOME SINCE SUCH AN EVENT CAN BE PO STPONED BY THE PARTIES RESULTING IN POSTPONEMENT OF TAX LIABIL ITY. FURTHER EVEN AS PER ACCOUNTING STANDARDS - 9 OF ICAI, INCOME IN THE CASE OF REAL ESTATE COMPANIES NEED TO BE RECOGNIZED AT THE TIME WHEN SIGNIFICANT RISKS AND REWARDS ARE TRANSFERRED. THE RELEVANT PARAGRAPHS ARE EXTRACTED BELOW FOR READY REFERENCE : 11. IN A TRANSACTION INVOLVING THE SALE OF GOODS, PERFORMANCE SHOULD BE REGARDED AS BEING ACHIEVED WHEN THE FOLL OWING CONDITIONS HAVE BEEN FULFILLED: (I) THE SELLER OF GOODS HAS TRANSFERRED TO THE BUY ER THE PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER AND T HE SELLER RETAINS NO EFFECTIVE CONTROL OF THE GOODS TRANSFER RED TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP; AND (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING T HE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALE O F THE GOODS 7.5 THUS THE SALES INCOME IS TO BE RECOGNIZED WHEN SIGNIFICANT RISKS AND REWARDS ARE TRANSFERRED TO THE CUSTOMER. AN ANALYSIS OF THE COLLECTIONS REGISTER SHOWS THAT THE DETAILED YEAR WISE PAYMENTS BY THE CUSTOMERS AND ACCORDINGLY THE YEAR IN WHICH THE FULL AMOUNT OF CONSIDERATION PAID IS AVAILABLE. IN THE FACTS OF THE ASSESSEE'S CASE IT CAN BE SAID THAT THE RISKS AND R EWARDS ARE TRANSFERRED TO THE CUSTOMERS THE MOMENT THE CUSTOME R PAYS THE FULL INSTALLMENTS. ACCORDINGLY THE INCOME IS TO BE RECOGNIZED IN THE YEAR IN WHICH THE LAST INSTALLMENT IS PAID OR T HE FULL AMOUNT OF PURCHASE PRICE OF PLOT IS PAID BY THE CUSTOMER. THE SALES COLLECTIONS ARE RE-STATED ON THE ABOVE BASIS AND TH E CORRECT AMOUNT OF INCOME TO BE RECOGNIZED EACH YEAR, PROJEC T WISE IS COMPUTED. SUCH REVISED STATEMENT OF INCOME (SALES) TO BE RECOGNIZED PROJECT WISE, YEAR WISE IS ENCLOSED IN ( ANNEXURE - 7 ) 7.6 IN SO FAR AS HYDERABAD VENTURES ARE CONCERNED, AS DETAILED IN PARA 5.1 ABOVE, THE ASSESSEE HAS RECONCILED YEAR WISE, PROJECT WISE COLLECTIONS AND THE SUMMARY STATEMENTS THEREOF IS AVAILABLE ON RECORDS. THE SAID STATEMENTS HAS BEEN PREPARED FROM THE DATA BASE WHICH WAS MAINTAINED AT HYDERABA D OFFICE. 17 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. THEREFORE, THE INCOME IS RECOGNIZED IN THE SAME YEA R IN WHICH THE COLLECTIONS ARE MADE. THE ONUS IS ON THE ASSESS EE TO PROVIDE DETAILS AND PROVE THAT THE YEAR OF COLLECTIONS IS D IFFERENT FROM THE YEAR IN WHICH FULL INSTALMENT AMOUNTS ARE PAID. IN THE ABSENCE OF THE SAME AND PARTICULARLY THE NON COOPERATION OF TH E ASSESSEE, IT WOULD BE FAIR AND EQUITABLE TO ASSUME THAT THE COLL ECTIONS REFLECT INCOME. ACCORDINGLY IN RESPECT OF HYDERABAD VENTURE S INCOME IS RECOGNIZED IN THE SAME YEAR IN WHICH THE COLLECTION S ARE MADE. 7.7 SIMILARLY IN RESPECT OF CERTAIN PROJECTS WHERE CUSTOMER WISE/ DATE WISE DETAILS ARE NOT AVAILABLE/ THE SAME ARE TAKEN AS UN- RECONCILED COLLECTION AND ALSO AS INCOME (SALES RE VENUE). THE ONUS IS ON THE ASSESSEE TO PROVIDE FURTHER DETAILS/ IF IT DISPUTES THE YEAR IN WHICH THE INCOME IS RECOGNIZED OR THE A MOUNT OF INCOME RECOGNIZED. THE YEAR WISE SALES REVENUE FOR THE COMPANY IS COMPILED FROM THE ABOVE SAID INCOME RECO GNITION CALCULATIONS AND SUMMARIZED IN (ANNEXURE - 7) . 7.8 AS FAR AS PURCHASE AND ALLIED COSTS ARE CONCER NED THE PRINCIPLE OF ACCRUAL OF EXPENDITURE HAS TO SATISFY THE TEST OF 'MATCHING PRINCIPLES'. THIS WOULD REQUIRE THAT THE REVENUE AND DIRECT EXPENSES ARE RECOGNIZED PROPORTIONATE TO SAL ES INCOME (REVENUE) RECOGNIZED. THEREFORE THE TOTAL COST OF P URCHASE OF LAND AND OTHER ALLIED COSTS WHICH HAVE ARRIVED AT I S APPORTIONED TO THE VARIOUS BRANCHES/ YEAR WISE IN PROPORTION TO THEIR SALES. THESE CALCULATIONS ARE AVAILABLE AND ARE ENCLOSED I N (ANNEXURE - 6 ). FURTHER THE COST OF GOODS SOLD/ TAKING INTO AC COUNT THE ADJUSTMENTS FOR OPENING AND CLOSING STOCK IS ENCLOS ED IN (ANNEXURE 8). 7.9 AN IMPORTANT ASPECT TO BE NOTED IS THAT THE AB OVE SAID METHODOLOGY OF IDENTIFYING THE' GROSS COLLECTIONS AND CORRESPONDING ACCRUED INCOME/ GROSS PURCHASE COST A ND THE CORRESPONDING EXPENDITURE/ RESULTS IN CORRECTING TH E ABERRATION OF DEBITING THE INCOME / EXPENDITURE PARTLY TO THE PRO FIT AND LOSS ACCOUNT AND PARTLY TO THE BALANCE SHEET. MOREOVER/ THE ASSESSEE HAD FOLLOWED INCOME RECOGNITION AT THE TIME OF REGI STRATION OF THE PLOTS/ WHEREAS WE HAVE CHANGED IT TO A METHOD IN CO NFORMITY TO THE APPLICABLE ACCOUNTING STANDARD. THEREFORE THE M ETHOD AS ADOPTED BY US RESULTS IN MATCHING THE REVENUE AND E XPENSES PROPORTIONATELY. THE METHOD ADOPTED BY US IS IN ACC ORDANCE WITH THE RATIO LAID DOWN BY THE HONORABLE SUPREME COURT IN THE CASE OF CALCUTTA CO. LTD (37 ITR 1). 2.11. IN THE RE-CASTED PROFIT & LOSS A/C. THE SPECI AL AUDITOR HAS TAKEN INTO ACCOUNT CERTAIN HEADS OF EXPENDITURE AS CLAIME D BY THE ASSESSEE 18 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. VIZ., EXPENDITURE ON SITE DEVELOPMENT AND SALES, AD MINISTRATIVE & OTHER EXPENSES. TO CONTINUE WITH THE ASSESSMENT PRO CEEDINGS CONSEQUENT TO THE RECEIPT OF SPECIAL AUDIT REPORT, ASSESSING OFFICER SENT A LETTER DATED 16-07-2012 TO THE ASSESSEE CAL LING FOR PRODUCTION OF BILLS AND VOUCHERS IN SUPPORT OF THE EXPENDITURE CLAIMED TOWARDS SITE DEVELOPMENT, SALES, ADMINISTRATIVE & OTHER EXP ENSES, ETC. IN THE SAID LETTER INSTANCES OF VIOLATION OF THE PROVISION S OF SECTION 40A(3) WERE ALSO BROUGHT TO THE NOTICE OF THE ASSESSEE AND SEEKING ITS OBJECTIONS FOR DISALLOWANCE OF THE SAME. IN THE ABS ENCE OF PRODUCTION OF BILLS AND VOUCHERS FOR THE CLAIM OF EXPENDITURE UNDER THE HEADS OF SITE' DEVELOPMENT AND SALES, ADMINISTRATIVE & OTHER EXPENSES, IT WAS PROPOSED TO DISALLOW AN AMOUNT EQUIVALENT TO 30% OF THE CLAIM. 2.12 THE ASSESSEE MADE OBJECTIONS BEFORE THE ASSESS ING OFFICER AND ASSESSING OFFICER HAD DISMISSED THE SAME, WHICH ARE REPRODUCED BELOW: (I) OBJECTION FOR REFERENCE TO SPECIAL AUDIT U/S.14 2(2A] ASSESSEE COMPANY OBJECTED TO THE DIRECTIONS ISSUED TO GET THE ACCOUNTS AUDITED U/S.142[2A] ON VARIOUS GROUNDS. THE OBJECTIONS RAISED WERE REJECTED HOLDING THAT THERE IS 'COMPLEXITY OF THE ACCOUNTS OF THE ASSESSEE AND THE INTERESTS OF THE REVENUE' AND THE CASE WAS REFERRED TO SPECIAL A UDIT U/S.142[2A]. ASSESSEE COMPANY ALSO MADE FURTHER OBJECTIONS REGA RDING THE SPECIAL AUDIT U/S.142[2A] VIDE LETTER FILED ON 27-0 7-2012 'IN RESPONSE TO THE SHOW CAUSE NOTICE DATED 17-07-2012 AND THE SAME ARE DISCUSSED HEREUNDER: 19 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. [A] AS PER THE CALENDAR OF EVENTS SHOWING THE DEVE LOPMENTS, IT IS NOT CLEAR WHETHER THE AO OBTAINED THE REQUISITE PERMISSION/APPROVAL OF THE CIT TO MAKE SUCH A REFE RENCE. [B] ASSESSEE SHOULD BE ALLOWED PROPER AND SUFFICIE NT TIME TO MAKE SUBMISSIONS AND THE SPEED AT WHICH THE DEVELO PMENTS TOOK PLACE INDICATE THAT THE AO HAS ALREADY MADE U P HIS MIND TO MAKE A REFERENCE TO SPECIAL AUDIT AND THE SOLE PUR POSE OF INVOKING OF PROVISIONS OF SEC.142[2A.) IS TO GET B ENEFIT OF EXTENDED TIME TO FINALIZE THE SET ASIDE ASSESSMENT PROCEEDINGS. [C] THE POWER TO DIRECT SPECIAL AUDIT SHOULD NOT B E EXERCISED LIGHTLY. THE AO DID NOT GO THROUGH THE SEIZED MATE RIAL IN DETAIL AND THE AO NEVER RAISED ANY DOUBTS OR QUESTIONS WI TH REGARD TO COMPLICATED NATURE OF THE ACCOUNTS. ASSESSING OFFICER HAD REJECTED THE ABOVE OBJECTIONS AND REFERRED THE CASE FOR SPECIAL AUDIT U/S.142[2A] OF THE ACT. [II] THE SET ASIDE ASSESSMENT PROCEEDINGS ARE BARRE D BY LIMITATION ASSESSEE SUBMITTED THAT TIME WAS ALLOWED BY THE AO TO THE SPECIAL AUDITOR UPTO 18-06-2012 WHICH WORKED OUT TO 181 DAY S FROM THE DATE OF RECEIPT OF THE DIRECTION U/S.142[2A] BY ASSESSEE ON 21-12-2011. AS PER THE ASSESSING OFFICER, THE OBJECTION WAS NOT CORRECT AS THE MAXIMUM TIME LIMIT ALLOWED AS PER THE PROVISIONS OF SEC. 142[2A] WAS 180 DAYS FROM THE DATE ON WHICH THE DIRECTION U/S.1 42[2A] WAS RECEIVED BY THE ASSESSEE WHICH MEANS THAT THE NUMBE R OF DAYS THAT SHOULD BE TAKEN INTO CONSIDERATION WILL BE FROM THE NEXT DAY ON WHICH THE SAID NOTICE IS RECEIVED I.E. IN THIS CASE, IT I S RECEIVED ON 22-12- 2011. HENCE, THE EXTENSION OF TIME UPTO 18-06-2012 IS IN ORDER. 20 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. ASSESSEE HAS ALSO RAISED AN OBJECTION THAT THE DUE DATE FOR PASSING ORDER U/S.143[3] R.W.S. 153A R.W.S. 254 IS 28-06-20 12 [18-06-2012 + 10 DAYS AVAILABLE BETWEEN DATE OF REFERENCE I.E., 2 1-12-11 AND LIMITATION OF ASSESSMENT 31-12-11]. AS PER THE ASSE SSING OFFICER, THIS OBJECTION IS BASELESS AND INVALID IN VIEW OF THE PR OVISO TO EXPLANATION U/S.153B. ASSESSING OFFICER REJECTED THE ABOVE OBJECTION AND OPINED THAT THE TIME AVAILABLE FOR COMPLETION OF ASSESSMENT WAS SIX TY DAYS AFTER THE RECEIPT OF THE REPORT OF SPECIAL AUDIT U/S.142(2A). IN THE INSTANT CASE, THE REPORT WAS RECEIVED ON 18-06-2012 AND SIXTY DAY S EXPIRES ON 17- 08-2012. [III] ISSUES ARISING OUT OF RECASTED PROFIT AND LO SS ACCOUNT AS PER THE SPECIAL AUDIT REPORT U/S 142[2A). ASSESSEE OBJECTED TO THE RECASTING OF PROFIT & LOS S A/C MADE IN THE SPECIAL AUDIT REPORT AS UNDER: 1. IN THE CASE OF THE ASSESSEE, THE PROFIT HAS TO BE ARRIVED AT BASING ON CONCLUDED SALES ONLY WHICH WERE RECORDED IN THE SALES REGISTER. THUS, THE BASIS SHOULD BE SALES REGISTER ONLY AND THE FIGURE OF ADVANCES COLLECTED WHICH MAY SPREAD OVER FOR 60 MO NTHLY INSTALLMENTS SUBJECT TO CANCELLATIONS, REFUNDS, DE FAULTS ETC. CANNOT FORM PART OF SUCH SALES FIGURES. 2. AS PER ACCOUNTING STANDARD 9 OF ICAI,' WHERE TH E PURCHASER MAKES PAYMENT IN INSTALLMENTS TO THE SELLER AND TH E SELLER DELIVERS THE GOODS ONLY ON FINAL PAYMENT OF INSTAL LMENT, THE INCOME HAS TO BE RECOGNIZED AFTER COMPLETION OF PA YMENT OF ALL INSTALLMENTS 3. BECAUSE OF THE PROCEDURE FOLLOWED BY THE SPECIA L AUDITOR, AS MENTIONED, IT AMOUNTED TO TAXATION OF THE SAME AMOU NT TWICE I.E. RECOGNITION OF INCOME IN RESPECT OF ADVANCES INCLUD ED IN THE TURNOVER AND SUBSEQUENTLY WHEN ACTUAL SALES WERE RE COGNIZED AND BROUGHT INTO THE TOTAL TURNOVER IN THE ACCOUNT BOOKS. SUCH TAXATION OF THE SAME AMOUNT TWICE NEVER ENVISAGED I N THE I.T. ACT. 21 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 4. AS ALREADY MENTIONED THE PROFITS WORKED OUT BY THE SPECIAL AUDITOR FOR VARIOUS ASST. YEARS FLUCTUATE IN AN UNE VEN MANNER AND WITHOUT ANY CONSISTENCY. IN THIS CONNECTION IT MAY NOT BE OUT OF PLACE OF MENTION THAT THE HON'BLE CIT(A) DIRECTED T O ESTIMATE THE PROFIT AT 20% ON GROSS SALES FOR THE FIN. YEARS- 19 99-2000 TO 2005-06 AND 12% FOR ASST. YEAR 2006-07 AND HON'BLE ITAT DIRECTED TO ESTIMATE THE PROFIT AT 15% FOR THE FINA NCIAL YEAR 2006- 07. BUT, THE WORKING OUTS MADE BY THE SPECIAL AUDIT OR AND THE PROPOSED WORKING OUT OF THE ASSESSING OFFICER INDIC ATE THAT THE PROFITS WORK OUT TO 29% AND 35% WHICH IS ABNORMAL A ND NOT POSSIBLE IN THE LINE OF THE BUSINESS OF THE ASSESSE E. 5. THE ASSESSING OFFICER IS REQUESTED TO OBSERVE T HE RECOGNITION OF PROFIT ON ADVANCES CAN NEVER BE MAD E AND THE SAME HAS TO BE RECOGNIZED AFTER EXECUTION OF THE SA LE DEED ONLY. THE ASSESSEE IS CATERING THE NEEDS OF MIDDLE AND LO WER SEGMENTS OF THE SOCIETY BY SELLING PLOTS IN INSTALM ENTS. CONSIDERING THE TIME PERIOD SPREAD OVER FOR COLLECT ION OF INSTALLMENTS THE PROFIT THAT WOULD BE AVAILABLE FOR THE ASSESSEE WAS LESS THAN 8% AFTER MEETING ALL THE INCIDENTAL E XPENDITURES. 6., IT IS ALSO TO BE MENTIONED THAT THE ASSESSING OFFICER WHILE FINALIZING THE ASSESSMENT PROCEEDINGS U/S153A OF T HE I. T. ACT TOOK INTO CONSIDERATION THE REVISED SALE FIGURES DE CLARED BY THE ASSESSEE ON THE BASIS OF AMOUNTS RECEIVED FROM THE CUSTOMERS. THE SPECIAL AUDITOR ADOPTED HIS OWN WAY OF CALCULAT ING GROSS SALES BY BRINGING UN-RECONCILED COLLECTIONS AS WELL AS ADVANCES INTO THE FOLD OF SALES. AS CAN BE SEEN FROM THE SHO W CAUSE NOTICE LETTER THE ASSESSING OFFICER PROPOSES TO ADOPT SUCH GROSS SALES FIGURES WORKED OUT U/S.142(2A) OF THE IT ACT AND FU RTHER PROPOSES TO DISALLOW 30% OF OTHER EXPENSES WITHOUT ANY BASIS . 7. IT IS ALSO TO BE MENTIONED THAT AS CAN BE SEEN FROM THE ACCOUNTS DURING THE FINANCIAL YEAR 2005-06 THERE WA S COLLECTION TO THE TUNE OF RS.L.83 CRORES WHICH WAS PAID BACK I N FINANCIAL YEAR 2006-07 TO 2008-09. THE SAME IS EVIDENCED BY T HE ACCOUNTS. THE SPECIAL AUDITOR DID NOT TAKE INTO CON SIDERATION THE SAME FACT. 8. IT IS ALSO TO MENTION THAT EVEN WHILE WORKING O UT THE PURCHASERS THE SPECIAL AUDITOR WORKED OUT THE UN-RE CONCILED PURCHASES AT RS.27.48 CRORES. THIS FIGURE WAS ARRIV ED AT ON THE BASIS OF THEIR OWN ASSUMED FIGURES OF PURCHASES AND DIFFERENCE IN CLOSING AND OPENING BALANCES OF LAND ADVANCES AS WELL AS ADVANCE COMMISSION. THE SPECIAL AUDITOR FURTHER PRO CEEDED TO ALLOCATE THE SO CALLED UTI-RECONCILED PURCHASES ON CERTAIN PROPORTIONS TO VARIOUS ASST. YEARS. IT MAY BE MENTI ONED THAT 22 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. EITHER THE INVESTIGATION WING OR THE ASSESSING OFFI CER WHO COMPLETED THE ORIGINAL ASSESSMENTS NEVER POINTED OU T ANY RECONCILED PURCHASES. THOSE PROCEEDINGS DID NOT IND ICATE ANY UN-RECONCILED PURCHASES AS MENTIONED BY THE SPECIAL AUDITOR. THE WORKING OUT MADE BY THE SPECIAL AUDITOR BY BRIN GING DIFFERENCE IN OPENING AND CLOSING BALANCES OF LAND ADVANCES AND ADVANCE COMMISSION NEVER REFLECT ANY PURCHASES AND THEREFORE THERE IS NO SCOPE TO WORK OUT THE FIGURE OF UN-RECO NCILED PURCHASES AT RS.27.48 CRORES. 9. FROM THE AUDIT REPORT FURNISHED BY THE SPECIAL AUDITOR IT CAN BE SEEN THAT: I. THE SALES FIGURES RECORDED IN THE ACCOUNT BOOKS AND FINANCIAL STATEMENTS FOR THE RESPECTIVE ASSESSMENT YEARS WER E COMPLETELY ALTERED ON THE BASIS OF CERTAIN PRESUMP TIONS AND ASSUMPTIONS. II. THE PURCHASES FIGURES RECORDED IN THE ACCOUNT BOOKS AND FINANCIAL STATEMENTS FOR THE RESPECTIVE ASSESSMENT YEARS WERE COMPLETELY ALTERED ON THE BASIS OF CERTAIN PRESUMP TIONS AND ASSUMPTIONS. III. THE CLOSING STOCK FIGURES FOR EACH ASST. YEAR WERE ARRIVED AT 30% OF THE RECONCILED PURCHASES 'ON ESTIMATION BAS IS. IV. THE SPECIAL AUDITOR PROCEEDED TO WORK OUT THE INCOMES ON THE BASIS OF ASSUMED OPENING STOCKS AND CLOSING ST OCKS FOR THE ASST. YEARS INVOLVED IN THE PROCEEDINGS. THE ABOVE FACTS CLEARLY INDICATE THAT THE AUDIT RE PORT FURNISHED U/S.142(2A) IS NOT BASED ON THE ACCOUNT BOOKS AND SEIZED MATERIAL IDENTIFIED AT THE TIME OF SEARCH AND SEIZU RE OPERATION. HENCE, SUCH REPORT U/S.142(2A) OF THE I. T. ACT NEE D NOT BE GIVEN COGNIZANCE AND THEREFORE, THE ASSESSING OFFICER IS REQUESTED NOT TO MAKE THE SAME AS BASIS FOR THE PURPOSE OF COMPUT ATION OF INCOME FOR VARIOUS ASST. YEARS . FINALLY IT IS TO BE MENTIONED THAT THE SEARCH AND SEIZURE OPERATION IN THIS CASE TOOK PLACE ON 12-12-2005. I N RESPONSE TO NOTICES U/S.153A OF THE I.T. ACT THE ASSESSEE FILE D RETURNS OF INCOME FOR THE FIN. YEARS 1999-2000 TO 2005-06 ALO NG WITH REVISED FINANCIAL STATEMENTS. TAKING THE SAME INTO CONSIDERATION THE ASSESSING OFFICER FINALIZED THE ASSESSMENT PROCEEDINGS. ON APPEAL THE HON'BLE CIT(A) ALLOWED CERTAIN RELIEFS. ON FURTHER APPEALS BY THE ASSESSEE AS WEL L AS BY THE 23 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. DEPARTMENT THE HON'BLE ITAT, VIZAG SET ASIDE THE A SSESSMENTS WITH A DIRECTION FOR REDOING THE SAME. THE ASSESSI NG OFFICER MADE A REFERENCE U/S.142(2A) FOR SPECIAL AUDIT. IT MAY BE MENTIONED THAT IN THE CASE OF THE ASSESSEE THERE IS NO COMPLEXITY OF THE ACCOUNTS. THE ONLY DEFICIENCY IS THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT UPTO TH E SATISFACTION OF THE AUTHORITIES. THE ORDERS PASSED BY THE ASSESSING OFFICER ORIGINALLY AND THE APPEAL ORDERS PASSED BY THE HON'BLE CIT(A) ESTABLISH THE FACT THAT THE TURNOVER S MENTIONED BY THE SPECIAL AUDITOR DOES NOT FIND SUPPORT FROM THE SEIZED MATERIAL. IT IS FURTHER MENTIONED THAT THE SPECIAL AUDITOR DU RING THE COURSE OF PROCEEDINGS U/S.142(2A) CALLED FOR VARIOUS DETAI LS IN SUPPORT OF VARIOUS ITEMS RECORDED IN THE 'ACCOUNT BOOKS FOR THE FIN. YEARS 1999-2000 TO 2005-06. THUS, THE PERIOD FOR WHICH TH E INFORMATION REQUIRED VARIES FROM 12 YEARS TO 5 YEARS. GENERALLY NO BUSINESS MAN MAY KEEP UP THE MISC. VOUCHERS ETC. FOR A PERIO D OF 6 TO 12 YEARS. IT IS ONLY BECAUSE OF SETTING ASIDE OF THE A SSESSMENTS BY THE HON'BLE ITAT, VIZAG THE UNEXPECTED CONTINGENCY CROPPED UP. THE ASSESSEE NEVER VISUALIZED SUCH SITUATION. FURTH ER, AT THE TIME OF SEARCH AND SEIZURE ITSELF THE DEPARTMENT SE IZED ALL MOST ALL THE MATERIAL AVAILABLE WITH THE ASSESSEE. THIS FACT CLEARLY ESTABLISHES THAT THE ASSESSEE WAS NOT IN A POSITION TO PRODUCE ANY OTHER MATERIEL CALLED FOR BY THE SPECIAL AUDITO R. THEREFORE, AS THERE WAS NO MATERIAL THAT WAS REQUIRED BY THE SPEC IAL AUDITOR IN THE POSSESSION OF THE ASSESSEE THEY COULD NOT COMPL Y WITH THE COMMUNICATIONS ISSUED BY THE SPECIAL AUDITOR. THERE IS NO INTENTION ON THE PART OF THE ASSESSEE NOT TO CO-OPE RATE WITH ANY AUTHORITIES INCLUDING SPECIAL AUDITOR. IT IS BECAUS E OF THE FACT THAT THE MATTER PERTAINS TO VERY OLD ASST. YEARS THE ASS ESSEE COULD NOT PRODUCE THE DETAILS REQUIRED BY THE SPECIAL AUDITOR . 2.13 ACCORDING TO ASSESSING OFFICER, THE OBJECTIONS RAISED BY THE ASSESSEE ARE NOT ACCEPTABLE BECAUSE OF THE FOLLOWIN G REASONS: 2.14 AS PER THE PROVISIONS OF SECTION 142[2A], THE DIRECTIONS ARE TO THE ASSESSEE TO GET THE ACCOUNTS AUDITED BY AN ACCO UNTANT AND FURNISH A REPORT SETTING FORTH SUCH PARTICULARS AS MAY BE PRESCRIBED AND SUCH OTHER PARTICULARS AS THE AO MAY REQUIRE. H ENCE, IT IS FOR THE ASSESSEE TO FURNISH ALL THE INFORMATION CALLED FOR BY THE SPECIAL AUDITOR DURING THE COURSE OF SPECIAL AUDIT TO ENABL E THE SPECIAL AUDITOR TO ARRIVE AT THE TRUE AND CORRECT STATE OF AFFAIRS. HOWEVER, AS 24 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. COULD BE SEEN FROM THE SPECIAL AUDIT REPORT, THE AP PROACH OF THE ASSESSEE FROM THE BEGINNING HAS BEEN NON COOPERATIV E AND THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY INFORMED THE SPECIAL AUDITOR THAT THE SPECIAL AUDIT HAS TO BE COMPLETED WITH THE MATERIAL AVAILABLE WITH THE DEPARTMENT. THE MD ALSO EXPRESSE D HIS INABILITY TO FURNISH VOUCHERS OR OTHER SUPPORTINGS ON THE GROUND THAT DUE TO PASSAGE OF TIME AND SHIFTING OF THE BUSINESS PREMIS ES, ADVERSE BUSINESS CIRCUMSTANCES AND SUCH OTHER REASONS, THE VOUCHERS AND RECORDS HAVE BEEN MISPLACED OR LOST AND ACCORDINGLY HE EXPRESSED HIS INABILITY TO PRODUCE EVEN A SINGLE VOUCHER OR O THER RECORD FROM THEIR SIDE OTHER THAN WHATEVER IS AVAILABLE WITH TH E DEPARTMENT. IN VIEW OF THE NON COOPERATION OF THE ASSESSEE AND NON AVAILABILITY OF ANY INFORMATION FROM THE ASSESSEE, THE SPECIAL AUDI TOR PERUSED THE ENTIRE SEIZED MATERIAL AND COLLATED THE VARIOUS INF ORMATION REQUIRED FOR THE PURPOSE OF CONDUCTING THE SPECIAL AUDIT IN ACCORDANCE WITH THE SCOPE AND MANDATE. BASING ON THE INFORMATION AVAILA BLE AND TERMS OF REFERENCE, THE SPECIAL AUDIT WAS CONDUCTED AND THE PROFIT AND LOSS ACCOUNT WAS RE-CASTED. 3. [IV] DISALLOWANCE U/S 40A(3) WITH REGARD TO 40A(3) DISALLOWANCE, THE ASSESSING O FFICER OBSERVED FROM THE AUDIT REPORT, IT WAS SEEN THAT THERE WERE VIOLATIONS OF THE PROVISIONS OF SEC. 40A[3] OF THE I.T. ACT, WHEREIN PAYMENTS TO THE TUNE OF RS.36,56,077/- WERE MADE IN CASH EXCEEDING RS.20 ,000/- FOR PURCHASE OF LAND AND THE SAME ARE TO BE CONSIDERED FOR DISALLOWANCE IN THE ASSESSMENT. 3.1 IN REPLY TO THE SHOW-CAUSE LETTER ISSUED, PROP OSING TO MAKE DISALLOWANCES U/S.40A[3], ASSESSEE SUBMITTED AS UND ER: 'THE ASSESSEE MAKE PAYMENTS TO LAND OWNERS FOR PURC HASE OF LAND FROM THEM DURING THE COURSE OF OUR BUSINESS RO UTINELY. MOST OF THE LAND OWNERS FROM WHOM WE PURCHASE LANDS ARE 25 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. AGRICULTURISTS, ILLITERATE AND HAIL FROM RURAL AREA S WHICH ARE MORE THAN 10 KM FROM THE CITY. THE BANKING FACILITIES OF THESE 'PLACES ARE ALSO LIMITED. IN VIEW OF THE ABOVE, THEY NORMAL LY INSIST ON MAKING PAYMENTS IN CASH MODE. IN FACT THERE ARE NUM EROUS SITUATIONS, WHEREIN THE ASSESSEE ISSUED CHEQUES, BU T THEY WERE UNABLE TO CASH THE 'SAME DUE TO LIMITED BANKING FAC ILITIES IN THE VILLAGES. THE ASSESSEE HAD TO MAKE PAYMENTS IN CASH BY TAKING BACK THE CHEQUE ISSUED TO THEM EARLIER. ALL THESE E XPENDITURES ARE GENUINE AND SUPPORTING EVIDENCES IS ALSO AVAILA BLE IN RESPECT OF PURCHASES. SO, IN VIEW OF THE SAME THE ASSESSEE WOULD LIKE TO SUBMIT THAT THE SAME MAY NOT BE DISALLOWED.' 3.2 AFTER CONSIDERING THE ABOVE SUBMISSIONS, THE AS SESSING OFFICER OBSERVED THAT THE EVIDENCES FURNISHED WERE EXAMINED . THE PRESENT ASSESSMENT PROCEEDINGS INVOLVED SEVEN ASSESSMENT YE ARS FROM THE ASSESSMENT YEAR 2000-01 TO 2006-07. VERIFICATION OF THE RECORDS REVEALED INSTANCES OF PAYMENTS IN CASH IN EXCESS OF RS. 20,000/- CONTRAVENING THE PROVISIONS OF SECTION 40A(3) AS UN DER: F.Y. NO. OF INSTANCES NO. OF PERSONS TOTAL AMOUNT 1999-2000 59 29 36,56,077 2000-01 29 14 56,66,150 2001-02 23 13 26,27,200 2002-03 63 31 1,91,21,853 2003-04 22 7 41,80,000 2004-05 108 38 5,13,49,400 2005-06 43 27 57,31,955 3.3 REFERRING TO THE ABOVE TABLE, THE ASSESSING OFF ICER OBSERVED THAT THE INSTANCES OF CASH PAYMENTS WERE NOT SOLITA RY BUT ON REPEATED OCCASIONS. IT WAS NOTICED THAT THERE WERE SEVERAL I NSTANCES OF CASH PAYMENTS MADE TO A SINGLE PARTY AT TIMES. BESIDES, THERE WERE ALSO SOME INSTANCES WHERE CASH PAYMENTS WERE MADE TO BUS INESS ENTITIES, VIZ., SWAGAT ROADLINES. 3.4 THE ASSESSING OFFICER FURTHER OBSERVED THAT ASS ESSEE HAS CLAIMED THAT THE SELLERS WERE AGRICULTURISTS, ILLIT ERATES AND HAILED FROM RURAL AREAS WHICH ARE MORE THAN 10 KMS FROM THE CIT Y. THOUGH LANDS WERE PURCHASED FROM AS MANY AS 159 PERSONS, COPIES OF PATTADAR 26 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. PASS BOOKS WERE FURNISHED IN 19 CASES ONLY AND THES E DOCUMENTS DO NOT EVIDENCE THAT THE SELLERS ARE RESIDENTS OF THE VILLAGE IN WHICH LANDS ARE SITUATED AS NONE OF THE PASS BOOKS CONTAI N ADDRESS OF THE LANDHOLDERS AT THE SPACE PROVIDED. THESE DOCUMENTS EVIDENCE LAND OWNERSHIP BUT NOT THAT THE LAND OWNERS ARE AGRICULT URISTS, ILLITERATES AND RESIDING AWAY IN PLACES WITH NO BANKING FACILIT IES. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER DISALLO WED 20% OF RS.36,56,077/- BEING EXPENDITURE INCURRED IN CASH C ONTRAVENING THE PROVISIONS OF SECTION 40A[3] I.E. RS.7,31,215/-. 4. [VI] DISALLOWANCE OF 30% OF SALES, ADMINISTRATI VE AND OTHER EXPENSES: IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE CLAIME D THE FOLLOWING EXPENDITURE: [A] SITE DEVELOPMENT EXPENDITURE RS.1,82,40,705 [B] SALES, ADMINISTRATIVE & OTHER EXPENSES RS. 37, 73,727 4.1 THE ASSESSING OFFICER OBSERVED THAT AS THE ASSE SSEE COULD NOT SUBMIT BILLS/VOUCHERS IN SUPPORT OF THE ABOVE EXPEN DITURE, IT WAS DISALLOWED 30% OF SALES, ADMINISTRATIVE AND OTHER E XPENSES AND ASSESSEE SUBMITTED THAT DISALLOWANCE IS NOT WARRANT ED AS THE AO IS PROPOSING TO COMPUTE THE INCOME ON THE BASIS OF ACC OUNT BOOKS MAINTAINED AND THERE IS NO SCOPE FOR MAKING ANY ADH OC DISALLOWANCE. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE E XPENDITURE CLAIMED BY IT WAS NOMINAL WHEN COMPARED TO THE ESTIMATION O F TURNOVER AND ASSESSEE CANNOT CARRYON BUSINESS WITHOUT INCURRING CERTAIN EXPENSES. 4.2 THE OBJECTIONS RAISED IN THIS REGARD ARE NOT AC CEPTABLE TO THE ASSESSING OFFICER AS THE ASSESSEE COULD NOT FURNISH ANY SORT OF EVIDENCES IN SUPPORT OF THE EXPENDITURE CLAIMED, AS ABOVE, EVEN DURING THE COURSE OF SPECIAL AUDIT OR DURING THE AS SESSMENT PROCEEDINGS. ASSESSING OFFICER OBSERVED THAT THE BU SINESS ACTIVITY OF 27 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. THE ASSESSEE COMPANY IS SALE OF HOUSE PLOTS INVOLVI NG PURCHASE OF VAST TRACTS OF PLAIN LANDS AND CONVENIENT DIVISION INTO PLOTS OF DIFFERENT SIZE, GROUND LEVELLING, ETC. ASSESSING OFFICER FURT HER EXAMINED THAT EXAMINATION OF CASE RECORDS DOES NOT EVIDENCE EXPEN DITURE INCURRED ON LAYING OF BT ROADS, SEWAGE PIPES AND ELECTRICITY LINES ETC. HE OPINED THAT MERE PLACEMENT OF CORNER STONES/WIRING DOES NOT INVOLVE SUCH HUGE EXPENDITURE AS CLAIMED AND THE EXPENDITUR E STATED ABOVE I.E, EXPENDITURE ON SITE DEVELOPMENT IS ON HIGHER S IDE. SIMILARLY, WITH REGARD TO SALES, ADMINISTRATIVE AND OTHER EXPENSES, CONSIDERING THE NATURE OF BUSINESS, VOLUME OF THE BUSINESS AND THE LOCATIONS WHEREIN THE HOUSE PLOTS WERE MADE AND SOLD, THE EXPENDITURE IS ON HIGHER SIDE. THOUGH EXPENDITURE IS A MUST COMPONENT OF ANY BUSINESS, AS ASSESSEE COULD NOT PRODUCE ANY SUPPORTING EVIDENCES AND COULD NOT SUBSTANTIATE THE REASONABLENESS OF THE EXPENDITURE CLAIMED, THE COMPLETE EXPENDITURE CLAIMED CANNOT BE ALLOWED. ACC ORDINGLY, HE DISALLOWED THE EXPENDITURES AS UNDER: [1] DISALLOWANCE OF 30% OF SITE DEVELOPMENT EXPENS ES OF RS. RS.1,82,40 705 - RS. 54,72,212 [2] DISALLOWANCE OF 30% OF SALES, ADMINISTRATIVE & OTHER EXPENSES OF RS. 37,73,727 RS.11,32,L18 5. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND RAISED VARIOUS GROUNDS WITH REGARD TO ACTION OF THE ASSESSING OFFICER U/S.142(2A) OF THE IT ACT, ALLEGI NG THE ASSESSING OFFICER MADE A REFERENCE U/S 142(2A) TO GAIN TIME F OR FINALIZATION OF ASSESSMENT PROCEEDINGS, WITHOUT PROPER APPRECIATION OF PAST ASSESSMENT RECORD AND WITHOUT PROPER COMPLIANCE WIT H THE PROCEDURE LAID DOWN U/S.142(2A) OF THE IT ACT. IN SUPPORT OF ITS SUBMISSION, THE ASSESSEE RELIED ON THE FOLLOWING JUDICIAL DECISIONS : I. UP FINANCIAL CORPORATION VS JCIT (147 TAXMAN 21 ) (ALL) II. SWADESHI COTTON MILLS CO. LTD VS CIT (171 ITR 634) (ALL) III. SAHARA INDIA LTD VS CIT (246ITR 475) (ALL) 28 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. IV. BATA INDIA LTD VS CIT (257 ITR 622) (CAL) 6. THE CIT(A) REJECTED ALL THE GROUNDS RAISED BY TH E ASSESSEE AND UPHELD THE ORDER OF THE ASSESSING OFFICER WITH REGA RD TO SPECIAL AUDIT, RECASTED P&L A/C. CIT(A) HAS GIVEN PARTIAL RELIEF T O ASSESSEE BY DELETING THE DISALLOWANCE MADE ON SITE DEVELOPMENT, SALES, ADMINISTRATIVE AND OTHER EXPENSES. THE OBSERVATIONS OF THE CIT(A) ARE REPRODUCED BELOW. 10.5 FROM THE ASSESSMENT ORDER, IT IS SEEN THAT TH E ASSESSING OFFICER DID NOT BRING ANY FRESH MATERIAL ON RECORD TO ESTABLISH THAT THE APPELLANT INFLATED EXPENDITURE WITH A VIEW TO R EDUCE THE PROFITS. THIS FACT IS IMPORTANT BECAUSE THE ASSESSI NG OFFICER WHO COMPLETED THE ASSESSMENT U/S,153A OF THE IT ACT ORI GINALLY DID NOT DOUBT EITHER THE GENUINENESS OF EXPENDITURE OR REASONABILITY OF THE EXPENDITURE. 10.6 THE ASSESSING OFFICER WHILE PROCEEDING WITH TH E SET ASIDE PROCEEDINGS U/S.153A RWS 254 OF THE IT ACT DID NOT MENTION CONVINCINGLY AS TO HOW HE WAS NOT CONVINCED WITH TH E EXPENDITURE CLAIMED BY THE APPELLANT UNDER THE ABOV E HEADS, FURTHER, THE ASSESSING OFFICER ALSO DID NOT SPELL O UT ANY REASONS AS TO WHY THE FIGURES SUGGESTED BY THE SPECIAL AUDI TOR IN HIS SPECIAL AUDIT REPORT WERE NOT ACCEPTABLE FOR HIM. F URTHER, THE ASSESSING OFFICER DID NOT MENTION AS TO DISALLOWANC E OF 30% EXPENDITURE WOULD MEET THE ENDS OF JUSTICE. 10.7 WHILE DECIDING THE GROUND NOS. 10,11AND 12, TH E EXPENDITURE AS WORKED OUT BY THE SPECIAL AUDITOR IN THE COURSE OF SPECIAL AUDIT HAS ALSO CAME FOR CONSIDERATION, THE SPECIAL AUDITOR HIMSELF ADOPTED THE FOLLOWING PERCENTAGE OF EXPENDITURE FOR UN-RECONCILED LAND PAYMENTS AND SITE DEVELOPMEN T AND OTHER EXPENSES FOR THE YEARS UNDER CONSIDERATION: ASST. YEAR PERCENTAGE (%) 2000-2001 9.07% 2001-2002 12.52% 2002-2003 7.44% 2003-2004 17.88% 2004-2005 11.97% 2005-2006 15.12% 2006-2007 25.99% THUS, THE SPECIAL AUDITOR HIMSELF PROCEEDED WITH CE RTAIN ESTIMATED FIGURES OF EXPENDITURE FOR ARRIVING AT TH E CONCLUSIONS. IN THE LIGHT OF THE SAME, THE ACTION OF THE ASSESSI NG OFFICER WITH REGARD TO FURTHER RESTRICTION OF SUCH ESTIMATED EXP ENDITURE IN THE 29 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. COURSE OF RE-ASSESSMENT PROCEEDINGS CANNOT BE CONSI DERED AS REASONABLE, 6.1 THE CIT(A) ALSO RELIED ON THE DECISION OF ITAT BANGALORE BENCH IN CASE OF VINARAM LTD., 104 ITD 234 AND THE DECISI ON OF ITAT MUMBAI BENCH IN THE CASE OF KELLOGS INDIA PVT. LTD. VS. ACIT, ITA NO. 6005/MUM/2010, DATED 10/08/2012. THE CIT(A) FIN ALLY HELD AS BELOW: 10.11 IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTA NCES AND JUDICIAL DECISIONS, I FEEL THAT NO ADHOC DISAL LOWANCE OF EXPENDITURE AS DONE BY THE ASSESSING OFFICER IS WAR RANTED. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFIC ER UNDER THE HEADS SITE DEVELOPMENT EXPENSES AND SALES, ADMINIST RATIVE AND OTHER EXPENSES IS NOT SUSTAINABLE AND HENCE DELETED . THUS, THE GROUND NOS. 19 AND 20 ARE ALLOWED. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL, WHICH ARE COMMON IN ALL THE APPEALS UNDER CONSIDERATION: 1. THE ORDER OF THE HONBLE CIT(A) IS ERRONEOUS IN LAW AS WELL AS ON FACTS OF THE CASE. 2. THE HON'BLE CIT(A) OUGHT TO OBSERVED THAT THE AS SESSING OFFICER ERRED IN MAKING REFERENCE U/S.142(2A) OF TH E IT ACT THOUGH THERE WAS NO COMPLEXITY IN THE ACCOUNTS OF THE ASSE SSEE. 3. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER DID NOT BRING OUT THE NATURE OF COMPLEXITY INVOLVED IN THE ACCOUNTS OF THE ASSESSEE FOR MAKING A REFERENCE U/S .142(2A) OF THE IT ACT AND IN THAT PROCESS HE IGNORED THE FACT THAT THE EARLIER ASSESSING OFFICER AS WELL AS HON'BLE CIT(A) FINALIZ ED THEIR ORDERS BASING ON THE SAME ACCOUNTS. HENCE THE HON'BLE CIT( A) OUGHT TO HAVE HELD THAT SUCH CONCLUSION ARRIVED AT BY THE AS SESSING OFFICER FOR MAKING REFERENCE U/S.142(2A) WAS INVALID AND WI THOUT ANY BASIS. 4. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE FACT OF MAKING REFERENCE U/S.142(2A) OF THE IT ACT JUST A F EW DAYS BEFORE LIMITATION FOR COMPLETION OF ASSESSMENT EXPIRE CLEA RLY SHOW THAT THE REFERENCE WAS MADE TO GAIN TIME FOR FINALIZATIO N OF ASSESSMENT PROCEEDINGS AND THEREFORE THE HON'BLE CI T(A) OUGHT TO HAVE HELD THAT SUCH ACTION OF THE ASSESSING OFFI CER CANNOT BE CONSIDERED AS VALID IN LAW. 5. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER MADE THE REFERENCE U/S.142(2A) OF THE IT AC T WITHOUT 30 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. CONSIDERING THE OBJECTIONS FILED BY THE ASSESSEE VI DE THEIR LETTER DATED 20.12.2011 AND HENCE OUGHT TO HAVE HELD THAT THE REFERENCE MADE WAS NOT A VALID ONE IN THE EYE OF LA W. 6. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER MADE THE REFERENCE UJS.142(2A) OF THE IT AC T WITHOUT PROPER COMPLIANCE WITH THE PROCEDURE LAID DOWN U.J S.142(2A) OF THE IT ACT AND THEREFORE THE REFERENCE CANNOT BE HE LD AS A VALID ONE. 7. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER ERRED IN FRAMING THE TERMS FOR SPECIAL AUDI T UJS.142(2A) OF THE I.T. ACT WHICH WERE BEYOND THE SCOPE OF SPECIAL AUDIT AND HENCE SUCH A REFERENCE BY THE ASSESSING OFFICER CAN NOT BE CONSIDERED AS A VALID ONE IN THE EYES OF LAW. 8. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSMENT COMPLETED BY THE ASSESSING OFFICER BASIN G ON SUCH INVALID REFERENCE CANNOT BE CONSIDERED AS A VALID ONE AND HENCE THE HON'BLE CIT(A) OUGHT TO HAVE HELD THE SAME AS V OID. VALIDITY OF REPORT U/S 142(2A) OF THE IT ACT: 9. THE OBSERVATION OF THE SPECIAL AUDITOR THAT THE ASSESSEE WAS NON-COOPERATIVE IN FURNISHING OF INFORMATION IS IMPROPER AND INCORRECT AS .THE CASE REFERRED TO THEM WAS A SEARC H CASE IN WHICH ALL THE RELEVANT MATERIALS WERE SEIZED BY THE DEPARTMENT AND AVAILABLE WITH THE DEPARTMENT. 10. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT THE OBSERVATIONS CONTAINED IN THE SPECIAL AUDIT REPORT ARE FULL OF CONTRADICTIONS AND HENCE SUCH OBSERVATIONS CANNOT BE THE BASIS FOR RE-CASTING THE ACCOUNTS OF THE ASSESSEE. HENCE THE ACCOUNTS RE-CASTED ON THE BASIS OF SUCH OBSERVATIONS CANNOT BE THE BASIS FOR COMPUTING THE TOTAL INCOME AND HENCE THE ADDITI ONS OUGHT TO HAVE BEEN DELETED BY THE CIT(A). 11. VARIOUS FIGURES SUCH AS PURCHASES, SALES OPENIN G STOCK, CLOSING STOCK AND OTHER ITEMS WORKED OUT BY THE SPE CIAL AUDITOR IN THE SPECIAL AUDIT REPORT WERE NOT ON THE BASIS OF T HE MATERIAL AVAILABLE BUT THE SAME WERE WORKED OUT ON THE BASIS OF CERTAIN PRESUMPTIONS. HENCE THE HON'BLE CIT(A) OUGHT TO HAV E OBSERVED THAT ADOPTION OF SUCH FIGURES BY THE ASSESSING OFFI CER SHOULD NOT FORM THE BASIS FOR COMPUTATION OF INCOME AND THEREF ORE DIRECTED THE AO TO IGNORE THE REPORT U/S 142(2A) OF THE IT A CT. 12. THE SUGGESTION OF THE SPECIAL AUDITOR CONTAINED AT PARA 7.1 THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE A SSESSEE NEED NOT BE REJECTED AND CAN BE USED FOR RE-CASTING OF R E-COMPUTATION OF INCOME AND EXPENSES APPROPRIATELY WAS NOTHING BU T OVER RIDING THE DISCRETIONARY POWERS OF THE ASSESSING OF FICER AVAILABLE U/S.145 OF THE IT ACT AND SUCH SUGGESTION IS AGAINS T THE 31 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. PROVISIONS OF THE IT ACT. THE HO'BLE CIT(A) OUGHT T O HAVE OBSERVED THAT THE AUDIT REPORT PREPARED U/S.142(2A) OF THE IT ACT BASING ON SUCH SUGGESTION CANNOT BE THE BASIS FOR M AKING THE ASSESSMENT AND HENCE THE HON'BLE CIT(A) OUGHT TO HA VE DELETED THE ADDITION. 13. THE SPECIAL AUDITOR TRAVELLED BEYOND HIS POWE RS IN THE PROCESS OF CARRYING ON SPECIAL AUDIT BY PREPARING A FRESH PROFIT AND LOSS ACCOUNT IGNORING THE ORIGINAL ONE WHICH WA S PREPARED IN COMPLIANCE WITH THE PROVISIONS OF COMPANIES ACT AND APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY AND THEREF ORE THE HON'BLE CIT(A) OUGHT TO HAVE HELD THAT THE FRESH PR OFIT AND LOSS ACCOUNT PREPARED BY THE SPECIAL AUDITOR CANNOT BE C ONSIDERED AS A VALID DOCUMENT FOR THE PURPOSE OF MAKING ASSESSME NT. OBJECTIONS WITH REGARD TO RE-CASTED PROFIT AND LOSS ACCOUNT: 14. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSESSING OFFICER ERRED IN ADOPTING RE-CASTED PROFI T AND LOSS ACCOUNT IGNORING THE FINANCIAL STATEMENTS FILED BY THE ASSESSEE WITHOUT MENTIONING ANY SPECIFIC AND VALID REASONS. 15. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSESSING OFFICER ERRED IN REJECTING VARIOUS OBJECT IONS RAISED BY THE ASSESSEE WITH REGARD TO CONTENTS OF THE AUDIT R EPORT U/S.142(2A) WITHOUT MENTIONING ANY VALID REASONS AN D HENCE ADDITIONS MADE ON THE BASIS OF SUCH AUDIT REPORT BY THE ASSESSING OFFICER AND UPHELD BY THE HON'BLE CIT(A) ARE LIABLE TO BE DELETED. 16.THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT A SSESSEE IS A COMPANY CAME INTO EXISTENCE AS PER PROVISIONS OF CO MPANIES ACT AND THEREFORE RE-CASTING OF THE PROFIT AND LOSS ACCOUNT IN THE COURSE OF SPECIAL AUDIT U/S.142(2A) OF THE IT ACT I GNORING THE FACT THAT THE ORIGINAL PROFIT AND LOSS ACCOUNT WAS PREPA RED IN COMPLIANCE WITH THE PROVISIONS OF COMPANIES ACT IS IMPROPER. COMPUTATION OF INCOME: 17. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSESSING OFFICER ERRED IN MAKING ADDITION OF RS. 7 ,31,215/- BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE IT ACT AND THEREFORE THE SAME IS LIABLE TO BE DELETED. 18. ANY OTHER GROUND WILL BE RAISED AT THE TIME OF HEARING. 8. THE REVENUE IS ALSO AGGRIEVED AGAINST THE ORDER OF THE CIT(A) AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL, WHI CH ARE COMMON IN ALL THE APPEALS FILED BY THE REVENUE: 32 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 1. THE LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWAN CE MADE BY THE AO OF 30% OF EXPENDITURE ON SITE DEVELOPMENT, COMM ISSION, SALES, ADMINISTRATIVE AND OTHERS, WHICH WAS MADE I N THE ABSENCE OF VOUCHERS/SUPPORTING EVIDENCE. 9. THE ASSESSEE HAS FILED 18 GROUNDS OF APPEAL OUT OF WHICH THE ASSESSEE HAS PRESSED ONLY GROUND NOS. 9 TO 13 AND, THEREFORE, THE OTHER GROUNDS ARE TREATED AS DISMISSED AS NOT PRESS ED BY THE ASSESSEE. 10. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE REPORT OF THE SPECIAL AUDIT CONDUCTED U/S 142(2A) OF THE ACT IS N OT VALID AND PROPER. THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IS PROPER AND AS PER THE COMPANIES ACT, 1956. HENCE, THE BOOKS OF AC COUNT OF THE ASSESSEE SHOULD BE CONSIDERED FOR DETERMINING THE P ROFIT OR IF THE BOOKS OF ACCOUNT ARE BEING REJECTED, A PROPER METHO D OF ESTIMATION TO BE ADOPTED TO DETERMINE THE TAXABLE INCOME AS PER T HE INCOME-TAX ACT. 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ONLY DEALING IN REAL ESTATE BUSINESS, W HICH DEALS IN PURCHASE OF LAND, DEVELOPING THE SAME AND SELL THE LAND TO THE BUYERS AND IT IS NOT INTO THE DEVELOPMENT OF CONSTRUCTION OR DEVELOPMENT OF BUILDING. LD. AR SUBMITTED THAT THE BOOKS OF ACCOUN T ARE PROPERLY MAINTAINED AND IT IS AS PER THE PROVISIONS OF COMPA NIES ACT, 1956. HE BROUGHT TO OUR KNOWLEDGE THAT THE ORIGINAL ASSESSME NT WAS COMPLETED U/S 143(3) READ WITH SECTION 153A OF THE ACT. EVEN IN THAT ASSESSMENT, THE BOOKS OF ACCOUNT WERE REJECTED DUE TO COMPLEXITY OF THE NATURE OF BUSINESS, THE INCOME WAS ESTIMATED. S INCE ITAT, VIZAG BENCH HAS ADVISED AO TO UTILIZE THE SERVICES OF A C HARTERED ACCOUNTANT TO COMPLETE THE ASSESSMENT, BASED ON THE ABOVE DIRECTIONS, AO HAS APPOINTED SPECIAL AUDITOR U/S 14 2(2A) OF THE ACT. HE SUBMITTED THAT THE SPECIAL AUDIT REPORT CONTAINS FULL OF CONTRADICTIONS AND SUCH OBSERVATIONS CANNOT BE THE BASIS FOR 33 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. RECASTING ACCOUNTS OF THE ASSESSEE. THE ACCOUNTS AR E RECASTED ON THE BASIS OF THE OBSERVATIONS OF THE SPECIAL AUDITOR C ANNOT BE THE BASIS FOR COMPUTING THE TOTAL INCOME. MOREOVER, THE SPECI AL AUDITOR ADOPTED VARIOUS FIGURES IN PURCHASES, SALES, OPENING STOCKS AND CLOSING STOCKS WERE NOT ON THE BASIS OF MATERIAL AVAILABLE ON RECORD, BUT, THE SAME WERE ADOPTED ON THE BASIS OF CERTAIN PRESUMPTI ONS. HE ALSO SUBMITTED THAT SPECIAL AUDITOR TRAVELLED BEYOND HIS POWER IN THE PROCESS OF CARRYING ON SPECIAL AUDIT BY PREPARING F RESH P&L ACCOUNT IGNORING THE P&L A/C ORIGINALLY PREPARED IN COMPLIA NCE WITH THE PROVISIONS OF THE COMPANIES ACT AND THE SAME WAS AP PROVED BY THE BOARD OF DIRECTORS OF THE COMPANY. THE RECASTED P&L A/C PREPARED BY THE SPECIAL AUDITOR CANNOT BE CONSIDERED AS VALI D DOCUMENT FOR COMPLETING THE ASSESSMENT. HE ALSO BROUGHT TO OUR K NOWLEDGE THAT THE SPECIAL AUDITOR HAS OPINED AT PARA 7.1 OF HIS R EPORT THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE NEED NOT BE R EJECTED AND CAN BE USED FOR RECASTING OF P&L AND IT SHOWS THAT THE BOOKS OF ACCOUNT ARE PROPER AND HE ALSO SUBMITTED THAT THE DEPARTMEN T HAS ALREADY REJECTED THE BOOKS OF ACCOUNT BECAUSE OF COMPLEXITY OF THE NATURE OF BUSINESS AND RELYING ON THE SPECIAL AUDIT ALONE CAN NOT BE THE BASIS OF DETERMINING THE INCOME OF THE ASSESSEE CONSIDERING THE FACT THAT VARIOUS FIGURES ADOPTED BY THE SPECIAL AUDITOR IN PURCHASE, SALES, OPENING AND CLOSING STOCKS WERE BASED ON PRESUMPTIO NS AND SURMISES. THE ONLY WAY OUT LEFT IS TO ESTIMATE THE INCOME OF THE ASSESSEE IN CASE BOOKS OF ACCOUNT ARE REJECTED AS W ELL AS SPECIAL AUDIT REPORT IS NOT CONSIDERED. 11.1 THE LD. AR SUBMITTED THAT WITHOUT CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE, WHICH IS INTO THE DEVELOP MENT OF LAND AND SELLING THEM , THE PROFIT DETERMINED FOR AY 2000-01 TO 2005-06 BY THE SPECIAL AUDITOR, CIT(A) AND AO ARE AS UNDER: AY SPECIAL AUDITOR CIT(A) AO 2000-01 33.95% 33.76% 41% 2001-02 25.92% 36.26% 27.1% 2002-03 LOSS LOSS LOSS 34 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 2003-04 10.94% 13.06% 22.64% 2004-05 LOSS LOSS LOSS 2005-06 LOSS 0.644% 9.89% 2006-07 24.31% 24.7% 33.53% 11.2 THE LD. AR SUBMITTED THAT THE PROFIT DETERMINE D BY THE SPECIAL AUDITOR AND AO ARE NOT BASED ON MATCHING PRINCIPLE, AS THE PROFIT IN THE REAL ESTATE WILL BE CONSTANT YEAR TO YEAR BASIS IN RELATION TO THE SALES. CONSIDERING THE FACT THAT THE RELATED COST A PPORTIONED TO THE RELEVANT YEAR IN LINE WITH RELEVANT SALE. THE PROFI T DETERMINED BY SPECIAL AUDITOR AND THE REVENUE AUTHORITIES ARE EIT HER TOO HIGH OR AT LOSS. HE ALSO SUBMITTED THAT THE ASSESSEE IS WILLIN G TO ACCEPT SALES FIGURES ARRIVED AT BY THE SPECIAL AUDITOR. HE ALSO SUBMITTED THAT THE PROFIT MAY BE ESTIMATED AT 8% BUT THE BENEFIT OF IN TEREST AND DEPRECIATION SHOULD ALSO BE ALLOWED. FOR THIS PROPO SITION, HE RELIED ON THE DECISION OF AP HIGH COURT IN THE CASE OF CIT VS . RAMACHANDRA REDDY, 372 ITR 77. RELYING ON THE JUDGMENT OF THE K ERALA HIGH COURT IN THE CASE OF SAMURAI TECHNO TRADING CO. (P) LTD. VS. CIT, [2010] 37 DTR 386 (KER.), HE SUBMITTED THAT THE INCOME MAY B E ESTIMATED AT 8% OF THE SALES. HE ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. BISHAMBHAR DAYAL & CO., [1994] 210 ITR 118 (ALL.) T O ALLOW DEPRECIATION AS DEDUCTION EVEN AFTER ESTIMATION OF INCOME. 11.3 LD. AR ALSO SUBMITTED THAT THE ITAT DELHI BENC H IN CASE OF ITO VS. MADHAV PROPCON PVT. LTD., 6011/DEL/12, HELD THA T PROFIT TO BE DETERMINED AT 2.24% OF THE SALES IN THE CASE OF BUS INESS OF LAND DEVELOPMENT. 12. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT F OUR OUT OF SEVEN YEARS, THE ASSESSEE HAD DECLARED THE INCOME AS LOSS . THE ITAT ALREADY ADJUDICATED THAT THE BOOKS OF ACCOUNT CANNO T BE RELIED UPON AND ACCEPTED ON THE PROPOSAL OF ESTIMATION OF INCOM E. THE LD DR SUBMITTED THAT THERE IS NO DIRECT GROUND OF APPEAL FOR ESTIMATION OF INCOME FROM THE ASSESSEE. IT IS NOT A FIT CASE FOR ESTIMATION AS ASSESSEE IS A DEVELOPER OF LAND AND THE PROFIT SHOU LD BE MUCH HIGHER 35 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. THAN THE PROFIT DETERMINED BY THE ITAT AT 15% IN AY 2007-08. HE RELIED ON THE ORDERS OF LOWER AUTHORITIES AND SUBMI TTED THAT THE SPECIAL AUDIT CONDUCTED U/S 142(2A) IS PROPER AND I T IS ON THE ASSESSEE TO COOPERATE WITH THE SPECIAL AUDITOR TO COMPLETE THE SPECIAL AUDIT PROPERLY, IN ORDER TO COMPLETE THE A SSESSMENT AND NOT ON THE DEPARTMENT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL FACTS ON RECORD AS WELL AS DECISIONS CITED . THIS IS A PECULIAR CASE WHEREIN THE BOOKS OF ACCOUNT WERE REJECTED DUE TO COMPLEX NATURE OF BOOK KEEPING AND NOT RELIABLE, THE ASSESS MENT WAS COMPLETED BASED ON ESTIMATION IN THE FIRST ROUND AS SESSMENT. ON APPEAL, THE ESTIMATION OF INCOME WAS SET ASIDE BY THE ITAT, VISAKHAPATNAM BENCH AND ADVISED THE AO TO TAKE THE SERVICES OF A QUALIFIED CA TO COMPLETE THE REASSESSMENT PROCEEDIN GS. IN LINE WITH THE ABOVE DIRECTION, AO SOUGHT THE SERVICES OF CA B Y INVOKING PROVISIONS OF SECTION 142(2A) OF THE ACT. THE SPECI AL AUDITORS HAS COMPLETED THE SPECIAL AUDIT ASSIGNMENT BY SUBMITTIN G THE SPECIAL AUDIT REPORT ALONG WITH RECASTED P&L A/C. IN THE SP ECIAL AUDIT REPORT, THE AUDITOR HAS SUBMITTED THE BASIS OF AUDIT, OBSER VATION ON COMPLETION OF SPECIAL ASSIGNMENT AND ASSUMPTIONS AP PLIED TO COMPLETE THE RE-CASTED P&L A/C. THERE IS NO DOUBT T HAT THE SPECIAL AUDITOR HAS DONE THE AUDIT WITHIN THE SCOPE OF HIS ASSIGNMENT AND BASED ON THE SCOPE OF AUDIT, HE HAS COMPLETED THE RE-CASTED P&L FOR ALL THE AYS. BASED ON THE ABOVE REPORT, AO COMPLETE D THE RE- ASSESSMENT. 13.1 THE ASSESSEE OBJECTED TO SUCH RECASTED P&L AND MADE REPRESENTATION BEFORE AO AND CIT(A) AGAINST ADOPTIN G SUCH RECASTED P&L AS THE INCOME AND EXPENDITURE OF THE COMPANY FO R THE PURPOSE OF DETERMINING THE TAXABLE INCOME OF THE ASSESSEE. TH E ASSESSEE RAISED GROUNDS 9 -13 AGAINST ADOPTING THE WHOLE SPE CIAL AUDIT U/S 142(2A) FOR DETERMINING TAXABLE INCOME. BASICALLY, THE ASSESSEE OBJECTED THAT THE RELEVANT VOUCHERS & PAPERS WERE W ITH THE 36 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. DEPARTMENT, THE ASSESSEE WAS NOT IN FAULT FOR NOT P RESENTING THE BILLS/VOUCHERS BEFORE SPECIAL AUDITOR TO COMPLETE T HE AUDIT CONSIDERING THE FACT THAT THE ASSESSMENT UNDER CONSIDERATION WA S 153A ASSESSMENT. THE SPECIAL AUDITOR SUBMITTED OBSERVATI ONS WHICH ARE FULL OF CONTRADICTIONS AND THE ACCOUNTS RE-CASTED BASED ON ABOVE OBSERVATIONS CANNOT BE THE BASIS FOR COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE VALUES ADOPTED FOR ARRIVING PURCH ASES, SALES, OPENING STOCK, CLOSING STOCK AND OTHER ITEMS WERE W ORKED OUT BY SPECIAL AUDITOR BASED ON CERTAIN PRESUMPTIONS BUT N OT BASED ON THE MATERIAL AVAILABLE. AT THE SAME TIME, THE SPECIAL A UDITOR RE-CASTED THE P&L ACCOUNT BASED ON THE DATA AND INFORMATION WHICH WERE EXTRACTED FROM THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSE E AND OPINED IN SPECIAL AUDIT REPORT AT PARA 7.1 THAT THE BOOKS OF ACCOUNT NEED NOT BE REJECTED AND CAN BE USED FOR RECASTING/RECOMPUTATIO N OF INCOME AND EXPENSES. THE ASSESSEE ALSO SUBMITTED THAT THE ORIG INAL BOOKS OF ACCOUNT WERE PREPARED IN COMPLIANCE WITH THE PROVIS IONS OF COMPANIES ACT AND OBJECTED FOR ADOPTION OF RECASTED P&L A/C AS THE SAME WAS COMPUTED ON PRESUMPTIONS. THE ASSESSEE WAS SUGGESTING EITHER TO ADOPT THE ORIGINAL BOOKS OF ACCOUNT OR ES TIMATE THE INCOME BY REJECTING THE SPECIAL AUDIT REPORT. WHEREAS THE LD. DR STRONGLY OBJECTED TO ADOPTING THE ORIGINAL BOOKS OF ACCOUNT AS THE SAME WAS REJECTED BY THE AO AND ITAT, VISAKHAPATNAM BENCH DU E TO THE COMPLEXITY OF THE NATURE OF BUSINESS AND THE METHOD OF BOOK KEEPING ADOPTED BY THE ASSESSEE. 13.2 THERE IS NO DOUBT THAT THE BOOK KEEPING ADOPT ED BY THE ASSESSEE WAS COMPLEX AND THE RELEVANT DATA GENERATE D BY THE ASSESSEE BASED ON BILLS AND VOUCHERS WERE NOT AVAIL ABLE WITH THE ASSESSEE AND PART OF THE DOCUMENTS WERE SEIZED BY T HE DEPARTMENT, WHICH WAS USED BY THE SPECIAL AUDITOR TO RECAST THE P&L A/C. THE DEGREE OF RELIANCE AND RELIABILITY OF INFORMATION A DOPTED BY THE SPECIAL AUDITOR IS THE MAIN GROUNDS OF APPEAL BY THE ASSESS EE. THERE IS NO DISPUTE THAT THE SPECIAL AUDITOR HAD TO RELY ON THE INFORMATION AVAILABLE WITH HIM & WITH THE AO WHICH WERE ACQUIRE D DUE TO SEARCH 37 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. AND SEIZURE OPERATION. THE ASSESSEE ALSO EXPRESSED IN ONE OF THE COMMUNICATION WITH THE SPECIAL AUDITOR THAT DUE TO EFFLUX OF TIME, THE ASSESSEE WAS NOT IN A POSITION TO SUBMIT THE RELEVA NT BILLS AND VOUCHERS EITHER BECAUSE OF SEIZURE OR NOT IN A POSI TION TO SUBMIT DUE TO THE FACT THAT THE PASSAGE OF TIME, SHIFTING OF P REMISES ETC. 13.3 WE ARE IN AGREEMENT WITH THE ASSESSEE THAT THE RELIABILITY OF THE SPECIAL AUDIT REPORT AND RECASTING OF P&L A/C WERE COMPUTED BASED ON THE INFORMATION AVAILABLE AND PRESUMPTIONS ADOPT ED BY SPECIAL AUDITOR. IT IS WORTHWHILE TO MENTION HERE THAT THE INCOME STATUS GENERATED BY SPECIAL AUDITOR ARE NOT CORRELATING TO THE TURNOVER OF THE COMPANY, I.E. OUT OF SEVEN AYS, IN THREE AYS ARE LO SS. IN THE REAL ESTATE BUSINESS, THE PROFIT GENERATED AGAINST SALES HAS TO BE ON THE BAND RANGE, IT CANNOT BE FLUCTUATING IN SUCH HIGH D EGREE. THE PROFIT HAS TO BE ARRIVED BASED ON THE MATCHING PRINCIPLE, IN OUR CONSIDERED VIEW, THE SPECIAL AUDITOR HAS FAILED IN THIS REGARD . THE RELATED COST HAS TO BE ALIGNED WITH THE RELEVANT SALES/COLLECTIO N. IN THE ABOVE STATED SITUATION, WE ARE INCLINED TO SUGGEST THAT T HE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE MUST BE REJECTED, AT TH E SAME TIME, THE RECASTED ACCOUNT CANNOT BE RELIED UPON DUE TO RELIA BILITY FACTOR. 13.4 WE ARE LEFT WITH THE OVERALL TURNOVER OF THE A SSESSEE AND NET INCOME DETERMINED BY THE AO, CIT(A) , SPECIAL AUDIT OR AND ESTIMATED PROFIT @ 15% IN THE SUBSEQUENT YEAR BY THIS COORDIN ATE BENCH. WE CANNOT ADOPT 15% OF SALES SIMPLY BECAUSE THE COORDI NATE BENCH TREATED THE BUSINESS OF THE ASSESSEE AS CIVIL CONTR ACT BUSINESS AND THE SAME WAS NOT CONTROVERTED BY THE ASSESSEE. BUT FROM THE RECORDS SUBMITTED BEFORE US BY BOTH ASSESSEE & DR AS THE BU SINESS OF ASSESSEE IS IN REAL ESTATE DEALING ONLY IN BUYING, DEVELOPING AND SELLING LANDS. 38 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 13.5 THE RELEVANT DATA BEFORE US ARE (EXTRACTED FROM PAPER BOOK SUBMITTED BY TH E ASSESSEE) CUMULATIVE FIGURES A) CUMULATIVE TURNOVER FOR 7 AYS 100.61 CRORES (AS PER SPECIAL AUDIT REPORT ACCEPTED BY THE ASSESSEE) B) INCOME ASSESSED BY ACIT 21.20 CRORES(2 1.07%) C) INCOME ASSESSED BY CIT(A) 11.64 CRORES( 11.57%) D) INCOME COMPUTED BY SPECIAL AUDITOR 9.7 1 CRORES(9.65%) WHILE ANALYZING THE ABOVE VALUES, WE ARE OF THE VIE W THAT INCOME ASSESSED BY ACIT IS RULED OUT AS IT IS AT 21.07% AS THE ABOVE % IS MORE THAN 15%, WHICH WAS ALREADY REJECTED BY ITAT A ND ALSO THE PROFIT ARRIVED WERE BEFORE SPECIAL AUDIT. SIMILARLY , THE ASSESSEE HAD SUBMITTED & RELIED ON THE CASE LAW IN THE CASE OF M ADHAV PROPCON PVT. LTD., OF DELHI ITAT, WHEREIN IT WAS HELD THAT THE INCOME OF THE ASSESSEES AT 2.24% OF THE TOTAL GROSS RECEIPTS, WH O ARE ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT ACTIVITIES. WE CAN NOT FOLLOW THIS PERCENTAGE BECAUSE THE ACTIVITIES INVOLVED WERE ONL Y FOR LAND DEVELOPMENT ACTIVITIES BUT IN THE PRESENT CASE THE ASSESSEE IS IN THE ACTIVITIES WHICH INVOLVE PURCHASE, DEVELOPMENT AND SALE OF LAND. WITH RESPECT TO CIT(A) ARRIVED AT THE PROFIT OF RS. 11.6 4 CRORES AS CUMULATIVE PROFIT FOR 7 YEARS (I.E. 11.57%). BUT HE HAD ACCEPTED THE SPECIAL AUDIT PROFIT AS THE BASE AND GAVE PARTIAL R ELIEF TO ASSESSEE BY DELETING THE DISALLOWANCE MADE ON SITE DEVELOPMENT ETC. AFTER DELETING THE DISALLOWANCE MADE BY THE AO, THE PROFI T ARRIVED BY THE CIT(A) IS MORE THAN THE SPECIAL AUDITOR. THE CIT(A) HAD ACCEPTED THE SPECIAL AUDITORS REPORT AND PROFIT ARRIVED BY THEM, THE MERE ADJUSTMENT CANNOT INCREASE THE PROFIT ARRIVED BY SP ECIAL AUDITORS. CIT(A) HAS NOT FOUND ANYTHING NEW WHILE ADJUDICATIN G BUT HAD ONLY REJECTED THE GROUNDS RAISED BY THE ASSESSEE. HENCE, THERE CANNOT BE ANY INCREMENTAL PROFIT ARRIVED BY CIT(A). HENCE, TH E PROFIT ARRIVED AFTER CONSEQUENTIAL TO CIT(A)S ORDER CANNOT BE REL IED. 39 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. 13.6 WE ARE LEFT WITH INCOME COMPUTED BY SPECIAL AU DITOR AT 9.65%. BUT THIS INCOME ARRIVED BY SPECIAL AUDITOR BY ADOPT ING PRESUMPTIONS AND MODIFYING THE VALUES OF PURCHASE, SALES, OPENIN G AND CLOSING STOCK. BASED ON THE SUBMISSIONS OF DR AND ASSESSEE, WE ARE OF THE VIEW THAT THE RELIABILITY OF THE SPECIAL AUDIT COUL D BE IN BETWEEN 80- 85%. ON APPLYING THE RELIABILITY FACTOR TO THE INCO ME DETERMINED BY SPECIAL AUDITOR OF 9.65%, WE WILL END UP ARRIVING T HE INCOME AT 8%, WHICH IS SIMILAR TO SECTION 44AD. 13.7 ON THE OTHER HAND, THE PROVISIONS OF SECTION 4 4AD PROPOSED TO ADOPT 8% OF THE TOTAL TURNOVER OR GROSS RECEIPTS OF THE ASSESSEE SHALL BE DEEMED TO BE PROFITS & GAINS OF THE BUSINESS CHA RGEABLE TO TAX. THIS SECTION PRESCRIBES A THUMB RULE OR PRESUMPTIVE NET PROFIT RATE APPLIED FOR THOSE ASSESSEES WHOSE TURNOVER ARE LESS THAN ONE CRORE. NO DOUBT, THE TURNOVER OF THE ASSESSEE IS MORE THAN THE PRESCRIBED LIMIT IN THE SECTION 44AD BUT IT GIVES THUMB RULE T O ESTIMATE THE INCOME OF THE ASSESSEE. WHEN THE BOOKS ARE NOT MAIN TAINED OR REJECTED, FLAT RATE OF 8% CAN BE ADOPTED AS DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUBODH GUPT A, ITA N 80 OF 2014, DATED 09/12/2014. 13.8 THE ABOVE DECISION IS RELEVANT PARTICULARLY WH EN THE REVENUE COULD NOT SUBMIT OR ASCERTAIN WHO HAD DECLARED HIGH ER PERCENTAGE OF INCOME, WHO ARE IN THE SIMILAR BUSINESS OF ASSESSEE . IN OUR CONSIDERED VIEW, IN THE PRESENT CASE, THE BOOKS OF THE ASSESSEE CANNOT BE ACCEPTED DUE TO THE COMPLEXITY OF THE NA TURE OF BUSINESS AND MAINTENANCE OF BOOKS OF ACCOUNT AT THE SAME TIM E THE RECASTED PROFITS & LOSS COMPUTED BY THE SPECIAL AUDITOR ALSO HAS RELIABILITY ISSUE, WHICH WERE COMPUTED BASED ON PRESUMPTIONS. T HIS IS THE FIT CASE TO ESTIMATE THE INCOME OF THE ASSESSEE. IN THI S GIVEN SITUATION, THE PRESUMPTIVE RATE AVAILABLE IN THE SECTION 44AD MAY BE ADOPTED EVEN THOUGH THE TURNOVER OF THE ASSESSEE IS MORE TH AN THE TURNOVER OF THE ELIGIBLE ASSESSEE AS PRESCRIBED IN THE SECTION 44AD. THIS IS THE RATE WHICH IS NEAR TO THE PERCENTAGE ARRIVED AFTER FACTORING THE 40 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. RELIABILITY AND THE INCOME COMPUTED BY THE SPECIAL AUDITOR. HENCE, WE DIRECT THE AO TO ADOPT 8% OF THE SALES AS DETERMINE D BY THE SPECIAL AUDITOR, TO COMPUTE THE INCOME OF THE ASSESSEE YEA R TO YEAR BASIS FOR AY 2000-01 TO 2006-07. 13.9 WITH REGARD TO REVENUE APPEALS, AS WE HAVE DIR ECTED THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE. THE GROUNDS RA ISED BY REVENUE BECOME INFRUCTUOUS. CONSIDERING THE FACT THAT THE C OORDINATE BENCH OF THIS TRIBUNAL HAS HELD IN MANY CASES CONSISTENTLY T HAT WHILE MAKING ESTIMATE OF INCOME, ALL THE DEDUCTIONS IN SECTION 3 0 TO 43D ARE ALREADY TAKEN INTO ACCOUNT. THE ABOVE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL ARE BASED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CO NSTRUCTIONS, 232 ITR 776 (AP). THE RELEVANT RATIO LAID DOWN BY THE HONBLE HIGH CO URT IS REPRODUCED BELOW: 'HELD: THE PATTERN OF ASSESSMENT UNDER THE ACT IS G IVEN BY SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINE D IN SECTIONS 30 TO 43D. SECTION 40 PROVIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENE RALLY UNDER OTHER SECTIONS. THE COMPUTATION UNDER SECTION 29 IS TO BE MADE UNDER SECTION 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE ASSESS ING OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INCOME TO THE BEST OF HIS JUDGMENT. WHEN SUCH AN ESTIMATE IS MADE IT IS IN SUBSTITUTION OF T HE INCOME THAT IS TO BE COMPUTED UNDER SECTION 29. IN OTHER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO UNDER SECTION 29 ARE DEEMED TO HAVE BEE N TAKEN INTO ACCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. IN THE INSTANT CASE, UNDOUBTEDLY, THERE WAS A BIG D IFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORR OWED CAPITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER, WHILE MAKING AN ESTIMATE. IF THE COMMISSIONER HAD S ET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FACT THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WITH BORROWED CAPITAL HAD BEEN IGNO RED BY THE ASSESSING OFFICER, THERE MIGHT NOT HAVE BEEN ANY DIFFICULTY I N UPHOLDING THAT ORDER. BUT, WHEN HE PROPOSED TO ADD BACK AN EXACT ITEM IN THE PROFIT AND LOSS ACCOUNT, HE WAS RELYING ON THE REJECTED BOOKS WHICH HE COULD NOT DO. THERE WAS ALSO A FURTHER DIFFICULTY, IF SECTION 40 WAS TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE A RE CERTAIN OTHER DEDUCTIONS WHICH ARE TO BE DISALLOWED SUCH AS WEAL TH-TAX PAYMENT IN 41 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. SECTION 40, IT CANNOT BE SAID THAT AFTER MAKING AN ESTIMATE, THE WEALTH-TAX CHARGED IN THE PROFIT AND LOSS ACCOUNT SHOULD AGAIN BE ADDED BACK TO THE PROFIT. THEREFORE, NO SEPARATE ADDITION REPRESENTING THE I NTEREST AND REMUNERATION PAID TO PARTNERS COULD BE MADE TO TH E INCOME ALREADY ESTIMATED AND ASSESSED FROM CONTRACTS.' 13.10 IN VIEW OF THE ABOVE OBSERVATIONS, WE DISMIS S THE GROUNDS RAISED BY THE REVENUE. 14. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED FOR STATISTICAL PURPOSES AND REVENUE APPEALS ARE DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 29 TH APRIL, 2016 KV COPY TO:- 1) M/S R.K. TOWNSHIP PROMOTERS PVT. LTD., C/O B. N ARSING RAO & CO., CAS., PLOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYD. 96. 2) DCIT, CIRCLE 3(1), HYDERABAD. 3 CIT(A) - IV, HYDERABAD. 4) CIT - III, TIRUPATHI 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 42 ITA NO. 1255 TO 1261 & 1305 TO 1311 /HYD/2013 M/S R.K. TOWNSHIP PROMOTERS PVT. LTD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER