The ITO, Ward-1, Anand V. M/s. Vrajleela Assciates, Anand

ITA 1347/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57004 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 27-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D V SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit; Gift; Business income; Commercial expediency
• Section: 44AD; 143(3); 142(1); 133A; 10B; 68

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI D K TYAGI - JM & SHRI A MOHAN ALANKAMONY - AM ITA NO.1347/AHD/2009 ASSESSMENT YEAR:-2003-04 THE INCOME-TAX OFFICER, WARD-1, ANAND V/S M/S VRAJLEELA ASSOCIATES, NR. DR. RADHAKRISHNAN STATUTE, CIVIL COURT ROAD, ANAND PAN: AADFV 7283 M [APPELLANT] [RESPONDENT] ITA NO.1400/AHD/2009 (ASSESSMENT YEAR:-2003-04) M/S VRAJLEELA ASSOCIATES, 10/A, VRAJLEELA, NR. DR. RADHAKRISHNAN STATUTE, CIVIL COURT ROAD, ANAND V/S THE INCOME-TAX OFFICER, WARD-4, ANAND [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N SOPARKAR, AR REVENUE BY:- SHRI D V SINGH, SR. DR DATE OF HEARING:- 18-11-2012 DATE OF PRONOUNCEMENT:- 06-01-2012 O R D E R PER D K TYAGI (JM) :- THESE ARE TWO CROSS APPEALS ONE FILED BY THE REVENUE AND THE OTHER BY THE ASSESSEE AGAINS T THE ORDER OF LD. CIT(A), DATED 18.02.2009 FOR ASST. YEAR 2003-0 4. 2 ITA NO.1347/AHD/2009 ASST. YEAR 2003-04 (REVENUES APPEAL) :- 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN SCALING DOWN THE ADDITION FROM RS.937123/- TO RS.298812/- AND ALLOWING THE RELIEF OF RS.6,38,311/ - OVERLOOKING THE FACT THAT NO CONSISTENT RATE OF PROFIT WAS ADOP TED TO RECOGNIZE THE PROFIT EVERY YEAR ON THE BASIS OF PROJECT COMPL ETION METHOD. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,10,000/- BEI NG UNEXPLAINED PURCHASE OF THE ELEVATOR OVERLOOKING THE FACT THAT PURCHASE OF ELEVATOR WAS NOT SUBSTANTIATED WITH EVIDENCE. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.5,25,000/- BEI NG UNEXPLAINED CASH CREDIT OVERLOOKING THE FACT THAT IDENTITY OF P ERSON, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF DEPOSITORS W ERE NOT PROVED. ITA NO.1400/AHD/2009 ASST. YEAR 2003-04 (ASSESSEES APPEAL) : 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- (1) THE LD. CIT(A)-IV, BARODA HAS ERRED IN LAW AND IN F ACTS IN CONFIRMING THE ACTION OF THE LD. AO IN REJECTING TH E BOOKS OF ACCOUNTS OF THE APPELLANT U/S 145(3) IGNORING THE F ACT THAT THE BOOKS OF ACCOUNTS AND OTHER RECORDS MAINTAINED BY THE APP ELLANT ARE SUFFICIENT IN DETERMINING THE TAXABLE INCOME AND, T HEREFORE, THERE IS NO JUSTIFICATION IN REJECTING THE BOOKS OF ACCOUNTS IN ESTIMATION OF THE PROFIT. THEREFORE, YOUR HONOUR IS PRAYED TO DIR ECT THE LD. AO TO ACCEPT THE BOOKS OF ACCOUNTS AS CORRECT AND ASSESS THE INCOME ON THE BASIS OF SUCH ACCOUNTS. (2) THE LD. CIT(A)-IV, BARODA HAS ERRED IN LAW AND IN F ACTS IN DIRECTING THE LD. AO TO ADOPT RS.19,99,455/- AS TOT AL INCOME INSTEAD OF RS.7,35,046/-. THE ORDER DIRECTING THE ADOPTION OF TOTAL INCOME 3 AT RS.19,99,455/- BEING ERRONEOUS IN FACTS AND IN L AW DESERVES TO BE CANCELLED. (3) THE LD. CIT(A)-IV, BARODA HAS ERRED IN LAW AND IN F ACTS IN DIRECTING THE LD. AO TO RESTRICT THE ADDITION MADE BY ESTIMATING THE PROFIT ON SALE OF SHOPS TO RS.3,04,899/- AS AGAINST THE ADDITION MADE OF RS.7,06,021/- BY THE LD. AO. THE ADDITION H AS BEEN CONFIRMED BY THE LD. CIT(A) BEING ERRONEOUS IN LAW DESERVES TO BE DELETED. (4) THE LD. CIT(A)-IV, BARODA HAS ERRED IN LAW AND IN F ACTS IN CONFIRMING THE DISALLOWANCE MADE IN RESPECT OF EXPE NDITURE INCURRED FOR INSTALLATION OF LIFT OF RS.6,10,000/-. THOUGH LD. CIT(A) HAS STATED THAT THE INCOME HAS BEEN ARRIVED AT BY A PPLYING THE NET PROFIT RATE ON SALE, NO SEPARATE ADDITION IS CALLED FOR, THE DELETION ON THIS GROUND IS ERRONEOUS IN FACTS, AND THE ENTIRE D ISALLOWANCE DESERVES ALLOWANCE ON MERITS ITSELF. YOUR HONOUR IS PRAYED TO DIRECT THE ALLOWANCE OF THE EXPENSES OF MERIT. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL AND SHOPPIN G SCHEME KNOWN AS VRAJLILA. DURING THE YEAR, A SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES ON 30.01.2003 WHEREIN THE PAR TNER OF THE ASSESSEE FIRM MADE DISCLOSURE OF RS.25,00,000/- ON ACCOUNT OF DIFFERENCE IN THE VALUE OF INVENTORY ON THAT DATE. THE RETURN OF INCOME FOR THE YEAR WAS FILED ON 28.11.2003 DECLARI NG AN INCOME OF RS.7,35,050/-. THE RETURN OF INCOME WAS ACCOMPAN IED WITH AUDIT REPORT IN FORM NO.3CB AS PER THE REQUIREMENT OF SEC.44AB OF THE IT ACT, 1961 WHICH INCLUDED TRADING, PROFIT & LOSS ACCOUNT, BALANCE SHEET, PARTNERS CAPITAL ACCOUNTS. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 31.03.2004 AND R EFUND OF RS.22,750/- WAS ISSUED TO THE ASSESSEE FIRM. THE CA SE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. TH E ASSESSMENT 4 WAS COMPLETED U/S 143(3) ON 27.03.2006 DETERMINING TOTAL INCOME AT RS.27,93,144/- REJECTING THE BOOKS OF ACC OUNT U/S 145(3) OF THE ACT. THE ASSESSEE WENT IN APPEAL BEF ORE THE LEARNED CIT(A) AGAINST THE ADDITIONS MADE BY THE AO . THE LEARNED CIT(A) GAVE PART RELIEF TO THE ASSESSEE. HO WEVER, HE UPHELD THE ACTION OF AO IN REJECTING BOOKS OF ACCOU NT OF THE ASSESSEE. 4.1 NOW BOTH THE PARTIES ARE IN APPEAL BEFORE US. T HE ASSESSEE HAS FILED THE APPEAL AGAINST CONFIRMATION OF ADDITI ONS BY THE LEARNED CIT(A) WHILE THE REVENUE HAS FILED THE APPE AL AGAINST DELETION OF ADDITIONS MADE BY THE AO. 5. AT THE TIME OF HEARING, AT THE OUTSET THE LD. CO UNSEL OF THE ASSESSEE PLACING RELIANCE ON DECISION OF HONBLE AL LAHABAD HIGH COURT IN THE CASE OF CIT VS. BANWARILAL BANSIDHAR ( 1998) 229 ITR 229 (ALL) AND THE DECISION OF HONBLE PUNJAB AN D HARYANA HIGH COURT IN THE CASE OF CIT VS. AGGARWAL ENGG. CO . (2008) 302 ITR 246 (P &H) SUBMITTED THAT ONCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED AND INCOME OF THE ASSESSE E HAS BEEN ESTIMATED, NO OTHER ADDITIONS CAN BE MADE AND, THER EFORE, THE ADDITIONS SUSTAINED BY THE LEARNED CIT(A) DESERVE T O BE DELETED. WE FIND NO MERIT IN THE ARGUMENTS ADVANCED BY THE L D. COUNSEL AS IN THIS CASE THOUGH THE AO HAS REJECTED THE BOOKS O F ACCOUNT BUT NO ADDITION WAS MADE BY HIM ON THIS ACCOUNT AND THE ADDITIONS WERE MADE SEPARATELY ON MERIT AS IS CLEAR FROM THE FOLLOWING OBSERVATIONS OF THE AO:- 5 I AM NOT SATISFIED ABOUT THE CORRECTNESS OF THE AC COUNTS OF THE ASSESSEE. HENCE, THE BOOK RESULTS ARE REJECTED U/S 145(3) OF THE ACT AND I PROCEED FURTHER TO MAKE ASSESSMENT ON THE BASIS O F MATERIAL EVIDENCES COLLECTED TO THE BEST OF MY JUDGMENT AS I N THE SUBSEQUENT PARAS. BOOKS OF ACCOUNT ARE REJECTED BECAUSE OF THE DISCREPANCIES ARE NOTED IN THIS CASE, HOWEVER, NO ADDITION ON THIS AC COUNT IS CONSIDERED AS VARIOUS OTHER ADDITION ARE CONSIDERED SEPARATELY AS PER THE FOLLOWING PARAGRAPH. THEREFORE, THE RATIO AS LAID DOWN IN THE ABOVE CASE S LAWS IS NOT APPLICABLE TO THE FACTS OF THESE CASES. NOW WE PROC EED TO DECIDE THE APPEALS ON MERITS. 6. GROUND NO.1 OF REVENUES APPEAL AND GROUND NOS.1 & 2 OF ASSESSEES APPEAL INVOLVE THE COMMON ISSUE. THEREFO RE, THEY ARE DISPOSED OF TOGETHER. THE FACTS ARE THAT A SURVEY U /S 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSE E ON 30.1.2003, DURING WHICH EXCESS STOCK OF RS.24,75,294/- WAS FOU ND VIS--VIS THE BOOKS OF ACCOUNTS. UNRECORDED/UNACCOUNTED SALES OF ABOUT RS.25,00,000/- WERE ALSO DETECTED DURING THE SURVEY . SHRI DEVENDRABHAI PATEL, PARTNER OF THE ASSESSEE FIRM IN STATEMENT RECORDED DURING SURVEY ACCEPTED THE EXCESS STOCK AN D STATED IT TO BE OUT OF UNDISCLOSED SALE RECEIPTS OF RS.25,01,200 /- DURING THE YEAR. IN THE RETURN OF INCOME FILED SUBSEQUENTLY, A SSESSEE DISCLOSED AMOUNT OF RS. 25 LAKH UNDER THE HEAD OTH ER INCOME DISCLOSED ON SURVEY ON THE CREDIT SIDE OF PROFIT & LOSS ACCOUNT AND SHOWED NET PROFIT OF RS.7,30,745/- INCLUDING TH E DISCLOSURE MADE IN THE SURVEY. SINCE, AS AGAINST WORK-IN-PROGR ESS OF RS.1,16,25,400/- INVENTORISED DURING THE SURVEY, ST OCK AS PER BOOKS OF ACCOUNTS WAS RS.91,50,294/- I.E. THERE WAS AN EXCESS STOCK OF RS.24,75,294/-. AO WAS OF THE VIEW THAT BO OK RESULTS DID 6 NOT REFLECT CORRECT STATE OF AFFAIRS AND PROPOSED T O REJECT THE BOOKS OF ACCOUNTS U/S 145(3). THE AO ALSO NOTED THA T IF THE SURVEY DISCLOSURE WAS EXCLUDED, ASSESSEE HAD RETURN ED LOSS OF RS.17,69,255/-. THE AO ALSO PROPOSED TO APPLY THE R ATIO OF GUJARAT HIGH COURT DECISION IN THE CASE OF FAKIR MO HD. HAJI HASSAN 247 ITR 290 AND TAX THE DISCLOSURE MADE DURI NG THE SURVEY SEPARATELY. IN RESPONSE TO SHOW CAUSE NOTICE OF AO ASSESSEE STATED THAT BUSINESS OF CONSTRUCTION WAS S TARTED DURING F.Y.1998-99 AND THE CUMULATIVE PROFIT DECLARED ON C UMULATIVE SALES WORKED OUT TO 22.5%. IT WAS ALSO SUBMITTED TH AT DECISION IN THE CASE OF FAKIR MOHD. HAJI HASSAN WAS NOT APPLICA BLE TO ASSESSEES CASE. THE AO TABULATED NET PROFIT SHOWN BY THE ASSESSEE SINCE FY 1998-99 TO FY 2002-03 AND HELD TH AT THE PERCENTAGE OF NET PROFIT SHOWN BY THE ASSESSEE WAS MUCH LOWER THAN ITS CLAIM. BOOKS OF ACCOUNTS WERE REJECTED U/S 145(3) BY THE AO AS HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE ACCOUNTS. HOWEVER, NO SEPARATE ADDITION WAS MADE ON THIS GROU ND. ON THE GROUND THAT ASSESSEE HAD ADOPTED VALUE OF WORK-IN-P ROGRESS @ 8% OF THE PURCHASES AND DIRECT EXPENSES FOR FY 2002 -03, AO WORKED OUT 8% NET PROFIT ON PURCHASES AND DIRECT E XPENSES SEPARATELY FOR THE PERIOD UPTO THE SURVEY AND AFTER THE SURVEY AT RS.1,14,591/- AND RS.4,85,747/- RESPECTIVELY. AFTER ADDING THESE TWO FIGURES AND BY FURTHER ADDING BOOK LOSS FIGURE OF RS.3,36,785/- FOR PRE-SURVEY PERIOD, PROFIT OF RS.9 ,37,123/- WAS COMPUTED, TO WHICH FURTHER ADDITIONS/SUBTRACTIONS A S PER PARA 11 OF THE ASSESSMENT ORDER WERE MADE. 7 7. BEFORE LD. CIT(A) ASSESSEE SUBMITTED THAT IT WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DURING THE PERIOD UNDER CONSIDERATION, WAS DEVELOPING AND CONSTRUCTING A MU LTI-STOREYED BUILDING, KNOWN AS VRAJLILA AT ANAND VIDYANAGAR ROA D. ASSESSEE SUBMITTED THAT DETERMINATION OF PROFIT BY THE AO AT RS.9,37,123/- @ 8% OF EXPENSES, IGNORING THE AMOUNT OF RS.25 LAKH INCLUDED IN THE PROFIT AND LOSS ACCOUNT BASED ON SURVEY, THEREB Y DETERMINING LOSS OF RS.15,62,877/- AND MAKING FURTHER ADDITION OF RS.25 LAKH SEPARATELY, BEING THE AMOUNT OF DISCLOSURE MADE AT THE TIME IN THE COURSE OF SURVEY WAS GROSSLY UNJUSTIFIED, AS TH E DISCREPANCY IN STOCK OF RS.25 LAKH WAS FOUND DURING THE COURSE OF SURVEY AND HAD BEEN AGREED TO BE DISCLOSED APPROPRIATELY, AS T HIS AMOUNT OF RS.25 LAKH WAS STATED TO HAVE BEEN RECEIVED AS SALE OUTSIDE THE BOOKS. ASSESSEE DREW ATTENTION TO THE REPLIES OF SH RI DEVENDRA PATEL, PARTNER AT THE TIME OF SURVEY TO QUESTION NO S.5 TO 9 EXPLAINING THESE FACTS. BASED ON THE DISCLOSURE MAD E AT THE TIME OF SURVEY AND AFTER CONSIDERING THE ACTUAL FACTS, A SSESSEE HAD PREPARED THE PROFIT AND LOSS ACCOUNT FOR THE YEAR S HOWING SALES OF RS.60,31,200/-. THE ASSESSEE ALSO SUBMITTED THAT IF CUMULATIVE PROFIT OF THE PROJECT UNDERTAKEN BY THE ASSESSEE WA S TAKEN, TOTAL SALES UPTO THE ASSESSMENT YEAR UNDER CONSIDERATION AMOUNTED TO RS.117.4 LAKH AND TOTAL PROFIT DISCLOSED IN RELATIO N TO SUCH SALES WAS RS.26.44 LAKH, RESULTING INTO PROFIT PERCENTAGE OF 22.5%. FURTHER, IF ADDITIONS MADE IN THE ASSESSMENT OF RS. 4,93,132/- WERE TO BE CONSIDERED, PROFIT PERCENTAGE WOULD BE 2 6.73% AND THERE WAS NO BASIS FOR REJECTING THE BOOKS OF ACCOU NTS. FURTHER THERE WAS NO JUSTIFICATION FOR QUANTIFYING PROFIT O F RS.9,37,123/- 8 ON THE BASIS OF EXPENDITURE INCURRED, WHEN THE ASSE SSEE ITSELF HAD SHOWN PROFIT @ 22.5% OF THE SALES. 8. THE LD. CIT(A) DECIDED THE ISSUE VIDE PARA 2.2 O F HIS ORDER BY OBSERVING AS UNDER :- 2.2 I HAVE CAREFULLY CONSIDERED THE MATTER. REJECT ION OF BOOKS OF ACCOUNTS U/S 145(3) WAS DONE, FIRSTLY DUE TO EXCESS STOCK FOUND DURING THE SURVEY AND SECONDLY DUE TO THERE BEING A NET LO SS AFTER EXCLUDING SURVEY DISCLOSURE FROM THE RETURNED INCOME. THE AO ALSO OBSERVED THAT SINCE FY 1998-99 TO FY 2003-03, NET PROFIT SHO WN BY THE APPELLANT WAS RANGING BETWEEN 0.07% TO 1.97% DURING FY 1998-99 TO FY 2001-02 AND IT WAS 10.3% IN FY 2002-03, ONLY AFT ER INCLUDING SURVEY DISCLOSURE OF RS.25 LAKH. AO ALSO OBSERVED T HAT APPELLANTS CONTENTION OF TAKING 8% OF WIP AS INCOME IN SOME OF THE YEARS WAS NOT CORRECT, AS PROVISIONS OF SECTION 44AD WERE NOT APPLICABLE TO THE APPELLANT. ON GOING THROUGH THE RETURNS OF INCOME O F THE APPELLANT SINCE AYS 1999-2000 TO ASST. YEAR 2002-03, I FIND T HAT APPELLANTS METHOD OF ACCOUNTING IS NOT CONSISTENT. IN ASST. YE AR 1999-2000 AND 2002-03, APPELLANT HAD OFFERED INCOME FOR TAXATION @ 8% OF THE INCREMENTAL VALUE OF WIP, WHEREAS IN ASST. YEAR 200 1-02 INCOME WAS RETURNED ON ESTIMATED BASIS AT 5.4% OF INCREMENTAL VALUE OF WORK-IN- PROGRESS. IN ASST. YEAR 2002-03, INCOME IS CLAIMED TO BE RETURNED ON THE BASIS OF PROFIT & LOSS ACCOUNT. AS PER SECTION 145, INCOME IS TO BE COMPUTED BY FOLLOWING A METHOD OF ACCOUNTING REGULA RLY. HOWEVER, THE SAME HAS NOT BEEN DONE. THE APPELLANT CLAIMS TO HAVE FOLLOWED SECTION 44AD IN AYS 1999-2000 AND 2000-01. HOWEVER, SECTION 44AD DOES NOT ENVISAGE ESTIMATION OF PROFITS @ 8% ON INC REMENTAL WIP. ALSO, THERE WAS NO BASIS FOR TAKING PROFITS TO BE 5 .4% OF INCREMENTAL WIP INAY 2001-02. FURTHER, SINCE THE COMMENCEMENT O F PROJECT IN FY 1998-99, APPELLANT HAS VALUED THE WIP FOR THE YEAR BY ADDING A PROFIT PERCENTAGE TO THE DIRECT COSTS OF THE YEAR, I.E. PU RCHASES PLUS DIRECT EXPENSES AS ADJUSTED BY DIFFERENCE BETWEEN CLOSING AND OPENING STOCK OF MATERIAL. THE PROFIT PERCENTAGE USED TO LOAD DIR ECT COST TO ARRIVE AT WIP HAS BEEN VARYING WITHOUT ANY BASIS AND IN FACT, IN ASST. YEAR 2003-04 THE LOADING IS NEGATIVE, AS EXPLAINED HENCE FORTH. PROFIT PERCENTAGE ADDED TO DIRECT COST DURING FY 1998-99 T O 2001-02 IS AS UNDER :- F.Y. INCREMENTAL DIRECT COST @ RS. WORK-IN-PROGRESS FOR THE YEAR RS. PROFIT PERCENTAGE 9 (A) (B) RS. (B-A)/A 1998-99 10,33,515 12,60,000 21.9% 1999-2000 34,89,728 38,30,000 9.75% 2001-02 39,70,766 48,00,000 20.88% @ INCREMENTAL DIRECT COST DETERMINED BY ADDING OPEN ING MATERIAL STOCK TO CLOSING MATERIAL STOCK DIFFERENCE TO PURCHASES + DIRECT EXPENSES. IN ASST. YEAR 2003-04 I.E. THE YEAR UNDER CONSIDERA TION, THE WIP ADDED DURING THE YEAR (AFTER SEPARATING EXCESS WIP FOUND DURING SURVEY OF RS.25 LAKH) IS RS.39,50,000/-; WHEREAS TH E INCREMENTAL DIRECT COST (AFTER REDUCING URD PURCHASES OF RS.25 LAKH CO RRESPONDING TO EXCESS STOCK FOUND DURING SURVEY) IS RS.45,94,780/- . THUS, UNLIKE YEARS FY 1998-99 TO 2001-02, WHERE INCREMENTAL DIRECT COS T WAS LOADED WITH PROFIT RANGING FROM 9.75% TO 21.9% TO ARRIVE A T WIP VALUE; IN FY 2002-03, APPELLANT SHOWED THE WIP AT A VALUE EVE N BELOW THE INCREMENTAL DIRECT COST. THE METHOD OF ACCOUNTING, SO FAR AS WIP IS CONCERNED HAS THEREFORE, BEEN INCONSISTENT. REJECTI ON OF BOOKS U/S 145(3) IS THEREFORE, CALLED FOR; ALBEIT FOR THIS RE ASON. AFTER REJECTING THE BOOKS, AO ESTIMATED PROFIT TO BE 8% OF DIRECT E XPENSES PLUS PURCHASES FOR POST AND PRE SURVEY PERIODS. THE AO A LSO ADDED BOOK LOSS FIGURE OF RS.3,36,785/- FOR PRESURVEY PERIOD T O THE 8% OF DIRECT EXPENSES AND PURCHASES FOR PRESURVEY PERIOD , I.E. RS.1,14,501/- TO ARRIVE AT PROFIT FIGURE OF RS.4,51,376/- FOR PRESUR VEY PERIOD. ADDITION OF RS.3,36,785/- TO RS.1,14,501/ IS FUNDAMENTALLY W RONG. IF AT ALL THE AO WANTED TO ADOPT 8% OF DIRECT EXPENSES PLUS PURCH ASES AS PROFIT, THE PROFIT FIGURE FOR THE YEAR WOULD BE RS.1,14,591 /- (PRESURVEY) PLUS RS.4,85,747/- (POST SURVEY), I.E RS.6,00,338/- AND NOT RS.9,37,123/-. ADOPTION OF 8% OF DIRECT EXPENSES PLUS PURCHASES AS PROFITS APPEARS TO BE ON THE BASIS OF AYS 1999-2000 TO 2000-01, WHE RE APPELLANT HAD ITSELF TAKEN THE TAXABLE NET PROFIT ON PRESUMPTIVE BASIS TO BE 8% OF INCREMENTAL WIP. HOWEVER, IN AYS 2001-02 & 2002-03, APPELLANT FOLLOWED A DIFFERENT METHOD. MOREOVER, IF THE AO HA D ADOPTED PROFITS ON PRESUMPTIVE BASIS, THERE COULD NOT BE FURTHER DI SALLOWANCE OF ACTUAL EXPENSES SUCH AS FOR ELEVATOR FROM THE PRESU MPTIVE PROFIT. IT IS ALSO NOT CLEAR WHETHER THE PRESUMPTIVE PROFIT COMPU TED WAS BEFORE ALLOWING PARTNERS REMUNERATION AND INTEREST OR AFT ER ALLOWING THE SAME. AO HAS NOT ALLOWED PARTNERS REMUNERATION AND INTEREST FROM THE PRESUMPTIVE PROFIT OF 8% COMPUTED BY HIM, THOUG H APPELLANT DEDUCTED THE SAME FROM 8% PROFITS IN AYS 1999-200 A ND 2000-01. FOR THESE REASONS, WORKING DONE BY THE AO IN PARA 10 OF THE ASSESSMENT ORDER CANNOT BE UPHELD. HOWEVER, AT THE SAME TIME A PPELLANTS BOOK 10 RESULTS IN ASST. YEAR 2003-04 ARE NOT ACCEPTABLE DU E TO INCONSISTENT METHOD OF ACCOUNTING FOLLOWED. IN A CASE LIKE THIS, AS HELD BY VARIOUS BENCHES OF ITAT IN SEVERAL CASES, NET PROFIT ON SAL ES BOOKED CAN BE TAKEN AS INCOME FOR EACH YEAR. APPELLANT CLAIMS TO HAVE ALREADY SHOWN SUBSTANTIAL PROFITS, I.E. @ 22.5% OF SALES TI LL THIS YEAR. IT WOULD BE APPROPRIATE TO APPLY NET PROFIT RATE OF 12% ON T OTAL SALES SHOWN BY THE APPELLANT SINCE BEGINNING OF THE PROJECT AND AL LOW SET OFF FOR THE NET PROFIT (AFTER ADDING BACK PARTNERS INTEREST AN D REMUNERATION) SHOWN IN THE RETURNS UPTO ASST. YEAR 2003-04. THE D IFFERENCE SO ARRIVED WOULD BE APPELLANTS REASONABLE REGULAR NET PROFIT BEFORE PARTNERS REMUNERATION AND INTEREST FOR ASST. YEAR 2003-04. TO SUCH NET PROFIT, THE UNACCOUNTED NET INCOME OF RS.25 LAC KH INVESTED IN EXCESS STOCK FOUND DURING SURVEY SHOULD BE ADDED. T HIS WORKING WOULD BE AS UNDER : TOTAL SALES (1.4.98 TO 31.3.03) RS.1,17,40,200 NET PROFIT @ 12% RS. 14,08,824 LESS: INCOME OFFERED IN RETURNS OF INCOME FILED. ASST. YEAR 1999-2000 RS.1,00,800 ASST. YEAR 2000-01 RS.3,06,400 ASST. YEAR 2001-02 RS.3,04,627 ASST. YEAR 2002-03 RS.3,98,185 RS. 11,10,012 RS. 2,98,812 =========== THUS, IN ASST. YEAR 2003-04, APPELLANTS REGULAR PR OFITS BEFORE REMUNERATION AND INTEREST TO PARTNERS (I.E. RS.7,99 ,357/-) CAN BE ESTIMATED AS RS.2,98,812/-, TO WHICH NET INCOME OF RS.25 LAKH DISCLOSED DURING SURVEY ON ACCOUNT OF EXCESS STOCK FOUND SHOULD BE ADDED. THUS, THE NET INCOME OF APPELLANT WORKS OUT TO RS.27,98,812/-, FROM WHICH AFTER ALLOWING PARTNERS INTEREST AND RE MUNERATION PAID OF RS.7,99,357/-; THE TAXABLE INCOME WORKS OUT TO RS.1 9,99,455/-. AO IS DIRECTED TO ADOPT RS.19,99,455/- AS THE TOTAL INCOM E INSTEAD OF RETURNED INCOME OF RS.7,35,045/-. AT THE SAME TIME, ACTION OF AO IN MAKING ADDITIONS OF RS.1,14,591/- AND RS.4,85,747/- AND FURTHER ADDITION OF BOOK LOSS FOR PRESURVEY PERIOD AS PER P ARA 10 OF THE ASSESSMENT ORDER, RESULTING INTO INCOME FIGURE OF R S.9,37,123/- IS CANCELLED. 11 9 AFTER HEARING BOTH THE PARTIES AND PERUSING THE R ECORDS, WE FIND THAT THE LEARNED CIT(A) HAS GIVEN THE ABOVE FI NDINGS AFTER PROPERLY ANALYZING THE FACTS OF THIS CASE AND HAS P ASSED A WELL REASONED SPEAKING ORDER. NOTHING SUBSTANTIAL WAS AR GUED BY EITHER PARTY TO DEVIATE US FROM THE VIEW TAKEN BY T HE LEARNED CIT(A). IN VIEW OF THIS, WE ARE NOT INCLINED TO INT ERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THUS, GROUND NO.1 OF THE REVENUES APPEAL AND GROUND NOS. 1 AND 2 OF THE ASSESSEES APPEAL ARE DISMISSED. 10. THE ISSUE RAISED IN GROUND NO.2 OF REVENUES AP PEAL AND GROUND NO.4 OF ASSESSEES APPEAL IS COMMON WHICH RE LATES TO DISALLOWANCE OF EXPENDITURE OF RS.6,10,000 FOR PURC HASE OF ELEVATOR. THE AO HAD ASKED THE ASSESSEE TO FURNISH BILL IN RESPECT OF PURCHASE OF ELEVATOR, IN RESPONSE TO WHICH, THE ASSESSEE HAD FURNISHED COPY OF LETTER DATED 25.5.2000 FROM NIKON ELEVATORS TITLED PROPOSAL FOR TWO ELEVATORS VRAJLILA ASSOCIA TES. AOS OBSERVATION WAS THAT LETTER RECEIVED FROM NIKON ELE VATORS WAS A PROPOSAL ONLY AND EVIDENCE WHETHER ELEVATORS WERE A CTUALLY ACQUIRED OR NOT, HAD NOT BEEN FURNISHED BY THE ASSE SSEE. MOREOVER, LETTER FURNISHED BY THE ASSESSEE WAS DATE D 25.5.2000. SINCE THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE IN SUPPORT OF PURCHASE OF ELEVATORS, IT WAS HELD BY THE AO THAT B OGUS EXPENSES HAD BEEN CLAIMED, WHICH WERE DISALLOWED. 12. IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE FILED COPIES OF BROCHURES OF VRAJLILA COMPLEX SCHEM E SHOWING THAT THE BUILDING WAS ELEVEN STOREYED AND AS MENTIO NED THEREIN, THE ELEVEN STOREYED BUILDING WAS TO HAVE TWO NUMBE RS OF FIVE 12 PASSENGER LIFT. ASSESSEES SUBMISSION WAS THAT WIT HOUT THE LIFTS, IT WOULD BE IMPOSSIBLE TO IMAGINE ELEVEN STOREYED B UILDING. ASSESSEE CLAIMED TO HAVE PLACED ORDER FOR TWO LIFTS WITH M/S NIKON ELEVATORS OF AHMEDABAD AS PER THEIR OFFER DAT ED 25.5.2000 AND ALSO MADE PAYMENT OF RS.4,55,051/- THROUGH ACCO UNT PAYEE CHEQUES IN JUNE, 2001 AND NOVEMBER, 2001. THE LIFT WAS INSTALLED AND PUT TO USE WITH THE APPROVAL OF CHIEF INSPECTOR OF LIFTS AND ELEVATORS THROUGH LICENSE DATED 15.2.2006 . COPY OF LETTER DATED 4.2.2006 FROM THE OFFICE OF CHIEF INSP ECTOR OF LIFTS ALONGWITH LICENSE DATED 15.2.2006 ARE CLAIMED TO HA VE BEEN FILED BEFORE THE AO TO SHOW THAT LIFTS IN THE BUILDING WE RE ACTUALLY PURCHASED AND INSTALLED. AS REGARDS NON-AVAILABILIT Y OF BILL, IT WAS EXPLAINED THAT DUE TO DISPUTE WITH THE SUPPLIER , ASSESSEE COULD NOT OBTAIN THE BILL FROM THEM AND THEREFORE, AS AGAINST AGREED PAYMENT OF RS.6,10,000/- ASSESSEE HAD PAID O NLY RS.4,55,000/- AND BALANCE AMOUNT WAS WRITTEN OFF IN ASST. YEAR 2003-04. FROM THE VARIOUS EVIDENCES AS ABOVE ASSESS EES CONTENTION WAS THAT IT STOOD ESTABLISHED THAT EXPEN DITURE ON PURCHASE OF ELEVATORS HAD BEEN INCURRED AND NON-AVA ILABILITY OF BILL/INVOICE SHOULD NOT BE A REASON OR BASIS FOR DI SALLOWANCE OF THE EXPENDITURE. THE ASSESSEE RELIED ON THE DECISIO N IN THE CASE OF CIT VS. VISHWAKARMA 90 TAXMAN 193 (CHANDIGARH), WHERE CLAIM OF EXPENSES WAS HELD TO BE ALLOWABLE WHERE PU RCHASES WERE MADE BY ACCOUNT PAYEE CHEQUES IN THE ABSENCE OF FIN DING THAT EXPENSES WERE BOGUS OR FICTITIOUS. THE ASSESSEE ALS O SUBMITTED THAT FROM THE COPY OF ACCOUNT OF NIKON ELEVATORS AS WELL AS TAX AUDITORS REPORT, WHICH HAD NO ADVERSE REMARKS AND IN VIEW OF DECISION OF THE CASE OF JAY ENGINEERING WORKS LTD. 113 ITR 389 13 (DEL) CLAIM WAS ALLOWABLE. IT WAS ALSO SUBMITTED TH AT THE FACT THAT LIFT WAS INSTALLED DURING THE YEAR WAS PROVED BY THE EXPENSES INCURRED ON ELECTRICITY USED IN THE OPERATION OF TH E LIFT. THE ASSESSEE HAD A SEPARATE METER CONNECTION FOR THE OP ERATION OF THE LIFT AND ELECTRICITY EXPENSES WERE PAID FOR THIS OP ERATION AS SUPPORTED BY COPY OF ELECTRICITY BILLS. 13 THE LEARNED CIT(A) AFTER CONSIDERING THE FACTS O F THE CASE AND THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE DISALLOWANCE OF EXPENDITURE INCURRED FOR INSTALLATION OF LIFT OF RS.6,10,000/- MADE BY THE AO. HE, HOWEVER, FURTHER OBSERVED THAT SINCE THE INCOME OF THE ASSESSEE HAS BEEN ARRIVED AT BY APPLY ING THE NET PROFIT RATE ON SALES, NO SEPARATE ADDITION WAS CALL ED FOR. 14 THE ASSESSEE HAS CHALLENGED THE FINDINGS OF THE LEARNED CIT(A) AND PLACING RELIANCE ON THE SUBMISSIONS MADE BY HIM BEFORE THE LEARNED CIT(A), WHICH WE HAVE ALREADY RE PRODUCED HEREINABOVE, ARGUED THAT THE DISALLOWANCE DESERVES TO BE DELETED ON MERIT ITSELF. 15 THE LEARNED DR, ON THE OTHER HAND, PLACING RELIA NCE ON THE ORDER OF THE AO, SUBMITTED THAT THE FINDINGS OF THE LEARNED CIT(A) THAT NO SEPARATE ADDITION IS CALLED FOR IN V IEW OF THE FACT THAT THE INCOME HAS BEEN ARRIVED AT BY APPLYING THE NET PROFIT RATE ON SALES, WAS NOT PROPER AND THE ADDITION MADE BY T HE AO SHOULD HAVE BEEN RETAINED BY THE LEARNED CIT(A). 16. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING T HROUGH THE MATERIAL ON RECORD, WE FIND THAT IT IS AN UNDISPUTE D FACT THAT THE 14 LIFT WAS INSTALLED AND PUT TO USE WITH THE APPROVAL OF CHIEF INSPECTOR OF LIFTS AND ELEVATORS THROUGH LICENSE DA TED 15.2.2006. FOR ALLOWABILITY OF ANY EXPENDITURE IN A PARTICULAR YEAR OF ASSESSMENT BILL OF PURCHASE IS AN IMPORTANT PIECE O F EVIDENCE WHICH COULD NOT BE PRODUCED BY THE ASSESSEE. PROPOS AL OF NIKON ELEVATORS IS DATED MAY, 2000 I.E. IN FY 2000-01 AND CERTIFICATE/CORRESPONDENCE FROM CHIEF INSPTOR OF LI FTS FALLS IN FY 2005-06. THE BILLS OF GUJARAT ELECTRICITY BOARD FOR THE LIFT ALSO DO NOT FALL IN FY 2002-03. NO EVIDENCE TO JUSTIFY T HE CLAIM OF RS.6,10,000/- FOR LIFT EXPENDITURE IN ASST. YEAR 20 03-04 WAS FILED EITHER BEFORE LOWER AUTHORITIES OR BEFORE US. THE O NUS WAS ON THE ASSESSEE TO JUSTIFY THE CLAIM IN THE YEAR UNDER APP EAL WHICH HAS NOT BEEN DISCHARGED. THEREFORE, DISALLOWANCE OF RS. 6,10,000/- BY THE AO AND SUSTAINED BY THE LEARNED CIT(A) WAS JUST IFIED IN ASST. YEAR 2003-04. WE FIND NO FAULT WITH THE OBSER VATIONS OF THE LEARNED CIT(A) THAT SINCE THE ASSESSEES INCOME HAS BEEN ARRIVED AT BY APPLYING THE NET PROFIT RATE ON SALES, NO SEP ARATE ADDITION WAS CALLED FOR. THE COMMON GROUNDS RAISED ON THE IS SUE IN REVENUES APPEAL AND THAT OF THE ASSESSEE ARE DISMI SSED. 17. THE THIRD GROUND OF REVENUES APPEAL IS REGARDI NG DELETION OF ADDITION OF RS.5,25,000/- BEING UNEXPLAINED CASH CREDITS FROM RANJANBEN M. PATEL, MANJULABEN D. PATEL AND MEENABE N HARIKRISHNA PATEL. DURING THE ASSESSMENT PROCEEDING S, CONFIRMATION LETTERS FROM THESE PARTIES WERE FURNIS HED. THE AO OBSERVED THAT DEPOSITORS HAD RECEIVED GIFTS FROM NR I ACCOUNT OF SHRI CHIMANBHAI PATEL OF RS.1,75,000/- EACH THROUGH CHEQUE AND SUCH AMOUNT WAS DIRECTLY DEPOSITED IN THE ACCOUNT O F M/S 15 VRAJLILA ASSOCIATES AND CORRESPONDING BOOK ENTRIES WERE MADE. BESIDES THIS, AS PER AO THE ASSESSEE DID NOT PRODUC E THE DEPOSITORS AND CREDITWORTHINESS, GENUINENESS AND TR ANSACTIONS AND IDENTITY OF THE PERSON WAS NOT PROVED. THEREFOR E, THE ADDITION WAS MADE. 18. BEFORE LD. CIT(A) IT WAS SUBMITTED BY THE ASSES SEE THAT DEPOSITS IN QUESTION WERE RECEIVED FROM THE WIVES O F THE PARTNERS OF THE ASSESSEE FIRM. SOURCE OF THEIR FUNDS WERE GI FTS FROM SHRI CHIMANBHAI M. PATEL, RESIDENT OF TANZANIA AND UNCLE OF THE PARTNERS, WHO WERE BROTHERS. CHEQUES WERE ISSUED IN THE NAMES OF INDIVIDUAL RECIPIENTS BY BANKERS CHEQUES OUT OF NRE ACCOUNT NO.70699 AND WERE DEPOSITED IN THE INDIVIDUAL ACCOU NTS OF THE RESPECTIVE RECIPIENTS WITH ANDHRA BANK. HOWEVER, TH E SAME WERE DIRECTLY CREDITED IN THE ACCOUNT OF THE ASSESSEE FI RM WITH THE CONSENT OF INDIVIDUAL LENDERS AND CONFIRMATION/CLAR IFICATION TO THIS EFFECT FROM THE BANKERS, M/S ANDHRA BANK THROU GH THEIR LETTER DATED 31.5.2002 WAS FILED BEFORE THE AO. THE AO DISREGARDED EXPLANATION IN RESPECT OF SOURCE OF DEP OSITS MERELY ON THE GROUND THAT NRE CHEQUES WERE DIRECTLY DEPOSI TED IN THE ACCOUNT OF M/S VRAJLILA ASSOCIATES AND FURNISHING O F CONFIRMATION ITSELF CANNOT BE TREATED AS EVIDENCE. IT WAS SUBMITTED THAT THE ASSESSEE NOT ONLY GAVE CONFIRMAT ION OF THE DEPOSITORS BUT ALSO GAVE FURTHER EVIDENCE TO SHOW S OURCE OF SUCH DEPOSITS, WHICH WAS NOT DOUBTED BY THE AO. THE FACT THAT CHEQUES WERE DIRECTLY DEPOSITED IN THE ACCOUNT OF T HE ASSESSEE WAS AN INADVERTENT ACTION OF THE BANKERS, AS CONFIR MED BY THEM. SINCE THE ASSESSEE HAD ESTABLISHED IDENTITY, CREDIT WORTHINESS AND 16 GENUINENESS OF THE TRANSACTIONS, RECEIPT OF SUCH AM OUNTS COULD NOT BE CONSIDERED AS UNEXPLAINED. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS:- I) DY.CIT VS. ROHINI BUILDERS 256 ITR 360 II) CIT VS. ORISSA CORPORATION 159 ITR 78 (SC) THE LD. CIT(A) AFTER CONSIDERING THE FACTS OF THE C ASE AND SUBMISSIONS OF THE ASSESSEE DECIDED THE ISSUE BY OB SERVING AS UNDER :- 3.2 I HAVE CONSIDERED THE SUBMISSIONS AND THE FACT S OF THE CASE. BY FURNISHING CONFIRMATION OF THE DEPOSITORS AND FURTH ER EVIDENCE EXPLAINING SOURCE OF SUCH DEPOSITS, APPELLANT DISCH ARGED THE ONUS CAST ON IT U/S 68. IF THE AO STILL HAD ANY DOUBTS REGARD ING THE SOURCE OF THE LADIES, APPROPRIATE FORUM FOR TAKING ACTION WOULD B E THE CASES OF THREE LAIES. ADDITION OF RS.5,25,000/- IN THE HANDS OF AP PELLANT IS DELETED. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOI NG THROUGH THE RECORD, WE ARE OF THE VIEW THAT THE DEPOSITORS WERE NONE BUT THE WIVES OF THE PARTNERS OF THE ASSESSEE FIRM AND THE ASSESSEE HAD DISCHARGED THE ONUS CAST ON IT U/S 68 BY ESTABL ISHING THE IDENTITY, CREDITWORTHINESS OF THE DEPOSITORS AND GE NUINENESS OF THE TRANSACTION. WE ENDORSE THE FINDING OF LD. CIT( A) THAT IF THE AO HAD ANY DOUBTS REGARDING THE SOURCE OF THE LADIE S, APPROPRIATE FORUM FOR TAKING ACTION WOULD BE THE CA SES OF THREE LADIES. THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDI TION IN QUESTION. THE GROUND RAISED BY THE REVENUE IS DISMI SSED. 20. GROUND NO.3 OF ASSESSEES APPEAL RELATES TO DIR ECTION OF LD. CIT(A) TO RESTRICT ADDITION MADE BY ESTIMATING THE PROFIT ON SALE OF SHOPS TO RS.3,04,899/- AS AGAINST THE ADDITION M ADE OF 17 RS.7,06,021/-MADE BY AO. THE FACTS ARE THAT ASSESSE E HAD ALLOTTED SIX FLATS FOR RS.40,81,800/-, PROFIT ON SA LE OF WHICH, IN THE OPINION OF THE AO WAS NOT INCLUDED IN THE PROFI T AND LOSS ACCOUNT. ASSESSEES SUBMISSION WAS THAT SINCE OWNER S COULD NOT CHARGE PROFIT TO THEMSELVES, THESE SIX FLATS WERE A LLOTTED TO THE PARTNERS, ETC. AT A LESSER PRICE. THE AO DID NOT AC CEPT ASSESSEES CONTENTION AND MADE ADDITION BY ESTIMATING GROSS PR OFIT @ 14.54% ON SIX FLATS AND TWO SHOPS AMOUNTING TO RS.7 ,06,021/-, BEING 14.54% OF THE TOTAL PRICE OF RS.48,62,404/- B EING PRICE OF FLATS AND ESTIMATED SALE PRICE OF TWO SHOPS. 21. IN APPEAL BEFORE LD. CIT(A) THE ASSESSEE SUBMIT TED THAT THE AO FAILED TO APPRECIATE THAT AMOUNT OF SALES CONSID ERATION IN RESPECT OF THE PROFIT ESTIMATED OF RS.7,06,201/- WA S ALREADY CONSIDERED AND INCLUDED IN THE SALE FIGURE OF RS.60 ,31,200/- REFLECTED IN THE ACCOUNTS, WHICH WAS TAKEN FOR THE PURPOSE OF DETERMINATION OF GROSS PROFIT AS WELL AS NET PROFIT . IT WAS FURTHER SUBMITTED THAT SALE OF ANY SHOPS HAD NOT BEEN MADE DURING THE YEAR AND THE SHOPS WERE INCLUDED IN THE UNSOLD STOC K AND THERE WAS NO REASON TO ESTIMATE PROFIT THEREUPON. THE ASS ESSEE REFERRED TO THE CHART FILED BEFORE THE AO FROM WHICH IT WAS CLEARLY STATED THAT SHOPS ON THE GROUND FLOOR HAD NOT BEEN SOLD. R EGARDING SIX FLATS IN RESPECT OF WHICH PROFIT WAS ESTIMATED BY T HE AO, IT WAS SUBMITTED THAT FLAT NO.10A AND 7C WERE SOLD TO THE PARTNERS SHRI DEVENDRAKUMAR R. PATEL AND SHRI HARIKRISHNA R. PATE L, FLAT NO.9A WAS SOLD TO SHRI HIMANSU PATEL WITH WHOM THER E WAS NO RELATIONSHIP. FLAT NOS.8A, 3C AND 5C WERE SOLD TO S HRI MADHUSUDAN R. PATEL, SHRI RAVJIBHAI V. PATEL AND SH RI 18 SATISHCHANDRA V. PATEL, LAND OWNERS, ON WHOSE LAND RESIDENTIAL PROJECT VRAJLILA WAS DEVELOPED. IT WAS SUBMITTED TH AT PARTNERS AND THE FIRM BEING THE SAME PERSONS EXCEPT FOR TAXA TION LAW, ASSESSEE FIRM COULD NOT HAVE MADE PROFIT FROM THE P ARTNERS. LIKEWSE, THE LAND OWNERS, WHO HAD GIVEN THE LAND FO R DEVELOPMENT SINCE TWO YEARS PRIOR TO THE FLAT BEING ALLOTTED TO THEM WERE NOT PAID ANY AMOUNT AS PER THE UNDERSTAND INGWITH THEM AND IT WAS OUT OF COMMERCIAL AND BUSINESS PRUD ENCE THAT THE ASSESSEE GAVE FLATS AT CONCESSIONAL RATE TO THEM. I F THIS CONCESSION WAS NOT GIVEN ASSESSEE WOULD HAVE BEEN R EQUIRED TO PAY INTEREST FOR NOT MAKING PAYMENT TOWARDS CONSIDE RATION OF LAND. AS REGARDS SALES MADE TO MR. HIMANSU C. PATEL , IT WAS SUBMITTED THAT HE WAS A PERSON REFERRED AND RELATED TO THE LAND OWNER AND DUE TO LONG STANDING RELATIONSHIP WITH TH E LAND OWNER, IT WAS NECESSARY FOR THE ASSESSEE TO GIVE HIM CONCE SSION. IT WAS SUBMITTED THAT CHARGING OF LESSER PRICE HAD TO BE V IEWED FROM BUSINESSMANS PERSPECTIVE AND IT IS A SETTLED PRINC IPLE OF LAW THAT A PERSON COULD BE SUBJECTED TO TAX ON THE INCOME WH ICH ACCRUES TO HIM AND NOT ON THE INCOME WHICH HE COULD HAVE EA RNED. IN THIS CONNECTION THE ASSESSEE ALSO RELIED OF SOME CASE LA WS. 22. THE LD. CIT(A) DECIDED THIS ISSUE BY OBSERVING AS UNDER :- 2.2.1 I NOW TAKE UP ADDITION OF RS.7,06,201/-. A S FAR AS ADDITION BY ESTIMATING PROFITS ON SALE OF SHOPS IS CONCERNED, T HE SAME IS NOT TENABLE, SINCE THE SHOPS WERE NOT SOLD TILL 31.3.20 03. REGARDING APPELLANTS CONTENTION THAT FIRM CANNOT MAKE PROFIT OUT OF PARTNERS, HONBLE BOMBAY HIGH COURT IN THE CASE OF KALURAM PU RANMAL 119 ITR 564 HELD THAT IT IS NOT NECESSARY THAT NO TRADE AND PROFIT WOULD FLOW BETWEEN THE FIRM AND ITS PARTNERS WHENEVER, TH ERE IS A TRANSACTION BETWEEN TWO. THUS, APPELLANTS THIS CONTENTION IS N OT ACCEPTABLE. 19 REGARDING APPELLANTS RELIANCE ON THE DECISION IN T HE CASE OF CALCUTTA DISCOUNT CO. LTD. 91 ITR 8 (SC) ETC.,WHILE IT MAY N OT BE PROPER TO TAX NOTIONAL PROFITS, AT THE SAME TIME, BUSINESS TRANSA CTIONS WITH RELATED PARTIES SHOULD NOT CAUSE LOSS. SINCE COST OF THE FL ATS SOLD TO PARTNERS ETC. IS CHARGED AGAINST PROFITS, THERE CAN BE NO JU STIFICATION FOR MAKING LOSS IN SUCH TRANSACTIONS. THAT THE CONSIDERATION R ECEIVED FOR 6 FLATS WAS BELOW THE MARKET PRICE, IS NOT DISPUTED SINCE T HE CONSIDERATION FOR IDENTICAL FLAT ON THE SAME FLOOR IS AVAILABLE AND I S A HIGHER FIGURE. APPELLANTS CLAIM IS THAT TRANSFER AT A LOWER CONSI DERATION WAS ON GROUNDS OF COMMERCIAL EXPEDIENCY, I.E. FLATS WERE S OLD TO LAND OWNERS ETC. FIRSTLY, ONLY THREE FLATS WERE SOLD TO LAND OW NERS AND SECONDLY EVEN IN THEIR CASES, THERE IS NO EVIDENCE THAT THE FLATS WERE SOLD AT A LESSER VALUE TO COMPENSATE FOR THE LAND PROVIDED BY THEM FOR THE SCHEME. THERE IS HARDLY ANY JUSTIFICATION FOR SALE OF FLATS TO TWO PARTNERS AND AN UNRELATED PERSON SHRI HIMANSU C. PA TEL AT A CONSIDERATION LOWER THAN THE MARKET VALUE. THE DIFF ERENCE IN PRICES FOR THE FLAT OF THE SAME SIZE ON THE SAME FLOOR IS AS U NDER FOR THESE 6 FLATS : FLAT NO. DIFFERENCE ON BASIS OF FLAT NO. 3C RS.53,640/- 3A 5C RS.53,640/- 5A 7C RS.53,640/- 7A 8A RS.53,640/- 8C 9A RS.53,640/ 9C 10A RS.36,699/- 10B AVERAGE RATE RS.334.6 PER SQ.FT. --------------- RS.3,04,899/- --------------- THUS, IT IS CLEAR THAT SALE CONSIDERATION FOR 6 FLA TS WAS LOWER BY RS.3,04,899/- VIS--VIS MARKET PRICE IN RESPECT OF 6 FLATS. THE ADDITION MADE BY THE AO COULD NOT HAVE EXCEEDED RS.3,04,899/ - IN ANY CASE. HOWEVER, SINCE WHILE WORKING OUT THE INCOME IN PARA 2.2 ABOVE, SALE OF 6 FLATS TO PARTNERS ETC., I.E. RS.40,81,800/- IS ALREADY INCLUDED IN TOTAL SALE OF RS.1.17 CRORE, NO SEPARATE ADDITION I S REQUIRED TO BE MADE. ADDITION OF RS.7,06,021/- IS DELETED. 20 23 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE FACTS OF THE CASE. WE HAVE ALSO GONE THROUGH THE OR DERS OF THE LOWER AUTHORITIES. WE FIND THAT THE LEARNED CIT(A) HAS PROPERLY APPRECIATED THE FACTS OF THE CASE AND HAS PASSED A WELL REASONED ORDER. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). THE SAME IS UPHELD ACCORDINGLY. THU S, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 24. IN THE RESULT, THE APPEAL OF REVENUE AND THAT O F THE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 06-01-2012 SD/- SD/- (A MOHAN ALANKAMONY) ACCOUNTANT MEMBER (D K TYAGI) JUDICIAL MEMBER DATE : 06-01-2012 COPY OF THE ORDER FORWARDED TO: 1. M/S VRAJLEELA ASSOCIATES, NR. DR. RADHAKRISHNAN STATUTE, CIVIL COURT ROAD, ANAND 2. THE ITO, WARD-1/4, ANAND 3. CIT CONCERNED 4. CIT(A)-IV, BARODA 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD