Blue Heaven Construction Co, Hooghly V. ITO, Ward - 1(1), Hooghly, Hooghly

ITA 1470/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54731 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 02-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R GUPTA
• Section: 143(3); 145

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH: K OLKATA () BEFORE , ) [BEFORE SRI MAHAVIR SINGH, JM] / I.T.A NOS. 1470 & 1471/KOL/2011 !' !' !' !'/ // / ASSESSMENT YEARS: 2005-06 & 2006-07 BLUE HEAVEN CONSTRUCTION CO. VS. INCOME-TAX OFFICE R, WD-1(1), HOOGHLY (PAN-AAFFB 5595 G) ($% /APPELLANT ) (&'$%/ RESPONDENT ) DATE OF HEARING: 08.12.2011 DATE OF PRONOUNCEMENT: 08.12.2011 FOR THE APPELLANT: SHRI SOMNATH GHOSH FOR THE RESPONDENT: SHRI R. GUPTA () / ORDER THESE APPEALS BY ASSESSEE ARE ARISING OUT OF SEPARA TE ORDERS OF CIT(A)-XXXVI, KOLKATA IN APPEAL NOS. 40/ CIT(A)-XXXVI/KOL/WD-1(1), HGL./0 8-09 AND 292 /CIT(A) -XXXVI/ KOL / 37/WD-2(1), HGL./08-09 DATED 05.10.2011. ASSESSMENT S WERE FRAMED BY ITO, WARD-1(1), HOOGHLY U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2005-06 & 2006-07 VIDE HIS SEPARAT E ORDERS DATED 28.12.2007 AND 31.12.2008. SINCE GROUNDS ARE COMMON AND FACTS ARE IDENTICAL, WE DISPOSE OF BOTH THESE APPEALS BY THIS CONSOLIDATED ORDER. 2. THE ONLY ISSUE IN THESE APPEALS OF ASSESSEE IS A GAINST THE ORDER OF CIT(A) UPHOLDING THE ACTION OF ASSESSING OFFICER OF INVOKING THE PROVISI ONS OF SECTION 145(3) OF THE ACT ESTIMATING THE INCOME OF RS.2,64,350/- FOR ASSESSMENT YEAR 200 5-06 AND RS.1,43,750/- FOR ASSESSMENT YEAR 2006-07 BY APPLYING AD-HOC RATE OF 15%. FOR THIS, ASSESSEE RAISED FOLLOWING THREE COMMON GROUNDS EXCEPT DIFFERENCE IN AMOUNT. WE REP RODUCE THE GROUNDS FROM ASSESSMENT YEAR 2005-06. 1. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) XXXVI, KOLKATA GRAVELY ERRE D IN UPHOLDING THE PURPORTED FINDING OF THE LD. INCOME TAX OFFICER, WARD 1(1), H OOGHLY IN JUSTIFICATION OF APPLYING THE METHOD ACCOUNTING STANDARD 7 IN THE INSTANT CASE WITHOUT PROVING ANY INFRINGEMENT TO THE STATUTORY PRESCRIPTION CONTAINED IN THE PROVISI ONS OF S. 145(1) OF THE INCOME TAX ACT, 1961 AND HIS PURPORTED ACTION ON THAT BEHALF IS ALT OGETHER ARBITRARY, UNWARRANTED AND PERVERSE. 2. FOR THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) XXXVI, KOLKATA ACTED UNLAWFULLY IN UPHOLDING THE ACTION OF THE LD. INCOM E TAX OFFICER, WARD 1(1), HOOGHLY OF 2 ITA 1470 & 1471/K/2011 BLUE HEAVEN CONSTN. CO. A.Y.05-06 & 06-07 INVOKING THE PROVISIONS OF S. 145(3) OF THE INCOME TAX ACT, 1961 IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE WITHOUT ANY ADVER SE FINDING ON THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE APPELLANT A ND THE PURPORTED CONCLUSION ON THE INSTANT ISSUE ARE ALTOGETHER EXTRANEOUS, IRRELEVANT AND PERVERSE. 3. FOR THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) XXXVI, KOLKATA MISREAD EVIDENCES, CONSIDERED IMPROPER FACTS, FAILED TO CON SIDER PROPER POSITION IN LAW, MISPLACED ONUS OF PROOF AND CAME TO AN ERRONEOUS FI NDING IN UPHOLDING THE INCOME ESTIMATED IN THE SUM OF RS. 2,64,350/- BY THE LD. I NCOME TAX OFFICER, WARD 1(1), HOOGHLY APPLYING THE AD-HOC RATE OF 15% WITHOUT ADDUCING AN Y EVIDENCE ON RECORD TO PROVE THE VERACITY THEREOF AND HIS IMPUGNED ACTION ON THAT BE HALF IS ALTOGETHER ERRONEOUS, FLAWED AND PERVERSE. 3. I HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM WAS ENGAGED IN BUILDING CONSTRUCTION AS A PROMOTER AND DEVELOPER. IT DISCLO SED NET INCOME AT RS.1,30,997/- FOR ASSESSMENT YEAR 2005-06 AND RS.64,260/- FOR ASSESSM ENT YEAR 2006-07 AFTER DEDUCTING PARTNERS REMUNERATION AND INTEREST ON CAPITAL. AS SESSING OFFICER OBSERVED THAT ASSESSEE HAD NOT MAINTAINED ITS ACCOUNTS AS PER RECOGNIZED METHO D ACCOUNTING STANDARD 7, PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. AP ART FROM THAT ASSESSING OFFICER OBSERVED THAT ASSESSEE FAILED TO FILE DETAILS OF YEAR WISE PROJE CT VALUE AND PERCENTAGE OF COMPLETION. ASSESSING OFFICER, THEREFORE, REJECTED THE BOOKS OF ACCOUNT OF ASSESSEE U/S. 145(3) OF THE ACT AND ESTIMATED GROSS INCOME FROM THE PROJECTS AT 15% OF THE GROSS SALES/RECEIPTS, EQUIVALENT TO RS.6,83,409/- FOR ASSESSMENT YEAR 2005-06 AND RS. 4 ,95,915/- FOR ASSESSMENT YEAR 2006-07 AFTER ALLOWING DEDUCTION FOR PARTNERS REMUNERATION AND INTEREST ON CAPITAL, COMPUTED THE NET INCOME AT RS.1,30,997/- FOR ASSESSMENT YEAR 2005-06 AND RS.64,260/- FOR ASSESSMENT YEAR 2006-07. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO UPHELD THE ACTION OF AO OBSERVING AS UNDER .THE APPELLANT HAD NOT SUBMITTED YEAR-WISE PROJEC T VALUE AND YEAR-WISE PERCENTAGE OF COMPLETION OF THE PROJECT IN SPITE OF SPECIFIC REQU ISITION BY THE AO DURING THE ASSESSMENT PROCEEDINGS. IN ABSENCE OF THAT AND IN ABSENCE OF M AINTENANCE OF ACCOUNTS AS PER AS-7, YEAR- WISE PROFIT OF A RUNNING PROJECT CANNOT BE ARRIVED AT. UNDER THE FACTS AND CIRCUMSTANCES, I DO NOT FIND ANY INCONFORMITY IN AOS DECISION IN REJEC TING THE BOOKS OF ACCOUNTS OF THE APPELLANT AND TO ESTIMATE INCOME @ 15% OF THE GROSS SALES/REC EIPT. BEING AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE ME. 4. THE LD. COUNSEL FOR THE ASSESSEE, SRI SOMNATH GH OSH SUBMITTED THAT THE REQUIREMENT OF S. 44AA OF THE INCOME TAX ACT 1961 WAS MET WITH FUL LY AND COMPLETELY AS ALL SUCH ACTUAL DATA AS REQUIRED BY THE AO WAS CULLED OUT FROM THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. HOWEVER, THE AO FAILED TO MENTION IN WHICH RESPECT THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND/OR THE BOOKS MAINTAINE D BY IT FELL SHORT OF THE REQUIREMENTS PRESCRIBED U/S. 44AA OF THE INCOME TAX ACT 1961. MO REOVER, THE NON FURNISHING OF THE 3 ITA 1470 & 1471/K/2011 BLUE HEAVEN CONSTN. CO. A.Y.05-06 & 06-07 SPECULATIVE DATA CANNOT HAVE ANY RELEVANCE TO THE R EQUIREMENT OF THE STATUTE AS PER THE PROVISIONS OF S. 44AA OF THE ACT. ASSESSING OFFICE R HAS NOT BROUGHT OUT ANY EVIDENCE ON RECORD TO PROVE THAT THE METHOD OF ACCOUNTING FOLLO WED BY ASSESSEE WERE NOT MAINTAINED IN SUCH A MANNER AS TO MAKE IT IN ANY WAY IMPOSSIBLE T O DETERMINE THE CORRECT PROFITS TO BE COMPUTED THEREFROM AND AS SUCH THE INVOCATION OF TH E PROVISION OF S. 145 OF THE ACT IS REDUNDANT IN THE CIRCUMSTANCES. HE FURTHER SUBMITTE D THAT THE REVENUE HAS ALL ALONG ACCEPTED THE METHOD OF ACCOUNTING SINCE ITS INCEPTION, EXCEP T THE INSTANT ASSESSMENT YEARS AND IN SUPPORT OF THIS SUBMISSION HE FURNISHED COPIES OF ASSESSMEN T ORDER FOR THE ASSESSMENT YEAR 2002-2003 AND 2007-2008. HE ALSO SUBMITTED THAT THE CONCEPTIO N OF ACCOUNTING STANDARD 7 IS APPLICABLE TO CONSTRUCTION CONTRACTS AND NOT OTHERWISE. HE REL IED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF A.C.I.T VS. NORTH CITY DEVELOPERS (I TA NO. 1307(KOL)/10, ASSESSMENT YEAR 2007-08 DATED 14.07.11). HE LASTLY SUBMITTED THAT T HE ACTIONS OF THE LOWER AUTHORITIES MAY BE REVERSED. 5. ON THE OTHER HAND, THE LD. DR SHRI R. GUPTA RELI ED ON THE ORDERS OF THE AUTHORITIES BELOW AND STATED THAT THE CIT(A) HAS ACTED WITHIN T HE FOUR CORNERS OF LAW IN UPHOLDING THE ORDER OF THE AO. 6. I HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIE S AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT, IT IS ADMIT TED FACT THAT THE ASSESSEE IS A PROMOTER AND DEVELOPER IN CIVIL CONSTRUCTION. THE RETURNS OF INC OME FOR THE ASSESSMENT YEARS UNDER DISPUTE WERE ACCOMPANIED THE STATUTORY AUDIT REPORT BY AN A UDITOR UNDER THE PROVISIONS OF S. 44AB OF ACT. I ALSO FIND THAT CASH BOOK, LEDGER AND BANK B OOK WERE MAINTAINED BY THE ASSESSEE, WHICH ARE SUPPORTED BY BILLS AND VOUCHERS. THE ONLY ALLEG ATION OF AO IS THAT THE ASSESSEE IS REQUIRED TO MAINTAIN ITS BOOKS OF ACCOUNTS UNDER THE METHOD OF ACCOUNTING STANDARD 7 AND ON SUCH BASIS, HE DESIRED FURNISHING OF PARTICULARS BEING YEAR WISE PROJECT VALUE FROM THE YEAR IN WHICH THE PLAN WAS SANCTIONED. I FIND THAT THE AO DESIRE D THIS PARTICULAR IN ORDER TO APPLY ACCOUNTING STANDARD 7 IN THE CASE OF THE ASSESSEE . THE ASSESSEE HAD DISPUTED SUCH ACTION ON THE PREMISE THAT THE METHOD OF ACCOUNTING FOLLOWED IS MERCANTILE SYSTEM AND IS RECOGNIZED UNDER THE PROVISION OF S. 145 OF THE ACT. ALL THAT THE AO IS REQUIRED TO CONSIDER UNDER THE LAW IS WHETHER INCOME, PROFITS AND GAINS CAN PROPERLY BE D EDUCED FROM THE METHOD OF ACCOUNTING FOLLOWED AND BOOKS MAINTAINED BY THE ASSESSEE. I FU RTHER DRAW SUPPORT FROM THE ORDER OF THIS TRIBUNAL IN THE CASE OF NORTH CITY DEVELOPERS (SUPR A), WHEREIN TRIBUNAL IN PARA 28 AND 28.1 CONSIDERED THE ISSUE OF APPLICABILITY OF ACCOUNTING STANDARD AS-7 ISSUED BY ICAI AS UNDER: 28. BEFORE WE CONCLUDE THIS APPEAL, WE OBSERVE THA T A.O. HAS ALSO REJECTED THE BOOK RESULTS OF THE ASSESSEE ON THE GROUND THAT THE METH OD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT IN CONFORMITY WITH AS-7 ISSUED BY I CAI. ACCORDING TO THIS METHOD, THE 4 ITA 1470 & 1471/K/2011 BLUE HEAVEN CONSTN. CO. A.Y.05-06 & 06-07 ASSESSEE SHALL BE OBLIGED TO RECOGNIZE REVENUE ON Y EAR TO YEAR BASIS BY FOLLOWING THE PARTIAL COMPLETION OF PROJECT METHOD. AS RIGHTLY ST ATED BY LD. A/R, AS-7 IS APPLICABLE ONLY FOR CONSTRUCTION CONTRACTS, I.E. ENTERPRISES CARRYI NG ON BUSINESS AS CONTRACTORS AND NOT TO ANY OTHER ENTERPRISE. IN THIS CASE, WE OBSERVE THAT THE ASSESSEE WAS NOT ACTING AS A MERE CONTRACTOR, BUT IT WAS ENGAGED IN THE BUSINESS OF D EVELOPING HOUSING PROJECT ON THE LAND BELONGING TO IT. FURTHER, THE A.O. HIMSELF HAS ADMI TTED THAT THE ASSESSEES NATURE OF BUSINESS WAS REAL ESTATE DEVELOPMENT AND IN PARA- 3 OF THE ASSESSMENT ORDER, THE A.O. HAS STATED THAT THE DISCLOSED BUSINESS OF THE ASSES SEE WAS IN THE NATURE OF DEVELOPMENT OF HOUSING PROJECTS. THEREFORE, THE CONTENTION OF AO T HAT ASSESSEES METHOD OF ACCOUNTING WAS NOT IN CONFORMITY WITH AS-7 IS INCORRECT IN VIEW OF THE FACT THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF EXECUTING CONSTRUCTION CONTRACTS, RATHE R IT WAS ENGAGED IN THE BUSINESS OF DEVELOPING HOUSING PROJECTS. 28.1. THE SECOND OBJECTION OF A.O. WAS THAT BENEFIT UNDER INSTRUCTION NO. 4 OF 2009 OF C,B.D.T. COULD ONLY BE AVAILED BY AN ASSESSEE WHO F OLLOWED PARTIAL COMPLETION OF PROJECT METHOD AND OBTAINED COMPLETION CERTIFICATE WITHIN T HE TIME PRESCRIBED, I.E. IN THE SAME ACCOUNTING YEAR ENDING 31/3/2007. WE OBSERVE THAT T HE SAID INSTRUCTION NO. 4 INDICATES THAT AN ASSESSEE COULD FOLLOW EITHER PARTIAL COMPLETION PROJECT METHOD OR PROJECT COMPLETION METHOD. THE SAID INSTRUCTION NOWHERE INDICATES/PROV IDES THAT THE ASSESSEES WERE OBLIGED TO FOLLOW PARTIAL COMPLETION OF PROJECT METHOD AS PROV IDED IN AS-7. IN OUR OPINION, THEREFORE, THE SAID INSTRUCTION WAS ISSUED BY C.B.D.T, IN THE BACKGROUND WHERE IT WAS AN ADMITTED POSITION THAT THE ASSESSEES COULD FOLLOW EITHER PAR TIAL COMPLETION OF CONTRACT METHOD OR COMPLETED CONTRACT METHOD IN RESPECT OF BUSINESS OF DEVELOPING A HOUSING PROJECT. BY THIS INSTRUCTION, THE DOUBTS WERE CLARIFIED ONLY WITH RE GARD TO THE ELIGIBILITY OF THE ASSESSEES TO CLAIM DEDUCTION U/S. 80-IB(10) OF THE ACT WHERE THE ASSESSEES FOLLOWED PARTIAL COMPLETION OF PROJECT METHOD. AS PER TAX AUDIT REPORT, THE SYS TEM OF ACCOUNTING AND THE METHOD OF REVENUE RECOGNITION REGULARLY FOLLOWED BY THE ASSES SEE ARE ONLY OF COMPLETION OF PROJECT. IN THAT VIEW OF THE MATTER, THE OBJECTION OF THE A.O. ABOUT VIOLATION OF AS-7 VIS--VIS INSTRUCTION NO. 4 OF 2009 OF C.B,D.T. IS NOT FOUND TO BE AT PAR WITH THE ACTIVITIES OF THE ASSESSEE AND METHOD OF ACCOUNTING REGULARLY FOLLOWE D BY IT. HENCE THE ACTION OF THE A.O. TO REJECT BOOK RESULTS OF THE ASSESSEE EVEN ON THE GRO UND THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT IN CONFORMITY WITH AS-7 IS NOT JUSTIFIED. WE, THEREFORE, UPHOLD THE ORDER OF LD. C,I,T,(A) BY DISMISSING THE APPEAL OF THE DEPARTMENT. EVEN OTHERWISE ON MERITS ALSO, THE APPLICABILITY OF NET PROFIT @ 15% IN CIVIL CONSTRUCTION WORK IS NOT VIABLE HENCE, THE PROFIT RATE DISCLOSED BY A SSESSEE IS AROUND 11TO 12% BEFORE DEDUCTING PARTNERS REMUNERATIONS, INTEREST ETC., WHICH IS QU ITE REASONABLE AND WE UPHOLD THE SAME. ACCORDINGLY, THESE APPEALS OF ASSESSEE ARE ALLOWED. 7. IN THE RESULT, APPEALS OF ASSESSEE ARE ALLOWED. 8. ORDER IS PRONOUNCED IN OPEN COURT. SD/- , (MAHAVIR SINGH) JUDICIAL M EMBER ( *+ *+ *+ *+) )) ) DATED : 8 TH DECEMBER, 2011 ,- ./ 0 JD.(SR.P.S.) 5 ITA 1470 & 1471/K/2011 BLUE HEAVEN CONSTN. CO. A.Y.05-06 & 06-07 () 1 &2 3(2!4- COPY OF THE ORDER FORWARDED TO: 1 . $% / APPELLANT BLUE HEAVEN CONSTRUCTION CO., C/O SHRI SOMNATH GHOSH, SEVEN BROTHERS LODGE, P.O. BUROSHIBTALA, CHI NSURAH, DIST. HOOGHLY, PIN 712 105 2 &'$% / RESPONDENT, ITO, WARD-1(1), HOOGHLY 3 . ) ( )/ THE CIT(A), KOLKATA 4. ) / CIT, KOLKATA 5 . ;< & / DR, KOLKATA BENCHES, KOLKATA '2 &/ TRUE COPY, ()=/ BY ORDER, / /ASSTT. REGISTRAR .