ACIT Cir.-5, Pune V. Shri Tukaram J. Naik, Pune

ITA 1697/PUN/2005

• Counselvise Citation: 169724514 RSA 2005
• Duration Of Justice: 5 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 10-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE; HARESHWAR SHARMA
• Assessee Lawyers: CHETAN KARIA
• Keywords: Income from undisclosed sources; Charitable institution; Retraction; Revised return
• Section: 143(3); 133A; 139(5); 147; 131; 145; 144; 11; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER S.NO . ITA NO. ASSTT.YEAR 1. 1697/PN/05 2001-02 2. 280/PN/07 2003-04 3. 278/PN/07 2000-01 4. 279/PN/07 2002-03 5. 1160/PN/07 2004-05 ASSTT.COMMISSIONER OF INCOME-TAX, CIR. 5, PUNE .. APPELLANT VS. SHRI TUKARAM J. NAIK, PROP. T.J. NAIK & CO. NEAR FOREST COLONY, .. RESPONDENT SHALIMAR CHOWK, DAUND, PUNE PAN ABMPN 1377L APPELLANT BY : SHRI HARESHWAR SHARMA & SHRI ABHAY DAMLE RESPONDENT BY : SHRI CHETAN KARIA ORDER PER G.S.PANNU, A.M: THE FIVE CAPTIONED APPEALS ARE FILED BY THE REVEN UE AGAINST SEPARATE ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS), PUNE WHICH, IN TURN, HAVE ARISEN FROM ORDERS OF THE ASSESSING OFFI CER PASSED UNDER SECTION 143(3) FOR ASSESSMENT YEARS 2001-02, 2003-04 & 2004 -05, AND UNDER SECTION 143(3) READ WITH SECTION 147 FOR ASSESSMENT YEARS 2 000-01, 2002-03 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. SINCE COMMON ISSUES ARE INVOLVED, AND THE ARGUME NTS RAISED BY BOTH THE PARTIES ARE SIMILAR, ALL THE APPEALS WERE HEARD TOG ETHER AND ARE BEING DISPOSED OFF BY A CONSOLIDATED ORDER, FOR THE SAKE OF CONVEN IENCE. ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 2 3. WE SHALL FIRST TAKE UP APPEAL IN ITA NO 1697/PN/ 05 PERTAINING TO THE ASSESSMENT YEAR 2001-02. THE ISSUE RAISED BY THE RE VENUE IN THIS APPEAL RELATES TO THE DELETION BY THE COMMISSIONER OF INCO ME-TAX (APPEALS) OF THE ADDITION OF RS 66,87,208/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF WORK-IN- PROGRESS. THE FACTS, IN BRIEF, ARE THAT THE ASSESSE E IS PROPRIETOR OF M/S T.J. NAIK & CO. AND IS ENGAGED IN THE BUSINESS OF EXCAVATION, E ARTH MOVING, ROAD MAKING ETC. THE RETURN OF INCOME SHOWING TOTAL INCOME OF RS 20,92,480/- WAS FILED BY THE ASSESSEE ON 30.10.2001, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT. ON A SCRUTINY OF THE PRO FIT AND LOSS ACCOUNT AND BALANCE SHEET, THE ASSESSING OFFICER FOUND THAT THE RE WAS NO WORK-IN-PROGRESS IN RESPECT OF UNFINISHED WORK OR WORK AGAINST WHICH BI LLS WERE RAISED BY THE ASSESSEE. THE ASSESSEE WAS REQIRED TO FURNISH THE DETAILS OF CONTRACT RECEIPTS, EQUIPMENTS HIRE RECEIPTS, TRANSPORTATION/LABOUR REC EIPTS, COPIES OF CONTRACT AGREEMENTS ALONGWITH R.A BILLS ETC. WHICH WERE DULY FILED. THE ASSESSING OFFICER AGAIN REQUIRED THE ASSESSEE TO FURNISH COMPARISON O F CONTRACT RECEIPTS WITH TDS CERTIFICATES AND ITS RECONCILIATION. THE ASSESSING OFFICER, ON VERIFICATION OF THE SAID DETAILS FILED BY THE ASSESSEE, NOTICED THAT CE RTAIN AMOUNTS WERE RECEIVABLE FROM VASCON ENGINEERS P. LTD., DELFI DWELLINGS, SHA RAD CONSTRUCTION ETC. HE NOTICED THAT THE AMOUNTS BILLED BY ASSESSEE AND CRE DITED BY THE CLIENTS WERE MORE THAN THE AMOUNTS ACTUALLY RECEIVED BY THE ASSE SSEE AND IN SOME CASES THE AMOUNTS CREDITED BY CLIENTS WERE LESS THAN THE AMOU NTS ACTUALLY RECEIVED BY THE ASSESSEE. THE ASSESSING OFFICER ACCORDINGLY WORKED OUT TOTAL SUCH RECEIVABLES AS ON 31.3.2000 IN RESPECT OF WHICH PAYMENTS WERE RECEIVED BY ASSESSEE DURING ASSESSMENT YEAR 2001-02 AT RS 56,52,861/-. T HE ASSESSEE WAS FURTHER ASKED TO FURNISH DETAILS OF PAYABLES AND TO COMPUTE WORK-IN-PROGRESS AS ON 31.3.2001. THE ASSESSEE FILED DETAILED SUBMISSIONS MAKING A REFERENCE TO SURVEY PROCEEDINGS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 28 TH & 29 TH JANUARY, 2003 AND REQUESTED THE ASSESSING OFFICER T O CONSIDER THE ENTIRE WORK- IN-PROGRESS AS ON 31.3.2003 FOR ASSESSMENT YEAR 200 3-04 ALONE AND CLAIMED ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 3 THAT THERE WAS NO CASE FOR CONSIDERATION OF ANY WOR K-IN-PROGRESS FOR EARLIER YEARS PRIOR TO ASSESSMENT YEAR 2003-04. AN AMOUNT OF RS 2 ,71,47,477/- WAS RECEIVABLE FROM VARIOUS CONTRACTOR PARTIES AS ON 1. 4.2002. WHILE FILING THE RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04, ASSESSEE CON SIDERED THE RECEIVABLES AS ON 31.3.2003 AND WORKED OUT THE CLOSING WORK-IN-PRO GRESS AS ON THAT DATE. AN ADDITIONAL INCOME OF RS 80LAKHS WAS OFFERED FOR TAX ATION IN ASSESSMENT YEAR2003-04. ACCORDING TO THE ASSESSING OFFICER, SU CH A TREATMENT DID NOT TAKE CARE OF THE RECEIVABLES AS ON 31.3.2002 AND ITS IMP LICATION IN INCOME OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03. THE ASSESSEE FILED FURTHER DETAILS OF RECEIVABLES AND PAYABLES AS ON 31.3.2001 AND THE RE CEIVABLES, AS PER THE ASSESSEE, WERE RS 1,30,46,530/- AS ON 31.3.2001. TH E ASSESSING OFFICER NOTICED SOME DISCREPANCIES IN THE ABOVE WORKING OF ASSESSEE , AND ADOPTED THE FIGURE OF RS 1,52,07,901/-. THE ASSESSING OFFICER THEN PROCEE DED TO COMPUTE THE TOTAL WORK-IN-PROGRESS OF THE ASSESSEE AS ON 31.3.2001 BY REDUCING GROSS PROFIT FROM THE AMOUNT OF RECEIVABLES. THE ASSESSING OFFICER NO TED THAT TOTAL EXPENSES DEBITED UNDER VARIOUS HEADS CAME TO RS 3,50,93,234/ -. THE ASSESSING OFFICE FURTHER NOTED THAT DUE TO THE NATURE OF THE BUSINES S OF THE ASSESSEE, NO TRADING ACCOUNT WAS PREPARED AND ONLY PROFIT AND LOSS ACCOU NT WAS PREPARED. IN THE OPINION OF THE ASSESSING OFFICER, SINCE NO TRADING ACTIVITY IS BEING CARRIED OUT EXCEPT IN THE CASE OF SALE OF METAL WHICH WAS VERY NOMINAL, ALL THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT HAD A DIRECT BEA RING ON THE CALCULATION OF GROSS PROFIT. AS PER THE ASSESSING OFFICER, SINCE THE AS SESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING, DIRECT EXPENSES OF RS 3,50,93,234/- PERTAINED THE WORKS OF RS 5,02,49,412/-. HE ACCORDINGLY WORKED OUT THE CLOSIN G WORK-IN-PROGRESS AS ON 31.3.2001 AT RS 1,06,21,198/-. HE FURTHER COMPUTED THE CLOSING WORK-IN-PROGRESS AS ON 31.3.2000 AT RS 39,33,990/-. ACCORDING TO THE ASSESSING OFFICER, NO OPENING OR CLOSING WORK-IN-PROGRESS WAS CONSIDERED BY THE ASSESSEE AND, THEREFORE, CORRECT PROFIT FOR A PARTICULAR YEAR COU LD NOT BE DEDUCED. ACCORDING TO THE ASSESSING OFFICER, THOUGH THE ASSESSEE HAD A CH OICE TO ADOPT CASH OR ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 4 MERCANTILE SYSTEM OF ACCOUNTING AS PER THE PROVISIO NS OF THE ACT, IT WAS IMPERATIVE THAT THE ACCOUNTS SHOULD BE MAINTAINED I N SUCH A WAY THAT TRUE PROFIT OF THE YEAR CAN BE ARRIVED AT. IN THE OPINION OF TH E ASSESSING OFFICER, BY NOT CONSIDERING THE CLOSING AND OPENING WORK-IN-PROGRES S, IN THE PROFIT AND LOSS ACCOUNT, ASSESSEE IS BOOKING THE EXPENDITURE ON CAS H BASIS FOR RECEIVABLES, BUT AT THE SAME TIME, NOT MAKING ANY PROPORTIONATE DEDU CTION OUT OF EXPENSES BOOKED THAT ARE ATTRIBUTABLE TO THE RECEIVABLES AS ON THE LAST DAY OF THE YEAR, WHICH VIOLATED THE PRINCIPLE OF MATCHING OF EXPENSE S AND, THEREFORE, THE SAME WAS NOT ACCEPTABLE. HENCE, THE ASSESSING OFFICER HE LD THAT THE CLOSING AND OPENING WORK-IN-PROGRESS HAS TO BE CONSIDERED IN TH E BOOKS OF ACCOUNT OF ASSESSEE, EVEN THOUGH HE HAS BEEN FOLLOWING CASH SY STEM OF ACCOUNTING. ADOPTING THE CLOSING WORK-IN-PROGRESS AS ON 31.3.20 00 OF RS 39,33,990/- AS OPENING WORK-IN-PROGRESS FOR ASSESSMENT YEAR 2001-0 2, THE ASSESSING OFFICER CONCLUDED THAT THE DIFFERENCE BETWEEN THE OPENING A ND CLOSING WORK-IN-PROGRESS HAD THE EFFECT OF ENHANCEMENT OF NET PROFIT OF THE BUSINESS. HE ACCORDINGLY MADE AN ADDITION OF RS 66,87,208/- TO THE TOTAL INCOME O F THE ASSESSEE. BEING AGGRIEVED WITH THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 4. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE FILED VOLUMINOUS PAPER BOOK IN SUPPORT OF HIS VARIOUS SUB MISSIONS. AFTER CONSIDERING THE DETAILED SUBMISSIONS AS WELL AS CASE LAW CITED ON BEHALF OF THE ASSESSEE, AND THE REMAND REPORTS OBTAINED FROM THE ASSESSING OFFICER, THE COMMISSIONER OF INCOME-TAX (APPEALS) PROCEEDED TO DECIDE THE ISS UE. HE NOTED THAT THE ASSESSEE HAS BEEN ASSESSED TO TAX SINCE ASSESSMENT YEAR 1991-92 AND FROM THE VERY BEGINNING, THE ASSESSEE HAS BEEN CONSISTEN TLY FOLLOWING CASH SYSTEM OF ACCOUNTING; THAT THE ASSESSEE HAS NEVER ACCOUNTED F OR CLOSING STOCK, WORK-IN- PROGRESS AND RECEIVABLES IN HIS BOOKS OF ACCOUNT AN D THESE HAD NOT BEEN CONSIDERED FOR COMPUTING INCOME RETURNED BY HIM IN THE PAST AS ALSO IN THE ASSESSMENT YEAR UNDER CONSIDERATION. SINCE THE SURV EY UNDER SECTION 133A OF ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 5 THE ACT CONDUCTED IN THE ASSESSEES PREMISES ON 28 TH & 29 TH JANUARY, 2003 WAS NOT RELATED TO ASSESSMENT YEAR UNDER CONSIDERATION, THE COMMISSIONER OF INCOME-TAX (APPEALS) OBSERVED THAT THE CONCLUSIONS IN THE IMPUGNED ORDER SHALL BE CONFINED TO THE YEAR UNDER APPEAL ONLY. THE COMM ISSIONER OF INCOME-TAX (APPEALS) THEN PROCEEDED TO EXAMINE THE NATURE AND IMPLICATION AND CONNOTATION OF BOTH THE SYSTEMS OF ACCOUNTING, I.E. CASH SYSTEM AND MERCANTILE SYSTEM. FURTHER, THE COMMISSIONER OF INCOME-TAX (APPEALS) E XAMINED THE PROVISIONS OF LAW IN RESPECT OF METHOD OF ACCOUNTING AS CONTAINED IN SECTION 145 OF THE ACT AND OBSERVED THAT THERE ARE CERTAIN BASIC DIFFERENCES B ETWEEN PROVISIONS OF LAW IN RESPECT OF METHOD OF ACCOUNTING BROUGHT ABOUT BY TH E PRESENT SECTION 145 AS COMPARED TO SECTION 145 AS IT THEN STOOD BEFORE THE SUBSTITUTION BY THE FINANCE ACT, 1995 WITH EFFECT FROM 1.4.1997. THEREAFTER, TH E COMMISSIONER OF INCOME-TAX (APPEALS) ANALYSED THE POSITION AS UNDER: I) PRESENT SECTION 145(1) SAYS THAT INCOME CHARGEA BLE UNDER THE HEAD PROFITS AND GAINS OR INCOME FROM OTHER SOURCES SHALL, SUBJECT TO PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IT MAY BE MENTIONED THAT PROVISIONS OF LAW AS CON TAINED IN PRESENT SECTION 145(2) WERE NOT ON STATUTE BOOK EARLIER. HO WEVER, SECTION 145(1) BEFORE IT WAS SUBSTITUTED BY FINANCE ACT 1995 W.E.F . 1.4.97 CONTAINED THREE PROVISOS WHICH ARE ABSENT IN SECTION 145(1) S UBSTITUTED BY FINANCE ACT, 1955 W.E.F. 1.4.97. PROVISO ONE TO EARLIER SEC TION 145(1) GAVE DISCRETION TO THE AO TO COMPUTE INCOME EVEN IN CASE OF CORRECT AND COMPLETE ACCOUNTS UPON SUCH BASIS AND IN SUCH MANNE R AS THE AO MAY DETERMINE IF ACCORDING TO THE AO, THE METHOD EMPLOY ED BY THE ASSESSEE IS SUCH THAT THE INCOME CANNOT BE PROPERLY DEDUCED THEREFROM. THIS PROVISO IS ABSENT IN SECTION 145(1) SUBSTITUTED BY THE FINANCE ACT 1995 W.E.F. 1.4.97. THE IMPLICATION OF OMISSION OF PROVI SO ONE IN SECTION 145(1) CLEARLY SHOWS THAT PROFITS AND GAINS OF BUSINESS O R PROFESSION OR INCOME FROM OTHER SOURCES SHALL SUBJECT TO PROVIS IONS OF SUB-SECTION (2) BE COMPUTED IN ACCORDANCE WITH CASH OR MERCANTILE S YSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THUS, SECTION 1 45 REQUIRES THAT IF ONE OF THE TWO METHODS OF ACCOUNTING VIZ. CASH OR M ERCANTILE IS REGULARLY EMPLOYED BY THE ASSESSEE, THE INCOME HAS GOT TO BE COMPUTED IN ACCORDANCE WITH SUCH METHOD. SECTION 145(3) LAYS DO WN THAT THE AO MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144, IF EITHER OF THE TWO CONDITIONS ARE SATISFIED. I) WHERE THE AO IS NOT SATISFIED ABOUT THE CORRECTN ESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 6 II) WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB- SECTION (1) OF SECTION 145 OF ACCOUNTING STANDARDS AS NOTIFIED UND ER SUB-SECTION (2) HAD NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE . THUS, AS PER PROVISION OF LAW AS CONTAINED IN STATU TE BOOK IN SECTION 145(1), (2) & (3) SUBSTITUTED BY FINANCE ACT 1995 W .E.F. 1.4.1997, THE INCOME HAS GOT TO BE COMPUTED IN ACCORDANCE WITH EI THER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE UNLESS CONDITIONS FOR INVOKING SECTION 144 AS CONTA INED IN SUB-SECTION (3) OF SECTION 145 EXISTS IN A CASE. THE USE OF WORD SH ALL IN SECTION 145(1) MAKES IT CLEAR THAT PROVISIONS OF LAW AS CONTAINED U/S 145(1) ARE MANDATORY. ADVERTING TO THE FACTS OF THE CASE, THE COMMISSIONE R OF INCOME-TAX (APPEALS) OBSERVED THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF EXCAVATING THE EARTH SOIL AND MOVING THE EXCAVATED SOIL AT THE CON STRUCTION SITE ON CONTRACT BASIS. IN MOST OF THE CASES THE ASSESSEE IS SUB-CON TRACTOR WORKING FOR THE PRINCIPAL CONTRACTORS AND THE EXCAVATION IS DONE EI THER MANUALLY OR MECHANICALLY DEPENDING UPON THE SITE CONDITION AND FOR THIS PURP OSE, THE ASSESSEE EMPLOYS EARTH MOVING EQUIPMENTS AND SUBSTANTIAL LABOUR FORC E. FROM THE DETAILS OF VARIOUS ACTIVITIES CARRIED ON BY THE ASSESSEE DURIN G THE YEAR 2000-01, THE COMMISSIONER OF INCOME-TAX (APPEALS) NOTICED THAT O UT OF THE TOTAL RECEIPTS OF RS 4,59,80,164.92 TRANSPORT ACTIVITY ACCOUNTED FOR RS 32,82,526.54, I.E. 7.14% AND HIRING ACTIVITY ACCOUNTED FOR RS 14,49,509.32 I.E. 3.15% AND SUPPLY OF METAL RS 5,53,757.03, I.E.1.21%. THUS, THE EXCAVATION ACTIVI TY AS SUB-CONTRACTOR CARRIED OUT BY THE ASSESSEE WAS 88.50% OF THE TOTAL ACTIVIT Y. THE COMMISSIONER OF INCOME-TAX (APPEALS) THEN PROCEEDED TO CONSIDER WHE THER NON-ACCOUNTING FOR OF RECEIVABLES RESULTED IN PREVENTING CORRECT DETERMIN ATION OF PROFIT DURING THE YEAR UNDER CONSIDERATION. HE OBSERVED THAT WHEREVER THER E IS ANY CONFLICT BETWEEN THE PRINCIPLES OF ACCOUNTANCY AND PROVISIONS OF LAW, TH E PROVISIONS OF LAW WOULD PREVAIL. THE COMMISSIONER OF INCOME-TAX (APPEALS) D ELETED THE ADDITION OF RS 66,87,208/- MADE BY THE ASSESSING OFFICER, HOLDING AS UNDER: IN THE PRESENT CASE, THE RELEVANT LAW IS CONTAINED IN SECTION 145 OF THE INCOME-TAX ACT, 1961. IT MAY BE MENTIONED THAT SECTION 145(1) BROUG HT TO STATUTE BOOK BY FINANCE ACT 1995 MANDATES THAT PROFITS & GAINS FROM BUSINESS O R PROFESSION SHALL BE COMPUTED IN ACCORDANCE WITH CASH OR MERCANTILE SYSTEM OF ACCOUN TING REGULARLY EMPLOYED BY THE ASSESSEE. SINCE CASH SYSTEM OF ACCOUNTING BY ITS VE RY DEFINITION DOES NOT REQUIRE ACCOUNTING FOR OF RECEIVABLES AND IT IS AN UNDISPUT ED FACT IN THE CASE OF THE APPELLANT THAT THE APPELLANT HAS REGULARLY EMPLOYED CASH SYSTEM OF ACCOUNTING IN THE PAST AS WELL AS IN THE YEAR UNDER APPEAL, IN CASE OF THE APPELLANT, I AM OF THE CONSIDERED VIEW, THAT IT CANNOT ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 7 BE SAID THAT THE NON ACCOUNTING OF RECEIVABLES RESU LTS IN A SITUATION WHERE TRUE PROFITS OF THE BUSINESS CANNOT BE ARRIVED AT DURING THE YEAR U NDER APPEAL. AS REGARDS THE AOS VIEW REGARDING MATCHING OF EXPENSES AS CONTAINED IN PARA 4.3 OF THE ASSESSMENT ORDER, IT MAY BE MENTIONED THAT THE LAW AS CONTAINED U/S 145( 1) OF THE I.T. ACT, 1961 GIVES THE APPELLANT OPTION EITHER TO ADOPT CASH SYSTEM OR MER CANTILE SYSTEM AND IN CASH SYSTEM OF ACCOUNTING MATCHING PRINCIPLES HAS EXTREMELY LIMITE D ROLE TO PLAY. THE MATCHING PRINCIPLE HAS FULL APPLICATION FOR COMPUTING PROFITS ONLY IN MERCANTILE SYSTEM OF ACCOUNTING. IN VIEW OF THIS, LEGISLATIVE MANDATE AS CONTAINED U/S 145(1 ) GIVING OPTION TO THE APPELLANT FOR EMPLOYING EITHER CASH OR MERCANTILE SYSTEM OF ACCOU NT CANNOT BE STIFLED BY INVOKING A PRINCIPLE OF ACCOUNTANCY IN THE PRESENT CASE. IN VI EW OF THIS, I AM OF THE CONSIDERED VIEW THAT THE CONCLUSION OF THE AO THAT NON-ACCOUNTING O F WIP, WHICH ACCORDING TO AO IS REQUIRED TO BE COMPUTED BY REDUCING GP FROM THE AM OUNT OF RECEIVABLES, DOES NOT RESULT IN A SITUATION PREVENTING DEDUCING OF CORRECT PROFI T DURING THE YEAR. IN FACT WHERE PROFIT IS DEDUCED BY EXERCISING OPTION CONTAINED U/S 145 OF T HE I.T. ACT, 1961 IT IS CLEAR THAT THE LEGISLATIVE MANDATE AS CONTAINED IN SECTION 145(1) IS FULFILLED. THUS ON GIVEN FACTS, IT IS HELD THAT THE APPELLANT HAS EXERCISED THE OPTION AV AILABLE TO IT U/S 145(1) OF THE INCOME TAX ACT, 1961 AND SHOWING OF INCOME OR RECEIPT BASI S BY THE APPELLANT FOLLOWING CASH SYSTEM OF ACCOUNTING, IS IN ACCORDANCE WITH LAW AS CONTAINED IN SECTION 145(1) OF THE INCOME TAX ACT, 1961. 12.3 IT MAY BE MENTIONED THAT THERE IS NO FINDING I N THE ASSESSMENT ORDER ABOUT INVOKING OF LAW AS CONTAINED U/S 145(3) IN THE PRES ENT CASE AND IN ANY CASE NOT SHOWING OF RECEIVABLE IN CASE OF APPELLANT REGULARLY EMPLOY ING CASH SYSTEM OF ACCOUNTING CANNOT WARRANT INVOKING OF SECTION 145(3) AND THEREFORE IT IS HELD THAT THE LEARNED AO HAS FAILED TO BRING ON RECORD ANY MATERIAL FOR INVOKING THE PR OVISIONS OF LAW AS CONTAINED U/S 145(3) OF THE INCOME TAX ACT, 1961. 13. IN VIEW OF THE FOREGOING DISCUSSIONS, TAKING IN TO ACCOUNT THE SUBMISSION OF THE APPELLANT MENTIONED HEREINBEFORE, CASE LAW RELIED U PON BY THE APPELLANT, FURTHER TAKING INTO ACCOUNT THE RELEVANT LEGAL AND FACTUAL POSITIO N N THIS CASE AND IN VIEW OF THE FACT THAT THE APPELLANT HAS COMPUTED ITS INCOME IN ACCORDANCE WITH CASH SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY IT, IT IS HELD THAT THE ADDIT ION OF RS 66,87,208/- IS NOT JUSTIFIED IN LAW AND ON FACTS AND IS HEREBY DELETED. THIS DISPOSES O F GROUNDS NO. 1 TO 4 OF THE APPEAL. AGGRIEVED WITH THE ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE, APPEARING FOR THE REVENUE, VEHEMENTLY ARGUED THAT THE PRIMARY ISS UE IN ALL THE APPEALS RELATES TO THE ADDITION MADE BY THE ASSESSING OFFICER BY DI SREGARDING THE MANNER IN WHICH THE INCOME WAS DECLARED BY THE ASSESSEE IN TH E RETURNS OF INCOME. IT WAS POINTED OUT THAT IN THE ASSESSMENT YEAR 2001-02 THE ASSESSING OFFICER HAD NOTICED THAT THE ACCOUNT BOOKS MAINTAINED DID NOT S HOW THE CORRECT STATE OF AFFAIRS SO AS TO DEDUCE THE TRUE PROFITS. IT WAS PO INTED OUT THAT THE ASSESSEE WAS FOLLOWING THE CASH SYSTEM OF ACCOUNTING WHEREBY ONL Y CASH RECEIPTS WERE SHOWN AND THE RECEIVABLES WERE NOT REFLECTED IN THE RETUR N WHILE THE EXPENDITURE WAS DEBITED AGAINST SUCH RECEIVABLES AND, THEREFORE, TH E PROFIT SHOWN BY THE ASSESSEE WAS NOT PROPERLY DEDUCED. FOR THIS REASON, THE ASSESSING OFFICER ADDED BACK THE DIFFERENCE BETWEEN CLOSING AND OPENI NG WORK-IN-PROGRESS (WIP) ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 8 OF RS 66,87,028/- TO THE INCOME OF THE ASSESSEE. SI MILAR ADDITIONS FOR OTHER ASSESSMENT YEARS WAS ALSO SOUGHT TO BE JUSTIFIED. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMMISSIONER OF I NCOME-TAX (APPEALS) ERRED IN OBSERVING THAT THE WIP DOES NOT ARISE AS THE ASS ESSEE WAS MERELY RENDERING SERVICES AND WAS NOT ENGAGED PRODUCTION. IN THIS RE GARD, IT WAS POINTED OUT THAT ASSESSEE EXECUTES CONTRACT WORK OF EARTH EXCAVATION AS PER AGREEMENT WITH THE PARTIES. THE BILLS RAISED BY THE ASSESSEE ARE ON TH E BASIS OF THE QUANTITY OF WORK DONE BASED ON THE MEASUREMENT OF DIGGING AND EXCAVA TION PER CUBIC METER WHICH SHOWS THAT THE PLEA OF NON-ARISING OF WIP IS INCORRECT. IT WAS ALSO POINTED OUT THAT IN THE COURSE OF SURVEY ACTION UNDERTAKEN IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2003-04, ASSESSEE HAD DECLARED THE WIP OF RS 80,00,000/- AND HAD ALSO AGREED THAT HE WOULD ADOPT THE MERCANT ILE SYSTEM OF ACCOUNTING. EVEN OTHERWISE, IT IS POINTED OUT THAT IN THE CASH SYSTEM OF ACCOUNTING ALSO, WIP CAN BE CONSIDERED IN ORDER TO COMPUTE PROFITS OF BU SINESS AND IN THIS CONNECTION, RELIANCE WAS PLACED ON THE DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF ACIT V ADLABS 14 SOT 505 (MUM). 6. ON THE OTHER HAND, LEARNED COUNSEL POINTED OUT T HAT COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN DELETING TH E ADDITION. IT WAS POINTED OUT THAT IN THIS CASE FACTUALLY THERE IS LITTLE SCO PE FOR HAVING WIP BECAUSE THE ASSESSEE WAS PRIMARILY A SERVICE PROVIDER. IT WAS E NGAGED IN THE BUSINESS OF EXCAVATING THE SOIL AND MOVING SUCH SOIL ON CONTRAC T BASIS. FOR THIS PURPOSE, THE ASSESSEE EMPLOYED EARTH MOVING EQUIPMENTS AND A SUB STANTIAL LABOUR FORCE. THE ASSESSEE WAS NOT ENGAGED IN PRODUCTION OF ANY T ANGIBLE PRODUCT SO AS TO RESULT IN ANY WORK-IN-PROGRESS. HAVING REGARD TO TH E NATURE OF ACTIVITIES CARRIED ON, AT NO POINT OF TIME THE ASSESSEE CAN BE SAID TO HOLD ANY WIP EXCEPT SMALL QUANTITY OF DIESEL, OIL, SPARE PARTS OF THE EQUIPME NTS, WHICH ARE IN THE NATURE OF CONSUMABLES WHICH MIGHT BE UNUSED AS ON THE LAST DA Y OF THE ACCOUNTING YEAR. IT IS ALSO POINTED OUT THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE AND FU RTHER THAT THERE IS NO ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 9 DISPUTE THAT ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, WHICH IS PERMISSIBLE IN TERMS OF SECTION 145(1) OF THE ACT. IT IS ALSO POINTED OUT THAT SUCH METHOD OF ACCOUNTING WHEREIN NO WIP OR THE RECEIVAB LES ARE ACCOUNTED FOR HAS BEEN CARRIED OUT FOR LAST MANY YEARS. 7. ON THIS ASPECT, WE HAVE CONSIDERED THE RIVAL SUB MISSIONS CAREFULLY. IN SO FAR AS THE ASSESSMENT YEARS OTHER THAN 2003-04 IS C ONCERNED THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOU NTING. IN THIS CONNECTION, THE MOOT QUESTION IS AS TO WHETHER THE IMPUGNED ADDITIO N IS SUSTAINABLE OR NOT. THE ASSESSING OFFICER NOTICED THAT FROM THE PROFIT & LO SS ACCOUNT AND THE BALANCE SHEET THAT NO OPENING OR CLOSING WIP HAS BEEN CONSI DERED BY THE ASSESSEE, ALTHOUGH THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. AS PER THE ASSESSING OFFICER, THIS DOES NOT REFLECT THE PROFIT S OF THE ASSESSEE AND CORRECT PROFIT FOR A PARTICULAR YEAR CANNOT BE DEDUCED, THO UGH AS PER THE ASSESSING OFFICER THE ASSESSEE ENJOYED THE CHOICE TO ADOPT EI THER THE CASH OR MERCANTILE SYSTEM OF ACCOUNTING AS PER THE PROVISIONS OF THE A CT. ACCORDING TO HIM, ASSESSEE WAS BOOKING THE EXPENDITURE ON CASH BASIS FOR RECEIVABLES ALSO, BUT AT THE SAME TIME NOT MAKING ANY PROPORTIONATE DEDUCTIO N OF EXPENSES THAT ARE ATTRIBUTABLE TO THE RECEIVABLES AS ON FIRST DAY OF THE YEAR OR AT THE END OF THE YEAR. AS PER THE ASSESSING OFFICER, THIS VIOLATED THE PRI NCIPLES OF MATCHING OF EXPENSES. 8. IN THIS CONNECTION, IT IS QUITE WELL SETTLED THA T THE MERCANTILE SYSTEM OF ACCOUNTING STANDS ON A DIFFERENT FOOTING FROM THE C ASH SYSTEM OF ACCOUNTING. IN THE CASH SYSTEM, ACTUAL CASH RECEIPTS AND ACTUAL CA SH PAYMENTS ARE RECORDED AS CREDITS AND DEBITS, WHEREAS UNDER THE MERCANTILE SY STEM, CREDIT ENTRIES ARE MADE IN RESPECT OF AMOUNTS DUE IMMEDIATELY ON ACCRUAL BA SIS BEFORE THEY ARE ACTUALLY RECEIVED AND THE EXPENDITURE IS BOOKED FOR AN ITEM FOR WHICH LEGAL LIABILITY IS INCURRED EVEN BEFORE THE AMOUNTS IN QUESTION MAY AC TUALLY BE DISBURSED. THEREFORE, IN MERCANTILE SYSTEM, REVENUES ARE RECOG NIZED ON ACCRUAL BASIS, WHEREAS IN CASH SYSTEM OF ACCOUNTING, IT IS RECOGNI ZED ON PAYMENT BASIS. ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 10 9. AFTER CONSIDERING THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS RIVAL SUBMISSIONS, THE MOOT QUESTION WHICH ARISES IS AS T O WHETHER THE REVENUES APPROACH OF TREATING RECEIVABLES AS WIP AND TAXING THE DIFFERENCE BETWEEN CLOSING BALANCE AND OPENING BALANCE OF RECEIVABLES IS IN ORDER HAVING REGARD TO THE FACT THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS CASH BASIS. IN OUR CONSIDERED OPINION, THE COMMISSIONER OF INCOME- TAX (APPEALS) MADE NO MISTAKE IN HOLDING THAT SUCH AN ADDITION IS NOT TEN ABLE SINCE THE ASSESSEE WAS COMPUTING ITS INCOME IN ACCORDANCE WITH CASH SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY IT. IN THIS CONNECTION, REFERENCE MAY B E MADE TO THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF INCOME- TAX APPELLATE TRIBUNAL V JANANMANDAL LTD. 143 ITR 228 (ALL.) WHEREIN AN ADDI TION ON ACCOUNT OF DIFFERENCE BETWEEN THE OUTSTANDING AT THE BEGINNING OF THE ASS ESSMENT YEAR AND AT THE CLOSE OF THE YEAR WAS MADE. THE SAID ADDITION WAS D ELETED BY THE TRIBUNAL NOTICING THAT THE ASSESSEE FOLLOWED THE CASH SYSTEM OF ACCOUNTING, WHICH WAS AFFIRMED BY THE HONBLE HIGH COURT BY NOTING THE FI NDINGS OF THE TRIBUNAL THAT NO ITEMS OF BILLS RECEIVABLES OR SUNDRY DEBTORS WERE T O BE FOUND IN THE BALANCE SHEETS FILED BY THE ASSESSEE ALONGWITH ITS RETURNS OF INCOME FOR VARIOUS ASSESSMENT YEARS. NOTABLY, THE ADDITION MADE BY THE REVENUE WAS FOUND UNTENABLE HAVING REGARD TO THE CASH SYSTEM OF ACCOU NTING BEING FOLLOWED BY THE ASSESSEE THEREIN IN ORDER TO COMPUTE THE INCOME. TO THE SIMILAR EFFECT ARE THE JUDGMENTS OF THE HONBLE SUPREME COURT IN THE CASES OF CIT V A KRISHNASWAMI MUDALIAR & ORS 53 ITR 122 (SC), MORVI INDUSTRIES LT D V CIT (CEN.) CALCUTTA 82 ITR 835 (SC), AND CIT V BARJATYA FAMILY CHARITABLE TRUST 163 ITR 269 (RAJ.) AND 137 CTR 133 (RAJ). MOREOVER, WE ALSO FIND THAT THE ASSESSMENTS FOR ASSESSMENT YEARS 1997-98 AND 1998-99 HAVE BEEN COMPLETED AFTER SCRUTINY, WHEREIN THE QUESTION OF ACCOUNTING OF WIP WAS NOT RAISED AT ALL . THUS, IN PRINCIPLE, WE FIND NO ERROR IN THE APPROACH OF THE COMMISSIONER OF INCOME -TAX (APPEALS) IN DELETING THE IMPUGNED ADDITION. ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 11 10. IN SO FAR AS THE ASSESSMENT YEAR 2003-04 IS CON CERNED, THERE WAS A SURVEY ACTION IN THE COURSE OF WHICH THE ASSESSEE A GREED TO OFFER INCOME ON ACCOUNT OF WIP FOR ASSESSMENT YEAR 2003-04. IN THIS CONNECTION, ASSESSEE CLAIMS THAT IT HAD ALSO OFFERED AN AMOUNT OF RS 80 LAKHS ON THIS ACCOUNT IN THE RETURN OF INCOME FILED. THE FACTUAL ASPECTS OF THE STATEMENT MADE BY THE ASSESSEE DURING SURVEY AND THE RETURN OF INCOME FIL ED THEREOF AND THE ASSESSMENT FINALIZED BY THE ASSESSING OFFICER FOR A SSESSMENT YEAR 2003-04 WOULD BE DISCUSSED SEPARATELY IN THE SUBSEQUENT PAR AGRAPHS. 11. IN THE ASSESSMENT YEAR 2003-04, THE LEARNED DEPARTM ENTAL REPRESENTATIVE HAS RAISED AN ADDITIONAL GROUND OF A PPEAL, WHICH WAS HITHERTO NOT RAISED IN THE MEMO OF APPEAL. BY WAY OF ADDITIO NAL GROUND, IT IS CHALLENGED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN TREATING THE REVISED RETURN FILED BY THE ASSESSEE AS A VALID RETURN UNDE R SECTION 139(5) OF THE ACT. THE CONTENTION RAISED IS THAT THE COMMISSIONER OF INCOM E-TAX (APPEALS) HAS CONSIDERED THE RETURN AS VALID MERELY BECAUSE THE S AME WAS FILED WITHIN THE PERIOD PRESCRIBED UNDER SECTION 139(1) OF THE ACT, WHEREAS AS PER THE SAID SECTION, A RETURN CAN BE REVISED ONLY ON DISCOVERY OF AN OMISSION OR A WRONG STATEMENT IN THE RETURN ORIGINALLY FILED. IT IS CON TENDED THAT IN THE INSTANT CASE THERE IS NO OMISSION OR WRONG STATEMENT MADE BY THE ASSESSEE IN THE ORIGINAL RETURN. THE LD DEPARTMENTAL REPRESENTATIVE ALSO REL IED UPON THE JUDGMENT OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF SUNANDA R AM DEKA V CIT 210 ITR 988 TO CONTEND THAT ONLY A BONA FIDE MISTAKE OR OM ISSION IS CONTEMPLATED AS A REQUIREMENT FOR REVISING A RETURN UNDER SECTION 139 (5) OF THE ACT. IT HAS ALSO BEEN CONTENDED THAT SECTION 139(5) OF THE ACT DOES NOT C ONTEMPLATE A REVISION OF RETURN MEANT TO REWORK THE INCOME ON THE BASIS OF A DIFFERENT METHOD OF ACCOUNTING. IN THIS CONNECTION, RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF DE EPNARAYAN NAGU & CO V. CIT 157 ITR 37 (MP). ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 12 12. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE RESPONDENT-ASSESSEE HAS NOT OBJECTED TO THE ACTION OF THE REVENUE IN RAISIN G THE SAID ADDITIONAL GROUND OF APPEAL. HOWEVER, ON MERITS, IT IS CONTENDED THAT TH E REVISED RETURN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 FULFILLS T HE PARAMETERS OF SECTION 139(5) OF THE ACT. IT HAS ALSO BEEN CONTENDED THAT THE REVISED RETURN WAS FILED ON BONA FIDE CONSIDERATIONS AND THE ASSESSMENT FINALIZ ED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2001-02 ON 31.3.2004 ITSELF PROVES THE BONA FIDES OF THE ASSESSEE FOR REVISING ITS RETURN FOR THE ASSESSMENT YEAR 2003-04. IT HAS BEEN POINTED OUT THAT IN THE ASSESSMENT MADE FOR ASSESSM ENT YEAR 2001-02 ON 31.3.2004 THE ADDITION WAS MADE ON ACCOUNT OF WORK- IN-PROGRESS AND THIS CLEARLY SHOWED THAT ASSESSEE WAS ENTITLED TO A SUITABLE CRE DIT AS AN OPENING BALANCE IN THE SUBSEQUENT ASSESSMENT YEARS AND, THEREFORE, THE RETURN FOR THE ASSESSMENT YEAR 2003-04 FILED ORIGINALLY WITHOUT INCORPORATING SUCH CREDIT IN THE OPENING BALANCE CONTAINED AN OMISSION OR MISTAKE WITHIN THE MEANING OF SECTION 139(5) OF THE ACT AND, THEREFORE, THE REVISED RETURN FILED ON 25.8.2004 FOR THE ASSESSMENT YEAR 2003-04 FULFILLS THE PARAMETERS OF SECTION 139(5) OF THE ACT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. SECTION 139(5) OF THE ACT PROVIDES THAT ANY PERSON, HAVING FURNISHED A RE TURN UNDER SECTION 139(1) OR IN RESPONSE TO A NOTICE UNDER SECTION 142(1), DISCOVER S ANY OMISSION OR ANY WRONG STATEMENT THEREIN, HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF THE PERIOD PRESCRIBED THEREIN. IN THE PRESENT CA SE, THERE IS NO CONTROVERSY THAT THE REVISED RETURN FILED BY THE ASSESSEE ON 25.8.20 04 IS WITHIN THE PERIOD PRESCRIBED. HOWEVER, THE ONLY CONTROVERSY IS AS TO WHETHER THERE WAS ANY OMISSION OR A WRONG STATEMENT IN THE ORIGINAL R ETURN SO AS TO ENTITLE THE ASSESSEE TO FILE A REVISED RETURN IN TERMS OF SECTI ON 139(5) OF THE ACT. FROM THE PHRASEOLOGY OF SECTION 139(5), IT IS CLEAR THAT FOR A RETURN TO BE VALID UNDER SECTION 139(5) OF THE ACT IT IS NECESSARY THAT OMISSION OR THE WRONG STATEMENT IN THE ORIGINAL RETURN MUST BE DUE TO A BONA FIDE INADVERT ENCE OR MISTAKE ON THE PART OF ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 13 THE ASSESSEE, AS OPINED BY THE HONBLE GAUHATI HIGH COURT IN THE CASE OF SUNANDA RAM DEKA (SUPRA). 14. IN THIS CASE, A SURVEY ACTION UNDER SECTION 133 A OF THE ACT WAS CARRIED OUT ON 28.1.2003 WHEREIN AS PER THE ASSESSING OFFICER T HERE WAS A DECLARATION OF RS 80 LAKHS AS UNACCOUNTED ADDITIONAL INCOME FOR THE ASSESSMENT YEAR 2003-04 IN THE STATEMENT RECORDED UNDER SECTION 131 OF THE ACT . THE ASSESSEE FILED A RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 ON 29.11. 2003 DECLARING TOTAL INCOME OF RS 1,41,44,010/- INCLUSIVE OF RS 80 LAKHS DECLAR ED AS ADDITIONAL UNACCOUNTED INCOME ON ACCOUNT OF WIP. SUBSEQUENTLY, THE RETURN WAS REVISED ON 31.3.2004 DECLARING TOTAL INCOME OF RS 1,01,27,100/- WHICH WA S FURTHER REVISED ON 28.8.2004 TO AN INCOME OF RS 64,44,010/-. AS PER TH E ASSESSING OFFICER, IN THE REVISED AND RE-REVISED RETURN, THE ADDITIONAL UNACC OUNTED INCOME HAS BEEN WITHDRAWN WITHOUT ASSIGNING ANY REASONS AND, THEREF ORE, THE SAME WAS NOT ACCEPTED. THE CLAIM OF THE ASSESSEE IS THAT THE ASS ESSING OFFICER WAS INCORRECT IN OBSERVING THAT THERE WAS A DECLARATION OF RS 80 LAKHS AS UNACCOUNTED ADDITIONAL INCOME IN THE STATEMENT RECORDED UNDER S ECTION 131 OF THE ACT AT THE TIME OF SURVEY. IT WAS POINTED OUT THAT SUBSEQUENT TO THE DATE OF SURVEY A LETTER WAS FILED ON 30.1.2003 CLARIFYING THAT THE ASSESSEE WOULD CONSULT HIS LAWYERS AND CHARTERED ACCOUNTANTS AND THEN ONLY WOULD TAKE A FI NAL DECISION ABOUT SHIFTING FROM CASH SYSTEM OF ACCOUNTING TO MERCANTILE SYSTEM OF ACCOUNTING. IT WAS EXPLAINED THAT THE AMOUNT OF RS 80 LAKHS WAS OFFERE D FOR THE FIRST TIME IN THE RETURN OF INCOME FILED ON 29.11.2003 AS CLOSING WIP AS ON 31.3.2003 WHICH WAS WITHDRAWN BY FILING REVISED AS WELL AS RE-REVISED R ETURN AS THE DEPARTMENT HAD REOPENED THE ASSESSMENT OF THE ASSESSEE FOR THE EAR LIER YEARS DESPITE THE FACT THAT IT WAS AGREED THAT UPON OFFERING RS 80 LAKHS A S WIP AS ON 31.3.2003 WITHOUT CLAIMING THE BENEFIT OF OPENING WIP AS ON 1 .4.2002 ASSESSMENT OF THE EARLIER YEARS WOULD NOT BE REOPENED. EVEN BEFORE US , THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT AT THE TIME OF FILING OF THE REVISED RETURN, THE ASSESSMENT OF EARLIER YEARS WAS MADE WHEREIN ADDITI ONS WERE MADE ON ACCOUNT ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 14 OF WIP AND THEREFORE, UNDER THESE CIRCUMSTANCES FOR THE ASSESSMENT YEAR 2003- 04, THE ASSESSEE WAS ENTITLED TO CREDIT FOR THE OPE NING RECEIVABLES WHICH WERE ASSESSED IN THE PRECEDING YEAR. IT WAS ALSO EXPLAIN ED THAT ON SUCH ACTION OF THE REVENUE FOR THE EARLIER ASSESSMENT YEARS, THE RETUR N OF INCOME ORIGINALLY FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 WAS RE NDERED WRONG WITHIN THE MEANING OF SECTION 139(5) OF THE ACT. 15. IN ORDER TO APPRECIATE THE FACTUAL CONTOURS OF THIS ASPECT, WE MAY REFER TO THE FOLLOWING CONCLUSIONS OF THE COMMISSIONER OF IN COME-TAX (APPEALS) CONTAINED IN PARA 3.15 AND 3.16 WHICH READ AS UNDER :- 3.15 I HAVE GONE THROUGH THE FACTS OF THE CASE FRO M THE ASSESSMENT ORDER, WRITTEN SUBMISSIONS OF THE APPELLANT, THE STATEMENT OF SHRI TUKARAM J. NAIK, THE APPELLANT, RECORDED U/S 131 OF THE INCOME TAX ACT, 1961 AT THE TIME OF SURVEY AS ALSO THE REMAND REPORT OF THE AO. IT IS SEEN THAT THE RETURN OF INC OME DECLARING TOTAL INCOME AT RS 1,41,44,010/- WAS FILED ON 29.11.2003, WHICH WAS RE QUIRED TO BE FILED ON 31.10.2003 OF THE RELEVANT ASSESSMENT YEAR. WHEN POINTED OUT, IT WAS STATED THAT VIDE F. NO. 220/3/2003 ITA-II DATED 16.10.2003 REPORTED AT 264 ITR (ST) 10, THE CBDT HAD EXTENDED THE DATE FOR FILING THE RETURN OF INCOME FOR THE AS SESSMENT YEAR 2003-04 FOR ONE MONTH AND, THEREFORE, ORIGINAL RETURN OF INCOME WAS FILED WITHIN TIME AND THUS, THE APPELLANT WAS IN HIS RIGHTS TO REVISE OR RE-REVISE THE RETURN WIT HIN ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR, I.E. TILL 31.3.2005. IT IS UNDISPU TED THAT THE REVISED AND RE-REVISED RETURNS WERE FILED ON 31.3.2004 AND 28.9.2004 RESPE CTIVELY. THE AO HAS HARPED UPON THE FACT THAT NO REASONS, WHATSOEVER, HAVE BEEN GIVEN W HILE FILING THE REVISED OR RE-REVISED RETURNS AND THAT IN THE STATEMENT RECORDED U/S 131, IN RESPONSE TO QUESTION NOS 20 TO 23, THE APPELLANT HAD DECLARED ADDITIONAL UNACCOUNTED I NCOME OF RS 80 LACS ON ACCOUNT OF WIP. THIS STATEMENT OF THE AO DOES NOT APPEAR TO BE CORRECT IN SO FAR AS THE AO HAS HERSELF REPRODUCED THE QUESTION NOS 20 TO 23 AND 27 AND ANSWERS OF THE APPELLANT THERETO ON PAGE 6 OF THE ASSESSMENT ORDER, WHEREIN THERE IS NO MENTION OF DECLARATION OF THE AMOUNT OF RS 80 LACS BY THE APPELLANT AT THE TI ME OF SURVEY. THERE IS NO DECLARATION OF THE AMOUNT OF RS 80 LACS IN RESPONSE TO THE QUESTIO N NO 21 ALSO, WHICH PERTAINS TO THE RETURNS FILED FOR THE EARLIER ASSESSMENT YEARS 2001 -02, 2001-02 & 2002-03, WHEREIN THE CONTRACT RECEIPTS WERE NOT TALLYING WITH THE TDS CE RTIFICATES PLACED ON RECORD. IT IS SEEN THAT THE AMOUNT OF RS 80 LACS HAD NEVER BEEN DECLAR ED BY THE APPELLANT DURING THE COURSE OF SURVEY BUT WAS INCLUDED IN THE ORIGINAL R ETURN OF INCOME FILED ON 29.11.2003 FOR THE ASSESSMENT YEAR UNDER APPEAL FOR THE WORKING OF WIP AS EXTRACTED VIDE PARA 3.3 ABOVE. THE APPELLANT HAD ALSO WRITTEN A LETTER TO T HE AO THAT CASH SYSTEM OF ACCOUNTING WAS THE CORRECT METHOD OF ACCOUNTING BEING FOLLOWED BUT HE WILL CHANGE THE METHOD OF ACCOUNTING TO MERCANTILE SYSTEM AFTER CONSULTATION WITH HIS ADVOCATE. THE APPELLANT HAS GIVEN REASONS AS TO WHY HE REVISED AND RE-REVISED T HE RETURN. IT WAS STATED TO BE ON ACCOUNT OF ORAL DISCUSSION/AGREEMENT MADE WITH THE THEN CIT & ADDL. CIT THAT THE METHOD OF ACCOUNTING WOULD BE CHANGED FROM CASH SYS TEM TO MERCANTILE SYSTEM AND ADDITIONAL AMOUNT OF RS 80 LACS WOULD BE DECLARED I N THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 WITHOUT CLAIMING CREDIT FOR ANY OPENING WIP. HOWEVER, IT WAS IN SCRUTINY AND THE AO COMPUTED THE OPENING AND CLO SING WIPS AND WAS IN THE PROCESS OF MAKING ADDITIONS OF THE DIFFERENCE AND THE CASES FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 WERE BEING REOPENED BY ISSUANCE OF NOTI CE U/S 148, THE APPELLANT FOUND HIMSELF UNDULY HARASSED AND HE WAS UNDER NO OBLIGAT ION TO STICK TO THE AGREEMENT AND DECLARE THE CLOSING WIP AS ON 31.3.2003 AND INCREA SE THE INCOME BY RS 80 LACS, THE APPELLANT REVISED AND RE-REVISED THE RETURN WHICH A S ALREADY STATED ABOVE, WERE FILED WITHIN TIME ALLOWED UNDER SECTION 139(5) OF THE ACT . NO DISCRIMINATING DOCUMENTS HAD BEEN FOUND FROM APPELLANT. NO SELF INCRIMINATING DE CLARATION WAS MADE DURING SURVEY. A RETURN WAS FILE DECLARING AN AMOUNT OF RS 80 LACS W HICH WAS REVISED AND RE-REVISED WITHIN TIME ON RETRACTION OF AGREEMENT BY THE DEPARTMENT. IT IS TRITE LAW THAT ONCE A VALID REVISED RETURN IS FILED U/S 139(5) OF THE ACT, IT OBLITERAT ES THE ORIGINAL RETURN AND THE REVISED RETURN IS THE ONLY RETURN WHICH COULD BE CONSIDERED. REFER ENCE IN THIS CONNECTION IS MADE TO THE FOLLOWING DECISIONS:- ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 15 (I) SHRI VALLABH GLASS WORKS LTD V ITO 212 ITR 433 (GUJ.) (II) DHAMPUR SUGAR MILLS LTD. V CIT 90 ITR 236 (ALL ) (III) BECO ENGG. CO. LTD. V CIT 148 ITR 478 (P&H) (IV) CIT V MANGALORE CHEMICALS & FERTILIZERS LTD. 1 91 ITR 156 (KAR.) (V) CHIEF CIT V MACHINE TOOL CORPN. OF INDIA LTD 20 1 ITR 101 (KAR.) 3.16 FURTHER, IT IS NOTICED THAT THE APPELLANT WAS UNDISPUTEDLY FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THE EARLIER YEARS SINCE 1991 AND IT WAS ONLY DURING THE COURSE OF SURVEY THAT HE HAD AGREED TO SHIFT THE SYSTEM OF ACCOUNTIN G TO MERCANTILE. ON THE VERY NEXT DAY, HE HAD FILED A LETTER RETRACTING THE STATEMENT OF S HIFTING THE CASH SYSTEM OF ACCOUNTING TO MERCANTILE SYSTEM OF ACCOUNTING STATING THAT HE WOU LD HAVE TO CONSULT HIS COUNSELS. THE INCLUSION OF RS 80 LACS IN THE RETURN OF INCOME ON THE BASIS OF SHOWING WIP AS ON 31.3.2003 WITHOUT CLAIMING OPENING WIP DOES NOT IPS O FACTO SHOW THAT THE APPELLANT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS SE EN THAT THE TAX AUDITORS HAD MERELY STATED THE FACTS AS PER CLAUSES 11(A) & 11(C) OF TH E AUDIT REPORT, WHICH WAS PRODUCED DURING THE COURSE OF APPELLATE PROCEEDINGS. THE MET HOD OF ACCOUNTING EMPLOYED IN THE PREVIOUS YEAR WAS STATED TO BE CASH SYSTEM WHILE AGAINST THE COLUMN WHETHER THERE WAS ANY CHANGE IN THE METHOD OF ACCOUNTING EMPLOYED AS COMPARED TO THE METHOD EMPLOYED IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR , IT WAS STATED THAT THERE WAS NO SUCH CHANGE. IT WAS CLARIFIED THAT THE APPELLANT H AD SHOWN THE VALUE OF WIP AT THE END OF THE ACCOUNTING PERIOD FOR THE FIRST TIME WHILE CALC ULATING THE TAXABLE INCOME. THE METHOD OF VALUATION OF CLOSING STOCK EMPLOYED IN THE PREVI OUS YEAR WAS STATED TO BE THE VALUE OF THE WIP TAKEN AT COST BUT IT WAS FURTHER REITERATED THAT THE APPELLANT WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. IT IS SEEN THAT NOWHERE HAD T HE AUDITORS GIVEN A CERTIFICATE THAT THE APPELLANT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TING AS CLAIMED BY THE AO. 16. IN VIEW OF THE AFORESAID DISCUSSION, IT IS QUIT E CLEAR THAT THE CIRCUMSTANCES PREVAILING WITH THE ASSESSEE TO REVISE AND RE-VISE ITS RETURNS OF INCOME ARE WELL- FOUNDED. IT IS QUITE CLEAR THAT ORIGINALLY THE INCO ME OF RS 80 LAKHS WAS DECLARED IN THE COMPUTATION OF INCOME, AS IS EVIDENT FROM A COP Y PLACED AT PAGE 109 OF THE PAPER BOOK. IT IS ALSO CLEAR THAT THE INCOME FROM B USINESS OTHER THAN RS 80 LAKHS ON ACCOUNT OF WIP, HAS BEEN DECLARED AS PER REGULAR METHOD OF ACCOUNTING FOLLOWED, I.E. CASH SYSTEM OF ACCOUNTING. NOTABLY, ADDITIONAL INCOME OF RS 80 LAKHS HAS BEEN OFFERED IN THE COMPUTATION OF INCOME AND HAS NOT AFFECTED THE REGULAR ACCOUNTING SYSTEM FOLLOWED. THEREFORE, THE PLEA OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RETURN HAS BEE N REVISED TO CHANGE THE METHOD OF ACCOUNTING, IN OUR VIEW, IS UNTENABLE. FA CTUALLY, ADDITIONAL INCOME OF RS 80 LAKHS WHICH WAS HITHERTO DECLARED IN THE REVI SED RETURN CANNOT BE SAID TO BE A CHANGE MADE IN THE ACCOUNTING SYSTEM, BECAUSE AT THE ORIGINAL STAGE THERE WAS NO ADJUSTMENT MADE IN THE BOOKS OF ACCOUNT WHIC H CONTINUED TO BE MAINTAINED ON CASH BASS, WHILE THE SAID AMOUNT WAS DECLARED AS ADDITIONAL INCOME BY WAY OF COMPUTATION OF INCOME. UNDER THESE CIRCUMSTANCES, THE RELIANCE PLACED BY THE LEARNED DEPARTMENTAL REPRESE NTATIVE ON THE JUDGMENT OF ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 16 THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE O F DEEPNARAYAN NAGU & CO (SUPRA) TO ARGUE THE UNTENABILITY OF THE REVISED RE TURN, IS MISPLACED. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, AS PER THE HONBLE MADHYA PRADESH HIGH COURT, A REVISED RETURN CANNOT BE FILED IN ORD ER TO ADJUST OR REVISE THE METHOD OF ACCOUNTING. ON ACTS, IN THIS CASE, WE DO NOT FIND THAT THA RETURN HAS BEEN REVISED TO EFFECTUATE ANY CHANGE IN THE METHOD OF ACCOUNTING. MOREOVER, AS EXPLAINED BY THE LEARNED COUNSEL, THE DECLARATIO N OF RS 80 LAKHS ON ACCOUNT OF ONLY CLOSING WIP IN THE ASSESSMENT YEAR 2003-04 IS UNDENIABLY INCONSISTENT WITH THE NORMS OF ACCOUNTING, SINCE IT DOES NOT TAK E INTO CONSIDERATION THE ADJUSTMENT IN THE OPENING WIP AND, THEREFORE, THIS ITSELF CONSTITUTES A WRONG WITHIN THE MEANING OF SECTION 139(5) OF THE ACT. AP ART THEREFROM, THE CIRCUMSTANCES EXPLAINED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS) IN TERMS OF WHICH THE REVISED RETURN WAS NECESSITATED, HAVE NOT BEEN CONTROVERTED BEFORE US. CONSIDERING ALL THESE FACTORS, IN OUR VIEW, THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN HOLDING THAT THE REVIS ED AND RE-REVISED RETURNS FALL WITHIN THE PARAMETERS OF SECTION 139(5) OF THE ACT. THUS THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION MERELY BEC AUSE THE AMOUNT WAS OFFERED IN THE ORIGINAL RETURN OF INCOME WAS FILED ON 29.11 .2003 CANNOT BE UPHELD, SINCE IT WAS INCUMBENT ON THE REVENUE TO HAVE CONSIDERED THE REVISED AND RE-REVISED RETURNS AND THE REASONS PREVAILING FOR THE SAME AND ONLY AFTER EVALUATING THE SAME THE ISSUE WAS REQUIRED TO BE EXAMINED. IN OUR VIEW, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CORRECTLY APPRECIATED THE CONTROVERSY AND UNDER THESE CIRCUMSTANCES, WE HEREBY AFFIRM HIS ORDER. 17. SINCE FOR THE ASSESSMENT YEAR OTHER THAN 2003-0 4 WE HAVE ALREADY OPINED IN PARA 9 THAT THE COMMISSIONER OF INCOME-TA X (APPEALS) HAS CORRECTLY DELETED THE ADDITION, IN THE ASSESSMENT YEAR 2003-0 4 FOLLOWING SIMILAR REASONINGS, WE HEREBY AFFIRM THE ORDER OF THE COMMI SSIONER OF INCOME-TAX (APPEALS). ITA 1697/PN/05 ETC. SHRI TUKARAM J. NAIK, DAUND . 17 18. IN THE RESULT, THE APPEALS OF THE REVENUE FOR T HE CAPTIONED ASSESSMENT YEARS ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MAY,2011. SD/- SD/- (I.C. SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 31 ST MAY, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. SHRI T J NAIK, PUNE 2. THE DY. CIT CIR. 5, PUNE 3. THE CIT(A)-II PUNE 4. THE CIT-III, PUNE 5. THE D.R, A BENCH, PUNE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE