Chetak Complex, JAIPUR V. DCIT, UDAIPUR

ITA 187/JODH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78164 (ITAT-JODHPUR)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 26-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Keywords: Unexplained cash credit; Rejection of books of accounts; Value adopted by valuation officer; Business income; Business expenditure; Peak credit; Application of stay; Bad and doubtful debts; Commercial expediency; Revised return
• Section: 40A(3); 143(3); 133A; 153A; 139(5); 131; 68; 145; 132; 144; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K.SAINI, ACCOUNTANT MEMBER ITA NOS. 187 TO 193/JU/2014 ASSESSMENT YEARS: 2004-05 TO2010-11 M/S CHETAK COMPLEX VS. THE DY. C.I.T DAHOD ROAD CENTRAL CIRCLE - 1 BANSWARA UDAIPUR PAN : AADFC 5638 H ITA NOS. 202 TO 208/JU/2014 ASSESSMENT YEARS: 2004-05 TO 2010-11 & ITA NO. 327/JU/2009 ASSESSMENT YEAR: 2006-07 THE DY. C.I.T VS. M/S CHETAK COMPLEX CENTRAL CIRCLE 1 DAHOD ROAD CHITTORGARH BANSWARA PAN : AADFC 5638 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY JHANWAR SHRI RAHUL LAKHWANI DEPARTMENT BY : DR. DEEPAK SEHGAL, CIT-DR DATE OF HEARING : 08.05.2014 DATE OF PRONOUNCEMENT : 23.05.2014 ORDER PER BENCH:- THE ABOVE CAPTIONED MATTERS COMPRISING OF 14 CROSS APPEALS FOR A.YS. 2004-05 TO 2010-11 AND 7 STAY APPLICATIONS WE RE HEARD TOGETHER AS ALL THESE APPEALS ARISE OUT OF COMMON ORDER DATE D 24.1.2014 PASSED 2 BY THE LD. CIT(A), CENTRAL, JAIPUR. FOR A.Y. 2006- 07, ONE MORE APPEAL HAS BEEN FIXED WHICH EMANATES FROM THE ORIGINAL RET URN FILED FOR THE YEAR AND WHICH HAS TRAVELLED UPTO THE TRIBUNAL. HO WEVER, AFTER SEARCH PROCEEDINGS, FOR THIS YEAR ALSO ASSESSMENT ORDER WA S MADE U/S 153A R.W.S 143(3) OF THE INCOME-TAX ACT, 1961 ['THE ACT' , FOR SHORT] IN WHICH ALL THE ADDITIONS ARE SUBJECT MATTER OF THIS VERY A PPEAL ITA NO. 327/JU/2009 FOR A.Y. 2006-07 HAVE BEEN REPEATED. T HEREFORE, AFTER THE DECISION OF THAT APPEAL IN ITA NO. 327/JU/2009 WILL BECOME INFRUCTUOUS AND HAS TO BE TREATED AS DISMISSED AS H AVING BECOME INFRUCTUOUS. IN ALL THE APPEALS, ALMOST IDENTICAL ISSUES ARE INVOLVED EXCEPT FOR A.Y. 2009-10 AND 2010-11 WHERE ONE MORE ISSUE REGARDING BAD DEBT/INCIDENTAL LOSS IS ALSO INVOLVED. THEREFO RE, FOR THE SAKE OF CONGRUENCE, BREVITY AND CONVENIENCE, WE PROCEED TO DISPOSE THEM OFF BY THIS COMMON ORDER. 2. TO START WITH, WE WILL NARRATE THE FACTS OBTAINI NG IN A.Y. 2004-05 OF WHICH YEAR BOTH THE PARTIES ARE IN APPEAL. THE BACKGROUND FACTS, IN NUT-SHELL, LEADING TO ALL THESE APPEALS ARE THAT TH E ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND SALE OF COMMERCIAL AS WELL AS RESIDENTIAL PROPERTY SINCE TH E YEAR 2002. THERE ARE TWO PARTNERS OF THIS FIRM, NAMELY SHRI R.N. BHA NDARI (= 3 RAVINDRANATH BHANDARI) AND SHRI VINOD KHATUWA. A S EARCH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CARRIED OUT AT THE RE SIDENTIAL PREMISES OF SHRI R.N. BHANDARI AND SHRI VINOD KHATUWA ON 12.08. 2009, WHO WERE ONLY PARTNERS IN THE FIRM CHETAK COMPLEX, BANSWARA IN WHICH CASE SIMULTANEOUSLY SURVEY ACTION U/S 133A OF THE ACT WA S ALSO CARRIED OUT. DURING THE COURSE OF SEARCH CARRIED OUT AT THE RESI DENTIAL PREMISES OF SHRI R.N. BHANDARI, THE PARTNER OF THE FIRM, INCRIM INATING DOCUMENTS/EVIDENCE WERE FOUND AND SEIZED AS PER ANN EXURES AS-1 TO AS-4. FROM THE RESIDENCE OF THE OTHER PARTNER SHRI VINOD KHATUWA ALSO INCRIMINATING DOCUMENTS/EVIDENCE WERE FOUND AND SEI ZED AS PER ANNEXURE A-1 TO ANNEXURE A-3. IN THE CASE OF THE P ARTNERS, NAMELY, SHRI R.N. BHANDARI AND SHRI VINOD KHATUWA ASSESSMEN T PROCEEDINGS U/S 153A WERE INITIATED BY ISSUANCE OF NOTICES U/S 153A FOR THE A.YS. 2004- 05 TO 2009-10. HOWEVER, DURING THE COURSE OF ASSES SMENT PROCEEDINGS CONDUCTED IN THE CASE OF THE PARTNERS NAMED ABOVE, ON VERIFICATION OF RECORDS SEIZED FROM THEIR POSSESSION, IT WAS FOUND THAT MOST OF THE DOCUMENTS/EVIDENCE ARE RELATED TO THE FIRM M/S CHET AK COMPLEX. DURING HIS STATEMENT RECORDED U/S 132(4) OF THE ACT ON 12.08.2009, SHRI R. N. BHANDARI ADMITTED THAT THESE INCRIMINATI NG EVIDENCE CONTAINED DETAILS OF PROPERTIES PURCHASED AND SOLD [INCLUDING SHOPS/FLATS] BY HIS PARTNERSHIP FIRM, NAMELY M/S CH ETAK COMPLEX. 4 THESE INCRIMINATING DOCUMENTS ALSO CONTAINED DETAIL S OF PROFIT EARNED BY M/S CHETAK COMPLEX. WHEN SHRI BHANDARI WAS CONF RONTED WITH THESE INCRIMINATING EVIDENCE, HE MADE SURRENDER OF RS. 60 LAKHS ON ACCOUNT OF UNDISCLOSED PROFIT BY THE FIRM WHICH WAS STATED TO HAVE BEEN EARNED FROM THE SALE TRANSACTIONS OF SHOPS/FLA TS AND WHICH HAD NOT BEEN DISCLOSED TO THE DEPARTMENT IN THE RETURN S FILED FOR THE RELEVANT YEAR. DURING THE COURSE OF SURVEY CONDUCT ED AT THE BUSINESS PREMISES OF M/S CHETAK COMPLEX, BANSWARA, BOOKS OF ACCOUNT AND OTHER INCRIMINATING EVIDENCE LIKE CPU, PEN DRIVE, E TC RELATING TO TRANSACTIONS OF PURCHASE AND SALE OF LAND/SHOPS AND FLATS WERE FOUND AND IMPOUNDED ON THE SAME DATE I.E., 12.8.2009 AS P ER ANNEXURE A-1 TO ANNEXURE A-30. IN FACT, ANNEXURE A-25 IMPOUNDED BY THE SURVEY PARTY IS A COMPUTER CPU IN WHICH ACCOUNTS OF VARIOU S GROUP CONCERNS WERE CONTAINED INCLUDING THAT OF M/S CHETAK COMPLEX . WHEN THESE ACCOUNTS WERE VERIFIED, IT WAS FOUND THAT M/S CHETA K COMPLEX WAS MAINTAINING TWO SETS OF BOOKS OF ACCOUNT ONE OF T HEM IS ACTUAL AND REAL ACCOUNT OF THE ALL THE TRANSACTIONS OF THE FIR M AND SECOND ONE IS A FABRICATED/ MANIPULATED ACCOUNT AIMED AT REDUCING T HE PROFIT ELEMENT OF TAX. WHEN SHRI BHANDARI WAS CONFRONTED WITH THI S INCRIMINATING EVIDENCE, WHILE RECORDING HIS STATEMENT U/S 131 OF THE ACT, ON 10.9.2009, DURING POST SEARCH PROCEEDINGS, HE ADMIT TED THAT IN THE 5 COMPUTER FOUND FROM THE PREMISES OF M/S CHETAK COMP LEX, VARIOUS TYPES OF ACCOUNTS WERE MAINTAINED AND THESE ACCOUNT S CONSISTED OF ACCOUNTS DECLARED TO THE I.T. DEPARTMENT AS WELL AS KEPT FOR PERSONAL PURPOSES. HE FURTHER ADMITTED THAT THERE IS CALCUL ATED DIFFERENCE BETWEEN THESE TWO ACCOUNTS. THIS DIFFERENCE WAS ST ATED TO BE OF RS. 4,37,47,833/- AND WHEN CONFRONTED TO THE PARTNER, H E ADMITTED IT AS FIRMS UNDISCLOSED PROFIT AND THEREFORE, SURRENDERE D IT FOR TAXATION FOR DIFFERENT F.YS. THE OTHER PARTNER SHRI V. KHATUWA ALSO AGREED WITH THIS SURRENDER. IN THE STATEMENT HOWEVER, SHRI R.N. BHA NDARI HAS CLAIMED THAT THE SURRENDER MADE U/S 132(4) WHILE RECORDING HIS STATEMENT ON 12.08.2009 FORMS PART OF THIS SURRENDERED AMOUNT OF RS. 4,37,47,833/-. 2.1 IN THE ANNEXURE A-25, WHICH IS COMPUTER CPU, AS DISCUSSED ABOVE, ACCOUNT OF VARIOUS GROUP CONCERNS ARE MAINTA INED WHICH ARE THREE TYPES OF ACCOUNTS AS UNDER: 1. RUN CHETAK COMPLEX LALIT 0610 2. ACTUAL C.C [2000 TO 2010] 3. CHETAK COMPLEX [2008-09] 2.2 AS PER THE PARTNER SHRI BHANDARI, THE ACCOUNTS MAINTAINED IN TALLY SOFTWARE ACCOUNT MENTIONED IN THE NAME OF ACTUAL CC [2000-2010] KUTBI ARE REAL ACCOUNTS OF THE FIRM M/S CHETAK COMP LEX AND ACCOUNTS 6 IN THE NAME OF RUN M/S CHETAK COMPLEX-LALIT 0610 AN D M/S CHETAK COMPLEX 2008-09 ARE AUDITED ACCOUNTS WHICH HAVE BEE N DECLARED BEFORE THE I.T. DEPARTMENT. THUS THE UNDECLARED BU T ACTUAL ACCOUNTS HAVE BEEN CHRISTENED AS KUTBI ACCOUNT AND IT WOULD BE REFERRED TO THE SAME, IN FURTHER NARRATION OF FACTS. THE A.O. HAS ALSO CONSIDERED THE KUTBI ACCOUNTS TO FINALIZE ASSESSMENTS IN VARIOUS A .YS. 3. AFTER SCRUTINIZING THE MATERIAL/EVIDENCE AVAILAB LE ON RECORD SEIZED FROM THE RESIDENCE OF THE PARTNERS AND WHICH WERE FOUND AND ADMITTED TO BE RELATED TO THE AFFAIRS OF THE ASSESS EE FIRM, THE A.O. RECORDED REQUISITE SATISFACTION VIDE ORDER-SHEET DA TED 26.2.2010 AND THEREAFTER NOTICES U/S 153 R.W.S 153A OF THE ACT WE RE ISSUED ON 26.02.2010 WHICH WAS SERVED UPON THE ASSESSEE ON 14 .3.2010 REQUIRING HIM TO PREPARE A TRUE AND CORRECT RETURN OF ITS TOT AL INCOMES INCLUDING UNDISCLOSED INCOMES FOR A.YS. 2004-05 TO 2009-10 IN THE PRESCRIBED FORMA AND TO SUBMIT THE SAME WITHIN 21 DAYS AFTER T HE SERVICE OF THIS NOTICE. COMPLYING WITH THE ABOVE NOTICE, ASSESSEE FILED RETURN U/S 153C R.W.S. 153A OF THE ACT FOR ALL THESE YEARS AND DETAILS OF WHICH ARE AS UNDER: 7 A . Y. DATE OF FILING OF ORIGINAL RETURN U/S. 139 RETURNED INCOME U/S. 139 DATE OF FILING OF RETURNS U/S. 153C RETURNED INCOME U/S. 153C UNDISCLOSED INCOME DECLARED IN RETURN U/S. 153C 2004 - 05 25.10.2004 456696 15.04.2010 3185190 2728491 2 005 - 06 21.08.2007 2163118 15.04.2010 4701370 2538252 2006 - 07 31.10.2006 2092887 15.04.2010 3758210 1665323 2007 - 0 8 30.10.2007 2 4 7 8072 15.04.2010 3696920 1218851 2008 - 0 9 30.09.2008 1959030 15.04.2010 3834020 1874994 2009 10 15.04.2010 2511080 1 5.04 . 2010 2372660 2115409 3.1 RETURNS WERE FILED AS ABOVE ON 15.4.2010 AS AGA INST DUE DATE FOR THEIR FILING BEING ON OR BEFORE 2.4.2010. THUS RET URNS WERE DELAYED BY A PERIOD OF 13 DAYS. SUBSEQUENTLY, THE ASSESSEE FI LED REVISED RETURN U/S 153C R.W.S 153A ON 20.08.2010 FOR ALL THESE A.Y S, DETAILS OF WHICH ARE AS UNDER: A.Y. DATE OF FILING OF REVISED RETURN U/S. 153C REVISED RETURN ED INCOME U/S. 153 UNDISCLOSED INCOME DECLARED IN RETURN U/S. 153C 2004 - 05 2 0 .0 8 .20 1 0 325692 - 131004 2005 - 06 2 0 .0 8 .20 1 0 4515910 2352792 2006 - 07 2 0 .0 8 .20 1 0 4940290 2847403 2007 - 08 2 0 .0 8 . 20 1 0 5596480 3118408 2008 - 09 2 0 .0 8 .20 1 0 9408280 7449250 2009 - 10 2 0 .0 8 .20 1 0 630570 373318 3.2 THE A.O. HAS TREATED THESE RETURNS AS INVALID A S ORIGINAL RETURNS WERE NOT FILED IN DUE TIME AND, THEREFORE, COULD NO T BE REVISED IN VIEW 8 OF SECTION 139(5) OF THE ACT. THUS, THE A.O. HAS T REATED THE REVISED RETURNS AS NON-EST IN THE EYES OF LAW. 3.3 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSEE FIRM FILED A PETITION U/S 144A BEFORE THE LD. JCIT, CENT RAL, RANGE, UDAIPUR, DATED 14.03.2011, SUBMITTING THEREIN THAT IN RESPON SE TO NOTICE U/S 148/153C OF THE ACT, THE FIRM HAS FILED RETURN OF I NCOME [ROI] FOR ALL THESE YEARS AND RETURN FOR A.Y. 2010-11 WAS FILED U /S 139(1) OF THE ACT ON 2.7.2010 AND PLEADING THAT THE ROIS FILED FOR AL L THE A.YS. IN QUESTION WERE REVISED WITH A VIEW TO RECTIFY A PLAU SIBLE MISTAKE CAUSED IN THE DETERMINATION OF BUSINESS INCOME, THAT IS, A PPLICATION OF ACCOUNTING STANDARD-9 [AS-9] AND AS-7 IN CONSTRUCTI ON OF THE ACCOUNTING SO AS TO CONSIDER THE REVENUE AND COST W ITH ITS DEGREE OF COMPLETION ON ACCRUAL BASIS WITH RESPECT TO SALE AN D WORK IN PROGRESS VALUATION AS PROFIT IN MERCANTILE METHOD OF ACCOUNT ING OPTED BY THE ASSESSEE-FIRM. REVISED RETURNS OF INCOME WERE FILE D FOR ALL THESE YEARS ON 20.8.2010 AND FOR A.Y. 2010-11 ON 22.08.2010. T HE ASSESSEE ALSO MADE OTHER ARGUMENTS IN THIS APPLICATION. ON RECEI PT OF PETITION U/S 144A, THE JCIT, CENTRAL, JAIPUR PASSED ORDER U/S 14 4 OF THE ACT ON 16.9.2011 AFTER TAKING INTO CONSIDERATION A.OS REP ORT AND WRITTEN SUBMISSION(S) FILED BY THE ASSESSEE BEFORE THE A.O. AS PER THE 9 DIRECTIONS OF THE JCIT ISSUED U/S 144A THE PERCENTA GE COMPLETION METHOD WAS APPLIED FOR WORKING OUT TAXABLE INCOME/P ROFIT OF THE ASSESSEE. THE WORKING OF PERCENTAGE COMPLETION DUR ING THE PERIODS IS AS UNDER: ASST. YEAR COST DECLARED BY THE ASSESSEE BEFORE DVO %OF COMPL ETION SALE AS PER SEIZED RECORD AS WELL AS RETURN FOR A.Y. 11-12 GROSS PROFIT (D)- (B) PROFIT DECLARED BY ASSESSEE IN RETURN UNDISCLOSE D PROFIT (E- F) A. B C D. E. F. G. 2003 - 04 1129578 0.86 1902634 773056| - 108241 881297 2004 - 05 6420838 4.87 10815104 4394266 168492 4225774 2005 - 06 16332457 12.38 27509996 11177539 4201528 6976011 2006 - 07 13160194 9.97 22166713 9006519 4423980 4582539 2007 - 08 14345075 10.87 24162498 9817423 5275871 4541552 2008 - 09 28617469 21.69 48202573 19585104 7821298 11763806 2009 - 10 15266484 11.57 25714497 10448013 70940 0 6 3354007 2010 - 11 19595674 14.85 33006480 13410806 4345876 906493 0 2011 - 12 15825258 12.95 28781763 12956505 2012 - 13 1256739 0.00 0 131949766 100.00 222262257 91569230 3.4 AFTER THAT PROFIT OF THE ASSESSEE WAS WORKED OU T ON PROPORTIONATE BASIS FOR A PERIOD THAT THE SALE CORRESPONDING TO T HE PERCENTAGE OF COMPLETION HAS BEEN WORKED OUT ON THE BASIS OF SAL ES FIGURES AVAILABLE IN THE SEIZED RECORDS. AS PER KUTBI BOOK S, THE SALE FIGURE I.E. 10 THE ACTUAL SALE HAS BEEN TAKEN AT RS. 19,38,12,301/ - AND ON SUCH AMOUNT THE SALES SHOWN DURING THE PERIOD BETWEEN 1. 4.2010 TO 31.3.2011 A SUM OF RS. 2,84,40,696/- HAS ALSO BEEN ADDED. THUS THE TOTAL FIGURE 22,22,62,257/- HAS BEEN TAKEN AS ACTUA L TOTAL REVENUE OUT OF ALL BUILDINGS CONSTRUCTED BY THE ASSESSEE DURING THE PERIOD 1.4.2003 TO 31.3.2011 AND THIS AMOUNT HAS BEEN CONSIDERED AS TOTAL INCOME IN RESPECT FROM SALE BECAUSE ALMOST ALL THE DIFFERENT BUILDINGS NUMBERED 13 ARE COMPLETE 100% AS REPORTED BY THE DVO AS WELL AS BY THE ASSESSEE. HOWEVER, THE ABOVE WORKING IS FOR ARRIVI NG AT THE PROFIT OUT OF BUILDING CONSTRUCTION ACTIVITIES BY ADOPTING PE RCENTAGE OF COMPLETION METHOD OF ACCOUNTING AS PER AS-7 R.W AS -9 FOR REVENUE RECOGNITION. 3.5 THE LD AO ALSO MADE FOLLOWING ADDITIONS/DISALLO WANCES:- A. REJECTED CLAIM OF THE ASSESSEE IN RESPECT OF: BAD INVESTMENT SALES RETURN BAD DEBTS. B. UNEXPLAINED CASH CREDITS ON THE BASIS OF KUTBI BOOK S. C. DISALLOWANCES U/S 40(A)(IA) AND 40A(3). D. DISALLOWANCES OF CLAIM OF DONATION. E. UNACCOUNTED TRAVELLING EXPENSE. 11 4. THE LD CIT(A) DELETED THE DISALLOWANCES U/S 40(A )(IA) AND 40A(3) BUT ENHANCED THE TRADING ADDITIONS BY COMPUTING THE UNDISCLOSED BUSINESS INCOME OF THE ASSESSEE ON THE BASIS OF THE DIFFERENCE BETWEEN THE SALES DETERMINED BY THE LD AO AND SALES DISCLOSED BY THE ASSESSEE IN THE REGULAR BOOKS BY ALSO TAKING INTO A CCOUNT THE INCOME SURRENDERED IN RETURN U/S 153C FILED ON 15.04.2010. AS A RESULT, SHE DETERMINED UNDISCLOSED INCOME OF THE ASSESSEE FOR 7 AY(S) AT RS 6,99,96,073/- IN THE FOLLOWING MANNER AT PAGE 30 OF THE ORDER: A.Y. TOTAL SALES RECEIPTS DETERMINED BY THE AO DURING ASSESSMENT PROCEEDINGS. TOTAL SALES AS SHOWN IN RETURNS FILED U/S 139 AND DECLARED IN RETURN FILED U/S 153C ON 15.4.2010 DIFFERENCE (B-C) A B C D 2004 - 05 1,08,15,104 71,88,491 36,26,613 2005 - 06 2,75,09,996 1,93,62,752 81,47,244 2006 - 07 2,21,66,713 2,03,91,323 17,75,390 2007 - 08 2,41,62,498 1,59,16,958 82,45,540 2008 - 09 4,82,02,573 1,36,84,994 3,45,17,579 2009 - 10 2,57,14,497 2,38,80,770 18,33,727 2010 - 11 TILL THE DATE OF SEARCH 12.08.09 3,30,06,480 2,11,56,500 1,18,49,980 TOTAL 19,15 ,77,861 12,15,81,788 6,99,69,073 4.1 LD CIT(A) ALSO GRANTED RELIEF IN RESPECT OF DON ATION, TRAVELLING EXPENSES, AND PARTIAL RELIEF IN RESPECT OF CASH CRE DITS U/S 68. NOW BOTH THE ASSESSEE AND THE DEPARTMENT ARE BEFORE US IN CR OSS-APPEALS FOR ALL 12 SEVEN ASSESSMENT YEARS WHICH WERE HEARD TOGETHER. W E SHALL NOW TAKE UP THE ASSESSEES APPEALS. 5. GROUND NO 1, 2 AND 3 OF THE ASSESSEE APPEAL IN AY 2004-05 READS AS FOLLOWS: 1. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW, LD. CIT (APPEALS) HAS ERRED IN DETERMINING THE UNDI SCLOSED PROFIT OF THE APPELLANT AT RS. 36,26,613/- BY ENHAN CING THE AGGREGATE TRADING ADDITION FOR ASSESSMENT YEAR 2004 -05 TO 2010-11 TO RS. 6,99,96,073/- FROM RS. 3,17,83,434/- MADE BY LD. AO IN THE FOLLOWING MANNER : A.Y TOTAL S ALES RECEIPTS DETERMINED BY THE AO DURING ASSESSMENT PROCEEDINGS TOTAL SALES AS SHOWN IN RETURNS FILED U/S 139 AND DECLARED IN RETURN FILED U/S 153C ON 15.4.2010 DIFFERENCE (B-C) A B C D 2004 - 05 1,08,15,104 71,88,491 36,26,613 2005 - 06 2,75,09,996 1,93,6 2,752 81,47,244 2006 - 07 2,21,66,713 2,03,91,323 17,75,390 2007 - 08 2,41,62,498 1,59,16,958 82,45,540 2008 - 09 4,82,02,573 1,36,84,994 3,45,17,579 2009 - 10 2,57,14,497 2,38,80,770 18,33,727 2010 - 11 TILL THE DATE OF SEARCH 12.8.09 3,30,06,480 2,11,56,500 1 ,18,49,980 TOTAL 19,15,77,861 12,15,81,788 6,99,96,073 13 2. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) HAS ERRED IN : (I) NOT ACCEPTING THE INCOME COMPUTED BY THE APPELLANT IN ACCORDANCE WITH PERCENTAGE COMPLETION METHOD AS PER THE GUIDELINES LAID DOWN BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. (II) NOT ACCEPTING THAT PROJECT IS STILL INCOMPLETE AND ENTIRE REVENUE COULD NOT BE TAXED. (III) TREATING THE RETURN FILED BY THE APPELLANT UNDER SE CTION 139(5) AS NON-EST 3. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) HAS ERRED IN : (I) RELYING UPON THE SEIZED MATERIAL IN RESPECT OF SALE S WHILE DISBELIEVING THE SAME IN RESPECT OF COST INCURRED. (II) NOT ACCEPTING THE COST EVEN AS PER DVOS REPORT (III) NOT FOLLOWING THE PRINCIPLES OF SECTION 145 WHILE D ISCARDING THE BOOK RESULTS (IV) NOT DETERMINING AS TO WHICH SET OF BOOKS (KUTBI BOO KS OR REGULAR BOOKS) SHOULD BE MADE THE BASIS OF ASSESSME NTS (V) TREATING THE ADVANCES RECEIVED AGAINST SALES ALSO. 14 6. SIMILAR GROUNDS HAVE BEEN TAKEN IN ALL AYS. IN S UBSTANCE, THESE GROUNDS CHALLENGES THE DETERMINATION OF UNDISCLOSED TRADING PROFITS OF THE ASSESSEE AT RS 6,99,96,037/- IN AGGREGATE OF AL L 7 ASSESSMENT YEARS. LD AR OF THE ASSESSEE EXPLAINED THAT THE K UTBI BOOKS FOUND IN SEARCH CONTAIN ENTIRE DETAILS OF COST AS WELL AS SA LES PERTAINING TO ALL THE BUILDINGS DEVELOPED BY THE ASSESSEE FIRM. IT WA S ALSO EXPLAINED THAT ON THE PROJECT LAND OF THE ASSESSEE THERE WERE 13 DIFFERENT BUILDINGS AS PER THE FOLLOWING TABLE ON PAGE 1 OF T HE PAPER BOOK VOL I:- S.NO. NAME OF PROJECT DATE OF COMMENCEMENT OF PROJECT 1. CHETAK COMPLEX 14.10.02 (FIRST STEEL BILL) 2. GANPATI SADAN 04.09.03( FIRST CONSTRUCTOR BILL) 3. LAXMI SADAN 06.04.04( FIRST CONSTRUCTOR BILL) 4. MAHAVIR COMPLEX A 14.09.04 (FIRST STEEL BILL) 5. MAHAVIR COMPLEX B 6. MAHAVIR COMPLEX C 01.07.05 (FIRST STEEL BILL) 7. SHIV SADAN 10.06.05 (FIRST STEEL BILL) 8. ARIHANT SADAN 04.07.07 (FIRST CEMENT BILL) 9. CHARBHUJA A 24.11.07 (FIRST STEEL BILL) 10. CHARBHUJA B 11. CHARBHUJA C 18.04.09 (FIRST CRUSHER GITTI BILL) 12. CHARBHUJA D 13. CHARMINAR A 18.02.08 (FIRST CRUSHER GITTI BILL) 15 6.1 THE FACT OF THE DIFFERENT BUILDING AND THEIR DI FFERENT PERIOD OF COMMENCEMENT OF CONSTRUCTION AS WELL AS DIFFERENT S TAGES OF CONSTRUCTION ON THE DATE OF THE SEARCH ALSO EVIDENT FROM THE DEPARTMENTAL VALUER REPORT DATED 21.11.2011. THE SP ECIFIC PAGES FROM THE DVO REPORT FROM THE PAPER BOOK WERE SHOWN TO TH E EFFECT THAT THE PROJECTS WERE NOT COMPLETE AND WORK WAS IN PROGRESS EVEN ON 30.06.2011 BEING THE DATE OF INSPECTION BY THE DVO AFTER SEARCH WHICH WAS ALMOST TWO YEARS AFTER SEARCH. THE DVO CLEARLY INDICATED THAT IN CERTAIN BUILDINGS ONLY GROUND FLOOR WORK WAS COMPLE TED BY 30.06.2011. HOWEVER DESPITE SUCH CLEAR EVIDENCE ON RECORD LD AO PRESUMED THAT THE ENTIRE PROJECT WAS COMPLETED ON 30.06.2011 AND ACCORDINGLY HE ASSUMED THE COST INCURRED BY THE ASSESSEE UP TO 30. 06.2011 AS 100% COST OF THE PROJECT AND BASED ON THAT HE DETERMINED THE PERCENTAGE OF COMPLETION FOR ALL ASSESSMENT YEARS. ACCORDING TO L D AR, ON THE BASIS OF DVO REPORT, IT WAS EVIDENT THAT THE PROJECT WAS NOT COMPLETE AND FOR THE COST YET TO BE INCURRED THE ASSESSEE HAS SU BMITTED THE REGISTERED VALUERS REPORT, INDICATING COST RS 6,27 ,40,225/- AS PER THE VALUATION OF 31.03.2010 WHICH WAS YET TO BE INCURRE D. HOWEVER THE LD AO IGNORED EVEN THIS. FURTHER, THE FIGURE OF COST T AKEN BY THE LD AO ON THE BASIS OF COST DECLARED BY THE ASSESSEE TO DVO I S ALSO INCORRECT BECAUSE FOR THE PERIOD FROM 01.04.2003 TO 11.09.200 7 THE COST 16 DECLARED BEFORE THE DVO IS ON THE BASIS OF REGULAR BOOKS AS THE DVO HAS ADOPTED THE SAME FIGURE OF COST WHICH WERE DECL ARED PRIOR TO THE DATE OF SEARCH AT THE TIME OF FIRST DVO REPORT DATE D 30.11.2007. ON THE OTHER HAND, THE COST FOR THE PERIOD FROM 12.09. 2007 TO 30.06.2011 HAS BEEN TAKEN ON THE BASIS OF THE KUTBI BOOKS. AGG REGATING SUCH FIGURES FOR THE TWO PERIODS DVO MENTIONED RS 13,19, 49,766/- AS THE AGGREGATE COST INCURRED AND DISCLOSED BY THE ASSESS EE ON THE PROJECT UP TO 30.06.2011. AS AGAINST THIS, DVO VALUED COST AT RS 16,23,47,543/- . IF THE COST AS PER KUTBI BOOKS FOR THE ENTIRE PER IOD UP TO AY 2010-11 IS TAKEN THE SAME WOULD WORK AT RS 12,22,50,472/. I N RESPECT OF SALES ALSO, HAVING THE LD AO DID NOT TAKE INTO ACCOUNT TH E ENTIRE FACTS. SINCE AT THE TIME COMPLETION OF ASSESSMENT ON 27.12.2011 HE HAD THE BENEFIT OF HAVING THE FINANCIAL STATEMENTS OF THE AY 2011- 12, HE PICKED UP THE SALES DISCLOSED BY THE ASSESSEE AT RS 2,84,40,696/- IN AY 2011-12 ON THE BASIS OF PERCENTAGE COMPLETION METHOD AND AGGRE GATED THE SAME WITH RS 19,38,12,301/- BEING SALES AS PER KUTBI BOO KS. THUS DETERMINING THE AGGREGATE TURNOVER OF THE ASSESSEE AT RS 22,22,62,257/- KNOWING FULLY WELL THAT PROJECT IS S TILL IN PROGRESS AND THERE IS UNSOLD STOCK AS WELL AS WORK-IN-PROGRESS I N THE AUDITED ACCOUNTS OF THE AY 2011-12. HE CHOOSE TO MAKE AN ER RONEOUS PRESUMPTION ABOUT THE SALES. THE AUDITED ACCOUNTS O F THE SUBSEQUENT 17 YEARS PROVE THAT THERE ARE FURTHER SALES AND THE PR OJECT WAS NOT OVER. THUS, LD AO NOT ONLY ADOPTED INCORRECT FIGURES OF C OST BUT ALSO INCORRECT FIGURES OF SALES. FURTHER, EVEN THE YEAR END STAGE OF COMPLETION INCORRECTLY ADOPTED CONTRARY TO THE FACT S ON RECORDS. 6.2 ACCORDING TO THE LD AR, IN SUMMARY THE AO COMMI TTED THE FOLLOWING MISTAKES WHILE COMPUTING THE TRADING INCO ME OF THE ASSESSEE: A. AO HAS TAKEN ALL THE BUILDINGS OF THE APPELLANT AS ONE PROJECT DESPITE THEIR INDEPENDENT STATUS IN TERMS OF COST, STAGE OF CONSTRUCTION AND SALES. B. SINCE, AT THE TIME OF ASSESSMENT THE AO HAD THE BEN EFIT OF FIGURES OF COST INCURRED UP TO 30.06.2011, HE HAS T AKEN SUCH FIGURES TO BE COMPLETE COST OF THE PROJECT, IGNORIN G PENDING WORK AND CORRESPONDING COST. IT IS PERTINENT TO MEN TION THAT AS PER REGISTERED VALUERS REPORT, THE COST OF ABOUT RS.6,27,40,225/-(AS PER THE VALUATION OF 31.03.2010 ) WAS TO BE INCURRED, AS ON 31.03.2010. EVEN THE DVO SAYS THAT WORK IS IN 18 PROGRESS AND IN SOME OF THE BUILDINGS, ONLY THE GRO UND FLOOR CASTING WAS DONE. C. AS A RESULT OF WRONG DETERMINATION OF THE AGGREGATE COST, THE STAGE OF COMPLETION WAS ALSO WRONGLY DETERMINED. D. IN RESPECT OF FIGURE OF SALES ALSO, THE AO DETERMIN ED THE TOTAL SALES OF THE PROJECT RS. 22,22,62,257/-IN WHICH HE COMMITTED FOLLOWING MISTAKES:- I. HE HAS TAKEN THE SALES OF AY 2011-2012 AT RS. 2,84,40,696/- SINCE AT THE TIME OF COMPLETION OF T HE ASSESSMENT HE DID NOT HAVE THE BENEFIT OF HAVING TH E FINANCIAL STATEMENTS OF AY 2012-2013 AND AY 2013-20 14. II. THE FIGURE OF SALES OF RS 2.84 CRORE FOR AY 2011 -2012 TAKEN BY THE LD AO WAS ON THE BASIS OF ASSESSEES PERCENTAGE COMPLETION METHOD WHEREAS THE TURNOVER O F RS. 19.38 CRORE FOR AY 2003-2004 TO 2010-2011WAS TA KEN BY HIM ON THE BASIS OF AMOUNT APPEARING IN KUTBI BO OKS. THEREFORE, SALES TAKEN BY ONE METHOD AND THAT BY OT HER METHOD CONTAIN DUPLICATION ON ACCOUNT OF SAME 19 TRANSACTION TREATED AS SALES AT DIFFERENT POINTS OF TIMES ON THE BASIS OF DIFFERENT METHODS. III. THE YEAR WISE SALES DETERMINED BY THE LD AO ARE INCORRECT. FIRSTLY, BECAUSE INCORRECT FIGURE OF AGG REGATE SALES AND SECONDLY BECAUSE OF INCORRECT STAGE OF COMPLETION ADOPTED BY LD. AO. E. LD. AO TAXED GROSS PROFIT INSTEAD OF NET PROFIT BY IGNORING THE INDIRECT EXPENSES AS PER KUTBI BOOKS. F. LD AO EVEN DID NOT ALLOW INDIRECT EXPENSES EVEN AS PER REGULAR BOOKS FOR DETERMINING UNDISCLOSED GROSS PROFIT. HE REDUCED THE DISCLOSED NET PROFIT FROM THE TOTAL GROSS PROFIT IN STEAD OF REDUCING THE DISCLOSED GROSS PROFIT. G. THERE WAS REJECTION OF BOOKS OF ACCOUNTS BY IMPLICA TION AND METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. THER EFORE, BY IMPLICATION SEC 145 WAS INVOKED AS OTHERWISE THE A O DOES NOT GET THE AUTHORITY TO COMPLETE THE ASSESSMENT TO THE BEST OF HIS JUDGEMENT. EVEN BY RESORTING TO A DIFFERENT METHOD OF 20 DETERMINATION OF INCOME, THE AO CHOOSE TO APPLY SEC 40A(3), 40(A)(IA) WHICH WAS INCORRECT. 6.3 LD CIT (A) MENTIONED THAT SHE DOES NOT ACCEPT P ERCENTAGE COMPLETION METHOD OF REVENUE RECOGNITION AS THE MET HOD REGULARLY FOLLOWED PRIOR TO SEARCH BY THE ASSESSEE HAS TO BE ADOPTED FOR REVENUE RECOGNITION. HOWEVER, SHE ADOPTED THE FIGURE OF SAL ES AS DETERMINED BY AO AS PER HIS PERCENTAGE COMPLETION METHOD. FROM THE SALES ADOPTED BY THE AO, SHE REDUCED THE SO CALLED SALES DISCLOSED BY THE ASSESSEE DETERMINED IN HER OWN MANNER AT RS. 12,15, 81,788/-. AS A RESULT, SHE DETERMINED UNDISCLOSED TRADING INCOME O F THE APPELLANT AT RS. 6,99,96,073/- AS AGAINST UNDISCLOSED GROSS PROF IT OF RS. 4,45,08,619/- DETERMINED BY THE LD. AO. (ALTHOUGH S HE MENTIONED THAT THERE IS ENHANCEMENT OF RS. 3,82,12,639/-). SHE DID NOT CONSIDER THE CORRESPONDING COST RELATING TO ADDITIONAL REVENUE. THUS, THOUGH LD CIT(A) HAS TAKEN ADDITIONAL SALES BUT SHE HAS NOT T AKEN ADDITIONAL COST EVEN AS PER KUTBI BOOKS AND DETERMINED THE TRADING INCOME NOTIONALLY BY PRESUMING THAT ADDITIONAL SALES IS ENTIRELY UNDI SCLOSED PROFIT FOR DOING SO SHE HAS OBSERVED AS UNDER AT PAGES 29 AND 30 OF THE ORDER: THEREFORE, THE CONTENTION THAT COSTS OF THE PROJEC T SHOULD BE REVISED DOES NOT ARISE BECAUSE THE STATEMENT HAS NOT 21 BEEN REBUTTED BY THE APPELLANT AT ANY STAGE. MOREOV ER, DURING APPELLATE PROCEEDINGS THE ASSESSEE WAS GIVEN AN OPPORTUNITY VIDE ORDER SHEET ENTRIES DATED 26.12.13 AND 6.1.14 TO VERIFY / INDENTIFY ALLOWABLE EXPENDITURE IN THE KUTBI OVER AND ABOVE THE EXPENSES CLAIMED IN THE AU DITED P&L ACCOUNTS. THE APPELLANT FAILED TO MAKE THE REQU ISITE VERIFICATION. THE ONLY DIFFERENCE IN INCOME WOULD T HUS BE ON ACCOUNT OF SALES AS REFLECTED IN THE AUDITED BOOKS AND KUTBI. THE AO HAS DETERMINED THE RECEIPTS ON MERCANTILE BA SIS FROM KUTBI, THE FIGURES OF WHICH HAVE NOT BEEN DISP UTED. ONE OF THE OBJECTIONS IS REGARDING SALES RETURNS WH ICH HAVE BEEN DEALT WITH SUBSEQUENTLY IN THE ORDER. THE TOTAL OF SUCH RECEIPTS OF RS. 19,15,77,816/- OV ER A SPAN OF 7 YEARS IS NOT UNDER DISPUTE. AT BEST WHAT CAN B E DISPUTED IS THAT THE RECEIPTS WERE TAKEN INTO ACCOUNT IN A Y EAR DIFFERENT FROM THE YEAR IN WHICH THE SALE DEEDS WER E EXECUTED IN SOME CASES. HOWEVER, THIS OBJECTION WOU LD NOT HAVE ANY EFFECT ON THE OVERALL FIGURE OF SALES OF R S. 19,15,77,861/- FOR THESE 7 YEARS BECAUSE THE SALES DEEDS PERTAINING TO RECEIPTS IN EARLIER ASSESSMENT YEAR W OULD BE EXECUTED WITHIN THE SPAN OF 7 SUBSEQUENT A. YS. 6.4 ACCORDING TO THE LD AR, THE CIT(A) WAS NOT JUSTIFIE D IN MAKING PRESUMPTION ABOUT SALE AND SALE DEEDS PARTICULARLY WHEN AO HAS HIMSELF REFERRED TO THE SALE OF AY 2011-12 AND EVEN IN THAT YEAR SOME INVENTORY WAS THERE. THEREFORE, TO ASSUME THAT THE ENTIRE 22 PROJECTS AND SALES WERE COMPLETED BY 31.03.2010 WAS ABSURD. SHE HAS ARBITRARILY ASSUMED THAT SALE DEED IN RESPECT O F ALL THE BOOKINGS HAVE BEEN COMPLETED TILL 31.03.2010. IT IS A MATTER OF RECORD THAT SALE DEEDS OF MANY TRANSACTIONS WERE PENDING NOT ON LY ON THE DATE OF SEARCH BUT ALSO ON 31.03.2010. RATHER, LD. ASSES SING OFFICER HIMSELF HAS TAKEN THE SALE OF RS. 2.84 CRORE OF AY 2011-12 ON THE BASIS OF AUDITED ACCOUNTS OF THE APPELLANT DISCLOSI NG TURNOVER BOOKED ON PERCENTAGE OF COMPLETION METHOD. FURTHER, THE SAMPLE SALE DEEDS EXECUTED IN SUBSEQUENT YEARS WERE SUBMIT TED FOR VERIFICATION. THERE ARE MANY SALE DEEDS WHICH HAVE STILL NOT BEEN EXECUTED. THEREFORE, THIS PRESUMPTION IS ARBITRARY AND CONTRARY ON RECORD. FURTHER, WHEN INSTEAD OF THE REVENUE TAKEN BY APPELLANT, LD. CIT(A) CONSIDERED THE WHOLE AMOUNT OF VALUE OF SALE AS PER KUTBI BOOKS AS REVENUE (AS TAKEN BY LD. AO), SHE FA ILED TO CONSIDER THE COST ATTRIBUTABLE TO SUCH REVENUE AND HAS RATHE R NOT ALLOWED ANY COST AS PER KUTBI BOOKS. THUS, SHE HAS TAKEN RE VENUE AS PER KUTBI BOOKS BUT COST AS PER REGULAR BOOKS. 6.5 THE LD. CIT(A) FAILED TO CONSIDER THE COST OF C OMPLETION OF THE PENDING WORK OF THE REVENUE RECOGNISED DESPITE PRES UMING THAT SHE IS TAKING ENTIRE SALE OF THE PROJECT. THE DVOS REP ORT, ASSESSMENT 23 ORDER AND OTHER MATERIAL ON RECORD CLEARLY PROVE TH AT THE WORK WAS IN PROGRESS AS ON 31.03.2010 TO SUBSTANTIAL EXTENT WHICH WAS REQUIRED TO BE TAKEN INTO ACCOUNT AGAINST THE MATCH ING REVENUE IF SUCH REVENUE WAS TAKEN. FURTHER, SHE FAILED TO ALLO W DEDUCTION OF INDIRECT EXPENSES INCURRED DESPITE THE SAME REFLECT ED IN KUTBI BOOKS AND PART OF THE SAME REFLECTED IN REGULAR BOO KS. 6.6 ACCORDING TO LD AR, THE LD CIT(A) ERRONEOUSLY R ELIED UPON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F JAI STEEL INDIA VS ACIT (2013)259 CTR 281 (RAJ) WHICH IS NOT APPLIC ABLE AND DISTINGUISHABLE ON FACTS. THE PRESENT CASE IS NOT A CASE OF CHANGE IN THE METHOD OF ACCOUNTING IN AS MUCH AS ACCORDING TO SECTION 145 OF THE ACT THERE ARE ONLY TWO METHODS OF ACCOUNTING, F IRST THE CASH METHOD AND SECOND THE MERCANTILE SYSTEM OF ACCOUNTI NG. IN ASSESSEES CASE IT IS EVIDENT FROM RECORD THAT EVEN BEFORE SEARCH IT WAS FOLLOWING MERCANTILE SYSTEM AND AFTER SEARCH IT CONTINUED TO FOLLOW MERCANTILE SYSTEM. THEREFORE THERE IS NO CHA NGE OF METHOD OF ACCOUNTING IN TERMS OF SECTION 145. THE REAL ISS UE HERE IS HOW TO COMPUTE THE INCOME CORRECTLY IN ACCORDANCE WITH THE MERCANTILE SYSTEM. IF THE INCOME HAS NOT BEEN CORRECTLY COMPUT ED BY APPLYING MERCANTILE SYSTEM SUCH COMPUTATION HAS TO BE CORREC TED IN 24 ASSESSMENT OR IN APPEALS. THE ISSUE OF THE MANNER O F CORRECT COMPUTATION OF INCOME IN RESPECT OF REAL ESTATE DEV ELOPERS HAS BEEN EXPLAINED/ CLARIFIED BY THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA IN THEIR GUIDANCE NOTE. ACCORDING TO THE G UIDANCE NOTE, WHEN AT THE TIME OF EXECUTION OF SALE DEEDS/AGREEME NTS SUBSTANTIAL WORK YET TO BE COMPLETED, THE INCOME SHOULD NOT BE RECOGNIZED UNTIL SUCH WORK IS COMPLETED. HOWEVER, IF THERE ARE CERTAINTIES ABOUT REVENUE AND COST AND BINDING AGREEMENTS HAVE BEEN EXECUTED, THEN THE REVENUE MAY BE RECOGNIZED AS PER PERCENTAGE COMPLETION METHOD IN RESPECT OF BINDING SALE AGREEM ENT. SO THERE IS NO SYSTEM OF RECOGNIZING THE ENTIRE REVENUE WHEN THE WORK IS PENDING BECAUSE THE SAME WOULD BE AGAINST THE MATCH ING CONCEPT OF ACCOUNTING. ANY SALES CANNOT BE TAXED WITHOUT AL LOWING CORRESPONDING COST. LD CIT (A) HAS TAKEN THE ENTIRE REVENUE ADOPTED BY THE AO BUT HAS REFUSED TO ALLOW THE CORRESPONDIN G COST. IN THE RESULT THERE IS AN UNWARRANTED ENHANCEMENT. THE REF ERENCE TO JUDGMENT BY LD CIT (A) IS ALSO NOT APPLICABLE IN FA CTS OF THIS CASE. 6.7 THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS DO NE METICULOUS WORKING, AS AVAILABLE IN THE PAPER BOOK, ON THE BAS IS OF KUTBI BOOKS AND HAS COMPUTED YEAR WISE PROJECT WISE REVENUE, ST AGE OF 25 COMPLETION AS WELL AS PROPORTIONATE CORRESPONDING C OST. THE DETAILED WORKING WAS ALSO SUBMITTED BEFORE LD AO AN D LD CIT(A) AND NO SINGLE DEFECT IN ITS WORKING HAS BEEN POINTED BY THE LD AO AND LD CIT(A). ACCORDING TO LD AR, TURNOVER WHICH THE A SSESSEE HAS TAKEN AS PER PERCENTAGE COMPLETION METHOD IN SUBSEQ UENT YEARS, HAS BEEN SOUGHT TO BE TAXED IN ADVANCE BY THE LOWER AUTHORITIES IN PRECEDING YEARS AND THAT TO WITHOUT ALLOWING CORRES PONDING COST. IF THE AUDITED ACCOUNTS OF AY 2011-2012 ARE SEEN THE A SSESSEE HAS NOT CLAIMED COST OF RS.3,54,81,271/- SHOWN AS WIP/INVEN TORY AND HAS CARRIED FORWARD THE SAME IN SUBSEQUENT YEAR. SAME P OSITION IS THERE IN THE AUDITED ACCOUNTS OF AY 2010-11 AS AVAILABLE IN THE PAPER BOOK SHOWING WIP AT RS. 3,54,81,271/-. THEREFORE, IF ANY REVENUE IS CONSIDERED IN ADVANCE AS AGAINST THE PERCENTAGE COMPLETION METHOD FOLLOWED BY THE ASSESSEE, THEN EVEN THE CORR ESPONDING COST NOT CLAIMED BY ASSESSEE AS PER PERCENTAGE COMPLETIO N METHOD SHOULD BE ALLOWED AS DEDUCTION. 6.8 SO FAR AS STATEMENT OF MR. R.N. BHANDARI ARE CO NCERNED, IT IS SUBMITTED THAT WHEN KUTBI BOOKS THEMSELVES WERE AVA ILABLE RECORDING ALL UNACCOUNTED COST AS WELL AS UNACCOUNT ED TRANSACTION AND LD AO AS WELL AS LD CIT (A) THEMSELVES HAVE TAK EN THE FIGURE OF 26 SALES ON THE BASIS OF KUTBI BOOKS THERE WAS NO REAS ON FOR DISCARDING THE COST REGARDING AS PER KUTBI BOOKS MERELY BECAUS E THE STATEMENTS WERE OTHERWISE. IF KUTBI BOOKS ARE TO BE RELIED WHEN UPON THEY HAVE TO BE RELIED UPON FULL AND NOT WHAT FAVOURS THE REVENUE. ONCE THEY HAVE BEEN BELIEVED, THEY SHOULD HAVE BEEN BELIEVED COMPLETELY. IT WAS ALSO ARGUED THAT THERE WAS IMPLIED REJECTION OF REGULAR BOOKS OF ACCOUNTS IN AS MUCH A S THE TURNOVER WAS TAKEN ON THE BASIS OF KUTBI BOOKS AS PER THE OW N CALCULATION OF AO AND CIT(A). WITHOUT REJECTION OF THE BOOKS OR ME THOD THEY DO NOT GET THE RIGHT OF DETERMINING THE INCOME IN THEI R OWN MANNER U/S 145. RELIANCE FOR THIS PURPOSE WAS PLACED ON TH E JUDGMENT DATED 10 TH OCTOBER, 2013 IN THE CASE OF DR. RAGHUVENDRA SING H VERSUS COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE L UDHIANA IN ITA NO. 806 OF 2010 PRONOUNCED BY HONBLE PUNJAB AND HA RYANA HIGH COURT. WHILE SHOWING THE WORKING FROM THE PAPER BO OK THE FIGURES WERE EXPLAINED BY THE LD AR AS TO HOW FOR EACH PROJ ECT/BUILDING, A SYSTEMATIC CALCULATION ON PERCENTAGE COMPLETION MET HOD WAS MADE TAKING INTO ACCOUNT COST AS PER KUTBI BOOKS, COST Y ET TO INCURRED, LAND COST, DIRECT EXPENSES, YEAR WISE SALES IN TERM S OF AREA AND AMOUNT, INDIRECT EXPENSES, OTHER DEDUCTIONS AND ADD ITIONS AND THE DETERMINATION OF INCOME OFFERED. THIS WORKING WAS C OMPLETLY 27 VERIFIABLE FROM KUTBI BOOKS. AT THE END BY TAKING T HROUGH THE METICULOUS CALCULATION SHEET ON THE BASIS OF KUTBI BOOKS LD AR JUSTIFIED THE CORRECTNESS OF SUCH CALCULATION AND A SSAILED THE ORDER OF LOWER AUTHORITIES. LD AR JUSTIFIED THE WORKING O F CALCULATION OF REVISED RETURNS SUBMITTED IN THE ASSESSMENT PROCEED INGS. HE ALSO SUBMITTED THAT IT WOULD NOT MAKE ANY DIFFERENCE EVE N IF THE REVISED RETURN HAS TO BE IGNORED FOR TECHNICAL REASON, IF T HE INCOME HAS TO BE COMPUTED ON THE BASIS OF SIZED RECORDS THE SAME WORKING WILL HOLD GOOD AND EVEN IN ABSENCE OF ANY RETURN LD AO S HOULD HAVE COMPUTED THE INCOME ON THE BASIS OF KUTBI BOOKS ONL Y. RATHER LD AO HAS CONSIDER INCOME AS PER THIS WORKING AS BASE FIGURE IN ASSESSMENT ORDER. 6.9 LD. DR ON THE OTHER HAND JUSTIFIED THE ORDER OF FIRST APPELLATE AUTHORITY BY RELYING UPON THE FINDINGS GIVEN BY FIR ST APPELLATE AUTHORITY. ACCORDING TO HIM AS PER THE STATEMENTS O F THE PARTNERS OF THE ASSESSEE FIRM LD CIT(A) WAS CORRECT IN TAKING O NLY THE UNACCOUNTED SALES FOR COMPUTATION OF INCOME AND IGN ORING THE COST AS PER KUTBII BOOKS. HE SPECIFICALLY MADE A REFEREN CE TO THE FINDING OF LD CIT (A) AT PAGE NUMBER 24 & PAGE NUMBER 25 OF THE ORDER. HE ALSO MADE A REFERENCE TO THE STATEMENT OF SH. R N B HANDARI. HE ALSO 28 ARGUED THAT ASSESSEE IS NEITHER ACCEPTING ASSESSING OFFICERS METHOD OF CALCULATION NOR CIT(A)S METHOD. HE STATED THAT PERCENTAGE COMPLETION METHOD CANNOT BE APPLIED FOR COMPUTATION OF INCOME OF THE ASSESSEE AS THE SAME WAS NOT FOLLOWED BY THE AS SESSEE PRIOR TO THE DATE OF SEARCH AND WAS ADOPTED ONLY AFTER THE D ATE OF SEARCH. THEREFORE, HE JUSTIFIED THE ORDER OF CIT(A) REJECTI NG THE PERCENTAGE COMPLETION METHOD ON THE BASIS OF JURISDICTIONAL H IGH COURT JUDGMENT IN THE CASE OF JAI STEEL INDIA VS ACIT (20 13) 259 CTR 281 (RAJ). 6.10 IN REJOINDER, LD AR SHOWN US THE ACCOUNTING PO LICIES FOLLOWED BY THE ASSESSEE PRIOR TO SEARCH AS PER AUDITED ACCO UNTS WHERE MERCANTILE SYSTEM WAS MENTIONED. IT WAS FURTHER STA TED THAT THE RETURNS FOR AY 2009-10 AND 2010-11 WERE FILED AFTER SEARCH ON THE BASIS OF CALCULATIONS ON MERCANTILE BASIS AS PER TH E PERCENTAGE COMPLETION METHOD. HOWEVER, THE ASSESSEE CONTINUED TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING BEFORE SEARCH AS WE LL AS AFTER SEARCH. FURTHER ACCORDING TO HIM IF INSTEAD OF PERC ENTAGE COMPLETION METHOD THE OTHER PERMITTED METHOD AS PER ICAIS GUIDANCE NOTE IS FOLLOWED, THEN THE RECOGNITION OF INCOME WILL BE EVEN AT LOWER AMOUNT BECAUSE ACCORDING TO THAT METH OD INCOME IS 29 TO BE POSTPONED TILL THE COMPLETION OF PROJECT. ACC ORDING TO HIM THERE WAS NO CHANGE IN METHOD OF ACCOUNTING IN TERM S OF SECTION 145 OF THE ACT. BASED ON THIS HE DISTINGUISHED THE JUDGMENT RELIED BY LD CIT (A) AND LD DR. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE HAVE FOUN D THAT THE A.O. HAS ADOPTED PERCENTAGE COMPLETION METHOD BY TREATI NG ALL THE TOWERS WHICH WERE AT DIFFERENT STAGES OF CONSTRUCTI ON AND COMPLETION AS A SINGLE PROJECT, AS AGAINST WHICH, T HE LD. CIT(A) HAS OBSERVED THAT THE REVENUE HAS TO BE RECOGNIZED ONLY ON EXECUTION OF SALE DEEDS. STRANGELY ENOUGH, SHE HAS TREATED A NY ADVANCE MONEY RECEIVED TOWARDS SALE AS EQUIVALENT TO SALE D EED EXECUTED. IN OUR CONSIDERED OPINION, THIS IS NOT A CORRECT CO NCLUSION DRAWN BY THE LD. CIT(A). WE HAVE NOTICED THAT AS PER RECORD , EXECUTION OF MANY SALE DEEDS STILL REMAIN PENDING,. THE ASSESSE E HAS ADOPTED PERCENTAGE COMPLETION METHOD BY TREATING EACH INDIV IDUAL TOWER AS A SEPARATE PROJECT. THE A.O. HAS CONSIDERED THE CO ST AS REPORTED TO THE DVO BY THE ASSESSEE AS THE COMPLETE COST OF PRO JECT. THUS THE A.O. HAS ADOPTED COST OF RS. 13,19,49,766/- OUT OF WHICH COST OF RS. 6,48,95,811/- IS FOR THE PERIOD BETWEEN 1.4.2003 TO 11.9.2007 30 WHICH IS AS PER REGULAR BOOKS OF ACCOUNT. THE REMAI NING COST OF RS. 67053955/- FOR THE PERIOD 12.9.2007 TO 30.6.2011 IS AS PER KUTBI BOOKS. THIS FIGURE DOES NOT INCLUDE THE COST INCUR RED AFTER 30.6.2011. THE A.O. HAS IGNORED THE FACT THAT THE PROJECTS ARE STILL IN PROGRESS AND SUBSTANTIAL COST HAS YET TO BE INCU RRED. THE A.O. HAS PRESUMED RS. 13.19. CRORES AS COMPLETE COST OF THE PROJECT AND HAS DETERMINED THE PERCENTAGE OF COMPLETION OF EACH YEAR BY TAKING RS. 13.19 CRORES AS THE COMPLETE COST OF THE PROJECT WHEREAS AS PER THE AUDITED ACCOUNT FOR A.Y. 2011-12 WERE AV AILABLE BEFORE HIM. THE A.O. HAS PICKED UP THE SALES DECLARED IN THE RETURN ON COMPLETION METHOD OF ASSESSEE AMOUNTING TO RS. 2.84 CORES AND THE SALES FIGURE AS PER KUTBI BOOK AMOUNTING TO RS. 19. 38 CRORES AS ENTIRE TURNOVER OF THE PROJECT. THEREFORE, THE AGG REGATE TURNOVER HAS BEEN TAKEN BY HIM AT RS. 22.22 CRORES AND HAS D ETERMINED THE YEAR-WISE SALES BY APPLYING PERCENTAGE COMPLETION M ETHOD ON THE BASIS OF COST TO THIS AGGREGATE TURNOVER OF RS. 22. 22 CRORES. BY REDUCING SUCH DERIVED COST FROM DERIVED SALES, HE H AS DETERMINED GROSS PROFIT OUT OF WHICH HE HAS REDUCED THE NET P ROFIT DECLARED IN THE RETURN AND HAS TAXED THE REMAINING AND HAS NOT EVEN ALLOWED INDIRECT COST AS PER THE BOOKS OF ACCOUNT. IN OUR CONSIDERED OPINION, THE METHOD ADOPTED BY THE A.O. IS FALLACIO US IN TAKING ALL 31 THE BUILDINGS OF THE ASSESSEE AS ONE PROJECT DESPIT E THEY HAD INDEPENDENT STATUS IN TERMS OF COST, STAGE OF CONST RUCTION AND SALES. THE A.O. HAD THE BENEFIT OF FIGURES OF COST INCURRE D UPTO 30.6.2011 WHICH HE HAS TAKEN AS COMPLETE COST OF THE PROJECTS BY IGNORING PENDING WORK AND CORRESPONDING COST. AS PER THE RE GISTERED VALUERS REPORT, THE COST OF ABOUT 6270325/-, AS PE R THE VALUATION ON 31.3.2010 HAD TO BE INCURRED. THE DVO HAS ALSO STATED IN HIS REPORT THAT THE WORK WAS IN PROGRESS AND INCOME OF THE BUILDINGS ONLY GROUND FLOOR CASTING HAD BEEN DONE. IN DETERM INING THE AGGREGATE COST, THE STAGE OF COMPLETION HAS ALSO BE EN WRONGLY DETERMINED. REGARDING FIGURES OF SALES ALSO, WHILE REACHING AT A TOTAL SALE OF THE PROJECT AT RS. 22,22,62,257/- THE A.O. HAS COMMITTED MISTAKES BY TAKING SALES OF A.Y. 2011-12 AT RS. 2,84,48,696/- BECAUSE AT THAT TIME HE DID NOT HAVE FINANCIAL STATEMENT OF A.YS. 2012-13 AND 2013-14. THE FIGURE OF SALES AT RS. 2.84 CRORES FOR A.Y. 2011-12 HAS BEEN TAKEN ON THE BASIS OF ASSESSEES PERCENTAGE COMPLETION METHOD WHEREAS THE TURNOVER OF RS. 19.39 CRORES FOR A.Y. 2003-04 TO 2010-11 HAS BE EN TAKEN ON THE BASIS OF AMOUNT ADOPTED IN THE KUTBI BOOKS. THUS, BY TAKING SALES AFTER ADOPTING ONE METHOD IN THIS MANNER CANNOT BE APPROVED. BUT THE FACTUM OF ADOPTION OF FIGURES ON AGGREGATE SALE S AND STAGE OF 32 COMPLETION WHICH BOTH ARE NOT CORRECT, THE DETERMIN ATION BY HIM OF YEAR WISE SALES WOULD ALSO BE A WRONG FIGURE. THE A.O. HAS TRIED TO TAX GROSS PROFIT INSTEAD OF NET PROFIT AND HAS IGNO RED THE INDIRECT EXPENSES AS PER KUTBI BOOKS. HE HAS NOT EVEN ALLOW ED THE INDIRECT EXPENSES AS PER REGULAR BOOKS OF ACCOUNT. THE PERU SAL OF THE ASSESSMENT ORDER MAKES IT CLEAR THAT BY IMPLICATION , THE A.O. HAS INVOKED PROVISIONS OF SECTION 145 OF THE ACT, ALTHO UGH EXPLICITLY HE HAS NOT MENTIONED THIS FACT. LIKEWISE, THE LD. CIT (A) HAS ALSO ASSUMED THAT THE SALE DEED IN RESPECT OF ALL BOOKIN GS HAVE BEEN EXECUTED TILL 31.3.2010 WHICH IS CONTRARY TO THE FA CT AVAILABLE ON RECORD. THIS FACT IS ALSO CONTRADICTED BECAUSE THE A.O. HAS HIMSELF TAKEN SALES OF RS. 2.84 CRORES IN A.Y. 2011-12 ON T HE BASIS OF AUDITED ACCOUNTS OF THE ASSESSEE DISCLOSING TURNOVER BOOKED ON PERCENTAGE COMPLETION METHOD. AGAIN, SHE HAS TAKEN THE SALES AS PER THE KUTBI BOOKS BUT HAS FAILED TO CONSIDER THE COST ATTRIBUTE D TO THIS SALE AND AMAZINGLY, SHE HAS TAKEN THE COST AS PER PERCENTAGE COMPLETION METHOD AND THUS IN A WAY SHE HAS ADOPTED SALES TAKE N BY THE ASSESSEE AND THE REVENUE REALIZATION AS PER THE A.O . THIS ACTION RESULTED INTO ENHANCING OF INCOME. IN THE KUTBI BO OKS FOUND DURING SEARCH, INDIRECT EXPENSES HAVING BEEN INCURRED ARE VERILY REFLECTED. WE ARE IN AGREEMENT WITH THE LD. A.R. THAT THE ACCO UNTING POLICY 33 FOLLOWED BY THE ASSESSEE PRIOR TO SEARCH AS PER AUD ITED ACCOUNTS AND AFTER SEARCH ARE BOTH BASED ON MERCANTILE SYSTE M OF ACCOUNTING. THUS, THE ASSESSEE HAS NTO CHANGED THE METHOD OF ACCOUNTING. ACCORDINGLY, UNDER THE FACTS AND CIRCU MSTANCES OF THE CASE, WE DO NOT AGREE WITH THE FINDING OF THE LD. C IT(A) IN DETERMINING THE UNDISCLOSED PROFIT OF THE ASSESSEE AT RS. 36,26,613/- BY ENHANCING AGGREGATE TRADING ADDITION FOR A.YS. 2004- 05 TO 2010-11 TO RS. 6,99,96,073/- AS HAS BEEN DESC RIBED IN GROUND NO. 1 OF THE APPEAL. IN OUR CONSIDERED OPINION, TH E INCOME COMPUTED BY THE ASSESSEE IS IN ACCORDANCE WITH THE PERCENTAGE COMPLETION METHOD AS PER THE GUIDELINES LAIDDOWN BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. WE HAVE FOUND T HAT THE PROJECT WAS STILL INCOMPLETE AND THE ENTIRE REVENUE COULD N OT BE TAXED. THE REVENUE CANNOT PLAY HIDE AND SEEK BY RELYING TH E SEIZED MATERIAL IN RESPECT OF SALES AND AT THE SAME TIME D ISBELIEVE THE CSOT INCURRED. THE DVOS REPORT HAS TO BE CONSIDERE D IN THE CORRECT PERSPECTIVE AFTER ADHERING TO THE OBJECTS OF THE AS SESSEE WHEN ONCE THE PROVISIONS OF SECTION 145 ARE OVERTLY OR COVERT LY APPLIED, ITS PROVISIONS HAVE TO BE RELIGIOUSLY ADHERED TO. THE ADVANCES RECEIVED AGAINST SALES CANNOT BE TREATED AS SALES EXECUTED. ACCORDINGLY, WE ALLOW GROUND NOS. 1, 2 AND 3 OF THIS APPEAL. WE MA Y MENTION THAT 34 THE ABOVE FINDING WILL APPLY MUTATIS MUTANDIS TO AL L OTHER YEARS UNDER APPEAL AS WELL AND CONCOMITANTLY GROUND NOS. 1,2 AND 3 IN ALL OTHER APPEALS OF THE ASSESSEE STAND ALLOWED FOR ALL THE A.YS., NAMELY, 2004-05 TO 2010-11. 8. GROUND NO 4 AND 5 OF AY 2004-05 READS AS FOLLOWS : 4. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION UNDER SECTION 68 ACCORDING TO INCOME TAX A CT, 1961 TO THE EXTENT OF RS. 1,10,000/- IN THE FOLLOW ING MANNER : A.Y AMOUNT 2004 - 05 1,10,000 2005 - 06 23,75,000 2006 - 07 18,39,000 2007 - 08 17,50,000 2008 - 09 38,90,000 2009 - 10 10,00,000 2010 - 11 8,00,000 TOTAL 1,17,64,000 5. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) HAS ERRED IN : 35 (I) SUSTAINING THE ADDITION UNDER SECTION 68 ON THE BAS IS OF BOOKS OF ACCOUNTS EVEN WHILE IMPLIEDLY REJECTING SU CH BOOKS OF ACCOUNTS. (II) ALLOWING THE BENEFIT OF PEAK THEORY AND TELESCOPING WHILE SUSTAINING THE ADDITION UNDER SECTION 68. IN OTHER YEARS ALSO THE SIMILAR GROUNDS HAS BEEN TA KEN BY THE ASSESSEE. 8.1 BRIEFLY THE FACTS ARE THAT IN THE KUTBI BOOKS SEVERAL CREDIT ENTRIES ARE APPEARING IN THE NAME OF DIFFERENT PERS ONS AND THE LD AO HAS CONSIDERED THEM AS UNEXPLAINED CREDIT U/S 68. A CCORDINGLY HE HAS MADE THE ADDITION OF AGGREGATE AMOUNT OF THE SA ID ENTRIES IN RESPECTIVE ASSESSMENT YEARS. LD CIT (A) HAS SUSTAIN ED THESE ADDITIONS. THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE IS THAT WHEN KUTBI BOOKS HAVE NOT BEEN TREATED AS REGULAR B OOKS, THEY WILL NOT FALL IN THE DEFINITION OF THE BOOKS OF ACCOUNTS FOR THE PURPOSE OF INVOKING SECTION 68 OF THE ACT. THE SECOND ARGUMENT OF THE LD AR WAS THAT EVEN IF THEY ARE TREATED AS BOOKS STILL THE PROVISIONS OF SECTION 68 OF THE ACT WOULD NOT APPLY IN AS MUCH AS ONLY UNEXPLAINED CREDITS FALL WITHIN THE MISCHIEF OF S ECTION 68 WHEREAS THE KUTBI BOOKS THEMSELVES EXPLAINED THESE CREDITS AND SHOW THE 36 NAMES OF THE PERSON FROM WHERE THESE MONEYS HAVE BE EN RECEIVED. THUS WHEN THE KUTBI BOOKS ARE BELIEVED BY THE DEPAR TMENT THEY SHOULD NOT DISBELIEVE THESE ENTRIES. WHEN THE KUTBI BOOKS SAYS THAT THIS MONEY HAS BEEN RECEIVED FROM THIRD PARTIES THE SAME CANNOT BE THE ASSESSEE OWN MONEY BY INVOKING THE PRESUMPTION U/S 68. THE PROVISION OF SECTION 132(4A) AND SECTION 292C ALSO SUPPORTS THE ASSESSEES CASE IN AS MUCH AS IT SHOULD BE PRESUMED THAT ENTRIES OF BOOKS AND OTHER DOCUMENTS FOUND IN THE SEARCH ARE T RUE. FURTHER WHEN THE BOOKS ARE RELIED UPON THEY SHOULD BE RELIE D UPON FULL. IN THE ALTERNATIVE IT WAS SUBMITTED THAT SINCE THESE T RANSACTION ARE APPEARING ON RECEIPT AS WELL AS PAYMENT SIDE, THERE FORE ONLY PEAK CREDIT SHOULD BE TAXED INSTEAD OF TAXING AGGREGATE OF THESE AMOUNTS WHICH WORKS OUT TO RS 36,42,550/-. 8.2 THE LD. DR ON THE OTHER HAND SUPPORTED THE WOR KING OF THE LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE ARE OF THE CONSI DERED OPINION THAT THE ADDITIONS MADE U/S 68 OF THE ACT ARE FOUND RECORDED IN THE KUTBI BOOK IN WHICH THESE CREDITORS STAND EXPLAINED . THE 37 PRESUMPTION OF SECTION 132(4) OF THE ACT R.W.S 292C OF THE ACT REGARDING THE ENTRIES FOUND RECORDED IN THE KUTBI B OOKS THAT THIS MONEY HAS BEEN RECEIVED FROM THIRD PARTIES HAVE TO BE TREATED AS SUCH, BUT FOR TAXING THIS AMOUNT, ONLY PEAK CREDIT HAS TO BE ARRIVED AT AND THE AGGREGATE OF THESE AMOUNTS AS EXPLAINED BY THE ASSESSEE WHICH WORK OUT AT RS. 36,42,550/- HAS TO BE TAXED. ACCORDINGLY, GROUND NOS. 4 AND5 OF THIS APPEAL ARE PARTLY ALLOWE D. ACCORDINGLY, IDENTICAL GROUNDS IN ALL THE YEARS ARE PARTLY ALLOW ED. 10. IN AY 2009-10 GROUND NO 6 OF THE ASSESSEES AP PEAL IS AS FOLLOWS: UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) HAS ERRED IN SUSTAINING THE DISAL LOWANCE OF RS. 12,38,500/- IN RESPECT OF BAD INVESTMENTS AN D RS. 68,70,756/- IN RESPECT OF BAD DEBTS. 10.1 SIMILARLY IN AY 2010-11 GROUND NO. 6 OF THE AS SESSEES APPEAL READS AS UNDER: UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (APPEALS) HAS ERRED IN SUSTAINING THE DISAL LOWANCE OF RS. 40,16,600/- IN RESPECT OF BAD INVESTMENTS. 38 10.2 THE ASSESSEE WHILE MAKING COMPUTATION OF HIS BUSINE SS INCOME OF THESE ASSESSMENT YEARS, CLAIMED DEDUCTION IN RESPECT OF BAD DEBTS AND IN RESPECT OF PAYMENT MADE FOR THE PU RCHASE OF LANDS WHICH COULD NOT BE ULTIMATELY REGISTERED IN F AVOUR OF THE ASSESSEE ON ACCOUNT OF NON-COOPERATION OF THE SELLE R WHO WAS OF SCHEDULED CAST AND STARTED DEMANDING HIGHER CONSIDE RATION, THIS WAS TERMED AS BAD INVESTMENT. THE AO DISALLOWED THE CLAIM OF BAD DEBTS AS WELL AS BAD INVESTMENTS. THE DISALLOWANCES OF THE BAD INVESTMENT WAS MADE BY THE AO ON THE GROUND THAT SA ME DOES NOT FALL WITHIN SECTION 36(1)(VII) AS SUCH AMOUNT WAS N EVER TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. FU RTHER, THE AO HELD THAT ON ACCOUNT OF SECTION 40A(3) ALSO, THIS C LAIM WAS NOT ALLOWABLE BEING PAYMENT MADE IN CASH FOR PURCHASE O F LAND. THE CLAIM OF BAD DEBTS WAS DISALLOWED BY LD AO ON THE G ROUND THAT THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSEE HA D INTENTION TO RECOVER SUCH AMOUNT. HE HAS ALSO MENTIONED THAT ASS ESSEE MIGHT HAVE RECEIVED SUCH AMOUNT AFTER SEARCH. 10.3 THE LD. CIT(A) UPHELD THE DISALLOWANCES MADE BY THE AO ON THESE GROUNDS. WHILE SUSTAINING THE ADDITIONS ON AC COUNT OF BAD INVESTMENT LD CIT(A) HELD AS FOLLOWS AT PAGE 41 OF THE ORDER: 39 I HAVE CAREFULLY PERUSED THE EVIDENCE FILED. THER E IS NO DOUBT THAT AS PER THE KUTBI THESE ADVANCES WER E MADE BY THE APPELLANT FIRM TO J.P. PANDYA, RAMESH J I AND KISHORE KUMAR PATIL BUT THE NATURE OF THE TRANSACTION IS NOT CLEAR FROM THE EVIDENCE FILED. I T REMAINS CIRCUMSTANTIAL. NOWHERE HAVE AFFIDAVITS BY SH. J.P. PANDYA, RAMESH JI AND KISHORE KUMAR PATIL BEEN FILED ACKNOWLEDGING/ AFFIRMING THESE TRANSACTIONS A S CLAIMED BY THE APPELLANT. IN ABSENCE OF ANY DIRECT EVIDENCE BY WAY OF AFFIDAVITS OR CONFIRMATIONS BY T HE RECIPIENTS, THE NATURE OF THESE ADVANCE MADE TO THE M CANNOT BE DETERMINED NOR CAN THEIR ALLOWABILITY AS BUSINESS EXPENDITURE BE VERIFIED. IT CANNOT BE ASCERTAINED THAT THEY WERE BUSINESS EXPENDITURE. 10.4 WHILE SUSTAINING THE DISALLOWANCES IN RESPECT TO BAD DEBTS THE LD. CIT(A) HELD AS FOLLOWS AT PAGE NO. 42: REGARDING BAD DEBTS OF RS. 67,60,756/- THE APPELLA NT HAS GIVEN THE LEDGER ACCOUNTS OF DIFFERENT PERSONS IN THE KUTBI. ON PERUSAL OF THESE ACCOUNT IT IS SEEN T HAT THESE ARE NOT BAD DEBTS AT ALL BUT DISCOUNTS WRESTE D FROM THE APPELLANT BY ITS CUSTOMERS. FOR EXAMPLE IN THE CASE OF MUSTAFA ABBAS ALI SALIAWALA THE LEDGER ACCOUNT IN KUTBI THE GROUND FLOOR SHOP AT MAHAVEER PLAZA FOR RS. 16,65,000/- TO HIM ON 26.5.2008. AGAI NST THIS SALE IT RECEIVED RS. 11,10,000/- FROM HIM, 40 THEREFORE RS. 5,65,000/- WAS CLAIMED TO BE BAD DEBT AS PER THIS LEDGER. NO DISALLOWANCE FOR THESE BAD DEBTS/ DISCOUNTS CAN BE GIVEN TO THE APPELLANT FOR THE SIMPLE REASON THAT T HE REVENUE WAS ASCERTAINED BY THE AO AS PER THE CASH BOOK OF THE KUTBI ON THE BASIS OF ACTUAL RECEIPTS REFLECTED THEREIN. SINCE THE RECEIPTS WERE DETERMIN ED YEAR WISE FROM THE CASH BOOK AND NOT FROM THE LEDGE R ACCOUNT FROM KUTBI, THE AMOUNTS NOT PAID BY WAY OF DISCOUNTS WRESTED BY THE CUSTOMERS OF THE APPELLANT CANNOT BE ALLOWED TO BE CLAIMED BY IT BECAUSE THESE AMOUNT DID NOT FIGURE IN THE CASH BOOK OF THE KUTBI AND WERE NOT TAKEN INTO CONSIDERATION FOR DETERMINI NG THE SALE RECEIPTS. 10.5 THE LD AR SUBMITTED IN RESPECT OF THE CLAIM O F BAD INVESTMENT THAT SAME IS ALLOWABLE U/S 28 AND 29 OF THE ACT AS TRADING LOSSES INCIDENTAL TO THE BUSINESS OF THE AS SESSEE. HE ALSO REFERRED TO THE DOCUMENTARY EVIDENCES IN THE PAPER BOOK TO THE EFFECT THAT ASSESSEE HAS PAID EVEN STAMP DUTY AND C ONVERSION CHARGES IN RESPECT OF LAND IN QUESTION APART FROM C ONSIDERATION TO THE SELLERS. FURTHER, THIS FACT IS NOT DISPUTED THA T DESPITE MAKING PAYMENT ASSESSEE DID NOT GET THE OWNERSHIP OF THE L AND. SINCE THE ASSESSEE WAS IN THE BUSINESS OF REAL ESTATE, IT WAS NOT A CAPITAL LOSS 41 BUT A BUSINESS LOSS, ALLOWABLE U/S 29 ON THE BASIS OF JUDGMENTS OF THE HONBLE SUPREME COURT REPORTED AT 287 ITR 547, 86 ITR67 AND 124 ITR 40. IN RESPECT OF CLAIM OF BAD DEBTS IT WAS SUBMITTED THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS FOR ALLOW ANCE OF BAD DEBTS U/S 36(I)(VII) OF THE ACT. IT IS NOT NECESSARY TO S HOW THAT EFFORTS TO RECOVER THE AMOUNT OF BAD DEBTS HAVE BEEN MADE BY T HE ASSESSEE. THE AMOUNT OF BAD DEBTS HAVE BEEN DULY WRITTEN OFF AND CLAIMED IN THE REGULAR RETURNS OF AY 2009-10. THEREFORE, ON THE BASIS OF SETTLED LAW AS PER THE JUDGMENT REPORTED AT 323 ITR 397 (SC), 100 ITD 285 (BOM) AND 323 ITR 397 (GUJ.) THE CLAIM OF B AD DEBTS SHOULD BE ALLOWED. FURTHER, LD CIT(A) WAS NOT CORRECT IN S TATING THAT THE TURNOVER WAS TAKEN ON CASH BASIS BY LD AO AND THERE FORE THE AMOUNT OF BAD DEBTS WAS NOT CONSIDERED AS TURNOVER. IT IS EVIDENT FROM THE DETAILS OF THE PAPER BOOK VOL VII PAGE NUM BER 57 TO 74 THAT THE LD AO HAS TAKEN THE TURNOVER ON ACCRUAL BA SIS AND NOT CASH BASIS. THE AMOUNT OF ENTIRE SALE CONSIDERATION IS INCLUDED IN THE TURNOVER RATHER THAT CASH RECEIPTS. THEREFORE, UNCOLLECTED AMOUNT HAS TO BE ALLOWED AS BAD DEBT WHICH HAS BEEN DULLY WRITTEN OFF IN THE REGULAR BOOKS. 42 10.6 THE LD. DR ON THE OTHER HAND HAS SUPPORTED THE ORDER OF LOWER AUTHORITIES AND SUBMITTED THAT HOW A BUSINESS MAN WOULD ALLOW A BAD DEBTS AND BAD INVESTMENT TO HAPPEN. THE REFORE, THE CLAIMS WERE RIGHTLY DISALLOWED. 10.7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE C AREFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE HAVE FOUN D THAT THE CLAIM OF BAD INVESTMENT IS ALLOWABLE U/SS 28 AND 2 9 OF THE ACT AS TRADING LOSS INCIDENTAL TO THE BUSINESS OF THE ASSE SSEE. THE ASSESSEE HAS PAID STAMP DUTY AND CONVERSION CHARGES IN RESPECT OF THIS LAND IN QUESTION AND HAS OBVIOUSLY PAID CONSID ERATION TO THE SELLERS. THIS FACT IS NOT DENIED OR DISPUTED BY TH E REVENUE. THUS, WHEN THE ASSESSEE DID NOT GET OWNERSHIP OF THIS LAN D DESPITE MAKING PAYMENT AND SPENDING INCIDENTAL MONEY, IT WO ULD AMOUNT TO BUSINESS LOSS, ALLOWABLE U/S 29 OF THE ACT. IN THIS REGARD, JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F DR. T.A. QUERESHI VS. CIT REPORTED IN [2006] 287 ITR 547 [SC ] IS RELEVANT. OTHERWISE ALSO, THE ASSESSEE HAS CLAIMED THIS AMOUN T AS BAD DEBT AND HAS WRITTEN IT OFF IN THE BOOKS AS PER REQUIREM ENT OF SECTION 36(1)(VII) OF THE ACT. AS A RESULT, WE ALLOW GROUN D NO. 6 RAISED IN A.Y. 2009-10 OF ASSESSEES APPEAL. SIMILARLY, IN TH E SAME MANNER, 43 GROUND NO. 6 IN A.YS. 2004-05 TO 2007-08 AND GROUND NO. 7 IN A.Y. 2009-10, WHICH ARE IN RESPECT OF THE SAME ISSUE, AR E DECIDED IN THE SAME MANNER. THESE GROUNDS STAND ALLOWED. 11. THE GROUND NUMBER 6 OF AY 2004-05 TO AY 2007-08 AND GROUND NUMBER 7 OF AY 2009-10 AND AY 2010-11 IN RESPECT OF ASSESSEES APPEAL IS CONSEQUENTIAL IN NATURE AND IS NOT REQUIRED TO B E DEALT WITH. CONSEQUENTIAL RELIEF BE ALLOWED TO THE ASSESSEE. 11.1 TO SUM UP, ALL THE APPEALS OF THE ASSESSEE STAND PARTLY ALLOWED. 12. NOW WE TAKE UP ALL THE DEPARTMENTS CROSS-APPEA LS BEFORE US FOR ALL THE ASSESSMENT YEARS ISSUE BY ISSUE. 12.1 THE FIRST GROUND IN AY 2004-05 READS AS FOLLOW S: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CI T(A)(C), JAIPUR HAS ERRED IN DELETING THE ADDITION MADE U/S 40A(3) OF RS 2,95,400/- 13. IN ALL THE OTHER APPEALS OF THE DEPARTMENT, THE RE IS SIMILAR GROUND AT SERIAL NUMBER 2 WITH DIFFERENT AMOUNTS. A T PARA NUMBER 9.3 44 OF HER ORDER, LD CIT(A) HAD ALLOWED THE RELIEF IN R ESPECT OF ADDITION U/S 40A(3) FOR THE REASON THAT WHEN NO INDIRECT EXPENSE S WERE ALLOWED AT ALL BY LD AO THUS DISALLOWANCE WAS NOT JUSTIFIED. F URTHER SINCE NO OTHER EXPENSES WERE ALLOWED THERE WILL NOT BE DISALLOWANC E U/S 40A(3). SAME COMMON REASONING HAS BEEN GIVEN BY LD CIT(A) F OR DELETING THE DISALLOWANCES U/S 40(A)(IA) AGAINST WHICH REVENUE I S IN APPEAL IN AY 2005-06, 2006-07,2007-08,2008-09,2009-10 AND 2010-1 1 BY WAY OF GROUND NUMBER 3. 13.1 THE LD. DR HAS RELIED UPON THE ORDER OF AO IN RESPECT OF THE GROUNDS RELATING TO DISALLOWANCE U/S 40 A(3)AND 40 (A)(IA) OF THE ACT. 13.2 THE LD. COUNSEL FOR THE ASSESSEE HAS ARGUED T HAT IN THIS CASE THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEE WERE IMPL IEDLY REJECTED AND THE INCOME WAS DETERMINED FROM ALTERNATIVE MATERIAL BY THE ASSESSEE AS WELL AS BY THE AO AND CIT(A), THOUGH IN DIFFEREN T MANNER. ON ACCOUNT OF REJECTION OF BOOKS, DISALLOWANCES U/S 40 A(3) IS NOT WARRANTED IN VIEW OF THE FOLLOWING JUDGMENTS:- COMMISSIONER OF INCOME-TAX VS. BANWARILAL BANSHIDHA R (1998) 229 ITR (ALL) 229; GIRDHARILAL GOENKA VS. CIT (1989) 179 ITR 122 (CAL) 45 INDWELL CONSTRUCTION VS. CIT(1999) 151 CTR (AP) 207 : (1998) 232 ITR 776 (AP) COMMISSIONER OF INCOME-TAX VS. SMT. SANTOSH JAIN (2 008) 296 ITR 324 (P&H); AND COMMISSIONER OF INCOME-TAX V S. S. MOHAMMAD DHARUBUDEEN (2008) 4 DTR (MAD) 218. COMMISSIONER OF INCOME TAX VS. PURSHOTTAMLAL TAMRAK AR UCHEHRA (2004) 270 ITR 314 (MP) TEJA CONSTRUCTIONS VS. ACIT [2010] (HYD. - ITAT) IT A NO. 308/HYD./2009 13.3 HENCE THE DISALLOWANCE WAS INCORRECTLY MADE BY LD AO AND RIGHTLY DELETED BY LD CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE HAVE FOUND THAT WHEN THE BOOKS OF ACCOUNT ARE REJECTED, THE DISALLOWANCE U/S 40A(3) O F THE ACT IS NOT WARRANTED. THE DETAILS REFERRED TO ABOVE ARE DIREC TLY ON THIS ISSUE AND ACCORDINGLY, WE DO NOT WISH TO INTERFERE WITH THE F INDING OF THE LD. CIT(A) AND, THEREFORE, DISMISS GROUND NO. 1 IN A.Y. 2004-05 IN REVENUES APPEAL. SIMILAR GROUNDS HAVE BEEN RAISED IN OTHER YEARS, BUT THESE ARE NUMBERED AS GROUND NOS. 2 AND 3. WITH SI MILAR REASONING, WE DISMISS GROUND NOS. 2 AND 3 RAISED IN A.YS. 2005 -06 TO 2010-11 OF THE DEPARTMENTAL APPEAL. 46 15. GROUND NO. 2 OF DEPARTMENTAL APPEAL FOR AY 2004 -05 IS REPRODUCED HERE IN FOR READY REFERENCE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CI T(A)(C), JAIPUR HAS ERRED IN ALLOWING CREDIT OF DONATION EXP ENSES OF RS 1,290/- AS CLAIMED BY THE ASSESSEE. 15.1 SIMILAR GROUND FOR DIFFERENT AMOUNTS HAVE BEEN TAKEN BY THE DEPARTMENT IN AY 2005-06, 2006-07 AND 2008-09 AT GR OUND NUMBER 4. 15.2 THE LD. AO HAS MENTIONED THE FOLLOWING AT PARA 25.1 AND PARA 25.2 OF THE AO ORDER: 25.1 ON VERIFICATION OF ACTUAL CC (2000-2010) KUTU BI ACCOUNT, IT IS GATHERED THAT THE ASSESSEE, THERE AR E DONATION IN CASH OR BY CHEQUE. THE DETAILS OF WHICH ARE AS UNDER:- AY AMOUNT 2004 - 05 1290 2005 - 06 416104 2006 - 07 39243 2007 - 08 9599 2008 - 09 155491 2009 - 10 431353 2010 - 11 60350 47 25.2 ON PERUSAL OF RETURNS OF INCOME FILED FOR THES E YEARS, IT IS FOUND THAT THE ASSESSEE HAS ITSELF DIS ALLOWED THE DONATION EXPENSES OF RS. 431353/- FOR AY 2009-1 0 AND RS. 603050/- FOR AY 2010-11 AS NON COMMERCIAL EXPEDIENCY. FOR REMAINING DONATION, THE ASSESSEE HA S NOT EXPLAINED ITS BUSINESS EXPEDIENCY AND THE SAME HAS BEEN PAID OUT OF UNDISCLOSED INCOME, THEREFORE, THE SAME IS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE AS ITS UNDISCLOSED INCOME. ADDITION FOR AY 2004-05 TO 2010-11 15.3. THE LD CIT (A) HAS DELETED THESE ADDITIONS BECAUSE EXPENSES IN KUTBI BOOKS WERE ALTOGETHER IGNORED BY HER. NOW, BE CAUSE WE HAVE ALLOWED THE EXPENSES AS PER KUTBI BOOKS, THIS GROUN D BECOMES RELEVANT. THE LD. DR RELIES UPON THE ORDER OF AO. W HEREAS THE ASSESSEE RELIED UPON HIS SUBMISSION BEFORE CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE ARE OF THE CONSI DERED OPINION THAT THE LD. CIT(A) HAS DELETED THESE ADDITIONS BECAUSE SHE HAD IGNORED THE EXPENSES RECORDED IN THE KUTBI BOOKS ALTOGETHER. S INCE WE HAVE ALLOWED THE EXPENSES AS PER KUTBI BOOKS AND THESE D ONATIONS ARE FOUND RECORDED IN THIS BOOK, AS DETAILED ABOVE. FROM THE DETAILS APPEARING IN THE RETURN OF INCOME [ROI] FILED FOR THESE YEARS , THE ASSESSEE HAS 48 ITSELF DISALLOWED THE DONATION EXPENSES FOR A.Y. 20 09-10 AND 2010-11. FOR THE REMAINING DONATIONS IN DIFFERENT YEARS THE ASSESSEE HAS NOT EXPLAINED ITS BUSINESS EXPEDIENCY. THEREFORE, THES E DONATIONS HAVE TO BE BROUGHT TO TAX. ACCORDINGLY, WE REVERSE THE FIN DING OF THE LD. CIT(A) AND ALLOW GROUND NO. 2 OF REVENUES APPEAL. IN THE SIMILAR MANNER, WE ALLOW GROUND NO. 4 RAISED IN A.Y. 2005-0 6, 2006-07 AND 2008-09. 17. GROUND NO. 1 IN AY 2005-06 READS AS FOLLOWS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A)(C), JAIPUR HAS ERRED IN DELETING THE ADDITIO N MADE U/S 68 OF THE ACT OF RS 22,56,910/. 17.1 SIMILAR GROUNDS HAVE BEEN TAKEN BY THE DEPARTM ENT WITH DIFFERENT AMOUNTS IN AY 2006-07, 2007-08, 2008-09, 2009-10 AND 2010- 2011 AS GROUND NUMBER 1. 17.2 THE AO MADE THESE ADDITIONS IN RESPECT OF CERT AIN CONTRA ENTRIES WHERE PAYMENT IS MADE IN CASH IN KUTBI BOOKS AND TH E SAME AMOUNTS RECEIVED IN REGULAR BOOKS THROUGH CHEQUE. SIMILARLY THERE ARE ENTRIES IN REGULAR BOOKS WHERE IN PAYMENT IS MADE THROUGH CHEQ UE AND THE SAME 49 AMOUNT IS RECEIVED IN CASH IN KUTBI BOOKS. LD AO MA DE THE ADDITIONS U/S 68 FOR PAYMENTS RECEIVED IN CASH IGNORING THE P AYMENT MADE AS PER THE REGULAR BOOKS. ASSESSEE EXPLAINED WHEN THE SOURCE OF PAYMENT RECEIVED IS ASSESSEES OWN BOOKS THEN THERE WAS NO REASON FOR TREATING THEM UNEXPLAINED. LD CIT(A) ACCEPTED THIS ARGUMENT AND HELD AS FOLLOWS AT PARA 7.3 OF PAGE NO 36 AND 37 OF HIS ORD ER: 7.3 I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND SUBMISSION THE AR AND FIND THAT THE AO HAS PREPARED THREE TABLES AS UNDER: I) DETAILS OF PAYMENTS MADE AGAINST CROSS ENTRY CHEQUE I.E. THE CASH WAS PAID BY THE FIRM IN LIEU O F WHICH CHEQUE WAS RECEIVED. II) CHEQUE GIVEN IN LIEU OF WHICH CASH WAS RECEIVED. THE AO HIMSELF HAS CORRELATED THESE AMOUNTS WHICH HAVE FURTHER BEEN CORRELATED BY THE AR DURING THE APPELLATE PROCEEDINGS. I AGREE WITH THE SUBMISSIONS OF THE APPELLANT THAT SINCE THE AO HIMSELF HAS GIVEN A FINDING THAT THE LOANS/ ADVANCES WERE GIVEN VIDE CHEQUE BY THE APPELLANT AND LOANS WERE RECEIVED BAC K BY CASH AND CAN BE VERIFIED FROM KUTBI ACCOUNTS, ADDITION CANNOT BE MADE U/S 68 WITH RESPECT TO THES E TRANSACTIONS. THE AO HAS MENTIONED IN THE ORDER ITS ELF 50 THAT THESE TRANSACTIONS WERE REQUIRED TO BE EXAMINE D AS PER THE PROVISIONS OF SE. 269SS AND 269T. THEREF ORE THIS ADDITION CANNOT BE SUSTAINED U/S 68. 17.3 BEFORE US LD DR RELIED UPON THE ORDER OF AO AN D LD AR RELIED UPON THE ORDER OF CIT (A) AND THE SUBMISSIONS MADE BEFOR E LD CIT(A) INCLUDING THE PAPER BOOK. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. GROUND NO. 1 RAISED IN A.Y. 2006-07, 2007-08, 2008-09 AND 2010-11, EXCEPT FOR AMOUNTS IN VOLVED IN THIS GROUND, WHICH WERE ADDED U/S 68 OF THE ACT IN THE R ESPECTIVE YEARS, ALL OTHER FACTS AND CIRCUMSTANCES ARE SAME AND SIMILAR. THESE ADDITIONS ARE FOUND BASED ON CERTAIN ENTRIES WHERE PAYMENTS W ERE MADE IN CASH AS PER KUTBI BOOK. THESE AMOUNTS ARE FOUND RECEIVE D BACK AS PER REGULAR BOOKS AND THROUGH CHEQUES. THERE ARE ENTRI ES IN THE REGULAR BOOKS WHENEVER PAYMENTS ARE MADE THROUGH CHEQUE AND THE SAME AND SIMILAR AMOUNT IS FOUND RECEIVED IN CASH IN KUTBI B OOKS. THE A.O. HAS MADE ADDITION U/S 68 OF THOSE RECEIPTS WHICH ARE IN CASH AND HAS IGNORED PAYMENT MADE AS PER REGULAR BOOKS. ADMITTE DLY AND UNDENIABLY, THE SOURCE OF PAYMENTS RECEIVED IS ASSE SSEES OWN BOOKS THEN HOW CAN THESE AMOUNTS BE TREATED AS UNEXPLAINE D. THE A.O. HAS TRIED TO CORELATE THESE AMOUNTS WHICH HAVE FURTHER BEEN CORRELATED BY 51 THE AUTHORISED REPRESENTATIVE BEFORE US THAT THE LO AN/ADVANCES WERE GIVEN THROUGH CHEQUE BY THE ASSESSEE AND LOANS WERE RECEIVED BACK IN CASH WHICH CAN BE VERIFIED FROM KUTBI BOOKS. THUS, NO SUCH ADDITION CAN BE MADE U/S 68 OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED FINDING IN ALL THESE YEAR S AND DISMISS GROUND NO. 1 OF REVENUES APPEAL RAISED IN A.YS. 2005-06 T O 2010-11. 19. GROUND NUMBER 5 OF THE DEPARTMENTS APPEAL FOR AY 2006-07 READS AS FOLLOWS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A)(C), JAIPUR HAS ERRED IN ALLOWING CREDIT OF S ALES RETURN OF RS 14,00,000/- AS CLAIMED BY THE ASSESSEE . SIMILAR GROUNDS WITH DIFFERENT AMOUNTS HAVE BEEN TA KEN IN AY 2007-08, 2009-10 AND 2010-11. 20. THE BRIEF FACTS RELATING TO THIS GROUND ARE THA T THERE WERE SALES RETURNS IN KUTBI BOOKS AS PER FOLLOWING DETAILS REP RODUCED AT PAGE 42 OF CIT (A)S ORDER. S L . NO NAME AMOUNT DETAILS REMARK 1 NIMESH MEHTA 1400000 SALES OF 1 ST FLOOR OFFICE IN CHETAK COMPLEX MADE ON 16.2.04 AS APPEARING IN ACTUAL THESE HAVE BEEN REPURCHASED ON 6.2.07 EVIDENT FROM 52 C.C. KUTBI ENTRY IN LEDGER A/C OF PARTY IN ACTUAL C.C. KUTBI. THE FACT IS VERIFIABLE FROM TABULA STATEMENT PREPARED IN SEARCH STATEMENT. 2 TASNEEM MARIYAM, BANU, MAJWALA 4000000 SALES OF GROUND FLOOR SHOP NO. A08 & B08 OF CHARBUJA TOWERES ON 31.10.08 AS APPEARING IN ACTUAL C.C. KUTBI THESE HAVE BEEN REPURCHASED ON 31.3.09 THE FACT IS VERIFIABLE FROM TABULAR STATEMENT PREPARED IN SEARCH STATEMENT. 3 NAND LAL SHARMA 900000 SALES OF GROUND FLOOR SHOP NO. A04& A04 CHARBUJA TOWERES ON 26.05.08 AS APPEARING IN ACTUAL C.C. KUTBI THESE HAVE BEEN REPURCHASED ON 31.3.09 THE FACT IS VERIFIABLE FROM TABULAR STATEMENT PREPARED IN SEARCH STATEMENT. 4 SAMINA BAI ZAKAIDD 1450000 SALES OF GROUND FLOOR SHOP NO. A05 ON SHIV SADAN ON 20.4.2009 AS APPEARING IN ACTUAL C.C. KUTBI THESE HAVE BEEN REPURCHASED ON 20.11.09 THE FACT IS VERIFIABLE 53 FROM TABULAR STATEMENT PREPARED IN SEARCH STATEMENT. 20.1. LD CIT(A) HAS HELD AS FOLLOWS AT PAGE NO 43 OF HIS ORDER AS UNDER: SINCE THE SALES WERE RETURNED BY WAY OF REPURCHASE OF STOCK BY FIRM, THESE ARE REQUIRED TO BE TAKEN AS TH E CLOSING STOCK OF THE APPELLANT IN YEARS IN WHICH TH ESE SALES WERE RETURNED OR THE FIRM RE-PURCHASED ITS STOCK FR OM ITS CUSTOMERS. THEREFORE THE AMOUNT OF RS. 14 LAKHS FO R REPURCHASE OF OFFICE ON 6.2.2007, FROM NIMESH MEHTA WOULD BE INCLUDED IN THE CLOSING STOCK OF A.Y. 2007 -08 WHILE THE AMOUNT IS REQUIRED TO BE DELETED FROM SAL ES RECEIPTS IN A.Y. 2004-05. SIMILARLY THE AMOUNT OF R S. 40 LAKH ON ACCOUNT SALES RETURNS FROM TASNEEM, MARIYAM , BANU, MAJAWALA IS REQUIRED TO BE TAKEN AS CLOSING S TOCK IN AY 2009-10 AND TO BE DELETED FROM THE SALES RECEIPT S OF AY 2009-10. SIMILARLY THE SALE RETURN OF RS. 9 LAKH FR OM NANDLAL SHARMA IS TO BE ADDED TO CLOSING STOCK OF A Y 2009- 10 AND DELETED FROM THE RECEIPTS OF THIS Y THE AMOU NT OF SALES RETURNS OF RS. 1450000/- BY SAMINA BAI IS REQ UIRED TO BE TAKEN AS THE CLOSING STOCK OF AY 2012-13 AND AMO UNT IS REQUIRED TO BE DELETED FROM THE RECEIPT OF AY 2010- 11. 54 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFU LLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE DO NOT F IND ANY MERIT IN THE GROUNDS RAISED BY THE REVENUE. SALES OF FIRST FLOOR OF CHETAK COMPLEX MADE ON 16.2.2004 AS APPEARING IN C-C-KUTBI , WHICH HAVE BEEN REPURCHASED ON 6.2.2007, WHICH FACT IS EVIDENT FROM ENTRY IN THE LEDGER ACCOUNT IN THE ACTUAL C-C OF THE KUTBI B OOK. THIS FACT IS ALSO VERIFIABLE FROM THE TABULAR STATEMENT PREPARED DURING SEARCH. LIKEWISE, SALES OF GROUND FLOOR SHOP OF CHARBHUJA T OWERS, ON 31.10.2008 AS APPEARING IN KUTBI BOOK WERE PURCHASE D ON 31.3.2009 AND THIS FACT IS SIMILARLY VERIFIABLE. SALES OF GR OUND FLOOR SHOPS ON 26.5.2008 AS PER KUTBI BOOKS WERE REPURCHASED ON 3 1.3.2009 AND THIS FACT IS ALSO VERIFIABLE FROM BOOKS. SIMILAR I S THE POSITION OF SALES OF GROUND FLOOR SHOP AT SHIVSADAN. OBVIOUSLY , ON REPURCHASE OF THESE ASSETS AS TO BE TREATED AS COST OF THE FIRM A ND THE SAME WILL APPEAR IN THE CLOSING STOCK OF THE RESPECTIVE YEARS AND CORRESPONDING AMOUNT HAS TO BE DELETED FROM THE SAL E RECEIPTS. ACCORDINGLY, THE ACTION OF THE LD. CIT(A) IS AFFIRM ED AND GROUND NO. 5 OF DEPARTMENTAL APPEALS IN A.YS. 2006-07, 2007-08 , 2009-10 AND 2010-11 ARE DISMISSED. 21. IN AY 2009-10 THE GROUND NUMBER 5 OF DEPARTMENTAL A PPEAL READ AS FOLLOWS: 55 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A)(C), JAIPUR HAS ERRED IN DELETING THE ADDITIO N MADE ON ACCOUNT OF TRAVELLING EXPENSES OF RS 6,83,300/-. 23 . SIMILAR GROUND FOR RS 3,00,000/- HAS BEEN TAKEN FOR AY 2010-11. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE DO NOT FIND ANY M ERIT IN THE APPEAL OF THE REVENUE ON THIS COUNT. THE TRAVELLING EXPEN SES STAND FULLY EXPLAINED IN ALL THESE YEARS. ACCORDINGLY, WE DISM ISS GROUND NO. 5 IN A.Y. 2009-10 AND 2010-11. 25. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE PARTLY ALLOWED. 26. TO SUM UP, IN THE RESULT ALL THE ASSESSEES APP EALS AS WELL AS THE DEPARTMENTAL APPEALS FOR ALL THE YEARS ARE PART LY ALLOWED EXCEPT FOR THE APPEAL OF THE DEPARTMENT IN ITA NO. 327/JU/2009 [A.Y. 2006-07] WHICH IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 23 RD MAY, 2014. SD/- SD/- (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 RD MAY, 2014 56 VL/- COPY TO: THE APPELLANT THE RESPONDENT THE CIT BY ORDER THE CIT(A) THE DR ASSISTANT REGISTRAR ITAT, JODHPUR