Mayuree Builders, Ganjam V. ITO, Berhampur

ITA 241/CTK/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65118 (ITAT-CUTTACK)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2012
• Court: TRIBUNAL
• Department Lawyers: S C MOAHNTY
• Assessee Lawyers: A K PADHY

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 241 TO 243 /CTK/2012 / ASSESSMENT YEAR 2006 - 07 , 2007 - 08 AND 2008 - 09 MAYUREE BUILDERS, GIRIJA SQUARE, BERHAMPUR PAN: AAIFM 2760 P - - - VERSUS - INCOME - TAX OFFICER, WARD 2, A AYAKAR BHAWAN, BERHAMPUR, ODISHA ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI A.K.PADHY, AR / FOR THE RESPONDENT: / SHRI S.C.MOAHNTY, DR / DATE OF HEARING: 13.09. 2012 / DATE OF PRONOUNCEMENT: 14.09.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THESE APPEALS FOR THE AYS 2006 - 07, 2007 - 08 AND 2008 - 09 BY THE ASSESSEE RAISE COMMON ISSUE WITH RESPECT TO ASSESSING O FFICER BRINGING TO TAX INCOME ON ESTIMATION @8% BY COMPUTING HYPOTHETICAL FIGURES OF CIVIL WORKS RENDERED BY THE ASSESSEE IN THE IMPUGNED AYS WHEN THE ASSESSEE BEING A BUILDING CONSTRUCTION CONTRACTOR ON THE PLOTS SOLD BY IT ON COMMISSION BASIS UNDERTAKING CONSTRUCTION OF THE SUPER STRUCTURE FROM THE LAND OWNERS. 2. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN ADOPTING THE ESTIMATION OF 8% ON SUCH COMPUTED CIVIL WORK RENDERED IN THE IMPUGNED AYS BY INTERPRETING THE AS - 7 VIS - A - VIS AS - 9 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR THE PURPOSE OF REVENUE RECOGNIZ ATION FROM SUCH BUSINESSES. 3. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM FILED RETURNS OF INCOME FOR THE RESP ECTIVE AYS DISCLOSING I.T.A.NO. 241/CTK/2012 2 INCOMES AS PER THE FINANCIAL STATEMENTS DULY AUDITED UNDER THE PROVISIONS OF SECTION 44AB. THE ASSESSING OFFICER IN THE COURSE OF SCRUTINY ASSESSMENT AFTER ANALYZING THE MAINTENANCE OF BOOKS OF ACCOUNT RESULTING IN FINANCIAL RESULTS A S AUDITED HELD A VIEW THAT THE ASSESSEE IS NOT MAINTAINING STOCK REGISTER FOR THE WORK - IN - PROGRESS THEREFORE INVOKING THE PROVISIONS OF SECTION 145(3) COMPUTED THE CIVIL WORK RENDERED BY THE ASSESSEE TO BE TAXED @8% AS PER THE GUIDE LINES PROVIDED IN SECTI ON 44AD. THE ASSESSING OFFICER NOTED THE FIGURES FROM THE TRADING ACCOUNTS WHEN THE OPENING WORK - IN - PROGRESS AND CLOSING WORK - IN - PROGRESS WERE ADJUSTED TO CONSIDER THE ACTUAL EXPENDITURE INCURRED IRRESPECTIVE OF THE GROSS INCOME AS PER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE NOT INDICATING EITHER AS PER AS - 7 OR AS - 9 CHOSE TO HOLD THAT 8% IS TO BE ESTIMATED AS INCOME ON THE EFFECTIVE WORK EXECUTED IN THE IMPUGNED ASSESSMENT YEARS. 4. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHO RITY WHO CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER HAVING RIGHTLY INVOKED THE PROVISIONS OF SECTION 145(3). ON THE ESTIMATION OF 8% HE AGAIN RELIED ON THE VARIOUS TRIBUNAL S DECISIONS WHEN 8% WAS CONFIRMED BY THE TRIBUNAL ON THE FACTS AND CIRCUMSTANC ES OF THOSE CASE WHEN NO BOOKS OF ACCOUNT WERE MAINTAINED OR WERE NOT PROPERLY MAINTAINED FOR INVOKING THE PROVISIONS OF SECTION 145(3). 5. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSING OFFICER HAS PICKED UP THE VERY SAME FIGURES OF THE CLOSING STOCK FOR COMPUTING THE EFFECTIVE CIVIL WORK RENDERED BY THE ASSESSEE THEREFORE DEMOLISHES HIS OWN STAND OF INVOKING THE PROVISIONS OF SECTION 145(3) WHICH RATHER POINTS TO THE DEFECT IN HIS COMPUTING THE PERCENTAGE ON THE VERY STOCK OR WORK - IN - PROGRESS WHICH HAS TO BE SET ON AND SET OFF FOR THE NEXT TWO YEARS. IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO I.T.A.NO. 241/CTK/2012 3 HOLD THE ASSESSEE POSTPONING HIS INCOME IN VIEW OF THE CONSISTENCE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO V ALUE THE STOCK AT LOWER O F COST O R MARKET VALUE. THEREFORE, THE VERY COMPUTATION OF THE EFFECTIVE CIVIL WORK BECOMES FAULTY AFTER ASSUMING JURISDICTION U/S.145(3) BY THE ASSESSING OFFICER. THE BEST PART OF ASSUMING JURISDICTION U/S.145(3) IS THAT NO SPECIF IC DEFECT HAS BEEN FOUND IN NON - MAINTENANCE OF STOCK REGISTER WHEN THE VALUE OF STOCK HAS BEEN DOUBTED AS GIVEN BY THE AUDITED FINANCIAL STATEMENTS AND THE AUDITORS HAVE REPORTED THAT PROPER RECORDS HAVE BEEN MAINTAINED AND THE VALUATION IS IN ACCORDANCE W ITH THE ACCOUNTING STANDARD AS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ASSESSING OFFICER WAS REQUIRED OF POINTING OUT ANY DEFECT IN THE MAINTENANCE OF STOCK REGISTER FAULTED IN ADOPTING PROVISIONS OF SECTION 145(3) HAVE AGAIN WA S DEFECTIVE WHEN HE CHOSE TO CONSIDER THE INCOME OF A PARTICULAR YEAR TO BE TAXED IN THE NEXT YEAR ON PERCENTAGE BASIS. FOR THIS PURPOSE, HE HAS FILED THE DECISION OF ITAT,CUTTACK BENCH IN THE CASE OF KASHI KANCHAN CONSTRUCTION PVT. LTD., V. DCIT IN ITA NO S.277,278,279 AND 280/CTK/2012 DT.29.6.2012 WHEN ON THE BASIS OF ESTIMATING EFFECTIVE CIVIL WORK BY BEGINNING WITH CONTROVERSY OF MAINTENANCE OF STOCK RECORDS BY A CONTRACTOR WAS DISPUTED AND THE PERCENTAGE OF PROFIT RETURNED BY THE ASSESSEE ON THE BASIS O F MAINTENANCE OF BOOKS OF ACCOUNT WAS HELD IN ACCORDANCE WITH THE GUIDELINES OF THE INSTITUTE OF CHARTERED ACCOUNTANTS WAS THE VERY PERCENTAGE ADOPTED BY THE ASSESSING OFFICER TO ESTIMATE THE INCOME FOR THE IMPUGNED AYS WHEN THE INCOMES ACCUMULATIVELY REND ERED BY THE ASSESSEE FOR THE THREE AYS WAS MORE THAN THE INCOME COMPUTED WITHOUT ERROR AS COMPUTED BY THE ASSESSING OFFICER INDIVIDUALLY FOR THE THREE YEARS WERE BROUGHT ON RECORD. IN OTHER WORDS, THE LEARNED CIT(A) HAS CONFIRMED THE ORDERS OF THE ASSESSIN G OFFICER FOR THE THREE AYS WITHOUT BRINGING ON RECORD THE VERY DEFECTIVE COMPUTATION MADE BY THE I.T.A.NO. 241/CTK/2012 4 ASSESSING OFFICER AFTER INVOKING THE PROVISIONS OF SECTION 145(3) WHEN HE HAS CONSIDERED THE 8% INCOME TWICE AND THRICE IN SUBSEQUENT YEAR. THE BEGINNING OF NON - MAINTENANCE OF STOCK REGISTER HAS BEEN SIDELINED BY BOTH THE AUTHORITIES INSOFAR AS HE HAS FILED A PAPER BOOK WHICH INDICATE THAT THE AUDITORS HAD VERIFIED THE STOCK REGISTER AND THE VALUATION OF STOCK LYING WITH THE ASSESSEE ON A PARTICULAR DATE ON T HE CLOSE OF THE RESPECTIVE FINANCIAL YEAR WHICH INDICATES THAT THERE WAS NO DEFECT TO BE OBSERVED FOR INVOKING THE PROVISIONS OF SECTION 145(3). HE PRAYED THAT THE RETURNS OF INCOME AS FILED BY THE ASSESSEE FOR THE THREE AYS BE ACCEPTED INSOFAR AS THE ESTI MATION OF INCOME ON THE EFFECTIVE CIVIL WORK RENDERED FOR COMPUTATION BY THE ASSESSING OFFICER IS DEFECTIVE AND HAS GOT NO RELEVANCE TO THE PROVISIONS OF SECTION 145(3). 6. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSING OFFICER WAS WITHIN HIS JURISDICTION OF COMPUTING INCOME IN ACCORDANCE WITH THE ACCOUNTING STANDARD PRESCRIBED INSOFAR AS IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO COMPUTE INCOME AS PROJECT COMPLETION METHOD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS NOT ADDRESSED THE ISSUE AS TO WHY CONSTRUCTION UNDERTAKEN BY THE ASSESSEE FOR ITS CUSTOMERS WHO OWNED LANDS COULD NOT BE MAINTAINED PROJECT WISE INSOFAR AS THE WORK - IN - PROGRESS DOES NOT IDENTIFY THE AMOUNT OF INCOME TO BE RENDERED WITH THE PARTI CULAR YEAR. THEREFORE, THE LEARNED CIT(A) UPHOLDING THE ASSESSING OFFICERS ASSUMING JURISDICTION U /S.145(3) CONFIRMED THE INCOME SO BROUGHT TO TAX BY THE ASSESSING OFFICER. HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART SUBMISSION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON VARIOUS CITATIONS INDICATING THE METHOD OF ACCOUNTING ADOPTED BY THE I.T.A.NO. 241/CTK/2012 5 ASSESSEE CANNOT BE CHALLENGED UNLESS S PECIFIC DEFECT HAS BEEN FOUND IN THE BOOKS OF ACCOUNT BUT TO THRUST U PON IT A PARTICULAR METHOD OF ACCOUNTING METHOD WHETHER WOULD RESULT IN COMPUTING CORRECT INCOME BY INVOKING THE PROVISIONS OF SECTION 145(3). THE LEARNED COUNSEL FOR THE ASSESSEE DEMONS TRATED THAT THE COMPUTATION OF THE EFFECTIVE CIVIL WORK AS CAN BE PERUSED IN THE ORDERS OF THREE AYS BY THE ASSESSING OFFICER TO BE ADOPTED @8% AS PURE CIVIL WORK WOULD DEMOLISH THE VERY MAINTENANCE OF ACCOUNTS INSOFAR AS THE ASSESSEE HAS MAINTAINED THE DE TAILS OF WORK - IN - PROGRESS WHICH DETAIL HAS BEEN ADOPTED BY THE ASSESSING OFFICER FOR REDUCING VERY NEXT YEAR COMPUTATION OF EFFECTIVE CIVIL WORK. THE WORK - IN - PROGRESS HAS BEEN VALUED AT COST, THEREFORE, IS AN UNDISPUTED FACT WHICH INCOME CAN ONLY BE MADE W HEN THE ACTUAL ASSET IS DISPOSED OFF. THEREFORE, INDICATING MAINTENANCE OF ACCOUNTS EITHER UNDER AS - 7 OR AS - 9 WAS NOT TO BE ACCURATELY FOLLOWED BY THE ASSESSING OFFICER HIMSELF . HAVING RELIED ON THE VERY WORK - IN - PROGRESS WHICH WAS SOLD SUBSEQUENTLY RENDERE D INCOME CANNOT BE TAXED IN AN EARLIER YEAR. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED THAT THE INCOME RENDERED BY THE ASSESSEE BEING A PARTNERSHIP FIRM COMMENSURATE WITH THE ACTUAL SALES HAVING TAKEN PLACE WHEN THE ASSESSEE EVEN IF DOES NOT OW N THE LAND BUT HAS UNDERTAKEN THE CIVIL WORK OF CONSTRUCTING THE VARIOUS HOUSES FOR VARIOUS CUSTOMERS COULD RECOGNIZE THE REVENUE IN THE YEAR OF RECEIPTS ONLY. IT WAS NOT THE CASE OF THE ASSESSEE TO ACCOMMODATE INCOMES IN THE THREE AYS ACCORDING TO ITS OWN WILL BUT BY MAINTAINING BOOKS OF ACCOUNT WITHIN THE PARAMETERS OF ACCOUNTING STANDARD. IN THE CASE OF AWADESH BUILDERS V. INCOME - TAX OFFICER, ITAT, MUMBAI BENCH B[ 37 SOT 122 (MUM)] (RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ) HAS HELD IN PARAGR APH 2.8 AS UNDER : I.T.A.NO. 241/CTK/2012 6 2.8 IT IS ESTABLISHED LEGAL POSITION THAT AN ASSESSEE CAN FOLLOW ANY RECOGNIZED METHOD OF ACCOUNTING AND CONDITION IS THAT THE SAME METHOD HAS TO BE FOLLOWED CONSISTENTLY IN CASE OF A BUILDING PROJECT, THE INSTITUTE OF CHARTERED ACCOUNT ANTS OF INDIA WHICH IS AN AUTHORITY ON PRESCRIBING ACCOUNTING STANDARDS HAD PRESCRIBED ACCOUNTING STANDARD AS - 7 IN 1983 FOR ACCOUNTING OF INCOME IN RESPECT OF REAL ESTATE PROJECTS AND IN TERMS OF AS - 7 WHICH WAS APPLICABLE TO BOTH CONTRACTOR AND REAL ESTATE DEVELOPER, A PERSON IS FREE TO FOLLOW EITHER OF PROJECT COMPLETION METHOD OR PERCENTAGE COMPLETION METHOD DEPENDING UPON THE NATURE OF PROJECT. THE ASSESSEE, IN THIS CASE, HAS FOLLOWED PROJECT COMPLETION METHOD WHICH IS ONE OF THE PRESCRIBED METHODS BY TH E INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ACCOUNTING STANDARD AS - 7 WAS SUBSEQUENTLY REVISED AND REVISED STATEMENTS WERE MADE APPLICABLE TO HOUSING PROJECTS UNDERTAKEN ON OR AFTER 1 - 4 - 2003 AND AS PER THE REVISED STANDARDS, REVISED AS - 7 WAS APPLICAB LE ONLY TO A CONTRACTOR AND IN CASE OF REAL ESTATE DEVELOPER, REVISED AS - 9 WAS PRESCRIBED AS PER WHICH THE INCOME HAS TO BE ACCOUNTED ONLY ON COMPLETION OF PROJECT WHEN THE FLATS ARE SOLD, I.E., WHEN LEGAL TITLE POSSES TO THE BUYER OR WHEN SELLER ENTERS IN TO AGREEMENT WITH THE BUYER FOR THE SALE AND GIVES POSSESSION TO THE BUYER UNDER THE AGREEMENT. IN THIS CASE, THE PROJECT WAS NOT COMPLETE DURING THE YEAR AND, THEREFORE, THERE WAS NO QUESTION OF PASSING ON OF THE TITLE OF OWNERSHIP OR HANDING OVER OF THE POSSESSION. THUS, EVEN IN TERMS OF THE REVISED ACCOUNTING STANDARD WHICH WAS APPLICABLE FOR MOST PART OF THE WORK DONE BY THE ASSESSEE THE INCOME HAD BEEN CORRECTLY DECLARED AS PER PROJECT COMPLETION METHOD IN THE YEAR OF COMPLETION. EVEN IF ONE APPLIES TH E OLD ACCOUNTING STANDARDS ON THE GROUND THAT THE PROJECT OF THE ASSESSEE HAD BEEN UNDERTAKEN PRIOR TO 1 - 4 - 2003, THE ASSESSEE WAS FREE TO FOLLOW EITHER PERCENTAGE COMPLETION METHOD OR PROJECT COMPLETION METHOD. THE ASSESSEE HAS FOLLOWED PROJECT COMPLETION METHOD WHICH WAS ONE OF THE PRESCRIBED METHODS AND THE SAME METHOD HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS. DEPARTMENT, THEREFORE, CANNOT REJECT THE METHOD AND APPLY PERCENTAGE COMPLETION METHOD IN A SUBSEQUENT YEAR. THIS VIEW IS ALSO SUPP ORTED BY SEVERAL DECISIONS OF THE TRIBUNAL AS MENTIONED IN PARA 2.5 OF THIS ORDER EARLIER WHICH HAVE BEEN RELIED UPON BY THE LEARNED AR OF THE ASSESSEE. THE ASSESSEE ALREADY, FOLLOWING THE SAME METHOD, HAS DECLARED THE ENTIRE INCOME IN ASSESSMENT YEAR 2007 - 08 WHEN THE PROJECT WAS COMPLETE. THE SAME INCOME, THEREFORE, CANNOT BE ASSESSED IN THE EARLIER YEAR BY REJECTING THE REGULAR AND RECOGNIZED METHOD BEING FOLLOWED BY THE ASSESSEE. . I.T.A.NO. 241/CTK/2012 7 IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT THE ASSE SSING OFFICER HAVING ACCEPTED THE BOOK RESULTS CANNOT RESORT TO COMPUTING HIS OWN EFFECTIVE CIVIL WORK FOR ESTIMATION AT 8% WOULD RENDER LOPSIDED COMPUTATION OF INCOME WHICH IS AGAINST THE VERY SPIRIT OF THE PROVISIONS OF THE I.T.ACT. MAINTENANCE OF ACCOUN TS IS FOR THE CONTROL OF BUSINESS ACTIVITIES AND THE INCOME HAS TO BE ASSESSED THERE FROM. THE ASSESSMENT OF INCOME SHOULD NOT BE ERRONEOUS INSOFAR AS INCOME FOR THE IMPUGNED ASSESSMENT YEARS WITHOUT OVERLAPPING ONLY CAN BE DETERMINED AND BY FINDING NO DEF ECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNT, THE ASSESSING OFFICER COULD NOT HAVE ASSUMED COMPUTING HIS OWN METHOD OF ACCOUNTING FOR ESTIMATING THE INCOME THERE FROM. IT BECOMES A PURE ACADEMIC ERROR. ON THE OTHER ISSUES RAISED BY THE ASSESSEE WITH RESPECT TO THE OTHER INCOMES TO BE BROUGHT TO TAX OVER AND ABOVE 8% ESTIMATION THEREFORE BECOMES A FUTILE EXERCISE INSOFAR AS IT DEMOLISHES THE VERY STAND TAKEN BY THE ASSESSING OFFICER TO TAKE THE BOOK FIGURES FROM THE SAME SET OF FIGURES WHICH HAVE BEEN INSCRIB ED IN THE PROFIT & LOSS ACCOUNT. WE THEREFORE SET ASIDE THE IMPUGNED ORDERS OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE RETURNED INCOME AS FILED BY THE ASSESSEE FOR THE RESPECTIVE ASSESSMENT YEARS UNDER CONSIDERATION. 8. IN THE RES ULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. SD/ - SD/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.09.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 241/CTK/2012 8 - COPY OF THE ORDER FORWARDED TO: 1. / THE APPELLANT : MAYUREE BUILDERS, GIRIJA SQUARE, BERHAMPUR 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 2, AAYAKAR BHAWAN, BERHAMPUR, ODISHA 3. / THE CIT, 4. ( ) / THE CIT(A), 5. / DR, CUTTACK BENCH 6. GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 13.09.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BE FORE THE DICTATING MEMBER 14.09.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..