Kashi Kanchan Construction Pvt. Ltd, Berhampur V. DCIT, Berhampur

ITA 277/CTK/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7837 (ITAT-CUTTACK)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 18-04-2012
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: P K MISHRA M R SARANGI ARS
• Keywords: Rejection of books of accounts
• Section: 145

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 277,278,279 AND 280/CTK/2012 (ASSESSMENT YEAR S 2003 - 04, 2004 - 05, 2005 - 06 AND 2006 - 07) KASHI KANCHAN CONSTRUCTION PVT. LTD. , NEELAKANTHA NAGAR, MAIN LANE, GOSANINUAGAON, BERHAMPUR 760 003 PAN: AACCK 0645 G VERSUS DEPUTY COMMISSIONER OF INCOME - TAX,BERHAMPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI P.K.MISHRA/M.R.SARANGI,ARS FOR THE RESPONDENT SHRI S.C.MOHANTY, DR DATE OF HEARING : 25.06.2012 DATE OF PRONOUNCEMENT : 29.06.2012 ORDER SHRI K.K.GUPTA, AM : THESE APPEALS FOR THE ASSESSMENT YEARS 2003 - 04 TO 2006 - 07 ARE PREFERRED BY THE ASSESSEE ARISING OUT OF SEPARATE ORDERS OF THE COMMISSIONER OF I NCOME - TAX (APPEALS) IN RESPECTIVE AYS RAISING A COMMON GROUND S, WHICH READ AS UNDER : 1. THAT THE REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145 WITHOUT BRINGING MATERIAL DEFECTS IN SUCH BOOKS OF ACCOUNTS IS UNJUST, UN - REASONABLE AND UNCALLED FOR. 2. THAT THE REJECTION OF BOOKS OF ACCOUNTS U/S. 145 WITH REASONS CITED AS PER THE ASSESSMENT ORDER IS NOT AS PER LAW. 3. THAT THE DETERMINATION OF NET PROFIT AT 7.2% OF THE ADVANCE RECEIPTS FROM ALLOTTEES IS NOT PROPER CONSIDERING THE ACCOUNTING STANDARD FOLL OWED AND PRESCRIBED FOR SUCH TYPE OF BUSINESS. 4. THAT THE ESTIMATION OF NET PROFIT SHOULD BE MADE BASING ON CERTAIN PRUDENT NORMS, SUCH AS, TURNOVER OF THE ASSESSEE FIRM, PROFIT DURING EARLIER YEARS, SIMILAR COMPARABLE CASES, ETC. THE LEARNED ASSESSING OF FICER AS WELL AS THE LD. C.I.T.(APPEAL) HAS IGNORED ALL PRUDENT NORMS IN THE INSTANT CASE AND HAVE UNILATERALLY DETERMINED THE NET PROFIT AT 7.2 %. 5 . THE LEARNED A.O. HAS NOT ALLOWED AN OPPORTUNITY TO THE ASSESSEE FOR PLACING DUE REBUTTAL BEFORE DETERMIN ATION OF NET PROFIT AT 7.2% ITA NO.277,278,279 AND 280/CTK/2012 2 6. THAT THE CASE OF THE ASSESSEE COMPANY SQUARELY FALLS UNDER ACCOUNTING STANDARD - 9 READ WITH ACCOUNTING STANDARD - 2. THE LD. A.O. AND LD. C.L .T (APPEALS) HAS TAKEN A WRONG VIEW BY ADOPTING ACCOUNTING STANDARD - 7 , WHICH IS APPLICAB LE TO A CONTRACTOR. 7. THAT IN CASE OF A DEVELOPER ENGAGED IN REAL ESTATE DEVELOPMENT, THE PROPER ACCOUNTING STANDARD TO BE FOLLOWED IS AS - 9 (RECOGNITION OF REVENUE) READ WITH AS - 2 (VALUATION OF INVENTORIES). THE LEARNED A.O. AS WELL AS THE LD. CIT (APPEAL ) ERRED IN ADOPTING AS - 7, WHICH IS LIABLE TO BE DELETED. 8. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL AT THE TIME OF HEARING. 2. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THE BRIEF FACTS ALONG WITH HIS SUBMISSIONS THAT THE ASSESSEE DERIVES INCOME FROM REAL ESTATE BUSINESS AND SALE OF FLATS. DURING THE ASSESSMENT YEARS UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS CONSTRUCTING AN APARTMENT NAMED KASHI KANCHAN/ SHREE TOWER AT THE CENTRE OF BERHAMPUR TOWN NEAR KHALIKOTE COLLEGE. THE SAID PROJECT WAS COMMENCED IN THE ASSESSMENT YEAR 2001 - 02 AND WAS COMPLETED IN THE ASSESSMENT YEAR 2006 - 07, I.E. ON 15.06.2005. THE ASSESSEE HAS FOLLOWED THE PROJECT COMPLETION METHOD OF ACCOUNTING SINCE FROM THE INCEPTION OF TH E PROJECT SHREE TOWERS INVOLVING CONSTRUCTION AND SALE OF 114 FLATS AND 9 SHOPS. THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT S CHANGED THE METHOD OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND FOLLOWED THE PERCENTAGE COMPLETION METHOD FOR THE SAKE OF REVENUE RECOGNITION AND ESTIMATED THE NET PROFIT @7% ON THE ADVANCE RECEIVED FROM THE COSTUMERS FOR ALLOTMENT OF FLATS AND SIMULTANEOUSLY ALSO REJECTED THE BOOKS OF ACCOUNT TO JUSTIFY HIS FINDINGS AND MADE ADDITIONS IN THE RESPECTIVE ASSESSMENT YEARS. ITA NO.277,278,279 AND 280/CTK/2012 3 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE CIT(A) AND THE LEARNED CIT(A) WHILE ADJUDICATING THE APPEAL S SIMPLY ACCEPTED THE FINDINGS OF THE LEARNED A.O AND GAVE A FINDING THAT THE ASSESSEE IS NOT A BUILDER RATHER A MERE CONSTRUCTION CONTRACTOR NOT BY INTERPRETING THE FACTS BUT BEING BIASED WITH THE FACT THAT THE COUNSEL WHO WAS APPEARING BEFORE HIM WAS ALSO THE COUNSEL FOR OTHERS WHO WERE THE CONSTRUCTION CONTRACTORS. 4. AGGRIEVED, THE ASSESSEE HAS FILED THE PRESENT APPEALS BEFORE THE TRIBUNAL. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN ADOPTING THE PERCENTAGE COMPLETION METHOD FOR RECOGNITION OF REVENUE ON YEAR TO YEAR BASIS, ON THE GROUND THAT THE PERCENTAGE COMPLETION METHOD IS NOT ACCEPTABLE UND ER THE INCOME TAX ACT, 1961, PARTICULARLY WHEN THE SAME HAS NOT BEEN DENIED UNDER THE SAID ACT. IF SECTION 145 AND SECTION 145A WILL BE LOOKED IN TO SIMULTANEOUSLY, THEN IT WILL BE FOUND THAT NO WHERE THE ACT PRESCRIBES /NOTIFIES ANY PARTICULAR METHOD OF A CCOUNTING TO BE FOLLOWED, RATHER, THE ACT AUTHORIZES THE ASSESSEE TO CHOOSE THE METHOD OF ACCOUNTING AND THE ASSESSING OFFICER IS DUTY BOUND TO FOLLOW THE SAME. THE PROJECT COMPLETION METHOD IS ALSO ONE OF THE RECOGNIZED METHOD OF ACCOUNTING. LAW IN THIS A SPECT IS WELL SETTLED THAT WHERE A RECOGNIZED METHOD OF ACCOUNTING WHEREBY PROFITS OF ADVENTURE PROJECT ARE DETERMINED WHEN WHOLE ADVENTURE/PROJECT IS COMPLETED, IS CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE AND THE SAID METHOD DOES NOT SUFFER FROM AN INF IRMITY/DEFECT CALLING UPON FOR A REJECTION OF THE SAME, THE SAME COULD NOT BE REJECTED MERELY ON THE FACT THAT THERE EXISTS A METHOD OF ACCOUNTING FOR PROFIT OF EACH YEAR. FURTHER THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REASONS ADVANCED BY THE LEARNED A.O FOR CHANGE IN THE METHOD OF ACCOUNTING ARE NOT JUSTIFIED AND/OR NO T SUSTAINABLE IN THE EYE OF LAW BECAUSE ITA NO.277,278,279 AND 280/CTK/2012 4 THE ASSESSEE WAS A BUILDER AND DEVELOPER. IT STARTED CONSTRUCTION OF RESIDENTIAL PROJECT ON A PLOT OF LAND CONSISTING OF 114 FLATS AN D 9 SHOPS. THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD FOR ACCOUNTING OF INCOME. SINCE THE PROJECT WAS NOT COMPLETE, THE ASSESSEE WAS CAPITALIZING THE WORK DONE AS WORK IN PROGRESS AS WELL AS THE ADVANCE RECEIVED FROM ITS CUSTOMERS. I T IS NOT THE CASE OF THE LEARNED A.O THAT THE ASSESSEE HAD UNDERSTATED THE INCOME IN A PARTICULAR YEAR. THE DISPUTE WAS REGARDING THE YEAR OF ACCOUNTING OF INCOME. HE SUBMITTED THAT THE ASSESSEE HAD BEEN FOLLOWING THE PROJECT COMPLETION METHOD AS PER WHICH INCOME HAD TO BE ACCOUNTED IN THE YEAR IN WHICH PROJECT WAS COMPLETED AND THE FLATS AND SHOPS WERE SOLD. THE PROJECT WAS STARTED IN THE ASSESSMENT YEAR 2001 - 02 AND SINCE FROM THE INCEPTION THE SAID METHOD WAS BEING FOLLOWED CONSISTENTLY. THE AO HAD ACCEPTED THE SAID METHOD OF ACCOUNTING FOR THE ASSESSMENT YEARS 2001 - 02 AND 2002 - 03, BUT ALL OF A SUDDEN THE A.O IN THE MID PART OF THE PROJECT I.E. IN THE ASSESSMENT YEAR 2003 - 04 AND ONWARDS HAD ASSESSED THE INCOME ON THE BASIS OF PERCENTAGE COMPLETION METHOD BY ESTIMATING THE PROFIT ON THE ADVANCE RECEIVED ON THE PLEA THAT THE PERCENTAGE COMPLETION METHOD REFLECTS INCOME IN THE ACCOUNTING YEAR DURING WHICH THE ACTIVITY IS UNDERTAKEN TO EARN SUCH REVENUE. INCOME TAX BEING AN ANNUAL TAX, THE INCOME WHICH ACCRUES OR ARISES IN EACH YEAR IS TO BE COMPUTED AND TAXED, PARTICULARLY WHEN THE ADVANCE RECEIVED BY THE ASSESSEE FROM ITS COSTUMERS FOR ALLOTMENT OF FLATS CANNOT BE TREATED AS TURNOVER AND CHARGED TO TAX UNLESS AND UNTIL THE FLATS WERE SOLD TO THEM. HE PLEADED THAT THE VIEW OF THE A.O THAT THE ACCOUNTING PROBLEM OF A REAL ESTATE DEVELOPER AND THAT OF A CONSTRUCTION CONTRA CTOR ARE SIMILAR IS NOT CORRECT, BE CAUSE OF THE BASIC FACT THAT THE METHOD OF ACCOUNTING DIFFERS FROM BUSINESS TO BUSINESS TAKING IN TO CONSIDERATION OF NAT URE OF WORK, LIABILITY AND RISK FACTOR. THEREFORE THE SAME CANNOT BE EQUATED FOR THE SAKE OF ITA NO.277,278,279 AND 280/CTK/2012 5 REVENUE AND THE FINDING OF THE A.O BEING ILLOGICAL AND CONTRARY TO THE PRINCIPLES OF ACCOUNTING STANDARD IS LIABLE TO BE REJECTED IN THE INTEREST OF JUSTICE. THE L EARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE PLEA OF THE A.O THAT IN THE PROJECT COMPLETION METHOD, THERE WILL BE POSTPONEMENT OF DISCLOSURE OF INCOME AND PAYMENT OF TAX WHICH CANNOT BE A GROUND FOR REJECTION OF THE METHOD OF ACCOUNTING CONSI STENTLY FOLLOWED BY THE ASSESSEE IF THE SAME IS ONE OF THE RECOGNIZED METHOD OF ACCOUNTING. THAT APART BASICALLY IN A REAL ESTATE BUSINESS ACTUAL PROFIT CAN BE CORRECTLY DERIVED ONLY AFTER THE COMPLETION OF THE PROJECT AND NOT PRIOR TO THAT. FURTHER THE FI NDING OF THE A.O THAT INTERNATIONAL ACCOUNTING STANDARD COMMITTEE HAS REVISED THE INTERNATIONAL ACCOUNTING STANDARDS AND SCRAPPED THE COMPLETED CONTRACT METHOD. IT HAS SUGGESTED THE PERCENTAGE COMPLETION METHOD FOR ADOPTION IS NOTHING BUT JUST A MISS INTER PRETATION/CONSTRUCTION OF THE REVISED ACCOUNTING STANDARD. IT IS ESTABLISHED LEGAL POSITION THAT AN ASSESSEE CAN FOLLOW ANY RECOGNIZED METHOD OF ACCOUNTING BUT THE CONDITION IS THAT THE SAME METHOD HAS TO BE FOLLOWED CONSISTENTLY. IN CASE OF A BUILDING PR OJECT, THE INSTITUTE OF CHARTERED ACCOUNTANTS 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 A PPLICABLE TO BOTH CONTRACTOR AND REAL ESTATE DEVELOPER, A PERSON WAS FREE TO FOLLOW EITHER OF PROJECT COMPLETION METHOD OR PERCENTAGE COMPLETION METHOD DEPENDING UPON THE NATURE OF PROJECT. THE ASSESSEE, IN THE INSTANT CASE, HAD FOLLOWED PROJECT COMPLETION METHOD, WHICH WAS ONE OF THE PRESCRIBED METHODS BY THE 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 A S PER THE REVISED STANDARDS, REVISED AS - 7 WAS APPLICABLE ONLY ITA NO.277,278,279 AND 280/CTK/2012 6 TO A CONTRACTOR AND IN CASE OF REAL ESTATE DEVELOPER, REVISED AS - 9 WAS PRESCRIBED AS PER WHICH THE INCOME HAD TO BE ACCOUNTED ONLY ON COMPLETION OF PROJECT WHEN THE FLATS WERE SOLD, I.E., WHEN L EGAL TITLE PASSED TO THE BUYER OR WHEN SELLER ENTERED INTO AGREEMENT WITH THE BUYER FOR THE SALE AND GAVE POSSESSION TO THE BUYER UNDER THE AGREEMENT. IN THE INSTANT CASE, THE PROJECT WAS NOT COMPLETE DURING THE YEAR AND, THEREFORE, THERE WAS NO QUESTION O F 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 COM PLETION METHOD IN THE YEAR OF COMPLETION. EVEN IF ONE APPLIED THE 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 HAD FOLLOWED PROJECT COMPLETION METHOD WHICH WAS ONE OF THE PRESCRIBED METHODS AND THE SAME METHOD HAD BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS. THE DEPARTMENT, THEREFORE, COULD NOT REJECT THE METHOD AND APPLY PE RCENTAGE COMPLETION METHOD IN A SUBSEQUENT YEAR. MOREOVER, THE ASSESSEE ALREADY FOLLOWING THE SAME METHOD, HAD DECLARED THE ENTIRE INCOME IN THE ASSESSMENT YEAR 2006 - 07 WHEN THE PROJECT WAS COMPLETE. THE SAME INCOME, THEREFORE, COULD NOT BE ASSESSED IN THE EARLIER YEAR BY REJECTING THE REGULAR AND RECOGNIZED METHOD BEING FOLLOWED BY THE ASSESSEE. BEFORE PASSING THE IMPUGNED ASSESSMENT ORDER, IT WAS WELL WITHIN THE KNOWLEDGE OF THE ASSESSING OFFICER , THAT THE ASSESSEE HAS ALREADY DECLARED THE SAID INCOME IN THE ASSESSMENT YEAR 2006 - 07 AND HAS ALREADY PAID THE TAX ON THE SAME. FOR THE ABOVE PROPOSITION THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISIONS IN THE CASE OF AWADESH BUILDERS V. INCOME - TAX OFFICER [37 SOT 122 (MUM)] , OF ITAT, AHMEMDABAD BENC H IN THE ITA NO.277,278,279 AND 280/CTK/2012 7 CASE OF ASST.COMMISSIONER OF INCOME - TAX V. NATIONAL BUILDERS, REPORTED IN (2012) 22 TAXMAN.COM 55 (AHMEDABAD - TRIBUNAL) AND THE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE DCIT - VRS - OMEGA SHELTERS PVT. LTD. (COPY PLACED ON RECORD). 6 . AS REGAR DS THE REJECTION OF BOOKS OF ACCOUNT, THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE REASONING ASSIGNED BY THE ASSESSING OFFICER IN HIS ORDER FOR REJECTION OF BOOKS OF ACCOUNT ARE NOT JUSTIFIED INSOFAR AS THE ASSESSEE HAD NEVER EMPLOYED MORE THAN 17 LABOURS , AS IT TOOK PERMISSION FROM THE DISTRICT LABOUR OFFICER FOR 17 LABOURS ONLY. THE WAGES RATE AS MENTIONED BY THE A.O IS NOT CORRECT, BECAUSE THE RATE FOLLOWED BY THE A.O OF 50 TO 80/ - IS PRESCRIBED FOR UNSKILLED LABOUR AND NOT FOR SKILLED LABOUR. THE RATE ADOPTED BY THE ASSESSEE WAS THE PREVAILING LABOUR RATE FOR SKILLED LABOUR. THE GENERAL LABOUR WORKING IN AGRICULTURAL FILED CANNOT WORK IN THE CONSTRUCTION OF FLATS. SINC E THE LABOUR ENGAGED IN THE CONSTRUCTION OF MULTI STOR I ED BUILDING WERE TO WORK STANDING ON A BAMBOO STICK ON A HIGH HEIGHT AND SINCE LIFE RISK IS INVOLVED, THEREFORE THEY ARE DEMANDING MORE PRICE. THAT APART IF THE MINIMUM LABOUR RATE WHICH HAS BEEN ACCEP TED BY BOTH THE PARTY I.E. RS.80 WILL BE TAKEN IN TO ACCOUNT THEN IT WILL BE CLEAR THAT THE ASSESSEE HAD NEVER CLAIMED MORE LABOUR CHARGES I.E 80 *17*365 = RS. 4, 96,400.00 SHOULD HAVE BEEN THE LABOUR CHARGES, WHERE AS THE ASSESSEE HAS CLAIMED ONLY RS.4, 32,000.00. IN VIEW OF THE ABOVE CALCULATION, IT MAY BE APPRECIATED THAT THE ASSESSEE HAS NEVER INFLATED THE LABOUR CHARGES. I N RESPECT OF CASH PAYMENT IN RESPECT OF SAND, CHIPS AND BOULDERS, THE ASSESSEE RESPECTFULLY SUBMITS THAT IT HAD PROCURED THE SAME FROM THE LOCAL PEOPLE AS THE SAME WAS AVAILABLE IN A VERY LOW PRICE. IN RESPECT OF ALLEGATION OF NON MAINTENANCE OF WORK - IN - PROGRESS REGISTER AN D STOCK REGISTER, THE ASSESSEE RESPECTFULLY SUBMITS THAT IT IS NOT A CASE THAT THE ASSESSEE WAS NOT MAINTAINING ANY WORK - ITA NO.277,278,279 AND 280/CTK/2012 8 IN - PROGRESS REGISTER. S INCE IT WAS MAINTAINING THE ACCOUNTS IN PROJECT COMPLETION METHOD, THE SAME COULD NOT BE FINALISED UNLESS THE PR OJECT IS COMPLETED. DURING THE YEARS UNDER CONSIDERATION, SINCE THE PROJECT WAS CONTINUING, THE INCOMPLETE REGISTER WAS NOT ACCEPTED BY THE LEARNED A.O. AS HE WAS ASKING FOR A REGISTER ON THE METHOD FOLLOWED BY HIM WHICH IS NOT JUSTIFIED. IN VIEW OF THE AB OVE FACTS, THE LEARNED COUNSEL FOR THE ASSESSEE PLEADED THAT THE REJECTION OF BOOKS OF ACCOUNT BY THE A.O AS WELL AS BY THE LEARNED CIT(A) IS NOT JUSTIFIED AND HENCE THE SAME IS LIABLE TO BE REJECTED IN THE INTEREST OF JUSTICE. 7 . THE LEARNED COUNSEL FOR T HE ASSESSEE CONTENDED THAT THE ADDITIONS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ARE NOT JUSTIFIED AND LIABLE TO BE DELETED. 8 . THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT HAVING FOLLOWED A PART ICULAR SYSTEM OF ACCOUNTING, 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 AT THE PROJECTED INCOME WHICH IS SUBMITTED TO BANK FOR OBTAINING LOAN. THE TOTAL INCOME JUSTIFIES THE INCOME RENDERED BY THE ASSESSEE TO THE EXTENT THAT THE INCOME IN THE RESPECTIVE YEARS ON THE BASIS OF PERCENTAGE COMPLETION METHOD IS TO BE SUBJECTED TO TAX ON THE CONCEPT OF REAL INC OME AND NOT ON THE BASIS OF HOW THE INCOME IS TREATED TO BE TAXED BY THE ASSESSEE. THE LEARNED CIT(A) THEREFORE WAS JUSTIFIED IN UPHOLDING THE ORDERS OF THE ASSESSING OFFICER WHICH HE FULLY SUPPORTED FOR HIS PART OF SUBMISSIONS. 9 . WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL RELIED ON VARIOUS CITATIONS INDICATING THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CANNOT BE ITA NO.277,278,279 AND 280/CTK/2012 9 CHALLENGED UNLESS SPECIFIC DEFECTS HAVE BEEN FOUND IN THE BOOKS O F ACCOUNT TO THRUST UPON A PARTICULAR ACCOUNTING STANDARD WHICH COEXIST WITH THE ACCOUNTING STANDARD ADOPTED BY THE ASSESSEE IN THE IMPUGNED AYS. THE CHANGE IN ACCOUNTING METHOD HAS BEEN ADDRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE GIVING A EFFECT INS OFAR AS THE ESTIMATION OF INCOME ON THE BASIS OF PROJECTED BALANCE SHEET AND PROFIT & LOSS ACCOUNT FILED BY THE ASSESSEE BEFORE THE BANK FOR THE PURPOSE OF OBTAINING LOAN JUSTIFIES THAT THE INCOME RENDERED IS ON THE BASIS OF SALES WHICH HAVE BEEN RECORDED AND UNDISPUTED AS PER THE FINAL SALES IN THE ASSESSMENT YEAR 2006 - 07. IN FACT IN THE ASSESSMENT YEAR 2006 - 07, THE LEARNED CIT(A) HAS FOUND THE NOTING OF THE ASSESSING OFFICER INCORRECT TO THE EXTENT THAT THE SAME INCOME CANNOT BE TAXED IN THE LAST YEAR WHI CH WAS RETURNED BY THE ASSESSEE CUMULATIVE OF THE EARLIER YEARS RETURNS BY THE ASSESSEE CHOOSING TO FILE THE RETURN ON PROJECT COMPLETION METHOD. IN THE CASE OF AWADESH BUILDERS V. INCOME - TAX OFFICER, ITAT, MUMBAI BENCH B[ ,RELIED ON BY THE LEARNED COUNS EL FOR THE ASSESSEE, HAS HELD IN PARAGRAPH 2.8 AS UNDER: 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 PRO JECT, THE INSTITUTE OF CHARTERED ACCOUNTANTS 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 APPLI CABLE 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 WHIC H IS ONE OF THE PRESCRIBED METHODS BY THE 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 REVI SED STANDARDS, REVISED AS - 7 WAS APPLICABLE ONLY TO A CONTRACTOR AND IN CASE OF REAL ESTATE DEVELOPER, REVISED AS - 9 WAS PRESCRIBED AS ITA NO.277,278,279 AND 280/CTK/2012 10 PER WHICH THE INCOME HAS TO BE ACCOUNTED ONLY ON COMPLETION OF PROJECT WHEN THE FLATS ARE SOLD, I.E., WHEN LEGAL TITLE POSS ES TO THE BUYER OR WHEN SELLER ENTERS INTO 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 TI TLE 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 YE AR OF COMPLETION. EVEN IF ONE APPLIES THE 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 A SSESSEE 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 SUPPORTED 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 T HE 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. .. HE PLACED RELIANCE ON THE D ECISIONS WHICH CASE LAWS HAVE BEEN CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE INSOFAR AS WE ARE OF THE CONSIDERED VIEW THAT HAVING INVOKED THE PROVISIONS OF SECTION 145(3), THE ASSESSING OFFICER WAS STOPPED FROM ESTIMATING INCOME ON THE BASIS OF A BALAN CE SHEET FILED BEFORE THE BANK FOR OBTAINING LOAN WAS NOT SACROSCENT INSOFAR AS HE WAS MAKING THE ASSESSMENT ON THE RETURNS FILED BY A PRIVATE LIMITED COMPANY BEING A STATUTORY ENTITY WHICH ACCOUNT CANNOT BE CHANGED. PROJECTION OF INCOME TO THE BANK FOR OB TAINING LOANS IS INVARIABLY DIFFERENT INSOFAR AS CERTAIN DEDUCTIONS ALLOWABLE UNDER THE ACT AS DEDUCTION ARE NOT CLAIMED THEREIN. THEREFORE, WITHOUT RULING OUT THE FACT THAT THE ASSESSEE WAS NOT TO ITA NO.277,278,279 AND 280/CTK/2012 11 FOLLOW A PARTICULAR SYSTEM OF ACCOUNTING THE LEARNED CIT(A ) HAVING AGREED TO THE PROPOSITION OF COMPUTING INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT, THE CIT(A) MISDIRECTED HIMSELF TO HOLD THAT THE ASSESSEE WAS NOT A DEVELOPER OF REAL ESTATE BUT MERELY A CONTRACTOR. THIS FACT WAS NEVER OBSERVED BY TH E ASSESSING OFFICER WHEN HE READILY AGREED TO THE PROPOSITION THAT A CONTRACTOR CANNOT BE SUBJECTED TO TAX ON PERCENTAGE METHOD AND THE ESTIMATION WAS AN ADVANCE AGAINST SALES . THEREFORE, HAVING CONTRADICTED THEIR OWN FINDINGS THE RESPECTIVE AUTHORITIES HA VE BROUGHT TO TAX THE INCOMES WHICH OTHERWISE WOULD HAVE BEEN RENDERED TO TAX BY THE ASSESSEE IN RESPECTIVE AYS IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT THAT COULD NOT REQUIRE ANY INTERFERENCE . FURTHER WE OBSERVE THAT THE REJECTION OF BOOKS OF ACCO UNT IN THE RESPECTIVE YEARS IS NOT ON PROPER FOOTINGS AS PER THE ULTIMATE ESTIMATION . IN VIEW OF THE ABOVE, THE IMPUGNED ORDERS OF THE LEARNED CIT(A) ARE SET ASIDE AND WE DIRECT THE ASSESSING OFFICER TO ACCEPT THE RETURNS AS FILED BY THE ASSESSEE IN THE RE SPECTIVE AYS UNDER CONSIDERATION. 10 . IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 29.06.2012 H.K.PADHEE, SENIOR PRIVA TE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: KASHI KANCHAN CONSTRUCTION PVT. LTD., NEELAKANTHA NAGAR, MAIN LANE, GOSANINUAGAON, BERHAMPUR 760 003 2. THE RESPONDENT: DEPUTY COMMISSIONER OF INCOME - TAX,BERHAMPUR. 3. TH E CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY. ITA NO.277,278,279 AND 280/CTK/2012 12 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 26.06.2012 .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.06.2012 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 ..