EAST COAST ENTERPRISES, MUMBAI V. ITO 20(3)(1), MUMBAI

ITA 3367/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6614 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: DEEPAK TRALSHWAL A
• Section: 44AD; 143(3); 6; 144

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 3367 / MUM./ 2010 ( / ASSESSMENT YEAR : 20 05 06 ) EAST COAST ENTERPRISES LOK BHAVAN, LOK BHARATI COMPLEX MAROL, MAROSHI ROAD ANDHERI (E), MUMBAI 400 059 .. / APPELLANT V/S INCOME TAX OFFICER WARD 20(3)(1) BANDRA KURLA COMPLEX BANDR (EAST), MUMBAI 400 051 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAAFE0534F / ASSESSEE BY : MR. DEEPAK TRALSHWALA / REVENUE BY : MR. ASHOK SURI / DATE OF HEARING 26 . 0 3 .201 4 / DATE OF ORDER 23.04.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 22 ND FEBRUARY 2010 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XX XI, MUMBAI, FOR THE QUANTUM OF EAST COAST ENTERPRISES 2 ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 200 5 06 , ON THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE IMPUGNED ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R/W/S/ 145 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE DETAILED SUBMISSIONS MADE BY THE APPELLANT ON 20 TH JUNE 2009, AND 12 TH AUGUST 2009. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 145 OF THE ACT WERE NOT APPLICABLE. 2 . FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL BUILDING. THE FACTS LEADING T O REJECTION OF THE BOOKS OF ACCOUNT BY THE ASSESSING OFFICER UNDER SECTION 145 ARE THAT THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAD SHOWN OPENING WORK IN PROGRESS AS ON 1 ST APRIL 2004 AT ` 2,38,88,621, COST INCURRED DURING THE YEAR AT ` 1,44,84,611, AVAILABLE WIP FOR CHARGING COST AT ` 3,83,73,232, CONSTRUCTION COST BOOKED AT ` 3,71,70,025 AND CLOSING WIP AS ON 31 ST MARCH 2005 AT ` 12,03,207. THE NET PROFIT WAS SHOWN AT ` 1,86,479, WHICH WAS CLAIMED AS SET OF F FROM BROUGHT FORWARD LOSS AND ACCORDINGLY NIL INCOME WAS SHOWN BY THE ASSESSEE. ON THE EXAMINATION OF DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD SHOWN SALE OF FLATS AMOUNTING TO ` 33,54,000, AS CANCELLA TION OF FLATS AND NET SALES WAS SHOWN AT ` 2,60,21,12,00. THE ASSESSEE, IN RESPONSE TO THE SHOW CAUSE NOTICE , FURNISH ED THE DETAILS OF CANCELLATION OF FLATS AND ALSO HOW THE SALE OF SAID FLATS HAVE BEEN EAST COAST ENTERPRISES 3 BOOKED IN THE EARLIER YEARS, VIDE REPLY DATED 27 TH DE CEMBER 2007. IT WAS SUBMITTED THAT THE AMOUNT OF ` 33,54,000, COMPRISES OF THREE FLATS , OUT OF WHICH , TWO FLATS WERE SOLD IN THE FINANCIAL YEAR 1997 98 AND WAS DULY INCLUDED IN THE GROSS SALES. H OWEVER, THE SAID FLATS WERE SUBSEQUENTLY CANCELLED IN THE FIN ANCIAL YEAR 1998 99 AND W ERE SOLD TO DIFFERENT PERSON S AT THE SAME PRICE AND THE SAME WAS INCLUDED AGAIN IN GROSS SALE S OF THE FINANCIAL YEAR 1998 99. SIMILARLY, THE THIRD FLAT WAS BOOKED IN THE FINANCIAL YEAR 1997 98, WHICH WAS CANCELLED IN THE FINANCIAL YEAR 2000 01 AND WHATEVER THE AMOUNT WAS PAID BY HIM WAS REFUNDED IN THE SAME FINANCIAL YEAR. THE SAID FLAT WAS LATER ON SOLD TO DIFFERENT PERSONS IN THE SAME FINANCIAL YEAR 2000 01. IN ALL THE CASES OF SALE OF THESE FLATS, THE ASSESSEE HAD SHOWN THE SALES , ONE AT THE TIME OF ORIGINAL SALE AND AGAIN FOR THE SECOND TIME WHEN IT WAS RESOLD. HOWEVER, THE EFFECT OF CANCELLATION WAS NOT RECORDED IN THE BOOKS OF ACCOUNT I.E., IT WAS NOT REDUCED FROM THE SALES IN THOSE YEARS AND IT CONTINUED TO REFLECT AS ADVANCE S RECEIVED FROM THE CUSTOMERS IN THE BALANCE SHEET. THESE WERE SUPERFICIAL ADVANCES WHICH WERE CONTINUING IN THE BOOKS OF ACCOUNT. IN THIS YEAR, ONCE THIS MISTAKE WAS REALIZED, THE ASSESSEE REDUCED THE SAID AMOUNT OF SALE S AGGREGATING TO ` 33,54,000 IN THIS YEAR I.E., THEY WERE WRITTEN OFF IN THIS YEAR. THE RELEVANT ACCOUNT OF THE THREE PARTIES WAS ALSO FURNISHED. 3 . HOWEVER, THE ASSESSING OFFICER HELD THAT THE ACCOUNTING EFFECT TO SUCH CANCELLATION WAS NOT PROPERLY GIVEN BY THE ASSESSEE FIRM EITHER IN THE FI NANCIAL YEAR 1998 99 OR IN THE FINANCIAL YEAR 2000 01. HENCE, WRONG BOOK ENTRIES HA VE BEEN MADE DURING THE YEAR. HE FURTHER HELD THAT WHEN FLATS ARE BOOKED BY THE CUSTOMERS, THE SAME SHOULD HAVE BEEN SHOWN DURING THE YEAR AND IF THE BOOKING HAS BEEN CANCEL LED IN THE SUBSEQUENT YEAR AND THE AMOUNT HAS BEEN REFUNDED TO THE CUSTOMER, THEN THE TRANSACTION HAS TO BE RECORDED IN THE BOOKS OF EAST COAST ENTERPRISES 4 ACCOUNT BY WAY OF ENTRIES IN THE BOOKS OF ACCOUNT OF THE SAID CUSTOMER S SHOULD HAVE BEEN CLOSED AND THE FLATS SHOULD HAVE B EEN REFLECTED IN THE CLOSING STOCK AT THE YEAR END. THE ASSESSEE HAS THUS, CARRIED FORWARD THE BOOK ENTRIES AS ADVANCE FROM CUSTOMERS I.E., AS DEBTOR UP TO FURTHER PERIOD OF 8 TO 10 YEARS AND SUDDENLY THE SAME HAS BEEN WRITTEN OFF BY REDUCING THE SAME FROM GROSS SALES , WHICH IS NOT CORRECT . TH I S, IN FACT IS A MAJOR DEFECT WHICH GO ES TO SHOW THAT THE ASSESSEE IS NOT MAINTAINING ITS BOOKS OF ACCOUNT TRULY AND CORRECTLY IN EVERY YEAR. THUS, CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNT ARE IN DOUBT. ACC ORDINGLY, HE REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145. HE FURTHER NOTED THAT THE ASSESSEE HAS DEBITED DISCOUNT TO CUSTOMERS AMOUNTING TO ` 10,26,694, AND HAS FAILED TO FILE ANY CONFIRMATION FROM THE SAID CUSTOMERS EVEN THOUGH THE EXPLANATION BY THE ASSESSEE WAS FILED WITH REGARD TO THE NATURE OF DISCOUNT. THUS, HE HELD THAT THE SAME IS ALSO DISALLOWABLE. HE FURTHER REQUIRED THE ASSESSEE THAT WHEN DURING THE YEAR, THE PROJECT W AS ALMOST COMPLE TE, THEN HOW COME ONLY NET PROFIT OF ` 1,84,480 HA S BEEN OF FERED AND THAT TOO IT HAS BEEN SET OFF AGAINST THE CARRIED FORWARD LOSSES, WHICH IS NOT JUSTIFIED AND, THEREFORE, WHY THE NET PROFIT OF 8% SHOULD NOT BE APPLIED ON GROSS SALES. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE BOOK RESULTS HAVE BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS AND WITHOUT THERE BEING ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT IN THIS YEAR, THE ESTIMATION OF NET PROFIT @ 8% IS NOT CORRECT BECAUSE THE PROVISIONS OF SECTION 44AD CANNOT BE MADE APPLICABLE. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND AFTER REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145, HE APPLIED THE NET PROFIT RATE OF 8% AND ASSESSED THE INCOME OF ` 29,88,520. SINCE THE PROFIT WAS WORKED OUT ON THE BASIS OF APPLICATION OF NET PROFIT, THEREFORE, FURTHER ADDITION OF ` 10,26,694 ON ACCOUNT OF DISCOUNT TO CUSTOMER WAS NOT SEPARATELY MADE. EAST COAST ENTERPRISES 5 4 . IN THE FIRST APPEAL, THE LEARNED COMMISSIONER (APPEALS) UPHELD THE REASONING OF THE ASSESSING OFFICER FOR REJECTION OF BOOKS OF ACCOUNT AND APPLICATION OF NET PROFIT RATE. HE ALSO AFFIRMED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE DID NOT DEDUCE THE CORRECT PROFITS OF THE ASSESSEE AND, ACCORDINGLY, UPHELD THE ESTIMATION OF NET PROFIT ON THE TOTAL TURN OVER @ 8%. HOWEVER, IN THE LAST PARAGRAPH OF THE ORDER, THE LEARNED COMMISSIONER (APPEALS) HAS MENTIONED THE ESTIMATION OF NET PROFIT @ 10% WHICH, IN FACT, SHOULD BE 8% BECAUSE THE ASSESSING OFFICER HAS APPLIED 8% NET PROFIT RATE. 5 . BEFORE US, THE LEARNED COUNSEL, MR. DEEPAK TRALSHWALA, ON BEHALF OF THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS BEEN REGULARLY MAINTAINING THE BOOKS OF ACCOUNT ON DAY TO DAY BASIS WHICH ARE ALSO SUBJECT TO AUDIT UNDER SECTION 44AB . THE DISCREPANCIES, WHICH HAVE BEEN HIGHLIGHTED BY THE ASSESSING OFFICER, IS ONLY ON AC COUNT OF THE FACT THAT THE CANCELLATION OF THE FLATS DONE EARLIER SHOULD HAVE BEEN TAKEN INTO ACCOUNT BY REDUCING IT FROM THE GROSS SALE S IN THE EARLIER YEARS, WHICH HAS BEEN DONE IN THIS YEAR. EXPLAINING THE CASE, HE SUBMITTED THAT T HE ASSESSEE HAD SHOWN THE SALE OF THREE FLATS TWICE I.E., ONCE AT THE TIME OF ORIGINAL SALE AND SECOND AT THE TIME OF RE SALE AFTER CANCELLATION. THUS, IN FACT, THE ASSESSEE HAD OFFERED TAX TWICE ON THE SALE OF THE TH REE FLATS. ONCE THE ASSESSEE HAD REALIZED THIS MISTAKE, THEN THE EFFECT OF BOOKING THE FLATS TWICE AND THE CANCELLATION THEREOF, WAS RECTIFIED IN THIS YEAR BY REDUCING THE SAID AMOUNT FROM THE GROSS SALES. OVER ALL, THERE IS NO NEGATIVE IMPACT ON THE ACTUAL AMOUNT OFFERED FOR SALES FOR THE GIVEN PROJECT. THEREFORE, REJECTION OF BOOKS OF ACCOUNT ON THIS GROUND AND APPLYING THE NET PROFIT OF 8% IS COMPLETELY UNCALLED FOR. IF THE ASSESSING OFFICER IS TAKING THE ENTIRE TURNOVER BY NOT REDUCING THE SALE OF THREE FLATS, THEN THE ASSESSEE WOULD BE SUBJECTED TO TAX ON EAST COAST ENTERPRISES 6 THE SA LES OF THE THREE FLATS TWICE AND, THEREFORE, SUCH AN APPROACH OF THE ASSESSING OFFICER CANNOT BE UPHELD. ALTERNATIVELY, HE SUBMITTED THAT EVEN IF FOR TECHNICAL REASONS, THE BOOKS OF ACCOUNT ARE HELD TO BE REJECTED, THEN IT DOES NOT LEAD TO ANY INFERENCE TH AT THE HIGHER NET PROFIT RATE SHOULD BE APPLIED. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE DECISION OF RAJASTHAN HIGH COURT IN GOTAN LIME KHANIJ UDYOG, 256 ITR 343 (GUJ.). REGARDING ADVERSE INFERENCE DRAWN ON ACCOUNT OF CLAIM OF DISCOUNT OF ` 10,26, 694, HE SUBMITTED THAT IT WAS CLEARLY EXPLAINED BEFORE THE ASSESSING OFFICER THAT WHENEVER A CUSTOMER WISHES TO CARRY OUT CERTAIN WORK BY HIMSELF AT HIS OWN COST, THEN PROPORTIONATE DEDUCTION FROM THE AGREED SALE PRICE IS GIVEN. THERE ARE ALSO CERTAIN INST ANCES WHERE THE ASSESSEE IS NOT IN A POSITION TO COMPLE TE THE WORK WITHIN A GIVEN TIME, THEN IN SUCH CASES, REDUCTION OF COST IS ALLOWED BY WAY OF DISCOUNT FOR WHICH THE ASSESSEE DID NOT HAVE TO INCUR FURTHER EXPENDITURE. SUCH DISCOUNTS ONLY LEADS TO RE DU C TION OF COST AND IN REAL EFFECT THERE IS NO REDUCTION FROM THE SALE PRICE. THUS, IT HAS NO SERIOUS IMPACT O N OVER ALL PROFIT OF A GIVEN PROJECT AND, HENCE, THIS ADDITION OR THE REASON FOR REJECTING THE BOOKS OF ACCOUNT CANNOT BE SUSTAINED. 6 . PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DEFECT WHICH HAS BEEN POINTED OUT BY THE ASSESSING OFFICER ACTUALLY GOES TO SHOW THAT THE ENTRIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT CORRECT AND COMPLETE. IF THE ASSESSEE HAS CANCELLED TH E FLAT EARLIER , THEN EFFECT SHOULD HAVE BEEN GIVEN IN THE SAME YEAR AS IT WILL HAVE CORRESPONDING EFFECT ON THE CLOSING STOCK ALSO . BY THIS ACTION OF THE ASSESSEE, THE FIGURE OF CLOSING STOCK FROM YEAR TO YEAR REMAINS DISTORTED BECAUSE ON THE ONE HAND, THE SALE HAS BEEN CANCELLED AND ON THE OTHER HAND THE VALUE OF THE COST HAS NOT BEEN INCREASED. THIS IS A SERIOUS DEFECT ON WHICH THE LEARNED COMMISSIONER (APPEALS) HAS RIGHTLY HELD THAT REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145 , ARE CLEARLY EAST COAST ENTERPRISES 7 ATTACHED IN THE CASE OF THE ASSESSEE. O NCE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED, THEN THE LAW PROVIDES THAT THE ASSESSING OFFICER HAS TO MAKE THE ASSESSMENT IN THE MANNER PRESCRIBED UNDER SECTION 144 , WHICH IS THE BEST JUDGMENT ASSESSMENT. THE INCOME COMPUTED BY T HE ASSESSING OFFICE R AFTER APPLYING THE RATE OF 8% ON GROSS SALES CANNOT BE HELD TO BE UNREASONABLE. HE THUS, STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS). 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CON TENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE MAIN REASONS FOR REJECTION OF THE BOOKS OF ACCOUNT BY THE AUTHORITIES BELOW IN THE ASSESSEE S CASE HAVE ALREADY BEEN DISCUSSED IN THE FOREGOING PARAGRA PHS. THE SUM AND SUBSTANCE OF THE FACTS LEADING TO REJECTION OF BOOKS OF ACCOUNT AND APPLICATION OF SECTION 145 ARE THAT THE ASSESSEE HAD SHOWN SALE OF THREE FLATS IN THE EARLIER FINANCIAL YEARS I.E., 1997 98 AND 2000 01. THE SAID SALE S W ERE CANCELLED AND AT THE TIME OF CANCELLATION, THE ASSESSEE SHOULD HAVE REDUCED IT FROM THE SALES IN THE YEAR OF CANCELLATION AND FROM THAT AMOUNT THE VALUE OF THE COST OF THE FLAT SHOULD HAVE BEEN ENHANCED. INSTEAD, THE ASSESSEE HAD CONTINUED TO REFLECT THE AMOUNT AS A DEB TOR IN THE BALANCE SHEET EVEN THOUGH THE SAID FLATS WERE SOLD TO DIFFERENT PARTIES IN THE SUBSEQUENT YEARS. AFTER A GAP OF SUCH A LONG TIME, THE ASSESSEE HAS NOW REDUCED THE EFFECT OF CANCELLATION IN THIS YEAR FROM THE GROSS SALES. THIS SHOWS THAT THE ASSE SSEES BOOK ENTRIES AND THE MAINTENANCE OF THE BOOKS OF ACCOUNT ARE NOT CORRECT AND COMPLETE. THE STATU TE CONTEMPLATES THAT THE ASSESSEE SHOULD MAINTAIN THE BOOKS OF ACCOUNT CORRECTLY AND COMPLETELY AFTER FOLLOWING PRESCRIBED METHOD OF ACCOUNTING REGULARLY . IF THE CORRECTNESS OR COMPLETENESS OF THE BOOKS OF ACCOUNT ARE DOUBTED, THEN IT ENTAILS REJECTION OF BOOKS OF ACCOUNT BY THE ASSESSING OFFICER UNDER SECTION 145(3). THE EFFECT OF SUCH REJECTION OF BOOKS OF ACCOUNT IS EAST COAST ENTERPRISES 8 THAT THE ASSESSING OFFICER HAS TO COM PLETE THE ASSESSMENT IN THE MANNER PROVIDED UNDER SECTION 144 I.E., BEST JUDGMENT ASSESSMENT. ON THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT THE LEARNED COMMISSIONER (APPEALS) HAS RIGHTLY UPHELD THE REJECTION OF BOOKS OF ACCOUNT U NDER SECTION 145 IN THIS YEAR. 8 . NOW COMING TO THE ESTIMATION OF NET PROFIT @ 8 % AND ALSO THE ALTERNATE SUBMISSION OF THE LEARNED COUNSEL THAT EVEN IF THE BOOKS OF ACCOUNT ARE REJECTED, THEN IT DOES NOT LEAD TO ANY INFERENCE THAT ADDITION HAS TO BE MADE . I N THIS CASE, IT HAS TO BE EXAMINED WHETHER THE GROUND S ON WHICH THE BOOKS OF ACCOUNT HAVE BEEN REJECTED HAS A DIRECT IMPACT O R CAN DISTURB THE TRADING RESULT OF THE ASSESSEE OR NOT . AS STATED ABOVE, THE ASSESSEE HAS NOT TAKEN THE EFFECT OF CANCELLATION OF FLATS PROPERLY IN THE BOOKS OF ACCOUNT IN THE EARLIER YEARS. IN FACT, IT HAS BOOKED THE SALES OF THREE FLATS TWICE. IN THIS YEAR, THE ASSESSEE HAS TRIED TO NEGATE THE SALES OF THREE FLATS BY W RITING IT OFF FROM THE SALES OF THIS YEAR. THE ASSESSEE HAS BEEN FOLL OWING PROJECT COMPLETION METHOD FOR ACCOUNTING ITS PROFIT FOR THE RESIDENTIAL PROJECT. IF THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD, THEN THE EFFECT OF REDUCTION OF SALES IN THIS YEAR WILL NOT HAVE ANY EFFECT ON THE OVER ALL PROFIT OF THE PROJECT , BECAUSE THE ASSESSEE HAD ALREADY SHOWN THE SALES IN THE EARLIER YEARS WHICH HAS BEEN THE SUBJECT TO TAX , NOT ONCE BUT TWICE. THUS, THIS CANNOT LEAD TO INFERENCE FOR FURTHER ADDITION IN THIS YEAR ALSO. EVEN THOUGH WE HAVE UPHELD THAT THE REJECTION OF THE BOOKS OF ACCOUNT IS JUSTIFIED, THEN ALSO, WHILE MAKING THE BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER HAS TO COMPUTE THE INCOME AS PER THE MATERIAL AVAILABLE ON RECORD. THE REJECTION OF THE BOOKS OF ACCOUNT UNDER THE PROVISIONS OF SECTION 145 DOES NOT IPSO FACTO LEADS TO A CONCLUSION THAT THE ADDITION NECESSARILY HAS TO BE MADE. THE MATERIAL AVAILABLE ON THE RECORDS ALONG WITH THE MATERIAL COLLECTED BY THE ASSESSING OFFICER SHOULD EAST COAST ENTERPRISES 9 FORM THE BASIS FOR MAKING THE BEST JUDGMENT ASSESSMENT. BL A N KET APPLICATI ON OF THE NET PROFIT RATE SANS MATERIAL ON RECORD IS DEFINITELY NOT JUSTIFIED. IN THE PRESENT CASE, AS IS EVIDENT FROM THE RECORD S , IT IS SEEN THAT INSOFAR AS THE TRADING RESULTS ARE CONCERNED, THERE IS NO DISCREPANCY OR ADVERSE MATERIAL WARRANTING ANY ADD ITION ON ACCOUNT OF PROFIT THAT IS , IMPACT ON THE DIRECT EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT, WORK IN PROGRESS AND THE SALES MADE DURING THE RELEVANT ASSESSMENT YEAR. ONCE THE GROSS PROFIT WHICH IS A BALANCING FIGURE OF DEBIT / CREDIT SIDES HAS N OT BEEN DISTURBED I.E., NO DISCREPANCIES HAVE BEEN FOUND IN DEBIT / CREDIT SIDES OF THE TRADING ACCOUNT, THEN THE PROFIT CANNOT BE ESTIMATED. THE APPLICATION OF THE NET PROFIT @ 8% CANNOT BE APPLIED BY FOLLOWING THE PROVISIONS OF SECTION 44AD, WHICH HAS AP PLICABILITY ONLY ON CERTAIN CLASS OF ASSESSEE S OR BUSINESS ES AS PRESCRI BED UNDER STATUTE AND NOT FOR ALL THE CASE S OF CONSTRUCTION BUSINESS. THE ASSESSING OFFICER HAS ALSO NOT REFERRED TO ANY COMPARABLE CASES TO SHOW THAT THE OTHER DEVELOPERS IN ASSESSEES LINE WHO ARE FOLLOWING PARTICULAR METHOD OF ACCOUNTING ARE SHOW ING THE NET PROFIT RATE OF 8%. IF THE ASSESSING OFFICER HAD INTENDED TO APPLY 8%, THEN HE SHOULD HAVE CONFRONTED SOME COMPARABLE CASES TO THE ASSESSEE FOR REBUTTING THE SAME OR TO GIVE ITS C OUNTER COMMENTS. WITHOUT SUCH AN EXERCISE, THE BLANKET APPLICATION OF 8% CANNOT BE APPLIED. 9 . NOW COMING TO THE ADVERSE INFERENCE ON ACCOUNT OF DISCOUNT ON CUSTOMER AT ` 10,26,694. I T IS SEEN FROM THE EXPLANATION GIVEN BEFORE THE ASSESSING OFFICER THAT THES E DISCOUNTS ARE NOT IN FACT DISCOUNT GIVEN DIRECTLY O N THE SALE OF FINISHED PRODUCTS BUT IT IS A PROPORTIONATE DEDUCTION ON ACCOUNT OF UNFINISHED OR INCOMPLETE WORK. IF THE ASSESSEE HAS SOLD A FLAT ON A REDUCED SALE PRICE WITH PARTIALLY INCOMPLETE FLAT, TH EN IT DIRECTLY GOES TO SAVE THE COST OF THE CONSTRUCTION TO THAT EXTENT. IT IS ALSO SEEN FROM THE EXPLANATION GIVEN BEFORE THE ASSESSING OFFICER , EAST COAST ENTERPRISES 10 VIDE LETTER DATED 12 TH DECEMBER 2007, WHEREIN THE ASSESSEE HAD SUBMITTED ENTIRE DETAILS AND ADDRESSES OF THE P ERSONS AND ALSO THE AMOUNT WHICH HAS BEEN REDUCED FROM THE SALES ON ACCOUNT OF INCOMPLETE FLATS. ONCE THESE DETAILS HAVE BEEN FILED , THEN THE ASSESSING OFFICER WAS REQUIRED TO CARRY OUT PRIMA FACIE ENQUIRY TO REBUT THE CLAIM OF THE ASSESSEE. WITHOUT SUCH E NQUIRY, NO ADVERSE INFERENCE CAN BE DRAWN ON SUCH A CLAIM OF DISCOUNT FOR THE PURPOSE OF REJECTION OF BOOKS OF ACCOUNT OR ESTIMATING THE INCOME. 10 . UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE ADDITION ON ACCOUNT OF APPLICATION OF NET PROFIT @ 8% IS UNCALLED FOR EVEN THOUGH TECHNICALLY SPEAKING THE ASSESSEES BOOKS OF ACCOUNT ARE LIABLE TO BE REJECTED IN THIS YEAR. THUS, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED AS INDICATED ABOVE. 11 . 11 . I N THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 23 RD APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL 2014 SD / - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 23 RD APRIL 2014 EAST COAST ENTERPRISES 11 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT , MUMBAI