ACIT, Circle-38(1), V. G. Nanda Gopal,

ITA 354/DEL/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9952 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 02-07-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 02-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 143(3); 143(1); 142(2A); 145; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE HONBLE SR. VICE PRESIDENT SHRI R.P. GARG A ND HONBLE JUDICIAL MEMBER, SHRI RAJPAL YADAV ITA NO.354/DEL./2006 (ASSESSMENT YEAR : 1998-99) ACIT, CIRCLE 38(1), VS. SHRI G. NANDA GOPAL, NEW DELHI. C-47, LG-II, MALVIYA NAGAR, NEW DEHI. (PAN/GIR NO.AAIPG1284C) AND (ITA NO.185/DEL./2006 (ASSESSMENT YEAR : 1998-99) SHRI G. NANDA GOPAL, VS. ACIT, CIRCLE 38(1), NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI M.P. RASTOGI/SURESH ANANTHARAM AN REVENUE BY : SHRI R.K. GUPTA, CIT(DR) ORDER PER R.P. GARG, SR.VP THESE CROSS APPEALS ARE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR ASSESSMENT YEAR 1998-99. REVENUES APPEAL 2. THE SOLE GROUND RAISED IN THE REVENUES APPEAL I S AS UNDER: ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN LAW BY ALLOWING RELIEF OF RS.2,13,58,340 BY SIMPLY FOLLOWI NG THE DECISION OF HIS PREDECESSOR AND IGNORING THE FACT THAT THE ASSESSEE HAD NOT FOLLOWED THE DIRECTION OF THE ITAT AND DID NOT PRODUCE THE RECONSTRUCTED B OOKS OF ACCOUNT BASED ON PROJECT COMPLETION METHOD. ITA NOS.354 & 185/DEL./2006 (ASSESSMENT YEAR : 1998-99) 2 3. THE FACTS ARE THAT THE ORIGINAL ASSESSMENT WAS C OMPLETED ON A TOTAL INCOME OF RS.4,76,85,601 ON 5.3.2001, AFTER MAKING AN ADDITIO N OF RS.4,66,14,741 ON ACCOUNT OF CLOSING STOCK OF WORK-IN-PROGRESS. THE MATTER WAS C ARRIED BY THE ASSESSEE IN APPEAL AND THE ADDITION WAS REDUCED BY A RELIEF OF RS.2,13,58, 314. 4. BOTH THE DEPARTMENT AND THE ASSESSEE WERE IN APP EAL. THE TRIBUNAL, HOWEVER, WHILE DISPOSING OF THE ASSESSEES APPEAL IN ITA NO. 1321/DEL./2002 DATED 23.7.2002 SET ASIDE THE ORDER OF THE REVENUE AUTHORITIES AND REST ORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS: 8. WE HAVE EXAMINED THE RIVAL SUBMISSIONS. THE AS SESSEES METHOD OF ACCOUNTS IS NOT SATISFACTORY AND THE ORDER OF THE A SSESSING OFFICER IS PROOF OF THAT. THE ASSESSING OFFICER S ORDER HAS BEEN MODIFIED BY COMMISSIONER OF INCOME- TAX (APPEALS) WHO HAS GIVEN SOME RELIEF TO THE ASSE SSEE. EVEN THEN WE ARE NOT SATISFIED ABOUT THE METHOD OF COMPUTING THE INCOME OF THE ASSESSEE. 9. OUR ATTENTION WAS DRAWN TO THE ORDER OF THE ITAT , BOMBAY BENCH A IN THE CASE OF SHAPOORJI PALLONJI & CO. (RAJKOT) (P) L TD. VS. ITO IN APPEAL NOS.3741 & 3742(BOM) OF 1988 DATED 17 TH SEPTEMBER, 1993 (AYS 1983-84 & 84-85). IN THIS CASE, THE ASSESSEE COMPANY WERE ENGAGED IN CIV IL CONSTRUCTION WORK. THEY ADOPTED THE PROJECT COMPLETION METHOD AND ACCOUNTED FOR PROFIT AND LOSS IN THE BOOKS OF ACCOUNT OF THE YEAR IN WHICH THE PROJECT W AS COMPLETED. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) ACCORDI NGLY. THE COMMISSIONER OF INCOME-TAX (APPEALS) U/S 263 SET ASIDE THE ASSESSME NTS ON THE GROUND THAT INCOME FROM CONSTRUCTION WORK COULD BE COMPUTED ON THE BAS IS OF PROFIT ON WORK IN PROGRESS AND THAT THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE DID NOT ENABLE INCOME OF THE YEAR TO BE PROPERLY DEDUCED. THE ITAT STRUCK DOWN THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) U /S 263 AND HELD THAT SINCE THE ASSESSEE FOLLOWED THE SAME METHOD OF ACCOUNTING REGULARLY, WHICH WAS A RECOGNIZED ONE, THE DEPARTMENT WAS BOUND BY THE ASS ESSEES METHOD WHICH COULD NOT BE REGARDED AS IMPROPER MERELY BECAUSE IT MIGHT GIVE THE ASSESSEE BENEFIT IN CERTAIN YEARS OR BECAUSE ACCORDING TO THE COMMISSIO NER ANOTHER METHOD WAS PREFERABLE. THE ORDERS OF THE ASSESSING OFFICER WE RE RESTORED. 10. WE SET ASIDE THE ORDERS OF THE COMMISSIONER OF INCOME-TAX AND THE ASSESSING OFFICER AND RESTORE THE ASSESSMENT TO TH FILE OF THE ASSESSING OFFICER TO BE DECID AFRESH IN ACCORDANCE WITH LAW. THE ASSESS EE IS DIRECTED TO RECONSTRUCT HIS ACCOUNTS ON THE PROJECT COMPLETION METHOD (AS ACCOR DING TO US THE PRESENT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT ACCEP TABLE). THE ASSESSING OFFICER IS DIRECTED TO COMPLETE THE ASSESSMENT AFRESH AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. ITA NOS.354 & 185/DEL./2006 (ASSESSMENT YEAR : 1998-99) 3 5. THE MATTER WAS THEN TAKEN UP BY THE ASSESSING OF FICER AFRESH. A SPECIAL AUDIT WAS ALSO UNDERTAKEN U/S 142(2A) AND THE AUDITORS HA VE POINTED OUT THAT THE RE-CONSTRUCTED STATEMENT OF ACCOUNTS PROVIDED BY THE ASSESSEE CANN OT BE SAID TO BE IN ACCORDANCE WITH PROJECT COMPLETION METHOD. THE ASSESSEE WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNT TO VERIFY THE RE-CONSTRUCTED ACCOUNT AND ALSO TO GIVE DETAILS OF THE COMPLETED PROJECT ALONG WITH THE DETAILS OF EXPENSES INCURRED IN RELATION T O SUCH PROJECT. THOUGH THE ASSESSEE FILED SOME STATEMENT SHOWING THAT ONLY TWO PROJECTS WERE COMPLETED DURING THE YEAR, THE RECEIPTS WAS RS.3582,589, BUT WHEN ENQUIRED, THE RE CEIPTS HAD BEEN DECLARED AT RS.3,18,03,956 IN THE EARLIER REVISED P&L A/C ON PR OJECT COMPLETION METHOD, THERE WAS NO EXPLANATION. HE, THEREFORE, HELD THAT THE ASSES SEE HAS NOT BEEN ABLE TO RE-CONSTRUCT THE ACCOUNT AS PER THE DIRECTION OF THE ITAT AND ACCORD INGLY RE-MADE THE ASSESSMENT ON THE EARLIER INCOME AT RS. 4,76,85,601. THE COMMISSIONE R OF INCOME-TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE AND REDUCED THE ADDITION OF RS.4,66,14,741 TO RS.2,52,56,401. 6. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIV AL SUBMISSIONS. THE ASSESSEE WAS REQUIRED TO FILE NOTE ON THE METHOD OF ACCOUNTI NG ON THE INCOME IN THE EARLIER YEAR AND THE SUBSEQUENT YEAR AND ALSO THE DETAILS OF ASS ESSMENT IN THE EARLIER YEARS. THE ASSESSEE FILED NOTE AS UNDER: NOTE ON REVISED STATEMENTS UNER PROJECT COMPETION M ETHOD : ASSESSMENT YEAR 1998-99 (A) DURING THE FINANCIAL YEAR 1997-98 RELEVANT TO T HE ASSESSMENT YEAR 1998-99 THERE WERE 13 PROJECTS. THESE PROJECTS WERE ANALYSED TO SEE IF ANY ADJUSTMENTS ARE WARRANTED FOR SWITCHING OVER TO THE PROJECT COMPLET ION METHOD. IN RESPECT OF 8 PROJECTS NO ADJUSTMENTS WERE WARRANTED BECAUSE THEY WERE COMPETED IN THAT YEAR ITSELF OR SUBSEQUENTLY AND NO INCOME WAS CONSIDERED IN ACCOUNTS. OTHER FIVE PROJECTS WERE ALSO ANALYZED AND THE RELEVANT BASIS IS GIVEN HEREUNDER. (B) PROJECTS WHICH WERE EITHER COMPLETED OR NO WORK WAS DONE DURING THE YEAR AND THEREFORE NO ADJUSTMENT IS REQUIRED TO BE MADE UNDE R PROJECT COMPLETION METHOD. 1) S.C. RLY. BALARSHAH 2) GROUP-76, BILASPUR 3) SIKKA ENGG. CO. 4) BSES, MUMBAI 5) RE, MATHURA 6) S.E. RLY. BHILAI 7) N.RLY. MINTO BRIDGE ITA NOS.354 & 185/DEL./2006 (ASSESSMENT YEAR : 1998-99) 4 (C) PROJECTS WHICH CONTINUED DURING THE YEAR AND I RESPECT OF WHICH ADJUSTMENT MAY BE REQUIRED TO BE MADE UNDER PROJECT COMPLETION MET HOD. 1) RITES KHODIYAR 2) TSS, BANDEL 3) W. RLY. KOTA 4) VSP., TSS ANAKAPALLI 5) HPCL, KONDAPALLI. EACH OF THE ABOVE PROJECTS WERE ANALYSED IN DETAIL WITH THE FOLLOWING EFFECT: 1) RITES, KONDAPALLI: DURING THE PREVIOUS YEAR1997-98 INCOME CONSIDERED W AS RS.50.20 LAKHS. THE VALUE OF WORK DONE IN THE SUBSEQUENT YEARWAS ONLY R S.7.29 LAKHS, WHICH EVIDENCES THE FACT THAT MORE THAN 90% OF THE WORK W AS OVER BY 31.03.98 ITSELF. AS SUCH THIS PROJECT ALSO CAN BE CONSTRUED AS COMPL ETED AND THEREFORE NO ADJUSTMENT IS WARRANTED WHILE SWITCHING OVER TO THE PROJECT COMPLETION METHOD. 2) T.S.S. BANDEL: IN RESPECT OF THIS PROJECT THE INCOME BOOKED DURIN G THE PREVIOUS YEAR 1997-98 WAS RS.38.80 LAKHS. THE ENTIRE WORK PART OF THE PR OJECT IS TOTALLY COMPLETED. HOWEVER, ONLY RECONCILIATION OF MATERIALS OFFICIAL CLOSING OF THE PROJECT AND CERTIFICATION OF COMPLETION WERE PENDING. NO INCOM E AROSE FROM THIS PROJECT MAY ALSO BE RECKONED AS COMPLETED AND THEREFORE NO ADJU STMENT IS REQUIRED TO BE MADE UNDER THE PROJECT COMPLETION METHOD. 3) W. RLY., KOTA: INCOME BOOKED DURING PREVIOUS YEAR 1997-98 RS. 11.74 LAKH. THIS IS A PROJECT WHICH HAD COMMENCED DURING THE PREVIOUS YEAR AND HA D CONTINUED INTO THE SUBSEQUENT YEARS. DURING THE YEAR ONLY SMALL QUANT UM OF THE WORK WAS DONE. THEREFORE THE ENTIRE INCOME IS RS.11.74 LAKHS AND R ELEVANT EXPENDITURE IS TO BE REDUCED FROM THE RELEVANT HEADS OF INCOME,. 4.) VSP TSS, ANAKAPALLI: INCOME BOOKED DURING PREVIOUS YEAR 1997-98 RS .4.71 LAKH. THIS PROJECT WAS COMPLETED IN THE SUBSEQUENT YEAR. THERE WAS A LULL IN THE PREVIOUS. SINCE THIS PROJECT ALSO IS NOT YET COMPLETE, THIS INCOME AND R ELATED EXPENDITURE IS TO BE REDUCED FROM THE RELEVANT HEADS. ITA NOS.354 & 185/DEL./2006 (ASSESSMENT YEAR : 1998-99) 5 5) HPCL, KONDASPALLI: INCOME BOOKED DURING THE PREVIOUS YEAR 1997-98 RS. 47.75 LAKHS. ON AN ANALYSIS OF THE INVOICES RAISED, IT IS OBSERVED THA T THE ENTIRE INCOME IS FROM FOUNDATION WORKS. FOUNDATION WORKS ARE DIFFERENT IN NATURE, AS ALSO TECHNICALLY, AS COMPARED TO OVERHEAD ELECTRIFICATIO N WORKS. AS THEY PREDOMINANTLY CONSTITUTE CIVIL WORKS, AS ARE CONSTR UED AS AN INDEPENDENT SEGMENT OF THE CONTRACT BY US. SINCE THEY ARE A SE PARATE SEGMENT THE WHOLE OF WHICH HAD BEEN COMPLETE IN THE YEAR ITSELF, IT IS F ELT THAT IS IN COMPLIANCE WITH COMPLETED CONTRACT METHOD AND THEREFORE INCOME AND EXPENDITURE HEADS NEED NOT BE DISTURBED. IN THE LIGHT OF THE ABOVE NO ADJ USTMENT IS PROPOSED UNDER THE NEW METHOD. ACCORDINGLY THE DISCUSSED CHANGES WERE CARRIED OUT AND REVISED STATEMENTS HAD BEEN PREPARED. 7. IT HAD ALSO FILED YEAR-WISE POSITION SHOWING THE ASSESSMENT PARTICULARS AS UNDER: CHART SHOWING THE ASSESSMENT PARTICULARS ASSTT. YEAR DATE OF COMPLETION OF ASSESSMENT. SECTION UNDER WHICH ASSESSMENT COMPLETED PAGE NO. OF THIRD PAPER BOOK (III) FILED ON 19.05.2009 REMARKS 1995-96 18.12.1997 U/S. 143(3) 97 METHOD OF ACCOUNT ING ACCEPTED. 1996-97 24.03.1999 U/S. 143(3) 99 METHOD OF ACCOUNT ING ACCEPTED. 1997-98 23.03.2000 U/S. 143(3) 101 METHOD OF ACCOU NTING ACCEPTED 1998-99 05.03.2001 U/S. 143(3) 103 UNDER DISPUTE SOLITARY YEAR 1999-00 19.09.2000 U/S. 143(3) 110 METHOD OF ACCOUN TING ACCEPTED 2000-01 INELIGIBLE U/S. 143(1) 111 METHOD OF ACCOUN TING ACCEPTED 2001-02 26.02.2004 U/S. 143(3) 112 METHOD OF ACCOUN TING ACCEPTED 2002-03 24.02.2003 U/S. 143(3) 114 METHOD OF ACCOUN TING ACCEPTED 2003-04 28.10.2005 U/S. 143(3) 115 METHOD OF ACCOUN TING ACCEPTED. 2004-05 29.12.2006 U/S. 143(3) 117 METHOD OF ACCOUN TING ACCEPTED. NOTE : THE ASSESSING OFFICER IN HIS REMAND REPORT D ATED 12 TH /16 TH AUGUST, 2005 COPY PLACED AT PAGE 23 OF THE IIND PAPER BOOK SENT TO CO MMISSIONER OF INCOME-TAX (APPEALS) ALSO EXPRESSED HIS DIFFICULTY AND APPREHENSION IN P ROJECT COMPLETION METHOD FOR THE YEAR IN ISOLATION OF OTHER YEARS AS THE RESPECTIVE RECEI PTS HAVE ALREADY BEEN TAXED IN OTHER YEARS. ITA NOS.354 & 185/DEL./2006 (ASSESSMENT YEAR : 1998-99) 6 8. FROM THE ABOVE, IT IS EVIDENT THAT EXCEPT THE YE AR UNDER CONSIDERATION, THE METHOD OF ACCOUNTING OF THE ASSESSEE HAS BEEN ACCEPTED IN THE EARLIER YEARS AND BY ACCEPTING THE METHOD FOLLOWED BY THE ASSESSEE WHICH IS IN ACCORDA NCE WITH ACCOUNTING STANDARD, THERE IS NO LOSS TO THE REVENUE, IF TOTALITY OF THE PROFI TS DECLARED BY THE ASSESSEE IS TAKEN INTO CONSIDERATION. THE PROVISIONS OF SUB-SECTION 3 OF SECTION 145 COMES INTO PLACE ONLY WHEN ASSESSING OFFICER IS NOT SATISFIED ABOUT THE C ORRECTNESS OF THE AMOUNT OR THE ASSESSEE HAS FAILED TO ADOPT THE REGULAR METHOD FOR ACCOUNTING OR DOES NOT FOLLOW AN ACCOUNTING STANDARD PRESCRIBED BY THE CENTRAL GOVT. HE CANNOT REJECT THE BOOKS OF ACCOUNT WHICH WERE REGULARLY MAINTAINED ONLY ON THE CORRECTNESS OF THE ACCOUNTS MAINTAINED AND FOLLOWED BY THE ASSESSEE. AS THE ASS ESSEE HAS FOLLOWED THE SAME METHOD OF ACCOUNTING REGULARLY WHICH IS ALSO A RECOGNIZED ONE, IN OUR OPINION, THE DEPARTMENT IS BOUND TO COMPUTE THE INCOME OF THE ASSESSEE AS PER THAT METHOD. OTHERWISE, IT WOULD GIVE A DISTORTED PICTURE OF THE PROFITS DECLARED BY THE ASSESSEE FROM YEAR TO YEAR. FROM THE AFORESAID CHART, IT IS EVIDENT THAT EXCEPT IN THE YEAR UNDER CONSIDERATION, THE METHOD EMPLOYED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE R EVENUE FROM THE YEARS 1995-96 TO 2005-06 WHICH IS ALMOST FOR A DECADE. IN THE CIRC UMSTANCES, WE ARE OF THE OPINION THAT THE METHOD OF THE ACCOUNTING FOLLOWED BY THE ASSESS EE WHICH WAS AS PER THE ACCOUNTING STANDARD AND WAS ON PROJECT COMPLETION METHOD SHOUL D BE ACCEPTED. WE THEREFORE, DIRECT THE ASSESSING OFFICER TO COMPUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. ASSESSEES APPEAL 9. SINCE THE GROUNDS RAISED IN THE APPEAL OF THE AS SESSEE ARE SIMILAR TO THAT OF REVENUES APPEAL. WE, THEREFORE, DISPOSE OF THIS A PPEAL ON THE SAME LINES AS INDICATED ABOVE. AS THE APPEAL OF THE REVENUE HAS BEEN RESTO RED BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS INDICATED ABOVE, THIS APPEAL OF THE ASSESSEE ALSO STANDS SET ASIDE. WE ORDER ACCORDINGLY. ITA NOS.354 & 185/DEL./2006 (ASSESSMENT YEAR : 1998-99) 7 10. IN THE RESULT, BOTH APPEALS OF THE REVENUE AS WELL AS THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 11. ORDER PRONOUNCED IN OPEN COURT ON 05.08.2009. (RAJPAL YADAV) (R.P. GARG) JUDICIAL MEMBER SR. VICE PRESIDENT DATED: AUG. 05, 2009. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XXVIII, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT