DCIT, UDAIPUR V. M/s. Ankit Chirag Developers Pvt. Ltd., UDAIPUR

ITA 368/JODH/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6512 (ITAT-JODHPUR)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-02-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Keywords: Rejection of books of accounts; Search and seizure; Principle of natural justice; Corroborative evidences; Retraction
• Section: 133A; 131

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.368 /JODH/2013 (A.Y. 2010-11) DCIT, CENTRAL CIRCLE-1, VS. M/S. AN KIT CHIRAG DEVELOPERS UDAIPUR. PVT. LTD., 54-55, RAJDEEP, NEW FATEHPURA, SUKHADIA CIRCLE, UDAIPUR. PAN NO. AAGCA 9897 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHRAWAN KUMAR GUPTA. DEPARTMENT BY : DR. DEEPAK SEHGAL - D.R. DATE OF HEARING : 18/03/2014. DATE OF PRONOUNCEMENT : 01/04/2014. O R D E R PER N.K. SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 25/03/2013 OF LD. CIT, CENTRAL, JODHPUR. THE FOLLO WING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A), CENTRAL, JAIPUR HAS ERRED IN DELETING THE TRADING A DDITION OF RS. 84,40,241/- HOLDING THAT THE ACTION OF THE AO IN A DOPTING PERCENTAGE 2 COMPLETION METHOD AND REJECTION OF BOOKS OF ACCOUNT CANNOT BE SUSTAINED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A), CENTRAL, JAIPUR WITHOUT PROVIDING AN OPPORTUNITY TO THE AO, HAS ERRED IN RELYING ON THE ARGUMENT OF THE ASSESSEE THAT NO T A SINGLE SALE AGREEMENT HAS BEEN EXECUTED ETC. WHICH IS CONTRARY TO THE CATEGORICAL FINDING ON THE BASIS OF THE SEIZED MATE RIAL THAT THE PURCHASERS AND THE FLAT UNITS PURCHASED BY THEM WER E CLEARLY IDENTIFIABLE AND THE SALE CONSIDERATION WAS QUANTIF IED, AGAINST WHICH ADVANCES WERE RECEIVED AND AGREEMENTS WERE MADE DES PITE THE FACT THAT THE ASSESSEE DID NOT EVEN PROVIDE BASIC DETAIL S OF BOOKS TO THE AO. 3. THE APPELLANT CRAVES THE RIGHT TO AMEND, ALTER O R ADD TO ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE. 2 FROM THE ABOVE GROUNDS, IT IS CLEAR THAT THE ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF TRADING ADDIT ION MADE BY THE ASSESSING OFFICER BY ADOPTING PERCENTAGE COMPLETION METHOD AND REJECTING THE BOOKS OF ACCOUNTS. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 29/09/2010 DECLARING AN INCOME OF RS. 2,0 7,340/-. IN THIS CASE, A SEARCH AND SEIZURE PROCEEDINGS WERE CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE ASSESSEE GROUP NAMELY SHANTI LAL MAROO ON 10/03/2010. SIMULTANEOUSLY, SURVEY PROCEEDINGS UND ER SECTION 133A OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) WERE CARRIED OUT AT THE BUSINESS PREMISES OF THIS GROUP ON 10/03/2010. THE 3 ASSESSEE WAS INVOLVED IN THE BUSINESS OF CONSTRUCTI NG FLATS AND SELLING THE SAME TO THE RETAIL PURCHASERS, FOR SUCH THIS BUSINE SS TRANSACTION, THE ASSESSEE ADOPTED PROJECT COMPLETION METHOD OF ACCOU NTING. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD STA RTED RECEIVING ADVANCES FROM ALMOST ALL THE PURCHASERS AND HAD ENT ERED INTO SALE AGREEMENTS AT PRE-DETERMINED PRICE FOR EACH FLAT AN D THIS FACT WAS CORROBORATED WITH THE PAPERS SEIZED DURING THE SEAR CH AND SEIZURE PROCEEDINGS. ACCORDING TO THE ASSESSING OFFICER, T HE CASH BOOK DID NOT REFLECT THE BOOKING AMOUNT RECEIVED IN CASH BY THE ASSESSEE COMPANY AND WAS HAVING NEGATIVE CASH BALANCE AT MANY INSTANCES. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER THE GUIDELINES LAID DOWN IN AS-7 READ WITH AS-9 BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), THE ASSESSEE SHOULD HAVE FOLLOWED PERCENTAGE COMPLETION METHOD FOR REVENUE RECOGNITION AND SHOULD HAVE PAID TAXES. TH E ASSESSING OFFICER REFERRED TO THE GUIDANCE NOTE ISSUED BY THE COUNCIL OF ICAI ON RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPERS AS PUBLISHED I N JUNE, 2006 ISSUE OF THE CHARTERED ACCOUNTANTS WHICH DEFINES THE TERM R EAL ESTATE AND TALKS OF APPLICATION OF REVENUE RECOGNITION PRINCIPLE IN AS-9 TO REAL ESTATE SALES FOR WHICH IT STATES THAT CONDITIONS SPECIFIED IN PA RAGRAPH 10 & 11 OF AS-9 ARE TO BE SATISFIED. THE SAID CONDITIONS ARE AS FO LLOWS:- 4 1) AT THE TIME OF PERFORMANCE IT IS NOT UNREASONABL E TO EXPECT ULTIMATE COLLECTION. II) PERFORMANCE IS CONSIDERED AS ACHIEVED EITHER WH EN THE SELLER OF GOODS HAS TRANSFERRED THE PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFICANT RISK AND AS REGARDS THE OWNERSHIP HAVE BEEN TRANSFERRED TO BUYER AND THE SELLER RETAINS NO EFFECTIVE CONTRO L OF THE GOODS TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WITH OWN ERSHIP. III) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING TH E AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM SALE OF GOO DS. ACCORDING TO THE ASSESSING OFFICER, IN ASSESSEES CASE THE FOLLOWING CONDITIONS ARE SATISFIED FOR APPLICATION OF PERCENT AGE COMPLETION METHOD:- I) REGARDING THE BOOKING OF FLATS SHRI ANKIT JAIN STAT ED THAT THE BOOKING AMOUNT IS RECEIVED EITHER IN CASH OR THROUGH CHEQUE S AND ACCORDINGLY RECEIPTS ARE ISSUED. FOR BOOKING A FLAT, AN AMOUNT OF RS. 2 LACS IS TAKEN BUT THE AMOUNT MAY VARY FROM PERSON TO PERSON . HOWEVER, AS REGARDS THE DETAILS OF FLAT BOOKED AS ON DATE OF SE ARCH THE NAME AND ADDRESSES OF PERSONS WHO HAVE BOOKED THE FLAT THOUG H THE ASSESSEE WAS REQUESTED TIME AND AGAIN BUT ONLY PART INFORMAT ION WAS PROVIDED. II) AS PER BOOKS OF ACCOUNT OF M/S ANKIT CHIRAG DEVELOP ERS PVT. LTD. THE ADVANCES ON ACCOUNT OF BOOKING OF FLATS SHOULD BE A T RS. 30084999/- AS ON 08/03/2010. HOWEVER, THE DETAILS IN RESPECT OF NUMBER OF FLATS THAT HAVE BEEN BOOKED, NAMES AND ADDRESSES OF THE P ERSONS IN 5 WHOSE NAME THEY HAVE BEEN BOOKED WERE NOT PROVIDED BY THE ASSESSEE IN SPITE OF REPEATED OPPORTUNITIES. AS PE R RECORDS OF M/S CHIRAG DEVELOPERS PVT. LTD. AND THE STATEMENT OF DI FFERENT MEMBER OF GROUP THE ASSESSEE HAS NOT BOOKED ANY SALES AS O N DATE OF SEARCH AND ALL THE RECEIPTS AGAINST FLATS HAVE BEEN SHOWN AS ADVANCES. III) THE ASSESSING OFFICER HAS ALSO REFERRED TO SEIZED D OCUMENTS AS PER PAGE 8 TO 10 OF ANNEX. AS, EXHIBIT 4 FOUND AND SEIZ ED FROM THE OFFICE OF COMPANY 54, 55 RAJDEEP NEAR SUKHARIA CIRCLE, UDA IPUR AND REFERENCE OF PAGE NO. 4 HAS BEEN MADE ON WHICH SOME CALCULATION WAS DONE BY MULTIPLYING 1666 WITH 1600 RESULTING IN TO 2665600 AND TO THIS AMOUNT RS. 40000+1% HAS BEEN ADDED GIVING A TOTAL OF RS. 2732656/-. OUT OF THIS AMOUNT RS. 6 LAC WERE S UBTRACTED RESULTING IN THE REMAINDER AMOUNT OF RS. 2132656/-. THE AO HAS ANALYZED CALCULATION OF THIS CASE BEING THE COST OF FLAT WITH SIZE OF 1666 SQ.FT. AND THE COST HAS BEEN TAKEN @ 1600 PER SQ.FT. AND AFTER ADDING OTHER CHARGES LIKE SOCIETY CHARGES ETC. THE COST OF THIS FLAT COMES TO RS. 2732656/-. IV) THE AO HAS ALSO REFERRED TO PAGE 9 OF THE SAME ANNE XURE WHERE BY MULTIPLYING 1666 WITH 1500 RESULTING IN 2499000/- A ND ADDING RS. 40000/- AND 25930/- TOTAL OF RS. 2564390/- IS GIVEN . OUT OF THIS SUM RS. 5 LAC HAS BEEN SUBTRACTED AND FURTHER RS. 40000 /- HAS BEEN SUBTRACTED GIVING A NET BALANCE OF RS. 2024390/-. FURTHER BELOW ON THIS PAGE RS. 202439/- HAS BEEN MULTIPLYING BY 6 GI VING A RESULT OF RS. 1214634/- AND RS. 212439/- MULTIPLIED BY 4 GIVING R ESULT OF RS. 849756/-. THE TWO AMOUNTS I.E. 1214634/- AND 84975 6/- HAVE BEEN ADDED TOGETHER TO GIVE A RESULT OF 2064390/-. THE AO HAS ANALYSED 6 THE CALCULATION OF THIS PAGE BEING REFLECTING COST OF FLAT WITH SIZE OF 1666 SQ.FT. AND COST HAS BEEN TAKEN @ 1500 PER SQ.F T. AND AFTER ADDING OTHER CHARGES LIKE SOCIETY CHARGES ETC. THE COST OF THE FLAT IS ARRIVED AT RS. 2564390/-. V) THE AO HAS ALSO REFERRED TO PAGE 10 WHERE THE CALCU LATION ARE BY MULTIPLYING 1484/- WITH 1400 AND IN RESULTING FIGUR E 40000+1% ADDED GIVING A SUM OF RS. 2138776/-. OUT OF THIS AMOUNT RS. 4 LACS AND FURTHER RS. 40000/- HAVE BEEN SUBTRACTED RESULTING IN FIGURE OF RS. 1698776/-. FURTHER BELOW TOKEN HAS BEEN SHOWN AT R S. 2 LACS, BASEMENT HAS BEEN SHOWN AT RS. 1 LAC AND STILT FLOO R HAS BEEN SHOWN REFLECTING THE COST OF FLAT WITH SIZE OF 1484 SQ. F T. AND THE COST HAS BEEN TAKEN AT RS. 1400/- PER SQ. FT. AND AFTER ADDI NG OTHER CHARGES LIKE SOCIETY CHARGES ETC. THE COST OF THE FLAT COME S TO RS. 2138776/-. THE ASSESSING OFFICER ALSO REFERRED THE STATEMENT OF SHRI ANKIT JAIN, WHO HANDLED THE SALES AND MARKETING OF THE FLATS AN D WAS CONFRONTED REGARDING THE SIZE OF FLATS, SELLING PRICE OF FLAT, BOOKING AMOUNT AND PAYMENT PLAN ETC IN HIS STATEMENT RECORDED UNDER SE CTION 131 OF THE ACT ON 21/04/2010, THE SAID STATEMENT ALSO FORMS PART O F THE ASSESSMENT ORDER. ON THE BASIS OF STATEMENT OF SHRI ANKIT JA IN, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE FLATS HAD BEEN SOLD TO BUYERS AT THE RATES AND AS PER PLAN MENTIONED ON THE THREE PAGES MENTIO NED ABOVE BUT IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAD SHOWN SALE O F SUCH FLATS AT RS. 7 12,46,000/- AND RS. 14,00,000/- RESPECTIVELY. THE ASSESSING OFFICER HAD TAKEN THE COST OF CONSTRUCTION/EXPENDITURE AS DECLA RED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AND SHOWN AS WORK IN PROGRESS AT RS. 10,86,89,817 /-. THE SAID FIGURE WAS GIVEN BY THE ASSESSEE TO T HE DVO FOR VALUATION OF THE PROJECT. 4. THE ASSESSING OFFICER ALSO POINTED OUT THAT THE AS SESSEE DID NOT FURNISH THE DETAILS OF STRUCTURAL AND ARCHITECTURAL DRAWINGS TO THE DVO. THEREFORE, IN THE ABSENCE OF DETAILED MEASUREMENT O F ALL HIDDEN ITEMS PARTLY SUBMITTED BY THE ASSESSEE, THE DVO WAS LEFT WITH NO OPTION, BUT TO PREPARE THE REPORT CONSIDERING THE COST INDEX OF RE LEVANT PERIOD AND STATION. THE ASSESSING OFFICER ALSO POINTED OUT TH AT DURING THE COURSE OF SEARCH PROCEEDINGS, ON THE BASIS OF INCOMPLETE BOOK S OF ACCOUNTS, THE ASSESSEE ITSELF OFFERED UNDISCLOSED CASH OF RS. 2,0 7,000/- FOR TAXATION. THEREFORE, THE PROJECT WAS PARTLY COMPLETED AS THE ASSESSEE HAD RECEIVED BOOKING AMOUNT ADVANCES FROM CUSTOMERS, BUT HAD NOT DISCLOSED ITS PROFIT IN THE RETURN OF INCOME FILED. THE ASSESSING OFFIC ER, ACCORDINGLY, INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT. RELIA NCE WAS PLACED ON THE FOLLOWING CASE LAWS:- I) CIT VS. A. KRISHNASWAMI MUDALIAR (1964) 53 ITR 122 (SC) II) CIT VS. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 (SC) 8 III) CIT VS. MCMILLAN & CO (1958) 33 ITR 182 (SC) IV) TIRATH RAM AHUJA (P) LTD. VS. CIT (1976) 103 ITR 15 (DELHI) 5. AS REGARDS TO THE OBJECTION OF THE ASSESSEE REGAR DING COMPULSORY APPLICATION OF AS-7 TO ONLY CONSTRUCTION CONTRACT A ND NOT TO REAL ESTATE BUILDERS/DEVELOPERS, THE ASSESSING OFFICER OBSERVED THAT APPLICABILITY OF AS-7 WAS LOGICAL COROLLARY OF APPLICABILITY OF AS-9 AND THE PROVISIONS OF SECTION 145(2) OF THE ACT TALKS OF NOTIFIED ACCOUNT ING STANDARD WHICH ARE AS-1 & AS-2 ONLY BUT THE TRUE AND FAIR PICTURE OF A CCOUNT WAS NOT POSSIBLE UNLESS ACCOUNTING STANDARD AS-1, 7, 8, 9, 10 ARE NO T FOLLOWED. THE ASSESSING OFFICER WAS OF THE VIEW THAT NO ACTUAL RE CEIPTS AND EXPENSES WERE DEBITED BY THE ASSESSEE IN REGULAR BOOKS OF AC COUNTS. HE FURTHER OBSERVED THAT THE BUYERS HAD ALREADY DEPOSITED HAND SOME AMOUNT DURING BOOKING OF THE FLATS AT RS. 3,44,70,399/- WHICH HAD ALREADY BEEN UTILIZED BY THE ASSESSEE IN CONSTRUCTION OF THE PROJECT AS W AS EVIDENT FROM THE WORK IN PROGRESS SHOWN IN THE BALANCE SHEET AT RS. 4,22,01,205/-. THE ASSESSING OFFICER, ACCORDINGLY, APPLIED ACCOUNTING STANDARD AS-7 TO COMPUTE THE ACTUAL PROFIT OF THE ASSESSEE FOR THE A .Y. 2010-11 AND ESTIMATED THE PROFIT @ 20% ON THE TOTAL WORK IN PRO GRESS OF RS.4,22,01,205/- DECLARED BY THE ASSESSEE. ACCORDIN GLY, A SUM OF RS. 84,40,241/- WAS ADDED TO THE INCOME OF THE ASSESSEE . 9 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED THAT INVOKING OF THE PROVISIONS OF SE CTION 145(3) OF THE ACT WAS BASED ON THE MISCONCEPTION OF LAW AS WELL AS FA CTS BECAUSE THE CORRECTNESS OF BOOK RESULT SHOULD NOT BE CHALLENGED WITHOUT POINTING OUT ANY SPECIFIC MISTAKE/DEFECT OR DEFICIENCY IN THE BO OKS OF ACCOUNTS OR WITHOUT RECORDING FINDING THAT THE PROFITS AND GAIN S COULD NOT BE PROPERLY DEDUCED FROM SUCH BOOKS OF ACCOUNTS. IT WAS STATED THAT THE ASSESSEE MAINTAINED ALL THE BOOKS OF ACCOUNTS CONSISTING OF CASH BOOK, LEDGER, OPENING STOCK, CLOSING STOCK, STOCK REGISTER, PURCH ASE AND SALES, BANK BOOK AND EXPENSES VOUCHERS ETC. IT WAS FURTHER STA TED THAT THE ACCOUNTS WERE DULY AUDITED AS PER LAW BY THE QUALIFIED PERSO N AND THE AUDITOR DID NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS W HICH WERE DULY EXAMINED AND THAT THE ASSESSING OFFICER APPLIED VER Y HIGH NET PROFIT RATE OF 20% ON CLOSING WORK IN PROGRESS ON THE BASIS OF OTHER CASE WHICH HAS NOT BEEN CONFRONTED TO THE ASSESSEE. IT WAS STATED THAT APPLICATION OF NET PROFIT RATE ON WORK IN PROGRESS/STOCK WAS ABSOL UTELY WRONG BECAUSE THE NET PROFIT RATE IS ALWAYS APPLIED ON THE RECEIP TS/TURNOVER NOT ON WORK IN PROGRESS/STOCK. RELIANCE WAS PLACED ON THE FOLL OWING CASE LAWS:- 1) MADNANI CONSTRUCTION (P) LTD. VS. CIT 296 ITR 45 (GAU.) 2) HARIDASH PARIKH VS. ITO 113 TTJ 274 (JD.) 10 3) MALANI RAM JIVAN JAGANNATH VS. ACIT (2007) 207 C TR 19 (RAJ.) 4) CIT VS. G.H.I. POLYMERS 192 CTR 477 (P & H) 5) CIT VS. OM OVERSEAS 315 ITR 185 ( P& H) 6) CIT VS. SMT. POONAM RANI 326 ITR 223 (DEL.) 7) CIT VS. MASCOT (INDIA) TOOLS & FORGINGS (P) LTD. 320 ITR 116 (ALL) 8) CIT VS. PATIALA DISTT. CO-OP. MILK PRODUCERS UN ION LTD. 328 ITR 615 (P & H) 9) SHREE AMBIKAJI RICE MILLS VS. CIT 192 ITR 189 (P AT) 10) ACIT VS. NATIONAL BUILDERS (2012)137 ITD 277 (A HD) 7 . THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER WRONGLY CHANGED THE METHOD OF ACCOUNTING FROM PROJECT COMPLETION ME THOD TO PERCENTAGE COMPLETION METHOD WHICH IS NOT PERMISSIBLE IN THE E YES OF LAW. IT WAS ALSO STATED THAT THE ASSESSING OFFICER HAD MISINTER PRETED THE PROVISIONS RELATING TO APPLICABILITY OF AS-7 AND AS-9 BY TREAT ING THE BUSINESS OF THE ASSESSEE AS THAT OF CONSTRUCTION CONTRACT INSTEAD O F CORRECT POSITION OF BUSINESS AS A BUILDER. IT WAS STATED THAT THE ASSE SSEE HAD DECLARED CORRECT PROFIT AS PER LAW ON THE BASIS OF CORRECT A ND RECOGNIZED METHOD I.E. PROJECT COMPLETION METHOD WHICH IS CONSISTENTL Y FOLLOWED SINCE BEGINNING OF THE PROJECT. THEREFORE, ACTION OF THE ASSESSING OFFICER WAS AGAINST THE PRINCIPLES OF ACCOUNTING, PRINCIPLE OF LAW, ACCOUNTING 11 STANDARD AS-2 AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1) PRESTIGE ESTATE PROJECTS (P) LTD. VS. DCIT 129 TTJ 680 (BANG.) 2) CIT VS. MANISH BUILDWELL (P) LTD. 245 CTR 397 ( DEL.) 3) CIT VS. BILHARI INVESTMENT (P) LTD. 299 ITR 1(S C). 4) CIT VS. HYUNDAI HEAVY INDUSTRIES CO. LTD. 291 I TR 482 (SC). 5) AWADHES BUILDERS VS. ITO 37 SOT 122 (MUM) IT WAS STATED THAT THE ADOPTION OF PERCENTAGE COMP LETION METHOD FOR COMPUTATION OF PROFIT WAS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AND THE ACCOUNTING STANDARD AS-9 WAS ONLY APPLICABL E FOR RECOGNITION OF REVENUE WHICH THE ASSESSEE HAS RIGHTLY ADOPTED. IT WAS FURTHER STATED THAT THE APPROACH OF THE ASSESSING OFFICER WAS FULL Y CONTRADICTORY IN HIS OWN ACTION BECAUSE HE HAS APPLIED PROJECT COMPLETIO N METHOD IN THE YEAR UNDER CONSIDERATION ONLY AND WORKED OUT THE PROFIT ON ESTIMATE BASIS WHEREAS HE HAD ACCEPTED THE PROFIT AND STOCK SHOWN BY THE ASSESSEE ON THE BASIS OF PROJECT COMPLETION METHOD IN THE PRECE DING AND SUCCEEDING YEARS. IT WAS ALSO STATED THAT THE ASSESSING OFFIC ER HAD NOT COMMENTED ABOUT THE POSITION OF PROFIT IN SUCCEEDING YEAR AND THE EFFECT OF THIS ADDITION AGAINST THE PROFITS AS PER ACCOUNTS IN THE SUCCEEDING YEAR. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION MADE IN THE YEAR UNDER CONSIDERATION DESERVES TO BE DELETED. 12 8. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AT PAGE NOS. 25 TO 27 OF THE IMPUGNED ORDER AS UNDER:- I HAVE CAREFULLY CONSIDERED ALL RELEVANT FACTS AS D ISCUSSED ABOVE. FIRST OF ALL, THE ISSUE WHETHER ACCOUNTING STANDARD AS-7 AND AS-9 APPLIED BY THE AO ARE JUSTIFIED OR NOT IS TO BE EXAMINED. THERE IS NO DIS PUTE THAT THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF FLATS AND SELLING T HE SAME TO THE RETAIL PURCHASERS AND NOT IN THE BUSINESS OF CONTRACTORSHI P. AS PER AO, AS PER ICAI GUIDELINES LAID DOWN IN AS-7 AND AS-9 THE ASSESSEE SHOULD HAVE FOLLOWED PERCENTAGE COMPLETION METHOD AND AS THE PERCENTAGE COMPLETION METHOD WAS NOT FOLLOWED THE AO TREATED SUCH BOOKS OF ACCOU NTS AS DEFECTIVE AND APPLIED PROVISIONS OF SEC. 145(3) OF IT ACT. THE AO ALSO REFERRED THAT THE ASSESSEE ACTUALLY ENTERED INTO SALE AGREEMENTS WITH VARIOUS BUYERS AS ALSO THAT THE SALE CONSIDERATION OF WHOLE OF THE PROJECT 'AMAR VILLAS WAS ASCERTAINABLE. BUT THE APPELLANT HAS DISPUTED SUCH FINDING OF THE AO AND CONTENDED THAT NOT A SINGLE SALE AGREEMENT HAS BEEN EXECUTED OR THAT WHATEVER AMOUNT WAS RECEIVED WAS ON ACCOUNT OF ADVA NCE AGAINST BOOKING OF FLATS, AS ALSO THAT NO SALE DEED OR ANY LEGALLY ENFORCEABLE SALE DOCUMENT WAS EXECUTED. IN THIS BACKGROUND IT IS TO BE EXAMIN ED WHETHER THE ACCOUNTING STANDARD AS-7 AND AS-9 ARE MANDATORY OR NOT IN RESPECT OF APPELLANT. AS PER OPINION OF EXPERT ADVISORY COMMIT TEE OF INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA PUBLISHED IN JOURNAL, 'THE CHARTERED ACCOUNTANT SEPT. 20O3 REVISED AS-7 WOULD NOT BE APP LICABLE IN THE CASE OR BUILDERS AND DEVELOPERS. THE REVISED AS-7 READS AS UNDER: 'ACCOUNTING STANDARD (AS-7) (REVISED 2002) CONSTRUCTION CONTRACTS ACCOUNTING STANDARD, (AS-7), CONSTRUCTION CONTRACTS (REVISED 2002), ISSUED BY THE COUNCIL OF INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA, COMES INTO EFFECT IN RESPECT OF ALL CONTRACTS ENTERED INTO DUR ING ACCOUNTING PERIODS COMMENCING ON OR AFTER 1.4.2OO3 AND IS MANDATORY IN NATURE FROM THAT DATE. ACCORDINGLY, ACCOUNTING STANDARD (AS-7); 'ACC OUNTING FOR CONSTRUCTION CONTRACT,' ISSUED BY THE INSTITUTE IN DECEMBER 1983 , IS NOT APPLICABLE IN 13 RESPECT OF SUCH CONTRACTS. EARLY APPLICATION OF THI S STANDARD IS, HOWEVER, ENCOURAGED.' THEREFORE IT EMERGED THAT THE OLD AS-7 WAS APPLICAB LE IN CASE OF BUILDERS AND DEVELOPERS AS WELL AS THE CONTRACTORS AND IT RE COGNIZED THE PROJECT COMPLETION METHOD AS WELL AS PERCENTAGE COMPLETION METHOD FOR DETERMINATION OF INCOME. HOWEVER IN THE REVISED AS- 7 THE PERCENTAGE COMPLETION METHOD IS NOT MANDATORY FOR THE BUILDERS AND DEVELOPERS AND IT IS APPLICABLE ONLY IN RESPECT OF CERTAIN CONTRACTOR S. THEREFORE I FIND MERIT IN THE CONTENTION OF THE APPELLANT THAT AS-7 IS NOT MA NDATORY IN RESPECT OF BUILDERS W.E.F. YEAR 2003. AS REGARDS AS-9 THE SAME READS AS UNDER: 'PARA-10 OF AS-9 REVENUE FROM SALES OR SERVICE TRANSACTIONS SHOULD B E RECOGNIZED WHEN THE REQUIREMENTS AS TO PERFORMANCE SET OUT IN PARAGRAPH S 11 AND 12 ARE SATISFIED, PROVIDED, THAT AT THE TIME OF PERFORMANC E IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION. IF AT THE TIME OF RISIN G OF ANY CLAIM IT IS UNREASONABLE TO EXPECT ULTIMATE COLLECTION, REVENUE RECOGNITION SHOULD BE POSTPONED. PARA-11 OF AS-9 IN A TRANSACTION INVOLVING THE SALE OF GOODS, PERFO RMANCE SHOULD BE REGARDED AS BEING ACHIEVED WHEN THE FOLLOWING CONDI TIONS HAVE BEEN FULFILLED: I) THE SELLER OF GOODS HAS TRANSFERRED TO THE BUYE R THE PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFICANT RISKS AND REWA RDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER AND THE SELLER R ETAINS NO EFFECTIVE CONTROL OF THE GOODS TRANSFERRED TO A DEGREE USUALL Y ASSOCIATED WITH OWNERSHIP; AND II) NO SIGNIFICANT UNCERTAINTY EXIST REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALE OF THE GOOD.' ON PERUSAL OF CLAUSE 10 & 11 OF AS-9 IT IS NOTED TH AT IN THE APPELLANT'S CASE THE RETRACTIONS INVOLVING OF SALE OF GOOD, THE PERF ORMANCE CAN BE REGARDED AS ACHIEVED WHEN CONDITIONS LAID DOWN IN CLAUSE 11 ARE FULFILLED. IN THIS CONNECTION IT MAY BE NOTED THAT THE APPELLANT HAS N OT TRANSFERRED TO THE BUYERS THE PROPERTY I.E. FLATS IN AS MUCH AS SIGNIF ICANT RISK AND REWARDS OF 14 OWNERSHIP HAVE NOT BEEN TRANSFERRED. NO SALE DEEDS OF SALE OF FLATS OR ANY LEGALLY ENFORCEABLE DOCUMENTS HAVE BEEN EXECUTED BY THE APPELLANT. THOUGH THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT SALE AGREEMENTS WERE EXECUTED BUT SUCH FINDINGS APPEAR T O BE FACTUALLY INCORRECT IN AS MUCH AS IN ASSESSMENT ORDER OR IN S UBSEQUENT REMAND REPORT THERE IS NO REFERENCE OF ANY SALES AGREEMENT. THE A PPELLANT HAS ALSO DENIED TO HAVE EXECUTED ANY SALE AGREEMENT FOR SALE OF FLA T. IT MAY ALSO BE NOTED THAT THE APPELLANT DURING ASSESSMENT PROCEEDINGS, V IDE WRITTEN SUBMISSION DATED 8.1.2011 (PARA 2) ALSO BROUGHT TO THE NOTICE OF THE AO THAT NO SALES WAS MADE DURING THE A.Y. UNDER CONSIDERATION AS ALS O THAT EVEN DURING SEARCH PROCEEDINGS, NO SALE AGREEMENT WERE FOUND WH ICH MAY BE SAID TO BE OF LEGALLY ENFORCEABLE. THEREFORE IN THE ABSENCE OF ANY SALE AGREEMENT OR EXECUTION OF ANY SALE DEED IT CANNOT SAID THAT ACCO UNTING STANDARD AS-9 FOR REVENUE RECOGNITION WAS APPLICABLE IN THE APPELLANT 'S CASE. IT MAY FURTHER BE STATED THAT THE APPELLANT COMPANY IN EARLIER A.Y. F OLLOWED PROJECT COMPLETION METHOD AND IN THE BACKGROUND OF ABOVE DI SCUSSION WHEN AS-7 AND AS-9 ARE PRIMA FACIE NOT FOUND TO BE APPLICABLE THEREFORE THERE WAS NO BASIS OF DETERMINATION OF INCOME BY PERCENTAGE COMP LETION METHOD. AS REGARDS THE ISSUE OF REJECTION OF BOOKS OF ACCOU NTS AS ALSO THE ESTIMATION OF PROFIT, THE AO'S CASE IS THAT THE ASSESSEE WAS T O FOLLOW PERCENTAGE COMPLETION METHOD AND AS SUCH METHOD IS NOT BEING U SED THEREFORE THE BOOKS OF ACCOUNTS WERE STATED TO BE DEFECTIVE. THE AO HAS ALSO REFERRED TO THE FACT THAT CERTAIN INFORMATION WAS CALLED FROM T HE ASSESSEE AND THAT THE SAME WERE NOT FILED AS ALSO THAT DURING COURSE OF S EARCH, INCRIMINATING PAPERS INDICATING ACCEPTANCE OF ON MONEY WERE FOUND AND SEIZED. THE APPELLANT'S CASE IS THAT AS PER IT ACT IT IS NOT NE CESSARY THAT PERCENTAGE COMPLETION METHOD SHOULD NECESSARILY BE APPLIED AS ALSO THAT THE AO HAS NOT POINTED OUT ANY VALID DEFECT IN THE BOOKS OF AC COUNT. IT IS THE CONTENTION OF THE APPELLANT THAT DEFECTS POINTED OUT BY THE AO WERE IN RESPECT OF THE BOOKS FOUND DURING COURSE OF SEARCH AND THAT SURVEY AND THAT SUBSEQUENT TO SURVEY WHATEVER DEFICIENCIES WERE POINTED OUT WERE REMOVED AND RESULTANT INCOME WAS SHOWN IN RETURN. THE BOOKS PRODUCED BEFO RE THE AO ARE AUDITED BOOKS AND IN THESE BOOKS NO DEFECT HAVE BEEN POINTE D OUT BY THE AO. ACCORDINGLY AS PER APPELLANT REJECTION OF BOOKS OF ACCOUNTS WAS NOT JUSTIFIED. ON CAREFUL CONSIDERATION OF RELEVANT FACT IT MAY BE NOTED THAT PRIMA FACIE NO 15 VALID DEFECTS ARE POINTED OUT BY THE AO IN THE AUDI TED BOOKS OF ACCOUNTS. THOUGH CERTAIN REFERENCE OF SEIZED RECORDS INDICATI NG ON MONEY IS MADE BY THE AO BUT SUCH INTERPRETATION OF THE AO IS NOT SUP PORTED BY ANY INDEPENDENT FINDING IN AS MUCH AS THE APPELLANT HAS NEITHER ADMITTED SUCH ON MONEY NOR SUCH ON MONEY IS EVIDENCED BY ANY INDE PENDENT THIRD PARTY OR CORROBORATIVE EVIDENCES INCLUDING BY THE BUYER PART IES. THERE IS NOTHING ON RECORD WHICH MAY INDICATE THAT ANY ITEM OF INCOME W AS SUPPRESSED OR ANY ITEM OF EXPENDITURE WAS SUPPRESSED OR INFLATED. THE REFORE PRIMA FACIE REJECTION OF BOOKS OF ACCOUNTS BY APPLICATION OF PR OVISIONS OF SEC. 145(3) WAS NOT JUSTIFIED. FOR THE ABOVE FINDING OF REJECTION O F APPLICATION OF PROVISIONS OF SEC. 145(3) AND ADOPTION OF AS-7 AND AS-9, RELIA NCE IS PLACED ON THE FOLLOWING CASE LAWS:- 1) HAWARE CONSTRUCTIONS (P) LTD. VS. ITO, MUMBAI (2011 ) 64 DTR 251 (MUN-TRIB.) 2) CIT VS. MANISH BUILDWELL (P) LTD. DELHI 245 CTR 397 (DELHI) 3) PRESTIGE ESTATE PROJECTS (P) LTD VS. DCIT 129 TTJ 6 80 (BANG.) 4) AWADHESH BUILDERS VS. ITO 37 SOT 122 (MUM) 5) DCIT VS. MALIBU ESTATE PVT. LTD. 32 CCH 262/52 SOT 54 (DEL-TRIB.) THE LD. CIT(A) FURTHER OBSERVED AS UNDER:- VI) IT MAY ALSO BE MENTIONED THAT IN THE SIMILAR FA CTS AND CIRCUMSTANCES THE HON. JURISDICTIONAL ITAT IN THE CASE OF M/S UNIQUE BUILDERS AND DEVELOPERS VS. DCIT, CC-2, JAIPUR IN ITAS NO. 73 TO77/JPR/2OL2 , 689 TO 690/JP/L2 AND 208 TO 215/JP/12 VIDE ORDER DATED 14.3.2O 13 DELETED TH E ADDITION MADE BY THE AO BY REJECTING THE STAND OF THE AO ADOPTING PERCEN TAGE COMPLETION METHOD AND REJECTION OF BOOKS OF ACCOUNTS U/S 145(3 ) OF IT ACT. VII) THE HON. ITAT, JODHPUR IN SIMILAR FACTS AND CI RCUMSTANCES IN THE CASE OF M/S SURYA ESTATE IN ITA NO. 505 TO 508/10-11 AND 51 0/10-11 VIDE THEIR ORDER DATED 27.11.2012. AGAIN REJECTED THE ACTION OF THE AO/ CIT(A) IN DETERMINATION OF INCOME BY SUBSTITUTING PROJECT COM PLETION METHOD TO PERCENTAGE COMPLETION METHOD. KEEPING IN THE VIEW THE FACTS AND CIRCUMSTANCES DIS CUSSED ABOVE THE ACTION OF THE AO IN ADOPTING PERCENTAGE COMPLETION METHOD AND REJECTION OF BOOKS OF ACCOUNTS CANNOT BE SUSTAINED. MOREOVER EVEN AFTE R ADOPTING PERCENTAGE COMPLETION METHOD THE AO HAS ESTIMATED PROFIT BY AD OPTING 20% GP RATE ON THE VALUE OF WIP SHOWN BY THE APPELLANT AND THE BAS IS OF ADOPTING OF SUCH 16 RATE WAS STATED TO BE PROFIT SHOWN/ASSESSED IN THE CASE OF M/S SURYA ESTATE. HOWEVER AS DISCUSSED ABOVE IN THE CASE OF SURYA EST ATE THE ACTION OF THE AO/ CIT(A) IN ADOPTING OF PERCENTAGE COMPLETION MET HOD WAS NOT APPROVED BY THE HON. ITAT, THEREFORE EVEN SUCH BASIS OF ESTI MATION OF PROFIT @ 20% OF THE VALUE OF WIP APPEARS TO BE UNJUSTIFIED. THE FAC TS AND CIRCUMSTANCES IN THE CASE OF M/S GLG BUILDERS ARE ALSO DIFFERENT AS EXPLAINED BY THE APPELLANT. THEREFORE THE ADDITION MADE BY THE AO AM OUNTING TO RS. 8440241/- IS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 9. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE A SSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSM ENT ORDER. 10 . IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE LD. CIT(A) RIGHTY DELETED THE ADDITION MAD E BY THE ASSESSING OFFICER BY FOLLOWING THE DECISIONS OF THE ITAT, JAI PUR BENCH, JAIPUR IN THE CASE OF M/S. UNIQUE BUILDERS & DEVELOPERS VS. DCIT , JAIPUR IN I.T.A.NOS. 73 TO 77/JP/2012 ORDER DATED 14/03/2013 AND THE DEC ISION DATED 21/11/2012 OF THE ITAT, JODHPUR BENCH, JODHPUR IN T HE CASE OF M/S. SURYA ESTATE VS. DCIT, UDAIPUR IN I.T.A.NO. 112 TO 116/JU/2012. 11 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT 17 CASE, IT IS AN ADMITTED FACT THAT THE LD. CIT(A) DE LETED THE IMPUGNED ADDITION BY FOLLOWING THE AFORESAID REFERRED TO DEC ISIONS OF THE ITAT, JAIPUR & JODHPUR BENCHES. DURING THE COURSE OF HEA RING, LEARNED D.R. COULD NOT REBUT THE FINDINGS GIVEN BY THE LD. CIT(A ) AND WAS ALSO NOT IN A POSITION TO DISTINGUISH THE FACTS OF THE CASES RELI ED ON BY THE LD. CIT(A) VIS-A-VIS THE FACTS OF THE ASSESSEES CASE. ON A SIMILAR ISSUE, THE ITAT, JODHPUR BENCH, JODHPUR IN THE CASE OF M/S. SURYA ESTATE VS. DCIT (SUPRA) HELD THAT THE PROFIT DECLARED ON THE BASIS OF PROJE CT COMPLETION METHOD IS TO BE ACCEPTED AND THE ADDITION CANNOT BE MADE ON T HE BASIS OF PERCENTAGE COMPLETION METHOD. 12. SIMILARLY, THE ITAT JAIPUR BENCH IN THE CASE OF MS/. UNIQUE BUILDERS & DEVELOPERS VS. DCIT, JAIPUR (SUPRA) HAS HELD THAT THE ASSESSING AUTHORITY COULD NOT CHANGE THE METHOD REGULARLY FOL LOWED BY THE ASSESSEE FROM THE PROJECT COMPLETION METHOD TO PERCENTAGE CO MPLETION METHOD. SINCE THE ISSUE UNDER CONSIDERATION IS COVERED BY THE AFORESAID REFERRED TO DECISION, WHICH HAS BEEN FOLLOWED BY TH E LD. CIT(A), WE DO NOT SEE ANY VALID GROUND TO DEVIATE FROM THE FINDIN GS GIVEN BY THE LD. 18 CIT(A). IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 13 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMIS SED. (ORDER PRONOUNCED IN THE COURT ON 1 ST APRIL, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 01 ST APRIL, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.