M/s. Desai Rechana P. Ltd, Cochin V. The DCIT, Cochin

ITA 393/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81392 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: RADDESH BHAT
• Keywords: Competent authority
• Section: 145

Judgement Text

1 ITA NO.393/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO.393/COCH/2014 (ASSESSMENT YEAR 2008-09) M/S DESAI RACHANA PVT LTD VS THE DY.CIT, CIR.1(1 ) POST OFFICE LINK ROAD KOCHI ERNAKULAM, KOCHI-31 PAN : AAACD8486A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RADDESH BHAT RESPONDENT BY : SHRI K.K. JOHN DATE OF HEARING : 19-11-2014 DATE OF PRONOUNCEMENT : 21-11-2014 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-II, KOCHI DATED 27-06-2014 AND PERTAINS TO A SSESSMENT YEAR 2008- 09. 2. SHRI RADDESH BHAT, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THERE WAS A SURVEY IN THE PREMISES OF THE ASSE SSEE ON 28-02-2008. THE BOOKS OF ACCOUNT AND THE DOCUMENTS WERE IMPOUND ED. SUBSEQUENTLY, THE SAME WAS RETURNED TO THE ASSESSEE. ACCORDING T O THE 2 ITA NO.393/COCH/2010 LD.REPRESENTATIVE, NO ADDITION WAS MADE ON THE BASI S OF THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOUND IN THE PREMISES O F THE ASSESSEE. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESS EE IS CONSISTENTLY FOLLOWING PROJECT COMPLETION METHOD FOR CONSTRUCTIO N BUSINESS. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE IS NOT ENGAG ED IN CONTRACT. THE ASSESSEE CONSTRUCTS BUILDING IN THE LAND OWNED BY I T AND AFTER THE CONSTRUCTION IS COMPLETED, THE BUILDING IS SOLD TO THE PROSPECTIVE PURCHASERS. THEREFORE, ACCORDING TO THE LD.REPRESE NTATIVE, THE QUESTION OF FOLLOWING PERCENTAGE COMPLETION METHOD DOES NOT ARI SE FOR CONSIDERATION. IN FACT, ACCORDING TO THE LD.REPRESENTATIVE, THE AS SESSEE IS CONTINUOUSLY FOLLOWING PROJECT COMPLETION METHOD FOR ALL ASSESSM ENT YEARS INCLUDING THE YEAR UNDER CONSIDERATION. THE DEPARTMENT HAS ALSO ACCEPTED THE METHOD FOLLOWED BY THE ASSESSEE IN ALL ASSESSMENT YEARS EX CEPT THE YEAR UNDER CONSIDERATION. AFTER THE COMPLETION OF SURVEY, THE DEPARTMENT PRESSURIZED THE ASSESSEE TO PAY ADVANCE TAX OF RS.40 LAKHS. AT THE INSTANCE OF THE DEPARTMENT, THE ASSESSEE GAVE A LETTER DATED 10-03- 2008 AGREEING TO PAY RS.40 LAKHS TOWARDS ADVANCE-TAX ON OR BEFORE 15-03- 2008 ON THE ESTIMATED INCOME OF RS.1,20,00,000. ACCORDING TO T HE LD.REPRESENTATIVE, THIS LETTER WAS GIVEN AT THE INSTANCE OF THE DEPART MENT AND NOT VOLUNTARILY. EVEN OTHERWISE, ACCORDING TO THE LD.REPRESENTATIVE, FOR THE PURPOSE OF PAYING ADVANCE-TAX, THE POSSIBLE INCOME OF THE YEAR IS ESTIMATED. BUT WHEN THE INCOME IS COMPUTED AS PER THE BOOKS OF ACC OUNT, IT MAY GO 3 ITA NO.393/COCH/2010 BELOW THE ESTIMATED INCOME OR ABOVE THE ESTIMATED I NCOME. THEREFORE, THE INCOME TAKEN ON ESTIMATE BASIS FOR THE PURPOSE OF PAYING ADVANCE-TAX CANNOT BE TREATED AS ADMISSION ON THE PART OF THE A SSESSEE WITH REGARD TO ITS INCOME. THE LD.REPRESENTATIVE FURTHER SUBMITTE D THAT THE SEARCH WAS CONDUCTED ON 28-02-2008 BEFORE THE END OF THE FINAN CIAL YEAR. THE LETTER WAS OBTAINED FROM THE ASSESSEE BY THE ASSESSING OFF ICER ON 10-03-2008. THEREFORE, THE INCOME OF THE ASSESSEE CAN BE ESTIMA TED ONLY AT THE END OF THE FINANCIAL YEAR. IN THE ABSENCE OF ANY MATERIAL THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS ARBITRARILY FIXED THE INCOME OF THE ASSESSEE AT RS.1.2 CRORES ON THE BASIS OF THE LETTER GIVEN BY T HE ASSESSEE. 3. REFERRING TO THE ASSESSMENT ORDER, THE LD.REPRES ENTATIVE SUBMITTED THAT THE ASSESSING OFFICER OBSERVED THAT THE REVISE D ACCOUNTING STANDARD 7 WAS NOT FOLLOWED BY THE ASSESSEE. THE LD.REPRESENT ATIVE SUBMITTED THAT AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA (ICAI) IS NOT NOTIFIED BY GOVERNMENT OF INDIA U/S 145 OF THE INCO ME-TAX ACT. MOREOVER, AS-7 ISSUED BY ICAI IS NOT BINDING. THE LD.REPRESE NTATIVE FURTHER SUBMITTED THAT THERE ARE TWO METHODS FOR COMPUTING THE INCOME FOR CONSTRUCTION BUSINESS. ONE METHOD IS PROJECT COMPLETION METHOD. THE OTHER METHOD IS PERCENTAGE COMPLETION METHOD. IT IS FOR THE ASSESS EE TO ADOPT THE EITHER OF THE METHODS TO COMPUTE THE INCOME. IF THE ASSESSIN G OFFICER CAME TO THE CONCLUSION THAT THE PROFIT CANNOT BE DEDUCED FROM T HE METHOD OF 4 ITA NO.393/COCH/2010 ACCOUNTING FOLLOWED BY THE ASSESSEE THEN ONLY HE CA N GO FOR ESTIMATING THE INCOME. IN THIS CASE, PROJECT COMPLETION METHO D IS ONE OF THE ACCEPTED METHODS OF ACCOUNTING STANDARDS IN THE BUSINESS OF CONSTRUCTION. THEREFORE, THE ASSESSING OFFICER HAS NO AUTHORITY T O CHANGE THE METHOD OF COMPUTATION, I.E. FROM PROJECT COMPLETION METHOD TO PERCENTAGE COMPLETION METHOD. THE LD.REPRESENTATIVE FURTHER SUBMITTED TH AT THE DEPARTMENT ON ITS OWN RETURNED THE SEIZED BOOKS OF ACCOUNT TO THE ASS ESSEE. THEREFORE, NOW IT CANNOT BE SAID THAT THE DEPARTMENT WAS PREVE NTED FROM PROBING INTO THE CORRECTNESS OF THE ACCOUNTS. 4. ON THE CONTRARY, SHRI K.K. JOHN, THE LD.DR SUBMI TTED THAT THERE WAS A SURVEY IN THE PREMISES OF THE ASSESSEE ON 28-02-2 008 AND THE ASSESSEE HAS NOT FOLLOWED THE MANDATORY REVISED ACCOUNTING S TANDARD 7 WHICH PROVIDES FOR COMPUTATION OF INCOME ON PERCENTAGE CO MPLETION METHOD. THE ASSESSEE ALSO ADMITTED BY A LETTER DATED 10-03- 2008 THAT IT WILL PAY RS.40 LAKHS TOWARDS ADVANCE-TAX ON THE ESTIMATED IN COME OF RS.1.2 CRORES. SINCE THE DEPARTMENT RETURNED THE BOOKS OF ACCOUNT TO THE ASSESSEE, THE CORRECTNESS OF THE ACCOUNTS / MATERIA L SEIZED COULD NOT BE VERIFIED. THEREFORE, THE ASSESSING OFFICER HAS RIG HTLY TAKEN THE INCOME AT RS.1.2 CRORES AND LEVIED TAX THEREON. 5 ITA NO.393/COCH/2010 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTED LY, THERE WAS A SEARCH IN THE PREMISES OF THE ASSESSEE ON 28-02-2008 AND B OOKS OF ACCOUNT AND OTHER MATERIALS WERE FOUND AND IMPOUNDED. IT IS AL SO AN ADMITTED FACT THAT THE BOOKS OF ACCOUNT AND OTHER MATERIAL IMPOUNDED B Y THE DEPARTMENT WERE RETURNED TO THE ASSESSEE. IT IS FOR THE DEPAR TMENT TO TAKE COPIES OF THE ACCOUNTS AFTER EXAMINATION BEFORE RETURNING THE SAME. IF THE ORIGINAL BOOKS OF ACCOUNT AND MATERIALS WERE REQUIRED BY THE DEPARTMENT IT COULD HAVE ALSO BEEN RETAINED BY GETTING APPROVAL FROM TH E COMPETENT AUTHORITY. THEREFORE, AT THIS STAGE, THE DEPARTMENT CANNOT SAY THAT THEY WERE PREVENTED FROM PROBING INTO THE CORRECTNESS OF THE ACCOUNT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DEPARTMENT IS WELL WITHIN THEIR RIGHT TO EXAMINE THE BOOKS OF ACCOUNT WHEN IT WAS FOUND DURI NG THE COURSE OF SURVEY OPERATION. EVEN OTHERWISE, THEY CAN ALWAYS CALL FOR THE ASSESSEE TO PRODUCE THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE DEPARTMENT WAS PREVENTED FROM PROBING INTO THE CORRECTNESS OF THE ACCOUNTS AND THE SEIZED MATERIAL IS NOT CORRECT. 6. ASSESSMENT PROCEEDINGS ARE QUASI JUDICIAL PROCEE DINGS. THE ASSESSING OFFICER IS ACTING AS A QUASI JUDICIAL AUT HORITY. THEREFORE, THE ASSESSMENT HAS TO BE FRAMED ONLY ON THE BASIS OF TH E MATERIAL AVAILABLE ON 6 ITA NO.393/COCH/2010 RECORD. IN THIS CASE, THE ONLY MATERIAL AVAILABLE ON RECORD IS THE LETTER DATED 10-03-2008 OF THE ASSESSEE AGREEING TO PAY AD VANCE-TAX OF RS.40 LAKHS. EXCEPT THIS LETTER, THERE IS NO MATERIAL AV AILABLE ON RECORD. THE QUESTION ARISES FOR CONSIDERATION IS CAN THE ASSE SSMENT BE FRAMED ON THE BASIS OF THIS LETTER? THE CONTENTION OF THE LD .REPRESENTATIVE FOR THE ASSESSEE IS THAT THIS LETTER WAS NOT GIVEN VOLUNTAR ILY BUT AT THE INSTANCE OF THE ASSESSING OFFICER. IF IT IS FOUND THAT THIS LE TTER WAS NOT GIVEN VOLUNTARILY BY THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT LETTER DATED 10-03-2008 CANNOT HAVE ANY EVIDENTIARY VALUE. EVE N OTHERWISE, IT IS AN ESTIMATION FOR PAYMENT OF ADVANCE-TAX. THEREFORE, THIS LETTER OF THE ASSESSEE DATED 10-03-2008 CANNOT BE THE BASIS FOR A SSESSMENT. PAYMENTS OF ADVANCE-TAX ON ESTIMATED INCOME IS PROV IDED UNDER THE PROVISIONS OF THE INCOME-TAX ACT. EVERY ASSESSEE W HOSE INCOME EXCEEDS A PARTICULAR LIMIT HAS TO PAY ADVANCE-TAX ON THE ES TIMATED INCOME. ESTIMATION WILL ALWAYS REMAIN AS AN ESTIMATE. AFTE R FINALIZATION OF THE ACCOUNTS, AS RIGHTLY SUBMITTED BY THE LD.REPRESENTA TIVE FOR THE ASSESSEE, THE TAXABLE INCOME MAY INCREASE OR DECREASE. THER EFORE, IT IS FOR THE DEPARTMENT TO EXAMINE THE BOOKS OF ACCOUNT AND ASCE RTAIN THE TAXABLE INCOME IF AT ALL THE DEPARTMENT HAS ANY DOUBT. THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CANNOT BE ANY ASSESSM ENT ON THE BASIS OF THE LETTER DATED 10-03-2008. FOR THE PURPOSE OF CO NVENIENCE, WE ARE REPRODUCING THE LETTER SAID TO BE WRITTEN BY THE AS SESSEE, BELOW: 7 ITA NO.393/COCH/2010 THE ASSISTANT COMMISSIONER OF INCOME TAX 10/3/ 2008 CIRCLE 1(2), RANGE-1 ERNAKULAM REF : PAN AAACD8486A AS AGREED AT THE TIME OF HEARING ON 7/3/2008 WE WI SH TO CONFIRM THAT WE WILL BE REMITTING RS.40.00 LACS (RU PEES FORTY LAKHS ONLY) TOWARDS ADVANCE TAX ON OR BEFORE 15/3/2 008 ON THE ESTIMATED INCOME OF RS.120.00 LACS (RUPEES ONE HUNDRED AND TWENTY LAKHS) THANKING YOU YOURS TRULY, FOR DESAI RCHNA PRIVATE LIMITED SD/- MANAGING DIRECTOR. IN VIEW OF THE ABOVE DISCUSSION, THERE CANNOT BE AN Y ASSESSMENT OF RS.1.2 CRORES FOR THE PURPOSE OF TAXATION ON THE BASIS OF THE ABOVE LETTER DATED 10- 03-2008 OF THE ASSESSEE. IN THE ABSENCE OF ANY OTH ER MATERIAL, THIS TRIBUNAL CANNOT UPHOLD THE ORDER OF THE LOWER AUTHO RITY. 7. NOW COMING TO THE METHOD OF ACCOUNTING, THE ASSE SSEE IS ADMITTEDLY FOLLOWING PROJECT COMPLETION METHOD. PROJECT COMPL ETION METHOD IS ONE OF THE APPROVED METHODS OF ACCOUNTING SYSTEM FOR THE P URPOSE OF COMPUTTING INCOME FROM CONSTRUCTION BUSINESS. AN OPTION WAS A VAILABLE TO THE ASSESSEE EITHER TO FOLLOW PROJECT COMPLETION METHOD OR TO FOLLOW PERCENTAGE COMPLETION METHOD. WHEN THE ASSESSEE OP TED TO FOLLOW 8 ITA NO.393/COCH/2010 PROJECT COMPLETION METHOD, THE ASSESSING OFFICER CA NNOT COMPEL THE ASSESSEE TO FOLLOW PERCENTAGE COMPLETION METHOD UNL ESS AND UNTIL THERE IS AN ALLEGATION THAT THE INCOME COULD NOT BE COMPUTED FROM THE METHOD FOLLOWED BY THE ASSESSEE. IN THE CASE BEFORE US IT IS NOT THE CASE OF THE REVENUE THAT THE INCOME COULD NOT BE DEDUCED FROM T HE METHOD OF ACCOUNTING SYSTEMATICALLY FOLLOWED BY THE ASSESSEE. THEREFORE, THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN COMPELLING THE ASS ESSEE TO CHANGE THE METHOD OF ACCOUNTING. 8. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS SET A SIDE. THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE RETURNED INCOME OF RS.89,64,550. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST NOVEMBER, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 21 ST NOVEMBER, 2014 PK/- 9 ITA NO.393/COCH/2010 COPY TO: 1. M/S DESAI RACHANA PVT LTD, POST OFFICE LINK ROAD , ERNAKULAM, KOCHI- 31 2. THE DY.CIT, CIR.1(1), KOCHI 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-II, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH