ITO, Jaipur V. PANCHSHEEL COLONZERS (P) LTD, Jaipur

ITA 421/JPR/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1973 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANISH AGARWAL CA DHK
• Keywords: Capital asset; Business income; Business expenditure; Rectification of order; Search and seizure; Question of law; Reasonable cause
• Section: 40A(3); 143(3); 153A; 194C; 145; 132; 144; 154; 15; 139

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 573/JP/2014, 652 & 421/JP/2015 & 64/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2007-08, 09-10 & 10-11. THE INCOME TAX OFFICER, WARD 2(2), JAIPUR. CUKE VS. M/S. PANCHSHEEL COLONIZERS PVT. LTD., C-17, PANCHSHEEL COLONY, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AADCP 8557 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI VARINDER MEHTA (CIT) /KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12.07.2017. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 31/07/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, J.M. THESE FOUR APPEALS BY THE REVENUE ARE DIRECTED AGA INST THE ORDERS OF LD. CIT (A) DATED 13.06.2014, 02.02.2015, 15.05.2015 AND 14 .10.2016 PERTAINING TO ASSESSMENT YEARS 2007-08, 09-10 AND 10-11. SINCE C OMMON GROUNDS ARE INVOLVED IN ALL THESE APPEALS, THEY ARE BEING TAKEN UP TOGET HER AND ARE BEING DISPOSED OFF BY WAY OF A CONSOLIDATED ORDER. FIRST, WE TAKE UP ITA NOS. 573/JP/2014 AND 652/JP/2015 PERTAINING TO ASSESSMENT YEAR 2007-08. OUT OF THESE TWO, ITA NO. 652/JP/2015 IS AGAINST THE ORDER PASSED UNDER SECTI ON 154 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WHEREAS I TA NO. 573/JP/2014 IS AGAINST THE 2 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. ORDER PASSED IN ORIGINAL ASSESSMENT. IN ITA NO. 57 3/JP/2014, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (APPEALS)-I, JAIPUR HAS ERRED IN 1(I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) WAS JUSTIFIED IN STATING THA T ASSESSEE WAS NOT LIABLE TO MAINTAIN ACCOUNTS ON PERCENTAGE COMPLETIO N METHOD PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTS, INDIA. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) WAS JUSTIFIED IN IGNORING TH E FACT THAT BY FOLLOWING PROJECT COMPLETION METHOD ASSESSEE HAS NOT FOLLOWED THE ACCOUNTING STANDARDS PRESCRIBED IN AS-9 AND AS-7 WHICH TANTAMO UNT TO NOT FOLLOWING AS-1 PROVIDED IN SECTION 145(2) OF I.T. A CT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN DELETING THE DI SALLOWANCES MADE U/S 40(A)(IA) AND 40A(3) ON THE GROUND THAT ASSESSEE HA S FOLLOWED PROJECT COMPLETION METHOD AND EXPENSES HAVE NOT BEEN CLAIME D IGNORING THE FACT THAT SAID EXPENSES WERE INCLUDED IN WORK-IN-PR OGRESS, TO BE CLAIMED AS REVENUE EXPENSES SUBSEQUENTLY. 2. GROUND NO. 1 IS AGAINST THE FINDING OF LD. CIT ( A) FOR HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO MAINTAIN ACCOUNTS ON PER CENTAGE COMPLETION METHOD. 3. BRIEFLY STATED FACTS ARE THAT CASE OF THE ASSESS EE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS FRAMED VIDE ORDER DATED 31.12.2009. WHILE FRAMING THE ASSESSME NT, THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT BESIDES PURCHA SES, THE ASSESSEE HAD INVENTORIZED THE ENTIRE REVENUE EXPENSES AND HAS ME RGED THE SAME IN THE VALUE OF THE CLOSING STOCK. THE AO RE-CASTED THE PROFIT & L OSS ACCOUNT OF THE ASSESSEE AND COMPUTED LOSS AT RS. 11,29,72,934/-. BY MAKING ADD ITIONS ON ACCOUNT OF 3 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. DISALLOWANCE OF COMMISSION AND BROKERAGE, DEVELOPME NT CHARGES, PRINTING & STATIONARY, BUSINESS PROMOTION EXPENSES, ADDITION O N ACCOUNT OF 40A(3), THE AO COMPUTED THE LOSS AT RS. 10,32,47,850/-. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A), WHO AFTER CONSID ERING THE SUBMISSIONS ALLOWED THE APPEAL THEREBY HOLDING THAT THE ASSESSEE BEING REAL ESTATE DEVELOPER, IS NOT BOUND TO FOLLOW THE PERCENTAGE COMPLETION METHOD AND THE SAME CANNOT BE FOISTED ON IT. IN RESPECT OF DISALLOWANCES OF RS. 95,60,595/- UNDE R THE PROVISIONS OF SECTION 40(A)(IA) AND RS. 8,22,440/- U/S 40A(3), THESE EXPE NSES WERE DELETED BY THE LD. CIT (A) ON THE GROUND THAT THESE EXPENSES HAVE NOT BEEN CLAIMED BY THE ASSESSEE SINCE THE PROJECT COMPLETION METHOD IS FOLLOWED BY THE AS SESSEE. AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL. 3.1. THE LD. D/R VEHEMENTLY ARGUED THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE IS NOT BOUND TO FOLLOW TH E PERCENTAGE COMPLETION METHOD. HE PLACED RELIANCE ON THE ORDER OF AO. 3.2. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSES SEE HAS REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN BRIEF AND HAS SU BMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE C OORDINATE BENCH OF THE TRIBUNAL. THE SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED HERE IN BELOW :- THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND HAS PROMOTED A SCHEME OF RESIDENTIAL TOWNSHIP UNDER THE NAME AND S TYLE OF PANCHSHEEL PARK SITUATED AT AJMER ROAD, JAIPUR. DURING THE YEAR UND ER CONSIDERATION, ASSESSEE COMPANY WAS IN THE PROCESS OF ACQUISITION OF AGRICU LTURE LAND FROM THE AGRICULTURISTS FOR ITS PROJECT. AS PER THE PROCEDURE LAID DOWN BY THE STATE GOVERNMENT IN THE CASE 4 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. OF A RESIDENTIAL TOWNSHIP PROMOTED BY ANY PRIVATE C OMPANY OR REAL ESTATE DEVELOPER, THE FOLLOWING STEPS ARE TO BE TAKEN: 1. TITLE TO LAND AND OTHER RIGHTS TO DEVELOPMENT 2. CONVERSION OF THE LAND USE FROM AGRICULTURE TO R ESIDENTIAL OR COMMERCIAL 3. PREPARATION OF A PLAN AND DESIGNS FOR TOWNSHIP 4. APPLICATION FOR THE APPROVAL OF THE PLAN BEFORE THE APPROPRIATE AUTHORITY 5. APPROVAL OF THE PLAN BY THE APPROPRIATE AUTHORIT Y 6. DEVELOPMENT OF THE LAND AS PER THE APPROVED PLAN AND DESIGNS AND CREATION OF COMMON FACILITIES 7. ENVIRONMENTAL AND OTHER CLEARANCE 8. ALLOTMENT AND POSSESSION OF THE PLOTS TO THE BUY ERS AFTER REGISTRATION OF THE TRANSFER DEED AS SUBMITTED ABOVE DURING THE ASSESSMENT YEAR 2007- 08, BEING THE FIRST YEAR OF THE COMPANY, IT WAS IN THE PROCESS OF ACQUISITIO N OF LAND AND PREPARATION OF THE SCHEME LAYOUT FOR GETTING IT APPROVED FROM THE APPR OPRIATE AUTHORITY. IN THE MEANTIME, THE ASSESSEE COMPANY HAD STARTED PROMOTIN G OF ITS ONGOING PROJECT TO COLLECT THE BOOKINGS IN ADVANCE FOR THE PIECE OF PL OTS IN THE SCHEME PROMOTED BY IT. AT THE TIME OF RECEIPT OF ADVANCES A FORM ADVANCE REGISTRATION FORM OR DEPOSIT REGISTRATION FORM WERE GOT FILLED-IN BY THE RESPEC TIVE CUSTOMER WHO INTENDED TO TAKE PLOT IN THE RESIDENTIAL TOWNSHIP PROMOTED BY ASSESS EE COMPANY. IN THE SAID FORM, ONLY THE AREA PROPOSED TO BE ALLOTTED IS REFERRED A ND THERE IS NO MENTIONED OF NO. OF PARTICULAR PLOT TO BE BOOKED AGAINST SUCH ADVANCE W HICH COULD BE DONE ONLY AFTER THE APPROVAL OF THE PLAN BY APPROPRIATE AUTHORITY AND A S PER THE PREVAILING METHOD THE PROVISIONAL ALLOTMENT WOULD BE MADE AFTER APPROVAL OF PLAN AND IT IS FURTHER DECIDED BETWEEN THE PARTIES THAT PHYSICAL POSSESSION AND LE GAL TITLE OF SAID PIECE OF PLOT WOULD BE GIVEN ONLY AFTER THE AGREED CONSIDERATION IS ACTUALLY PAID WITHIN THE STIPULATED PERIOD. SINCE NEITHER THE PROJECT PLAN WAS APPROVED NOR FUL L VALUE OF CONSIDERATION WAS RECEIVED BY THE ASSESSEE THUS NO SALE WAS TAKEN PLACE 5 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. NOR PHYSICAL POSSESSION WAS HANDED OVER TO ANY OF T HE PERSON AND THEREFORE, THE ADVANCES RECEIVED FROM THE CUSTOMER WERE IDENTIFIED UNDER THE HEAD ADVANCE FROM THE CUSTOMERS. THE ADVANCE AMOUNT SO RECEIVED WERE KEPT FOR UTILIZATION IN THE DEVELOPMENT OF FAC ILITIES AS PROPOSED IN THE PROJECT AS PER THE APPROVED PLAN. SINCE NEITHER ANY SALE WAS T AKEN PLACE NOR ANY PHYSICAL POSSESSION WAS GIVEN THUS ENTIRE EXPENSES INCURRED ON THE PROJECT WERE ADDED TO THE VALUE OF STOCK IN TRADE WHICH IN ACCORDANCE WITH TH E ACCEPTED ACCOUNTING PRACTICE FOR THE REAL ESTATE BUSINESS. AS AND WHEN SUCH DEVELOPE D PLOT OF LAND WILL ACTUALLY BE TRANSFERRED THROUGH REGISTERED SALE DEED AND POSSES SION IS HANDED OVER ON THE PAYMENT OF FULL SALE CONSIDERATION IN ANY SUBSEQUEN T YEAR, THE PROFIT SO WORKED OUT ON THE SALES WILL BE OFFERED FOR TAXATION IN THE AS SESSMENT YEAR RELEVANT TO THAT YEAR. IT IS THUS THE MANNER IN WHICH, REAL INCOME COULD B E WORKED OUT. THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNTS C ONSISTING OF CASH BOOK, LEDGER, JOURNAL ETC. AND FOLLOWED THE MERCANTILE SY STEM OF ACCOUNTING. AS THE ASSESSEE HAS FOLLOWED THE PROJECT COMPLETION METHOD FOR COMPUTING ITS BUSINESS INCOME, THE TOTAL AMOUNT SPENT ON THE DEVELOPMENT O F ONGOING PROJECT WAS DEBITED TO WORK IN PROGRESS WHICH IS APPEARING IN THE BAL ANCE SHEETS UNDER THE HEAD CURRENT ASSETS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL THE NECESSARY DETAILS AS CALLED FOR FROM TIME TO TIME BY THE LD. AO WERE FIL ED AND THE BOOKS OF ACCOUNTS WERE PRODUCED FOR VERIFICATION. WHICH HAVE NOT BEEN DOUB TED BY THE LD.AO AS HE HAD NOT INVOKED THE PROVISIONS OF SECTION 145(3) OF THE INC OME TAX ACT, 1961 BEFORE DISTURBING THE COST OF STOCK DECLARED BY ASSESSEE. THE LD. AO HAS ALLEGED THAT BESIDES PURCHASES THE ASSESSEE HAS INVENTORIZED THE ENTIRE REVENUE EXPENSES AND HAS ME RGED THE SAME IN THE VALUE OF THE CLOSING STOCK . WHILE OBSERVING SO THE LD. AO HAS IGNORED THE AC CEPTED ACCOUNTING PRINCIPAL THAT ALL THE EXPENDITURE INCUR RED TILL THE COMPLETION OF PROJECT AND ACTUAL SALE, ARE PART OF THE TOTAL PROJECT COST AND SHOULD FORM PART OF STOCK IN TRADE. THE LAND SO PURCHASED BY THE ASSESSEE COULD NOT BE SOLD AS SUCH UNTIL DEVELOPMENT WORK AS PROPOSED AND APPROVED IS NOT CO MPLETED OR NECESSARY PROVISION WERE MADE THUS ONLY LAND COST AND RELATED EXPENSES LIKE CONVERSION CHARGES, REGISTRATION CHARGES ETC. CANNOT SOLELY BE TREATED AS THE VALUE OF STOCK OF 6 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. FINISHED GOODS AVAILABLE FOR THE SALE AND COST OF A LL THE INDIRECT EXPENSES INCIDENTAL TO SUCH ACTIVITY SHOULD FORM PART OF THE VALUE OF STOC K IN TRADE. THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA FOR RECOGNITION OF REVENUE BY THE REAL ESTATE DEVELOPERS / BUILDER, ISSUED GUIDAN CE NOTES FROM TIME TO TIME WHICH ARE RECOMMENDATORY IN NATURE AND MAY PROVIDE ASSIST ANCE TO THE MEMBER OF THE INSTITUTE ON THE ISSUES WHICH MAY POSE DIFFICULTY. FURTHER THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTION WAS REVISED W.E.F. 01.04.2012 AND MADE APPLICABLE FOR THE PROJECT COMMENCED ON OR AFTER 01 .04.2012 AND ALSO TO THE PROJECTS WHERE REVENUE IS BEING RECOGNIZED FOR THE FIRST TIM E ON OR AFTER 01.04.2012. IT IS PERTINENT TO MENTION THAT THIS REVISED GUIDANCE NOT E ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR THE FIRST TIME H AS MADE IT MANDATORY FOR THE REAL ESTATE BUSINESS ENTITIES TO FOLLOW THE PERCENTAGE C OMPLETION METHOD AND PRIOR TO THAT IT WAS NOT MANDATORY AND WAS ONLY OPTIONAL FOR THE ENTITY TO USE ANY OF THE TWO PRESCRIBED METHODS I.E. PERCENTAGE COMPLETION METHO D OR PROJECT COMPLETION METHOD. IN THE CASE OF THE ASSESSEE, THE LD. AO HAS NOT INV OKED THE PROVISION OF SECTION 145(3) NOR HAS ALLEGED THAT THE METHOD OF A CCOUNTING EMPLOYED FOR RECOGNITION OF REVENUE BY FOLLOWING THE PROJECT COM PLETION METHOD IS NOT A PROPER METHOD BUT THE LD. AO HAS PROCEEDED TO REVALUE THE COST OF STOCK BY PREPARING TRADING ACCOUNT WHERE THE FEW DIRECT EXPENSES WERE SEGREGATED AND ALL THE REMAINING EXPENSES WERE TAKEN TO THE PROFIT & LOSS ACCOUNT TO COMPUTE THE LOSS, AS AGAINST THE TOTAL COST OF WORK IN PROGRESS COMPUTED BY THE ASSESSEE, THEREFORE, THE ISSUE REMAINS WITH REGARD TO THE VALUATION OF INVEN TORY. THE INCOME TAX ACT IN TERMS OF THE PROVISIONS AS CO NTAINED IN SECTION 145(2) HAS NOTIFIED TWO ACCOUNTING STANDARDS WHICH ARE PRO VIDED IN THE RULES AND ARE REPRODUCED AS UNDER: ACCOUNTING STANDARDS NOTIFIED UNDER SECTION 145(2) [NO. 9949 [F. NO. 132/7/95-TPL], DATED 25-1-1996] IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (2) OF SECTION 145 OF THE INCOME-TAX ACT, 1961 (43 OF 1961), THE CENTRAL GOVE RNMENT HEREBY NOTIFIES THE FOLLOWING ACCOUNTING STANDARDS TO BE FOLLOWED B Y ALL ASSESSEES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, NAMELY : 7 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. A. ACCOUNTING STANDARD I RELATING TO DISCLOSURE OF ACCOUNTING POLICIES : 1. ALL SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN T HE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS SHALL BE DISCL OSED. 2. THE DISCLOSURE OF THE SIGNIFICANT ACCOUNTING POL ICIES SHALL FORM PART OF THE FINANCIAL STATEMENTS AND THE SIGNIFICANT ACCOUN TING POLICIES SHALL NORMALLY BE DISCLOSED IN ONE PLACE. 3. ANY CHANGE IN AN ACCOUNTING POLICY WHICH HAS A MATERIAL EFFECT IN THE PREVIOUS YEAR OR IN THE YEARS SUBSEQUENT TO THE PRE VIOUS YEARS SHALL BE DISCLOSED. THE IMPACT OF, AND THE ADJUSTMENTS RESUL TING FROM, SUCH CHANGE, IF MATERIAL, SHALL BE SHOWN IN THE FINANCIA L STATEMENTS OF THE PERIOD IN WHICH SUCH CHANGE IS MADE TO REFLECT THE EFFECT OF SUCH CHANGE. WHERE THE EFFECT OF SUCH CHANGE IS NOT ASCE RTAINABLE, WHOLLY OR IN PART, THE FACT SHALL BE INDICATED. IF A CHANG E IS MADE IN THE ACCOUNTING POLICIES WHICH HAS NO MATERIAL EFFECT ON THE FINANCIAL STATEMENTS FOR THE PREVIOUS YEAR BUT WHICH IS REASO NABLY EXPECTED TO HAVE A MATERIAL EFFECT IN ANY YEAR SUBSEQUENT TO PR EVIOUS YEAR, THE FACT OF SUCH CHANGE SHALL BE APPROPRIATELY DISCLOSE D IN THE PREVIOUS YEAR IN WHICH THE CHANGE IS ADOPTED. 4. ACCOUNTING POLICIES ADOPTED BY AN ASSESSEE SHOU LD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFA IRS OF THE BUSINESS, PROFESSION OR VOCATION IN THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. FOR THIS PURPOSE, THE MAJOR CONSIDERATIONS GOVERNING THE SELECTION AN D APPLICATION OF ACCOUNTING POLICIES ARE FOLLOWING, NAMELY : (I) PRUDENCE - PROVISIONS SHOULD BE MAD E FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN TH E LIGHT OF AVAILABLE INFORMATION; (II) SUBSTANCE OVER FORM - THE ACCOUNTI NG TREATMENT AND PRESENTATION IN FINANCIAL STATEMENTS OF TRANSACTION S AND EVENTS SHOULD BE GOVERNED BY THEIR SUBSTANCE AND NOT MEREL Y BY THE LEGAL FORM; (III) MATERIALITY - FINANCIAL STATEMENTS SHOULD DISCLOSE ALL MATERIAL ITEMS, THE KNOWLEDGE OF WHICH MIGHT INFLUENCE THE D ECISIONS OF THE USER OF THE FINANCIAL STATEMENTS. 8 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. 5. IF THE FUNDAMENTAL ACCOUNTING ASSUMPTIONS RELAT ING TO GOING CONCERN, CONSISTENCY AND ACCRUAL ARE FOLLOWED IN FINANCIAL S TATEMENTS, SPECIFIC DISCLOSURE IN RESPECT OF SUCH ASSUMPTIONS IS NOT RE QUIRED. IF A FUNDAMENTAL ACCOUNTING ASSUMPTION IS NOT FOLLOWED, SUCH FACT SHALL BE DISCLOSED. 6. FOR THE PURPOSES OF PARAGRAPHS (1) TO (5), THE EXPRESSIONS, (A) ACCOUNTING POLICIES MEANS THE SPEC IFIC ACCOUNTING PRINCIPLES AND THE METHODS OF APPLYING THOSE PRINCIPLES ADOPTE D BY THE ASSESSEE IN THE PREPARATION AND PRESENTATION OF FIN ANCIAL STATEMENTS; (B) ACCRUAL REFERS TO THE ASSUMPTION THAT REVENUES AND COSTS ARE ACCRUED, THAT IS, RECOGNISED AS THEY ARE EARNED OR INCURRED (AND NOT AS MONEY IS RECEIVED OR PAID) AND RECORDED IN T HE FINANCIAL STATEMENTS OF THE PERIOD TO WHICH THEY RELATE; (C) CONSISTENCY REFERS TO THE ASSUMPT ION THAT ACCOUNTING POLICIES ARE CONSISTENT FROM ONE PERIOD TO ANOTHER; (D) FINANCIAL STATEMENTS MEANS ANY ST ATEMENT TO PROVIDE INFORMATION ABOUT THE FINANCIAL POSITION, PERFORMAN CE AND CHANGES IN THE FINANCIAL POSITION OF AN ASSESSEE AN D INCLUDES BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND OTHER ST ATEMENTS AND EXPLANATORY NOTES FORMING PART THEREOF; (E) GOING CONCERN REFERS TO THE ASSUM PTION THAT THE ASSESSEE HAS NEITHER THE INTENTION NOR THE NECESSITY OF LIQUIDAT ION OR OF CURTAILING MATERIALLY THE SCALE OF THE BUSINESS, PR OFESSION OR VOCATION AND INTENDS TO CONTINUE HIS BUSINESS, PROF ESSION OR VOCATION FOR THE FORESEEABLE FUTURE. B. ACCOUNTING STANDARD II RELATING TO DISCLOSURE OF PRIOR PERIOD AND EXTRAORDINARY ITEMS AND CHANGES IN ACCOUNTING POLIC IES : 7. PRIOR PERIOD ITEMS SHALL BE SEPARATELY DISCLOSE D IN THE PROFIT AND LOSS ACCOUNT IN THE PREVIOUS YEAR TOGETHER WITH THEIR NA TURE AND AMOUNT IN A MANNER SO THAT THEIR IMPACT ON PROFIT OR LOSS IN THE PREVIOUS YEAR CAN BE PERCEIVED. 8. EXTRAORDINARY ITEMS OF THE ENTERPRISE DURING TH E PREVIOUS YEAR SHALL BE DISCLOSED IN THE PROFIT AND LOSS ACCOUNT AS PART OF TAXABLE INCOME. THE NATURE AND AMOUNT OF EACH SUCH ITEM SHALL BE SEPARA TELY DISCLOSED IN A MANNER SO THAT THEIR RELATIVE SIGNIFICANCE AND EFFE CT ON THE OPERATING RESULTS OF THE PREVIOUS YEAR CAN BE PERCEIVED. 9 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. 9. A CHANGE IN AN ACCOUNTING POLICY SHALL BE MADE ONLY IF THE ADOPTION OF A DIFFERENT ACCOUNTING POLICY IS REQUIRED BY STATUT E OR IF IT IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MORE APPROPRIATE PREPARATION OR PRESENTATION OF THE FINANCIAL STATEMENTS BY AN ASSE SSEE. 10. ANY CHANGE IN AN ACCOUNTING POLICY WHICH HAS A MATERIAL EFFECT SHALL BE DISCLOSED. THE IMPACT OF, AND THE ADJUSTMENTS RESUL TING FROM SUCH CHANGE, IF MATERIAL, SHALL BE SHOWN IN THE FINANCIA L STATEMENTS OF THE PERIOD IN WHICH SUCH CHANGE IS MADE TO REFLECT THE EFFECT OF SUCH CHANGE. WHERE THE EFFECT OF SUCH CHANGE IS NOT ASCE RTAINABLE, WHOLLY OR IN PART, THE FACT SHALL BE INDICATED. IF A CHANG E IS MADE IN THE ACCOUNTING POLICIES WHICH HAS NO MATERIAL EFFECT ON THE FINANCIAL STATEMENTS FOR THE PREVIOUS YEAR BUT WHICH IS REASO NABLY EXPECTED TO HAVE A MATERIAL EFFECT IN YEARS SUBSEQUENT TO THE P REVIOUS YEARS, THE FACT OF SUCH CHANGE SHALL BE APPROPRIATELY DISCLOSE D IN THE PREVIOUS YEAR IN WHICH THE CHANGE IS ADOPTED. 11. A CHANGE IN AN ACCOUNTING ESTIMATE THAT HAS A MATERIAL EFFECT IN PREVIOUS YEAR SHALL BE DISCLOSED AND QUANTIFIED. AN Y CHANGE IN AN ACCOUNTING ESTIMATE WHICH IS REASONABLY EXPECTED TO HAVE A MATERIAL EFFECT IN YEAR SUBSEQUENT TO PREVIOUS YEAR SHALL AL SO BE DISCLOSED. 12. IF A QUESTION ARISES AS TO WHETHER A CHANGE IS A CHANGE IN ACCOUNTING POLICY OR A CHANGE IN AN ACCOUNTING ESTIMATE, SUCH A QUESTION SHALL BE REFERRED TO THE BOARD FOR DECISION. 13. FOR THE PURPOSES OF PARAGRAPHS (7) TO (12), TH E EXPRESSIONS, (A) ACCOUNTING ESTIMATE MEANS AN ESTI MATE MADE FOR THE PURPOSE OF PREPARATION OF FINANCIAL STATEMENTS WHICH IS BAS ED ON THE CIRCUMSTANCES EXISTING AT THE TIME WHEN THE FINANCI AL STATEMENTS ARE PREPARED; (B) ACCOUNTING POLICIES MEANS THE SPE CIFIC ACCOUNTING PRINCIPLES AND THE METHOD OF APPLYING THOSE PRINCIPLES ADOPTED BY THE ASSESSEE IN THE PREPARATION AND PRESENTATION OF FIN ANCIAL STATEMENTS; (C) EXTRAORDINARY ITEMS MEANS GAINS O R LOSSES WHICH ARISE FROM EVENTS OR TRANSACTIONS WHICH ARE DISTINCT FROM THE ORDINARY ACTIVITIES OF THE BUSINESS AND WHICH ARE BOTH MATER IAL AND EXPECTED NOT TO RECUR FREQUENTLY OR REGULARLY. EXTR AORDINARY ITEMS INCLUDE MATERIAL ADJUSTMENTS NECESSITATED BY CIRCUM STANCES WHICH, THOUGH RELATED TO YEARS PRECEDING TO THE PRE VIOUS YEARS, ARE DETERMINED IN THE PREVIOUS YEAR : 10 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. PROVIDED THAT INCOME OR EXPENSES ARISING FROM THE ORDINARY ACTIVITIES OF THE BUSINESS OR PROFESSION OR VOCATIO N OF AN ASSESSEE, THOUGH ABNORMAL IN AMOUNT OR INFREQUENT I N OCCURRENCE, SHALL NOT QUALIFY AS EXTRAORDINARY ITEM ; (D) FINANCIAL STATEMENTS MEANS ANY ST ATEMENT TO PROVIDE INFORMATION ABOUT THE FINANCIAL POSITION, PERFORMAN CE AND CHANGES IN THE FINANCIAL POSITION OF AN ASSESSEE AN D INCLUDES BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND OTHER ST ATEMENTS AND EXPLANATORY NOTES FORMING PART THEREOF; (E) PRIOR PERIOD ITEMS MEANS MATERIAL CHARGES OR CREDITS WHICH ARISE IN THE PREVIOUS YEAR AS A RESULT OF ERRORS OR OMISSIONS IN THE PREPARATION OF THE FINANCIAL STATEMENTS OF ONE OR M ORE PREVIOUS YEARS: PROVIDED THAT THE CHARGE OR CREDIT ARISING ON THE OUTCOME OF A CONTINGENCY, WHICH AT THE TIME OF OCCURRENCE COULD NOT BE ESTIMATED ACCURATELY SHALL NOT CONSTITUTE THE CORRE CTION OF AN ERROR BUT A CHANGE IN ESTIMATE AND SUCH AN ITEM SHA LL NOT BE TREATED AS A PRIOR PERIOD ITEM. THIS NOTIFICATION SHALL COME INTO FORCE WITH EFFECT FROM 1ST DAY OF APRIL, 1996 AND SHALL, ACCORDINGLY, APPLY TO ASSESSMENT YEAR 19 97-98 AND SUBSEQUENT ASSESSMENT YEARS. FROM THE PERUSAL OF THE ACCOUNTING STANDARDS AS NOT IFIED UNDER INCOME TAX ACT IT TRANSPIRES THAT THEY DO NOT DEAL WITH THE IS SUE OF THE VALUATION OF CLOSING STOCK THEREFORE FOR VALUATION OF CLOSING STOCK THE ACCOUN TING STANDARDS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ARE REL EVANT WHEREIN ACCOUNTING STANDARD NO. 2 I.E. VALUATION OF INVENTORY IS APPLICABLE AND IS MANDATORY IN THE CASE OF A COMPANY. AS PER ACCOUNTING STANDARDS 2 THE COST OF INVENTO RY INCLUDES COST OF PURCHASES, COST OF CONVERSION DIRECTLY RELATED AND OTHER COST WHICH ARE INCURRED IN BRINGING THE INVENTORY TO THEIR PRESENT LOCATION AN D CONDITION. SINCE THE DEVELOPMENT WORK IS UNDER PROCESS THE ENTIRE COST INCURRED TILL THE END OF THE PREVIOUS YEAR IS TREATED AS WORK IN PROGRESS AND ALL THE EXPENSES INCURRED ON THE PROJECT ARE DEBITED TO WORK IN PROGRESS ACCOUNT AS HAS BEEN DON E BY THE ASSESSEE WHICH IS IN ACCORDANCE WITH THE ACCOUNTING STANDARD -2. 11 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. IT IS FURTHER SUBMITTED THAT THE LD. AO HAS MISGUID ED AND TREATED THE CASE OF THE ASSESSEE AS A NORMAL MANUFACTURING CONCERN WHER E MANUFACTURING AND OTHER INDIRECT COST COULD BE BIFURCATED, HOWEVER IN THE C ASE OF THE ASSESSEE BEING A REAL ESTATE DEVELOPER AND ENGAGED IN THE BUSINESS OF SEL LING OF OPEN LAND AFTER DEVELOPMENT OF THE SAME WITH COMMON FACILITIES LIKE LAYING OF ROADS, DRAINAGE LINES AND WATER PIPELINES, ELECTRICAL LINES, SEWERAGE TAN KS, WATER STORAGE TANKS, SPORT FACILITIES, GYMNASIUM, CLUB HOUSE, GARDENS AND SCHO OLS, LANDSCAPING ETC. THEREFORE THE COST INCURRED OR TO BE INCURRED ON THE DEVELOPM ENT OR SUCH COMMON FACILITIES IS PART OF THE TOTAL PROJECT COST AND IS DIRECTLY RELA TABLE TO THE COST OF INVENTORY AND COULD NOT BE BIFURCATED BETWEEN DIRECT AND INDIRECT COST. THE EXPENSES INCURRED DURING THE YEAR AND FORMING PART OF THE CLOSING STO CK ARE DIRECTLY IN THE NATURE OF DEVELOPMENT OF THE LAND AND IN NO WAY COULD BE TREA TED AS INDIRECT EXPENSES AND CANNOT BE EXCLUDED FROM THE CLOSING VALUE OF INVENT ORY. THE ASSESSEE HAS REGULARLY EMPLOYED THIS METHOD OF ACCOUNTING FOR COMPUTING TH E VALUE OF THE CLOSING STOCK WHICH COULD NOT BE DISCARDED IN A SUMMARY MANNER AS HAS BEEN DONE. THE HONBLE SUPREME COURT IN THE CASE OF INVESTMEN T LTD. VS. CIT 77 ITR 533 (SC) AT PAGE 537 AND 538 HAS TAKEN A VIEW THAT THE TAX PAYER IS FREE TO EMPLOY ANY METHOD OF ACCOUNTING BUT THE SAME SHOULD BE CONSIST ENTLY AND REGULARLY FOLLOWED BY HIM. THIS IS SO EVIDENT FROM THE FOLLOWING PASSAGE :- IN THE BALANCE-SHEET, IT IS TRUE, THE SECURITIE S AND SHARES ARE VALUED AT COST, BUT NO FIRM CONCLUSION CAN BE DRAWN FROM THE METHOD OF KEEPING ACCOUNTS. A TAXPAYER IS FREE TO E MPLOY, FOR THE PURPOSE OF HIS TRADE, HIS OWN METHOD OF KEEPING ACC OUNTS, AND FOR THAT PURPOSE TO VALUE HIS STOCK-IN-TRADE EITHER AT COST OR MARKET PRICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENT AL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNT OR OF VALUATION. THE METHOD OF ACCO UNTING REGULARLY EMPLOYED MAY BE DISCARDED ONLY IF, IN THE OPINION O F THE TAXING AUTHORITIES, INCOME OF THE TRADE CANNOT BE PROPERLY DEDUCED THEREFROM. VALUATION OF STOCK AT COST IS ONE OF THE RECOGNIZED METHODS. THE APEX COURT IN THE CASE OF UNITED COMMERCIAL BA NK VS. CIT 1999 240 ITR 355 (SC) IS FOUND TO HAVE ENTERTAINED A VIEW THAT A METHOD OF ACCOUNTING ADOPTED 12 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. BY THE TAX PAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING OF ACCOUNTS OR OF VALUATION. THE APEX COURT WHILE DEAL ING WITH THE CONTENTION OF THE ASSESSEE IN THAT CASE FOR VALUATION OF THE RAW MATE RIAL WITHOUT TAKING INTO ACCOUNT ANY PORTION OF THE COST OF MANUFACTURE, HELD THAT:- THE QUESTION OF FACT WHICH THE ASSESSING OFFICE R MUST NECESSARILY DECIDE IS WHETHER OR NOT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE DISCLOSES THE TRUE INCOME AND OBSERVED THUS (PAGE 51) : IT IS A WELL-RECOGNISED PRINCIPLE OF COMMERCIAL ACCOUNTING TO ENTER IN THE PROFIT AND LOSS ACCOUNT THE VALUE OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF T HE ACCOUNTING YEAR AT COST OR MARKET PRICE, WHICH-EVER IS THE LOW ER. THE COURT FURTHER CONSIDERED SECTION 145 OF THE A CT AND OBSERVED THAT WHAT IS TO BE DETERMINED BY THE OFFICER IN EXERCISE OF THE POWER IS A QUESTION OF FACT, THAT IS, WHETHER OR NOT INCOME CHARGEABLE UNDER THE ACT CAN BE PROPERLY DEDUCED FROM THE BOOKS OF ACCOUNT AND THE QUESTION MUST BE DECIDED WITH REFERENCE TO THE RELEVANT MATERIAL AND IN ACCORDANCE WITH THE CORREC T PRINCIPLES. THE COURT ALSO OBSERVED (PAGE 52) : WHERE THE MARKET VALUE HAS FALLEN BEFORE THE DA TE OF VALUATION AND, ON THAT DATE, THE MARKET VALUE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST, THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKET VALUE AND THUS ANTICIPATE THE LOSS WHICH HE WILL PR OBABLY INCUR AT THE TIME OF THE SALE OF THE GOODS. VALUATION OF THE STO CK-IN-TRADE AT COST OR MARKET VALUE, WHICHEVER IS THE LOWER, IS A MATTE R ENTIRELY WITHIN THE DISCRETION OF THE ASSESSEE. BUT WHICH-EVER METH OD HE ADOPTS, IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND G AINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE TH E TRUE STATE OF AFFAIRS FOR THE DETERMINATION OF TAX, EVEN IF IT IS IDEALLY SUITED FOR OTHER PURPOSES OF HIS BUSINESS, SUCH AS THE CREATIO N OF A RESERVE, DECLARATION OF DIVIDENDS, PLANNING AND THE LIKE, IT IS THE DUTY OF THE ASSESSING OFFICER TO ADOPT ANY SUCH COMPUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF THE TRU E INCOME OF THE ASSESSEE. THIS IS NOT ONLY A RIGHT BUT A DUTY THAT IS PLACED ON THE OFFICER, IN TERMS OF THE FIRST PROVISO TO SECTION 1 45, WHICH CONCERNS A CORRECT AND COMPLETE ACCOUNT BUT WHICH, IN THE OPIN ION OF THE OFFICER, DOES NOT DISCLOSE THE TRUE AND PROPER INCOME. 13 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. HENCE, FOR THE PURPOSE OF INCOME-TAX WHICHEVER MET HOD IS ADOPTED BY THE ASSESSEE, A TRUE PICTURE OF THE PROFITS AND GAINS, THAT IS TO SAY, THE REAL INCOME IS TO BE DISCLOSED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN A BALANCE-SHEET REQUIRE TO BE MAINTAINED IN THE STATUTORY FORM, MAY NOT BE DECISIVE OR CONCLUSIVE. IN SUCH CASES, IT IS OPEN TO THE INCOME-TAX OFFICER AS WELL AS THE ASSESSEE TO POINT OUT THE TRUE AND PROPER INCOME WHILE SCRUTINIZING THE INCOM E-TAX RETURN. THE APEX COURT IN THE CASE OF CIT VS. BILAHARI INV ESTMENT PVT. LTD., 299 ITR 1 (SC) HAS TAKEN A VIEW THAT RECOGNITION/IDENTIFICATI ON OF INCOME UNDER THE 1961 ACT IS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. IT MAY BE NOTED THAT THE SAME RESULT COULD BE ATTAINED BY ANY ONE OF THE ACCOUNTING METH ODS. THE COMPLETION CONTRACT METHOD IS ONE OF SUCH METHODS. UNDER THE COMPLETED CONTRACT METHOD, THE REVENUE IS NOT RECOGNIZED UNTIL THE CONTRACT IS COMPLETED. UNDER THE SAID METHOD, COSTS ARE ACCUMULATED DURING THE COURSE OF THE CONTRACT. THE PROFIT AND LOSS IS ESTABLISHED IN THE LAST ACCOUNTING PERIOD AND TRANSFERRED TO THE P ROFIT AND LOSS ACCOUNT. THE SAID METHOD DETERMINES RESULTS ONLY WHEN THE CONTRACT IS COMPLETED. THE METHOD LEADS TO OBJECTIVE ASSESSMENT OF THE RESULTS OF THE CONTR ACT. ON THE OTHER HAND THE PERCENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PER IODIC RECOGNITION OF INCOME IN ORDER TO REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZED UNDER THIS METHOD IS DETERMINED BY REFERENCE TO THE STAGE OF C OMPLETION AND CAN BE LOOKED AT UNDER THIS METHOD BY TAKING INTO CONSIDERATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT . THE APEX COURT AGAIN IN THE CASE OF CIT VS. HYUNDA I HEAVY INDUSTRIES CO. LTD., 291 ITR 482 (SC) TOOK THE SIMILAR VIEW AND HELD AT PAGE 495 AS UNDER :- LASTLY, THERE IS A CONCEPT IN ACCOUNTS WHICH CA LLED THE CONCEPT OF CONTRACT ACCOUNTS. UNDER THAT CONCEPT, TWO METHODS EXIST FOR ASCERTAINING PROFIT FOR CONTRACTS, NAMELY, COMPLET ED CONTRACT METHOD AND PERCENTAGE OF COMPLETION METHOD. TO KNOW THE RESULTS OF HIS OPERATIONS, THE CONTRACTOR PREPARES WHAT IS CALLED A CONTRACT ACCOUNT WHICH IS DEBITED WITH VARIOUS COSTS AND WHICH IS CR EDITED WITH REVENUE ASSOCIATED WITH A PARTICULAR CONTRACT. HOWEVER, THE RULES OF RECOGNITION OF COST AND REVENUE DEPEND ON THE METHOD OF ACCOUNT ING. TWO METHODS ARE PRESCRIBED IN ACCOUNTING STANDARD NO. 7. THEY A RE COMPLETED CONTRACT METHOD AND PERCENTAGE OF COMPLETION METH OD. THUS, AS BOTH THE METHODS OF ACCOUNTING ARE RECOGNIZED METHODS OF ACCOUNTING, THE 14 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. ASSESSEE IS AT LIBERTY TO CHOOSE ANY OF THE ABOVE A ND IF ANY ONE OF THE METHOD OF ACCOUNTING IS CONSISTENTLY FOLLOWED BY TH E ASSESSEE, THE ASSESSING OFFICER CANNOT CHANGE THE METHOD OF ACCOU NTING TO THE PERCENTAGE OF COMPLETION METHOD. THE HON'BLE DELHI HIGH COURT WHILE DEALING WITH TH E SIMILAR SITUATION IN THE CASE OF CIT VS. MANISH BUILDWELL PVT. LTD. IN ITA NO. 92 8/2011 DATED 15.11.2011 HELD THAT AFTER THE ABOVE JUDGEMENT OF SUPREME COURT IN CIT VS. BILAHARI INVESTMENT PVT. LTD., 299 ITR 1, IT CANNOT BE SAID THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE WOULD RESULT IN DEFERMENT OF THE PAYMENT O F TAXES WHICH ARE TO BE ASSESSED ANNUALLY UNDER THE INCOME-TAX ACT. ACCOUNT ING STANDARD AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ALS O RECOGNIZE THE POSITION THAT IN THE CASE OF CONSTRUCTION CONTRACTS, THE ASSESSEE CAN FO LLOW EITHER THE PROJECT COMPLETION METHOD OR THE PERCENTAGE COMPLETION METHOD. IN VIEW OF THE JUDGMENTS OF THE SUPREME COURT (SUPRA), THE FINDINGS OF CIT (A), UPH ELD BY THE TRIBUNAL DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. FURTHER, T HE TRIBUNAL HAS ALSO FOUND THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE ASSES SING OFFICER TO ADOPT THE PERCENTAGE COMPLETION METHOD FOR ONE YEAR ON SELECT IVE BASIS. THIS WILL DISTORT THE TRUE PROFITS AND GAINS OF BUSINESS. WITH THE ABOVE SUBMISSION THE ISSUES EMERGING ARE R EPLIED AS UNDER: 1. BUSINESS INCOME TO BE COMPUTED IN ACCORDANCE WITH M ETHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE : S. 145 OF THE ACT PRESCRIBES THAT BUSINESS INCOME S HALL BE COMPUTED IN ACCORDANCE WITH ' ... SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE'. THE CHOICE OF METHOD OF ACCOUNTING IS WITH THE ASSESSEE AND UNLES S CONDITIONS PRESCRIBED IN S. 145(3) ARE SATISFIED, PROFITS HAVE TO BE COMPUTED I N ACCORDANCE WITH THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. [CIT V. MCMILL AN & CO., (1958) 33 ITR 182 (SC), CIT V. A. KRISHNASWAMI MUDALIAR AND OTHERS, ( 1964) 53 ITR 122 (SC)}. 2. WHEN CAN METHOD OF ACCOUNTING BE REJECTED : S. 145 HAS BEEN AMENDED BY FINANCE ACT, 1995 W.E.F . 1-4-1997 AND THE AMENDED S. 145 PROVIDES THAT INCOME SHALL BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. S. (2) 15 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. EMPOWERS THE CENTRAL GOVERNMENT TO NOTIFY ACCOUNTIN G STANDARDS. NO STANDARD HAS BEEN ISSUED TILL DATE WHICH SPECIFICALLY DEALS WITH THE METHOD OF ACCOUNTING TO BE FOLLOWED BY BUILDERS OR DEVELOPERS. 3. METHOD OF ACCOUNTING TO COMPUTE TAXABLE PROFITS I T CANNOT DETERMINE ACCRUAL : THOUGH IN ACCORDANCE WITH S. 145, BUSINESS INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE, IT DOES NOT DETERMINE CHARGEABILITY OF INCOME. [CIT V. A. KRISHNASWAMI MUDALIAR AND OTHERS, (1964) 53 ITR 122 (SC), CIT V. MOTOR CREDIT CO. P. LTD., (1981) 127 ITR 572 (MAD.), KEWAL CHAND BAGRI V. CIT, (1990) 183 ITR 20 7 (CAL.)]. IF INCOME HAS NOT ACCRUED AT ALL, S. 145 CANNOT DETERMINE CHARGEABILI TY OF SUCH INCOME. 4. RELEVANCE OF PRONOUNCEMENTS OF ACCOUNTING BODIES: PROFITS FOR THE PURPOSE OF TAXATION HAVE TO BE DET ERMINED AS PER COMMERCIAL PRINCIPLES, SUBJECT TO SPECIFIC PROVISIONS OF THE A CT. ACCOUNTING PRACTICES AND STANDARDS, WHICH ARE WIDELY ACCEPTED AND ADOPTED, W OULD BE A GOOD GUIDE TO THE DETERMINATION OF COMMERCIAL PROFITS. HOWEVER, THOUG H ACCOUNTING STANDARDS AND PRACTICES ARE RELEVANT, THEY CANNOT OVERRIDE SPECIF IC PROVISIONS OF THE ACT. THE SUPREME COURT IN CHALLAPALI SUGARS LTD. V. CIT, 98 ITR 167 (SC) HAD LAID DOWN THAT PRONOUNCEMENTS OF ACCOUNTING BODIES ARE RELEVANT IN DETERMINING COMMERCIAL PROFITS. IN TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD. V. CIT, (1997) 227 ITR 172 (SC), IT WAS HELD THAT : 'THE ARGUMENT BASED ON ACC OUNTANCY PRACTICE HAS LITTLE MERIT IF SUCH PRACTICE CANNOT BE JUSTIFIED BY ANY PROVISI ON OF THE STATUTE OR IS CONTRARY TO IT.' THE SUBSEQUENT DECISION IN CASE OF CIT V. BOKA RO STEEL LTD., (1999) 236 ITR 315 (SC) REITERATED THE SAME PRINCIPLE. 5. WHEN INCOME ACCRUES TO A BUILDER: THE NATURE OF BUSINESS OF A BUILDER IS OFTEN CONFU SED WITH THE BUSINESS OF A CONSTRUCTION CONTRACTOR, BUT THE ONLY SIMILARITY IN THEIR ACTIVITY IS THAT BOTH ARE ENGAGED IN CIVIL CONSTRUCTION; THE NATURE OF BUSINE SS OF A BUILDER AND A CONTRACTOR IS COMPLETELY DIFFERENT AND DISTINCT. A CONSTRUCTION C ONTRACTOR ENGAGES IN CIVIL CONSTRUCTION ON BEHALF OF OTHERS UNDER A CONTRACT. HIS GROSS REVENUE IS KNOWN OR CAN 16 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. BE REASONABLY ESTIMATED BEFORE HE COMMENCES WORK AN D IS FIXED UNDER THE CONTRACT. A BUILDER OR A DEVELOPER IS AS MUCH IN BUSINESS OF PURCHASE AND SALE AS ANY OTHER TRADER OR MANUFACTURER. IT IS ONLY THE NATURE OF P RODUCT WHICH IS DIFFERENT, BUT THE NATURE OF TRANSACTION IS OF SALE. A REAL ESTATE DEV ELOPER PURCHASES LAND AND DEVELOP IT FOR THE PURPOSE OF USE AS RESIDENTIAL AND THE COST INCURRED FOR SUCH DEVELOPMENT WITH A DIRECT OR INDIRECT IS PART OF THE TOTAL PROJECT C OST. INCOME ACCRUES TO A BUILDER OR DEVELOPER ONLY WHEN TRANSACTION OF SALE IS COMPLETE AND ANY ADVANCES RECEIVED UNDER THE AGREEMENT FOR SALE ARE MERE EARNEST MONEY AND CANNOT BE TAXED AS INCOME BEFORE THE TRANSACTION OF SALE IS COMPLETE. [CIT V. MOTILAL C. PATEL & CO., (1988) 173 ITR 666 (GUJ.)]. LD. AO ON HIS OWN ASSUMPTIONS AND PRESUMPTIONS AND WITHOUT APPRECIATING THE NATURE OF BUSINESS OF ASSESSEE AND THE METHOD O F ACCOUNTING REGULARLY FOLLOWED TRIED TO DEVIATE THE ENTIRE ISSUE SOLELY FOR THE RE ASON THAT THE EXPENSES INCLUDED IN THE VALUE OF CLOSING STOCK ARE OF THE NATURE WHICH IN GENERAL PARLANCE IN THE CASE OF OTHER ASSESSES HAVE BEEN TREATED AS INDIRECT EXPENS ES AND DOES NOT FORM PART OF THE VALUE OF CLOSING STOCK. THE LD. CIT(A) AFTER APPREC IATION THESE FACTS AND FURTHER RELYING UPON THE DECISIONS OF HONBLE BENCH IN THE CASE OF M/S KRISH INFRASTRUCTURE PVT. LTD. [ITA NO. 1096 & 1097/JP/11] AND UNIQUE BU ILDERS & DEVELOPERS (AJIT) HOLD THE METHOD OF COMPUTING THE INCOME BY ASSESSEE AS F ULLY JUSTIFIABLE. RATIO LAID DOWN BY THE HONBLE ITAT, JAIPUR BENCH, JAIPUR: (I) THE HONBLE ITAT, JAIPUR BENCH, JAIPUR IN THE C ASE OF UNIQUE BUILDERS & DEVELOPERS VS. DCIT VIDE ITS ORDER DATED 14.03.2013 IN ITA NO. 73/JP/2012 AND 211/JP/2012 HAS HELD THAT THE PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE AND DIRECTED TO APPLY THE PROJECT COMPLETION METHOD INS TEAD OF PERCENTAGE COMPLETION METHOD. THE RELEVANT EXTRACT ARE REPRODUCED HEREIN BELOW FOR READY REFERENCE. 12. WE HAVE HEARD PARTIES WITH REFERENCE TO MATE RIAL ON RECORD. THE RIVAL SUBMISSIONS AS WELL AS CASE LAWS BROUGHT TO OUR NOT ICE HAVE DULY BEEN CONSIDERED. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AS A BUILDER/REAL ESTATE DEVELOPER. THE ASSESSEE HAS MAI NTAINED COMPLETE BOOKS OF ACCOUNT WHICH ARE DULY AUDITED BY A QUALIFIED CHART ERED ACCOUNTANT. THE ASSESSEE MAINTAINS ITS ACCOUNTS ON MERCANTILE BASIS BY REGULARLY EMPLOYING PROJECT COMPLETION METHOD. THE CLOSING STOCK HAS BE EN VALUED CONSISTENTLY AT LOWER OF COST OR NET REALIZABLE VALUE. THE AUDITORS HAVE REPORTED NO CHANGE IN 17 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. METHOD ADOPTED BY THE ASSESSEE. THE REVENUE HAS ACC EPTED THIS METHOD IN REGULAR ASSESSMENTS MADE FROM YEAR TO YEAR. AN ACTI ON UNDER SECTION 132 OF THE IT ACT (ACT FOR SHORT) WAS TAKEN ON ITS BUSIN ESS PREMISES ON 28.01.2009. ON THE SAME VERY DAY THE MEMBERS OF THE ASSESSEE GR OUP AS WELL AS OF THE SEPARATED GROUP AND THEIR BUSINESS /RESIDENTIAL PRE MISES WERE ALSO SEARCHED BY THE DEPARTMENT. THE ASSESSEE-ASSESSEE FURNISHED RET URN OF INCOME IN RESPONSE TO NOTICE ISSUED UNDER SECTION 153A OF THE ACT. THE RETURN OF INCOME WAS FURNISHED ON THE BASIS OF BOOKS OF ACCOUNT MAINTAIN ED BY IT AS NO DOCUMENT GIVING RISE TO UNDISCLOSED INCOME WAS FOUND OR DETE CTED BY THE SEARCH PARTY. THE BOOKS OF ACCOUNT SEIZED DURING THE COURSE OF SE ARCH WERE CONSIDERED IN MAKING THE ASSESSMENT PURSUANT TO NOTICES ISSUE UND ER SECTION 153A OF THE ACT. THE ASSESSING OFFICER REACHED A FINDING THAT T HE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE DID NOT PRESENT TRUE AND COMPLETE PICTURE OF ITS ACCOUNTS AND FINANCIAL TRANSACTIONS. THE ASSESSING OFFICER AFTER MAKING ELABORATE DISCUSSION HAS REJECTED THE BOOKS OF ACCO UNT OF THE ASSESSEE BY APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE ACT AS THEY FAILED TO DEPICT THE COMPLETE PICTURE OF ACCOUNTS AND MOREOVER DO NOT FO LLOW THE METHOD OF ACCOUNTING STANDARD AS SPECIFIED UNDER SECTION 145( 2) OF THE ACT. THE ASSESSING OFFICER HAS DRAWN SUPPORT FROM FEW JUDGME NTS RENDERED BY THE APPELLATE TRIBUNAL AND ALSO BY THE JUDGMENT IN THE CASE OF KACHWALA GEMS VS. JCIT, 288 ITR 10 (SC) FOR INVOKING PROVISIONS OF SE CTION 145(3) OF THE ACT. 12.1. SECTION 145 AS IS RELEVANT IN THE YEAR UN DER APPEAL IS REPRODUCED AS UNDER :- SEC. 145. (1) INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES SHALL, S UBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCOR DANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOY ED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFI CIAL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLA SS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. 12.2. THE FIRST BASIS TAKEN BY THE ASSESSING AUT HORITY IN REACHING A FINDING THAT THE ASSESSEES ACCOUNTS DO NOT DEPICT CORRECT AND COMPLETE PICTURE OF ITS ACCOUNTS IS THAT THE ASSESSEE HAS NOT MAINTAINED A DETAILED QUALITATIVE AND QUANTITATIVE STOCK REGISTER AND FAILED TO GET THE V ALUATION OF ITS CLOSING STOCK 18 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. VERIFIED WITH THE DETAILED DAY-WISE QUALITATIVE CUM QUANTITATIVE STOCK REGISTER. THE ASSESSEES CASE BEFORE THE AUTHORITIES BELOW HA S, HOWEVER, BEEN THAT THE ASSESSEE HAD KEPT BOTH QUANTITATIVE AND QUALITATIVE DETAILS OF MATERIAL PURCHASED BY IT AS IS EVIDENT FROM VARIOUS LEDGER A CCOUNTS RELATED TO CONSTRUCTION MATERIAL THAT WERE FORMING PART OF THE SEIZED MATERIAL AVAILABLE WITH THE ASSESSING AUTHORITY. ALL THE EXPENSES RELA TING TO THE PROJECT INCLUDING MATERIAL PURCHASED WERE CHARGED TO PROJECT/WORK-IN- PROGRESS AND DIRECTLY TAKEN TO THE BALANCE SHEET. IN OTHER WORDS, THE MAT ERIALS PURCHASED FOR THE PROJECT ARE ISSUED TO SITE IMMEDIATELY AFTER ITS PU RCHASE AND TRANSFERRED TO PROJECT IN PROGRESS FOR DETERMINING PROFIT AT THE T IME OF COMPLETION OF THE PROJECT. NO EXPENDITURE IS CHARGED TO PROFIT & LOSS ACCOUNT. THE QUANTITY SO ISSUED TO THE SITES/PROJECTS IS RECORDED IN SEPARAT E RECORDS MAINTAINED FOR EACH ITEM OF BUILDING MATERIAL USED THEREIN. THERE WAS THUS NO NEED TO MAINTAIN A DETAILED QUALITY-WISE QUANTITATIVE REGIS TER BY THE ASSESSEE. THE LOWER AUTHORITIES HAVE NOT POINTED OUT ANY DEFECT I N THE VALUATION OF PROJECT/WORK-IN-PROGRESS. IT IS ALSO NOT THE CASE O F THE ASSESSING OFFICER THAT THERE HAVE BEEN OMISSION OR FAILURE TO RECORD ANY P URCHASES OR DIRECT EXPENSES TO THE PROJECT IN PROCESS NOR EVEN THE CAS E IS THAT THE ASSESSEE HAS INFLATED THE COST OF SUCH STOCK HELD AND DISCLOSED BY THE ASSESSEE IN THE FINANCIAL STATEMENTS PRESENTED ALONG WITH THE RETUR N OF INCOME. IN FACT, THIS IS A CASE WHERE THE ACCOUNTS WERE FOUND DULY AUDITED B Y A QUALIFIED CHARTERED ACCOUNTANT WITH NO ADVERSE COMMENTS WITH RESPECT TO CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS MAINTAINED BY THE ASSE SSEE OR THE METHOD OF VALUATION ADOPTED BY HIM. THE ASSESSEE HAS VALUED T HE STOCK OF PROJECT IN PROCESS AT COST AS ALL THE PURCHASES OF MATERIALS A ND DIRECT EXPENSES WERE CHARGED TO THIS ACCOUNT. THE BOOKS OF ACCOUNT STOOD SEIZED AS A RESULT OF SEARCH ON ASSESSEE-ASSESSEE AND THE SAME WERE AVAIL ABLE WITH THE ASSESSING OFFICER. THE ASSESSEE HAD ALSO PRODUCED REQUISITE V OUCHERS AND OTHER DOCUMENTS AS WERE DEMANDED BY THE ASSESSING OFFICER FROM TIME TO TIME. IT WAS, THEREFORE, HIS OWN DUTY TO VERIFY QUANTITY OF EACH QUALITY OF GOODS PURCHASED BY THE ASSESSEE AND CORRECTNESS OF VALUAT ION DISCLOSED IN THE ACCOUNTS. FOR THE REMISSNESS ON THE PART OF THE ASS ESSING OFFICER, ASSESSEE CANNOT BE BLAMED. THE ASSESSING OFFICER ALSO APPEAR S TO HAVE CASUALLY STATED THAT AS PER AS-2 IT IS ESSENTIAL THAT THE DETAILS O F BOTH QUALITY AS WELL AS QUANTITY OF DIFFERENT ITEMS OF STOCKS INCLUDING DET AILS OF DIRECT EXPENSES AND COSTS ARE REQUIRED TO BE MAINTAINED METICULOUSLY. I N FACT, THE AS-2 NOTIFIED BY THE CBDT RELATES TO DISCLOSURE OF PRIOR PERIOD AND EXTRA ORDINARY ITEMS AND CHANGE OF ACCOUNTING POLICIES. THE ACCOUNTS MAINTAI NED BY THE ASSESSEE- ASSESSEE CONFORM TO THE COMMERCIALLY ACCEPTED ACCOU NTING STANDARDS AND TRUE PROFITS OF ASSESSEES BUSINESS COULD BE DEDUCE D THEREFROM. THE FINDINGS REACHED BY THE ASSESSING OFFICER ARE THUS NOT FACTU ALLY CORRECT WITH RESPECT TO THE LACUNA POINTED OUT BY HIM ON MAINTENANCE OF STO CK RECORD AS WELL AS VALUATION OF INVENTORY HELD BY THE ASSESSEE. 19 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. 12.3. IN THE CASE OF PANDIT BROTHERS VS. CIT, 26 ITR 159, THE HON'BLE PUNJAB & HARYANA HIGH COURT HAS HELD THAT THE MERE FACT THAT THERE IS NO STOCK REGISTER, IT ONLY CAUTIONS HIM AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE. HE CANNOT SAY THAT MERELY THERE IS NO STO CK REGISTER, THE ACCOUNTS BOOK MUST BE FALSE. THE HON'BLE SUPREME COURT TOOK NOTE OF THIS JUDGMENT IN THE CASE OF S.N. NAMASIVAYAM CHETTIAR VS. CIT, 38 I TR 570 (SC) AND HELD THAT IT IS FOR THE INCOME-TAX AUTHORITIES TO CONSID ER THE MATERIAL WHICH IS PLACED BEFORE HIM AND IF AFTER TAKING INTO ACCOUNT IN ANY CASE THE ABSENCE OF STOCK REGISTER COUPLED WITH OTHER MATERIAL, ARE OF THE OPINION THAT CORRECT PROFITS AND GAINS COULD NOT BE DEDUCED THEN THEY WO ULD BE JUSTIFIED IN APPLYING THE PROVISO TO SECTION 13 OF THE IT ACT, 1 922. ON THE PECULIAR FACTS IN THE PRESENT CASE IN APPEAL BEFORE US, MERELY BECAUS E OF NON-MAINTENANCE OF A DETAILED QUALITATIVE AND QUANTITATIVE REGISTER AL ONE, THE SAME COULD NOT BE A VALID REASON TO REACH A FINDING THAT BOOKS OF ACCOU NT DO NOT PRESENT TRUE AND COMPLETE PICTURE OF ACCOUNTS AND FINANCIAL TRANSACT IONS. THE FINDING BY THE ASSESSING AUTHORITY BEING PERVERSE IS, THEREFORE, S ET ASIDE. 12.4. THE SECOND ISSUE RAISED BY THE ASSESSING AU THORITY FOR INVOKING PROVISIONS OF SECTION 145 OF THE ACT IS ABOUT NON VERIFICATION OF SOME OF THE VOUCHERS RELATING TO PAYMENT IN RESPECT OF DIRECT EXPENSES. THE PERUSAL OF THE IMPUGNED ORDER REVEALS THAT THIS WAS ONLY A PRIMA F ACIE VIEW WHICH THE ASSESSING AUTHORITY ENTERTAINED BEFORE ISSUING A SH OW CAUSE NOTICE TO THE ASSESSEE FOR REJECTING ITS ACCOUNTS BY INVOKING PRO VISIONS OF SECTION 145(3) OF THE ACT. HE HAS NOT BEEN ABLE TO POINT OUT AS TO WH ICH OF THESE PAYMENTS IN RESPECT OF DIRECT EXPENSES COULD NOT BE VERIFIED BY HIM NOR THE ASSESSING AUTHORITY IS SHOWN TO HAVE REQUIRED THE ASSESSEE TO GET PAYMENT OF ANY SPECIFIC AMOUNT OF DIRECT EXPENSES VERIFIED. MERELY FOR SAYING IT COULD NOT BE TAKEN A LACUNA IN THE BOOKS OF ACCOUNT OF THE ASSES SEE AND TAKE THE SAME AS A REASON FOR REJECTING THE BOOKS OF ACCOUNT THAT WE RE MAINTAINED BY ASSESSEE IN REGULAR COURSE OF ITS BUSINESS. 12.5. THIRDLY, THE ASSESSING OFFICER HAS TAKEN TH E REASONING THAT THE SEARCH PROCEEDINGS REVEALED INCRIMINATING DOCUMENTS WHICH CONTAINED NOTHINGS OF RECEIPT OF CASH OUT OF BOOKS BY THE MEMBERS OF UN IQUE GROUP OF WHICH THE ASSESSEE IS AN IMPORTANT MEMBER. THE LD. CIT (A) IN PARAS 13.1 TO 13.3 OF THE IMPUGNED ORDER HAS SUPPORTED THE FINDINGS REACH ED BY ASSESSING AUTHORITY BY STATING THAT THE GROUP IS OWNED AND CO NTROLLED BY TWO BROTHERS, NAMELY, SHRI AJAY PAL SINGH AND SHRI AJIT SINGH AND THEIR SONS. DURING THE SEARCH AND SEIZURE OPERATION EVIDENCE OF ON MONEY RECEIVED ON SALE OF DIFFERENT FLATS OF THIS FIRM WERE FOUND AND WERE AL SO ADMITTED BY THE PARTNERS OF THE FIRM SHRI RAVINDER SINGH/SHRI AJIT SINGH. MO REOVER, THE ON MONEY SO RECEIVED WAS ALSO INCLUDED AS UNDISCLOSED INCOME IN THE RETURN OF INCOME SO FILED BY ONE OF THE PARTNERS. WE, THEREFORE, REQUIR ED THE LD. D/R TO PRODUCE SUCH MATERIAL AND EVIDENCE SO AS TO TEST THE CORREC TNESS OF THE VERACITY OF THE 20 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. AUTHORITIES BELOW AS THE ASSESSEE HAS CATEGORICALLY DENIED OF RECEIPT OF ANY ON-MONEY IN THE JOINT BUSINESS CARRIED WITH HIS S EPARATED BROTHER SHRI AJIT SINGH AND HIS SON. THE SEPARATION HAD OCCASIONED IN THE YEAR 2006 WHICH IS A DATE MUCH PRIOR TO THE DATE OF ACTION TAKEN UNDER S ECTION 132 OF THE ACT ON THE ASSESSEE. FROM THE RECORD PRODUCED, WE FIND THA T IT IS A CORRECT FACT THAT THESE TWO GROUPS HAVE SEPARATED FROM JOINT BUSINESS IN THE YEAR 2006 AND THEREAFTER CARRIED BUSINESS WITH NO INTEREST OR INV OLVEMENT OF THE OTHER BROTHER. THIS FACT, THE ASSESSEE ALSO DISCLOSED BY WAY OF A FOOT NOTE ON THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF IN COME. THE STATEMENTS GIVEN BY SHRI AJIT SINGH AND SHRI RAVINDER SINGH DU RING THE COURSE OF SEARCH ADMITTEDLY WERE WITH REGARD TO RECEIPT OF EXTRA MON EY WITH RESPECT TO THE FLATS SOLD BY THEM. THESE SALES WERE NOT OF THE PRO JECTS DONE JOINTLY WITH THE ASSESSEE, ITS CONSTITUENTS OR FAMILY MEMBERS. THE ON-MONEY SO RECEIVED BY THEM HAS BEEN DISCLOSED AND APPLIED TO EXPLAIN THE TRANSACTIONS OF THEIR INDEPENDENT BUSINESS UNRELATED TO THE ASSESSEE AND ITS CONSTITUENTS. THE STATEMENTS SO TAKEN, THEREFORE, DID NOT CONSTITUTE A MATERIAL OR EVIDENCE FOR REJECTING THE BOOKS OF ACCOUNT MAINTAINED BY THE AS SESSEE IN SAYING THAT THE MONIES RECEIVED AS EARNEST MONEY OR ADVANCES TOWARD S SALE OF ITS FLATS ARE NOT FULLY ACCOUNTED. THE REASON SO TAKEN BY THE ASS ESSING OFFICER FOR REJECTING THE ACCOUNTS IS THUS VITIATED AND UNFOUND ED. ------------- ------------ ------------ 12.8. THE HON'BLE KERALA HIGH COURT IN THE CASE O F ST. TERESAS OIL MILLS VS. STATE OF KERALA, 76 ITR 365 (KER.) HAS ENTERTAINED A VIEW TH AT THE ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE IN THE COURSE OF BUSINES S HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REAS ONS TO INDICATE THAT THEY ARE UNRELIABLE. THE DEPARTMENT HAS TO PROVE SATISFACTOR ILY THAT THE ACCOUNTS BOOKS ARE UNRELIABLE, INCORRECT OR INCOMPLETE BEFOR E REJECTING THE ACCOUNTS. THE REJECTION OF BOOKS IS NOT A MATTER TO BE DONE L IGHT HEARTEDLY. 12.9. THERE IS ALSO A FEEBLE OBSERVATION IN THE O RDERS OF THE AUTHORITIES BELOW FOR REJECTING THE ACCOUNTS THAT IN THE TRADE OF REAL ES TATES NOTORIOUS TRADE PRACTICES ARE PREVAILING. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT BY HON'BLE APEX COURT IN THE CASE O F LALCHAND BHAGAT AMBICA RAM VS. CIT, 37 ITR 288 (SC) AND ALSO BY HON 'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DISCOVERY ESTATE PVT. LTD. 2013 -TIOL-139-HIGH COURT-DEL- IT IN WHICH THE PRACTICE OF MAKING ADDITIONS IN THE ASSESSMENT ON MERE SUSPICIONS AND SURMISES OR BY TAKING NOTE OF THE N OTORIOUS TRADE PRACTICES PREVAILING IN TRADE CIRCLES HAS BEEN DISAPPROVED. H AVING CONSIDERED THE AFORESAID VIEW, THE FINDING OF ON-MONEY TRANSACTIO NS IN THE ASSESSEES CASE 21 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. BY THE AUTHORITIES BELOW IS FOUND WITHOUT ANY BASIS AND FOUND PERVERSE ON FACTS. IT, THEREFORE, COULD NOT BE A REASON FOR REJ ECTING THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN REGULAR COURSE OF BUS INESS. 12.10. THE LAST REASONING TAKEN BY THE ASSESSING A UTHORITY AS ALSO STOOD CONFIRMED BY THE LD. CIT (A) IS THAT THE ASSESSEE HAS NOT FOL LOWED ACCOUNTING STANDARDS 9 & 7 WHICH TANTAMOUNT TO NOT FOLLOWING ACCOUNTING STANDARD-1 AS PRESCRIBED UNDER SECTION 145(2) OF THE ACT IN VIEW OF THE EXER CISE UNDERTAKEN BY THE ASSESSING AUTHORITY TO APPLY PERCENTAGE OF PROJECT METHOD THAT GAVE A DIFFERENT AND POSITIVE RESULTS REVEALING MORE PROFI TS TAXABLE IN THE YEARS UNDER CONSIDERATION. THE ASSESSING OFFICER, THEREFORE, CH ANGED THE METHOD TO PERCENTAGE COMPLETION METHOD AS AGAINST THE PROJECT COMPLETION METHOD REGULARLY EMPLOYED BY THE ASSESSEE. THE ADMITTED PO SITION AND ALSO THE FACT IS THAT THE ASSESSEE HAS REGULARLY EMPLOYED PROJECT COMPLETION METHOD FROM YEAR TO YEAR AND THE ASSESSMENTS PRIOR TO THE DATE OF SEARCH WERE ALSO MADE BY ACCEPTING PROJECT COMPLETION METHOD. BOTH PROJEC T COMPLETION METHOD AND THE PERCENTAGE COMPLETION METHOD ARE RECOGNIZED METHODS FOR ASSESSMENT OF CORRECT INCOME OF THE ASSESSEE UNDER THE IT ACT, 1961. THE CHOICE OF METHOD OF ACCOUNTING, HOWEVER, LIES WITH THE ASSESSEE. IT IS NOT OPEN TO THE ASSESSING OFFICER TO CHANGE HIS OWN OPI NION OR CHANGE THE METHOD OF ACCOUNTING BECAUSE HE FINDS ANOTHER METHO D OF ACCOUNTING BETTER THAN THE ONE ADOPTED REGULARLY BY THE ASSESSEE AND BY REJECTING HIS ACCOUNTS SUBSTITUTE THE SAME WITH ANOTHER METHOD OF ACCOUNTI NG WITHOUT ANY JUST AND REASONABLE CAUSE. IN THE PRESENT CASE THE EXERCISE SO UNDERTAKEN BEING IMAGINARY AND RESTED ON IRRELEVANT CONSIDERATIONS C OULD NOT CONSTITUTE A JUST OR REASONABLE CAUSE EMPOWERING THE AUTHORITY TO CHA NGE THE METHOD OF ACCOUNTING REGULARLY ADOPTED BY THE ASSESSEE. THE R EVENUE HAS ALSO NOT BEEN ABLE TO SUCCESSFULLY DEMONSTRATE THAT THE METHOD OF ACCOUNTING PROVIDED UNDER SUB-SECTION (1) OR ACCOUNTING STANDARD NOTIFI ED UNDER SUB SECTION (2) OF SECTION 145 OF THE ACT HAVE NOT BEEN REGULARLY F OLLOWED BY THE ASSESSEE. EVEN FOR THE FIRST YEAR, THE METHOD OF ACCOUNTING I S DEEMED TO HAVE BEEN EMPLOYED IF THE SAME IS SHOWN TO HAVE BEEN REGULARL Y EMPLOYED IN SUBSEQUENT YEARS. THE DECISION BY HON'BLE DELHI HIG H COURT IN THE CASE OF CIT VS. SMT. V. SIKKA & ANOTHER (1984) 149 ITR 73 ( DEL.) IS RELEVANT. THE REAL ESTATE DEVELOPER IS NOT A PURE CONTRACTOR BUT IS A SELLER OF FLATS/GOODS. THE REVENUE RECOGNITION IN THE CASE OF SALE OF GOOD S IS TRIGGERED ON COMPLETION OF PERFORMANCE AS PROVIDED IN PARA 11 OF AS-9 REVENUE RECOGNITION. IT IS NOT MANDATORY FOR A REAL ESTATE DEVELOPER TO FOLLOW PERCENTAGE OF COMPLETION METHOD AS PRESCRIBED BY TH E INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA UNDER AS-7. AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, RECOGNIZES THE POSITION THAT IN THE CASE OF CONSTRUCTION CONTRACTS THE ASSESSEE CAN FOLLOW EITHER THE PROJEC T COMPLETION METHOD OR THE PERCENTAGE COMPLETION METHOD. THE JUDGMENT BY HON'B LE DELHI HIGH COURT IN THE CASE OF CIT VS. MANISH BUILDWELL (P) LTD. IN IT A NO. 928/2011 DATED 22 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. 15.11.2011 IS RELEVANT. NEITHER THE REVISED GUIDANC E NOTES 2012 ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NOR THE EXPOSURE DRAFT FOR GUIDANCE NOTE ON RECOGNITION OF REVENUE ISSUED BY T HE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA IN 2011 ARE MANDATORY. THE COMPLETED CONTRACT METHOD FOLLOWED BY THE ASSESSEE, THEREFORE, COULD N OT BE FAULTED WITH BY THE REVENUE AND THE ASSUMPTIONS MADE BY THE ASSESSING O FFICER THAT BY NOT FOLLOWING AS-9 & 7 THE SAME TANTAMOUNT TO NOT FOLLO WING PRESCRIBED AS-1 UNDER SECTION 145(2) OF THE ACT ARE FOUND MISPLACED , UNNECESSARY AND UNCALLED FOR BESIDES BEING CONTRARY TO PRINCIPLES O F INTERPRETATION OF THE STATUTORY PROVISIONS. THE SAME, THEREFORE, COULD NO T BE TAKEN A VALID BASIS FOR CHANGE OF METHOD REGULARLY EMPLOYED BY THE ASSESSEE . THE INCOME-TAX AUTHORITY, THEREFORE, HAS NO OPTION OR JURISDICTION TO MEDDLE IN THE MATTER EITHER BY DIRECTING THE ASSESSEE TO MAINTAIN ITS AC COUNT IN A PARTICULAR MANNER OR ADOPTING A DIFFERENT METHOD FOR VALUING WORK-IN- PROGRESS. IT ALSO CANNOT RE-COMPUTE INCOME BY ADOPTING ANY METHOD OTHER THAN THAT REGULARLY EMPLOYED BY THE ASSESSEE-ASSESSEE IN A CASE LIKE TH IS NOR MAKE THE SAME AS BASIS TO REJECT ITS ACCOUNTS. 12.11. THE APEX COURT IN THE CASE OF CIT VS. MCMIL LAN & CO. 33 ITR 182 (SC) AT PAGE 188 HAS ALSO ENTERTAINED THIS OPINION WHICH IS EVIDENT FROM THE FOLLOWING PASSAGE :- THE SECTION ENACTS THAT FOR THE PURPOSES OF SEC TION 10 (PROFITS OF BUSINESS, PROFESSION OR VOCATION) AND SECTION 12 (INCOME FROM OTHER SOURCES) INCOME, PROFITS AND GAINS MUST BE COMPUTED IN ACCORDANCE WI TH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE CHOICE OF THE METHOD OF ACCOUNTING LIES WITH THE ASSESSEE ; BUT THE ASSESSE E MUST SHOW THAT HE HAS FOLLOWED THE METHOD REGULARLY FOR HIS OWN PURPOSES. THE SECTION AND THE PROVISO READ TOGETHER CLEARLY MAKE SUCH A METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE A COMPULSORY BASIS OF COMP UTATION UNLESS, IN THE OPINION OF THE INCOME-TAX OFFICER, THE INCOME, PROF ITS AND GAINS CANNOT PROPERLY BE DEDUCED THEREFROM. IF THE TRUE INCOME, PROFITS AND GAINS CANNOT BE ASCERTAINED ON THE BASIS OF THE ASSESSEE'S METHO D, OR WHERE NO METHOD OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED, THE INCOME MUST BE COMPUTED UPON SUCH BASIS AND IN SUCH MANNER AS THE INCOME-TAX OFF ICER MAY DETERMINE. 12.12. AGAIN THE APEX COURT IN THE CASE OF INVESTM ENT LTD. VS. CIT 77 ITR 533 (SC) AT PAGE 537 AND 538 HAS TAKEN A VIEW THAT THE TAX P AYER IS FREE TO EMPLOY ANY METHOD OF ACCOUNTING BUT THE SAME SHOULD BE CO NSISTENTLY AND REGULARLY FOLLOWED BY HIM. THIS IS SO EVIDENT FROM THE FOLLOW ING PASSAGE :- IN THE BALANCE-SHEET, IT IS TRUE, THE SECURITIE S AND SHARES ARE VALUED AT COST, BUT NO FIRM CONCLUSION CAN BE DRAWN FROM THE METHOD OF KEEPING ACCOUNTS. A TAXPAYER IS FREE TO EMPLOY, FOR THE PURPOSE OF HIS TRADE, HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PURPOSE TO VALUE HIS STOCK-IN-TRADE EITHER AT 23 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. COST OR MARKET PRICE. A METHOD OF ACCOUNTING ADOPTE D BY THE TRADER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY T HE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNT OR OF VALUATION. THE METHOD OF ACCO UNTING REGULARLY EMPLOYED MAY BE DISCARDED ONLY IF, IN THE OPINION O F THE TAXING AUTHORITIES, INCOME OF THE TRADE CANNOT BE PROPERLY DEDUCED THER EFROM. VALUATION OF STOCK AT COST IS ONE OF THE RECOGNIZED METHODS. 12.13. THE APEX COURT IN THE CASE OF UNITED COMMER CIAL BANK VS. CIT 1999 240 ITR 355 (SC) AFTER CONSIDERING THE JUDGEMENT IN THE CAS E OF BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC) WHICH IS ALSO RELIED UPON BY T HE AUTHORITIES BELOW AGAINST THE ASSESSEE BEFORE US IS FOUND TO HAVE ENT ERTAINED A VIEW THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAX PAYER CONSI STENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING O F ACCOUNTS OR OF VALUATION. THE REVENUES RELIANCE UPON THE DECISION IN CIT VS. BRITISH PAINTS INDIA LTD. (SUPRA) IN NO WAY ADVANCED THE CASE OF T HE REVENUE. THE APEX COURT WHILE DEALING WITH THE CONTENTION OF THE ASSE SSEE IN THAT CASE FOR VALUATION OF THE RAW MATERIAL WITHOUT TAKING INTO A CCOUNT ANY PORTION OF THE COST OF MANUFACTURE, HELD THAT:- THE QUESTION OF FACT WHICH THE ASSESSING OFFICER MUST NECESSARILY DECIDE IS WHETHER OR NOT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE DISCLOSES THE TRUE INCOME AND OBSERVED THUS (PAGE 51) : IT I S A WELL-RECOGNISED PRINCIPLE OF COMMERCIAL ACCOUNTING TO ENTER IN THE PROFIT AND LOSS ACCOUNT THE VALUE OF THE STOCK-IN-TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR AT COST OR MARKET PRICE, WHICH-EVER IS THE LOW ER. THE COURT FURTHER CONSIDERED SECTION 145 OF THE ACT AND OBSERVED THAT WHAT IS TO BE DETERMINED BY THE OFFICER IN EXERCISE OF THE POWER IS A QUESTION OF FACT, THAT IS, WHETHER OR NOT INCOME CHARGEABLE UNDER THE ACT CAN BE PROPERLY DEDUCED FROM THE BOOKS OF ACCOUNT AND THE QUESTION MUST BE DECIDED WITH REFERENCE TO THE RELEVANT MATERIAL AND IN ACCORDANC E WITH THE CORRECT PRINCIPLES. THE COURT ALSO OBSERVED (PAGE 52) : WH ERE THE MARKET VALUE HAS FALLEN BEFORE THE DATE OF VALUATION AND, ON THAT DA TE, THE MARKET VALUE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST, THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKET VALUE AND THUS ANTICIPATE THE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF THE SALE OF THE GOODS. VALUATION OF THE STOCK-IN-TRADE AT COST OR MARKET VALUE, WHICHEVER IS THE LOWER, IS A MATTER E NTIRELY WITHIN THE DISCRETION OF THE ASSESSEE. BUT WHICH-EVER METHOD HE ADOPTS, I T SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND GAINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AFFAIRS F OR THE DETERMINATION OF TAX, EVEN IF IT IS IDEALLY SUITED FOR OTHER PURPOSES OF HIS BUSINESS, SUCH AS THE CREATION OF A RESERVE, DECLARATION OF DIVIDENDS, PL ANNING AND THE LIKE, IT IS THE 24 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. DUTY OF THE ASSESSING OFFICER TO ADOPT ANY SUCH COM PUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF THE TRU E INCOME OF THE ASSESSEE. THIS IS NOT ONLY A RIGHT BUT A DUTY THAT IS PLACED ON THE OFFICER, IN TERMS OF THE FIRST PROVISO TO SECTION 145, WHICH CONCERNS A CORR ECT AND COMPLETE ACCOUNT BUT WHICH, IN THE OPINION OF THE OFFICER, DOES NOT DISCLOSE THE TRUE AND PROPER INCOME. HENCE, FOR THE PURPOSE OF INCOME-TAX WHICH EVER METHOD IS ADOPTED BY THE ASSESSEE, A TRUE PICTURE OF THE PROFITS AND GAINS, THAT IS TO SAY, THE REAL INCOME IS TO BE DISCLOSED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN A BALANCE-SHEET REQUIRE TO BE MAINTAINED IN THE STATU TORY FORM, MAY NOT BE DECISIVE OR CONCLUSIVE. IN SUCH CASES, IT IS OPEN T O THE INCOME-TAX OFFICER AS WELL AS THE ASSESSEE TO POINT OUT THE TRUE AND PROP ER INCOME WHILE SUBMITTING THE INCOME-TAX RETURN. 12.14. THE HON'BLE ANDHRA PRADESH HIGH COURT IN TH E CASE OF CIT VS. MARGADARSHI CHIT FUNDS (P) LTD., 155 ITR 442 (AP) DID NOT FIND ANY JUSTIFICATION IN THE ENTERTAINMENT OF THE VIEW BY THE ASSESSING OFFICER THAT THERE COULD BE A BETTER SYSTEM OF ACCOUNTING. THIS IS NO REASON TO T HE APPLICATION OF THE PROVISIONS OF SECTION 145 OF THE ACT. THE RELEVANT PASSAGE AS CONTAINED AT PAGE 447 OF THE REPORT IS REPRODUCED AS UNDER :- THE ITO'S VIEW THAT THERE COULD BE A BETTER SYS TEM OF ACCOUNTING IS NO REASON TO THE APPLICATION OF THE PROVISIONS OF S. 1 45 OF THE I. T. ACT, ESPECIALLY IN VIEW OF THE FACT THAT THIS SYSTEM OF ACCOUNTING IS FOLLOWED BY THE ASSESSEE UNIFORMLY AND REGULARLY FOR THE PAST SEVERAL YEARS, AND WAS ACCEPTED BY THE DEPARTMENT WITHOUT QUARREL. IT IS NOT OPEN TO THE I TO TO INTERVENE AND SUBSTITUTE A SYSTEM OF ACCOUNTING DIFFERENT FROM TH E ONE WHICH IS FOLLOWED BY THE ASSESSEE, ON THE GROUND THAT THE SYSTEM WHICH C OMMENDS TO THE ITO IS BETTER. ATTENTION MAY BE INVITED TO THE DECISIONS I N: (I) CIT & EPT V. CHARI AND RANT [1949] 17 ITR I (MAD) ; (II) CIT V. SRIMATI SINGARI BAI [ 1945] 13 ITR 2 24 (ALL) ; (III) CIT V. K. DODDABASAPPA [1964] 54 ITR 221 ( MYS) ; AND (IV) JUGGILAL KAMLAPAT, BANKERS V. CIT [1975] 10 1 ITR 40 (ALL). THESE ARE ALL DECISIONS WHICH LEND SUPPORT TO TH E PROPOSITION THAT THE DEPARTMENT IS BOUND BY THE ASSESSEE'S CHOICE OF ACC OUNTING REGULARLY EMPLOYED UNLESS IT CAN BE SAID THAT THE METHOD OF A CCOUNTING FOLLOWED BY THE ASSESSEE DOES NOT REFLECT THE TRUE INCOME. THE AAC, AS WELL AS THE INCOME- TAX APPELLATE TRIBUNAL, AFTER A CAREFUL SCRUTINY, C AME TO THE CONCLUSION THAT THE SYSTEM OF ACCOUNTING EMPLOYED BY THE ASSESSEE I S CONSISTENT AND REGULAR AND THE ITO, THEREFORE, IS NOT ENTITLED TO INTERFER E WITH THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, UNLESS IT IS P OSSIBLE FOR HIM TO MAKE OUT 25 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. AND BRING THE CASE WITHIN THE TERMS OF S. 145 OF TH E I. T. ACT. ON THIS BASIC ISSUE ITSELF, THE DEPARTMENT'S CONTENTION THAT THE DIVIDEND SHOULD BE ASSESSED IN THE HANDS OF THE ASSESSEE AS AND WHEN IT IS RECE IVED, IN SUBSTITUTION OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, SHOU LD FAIL. EVEN OTHERWISE, WE ARE NOT PERSUADED TO ACCEPT THE VIEW THAT THE SY STEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS IN ANY WAY DEFECTIVE. 12.15. THE APEX COURT HAD ALSO AN OCCASION TO CONS IDER THE PERCENTAGE OF COMPLETION METHOD AND COMPLETED PROJECT METHOD IN T HE CASE OF CIT VS. BILAHARI INVESTMENT PVT. LTD., 299 ITR 1 (SC). IN T HIS JUDGMENT IT HAS TAKEN A VIEW THAT RECOGNITION/IDENTIFICATION OF INCOME UNDE R THE 1961 ACT IS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. IT MAY BE NOTED T HAT THE SAME RESULT COULD BE ATTAINED BY ANY ONE OF THE ACCOUNTING METHODS. T HE COMPLETION CONTRACT METHOD IS ONE OF SUCH METHODS. UNDER THE COMPLETED CONTRACT METHOD, THE REVENUE IS NOT RECOGNIZED UNTIL THE CONTRACT IS COM PLETED. UNDER THE SAID METHOD, COSTS ARE ACCUMULATED DURING THE COURSE OF THE CONTRACT. THE PROFIT AND LOSS IS ESTABLISHED IN THE LAST ACCOUNTING PERI OD AND TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. THE SAID METHOD DETERMINES RESULTS ONLY WHEN THE CONTRACT IS COMPLETED. THE METHOD LEADS TO OBJECTIV E ASSESSMENT OF THE RESULTS OF THE CONTRACT. ON THE OTHER HAND THE PERC ENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCO ME IN ORDER TO REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZ ED UNDER THIS METHOD IS DETERMINED BY REFERENCE TO THE STAGE OF COMPLETI ON AND CAN BE LOOKED AT UNDER THIS METHOD BY TAKING INTO CONSIDERATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT. THE APEX COURT AGAIN IN THE CASE OF CIT VS. HYUNDAI HEAVY IN DUSTRIES CO. LTD., 291 ITR 482 (SC) TOOK THE SIMILAR VIEW AND HELD AT PAGE 495 AS UNDER :- LASTLY, THERE IS A CONCEPT IN ACCOUNTS WHICH CA LLED THE CONCEPT OF CONTRACT ACCOUNTS. UNDER THAT CONCEPT, TWO METHODS EXIST FOR ASCERTAINING PROFIT FOR CONTRACTS, NAMELY, COMPLETED CONTRACT METHOD AND PERCENTAGE OF COMPLETION METHOD. TO KNOW THE RESULTS OF HIS OPER ATIONS, THE CONTRACTOR PREPARES WHAT IS CALLED A CONTRACT ACCOUNT WHICH IS DEBITED WITH VARIOUS COSTS AND WHICH IS CREDITED WITH REVENUE ASSOCIATED WITH A PARTICULAR CONTRACT. HOWEVER, THE RULES OF RECOGNITION OF COST AND REVEN UE DEPEND ON THE METHOD OF ACCOUNTING. TWO METHODS ARE PRESCRIBED IN ACCOUN TING STANDARD NO. 7. THEY ARE COMPLETED CONTRACT METHOD AND PERCENTAG E OF COMPLETION METHOD. THUS, AS BOTH THE METHODS OF ACCOUNTING AR E RECOGNIZED METHODS OF ACCOUNTING, THE ASSESSEE IS AT LIBERTY TO CHOOSE ANY OF THE ABOVE AND IF ANY ONE OF THE METHOD OF ACCOUNTING IS CONSISTENTLY FOL LOWED BY THE ASSESSEE, THE ASSESSING OFFICER CANNOT CHANGE THE METHOD OF ACCOU NTING TO THE PERCENTAGE OF COMPLETION METHOD. 26 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. 12.16. THE HON'BLE DELHI HIGH COURT WHILE DEALING WITH THE SIMILAR SITUATION IN THE CASE OF CIT VS. MANISH BUILDWELL PVT. LTD. IN ITA N O. 928/2011 DATED 15.11.2011 HELD THAT AFTER THE ABOVE JUDGEMENT OF SUPREME COURT IN CIT VS. BILAHARI INVESTMENT PVT. LTD., 299 ITR 1, IT CANNOT BE SAID THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE WOULD RE SULT IN DEFERMENT OF THE PAYMENT OF TAXES WHICH ARE TO BE ASSESSED ANNUALLY UNDER THE INCOME-TAX ACT. ACCOUNTING STANDARD AS-7 ISSUED BY THE INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA ALSO RECOGNIZE THE POSITION TH AT IN THE CASE OF CONSTRUCTION CONTRACTS, THE ASSESSEE CAN FOLLOW EIT HER THE PROJECT COMPLETION METHOD OR THE PERCENTAGE COMPLETION METHOD. IN VIEW OF THE JUDGMENTS OF THE SUPREME COURT (SUPRA), THE FINDINGS OF CIT (A), UPHELD BY THE TRIBUNAL DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF L AW. FURTHER, THE TRIBUNAL HAS ALSO FOUND THAT THERE WAS NO JUSTIFICATION ON T HE PART OF THE ASSESSING OFFICER TO ADOPT THE PERCENTAGE COMPLETION METHOD F OR ONE YEAR ON SELECTIVE BASIS. THIS WILL DISTORT THE TRUE PROFITS AND GAINS OF BUSINESS. 12.17. THE JUDGMENT RENDERED BY APEX COURT IN THE CASE OF KACHWALA GEMS VS. JCIT, 288 ITR 10 (SC) THE HON'BLE APEX COURT HAS OB SERVED THAT SEVERAL COGENT REASONS HAVE BEEN GIVEN ON FACTS BY INCOME-T AX AUTHORITIES FOR REJECTING THE BOOKS OF ACCOUNT AND THAT IS THE REAS ON NO DIFFERENT VIEW COULD BE TAKEN ON THIS ISSUE. THIS CASE AS WELL AS OTHER CASE LAWS BROUGHT ON RECORD BY REVENUE ARE DISTINGUISHABLE ON THE PECULIAR FACT S OF THIS CASE IN HAND AND THE SAME DO NOT ADVANCE REVENUES CASE. 13 CONSIDERING ENTIRE CONSPECTUS OF THE CASE IN THE LI GHT OF THE PECULIAR FACTS AND FINDINGS REACHED HEREIN BEFORE IN THIS CASE, IT IS NEITHER PROPER NOR JUSTIFIED TO HOLD THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE AS SESSEE DID NOT PRESENT TRUE AND COMPLETE PICTURE OF ITS ACCOUNTS AND FINAN CIAL TRANSACTIONS. IT IS A CASE WHERE ACCOUNTS OF THE ASSESSEE ARE CORRECT AND COMPLETE. METHOD OF ACCOUNTING AND ACCOUNTING STANDARD HAS BEEN REGULAR LY FOLLOWED. TRUE AND CORRECT PROFITS OF THE BUSINESS OF THE ASSESSEE COU LD BE DEDUCED FROM SUCH BOOKS OF ACCOUNTS. IN THIS VIEW OF THE MATTER THE A SSESSING AUTHORITY COULD NOT CHANGE THE METHOD REGULARLY ADOPTED BY THE ASSE SSEE FROM PROJECT COMPLETION METHOD TO PERCENTAGE COMPLETION METHOD O N IRRELEVANT CONSIDERATIONS. WE ARE, THEREFORE, SATISFIED THAT P ROVISIONS OF SECTION 145(3) ARE NOT ATTRACTED IN THIS CASE. THE LD. CIT (A), IS FOUND TO HAVE ERRED IN UPHOLDING THE DECISION OF LD. ASSESSING AUTHORITY T O INVOKE SECTION 145(3) OF THE ACT AND MAKING ASSESSMENT IN THE MANNER PROVIDE D UNDER SECTION 144 OF THE ACT. WE, THEREFORE, SET ASIDE THE DECISION IN T HIS REGARD AND ALLOW GROUND NOS. 2 & 3 RAISED IN APPEAL BY THE ASSESSEE IN ASSE SSMENT YEAR 2003-04. (II) FURTHER IN THE CASE OF KRISH INFRASTRUCTURE (P ) LTD VS. ACIT, [35 TAXMANN.COM 38], THE HONBLE ITAT JAIPUR BENCH HAS FOLLOWED THE DECISION OF UNIQUE BUILDERS & DEVELOPERS (SUPRA) WHILE DECIDING THE IS SUE, WHETHER IT IS NOT 27 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. MANDATORY FOR ALL REAL ESTATE DEVELOPERS TO FOLLOW PERCENTAGE OF COMPLETION METHOD AS PRESCRIBED BY THE ICAI UNDER AS-7, AND IT IS OPTION OF THE ASSESSEE TO FOLLOW EITHER COMPLETED CONTRACT METHOD OR PERCE NTAGE COMPLETION METHOD. AND WHETHER, WHERE THE ASSESSEE, A REAL EST ATE DEVELOPER, WHO MAINTAINED ITS ACCOUNTS ON MERCANTILE BASIS BY REGU LARLY APPLYING PROJECT COMPLETION METHOD, THERE WAS NO JUSTIFICATION IN RE JECTION OF ITS ACCOUNTS BY APPLICATION OF PROVISIONS OF SEC145(3) AND CHANGING METHOD TO PERCENTAGE COMPLETION METHOD BY THE AO HELD YES, THEREFORE, THE ACTION OF THE LD. AO IN RECASTING T HE TRADING AND PROFIT & LOSS ACCOUNT AND VARYING THE CLOSING VALUE OF WIP A T RS. 10,02,95,148/- IS NOT AT ALL ACCEPTABLE IN VIEW OF NATURE OF THE B USINESS OF THE ASSESSEE AND REGULAR BUSINESS PRACTICE FOLLOWED BY REAL ESTA TE DEVELOPERS AND FURTHER IN VIEW OF VARIOUS JUDICIAL DECISIONS GIVEN IN THIS REGARD. THE LD. AO ON HIS OWN ASSUMPTIONS AND PRESUMPTIONS AND WITHOUT APPRECIATING THE METHOD OF ACCOUNTING REGULARLY FOLLOWED TRIED TO DE VIATE THE ENTIRE ISSUE MORE PARTICULARLY WHEN HE HAS NOT INVOKED THE PROVI SIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961, THUS THE ACTION OF THE LD. AO IS NOT ONLY AGAINST THE PROVISIONS OF LAW BUT ALSO ARBITRA RY AND DESERVES TO BE STUCK DOWN. THUS THE GROUND DESERVES TO BE DECIDED IN FAVOUR OF THE ASSESSEE, AS HELD CORRECTLY BY THE LD. CIT(A) AND T HE ASSESSEE PRAYS ACCORDINGLY. 3.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. IN THE LIGHT OF THE CASE LAWS AS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE, MORE PARTICULARLY, JUDGMENT OF HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. MANISH BUILDWELL PVT. LTD. IN ITA NO. 928/2011 AND THE DECISION OF THE TRIBUNAL IN THE CASE OF UNIQUE BUILDERS & DEVELOPERS VS. DCIT IN ITA NO. 73/JP/2012 AND 211/JP/2012, WE DO NOT SEE ANY INFIRMITY IN THE ORD ER OF LD. CIT (A), WHICH IS HEREBY AFFIRMED. THE GROUND OF THE REVENUE IS REJECTED. 28 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. 4. GROUND NO. 2 RELATES TO DELETING THE DISALLOWANC ES MADE U/S 40(A)(IA) AND 40A(3) OF ACT. 4.1. THE LD. D/R SUPPORTED THE ORDER OF THE A.O. 4.2. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT SINCE THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN THE PRO FIT & LOSS ACCOUNT AND ENTIRE EXPENSES INCURRED ON ACCOUNT OF ADVERTISEMENT EXPEN SES, COMMISSION & BROKERAGE, DEVELOPMENT EXPENSES, PRINTING & STATIONARY, BUSINE SS PROMOTION AND WEBSITE EXPENSES WERE DEBITED UNDER THE HEAD WORK-IN-PROGRE SS, THEREFORE, NO DISALLOWANCE U/S 40(A)(IA) AND 40A(3) CAN BE MADE. IT HAS BEEN E XPLAINED ABOVE IN GREAT DETAIL THAT THE ASSESSEE HAS VALIDLY CAPITALIZED ALL THE E XPENDITURES PERTAINING TO THE ONGOING PROJECT AND TAKEN TO THE WIP ACCOUNT. HENCE , NO EXPENDITURE WAS CLAIMED IN THE P & L ACCOUNT AND, UNLESS AN EXPENDITURE IS CLAIMED IN THE P&L ACCOUNT, NO DISALLOWANCE U/S 40(A)(IA) AND 40A(3) CAN BE MADE. 4.3. A BARE PERUSAL OF THE PROVISION OF SECTION 40( A)(IA) AND 40A(3) WOULD SHOW THAT, ONLY AN EXPENDITURE CLAIMED U/S 30 TO 38 CAN BE SUBJECT TO DISALLOWANCE UNDER THESE SECTIONS. HOWEVER, WHERE NO CLAIM OF DEDUCTIO N IS MADE IN THE P & L ACCOUNT, THERE IS NO OCCASION FOR APPLICATION OF SECTION 40( A)(IA) AND 40A(3). 4.4. THE OPENING WORDS OF SECTION 40 CLEARLY SPECIF Y THAT THE DISALLOWANCE CONTEMPLATED HEREUNDER IS OF CERTAIN EXPENDITURES C LAIMED BY ASSESSEE U/SS 30 TO 38 IN THE P & L ACCOUNT AT THE TIME INCURRING WHICH , TAX WAS NOT DEDUCTED AT SOURCE IN TERMS WITH CHAPTER XVII-B OF THE INCOME TAX ACT, 1961. HOWEVER, WHERE NO EXPENDITURE HAS BEEN CLAIMED AT ALL BY THE ASSESSEE IN HIS P&L ACCOUNT, THERE REMAINS NOTHING WHICH CAN BE DISALLOWED U/S 40(A)(I A) AND 40A(3) FOR THE REASON 29 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. THAT WHAT CAN BE DISALLOWED IS AN EXPENDITURE CLAIM ED BY ASSESSEE IN THE P&L ACCOUNT. NO OTHER KIND OF ADDITION/DISALLOWANCE IS PROVIDED FOR U/S 40(A)(IA) AND 40A(3) AND THE LD. AO HAS CLEARLY EXCEEDED HIS AUTH ORITY AND HAS MISINTERPRETED THE PROVISIONS OF SECTION 40(A)(IA) AND 40A(3) BY MAKIN G DISALLOWANCE OF THE AMOUNT ALLEGEDLY PAID BY ASSESSEE TO THE TRUCK OWNERS/DRIV ERS EVEN WHEN THE SAME WAS NEITHER PAID BY ASSESSEE NOR WAS CLAIMED AS EXPENDI TURE IN THE P&L ACCOUNT OF ASSESSEE. IN SUPPORT OF HIS CASE CONTENTION, LD. C OUNSEL HAS PLACED RELIANCE ON COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S . TRAVELS AND SHIPPING PVT. LTD. VS. ITO IN ITA NO. 3854/MUM/2011 WHEREIN THE TRIBUN AL HAS HELD AS UNDER :- 7. WE HAVE HEARD THE RIVAL CONTENTIONS, AND ALSO PE RUSED THE RELEVANT FINDING OF THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) AND THE MATERIAL ON RECORD. THE ASSESSEE IS PROVIDING CLEARING AND FORWARDING SERVI CES TO ITS CLIENT FOR CLEARING OF EXPORT/IMPORT CONSIGNMENTS, FOR WHICH IT HAS BEEN M AKING PAYMENTS ON ACCOUNT OF VARIOUS CHARGES ON BEHALF OF ITS CLIENT. THE SAME IS RECOVERED FROM ITS CLIENT ON ACTUAL BASIS. THE DOCUMENTS/CHALLANS FOR THE ABOVE PAYMENTS ARE ALSO ISSUED IN THE NAME OF THE ASSESSEES CLIENTS AND SU CH PAYMENTS MADE ON THEIR BEHALF HAS NEITHER BEEN DEBITED NOR CLAIMED A S EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THUS, THE ASSESSEE IS ACTING MERE AS CONDUIT OR IN TERMEDIARY AND WHATEVER PAYMENTS ARE MADE TO THE CONCERNED SHIPPIN G COMPANY AND TO VARIOUS OTHER GOVERNMENT AGENCIES, THE SAME IS RECOVERED BY THE CLIENTS. IT IS NEITHER THE CASE OF THE ASSESSING OFFICER NOR OF THE CIT(A) THA T ASSESSEE HAS CLAIMED ANY SUCH EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THESE ARE MAINLY REIMBURSEMENT OF THE EXPENSES. ONCE ANY EXPENSE HAS NOT BEEN CLAIMED AS DEDUCTION, THE PROVISION OF SECTION 40(A)(IA) CANNOT BE INVOKED. T HE DISALLOWANCE CANNOT BE SUSTAINED IN THIS CASE FOR THE REASON THAT , FIRSTLY, ASSESSEE CANNOT BE HELD TO A PERSON RESPONSIBLE FOR DEDUCTION OF TAX AT SOURCE IN TERMS OF SECTION 194C OF THE ACT AS THE ASSESSEE WAS ONLY ACTING AS A FACILITATO R OR INTERMEDIARY AND THERE IS NO PRIVITY OF CONTRACT BETWEEN THE ASSESSEE AND ITS CL IENTS AND SECONDLY, ONCE EXPENSES HAS NOT BEEN CLAIMED IN THE PROFIT AND LOS S ACCOUNT, THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED, BECAUSE SECTION 40 IS APPLICABLE ONLY IN RELATION TO AMOUNTS CLAIMED AS D EDUCTION IN SECTIONS 30 TO 38, WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION. THUS, SUCH A DIS ALLOWANCE CANNOT BE 30 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. MADE IN THE HANDS OF THE ASSESSEE UNDER SECTION 40( A)(IA). THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V/S CARGO L INKERS (SUPRA) AND ALSO THE DECISION OF CIT V/S HARVINDRA SINGH REPORTED IN (2013) 30 TAXMANN.COM 245 (DELHI) ALSO LAYS DOWN THE SOME PRE POSITION . THE LD. COUNSEL, THEREFORE, SUBMITTED THAT THE LD. CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE. 4.5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. AFTER CONSIDERING THE DECISION OF COORDINATE BENCHES OF THE TRIBUNAL, SUPRA, AND T HE RELEVANT PROVISIONS OF THE ACT, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT (A), T HE SAME IS HEREBY AFFIRMED. THE GROUND OF THE REVENUE IS REJECTED. THE APPEAL OF T HE REVENUE IS DISMISSED. 5. NOW WE TAKE UP REVENUES APPEAL IN ITA NO. 652/JP/2014 PERTAINING TO ASSESSMENT YEAR 2007-08. THE REVENUE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN DELETING THE AD DITION OF RS. 6,89,41,176/- MADE U/S 40(A)(IA) OF THE I.T. ACT, 1 961 IGNORING THE FACT THAT THE CONCERNED EXPENSES DO NOT FORM PART OF CAP ITAL ASSETS AS CLOSING STOCK IS NOT A CAPITAL ASSETS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN HOLDING THAT AM ENDMENT MADE TO SECTION 40(A)(IA) BY FINANCE ACT 2010 ARE RETROSPEC TIVE IN NATURE. 6. FACTS BEING GIVEN RISE TO THIS APPEAL ARE THAT AN ORDER UNDER SECTION 154 OF THE ACT WAS PASSED ON 14 TH OCTOBER, 2011 RECTIFYING THE ORIGINAL ASSESSMENT O RDER 31 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. PASSED ON 31.12.2009. THE AO DISALLOWED THE EXPENS ES OF RS. 6,89,41,176/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD. CIT (A), WHO DELETED THE DISALLOW ANCE BY OBSERVING THAT ONCE THE ISSUE HAS ALREADY BEEN DECIDED IN QUANTUM APPEAL BY LD. CIT (A), THE FURTHER DISALLOWANCE OF AMOUNT OF RS. 6,89,41,176/- U/S 40( A)(IA) IN THE RECTIFICATION ORDER PASSED U/S 154 READ WITH SECTION 143(3) BECOMES INF RUCTUOUS. 7. NOW THE REVENUE HAS PREFERRED THIS APPEAL. THE LD. D/R SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE AMENDMENT IN THE L AW IS NOT RETROSPECTIVE. 7.1. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE ISSUE IS ALREADY SETTLED BY THE HONBLE APEX COURT AND HONB LE HIGH COURTS IN FAVOUR OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE LD. COU NSEL SUBMITTED AS UNDER :- FROM PERUSAL OF PROVISIONS OF SECTION 40(A)(IA), IT TRANSPIRES THAT IF SUCH TAX HAS BEEN DEDUCTED AND AFTER DEDUCTION HAS BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 THEN NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE I. T. ACT, 1961. H OWEVER, THESE AMENDMENT WAS MADE BY THE FINANCE ACT, 2010, W.E.F. 1-4-2010. PRIOR TO THIS PROVISIONS QUOTED WORDS WERE SUBSTITUTED BY THE FINANCE ACT, 2 008, W.E.F. 1-4-2005 AS UNDER: 'HAS NOT BEEN PAID, ( A ) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR BEFORE THE D UE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139; OR ( B ) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF T HE PREVIOUS YEAR:' 32 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. THE LD. AO BY CONSIDERING THE CLAUSE (B) ABOVE MADE THE DISALLOWANCE AS THE ASSESSEE HAS NOT DEPOSITED TAX DEDUCTED UPTO FEBRUARY 2007, WITHIN THE FINANCIAL YEAR ITSELF. WHILE DOING SO THE LD. A O HAS IGNORED THE FACT THAT THE AMENDMENT TO S. 40(A)(IA) BY THE FINANCE ACT 20 10 W.E.F. 1.4.2010, WHICH ALLOWS TIME FOR DEPOSIT OF TDS UPTO THE DUE D ATE OF THE ROI, SHOULD BE TREATED AS BEING RETROSPECTIVE W.E.F. 1.4.2005 AS P ROVISION WAS INSERTED TO PROVIDE REMEDY TO MAKE A PROVISION WORKABLE REQUIRE S TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DEDUCTIO N CAN BE GIVEN TO THE SECTION AS WELL. IN THIS REGARD RELIANCE IS PLACED ON DECISION OF HONBLE CALCUTTA HIGH COURT GIVEN IN CASE OF CIT VS. VIRGIN CREATIONS IN ITAT NO. 302 OF 2011 IN WHICH HONBLE COURT HAS HELD AS UNDER: S. 40(A)(IA) TDS AMENDMENT TO GIVE EXTENDED TIME FO R PAYMENT IS RETROSPECTIVE THE ASSESSEE DEDUCTED TAX AT SOURCE FROM PAID CHARG ES BETWEEN THE PERIOD 1.4.2005 & 28.4.2006 THOUGH IT PAID THE TDS IN JULY AND AUGUST 2006. THE TDS WAS DEPOSITED AFTER THE END OF THE FY THOUGH BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. THE AO INVO KED S. 40(A)(IA) AND HELD THAT AS THE TDS HAD NOT BEEN PAID ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR, THE DEDUCTION WAS NOT ADMISSIBLE. THE TRIBUNA L ALLOWED THE ASSESSEES CLAIM. ON APPEAL BY THE DEPARTMENT, THE HIGH COURT HAD TO CONSIDER WHETHER THE AMENDMENT TO S. 40(A)(IA) BY THE FA 2010 W.E.F. 1.4.2010 TO PROVIDE THAT THE TDS HAS TO BE PAID ON OR BEFORE THE DUE DATE FO R FILING THE ROI WAS PROSPECTIVE OR RETROSPECTIVE. HELD BY THE HIGH COUR T DISMISSING THE DEPARTMENTS APPEAL: IN ALLIED MOTORS 224 ITR 677 & ALOM EXTRUSIONS 319 ITR 306, THE SUPREME COURT HELD THAT THE AMENDMENTS TO THE AFORE SAID PROVISION (S. 43B) HAVE RETROSPECTIVE APPLICATION. ALSO, IN R.B. JODHA MAL KUTHIALA 82 ITR 570 (SC), THE SUPREME COURT HELD THAT A PROVISION WHICH WAS I NSERTED THE REMEDY TO MAKE A PROVISION WORKABLE REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DED UCTION CAN BE GIVEN TO THE SECTION AS WELL. IN VIEW OF THE AUTHOR ITATIVE PRONOUNCEMENT OF THE SUPREME COURT, THIS COURT CANN OT DECIDE OTHERWISE. HENCE THE APPEAL IS DISMISSED. 33 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. FURTHER BY FOLLOWING THE AFORESAID JUDGEMENT, THE HONBLE ITAT DELHI BENCH IN CASE OF ITO VS. TARU LEADING EDGE (P) LTD HAS ALSO HELD THAT THE AMENDMENT TO S. 40(A)(IA) BY THE FA 2010 I S APPLICABLE RETROSPECTIVELY FROM 1.4.2005 AS UNDER: ITO VS. TARU LEADING EDGE (P) LTD (ITAT DELHI) JUNE 12TH, 2012 S. 40(A)(IA) AMENDMENT BY FINANCE ACT 2010 IS RETRO SPECTIVE FOR AY 2008-09, THE ASSESSEE MADE A DEPOSIT OF TDS AFTER THE DUE DATE FOR PAYMENT BUT BEFORE THE DUE DATE FOR FILING THE ROI. THE ASSESSEE CLAIMED THAT THE AMENDMENT TO S. 40(A)(IA) BY THE F A 2010 W.E.F. 1.4.2010, WHICH ALLOWS TIME FOR DEPOSIT OF TDS UPTO THE DUE D ATE OF THE ROI, SHOULD BE TREATED AS BEING RETROSPECTIVE W.E.F. 1.4.2005. THE AO REJECTED THE PLEA THOUGH THE CIT (A) ALLOWED IT. BEFORE THE TRIBUNAL, THE DEPARTMENT RELIED ON BHARATI SHIPYARD 132 ITD 53 (MUM)(SB) WHERE IT W AS HELD THAT THE AMENDMENT WAS NOT RETROSPECTIVE. HELD BY THE TRIBUN AL DISMISSING THE APPEAL: THOUGH IN BHARATI SHIPYARD 132 ITD 53 (MUM)(SB), IT WAS HELD THAT THE AMENDMENT TO S. 40(A)(IA) BY THE FA 2 010 W.E.F. 1.4.2010 CANNOT BE TREATED TO BE RETROSPECTIVE, A C ONTRARY VIEW HAS BEEN TAKEN BY THE CALCUTTA HIGH COURT IN CIT VS. VI RGIN CREATIONS. AS THIS IS THE SOLE HIGH COURT JUDGEMENT ON THE POINT, IT HAS TO BE FOLLOWED IN PREFERENCE TO THE VIEW OF THE SPECIAL B ENCH. ACCORDINGLY, THE AMENDMENT TO S. 40(A)(IA) BY THE FA 2010 IS APP LICABLE RETROSPECTIVELY FROM 1.4.2005 AND NO DISALLOWANCE U /S 40(A)(IA) CAN BE MADE IF THE TDS IS PAID ON OR BEFORE THE DUE DAT E FOR FILING THE ROI (PIYUSH C. MEHTA (MUM) & M.K. GURUMURTHY (BANG) FOLLOWED) THE LD. CIT(A) AFTER APPRECIATING THESE FACTS AND A LSO BY OBSERVING THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE I N THE PROFIT & LOSS ACCOUNT AND ALL THE AMOUNTS WERE TAKEN TO THE BALAN CE SHEET UNDER THE HEAD WORK-IN-PROGRESS HAD DELETED THE DISALLOWANCES SO MADE. IN THE CIRCUMSTANCES IT IS HUMBLY PRAYED THAT THE O RDER OF THE LD. CIT(A) BEING FULLY JUSTIFIED DESERVES TO BE UPHOLD. 34 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. RELIANCE IS FURTHER PLACED ON FOLLOWING CASE LAWS: CIT VS. HARISH CHAND AHUJA 125 DTR 184 (RAJ.) [APB 93-98] CIT VS. SHRADDHA & S.S. KALE, JV (BOMBAY) [APB 100- 101] CIT VS. NARESH KUMAR (DELHI) [APB 102-106] 49 DTR 70 KANUBHAI RAMJIBHAI VS. ITO (AHD B) BUSINESS EXPENDITURE DISALLOWANCE U/S 40(A)(IA) TAX DEDUCTED DURING THE YEAR BUT PAID BEFORE DUE DATE OF FILING OF RETURN PROVISION OF S. 40(A)(IA) AS AMENDED BY THE FINANCE ACT, 2010 W.E.F . 1 ST APRIL, 2010 IS REMEDIAL IN NATURE, DESIGNED TO ELIMINATE UNINTENDE D CONSEQUENCES WHICH MAY CAUSE UNDUE HARDSHIP TO THE TAXPAYERS AND IT HA S TO BE TREATED AS RETROSPECTIVE W.E.F. 1 ST APRIL, 2005, THE DATE ON WHICH S. 40(A)(IA) HAS BE EN INSERTED AND THEREFORE, NO DISALLOWANCE U/S 40(A)(I A) CAN BE MADE WHERE THE ASSESSEE HAD PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME, THE TAX DEDUCTED DURING THE PREVIOUS YEAR. B.M.S. PROJECTS (P) LTD. VS. DY. CIT [2013] 35 TAXMANN.COM 71 (AHMEDABAD TRIB.) [SOURCE: 143 ITD PART 3 PAGE NO. 5] SECTION 40(A)(IA), READ WITH SECTION 194C, OF THE I NCOME TAX ACT, 1961 BUSINESS DISALLOWANCE INTEREST, ETC., PAID TO RES IDENT WITHOUT DEDUCTION OF TAX AT SOURCE WHERE TDS WAS DEPOSITED BEFORE DUE DATE OF FILING OF RETURN OF INCOME, DISALLOWANCE UNDER SECTION 40(A)(IA) WAS NOT WARRAN TED [ASSESSMENT YEAR 2005-06] [IN FAVOUR OF ASSESSEE]. 7.2. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. IN THE LIGHT OF ABOVE DISCUSSION AND SINCE THE ISSUE HAS BEEN CONSI DERED BY THE HONBLE SUPREME COURT IN THE CASES OF ALLIED MOTORS, 224 IT R 677 (SC) AND ALOM EXTRUSIONS, 319 ITR 306 (SC), HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS IN ITA NO. 302 OF 2011 AND COO RDINATE BENCH OF THE 35 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. TRIBUNAL IN THE CASE OF ITO VS. TARU LEADING EDGE (P) LTD. (ITAT DELHI BENC H ORDER DATED 12 TH JUNE, 2012) AGAINST THE REVENUE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE FINDINGS OF LD. CIT (A). THE GROUN D OF THE REVENUES APPEAL IS REJECTED. THE APPEAL OF THE REVENUE IS DISMISSED. 8. NOW WE TAKE UP REVENUES APPEAL IN ITA NO. 421/JP/2015 AND ITA NO. 64/JP/2017 PERTAINING TO ASSESSMENT YEAR 2009-10 AND 2010-11. 9. THE GROUNDS RAISED IN THESE APPEALS ARE EXACTLY IDENTICAL TO GROUNDS RAISED IN ITA NO. 573/JP/2014 FOR THE ASSESSMENT YE AR 2007-08. THEREFORE, FOLLOWING OUR DECISIONS ARRIVED THEREIN AND ALSO TA KING A CONSISTENT VIEW OF THE MATTER, WE REJECT THE GROUNDS IN THESE APPEALS TOO. THE APPEALS OF THE REVENUE ARE DISMISSED. 10. IN TOTALITY, ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/07/201 7. SD/- SD/- FOE FLAG ;KNO DQY HKKJR (VIKRAM SINGH YADAV) (KUL BHARAT) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 31/07/2017. DAS/ 36 ITA NOS. 573/JP/2014, 652/JP/2014, 421/JP/2015 & 64 /JP/2017 M/S. PANCHSHEEL COLONIZERS PVT. LTD., JAIPUR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE ITO WARD 2(2), JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S. PANCHSHEEL COLONIZERS PVT. LTD ., JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 573 (4)/JP/2014} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR