Appeal details
Counselvise Citation
[2010] 136 COUNSELVISE.COM (IT) 9921 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-01-2010
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
14-10-2009
Assessment Year
2002-2003
Appeal Filed On
13-05-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NOS.456 TO 459/BANG/2009 ASSESSMENT YEARS : 2002-03 TO 2004-05 & 2006-07 M/S. CONCORDE DEVELOPERS, NO.46/A, 1 ST MAIN, 3 RD PHASE, J.P. NAGAR, BANGALORE 560 078. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 2(3), BANGALORE. : RESPONDENT ITA NOS.494 TO 496/BANG/2009 ASSESSMENT YEARS : 2004-05 TO 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 2(3), BANGALORE. : APPELLANT VS. M/S. CONCORDE DEVELOPERS, NO.46/A, 1 ST MAIN, 3 RD PHASE, J.P. NAGAR, BANGALORE 560 078. : RESPONDENT ITA NO.456 TO 459/B/09 ETC. PAGE 2 OF 26 ITA NOS.247, 248/BANG/2009 ASSESSMENT YEARS : 2003-04, 2004-05 & 2004-05 M/S. CONCORDE SHELTERS PVT. LTD., NO. 42, RAJINI TOWERS, 27 TH CROSS, 7 TH B MAIN, 4 TH BLOCK, JAYANAGAR, BANGALORE 560 076. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 2(3), BANGALORE. : RESPONDENT ITA NO.854/BANG/2009 ASSESSMENT YEAR : 2004-05 (BY REVENUE) ASSESSEES BY : SHRI SACHIN KUMAR REVENUE BY : SMT. PREETHI GARG O R D E R PER K.P.T. THANGAL, VICE PRESIDENT ITA NOS. 456 TO 459/B/09 (ASSESSEES APPEALS M/S. CONCORDE DEVELOPERS) THESE APPEALS ARE BY THE ASSESSEE AND PERTAIN TO A SSESSMENT YEARS 2002-03, 2003-04, 2004-05 & 2006-07. IN ALL THESE APPEALS, COMMON GROUNDS ARE URGED BY THE ASSESSEE. THE ONLY EFFECTIVE GROUND URGED IS AGAINST THE ORDER OF THE CIT(APPEALS) FOR TREATING 15% OF THE SALES AS NET PROFIT FOR ALL THE YEARS. 2. IN THESE CASES, THERE WAS A SEARCH AND SEIZURE A CTION U/S. 132 ON 13.4.2005. CONSEQUENT TO SEARCH NOTICE U/S. 153A W AS ISSUED ON 13.1.06. ITA NO.456 TO 459/B/09 ETC. PAGE 3 OF 26 IN RESPONSE TO THE ABOVE NOTICE, THE ASSESSEE FILED A LETTER DATED 7.6.2006 STATING THAT THE RETURN ALREADY FILED ON 29.10.02, 29.10.03 AND 24.9.2004 DECLARING TOTAL INCOME AT RS.98,891 FOR THE A.Y. 20 02-03, RS.5,75,041 FOR A.Y. 2003-04 AND RS.4,27,560 FOR A.Y. 2004-05 RESPE CTIVELY MAY BE TREATED AS RETURNS FILED IN RESPONSE TO NOTICE U/S. 153A. COMING TO THE A.Y. 2006-07, THE ASSESSEE DECLARED RS.26,14,385 ON 31.6 .07. NOTICE U/S. 143(2) AND QUESTIONNAIRE WAS ISSUED TO THE ASSESSEE ON 29.11.07 ALONG WITH NOTICE U/S. 142(1) AND THE CASE WAS POSTED FOR HEARING ON 4.12.07. THE ASSESSEE REQUESTED TIME UPTO 7.12.07 FOR FURNIS HING THE REPLY. THE CASE WAS ADJOURNED TO 7.12.07 BUT NO INFORMATION WA S FILED BY THE ASSESSEE ON THE SAID DATE. THE ASSESSING OFFICER NO TICED FOR THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN SALES OF RS. 26,92,009 AND CLAIMED EXPENDITURE IN RESPECT OF SOLD AREA AT RS.2 9,52,650 AND THE DIFFERENCE BETWEEN SALES AND EXPENDITURE WORKED OUT TO (-) RS.2,60,650. 3. THE AO NOTICED THE ASSESSEE IS IN REAL ESTATE BU SINESS AND PURCHASED LANDS OVER A PERIOD OF TIME AND DEVELOPED THE LAND INTO RESIDENTIAL LAYOUTS. PLOTS WERE BEING SOLD ON A MO NTHLY SCHEME. FROM THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, IT W AS NOTICED, ASSESSEE WAS ARRIVING AT THE VALUE OF CLOSING WORK-IN-PROGRE SS OF THE SALEABLE AREA DEVELOPED BY IT AFTER ADDING ALL THE EXPENSES INCUR RED DURING THE YEAR TO THE OPENING WORK-IN-PROGRESS. IT WAS FURTHER NOTICED A SSESSEE WAS OFFERING THE SALES IN RESPECT OF PLOTS REGISTERED DURING THE YEA R AS INCOME IN THE PROFIT & LOSS ACCOUNT AND REDUCING THE CLOSING WORK-IN-PROGR ESS. FOR ALL THESE YEARS BY ADOPTION OF THIS METHOD, THE ASSESSEE WAS SHOWING LOSSES. FOR THE A.Y. 2002-03, THE ASSESSEE HAS SHOWN SALES OF R S.81,63,650 AND ITA NO.456 TO 459/B/09 ETC. PAGE 4 OF 26 CLAIMED EXPENDITURE IN RESPECT OF SOLD AREAS AT RS. 86,55,105 WORKING OUT A LOSS OF RS.4,91,455. COMING TO THE A.Y. 2003-04, T HE SALES WAS TO THE TUNE OF RS.66,28,240, EXPENDITURE WAS RS.65,47,369 THE D IFFERENCE IN SALE AND EXPENDITURE WAS ONLY RS.80,871. COMING TO THE A.Y . 2004-05, THE SALES WAS RS.80,68,500 AND EXPENDITURE CLAIMED FOR SOLD A REA WAS RS.88,73,303 AND THE CONSEQUENTIAL LOSS WAS RS.8,04,803. COMING TO THE A.Y. 2006-07, THE LOSS CLAIMED WAS RS.2,60,650. THE AO HELD IN TH IS LINE OF BUSINESS IT CANNOT BE EXPECTED THAT THE ASSESSEE SOLD THE SITES WITHOUT KEEPING A PROFIT MARGIN. HE FURTHER NOTED, ASSESSEE WAS ALS O CONTINUOUSLY ADDING THE LAND TO ITS PROJECT EACH YEAR AND ALSO TAKING N EW ADVANCES EACH YEAR. IN SUCH CIRCUMSTANCES, HE HELD IT IS NOT CLEAR FROM THE FACTS FURNISHED IN THE RETURN OF INCOME WHETHER, THAT PORTION OF LAND WHER E THE PROJECT TAKEN UP ORIGINALLY IS COMPLETED OR NOT, AND WHAT IS THE EXA CT AMOUNT OF EXPENDITURE ALLOCABLE TO THAT PART OF THE AREA WHICH WERE SOLD. IN THE ABSENCE OF ANY METICULOUS DETAILS, HE ESTIMATED PROFIT ON THE SALE AT 30% FOR EVERY YEAR AND CONSEQUENTLY REDUCED THE EXPENDITURE IN RESPECT OF THE SOLD AREA AND THE DIFFERENCE WAS ADDED TO THE ASSESSEES INCOME. 4. THE ESTIMATED ADDITIONS MADE WAS RS.29,40,550, R S.19,07,601 FOR A.Y. 2003-04, RS.32,25,353 FOR A.Y. 2002-03, 2003-0 4 & 2004-05 RESPECTIVELY AND RS.10,68,250 FOR A.Y. 2006-07. 5. AGGRIEVED BY THE ABOVE ORDER, THE ASSESSEE APPRO ACHED THE FIRST APPELLATE AUTHORITY. THE CIT(APPEALS) VIDE PARA 6 (ITEMS 9.1 TO 9.7) OF HIS ORDER RECORDS BRIEF SUBMISSIONS OF THE ASSESSEE, AS UNDER:- ITA NO.456 TO 459/B/09 ETC. PAGE 5 OF 26 9. ESTIMATION OF INCOME : 9.1 THE ASSESSEE IS A FIRM WHICH IS INTO THE BUSINESS O F REAL ESTATE. THE ASSESSEE HAD FILED THE RETURN OF INCOM E ON 31.10.2006 DECLARING TOTAL LOSS OF RS.26,14,385/- F OR THE A.Y. 2006-07 RELEVANT TO THE P.Y. 2005-06. 9.2 IT IS SUBMITTED THAT THERE CANNOT BE A PREFERRED ME THOD / THUMB RULE PERCENTAGE WHICH CAN BE ADOPTED TO ARRIV E AT THE WIP OR THE INCOME OF THE ASSESSEE IN THIS TYPE OF B USINESS. THE APPROACH ADOPTED BY THE ASSESSEE MUST HELP THE AUTHORITY TO ASCERTAIN AND ARRIVE AT THE VALUE OF THE WORK-IN -PROGRESS AND DEDUCE PROFIT FROM THE BUSINESS. 9.3 PREMIER ACCOUNTING BODY IN INDIA, THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) ALSO HAS RECOGNIZED THE FACT THAT THERE CANNOT BE A PARTICULAR METHOD THAT CAN BE PRE SCRIBED FOR THE THIS TYPE OF BUSINESS. KIND ATTENTION IS INVITED TO PARAGRAPHS 1 UNDER THE HEADING SCOPE OF AS 2 VALUATION OF INVENTORIES (PAGE NOS. 1 & 2 OF PAPER BOOK). THUS, IT HAS EXCLUDED VALUATION OF WIP IN THE CASE OF CONSTRUCTION CONTRACT FROM THE PURVIEW OF ACCOUNTIN G STANDARD (AS 2). METHOD OF ARRIVING WIP AND RECO GNITION OF INCOME IS PROVIDED IN PAGE NO. 30 OF PAPER BOOK . 9.4 THE MANDATE OF THE INCOME TAX ACT IS THAT WHERE INC OME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSI NESS OR PROFESSION IS RETURNED ON THE BASIS OF ACCOUNTS MA INTAINED BY THE ASSESSEE BY EMPLOYING A METHOD OF ACCOUNTING REGULARLY, SUCH INCOME IS TO BE COMPUTED IN ACCORDA NCE WITH THE METHOD REGULARLY EMPLOYED BY THE ASSESSEE, UNLE SS A SITUATION EMERGES THAT PROFITS DISCLOSED BY THE ASS ESSEE AS A RESULT OF HIS OWN METHOD OF ACCOUNTING ARE SO UNREA SONABLE AND PATENTLY UNACCEPTABLE; LEADING TO A SITUATION O F REJECTION OF BOOKS OF ACCOUNTS AND CONSEQUENT ESTIMATION OF I NCOME AND REVALUATION AND RE-COMPUTATION OF WORK-IN-PROGR ESS WOULD NOT GET ANY JUSTIFICATION ON FACTUAL BASIS. IN THE PRESENT CASE, THE AO HAS NOT ARRIVED AT ANY FINDING TO SUBSTANTIATE THAT THE METHOD OF ACCOUNTING/VALUATIO N OF WIP ADOPTED BY THE ASSESSEE IS UNREASONABLE LEADING OF REJECTION OF FINANCIAL RESULTS. THEREFORE THERE IS NO JUSTIF ICATION FOR THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE. 9.5 FURTHER THE ASSESSEE SUBMITS THAT THE STATE OF AFFA IRS AS REGARDS MAINTENANCE OF ACCOUNTS, VALUATION OF WIP B EING THE SAME AS IN EARLIER YEARS AND THE SAME HAVING BEEN A CCEPTED BY THE DEPARTMENT, THERE WAS NO JUSTIFICATION TO TA MPER WITH THE METHOD OF VALUATION OF WIP/RECOGNITION OF REVEN UE IN THE CURRENT YEAR. ITA NO.456 TO 459/B/09 ETC. PAGE 6 OF 26 9.6 IN THE ABSENCE OF ANY FINDING BY THE AO THAT THE EX PENSES INCURRED ON ANY ACCOUNT APPEARS TO BE UNREASONABLE OR EXCESSIVE, THE ADDITIONS MADE MERELY ON SUSPICION A ND WHIMSICAL IS NOT JUSTIFIED. RELIANCE IS PLACED ON THE DECISIONS IN CIT VS. GOTAN LIME KHANIJ UDYOG 256 ITR 243 (RAJ) AND CIT VS. GEOTECH CONSTRUCTION CORP 133 CTR 468 (KER) . 9.7 IN ANY EVENT IT IS THE PROFIT RATE ADOPTED BY THE A O @ 30% OF SALES WHICH IS ARBITRARY AND UNSCIENTIFIC. HE HAS NOT GIVEN COMPARABLE CASE IN ANY LINE OF ACTIVITY TO SUPPORT HIS CONCLUSION. THE RATE IS LIABLE TO REDUCED SUBSTANT IALLY. 6. THE CIT(APPEALS) AFTER CONSIDERING THE ISSUE VID E PARA 9 OF HIS ORDER ALLOWED THE CLAIM OF THE ASSESSEE IN PART FOR ALL T HE YEARS I.E. A.YS. 2002- 03, 2003-04, 2004-05 AND 2006-07 OBSERVING AS UNDER :- I CONSIDER THE NET PROFIT OF 30% OF SALES IS ON H IGHER SIDE. THEREFORE, I RESTRICT THE SAME TO 15%. THE A.O. IS DIRECTED TO COMPUTE THE RELIEF ACCORDINGLY. FOR THE A.Y. 2005-06 THERE WAS NO ADDITION MADE BY THE AO. AGGRIEVED BY THE ORDER OF CIT(A) RETAINING ESTIMATION 15% ADDITI ON OF INCOME, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED FO R THE A.Y. 2007-08, THE ASSESSEE DECLARED A PROFIT OF 9.75% AND 7.63% F OR THE A.Y. 2005-06 WHICH HAS BEEN ACCEPTED. THERE IS NO REJECTION OF BOOKS OF ACCOUNTS IN ANY OF THESE YEARS AND THEREFORE THE ADDITIONS MADE BY THE AO ON ESTIMATE BASIS IS INCORRECT AND RETENTION OF THE SAME TO THE EXTENT OF 15% ON ESTIMATION BY THE CIT(APPEALS) IS ALSO INCORRECT. T HE ASSESSEES REPRESENTATIVE INVITING OUR ATTENTION TO THE PAPERB OOK PAGE 3, DEMONSTRATED THE METHOD ADOPTED BY THE ASSESSEE FROM THE INCEPTI ON AND HOW THE ITA NO.456 TO 459/B/09 ETC. PAGE 7 OF 26 ASSESSEE CALCULATED THE VALUATION OF WORK-IN-PROGRE SS. THE SAME IS REPRODUCED BELOW: AN ILLUSTRATION POSITION OF SITES PARTICULARS NO.S SITES AVAILABLE AT THE BEGINNING OF THE FINANCIAL YEAR 100 LESS: SITES SOLD DURING THE YEAR 10 SITES AVAILABLE AT THE END OF THE FINANCIAL YEAR 90 POSITION OF SITES PARTICULARS AMOUNT (IN RS.) VALUE OF OPENING WIP 1000 ADD : EXPENSES INCURRED DURING THE YEAR 500 1500 LESS: WIP ATTRIBUTABLE TO SITES SOLD (1500/100*10) 150 VALUE OF CLOSING WIP (1500/100*90) 1350 ASSESSEES REPRESENTATIVE SUBMITTED IF THE PLOTS AV AILABLE ARE 100, EXPENSES DURING THE YEAR UNDER CONSIDERATION FOR TH E ENTIRE PLOTS IS TREATED AS EXPENDITURE FOR THE WHOLE YEAR, WHEREAS THE ASSE SSEE NORMALLY SELLS ONLY A PORTION OF THE DEVELOPED PLOT. THEREFORE, IN THE NORMAL COURSE, THE EXPENDITURE IS HIGH THAN THE PRICE FETCHED BY THE A SSESSEE ON SELLING A SMALL PORTION OF THE PLOTS. 8. WHEN THE MATTER WAS TAKEN UP FOR HEARING, THE BE NCH PUT A SPECIFIC QUERY BEFORE THE ASSESSEES REPRESENTATIVE AS TO WH ETHER THE ASSESSEE HAS DECLARED INCOME FOR ANY YEAR AND IT WAS SUBMITT ED THAT FOR THE A.Y. 2005-06, THE ASSESSEE DECLARED 7.63% AND FOR THE A. Y. 2007-08 THE ITA NO.456 TO 459/B/09 ETC. PAGE 8 OF 26 ASSESSEE DECLARED PROFIT AT 9.75% AND THE SAME HAS BEEN ACCEPTED. THE ASSESSEES REPRESENTATIVE ALSO RELIED ON THE DECISI ON OF THE TRIBUNAL, BANGALORE BENCH IN THE CASE OF MADHUVANA HOUSE BUIL DING CO-OPERATIVE SOCIETY VS. ASSISTANT COMMISSIONER OF INCOME TAX [7 6 TTJ (BANG) 948], H.M. CONSTRUCTIONS VS. JCIT 84 ITD 429 (BANG) AND C IT VS. SHANKARANARAYANA CONSTRUCTION CO. 197 ITR 688 (KAR) IN SUPPORT OF THE CONTENTION THAT WITHOUT REJECTION OF BOOKS OF ACCOU NT NO ADDITION COULD BE MADE AND THE SYSTEM FOLLOWED BY THE ASSESSEE IS AN ACCEPTED METHOD. 9. THE LD. AR SUBMITTED THAT THERE CANNOT BE A PREF ERRED METHOD OR THUMB RULE PERCENTAGE WHICH CAN BE ADOPTED TO ARRIV E AT THE WORK-IN- PROGRESS (WIP) OR THE INCOME OF THE ASSESSEE IN T HIS TYPE OF BUSINESS. THE ONLY CONDITION IS THAT THE METHOD ADOPTED BY TH E MUST HELP THE REVENUE AUTHORITIES TO ASCERTAIN AND ARRIVE AT THE VALUE OF WORK-IN-PROGRESS AND DEDUCE PROFITS FROM THE BUSINESS. 10. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), THE PREMIER ACCOUNTING BODY IN INDIA, RECOGNIZED THE FACT THAT THERE CANNOT BE A PARTICULAR METHOD THAT COULD BE PRESCRIBED FOR THIS TYPE OF BUSINESS. THE LD. REPRESENTATIVE FOR THE ASSESSEE INVITED OUR ATTENTI ON TO PARA 1 UNDER THE HEAD SCOPE OF ACCOUNTING STANDARD (AS-2) OF ICAI DEALING WITH VALUATION OF INVENTORY. AS-2 WHICH WAS REVISED IN 1999 WAS ORIGINALLY ISSUED IN JUNE, 1981. THE LD. REPRESENTATIVE SUBMITTED THE A CCOUNTING STANDARD AS REVISED IN 1999 EXCLUDES THE FOLLOWING FOUR CATEGOR IES FROM THE SCOPE OF AS-2 I.E., : (A) WORK IN PROGRESS ARISING UNDER CONSTRUCTION CO NTRACTS, INCLUDING DIRECTLY RELATED SERVICE CONTRACTS (SEE ITA NO.456 TO 459/B/09 ETC. PAGE 9 OF 26 ACCOUNTING STANDARD (AS) 7, ACCOUNTING FOR CONSTRUC TION CONTRACTS); (B) .. (C) .. (D) .. IT IS CLEAR FROM THE ABOVE THAT THE VALUATION OF W ORK-IN-PROGRESS IN CASE OF CONSTRUCTION CONTRACTS IS EXCLUDED FROM THE PURVIEW OF ACCOUNTING STANDARD (AS-2). 11. AS PER THE INCOME-TAX ACT, WHERE INCOME CHARGEA BLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS RETURNED ON THE BASIS OF ACCOUNTS MAINTAINED BY THE ASSESSEE BY EMPLOYING A METHOD OF ACCOUNTING REGULARLY, SUCH INCOME IS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD REGULARLY EMPLOYED, UNLESS A SITUATION E MERGES THAT PROFITS DISCLOSED BY THE ASSESSEE AS A RESULT OF HIS OWN ME THOD OF ACCOUNTING, ARE SO UNREASONABLE AND PATENTLY UNACCEPTABLE, IT IS TO BE ACCEPTED. IN SUCH SITUATION IT LEADS TO THE REJECTION OF BOOKS OF ACC OUNT AND CONSEQUENT ESTIMATION OF INCOME AND REVALUATION AND RECOMPUTAT ION OF WORK-IN- PROGRESS COULD BE JUSTIFIED. IN THE INSTANT CASE OF THE ASSESSEE, THE ASSESSING OFFICER HAS NOT ARRIVED AT ANY SUCH FINDI NG, THAT METHOD OF ACCOUNTING/VALUATION OF WIP ADOPTED BY THE ASSESSEE IS NOT REASONABLE LEADING TO REJECTION OF FINANCIAL RESULTS. THIS IS ONE OF THE ACCEPTED METHOD AS PER REVISED ACCOUNTING STANDARD (AS-2). THEREFO RE THERE IS NO JUSTIFICATION FOR THE ASSESSING OFFICER ESTIMATING INCOME OF THE ASSESSEE. 12. IT WAS FURTHER SUBMITTED THAT THE STATE OF AFFA IRS AS REGARDS MAINTENANCE OF ACCOUNTS, VALUATION OF WIP BEING THE SAME AS IN EARLIER YEARS AND THE SAME HAVING BEEN ACCEPTED BY THE DEPA RTMENT, THERE IS NO ITA NO.456 TO 459/B/09 ETC. PAGE 10 OF 26 JUSTIFICATION TO TAMPER WITH THE METHOD OF VALUATIO N OF WIP. THERE IS NO FINDING BY THE AO THAT THE ACCOUNTS OF THE ASSESSEE APPEAR TO BE UNREASONABLE OR EXCESSIVE EVEN WITH REGARD TO EXPEN SES. THE ADDITIONS ARE MADE MERELY ON THE BASIS OF SUSPICION, WHICH IS NOT JUSTIFIED. THE ASSESSEES REPRESENTATIVE FURTHER SUBMITTED, IN ANY CASE, THE PROFIT RATE ADOPTED BY THE AO @ 30% OF SALES IS ARBITRARY AND U NSCIENTIFIC. THERE IS NO COMPARABLE CASE GIVEN IN ANY LINE OF ACTIVITY TO SUPPORT HIS ESTIMATION. THE ASSESSEES REPRESENTATIVE ALSO RELIED ON THE DE CISIONS OF CIT V. GOTAN LIME KHANIJ UDYOG 256 ITR 243 (RAJ) AND CIT V. GEOTECH CONSTRUCTION CORP 133 CTR 468 (KER) . 13. THE ASSESSEES REPRESENTATIVE FURTHER SUBMITTED REFERRING TO ASSESSMENT YEARS 2004-05 TO 2006-07, THE ASSESSEE R ECEIVES THE SALE CONSIDERATION IN FIXED INSTALMENTS FROM THE CUSTOME RS. AS AND WHEN THESE INSTALMENTS ARE RECEIVED, IT IS CONSIDERED AS ADVAN CE RECEIVED FROM THE CUSTOMER. UPON RECEIPT OF ENTIRE CONSIDERATION, TH E SALE DEED IS EXECUTED IN FAVOUR OF THE CUSTOMER. SALE IS RECOGNIZED ONLY UPON EXECUTION OF SALE DEED AS THE CUSTOMER IS ALWAYS AT LIBERTY TO CANCEL THE AGREEMENT AND ASK FOR THE RETURN OF THE TOTAL ADVANCES PAID. THE SIT ES DEVELOPED BY THE ASSESSEE ARE IN FACT HELD AS ASSESSEES OWN PROPERT Y, TILL ALL THE OBLIGATIONS ON THE PART OF THE ASSESSEE IS COMPLETED AND HANDED OVER TO THE BUYER. THEREFORE, IT IS THE SUBMISSION OF THE ASSESSEES R EPRESENTATIVE THAT THE RIGHT OF THE ASSESSEE TO RECEIVE THE MONIES FROM TH E CUSTOMERS AND TO APPROPRIATE THE SAME ARISES ONLY AFTER THE COMPLETI ON OF THE OBLIGATION UNDER THE CONTRACT AND EFFECTING DELIVERY OF THE AP ARTMENTS COMPLETE IN ALL RESPECTS IN TERMS OF THE CONTRACT. IN THE ABSENCE OF THE SATISFACTORY ITA NO.456 TO 459/B/09 ETC. PAGE 11 OF 26 DISCHARGE OF SUCH OBLIGATIONS ON THE PART OF THE AS SESSEE, THE CUSTOMERS HAVE THE OPTION TO REFUSE DELIVERY LEADING TO TERMI NATION OF THE CONTRACT. THE MONIES RECEIVED BY THE ASSESSEE PROGRESSIVELY T ILL THE DATE OF COMPLETION OF THE PROJECT DO NOT ENTITLE THE ASSESS EE WITH A RIGHT TO APPROPRIATE THE SAME UNLESS THE OBLIGATIONS UNDER T HE CONTRACT ARE COMPLETED. THEREFORE, THE INCOME FROM THOSE ACCRUE S TO THE ASSESSEE ONLY ON THE COMPLETION OF THE CONTRACT AND NOT AT ANY ST AGE EARLIER. IF THE METHODOLOGY ENUNCIATED BY THE AO IS FOLLOWED, IT WI LL LEAD TO ABSURD RESULTS I.E., IN ONE YEAR THERE COULD BE RECEIPTS ONLY AND NOT ANY ACTIVITY CONSTRUCTION AT ALL. THE AO APPEARS TO HAVE PROCEE DED ON THE BASIS THAT IF THE MONEY HAS BEEN COLLECTED, IT BECOMES ASSESSEES INCOME. IN THIS CONNECTION THE LD. REPRESENTATIVE INVITED OUR ATTEN TION TO THE DECISION OF THE KARNATAKA HIGH COURT IN CIT V. SHANKARNARAYANAN CONSTRUCTION 197 ITR 688 , PARTICULARLY PARA 4 OF THE JUDGMENT. IN THIS CAS E, THE HONBLE HIGH COURT HELD THAT THE ASSESSEE EXECUTING PROJECTS FOR A POWER CORPORATION WHEREIN THE ASSESSEE RECEIVES THE AMOUNTS IN EXCESS OF WHAT WAS ACTUALLY DUE AND SUCH EXCESS RECEIPT IS ADJUSTED TOWARDS FUT URE WORK, CANNOT BE TREATED AS ASSESSEES INCOME ACCRUED. THE HONBLE HIGH COURT HELD EVERY KIND OF RECEIPT CANNOT BE TAXED, SUCH EXCESS AMOUNT S ARE TO BE CONSIDERED AS DEPOSITS IN THE HANDS OF THE ASSESSEE AND EXCESS RECEIPTS CANNOT BE TAXED. THE ASSESSEES REPRESENTATIVE SUBMITTED ACT UALLY AS PER THE METHOD FOLLOWED BY THE ASSESSEE, EXPENDITURE INCURR ED ON THE PROJECT IS CLAIMED IN THE YEAR OF APPROPRIATION OF INCOME, THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS IN TUNE WITH THE GENERA LLY ACCEPTED ACCOUNTING POLICY OF MATCHING COSTS WITH REVENUE I.E., WHEN TH E REVENUE IS TAKEN INTO ITA NO.456 TO 459/B/09 ETC. PAGE 12 OF 26 ACCOUNT, THE COMMENSURATE EXPENDITURE IS ALSO TAKEN AND VICE VERSA . HE RELIED UPON THE JUDGMENT OF THE HONBLE KARNATAKA H IGH COURT IN THE CASE OF KHODAY DISTILLERS LTD. (ITRC NO.19, 20 AND 21 OF 19 93 DATED 12.09.1995), WHEREIN IT WAS HELD THAT WHEN ONE OF THE ACCOUNTING PROCEDURES IS TO COMPUTE THE PROFITS ONLY ON THE CO MPLETION OF THE CONTRACT AND THAT METHOD IS ADOPTED BY THE ASSESSEE THROUGHO UT, IT CANNOT BE SAID THAT THE VIEW TAKEN BY THE TRIBUNAL IS WRONG. 14. REPLYING TO THE ABOVE, THE LD. DR SUBMITTED THA T FIRST OF ALL, THE ASSESSMENT WAS COMPLETED U/S. 144 R.W.S. 153A. HE SUBMITTED THAT IN FACT IT IS NOT CLEAR FROM THE FACTS FURNISHED IN THE RET URN REGARDING THE COMPLETION OF THE WORK DURING THE YEAR AND WHAT THE EXACT AMOU NT OF EXPENDITURE ALLOWABLE IS IN RESPECT OF THE PART OF AREA WHERE S ALES ARE EFFECTED. EXPENDITURE CLAIMED IS ONLY ON ESTIMATE BASIS, NO D ETAILS HAVE BEEN FURNISHED BY THE ASSESSEE. 15. THE LD. DR FURTHER SUBMITTED ACCORDING TO THE ACCOUNTING STANDARD AS-7 WHICH IS EFFECTIVE FROM A.Y. 2004-05 AND ONWAR DS, THE ASSESSEE BEING IN THE BUSINESS OF REAL ESTATE AND INCURRING EXPENDITURE TOWARDS CIVIL WORK HAS TO ADOPT PERCENTAGE PROJECT COMPLETION MET HOD. THE ASSESSEE IS CONTINUOUSLY ADDING THE LAND AND SELLING THE PLO TS IN THE LAYOUT. THERE IS NO CLEAR DEMARCATION AS TO THE PURCHASE OF THE LAND AND COMPLETION OF THE PROJECT EVERY YEAR. AS PER THE SCHEME ADOPTED BY T HE ASSESSEE IT IS SELLING PLOTS ON A MONTHLY PAYMENT BASIS COVERING ABOUT 50 MONTHS WHICH WORKS OUT TO ABOUT 4 YEARS. THE ADVANCES RECEIVED DURING THE YEAR IS TO THE TUNE OF RS.7,56,28,256 (2004-05) WHICH SHOULD HAVE BEEN OFFERED AS INCOME IN PERCENTAGE PROJECT COMPLETION METHOD. SINCE 4 YEAR S IS ADOPTED AS THE ITA NO.456 TO 459/B/09 ETC. PAGE 13 OF 26 PROJECT TIME, THE AO HAS ESTIMATED THE INCOME FOR T HE YEAR OUT OF ADVANCES AT 25% OF RS.7,56,28,256, WHICH WORKS OUT TO RS.1,8 9,07,132. THE PROFIT ESTIMATED IS 30% ON PAR WITH SALES AS DISCUSSED, WH ICH WORKS OUT TO RS.56,72,140 AND THEREFORE THE AMOUNT WAS RIGHTLY A DDED TO THE TOTAL INCOME OF THE ASSESSEE. SIMILARLY IN ALL THE YEARS UNDER APPEAL, THE ASSESSEES EXPENDITURE IS MORE AND THEREFORE ALWAYS THE ASSESSEE CLAIMED A MINUS INCOME, AVOIDING TAX. IT WAS IN TH ESE CIRCUMSTANCES THAT THE AO RIGHTLY ESTIMATED THE INCOME AT 30% OF THE S ALES. 16. COMING TO THE ARGUMENT OF THE ASSESSEE WITH REG ARD TO ACCOUNTING STANDARDS, THE LD. DR SUBMITTED A WRITTEN SUBMISSIO N BRIEFLY AS UNDER. THE BASIC PURPOSE OF FOLLOWING ACCOUNTING STANDARDS IS TO DERIVE THE FINANCIAL STATEMENTS WHICH INCLUDE PROFIT AND LOSS ACCOUNT AN D BALANCE SHEET THAT REFLECT TRUE AND FAIR VIEW OF THE BUSINESS. IT IS THE TRUE AND FAIR VIEW OF THE BUSINESS WHICH IS ULTIMATE GOVERNING PRINCIPLE IN R ECOGNIZING REVENUE AND COSTS. ICAI, WHICH IS THE AUTHORITY FOR ISSUING ST ANDARDS OF ACCOUNTING, HAS REMOVED THE PROVISION OF COMPLETED CONTACT METHOD W .E.F. 1.4.2003, THUS MADE IT MANDATORY TO FOLLOW ONLY ONE METHOD I.E. PE RCENTAGE COMPLETION METHOD OF ACCOUNTING FOR THE FINANCIAL YEAR 2003-04 AND ONWARDS. HOWEVER, THE ASSESSEE COMPANY IGNORING THIS MANDATO RY PROVISION OF PERCENTAGE COMPLETION METHOD, FOLLOWED THE COMPLETE D CONTRACT METHOD FOR RECOGNIZING THE REVENUE. COMING TO THE CONTENT ION OF THE ASSESSEE THAT IT DOES NOT APPLY TO THE ASSESSEE IS INCORRECT AND FOR THIS PROPOSITION THE LD. DR RELIED ON THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF J.K. INDUSTRIES LTD. V. UOI, APPEAL (CIVIL) 3761 OF 2007 , DATE OF JUDGMENT 19.11.07. IT IS SUBMITTED THAT THIS DECISION IS SQUARELY AP PLICABLE IN THE ITA NO.456 TO 459/B/09 ETC. PAGE 14 OF 26 INSTANT CASE OF THE ASSESSEE, COPY OF WHICH HAS BEE N PLACED ON RECORD VIDE PAPERBOOK PAGE 1-94. THE LD. DR SPECIFICALLY BROUGHT TO OUR ATTENTION THE OBSERVATION OF THE HONBLE SUPREME COURT IN PAR AS 4 TO 8 WITH REGARD TO MEANING AND PURPOSE OF ACCOUNTING STANDARDS, WHEREI N THE HONBLE SUPREME COURT HELD THAT ADOPTION OF ACCOUNTING STAN DARDS AND OF ACCOUNTING INCOME AS TAXABLE INCOME WOULD AVOID DIS TORTION OF THE REAL INCOME. THIS IS THE REASON FOR INTRODUCING ACCOUNT ING STANDARD AS 22. THE LD. DR SUBMITTED THE MAIN OBJECT BEHIND THE INTRODU CTION OF ACCOUNTING STANDARDS IS TO PREVENT TAX EVASION AND TO BRING TO TAX NET THE REAL INCOME. IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), THE ACCOUNTING STANDARDS ARE MANDATORY FOR THE ASSESSES TO FOLLOW. AS REGARDS THE VIEW TAKEN BY THE DEPARTMENT IN THE EAR LIER YEARS, THE SAME WAS DECIDED IN VIEW OF THE THEN PREVAILING PROVISIO NS AVAILABLE IN THE RELEVANT ACCOUNTING STANDARDS. ICAI SINCE MODIFIED THE ACCOUNTING STANDARDS, THE REFERENCE TO THE EARLIER STANDARDS P RESCRIBED IS NO MORE VALID. 17. IN VIEW OF THE ABOVE, THE LD. DR SUBMITTED THE PERCENTAGE COMPLETION METHOD OF ACCOUNTING SHOULD BE ADOPTED F OR DETERMINING CORRECT INCOME AS PER THE NEW ACCOUNTING STANDARD ( AS-7) WHICH IS INTRODUCED BY THE ICAI W.E.F. ASSESSMENT YEAR 2004- 05. ALL THE DECISIONS RELIED ON BY THE ASSESSEE PERTAINS TO A PERIOD PRIO R TO 2004-05 WHEN THE PERCENTAGE COMPLETION METHOD AS PER NEW ACCOUNTING STANDARD (AS-7) WAS NOT MANDATORY. 18. IN REPLY TO THE ABOVE, THE LD. AR REITERATED TH E SUBMISSIONS MADE BEFORE US. ITA NO.456 TO 459/B/09 ETC. PAGE 15 OF 26 19. CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THE ARGUMENTS BY THE ASSESSEE ARE TO BE ACCEPTED. ACCO UNTING STANDARD (AS- 2) AS IT STANDS NOW AS A RESULT OF REVISION IN 1999 EXCLUDES THE CONSTRUCTION CONTRACTS FROM THE SCOPE OF AS-7. THE SAME HAS BEE N REPRODUCED IN PARA 10 ABOVE. THEREFORE, THE STAND OF THE REVENUE THAT AS-7 WHICH PERMITS ONLY ONE METHOD TO BE ADOPTED I.E. PERCENTAGE COMPL ETION METHOD IS INCORRECT. THE DECISION OF THE SUPREME COURT RELIE D UPON BY THE REVENUE IN THE CASE OF J.K. INDUSTRIES LTD. V. UOI (SUPRA) ON FACTS IS QUITE DISTINGUISHABLE. THEIR LORDSHIPS WERE DEALING WITH ACCOUNTING STANDARD (AS-22). IN THAT CASE, THE ASSESSEE, A PUBLIC LIMI TED COMPANY, WAS CARRYING ON BUSINESS OF MANUFACTURE AND SALE OF AUT OMOTIVE TYRES, TUBES, SUGAR AND AGRIGENETICS, CHALLENGED AS-22 ISSUED BY ICAI WHICH WAS MANDATORY FOR THE COMPANIES LISTED IN STOCK EXCHANG E IN INDIA IN PREPARATION OF THEIR ACCOUNTS FOR THE FINANCIAL YEA R 2001-02 AND ONWARDS. 20. AS-2 WHICH WAS ORIGINALLY ISSUED IN JUNE, 1981 AND REVISED IN 1999 EXCLUDES CONSTRUCTION CONTRACTS FROM THE SCOPE OF A CCOUNTING STANDARD (AS-7). THE METHOD ADOPTED BY THE ASSESSEE IS ONE OF THE RECOGNIZED METHOD. THE AO HAS NOT REJECTED THE ASSESSEES BOOK S. IN THESE CIRCUMSTANCES, AS RIGHTLY CONTENDED BY THE LD. REPR ESENTATIVE FOR THE ASSESSEE, THE ESTIMATION OF INCOME TO THE EXTENT OF 30% AND REDUCTION OF THE SAME BY CIT(APPEALS) TO 15% IS INCORRECT. IN T HE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE CIT(APPEALS ) WAS NOT JUSTIFIED IN RETAINING THE ESTIMATED ADDITION AND THE CIT(APPEAL S) WAS NOT JUSTIFIED ALSO IN TREATING THIS AS AN ACCEPTED METHOD. THE APPEAL S BY THE ASSESSEE FOR ITA NO.456 TO 459/B/09 ETC. PAGE 16 OF 26 THE ASSESSMENT YEARS 2002-03, 2003-04, 2004-05 AND 2006-07 ARE ALLOWED. ITA NOS.494 TO 496/09 (REVENUES APPEALS M/S. CON CORDE DEVELOPERS) 21. COMING TO THE REVENUES APPEALS, THE ONLY GROUN D FOR A.Y. 2004-05 AND FIRST EFFECTIVE GROUND (GROUND NO.2) FOR THE A. YS. 2005-06 AND 2006-07 ARE COMMON. IT IS THE CASE OF THE REVENUE THAT THE CIT(APPEALS) OUGHT TO HAVE CONSIDERED THAT NO SPECIFIC ACCOUNTING METHOD HAS BEEN ADOPTED BY THE ASSESSEE AND THEREFORE IT WAS MANDATORY TO ESTI MATE INCOME AS PER ACCOUNTING STANDARD AS-7 CONSIDERING THE LINE OF TH E BUSINESS OF THE ASSESSEE AND THEREFORE CIT(APPEALS) OUGHT TO HAVE A PPRECIATED THAT AO RIGHTLY ESTIMATED THE SALES ON ADVANCES AS PER PERC ENTAGE COMPLETION METHOD UNDER AS-7, AND THEREAFTER ESTIMATED PROFIT ON SUCH SALE PROCEEDS. 22. WHILE DEALING WITH THE ASSESSEES APPEALS (ITA NOS. M/S. CONCORDE DEVELOPERS IN ITA NOS. 456 TO 459/B/09), WE HAVE HE LD THAT IN THE LINE OF BUSINESS OF THE ASSESSEE I.E., CONSTRUCTION CONTRAC TS, AS-7 IS NOT MANDATORY IN VIEW OF THE REVISED STANDARD AS-2 ISSU ED BY THE ICAI. WE HAVE ALSO HELD THAT THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF J.K. INDUSTRIES LTD. V. UOI (SUPRA) RELIED ON BY THE LD. DR IS DISTINGUISHABLE ON FACTS FROM THE INSTANT CASE OF T HE ASSESSEE. WE HAVE FURTHER HELD THAT THE LD. AO HAS NOT REJECTED THE B OOKS RESULTS. IN VIEW OF THE ABOVE, THIS GROUND FOR ALL THE YEARS FAILS AND IT IS REJECTED. 23. FOR THE A.Y. 2005-06, THE SECOND EFFECTIVE GROU ND BY THE REVENUE (GROUND NOS.3 TO 5) IS AGAINST THE ORDER OF THE CIT (APPEALS) GIVING RELIEF OF RS.1,41,73,160 RELATING TO CLOSING WORK-IN-PROGRESS DESPITE WRONG ITA NO.456 TO 459/B/09 ETC. PAGE 17 OF 26 COMPUTATION BEING ADOPTED BY THE ASSESSEE FOR ARRIV ING AT THE CLOSING STOCK. ACCORDING TO THE REVENUE, THE CIT(APPEALS) O UGHT TO HAVE APPRECIATED THAT CLOSING WORK-IN-PROGRESS WAS WORKE D OUT BY THE AO ON THE BASIS OF DETAILS FURNISHED BY THE ASSESSEE IN THE R ETURN OF INCOME AND THEREFORE, THE ADDITION WAS RIGHTLY MADE. ACCORDIN G TO THE REVENUE, THE CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE QUE STION INVOLVED IS NOT ON THE OPENING AND CLOSING WORK-IN-PROGRESS SHOWN BY T HE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. THE MISTAKE HAS CREPT IN WH ILE CALCULATING THE CLOSING WORK-IN-PROGRESS TO BE TAKEN TO THE PROFIT & LOSS A CCOUNT FOR THE YEAR UNDER CONSIDERATION WHICH WAS RIGHTLY TAKEN NOTE BY THE A O. FOR THE YEAR UNDER CONSIDERATION, THERE WAS AN ACTION U/S. 132 IN THE CASE OF ASSESSEE ON 13.4.05. CONSEQUENT TO SEARCH, NOTICE U/S. 153A WA S ISSUED. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED A LETTER STATING THAT THE RETURN FILED ON 31.10.05 DECLARING INCOME AT RS.31,35,550 MAY BE TR EATED AS RETURN FILED IN RESPONSE TO NOTICE U/S. 153A. 24. WHILE FRAMING THE ASSESSMENT ORDER, IT WAS NOTI CED FROM THE COMPUTATION OF CLOSING WORK-IN-PROGRESS FILED BY T HE ASSESSEE ALONG WITH THE RETURN THAT ASSESSEE HAD ADOPTED OPENING WORK-I N-PROGRESS AT RS.4,55,82,384. CLOSING WORK-IN-PROGRESS FOR A.Y. 2004-05 WAS RS.4,29,60,166 ONLY, WHICH IN FACT SHOULD HAVE BEEN THE OPENING WORK-IN- PROGRESS FOR THE YEAR UNDER CONSIDERATION. THERE WERE CERTAIN OTHER MISTAKES ACCORDING TO THE AO. INSTEAD OF ADDING TH E EXPENDITURE INCURRED DURING THE YEAR TO OPENING WORK-IN-PROGRESS AS WAS DONE IN THE EARLIER YEARS, THE ASSESSEE ADOPTED DIFFERENT COMPUTATION. AO NOTICED THAT THE ASSESSEE ADDED ESTIMATED EXPENDITURE INCURRED DURIN G THE YEAR TO THE ITA NO.456 TO 459/B/09 ETC. PAGE 18 OF 26 WORK-IN-PROGRESS, OF THE SITES SOLD AND TREATED IT AS TAKEN AS CLOSING WORK- IN-PROGRESS, AO HELD THIS IS NOT CORRECT AS PER ACC OUNTING PRINCIPLES AND ALSO AS PER THE METHOD FOLLOWED BY THE ASSESSEE IN THE EARLIER YEARS. ON THIS GROUND, THE AO ADDED THE AMOUNT OF RS.1,41,73, 178. THE ISSUE HAS BEEN DEALT WITH BY THE CIT(APPEALS) VIDE PARA 12 & 13 OF HIS ORDER AS UNDER: 12. GROUND NO.2.4 OF A.Y. 2005-06, RS.1,41,73,160 /- IN THIS GROUND, THE ALLEGED DIFFERENCE IN CLOSING STOCK OF A.Y. 2004-05 AND OPENING STOCK OF A.Y. 2005-06 OF W /P OF RS.1,41,73,178 (RS.4,55,82,384/- - RS.4,29,60,166/- ) HAS BEEN APPEALED AGAINST. THE WRITTEN SUBMISSION OF AUTHOR ISED REPRESENTATIVE ON THIS ISSUE IS REPRODUCED VERBATIM . 11. VALUATION OF WIP 11.1 THE AO ERRED IN TREATING THE DIFFERENCE IN CLO SING WORK-IN-PROGRESS OF RS.1,41,73,178/- (RS.5,99,48,3 90 RS.4,57,75,212) AS INCOME OF THE ASSESSEE. THE AO ALLEGES THAT THERE IS DIFFERENCE IN THE OPENING WIP BALANCE WHICH IS OVERSTATED. WE SUBMIT THAT THERE IS ABSOLU TELY NO DIFFERENCE BETWEEN OPENING WIP OF CURRENT YEAR (P.Y . 2004-05) AND CLOSING WIP OF THE LAST YEAR (P.Y. 200 3-04). BOTH THE AMOUNTS ARE RS.4,29,60,166. REFERENCE IS I NVITED TO THE PAGE NO.19 OF THE PAGE BOOK WHICH REFLECTS VALUATION OF CLOSING WIP WHEREIN THE COMPUTATION OF BEGINS WITH AN OPENING BALANCE AMOUNT OF RS.4,29,60,166/-. 13. THE WRITTEN SUBMISSION ABOVE WAS EXAMINED VIS- -VIS THE RECORDS. I SEE THE OPENING STOCK AS ON 01.04.2004 AND CLOSING STOCK AS ON 31.04.2004 ARE SAME AT RS.4,29,60,166/- . ALSO THE CLOSING STOCK OF A.Y. 2004-05 31.3.2004 STANDS AT R S.4,57,75,212 WHILE OPENING STOCK OF A.Y. 2005-06 1.4.2005 . S TANDS AT RS.4,57,75,212/-. THE RELEVANT COPIES OF AUDIT REP ORT PLACED IN THE PAPER BOOK ARE ENCLOSED HEREWITH AS ANNEXURES A , B AND C. IN VIEW OF ABOVE, ADDITION IS DELETED. GROUND OF APPEAL IS ALLOWED. ITA NO.456 TO 459/B/09 ETC. PAGE 19 OF 26 25. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER, AS AGAINST THIS THE LD. REPRESENTATIVE FOR THE ASSESSEE MADE T HE FOLLOWING WRITTEN SUBMISSIONS :- THE AO ERRED IN TREATING THE DIFFERENCE IN CLOSIN G WORK-IN- PROGRESS OF RS.1,41,73,178/- (RS.5,99,48,390 RS.4 ,57,75,212) AS INCOME OF THE ASSESSEE. THE AO ALLEGES THAT THE RE IS DIFFERENCE IN THE OPENING WIP BALANCE WHICH IS OVERSTATED. WE SUBMIT THAT THERE IS ABSOLUTELY NO DIFFERENCE BETWEEN OPENING W IP OF CURRENT YEAR (P.Y. 2004-05) AND CLOSING WIP OF THE LAST YEA R (P.Y. 2003- 04). BOTH THE AMOUNTS ARE RS.4,29,60,166. THE AO W OULD HAVE CONSIDERED THE OPENING WIP BALANCE OF 1.4.2003 INST EAD OF OPENING WIP BALANCE OF 1.4.2004. LD. CIT(A) AFTER VERIFYING THE CLAIM OF THE ASSESSEE PROVIDED RELIEF ON THIS SCORE . 26. CONSIDERING THE RIVAL SUBMISSIONS AND GOING THR OUGH THE ORDERS OF THE REVENUE AUTHORITIES AND IN THE LIGHT OF THE SPE CIFIC FINDING BY THE CIT(APPEALS) THAT CLOSING STOCK FOR THE A.Y. 2004-0 5 AS ON 31.3.2004 AND OPENING STOCK FOR THE A.Y. 2005-06 AS ON 1.4.2005 A RE EXACTLY IDENTICAL AND CONSIDERING THE SUBMISSION OF THE ASSESSEE THAT IN FACT THE AO INSTEAD OF LOOKING TO THE CLOSING STOCK FOR THE A.Y. 2004-05 H AD WRONGLY TAKEN NOTE OF CLOSING STOCK OF THE PREVIOUS YEAR, WE FIND NO MERI T IN THE APPEAL BY THE REVENUE ON THIS GROUND. THESE GROUNDS BY THE REVEN UE FAILS AND IS DISMISSED. 27. COMING TO THE A.Y. 2006-07, THE OTHER EFFECTIVE GROUND (NO.3) BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(APPEALS) IN GIVING RELIEF ON THE AMOUNT OF RS.1 CRORE CLAIMED AS UNSECURED LOANS OF THE ASSESSEE. ACCORDING TO THE REVENUE, THE CIT(APPEALS) HAS NOT CONSIDERED THE FACTS THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THAT SUC H LOAN HAS NOT BEEN DISCHARGED. IT IS ALSO THE GRIEVANCE OF THE REVENU E THAT THE CIT(APPEALS) ITA NO.456 TO 459/B/09 ETC. PAGE 20 OF 26 ERRED IN RELYING ON THE STATEMENT OF THE ASSESSEE T HAT THE DETAILS OF THE LENDERS OF UNSECURED LOANS HAD BEEN FILED BY THE AS SESSEE AND THEREFORE ONUS IS SHIFTED TO THE AO TO DISPROVE THE SAME. NO DETAILS WERE FURNISHED BY THE ASSESSEE BEFORE THE AO AND THEREFORE AT THE MOST THE CIT(APPEALS) SHOULD HAVE CALLED FOR A REMAND REPORT. 28. THE BRIEF FACTS FOR THE A.Y. 2006-07 ARE THAT T HE ASSESSEE FILED A RETURN ON 31.6.07 DECLARING TOTAL LOSS OF RS.26,14, 385. THE AO NOTICED THERE WAS CLAIM OF UNSECURED LOANS AND THE DETAILS WERE CALLED FOR. HE FOUND NO INFORMATION WAS FORTHCOMING FROM THE ASSES SEE THOUGH THE LOANS WERE TAKEN DURING THE YEAR UNDER CONSIDERATION AND HE MADE THE IMPUGNED ADDITION. WHEN THE MATTER WAS CARRIED BEFORE THE C IT(APPEALS), HE FOUND THAT CONFIRMATION LETTERS WERE FURNISHED AT THE TIM E OF ASSESSMENT PROCEEDINGS AND THIS FACT WAS ADMITTED BY THE AO IN HIS REMAND REPORT DATED 15.7.08. HOWEVER, THE AO TOOK A VIEW THAT ME RE FILING OF THE CONFIRMATION LETTER IN SUPPORT OF LOAN IS NOT CONCL USIVE EVIDENCE OF RECEIPT OF LOAN. THE CIT(APPEALS) NOTED THAT THE ADDRESSES OF THE LENDERS AND THEIR PAN NOS. WERE SUBMITTED AND HE COULD HAVE VERIFIED THE SAME AT HIS END. HE ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE BURD EN OF PROOF SHIFTED TO THE DEPARTMENT. HE THEREFORE HELD THERE WAS NO JUS TIFICATION IN THE ADDITION AND DELETED THE SAME. 29. THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITT ED CONFIRMATION LETTERS OF LENDERS WERE ENCLOSED VIDE PAPERBOOK PAG ES 24 TO 43 AND DETAILS OF NAMES, ADDRESSES AND PAN OF THE LENDERS WERE CON TAINED IN ANNEXURE 2 TO FORM 3CD (PAGE 44 AND 45 OF THE PAPERBOOK). HE NCE HE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. ORISSA ITA NO.456 TO 459/B/09 ETC. PAGE 21 OF 26 CORPORATION 52 CTR 138 , WHEREIN IT WAS HELD WHERE ASSESSEE FURNISHED NAMES AND ADDRESSES OF THE CREDITORS, THEIR PAN AND GI NUMBERS, IT WAS THE DUTY OF THE AO TO PROCEED FURTHER BY ISSUING SU MMONS SO AS TO VERIFY THE GENUINENESS AND TO MAKE FURTHER ENQUIRIES. HE ALSO RELIED ON THE DECISION OF THE HONBLE ORISSA HIGH COURT IN CIT V. BAISHNAB CHARAN MOHANTY (212 ITR 199) TO THE SAME EFFECT. 30. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 31. IN THE LIGHT OF THE ABOVE FACTS AND CONSIDERING THE FINDING OF THE CIT(APPEALS) THAT CONFIRMATION LETTERS WERE FILED W ITH ADDRESS AND PAN NUMBERS AND SINCE THE REVENUE DID NOT TAKE FURTHER STEPS BY ISSUING SUMMONS SO AS TO ASCERTAIN THE VERACITY OF THE CONF IRMATION AND IN VIEW OF THE DECISIONS RELIED UPON BY THE LD. REPRESENTATIVE FOR THE ASSESSEE CITED HEREINABOVE, WE ARE OF THE VIEW THAT THIS GROUND OF THE REVENUE IS WITHOUT MERITS AND IS DISMISSED. 32. IN THE RESULT, THE APPEALS OF THE REVENUE FOR A LL THE YEARS FAIL AND ARE DISMISSED. ITA NO.247 & 248 /09 (ASSESSEES APPEALS M/S. CON CORDE SHELTERS) 33. THE COMMON GROUND URGED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05 IS AGAINST THE ORDER OF TH E AO IN COMPLETING THE ASSESSMENT IN HASTE. THE ASSESSEES REPRESENTATIVE SUBMITTED THAT HE IS INSTRUCTED NOT TO PRESS THIS GROUND AND HENCE FOR B OTH THE YEARS, THIS GROUND IS DISMISSED AS NOT PRESSED. ITA NO.456 TO 459/B/09 ETC. PAGE 22 OF 26 34. COMING TO THE 2 ND COMMON GROUND, IT IS AGAINST THE ORDER OF THE CIT(APPEALS) RETAINING THE ADDITION MADE BY THE AO ON ESTIMATION TO THE EXTENT OF 15%. THE FACTS LEADING TO THE DISPUTE BR IEFLY ARE AS UNDER: SIMILAR TO THE CONNECTED CASE OF THE ASSESSEES G ROUP I.E. ITA NOS.456 TO 459/B/09 - M/S. CONCORDE DEVELOPERS, THE RE WAS A SEARCH AND SEIZURE ACTION IN THE CASE OF THIS ASSESSEE ON 13.4 .05. CONSEQUENT TO SEARCH NOTICE U/S. 153A WAS ISSUED ON 13.1.06. IN RESPONSE TO THE ABOVE NOTICE, ASSESSEE FILED A LETTER ON 7.6.06 STATING T HAT RETURN FILED BY THE ASSESSEE WITH THE ITO MAY BE TREATED AS RETURN FILE D IN RESPONSE TO THIS NOTICE. FOR THE A.Y. 2003-04, THE RETURN WAS FILED ON 29.10.03 DECLARING INCOME AT RS.1,32,520 AND FOR THE A.Y. 2004-05 ON 2 4.9.04 DECLARING INCOME AT RS.17,29,030. THE ASSESSEE IS IN THE BUS INESS OF REAL ESTATES. THE AO NOTICED THAT THE ASSESSEE WAS HAVING TWO PRO JECTS ONE AT GREEN CITY, GULBARGA AND THE OTHER, CONCORDE PARADISE. A S REGARDS THE PROJECT AT GREEN CITY, GULBARGA, THE PLOTS WERE BEING SOLD ON A MONTHLY SCHEME. THE ASSESSEE ARRIVED AT THE CLOSING STOCK ON SALEABLE A REA DEVELOPED BY IT AFTER ADDING ALL THE EXPENSES INCURRED DURING THE YEAR TO THE OPENING WORK-IN- PROGRESS . THE ASSESSEE IS OFFERING THE SALES IN R ESPECT OF PLOTS DURING THE YEAR AS INCOME IN THE PROFIT & LOSS ACCOUNT AND RED UCED THE CLOSING WORK- IN-PROGRESS WITH THE WORK-IN-PROGRESS OF THE SITE S SOLD AS ESTIMATED BY THE MANAGEMENT. THE ASSESSEE HAS SHOWN SALES FOR THE A .Y. 2003-04 AT RS.16,99,230, EXPENDITURE INCURRED TOWARDS WORK-IN- PROGRESS IN RESPECT OF SOLD AREA AT RS.16,31,711, THE DIFFERENCE WAS NEGAT IVE FIGURE OF RS.67,519. COMING TO THE A.Y. 2004-05, THE SALES SHOWN WAS RS. 46,13,808 AND EXPENDITURE CLAIMED WAS AT RS.41,36,990 AND THE DIF FERENCE WAS AGAIN A ITA NO.456 TO 459/B/09 ETC. PAGE 23 OF 26 NEGATIVE FIGURE OF RS.4,76,818. THE AO HELD THE EXP ENDITURE IS CLAIMED ON ESTIMATE BASIS ONLY. THE AO WAS OF THE VIEW THAT M ARGIN OF 3.97% AND 10% RESPECTIVELY FOR BOTH THE YEARS CANNOT BE TRUE STATE OF AFFAIRS. HE FURTHER NOTED THAT THE ASSESSEE WAS CONTINUOUSLY AD DING LAND TO THE PROJECT YEAR AFTER YEAR. IN THE LIGHT OF THE ABOVE FACTS, HE ESTIMATED PROFIT @ 30% AND 10% RESPECTIVELY ON SALES AND ON THIS BASIS MAD E ADDITION OF RS.4,42,250 FOR A.Y. 2003-04 AND RS.9,07,324 & RS.1 6,28,646 FOR A.Y. 2004-05. AGGRIEVED BY THE ORDER, THE ASSESSEE APP ROACHED THE FIRST APPELLATE AUTHORITY. 35. BEFORE THE CIT(APPEALS), THE ASSESSEE MADE EXA CTLY IDENTICAL SUBMISSIONS THAT WERE MADE IN THE CASE OF M/S. CONC ORDE DEVELOPERS IN ITA NOS. 494 TO 496/B/09. THE CLAIM OF THE ASSESS EE WAS PARTLY ACCEPTED BY CIT(APPEALS) PARTICULARLY VIDE PARA 11 AND 12 OF HIS ORDER OBSERVING AS UNDER: 11. THE THIRD LIMB OBJECTS TO THE ESTIMATION OF IN COME AT THE RATE HIGHER THAN THAT WAS SHOWN BY THE APPELLANT. I FIND THE A.O. HAS REDUCED THE CLAIM OF EXPENDITURE OF THE APPELLA NT ON PERCENTAGE BASIS AND DISALLOWED AND ADDED THE SAME WITH THE RETURNED INCOME. THE DETAILS THEREOF CAN BE TABULA TED AS UNDER: A.Y. 2003- 04 TOTAL SALE PRICE IN RS. EXPENDITURE CLAIMED EXPEND- ITURE RATIO PROFIT RATIO A.O. ADOPTED RATIO FOR DISALLOW- ANCES OF EXPENDI- TURE AMOUNT ALLOWED IN RS. AMOUNT DISALLOWED & ADDED TO RETURNED INCOME IN RS. 2003- 04 16,99,230 16,31,711 96.02% 3.98% 30% 11,89,461 4,22 ,250 2004- 05 (I)GREEN CITY GULBARGA 46,13,808 (II)CONCORDE PARADISE, BANGALORE 2,06,77,694 41,36,990 2,02,38,571 89.96% 97.87% 10.04% 2.13% 30% 10% 32,29,666 1,86,09,924 9,07,324 16,28,646 ITA NO.456 TO 459/B/09 ETC. PAGE 24 OF 26 12. THE ABOVE SHOWS THE BASIS OF SUCH DISALLOWANCE IS T HE UNBELIEVABLY LOW RATE OF PROFIT SHOWN BY THE APPELL ANT. FOR EXAMPLE, IT CAN BE SEEN THAT THE APPELLANT SHOWED N ET PROFIT RATE OF 3.98% IN A.Y. 2003-04. FOR THE PROJE CT AT GULBARGA OF A.Y. 2004-05, THE NET PROFIT RATE WAS S HOWN AT 10.04%, WHILE THAT OF CONDORDE PARADISE, BANGALORE, THE NET PROFIT RATE SHOWN WAS ONLY 2.13%. AGAINST THIS THE CORRESPONDING RATE ADOPTED BY THE A.O. WAS 30%, 30% AND 10%. I FIND THE ESTIMATE MADE BY THE A.O. FOR GULBARGA PROPERTIES IN A.Y. 2004-05 AND ALL PROPERT IES INVOLVED IN A.Y. 2003-04 @ 30% OF SALE PRICE IS VER Y MUCH ON THE HIGHER SIDE. THE NATURE OF WORK OF THE APPELLANT IS SUCH THAT IT GETS REIMBURSEMENT OF CON STRUCTION EXPENSES FROM FLAT OWNERS WITH A MINIMUM MARGIN WHI LE MAXIMUM PROFIT IS GAINED FROM SALE OF PLOTS OF LAND BUT THAT TOO CANNOT BE PROJECTED OR PUT AT 30%. I THER EFORE REDUCE THE ESTIMATION OF DISALLOWANCE OF EXPENDITUR E TO 15% FROM 30%. THUS, FOR THE A.Y. 2003-04 APPELLANT GETS RELIEF OF RS.1,87,365/- AND IN A.Y. 2004-05, RS.2,1 5,253/-. I FIND THE ESTIMATION OF PROFIT RATIO OF 10% FOR M/ S. CONCORDE PARADISE, BANGALORE PROPERTIES OF A.Y. 200 4-05 IS REASONABLE AND THEREFORE NOT INCLINED TO DISTURB THE SAME. APPEAL IS ALLOWED PARTLY ON THIS GROUND. 36. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. SUFFICE TO SAY THAT THE ARGUMENT ADVANCED BY THE ASSESSEE AND THE DEPARTMENT BEFORE US ARE IDENTICAL WITH THE SUBMISSIONS MADE I N THE CASE OF ASSESSEES SISTER CONCERN I.E., M/S. CONCORDE DEVEL OPERS IN ITA NOS. 456 TO 459/B/09. AFTER DISCUSSING THE ISSUE IN DETAIL , WE HAVE HELD VIDE PARA 20 HEREINABOVE THAT THE CIT(APPEALS) WAS NOT JUSTIF IED IN RETAINING THE ADDITION OF 15%. THE SAME FINDING HOLDS GOOD FOR B OTH THE YEARS IN THE PRESENT CASE ALSO. 37. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ITA NO.456 TO 459/B/09 ETC. PAGE 25 OF 26 ITA NO.858/09 (REVENUES APPEAL M/S. CONCORDE SHE LTERS ) 38. COMING TO THE APPEAL PREFERRED BY THE REVENUE F OR THE A.Y. 2004-05, AS IN THE CASE OF THE SISTER CONCERN OF THE ASSESSE E IN M/S. CONCORDE DEVELOPERS IN ITA NOS. 494 TO 496/B/09, THE REVENUE HAS OBJECTED TO THE ORDER OF THE CIT(APPEALS) ON THE FOLLOWING GROUNDS. FIRSTLY, THE REVENUE CONTENTIONS IS THE CIT(APPEALS) OUGHT TO HAVE CONSI DERED THAT NO SPECIFIC ACCOUNTING METHOD HAS BEEN ADOPTED BY THE ASSESSEE AND INCOME NEEDED TO BE ESTIMATED AS PER THE ACCOUNTING STANDARD AS-7 CONSIDERING THE LINE OF THE BUSINESS OF THE ASSESSEE. FURTHER IT IS THE CA SE OF THE REVENUE THAT CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE AO ESTIMATED THE SALES ON ADVANCES AS PER PERCENTAGE COMPLETION METHOD WHICH IS VALID METHOD IN THIS LINE OF BUSINESS. 39. EXACTLY IDENTICAL ISSUE HAS BEEN DECIDED IN THE CASE OF SISTER CONCERN OF THE ASSESSEE IN ITA NOS.494 TO 496/09 M/S. CONCORDE DEVELOPERS. THE ARGUMENTS PUT FORTH BY BOTH THE PA RTIES ARE SAME AND THE FACTS ARE ALSO IDENTICAL, HENCE FOR THE SAME REASON S STATED IN ITA NOS.494 TO 496/09 M/S. CONCORDE DEVELOPERS HEREINABOVE, W E DISMISS THE APPEAL BY THE REVENUE. 40. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY, 2010. SD/- SD/- (AKBER BASHA) ( K.P.T. THANGAL ) ACCOUNTANT MEMBER VICE PRESIDEN T BANGALORE, DATED, THE 22 ND JANUARY, 2010. DS/- ITA NO.456 TO 459/B/09 ETC. PAGE 26 OF 26 COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.
