Vishranthi Sabari, CHENNAI V. ITO, CHENNAI

ITA 510/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4975 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 07-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 07-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Principle of natural justice; Corroborative evidences
• Section: 144

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS. 509 & 510/MDS/2016 / ASSESSMENT YEARS : 2010-11 & 2011-12 M/S. VISHRANTHI SABARI, C/O. S. SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI 600 020. PAN: AAFFV7809M V. THE INCOME TAX OFFICER, BUSINESS WARD XV(3), CHENNAI. ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI SHIVA SRINIVAS , JCIT /DATE OF HEARING : 07.04.2017 /DATE OF PRONOUNCEMENT : 12.04.2017 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER : THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-4, CHENNAI, DA TED 26.11.2015 & 27.11.2015 AND PERTAINS TO THE ASSESSMENT YEARS 201 0-11 & 2011-12 RESPECTIVELY. 2 I.T.A. NO. 509 & 510/MDS/2016 2.0 ALL THE APPEALS ARE RELATED TO THE ASSESSMENT OF I NCOME ON ESTIMATION BASIS REJECTING THE BOOKS OF ACCOUNTS. THE GROUNDS OF APPEAL ARE ONE AND THE SAME FOR BOTH THE ASSESSMENT YEARS, HENCE BOTH THE APPEALS ARE DISPOSED IN A COMMON ORDER. THE LEAD Y EAR IS 2010-11 AND THE ASSESSEE CHARGED THE APPEAL ON THE FOLLOWING GR OUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) 4, CHENNAI 600 034 DATED 26.11.2015 IN I.T.A. NO.8/2013-14/2010-11/CIT(A) FO R THE ABOVE MENTIONED ASSESSMENT YEAR IS CONTRARY TO LAW, FACTS AND IN THE CIRCUMSTA NCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN SUSTAINING THE ASSESS MENT OF ESTIMATED INCOME AT 8% OF THE PROJECT RECEIPTS ON THE STRENGTH OF THE PROVISIONS OF SECTION 145(2) OF THE ACT IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNI NG PROPER REASONS AND JUSTIFICATION. 3. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE A SSESSMENT OF INCOME ON ESTIMATED BASIS WHILE OVERLOOKING THE CONSISTENT METHOD OF ACCOUNTI NG IN RECKONING THE REVENUE FROM THE HOUSING PROJECT DEVELOPMENT WAS WRONG, ERRONEOUS, U NJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 4. THE CIT(APPEALS) FAILED TO APPRECIATE THAT HAVIN G NOTICED THE FACT OF THE PERCENTAGE OF COMPLETION OF THE HOUSING PROJECTS IN THE PREVIOUS YEAR RELATING TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE SUSTENANCE OF THE ASSESSME NT OF INCOME BY ESTIMATING SUCH INCOME AT 8% OF THE PROJECT RECEIPTS WAS WRONG, ERR ONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 5. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE S USTENANCE OF THE ASSESSMENT FRAMED U/S 144 OF THE ACT WAS WRONG, ERRONEOUS, UNJUSTIFIED AN D NOT SUSTAINABLE IN LAW. 6. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE R ELEVANCE OF THE ACCOUNTING STANDARD REFERRED TO SHOULD BE TESTED WITH THE REFERENCE TO THE FACTS OF THE CASE AND OUGHT TO HAVE APPRECIATED THAT HAVING NOT RECORDED ANY POSITIVE/E XPRESS FINDING ON ITS APPLICABILITY, THE REFERENCE TO SUCH STANDARDS WOULD FALL ON THE GROUN DS. 7. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE M ETHOD OF ACCOUNTING AS WELL AS RECKONING OF REVENUE UNDER PROJECT COMPLETION METHOD SHOULD B E CONSIDERED AS ACCEPTABLE AND OUGHT TO HAVE APPRECIATED THAT THE CHANGE OF COURSE FOR THE PURPOSE OF MAKING ADDITION ON ESTIMATED BASIS WAS ERRONEOUS AND WHOLLY UNJUSTI FIED. 8. THE CIT(APPEALS) WENT WRONG IN RECORDING THE FIN DINGS IN THIS REGARD IN PARAS 8 TO 23 OF THE IMPUGNED ORDER WITHOUT ASSIGNING PROPER REASONS AND JUSTIFIED. 9. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE D ECISIONS RELIED UPON WERE APPLIED OUT OF CONTEXT AND NOT APPLICABLE TO THE FACTUAL MATRIX OF THE CASE THEREBY VITIATING THE DECISION 3 I.T.A. NO. 509 & 510/MDS/2016 TO SUSTAIN THE WRONG ASSESSMENT FRAMED BY THE ORIGI NAL AUTHORITY AND OUGHT TO HAVE APPRECIATED THAT THE ENTIRE COMPUTATION OF ASSESSAB LE INCOME WAS WRONG, ERRONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 10. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THER E WAS NO PROPER OPPORTUNITY GIVEN BEFORE PASSING OF THE IMPUGNED ORDER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES NATURAL JUSTICE WOULD BE NULLITY IN LAW. 11. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL G ROUNDS/ARGUMENTS AT THE TIME OF HEARING. 3.0 THE FACTS OF THE CASE FOR BOTH THE ASSESSMENT YEAR S I.E., 2010-11 & 2011-12 ARE THE SAME. THEREFORE, THE FACTS ARE E XTRACTED FROM THE ASSESSMENT YEAR 2010-11 AND THE APPEALS ARE DISPOSE D IN A COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTING RESIDENTIAL FLATS. FOR THE A SSESSMENT YEAR 2010- 11, THE ASSESSEE FILED RETURN OF INCOME ADMITTING I NCOME OF RS.NIL ON 26.03.2012. DURING THE PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR 2010-11, THE ASSESSEE WAS ENGAGED IN DEVELOPING A R ESIDENTIAL PROJECT NAMED MONDARIN AT SHOLINGANALLUR AND HAD SPENT AN AMOUNT OF RS.52.09 CRORES TILL THE CLOSE OF FINANCIAL YEAR 20 09-10. THE ASSESSEE HAD ALSO RECEIVED AN AMOUNT OF RS.53.51 CRORES FROM THE CUSTOMERS. BOTH THESE ITEMS, THE REVENUE AS WELL AS THE EXPEND ITURE WERE RETAINED AS BALANCE SHEET ITEMS AND FURNISHED NIL RETURNS. THE CASE WAS SELECTED FOR SCRUTINY AND CALLED FOR THE DETAILS BY THE ASSESSING OFFICER. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTE D THAT THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD AND HAS RIGHTLY ACCOUNTED THE 4 I.T.A. NO. 509 & 510/MDS/2016 INCOME AND EXPENDITURE AS BALANCE SHEET ITEMS. IN THE CASE OF EXPENDITURE, THE ASSESSEE HAS SHOWN THE ENTIRE EXPE NDITURE IN THE BALANCE SHEET UNDER THE HEAD WORK IN PROGRESS NET OF COST AND THE RECEIPTS WERE ADMITTED AS ADVANCE FROM CLIENT IN THE BALANCE SHEET. THE APPELLANT CONTENTED THAT ON COMPLETION OF THE P ROJECT, THESE ITEMS WOULD BE SHIFTED TO THE P&L ACCOUNT AND RESULTANT I NCOME WILL BE ADMITTED IN THE RETURN OF INCOME ON FINAL COMPLETIO N. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT PR ODUCED THE BILLS, VOUCHERS, BOOKS OF ACCOUNT AND THE RELEVANT EVIDENC E BEFORE THE ASSESSING OFFICER ESTABLISHING THAT THE ASSESSEE IS CORRECTLY MAINTAINING THE BOOKS OF ACCOUNTS AND THE EXPENDITURE HAS BEEN CORRECTLY ACCOUNTED AND CATEGORIZED AS WORK IN PROGRESS IN THE BOOKS OF ACCOUNT. AS PER THE ASSESSEE BY THE END OF THE FINANCIAL YEAR 2009- 10, 77% OF THE CONSTRUCTION WAS COMPLETED AND RECEIVED THE 75% OF THE PROJECT INCOME. ACCORDING TO THE ASSESSING OFFICER, IN CASE, THE AS SESSEE IS FOLLOWING ACCOUNTING STANDARD - 7 HAVING COMPLETED 77% OF THE PROJECTS, THE ASSESSEE SOULD HAVE ESTIMATED THE INCOME ON PERCENT AGE COMPLETION BASIS AND ADMITTED THE RESULTANT INCOME. IF THE AS SESSEE IS FOLLOWING ACCOUNTING STANDARD-9, THE ASSESSEE WOULD HAVE ADM ITTED THE VALUE OF FLATS SOLD AS INCOME. IN THE ASSESSEES CASE, TH OUGH THE ASSESSEE CLAIMED TO BE FOLLOWING THE PROJECT COMPLETION METH OD, THE 5 I.T.A. NO. 509 & 510/MDS/2016 BOOKS OF ACCOUNTS AND THE SUPPORTING EVIDENCES WERE NOT PRODUCED TO ESTABLISH THE CORRECTNESS OF EXPENDITURE. THE INFO RMATION FURNISHED BEFORE THE ASSESSING OFFICER DO NOT THROW CLEAR PIC TURE REGARDING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN TH E ABSENCE OF BOOKS OF ACCOUNTS. THEREFORE, THE ASSESSING OFFICER REJE CTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE INCOME AT THE RATE OF 8% ON THE GROSS RECEIPTS RECEIVED BY THE ASSESSEE TILL THE END OF T HE YEAR 2010, WHICH WORKED OUT RS.1,59,00969/- ON GROSS RECEIPTS OF RS. 19,87,62,122/- FOR THE ASSESSMENT YEAR 2010-11 AND FOR THE ASSESSMENT YEAR 2011-12, THE ASSESSING OFFICER ESTIMATED THE INCOME ON THE BALAN CE RECEIPTS OF RS.44,35,321/- AT THE RATE OF 8% WHICH WORK OUT TO RS.3,54,826/-. 4.0 AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFIC ER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (APPEALS) AND THE CIT (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. HENC E, THE ASSESSEE IS IN APPEAL BEFORE US. 5.0 AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE AS SESSEE FILED THE APPEALS BEFORE US. APPEARING FOR THE ASSESSEE, SH RI S. SRIDHAR, THE LD. ADVOCATE ARGUED THAT THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION 6 I.T.A. NO. 509 & 510/MDS/2016 METHOD AND MAINTAINING THE BOOKS OF ACCOUNTS AND AS PER THE PROJECT COMPLETION METHOD, THE FINAL ACCOUNTS WILL BE ARRIV ED AT ON COMPLETION OF THE PROJECT AND THE RESULTANT INCOME WILL BE OFFERE D FOR THE PURPOSE OF TAXATION. THE LD.AR FURTHER SUBMITTED THAT THE ASS ESSEE WAS FOLLOWING REGULAR BOOKS OF ACCOUNTS AND CONSISTENT METHOD OF ACCOUNTING AND RECORDING THE REVENUE FROM HOUSING PROJECT DEVELOPM ENT UNDER THE HEAD ADVANCES AND THE CUMULATIVE EXPENDITURE UNDER THE HEAD WORK IN PROGRESS. THE ASSESSEE IS NOT ENGAGED IN THE CONTRA CT WORKS AND THE AS-7 AND AS-9 ARE NOT APPLICABLE IN THE CASE OF DEV ELOPERS. FURTHER, THE ASSESSING OFFICER HAS ESTIMATED THE INCOME ON T HE TOTAL GROSS RECEIPTS RECEIVED TILL THE END OF THE YEAR WHICH IS NOT PERMISSIBLE IN LAW. THE DECISION RELIED UPON BY THE CIT (APPEALS) IS DI STINGUISHABLE ON FACTS. ACCORDING TO THE LD. AR, THE ASSESSING OFFI CER SHOULD HAVE ACCEPTED THE BOOKS OF ACCOUNTS COMPLETED THE ASSESS MENT ACCEPTING THE RETURNED INCOME. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 6.0 WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. ACCORDING TO THE ASSESSEE, IT IS FOLLOWING THE PROJECT COMPLETION METHOD CONSISTENTLY AND THE BOOKS OF ACCOUNT ARE RE GULARLY MAINTAINED. SINCE, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE P ROJECT COMPLETION 7 I.T.A. NO. 509 & 510/MDS/2016 METHOD, THE ASSESSEE SHOULD BE ALLOWED TO COMPLETE THE PROJECT AND FURNISH THE RETURN OF INCOME. ESTIMATION OF INCOME OR ARRIVING AT THE INCOME IN THE INTERVENING PERIOD IS NOT POSSIBLE AN D LEAD TO DISTORTING TRADING RESULTS. THOUGH THE ASSESSEE CLAIMED TO HA VE FOLLOWED THE PROJECT COMPLETION METHOD, IT IS OBLIGATORY ON THE PART OF THE ASSESSEE TO MAINTAIN THE REGULAR BOOKS OF ACCOUNTS AND SUPPORT THE CONTENTION WITH THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS, THAT IT IS FOLLOWING PROJECT COMPLETION METHOD AND TRUE AND CORRECT FINANCIAL PO SITION CAN BE DRAWN WITH THE BOOKS OF ACCOUNTS. THE EXPENDITURE DEBITE D TO THE WORK IN PROGRESS / ADVANCES RECEIVED REQUIRED TO BE ACCOUNT ED CORRECTLY TO SHOW THAT NO INFLATION OF EXPENDITURE AND NO SUPPRESSION OF INCOME WAS MADE BY THE ASSESSEE. THE ASSESSEE HAS NOT PRODUCED TH E BOOKS OF ACCOUNTS, BILLS AND VOUCHERS. IN THE ABSENCE OF T HE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS THE CONTENTION OF THE ASSESSEE T HAT IT IS FOLLOWING PROJECT COMPLETION METHOD IS WITHOUT ANY BASIS. FU RTHER, THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SHOW THAT IN THE SUBSEQUENT YEARS THE PROJECT WAS COMPLETED AND THE RETURNS ARE FILED. IT REVEALED FROM THE ASSESSMENT ORDER THAT THE ASSESSEE FILED RETURNS RE GULARLY ADMITTING NIL INCOME FROM THE ASSESSMENT YEAR 2007-08 TO 20 10-11. IT IS CLEAR FROM THE FACTS GATHERED FROM THE ASSESSMENT ORDER A ND THE CIT(APPEALS) THAT, THE ASSESSEE IS NOT FOLLOWING AN Y METHOD WHICH GIVES 8 I.T.A. NO. 509 & 510/MDS/2016 TRUE AND CURRENT FINANCIAL AFFARIS TO DEDUCE THE IN COME CORRECTLY. THEREFORE, WE DO NOT FIND ANY REASON TO DISTURB THE ORDER OF THE CIT(APPEALS). ACCORDINGLY, WE CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER AT THE RATE OF 8% ON THE GROSS RE CEIPTS. THIS VIEW IS SUPPORTED BY ITAT LUCKNOW BENCH IN ITO IV(4) VS. M. A. BUILDER (P) LTD ITA NO.564/LKW/2011 DATED 28.05.2013. 7.0 THE NEXT ISSUE RAISED BY THE ASSESSEE WAS THAT THE ASSESSING OFFICER CANNOT ESTIMATE THE INCOME ON ACCUMULATED G ROSS RECEIPTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE HAS NOT FOLLOWED ANY SYSTEM OF ACCOUNTING AS EVIDENCED FROM THE BOOK S OF ACCOUNTS AND 77% OF THE PROJECTS WERE COMPLETED. IN THE EARLIER YEARS, THE ASSESSEE HAS NOT ADMITTED ANY INCOME AND FILED NIL RETURN OF INCOME AS DISCUSSED EARLIER. NO BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE ASSESSING OFFICER TO ESTIMATE THAT THE REVENUE AND EXPENDITURE WAS ACCOUNTED CORRECTLY. THEREFORE, TILL THE DATE OF F ILING THE RETURN, THE ASSESSEE HAS ADMITTED NIL INCOME AND THE EARLIER RECEIPTS WERE NOT OFFERED TO INCOME. THE ASSESSEE HAS NOT PRODUCED T HE BOOKS OF ACCOUNTS BEFORE THE ASSESSING OFFICER AND THE RELEV ANT EVIDENCE IN RESPECT OF EXPENDITURE INCURRED TILL DATE. IN THE ABSENCE OF BOOKS OF ACCOUNTS, THE CORRECTNESS OF THE EXPENDITURE COULD NOT BE ESTABLISHED. 9 I.T.A. NO. 509 & 510/MDS/2016 THEREFORE, ONLY OPTION AVAILABLE TO THE ASSESSING O FFICER TO ESTIMATE THE INCOME ON THE GROSS RECEIPTS RECEIVED UP TO ACCOUNT ING YEAR 2009. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF LD.CIT(A) AND CONFIRM THE SAME. 8.0 IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH APRIL, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( . . ) (D.S. SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 12 TH APRIL, 2017. JR. /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A)-4, CHENNAI 4. /CIT 5. /DR 6. /GF.