Vishranthi Sabari Constructions, CHENNAI V. ITO, CHENNAI

ITA 511/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4974 (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: 2010-2011
• Appeal Filed On: 07-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Rejection of books of accounts; 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. 511 & 512/MDS/2016 / ASSESSMENT YEARS : 2010-11 & 2011-12 M/S. VISHRANTHI SABARI CONSTRUCTIONS, C/O. S. SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82, FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI 600 020. PAN: AAFFV8249M 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 AGAINS T THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-4, C HENNAI, DATED 26.11.2015 & 27.11.2015 AND PERTAINS TO THE ASSESSM ENT YEARS 2010-11 & 2011-12 RESPECTIVELY. 2 I.T.A. NO. 511 & 512/MDS/2016 2. ALL THE APPEALS ARE RELATED TO THE ASSESSMENT OF INCOME ON ESTIMATION BASIS REJECTING THE BOOKS OF ACCOUNTS. THE GROUNDS OF APPEAL ARE ONE AND THE SAME FOR BOTH THE ASSESSMENT YEARS. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 4, CHENN AI 600 034 DATED 26.11.2015 IN I.T.A. NO.8/2013-14/2010-11/CIT(A ) FOR THE ABOVE MENTIONED ASSESSMENT YEAR IS CONTRARY TO LAW, FACTS AND IN THE CIRCU MSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN SUSTAINING THE ASSESSMENT OF ESTI MATED INCOME AT 8% OF THE PROJECT RECEIPTS ON THE STRENGTH OF THE PROVISIONS OF SEC TION 145(2) OF THE ACT IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 3. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE ASSESSMENT OF INCOME ON ESTIMATED BASIS WHILE OVERLOOKING THE CONSISTENT METHOD OF ACCOUNTIN G IN RECKONING THE REVENUE FROM THE HOUSING PROJECT DEVELOPMENT WAS WRONG, ERRONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 4. THE CIT(APPEALS) FAILED TO APPRECIATE THAT HAVING NOTICE D 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 AS SESSMENT OF INCOME BY ESTIMATING SUCH INCOME AT 8% OF THE PROJECT RECEIPTS WAS WRONG, ERRONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 5. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE SUSTENAN CE OF THE ASSESSMENT FRAMED U/S 144 OF THE ACT WAS WRONG, ERRONEOUS, UNJUSTIFI ED AND NOT SUSTAINABLE IN LAW. 6. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE RELEVANCE O F THE ACCOUNTING STANDARD REFERRED TO SHOULD BE TESTED WITH THE REFERENCE TO THE FACT S OF THE CASE AND OUGHT TO HAVE APPRECIATED THAT HAVING NOT RECORDED ANY POSITIVE/EX PRESS FINDING ON ITS APPLICABILITY, THE REFERENCE TO SUCH STANDARDS WOULD FA LL ON THE GROUNDS. 7. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE METHOD OF ACCOUNTING AS WELL AS RECKONING OF REVENUE UNDER PROJECT COMPLETION METHOD SHOU LD BE CONSIDERED AS ACCEPTABLE AND OUGHT TO HAVE APPRECIATED THAT THE CHAN GE OF COURSE FOR THE PURPOSE OF MAKING ADDITION ON ESTIMATED BASIS WAS ERRONEOUS AND WHOLLY UNJUSTIFIED. 8. THE CIT(APPEALS) WENT WRONG IN RECORDING THE FINDINGS 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 DECISION S RELIED UPON WERE APPLIED OUT OF CONTEXT AND NOT APPLICABLE TO THE FACTUAL MATRI X OF THE CASE THEREBY VITIATING THE DECISION TO SUSTAIN THE WRONG ASSESSMENT FRAMED BY TH E ORIGINAL AUTHORITY AND OUGHT TO HAVE APPRECIATED THAT THE ENTIRE COMPUTATION OF ASSESSABLE INCOME WAS WRONG, ERRONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUST AINABLE IN LAW. 10. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THERE WAS NO PROPER OPPORTUNITY GIVEN BEFORE PASSING OF THE IMPUGNED ORDER AND ANY ORDER PASSED I N VIOLATION OF THE PRINCIPLES NATURAL JUSTICE WOULD BE NULLITY IN LAW. 3 I.T.A. NO. 511 & 512/MDS/2016 11. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GROUNDS/ARGUM ENTS AT THE TIME OF HEARING. 3. THE FACTS OF THE CASE FOR BOTH THE ASSESSMENT YE ARS I.E., 2010-11 & 2011-12 ARE THE SAME. THEREFORE, THE FAC TS ARE EXTRACTED FROM THE ASSESSMENT YEAR 2010-11 AND THE APPEALS ARE DISPOSED BY A COMMON ORDER FOR THE SAKE OF CONVENIE NCE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTING RE SIDENTIAL FLATS. FOR THE ASSESSMENT YEAR 2010-11, THE ASSESSEE FILED RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.NIL ON 26.03.20 12. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2010- 11, THE ASSESSEE WAS ENGAGED IN DEVELOPING A RESIDENTIAL PR OJECT NAMED MISTRAL & SABARI TERRACE AT SHOLINGANALLUR AND HAD SPENT AN AMOUNT OF RS.52.09 CRORES TILL THE CLOSE OF FINANCI AL YEAR 2009-10. THE ASSESSEE HAS ALSO RECEIVED AN AMOUNT OF RS.53.5 1 CRORES FROM THE CUSTOMERS. BOTH THESE ITEMS OF REVENUE AS WELL AS THE EXPENDITURE WERE RETAINED AS BALANCE SHEET ITEMS AN D FURNISHED NIL RETURNS. THE CASE WAS SELECTED FOR SCRUTINY AN D CALLED FOR THE DETAILS BY THE ASSESSING OFFICER. BEFORE THE ASSES SING OFFICER, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS FOLLOWING T HE PROJECT COMPLETION METHOD AND HAS RIGHTLY ACCOUNTED THE INC OME AND EXPENDITURE AS BALANCE SHEET ITEMS. IN THE CASE OF EXPENDITURE, THE 4 I.T.A. NO. 511 & 512/MDS/2016 ASSESSEE HAS SHOWN THE ENTIRE EXPENDITURE IN THE BA LANCE SHEET UNDER THE HEAD WORK IN PROGRESS, NET OF COST AND THE RECEIPTS WERE ADMITTED AS ADVANCES FROM CLIENTS, IN THE BA LANCE SHEET. THE APPELLANT CONTENTED THAT ON COMPLETION OF THE P ROJECT, THESE ITEMS WILL BE SHIFTED TO THE P&L ACCOUNT AND RESULT ANT INCOME WILL BE ACCOUNTED IN THE RETURN OF INCOME ON FINAL COMPLETI ON. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS NOT PRODUCED THE BILLS, VOUCHERS, BOOKS OF ACCOUNT AND THE RELEVANT EVIDENCES BEFORE THE ASSESSING OFFICER ESTABLISHING THAT THE ASSESSEE IS CORRECTLY MAINTAINING THE BOOKS OF ACCO UNTS AND THE EXPENDITURE HAS BEEN CORRECTLY ACCOUNTED AND CATEGO RIZED AS WORK IN PROGRESS IN THE BOOKS OF ACCOUNT. AS PER THE ASSESSEE BY THE END OF THE FINANCIAL YEAR 2009-10, 76% OF THE CONST RUCTION WAS COMPLETED AND RECEIVED 92% OF THE PROJECT INCOME FO R SABARI AND 74% OF THE CONSTRUCTION WAS COMPLETED AND RECEI VED THE 83% OF THE PROJECT INCOME FOR MISTRAL . ACCORDING TO THE ASSESSING OFFICER, IN CASE, THE ASSESSEE IS FOLLOWING ACCOUNT ING STANDARD-7 HAVING COMPLETED 76% & 74% OF THE PROJECTS, THE ASS ESSEE SHOULD HAVE ESTIMATED THE INCOME ON PERCENTAGE COMPLETION BASIS AND ADMITTED THE RESULTANT INCOME. IF THE ASSESSEE IS FOLLOWING ACCOUNTING STANDARD-9, THE ASSESSEE SHOULD HAVE ADM ITTED THE 5 I.T.A. NO. 511 & 512/MDS/2016 VALUE OF FLATS SOLD AS INCOME. IN THE ASSESSEES C ASE, THOUGH THE ASSESSEE CLAIMED TO HAVE FOLLOWED THE PROJECT COMPL ETION METHOD, THE BOOKS OF ACCOUNTS AND THE SUPPORTING EVIDENCES WERE NOT PRODUCED TO ESTABLISH THE EXPENDITURE AND THE METHO D OF ACCOUNTING. THE INFORMATION FURNISHED BEFORE THE A SSESSING OFFICER DO NOT THROW CLEAR PICTURE REGARDING THE METHOD FOL LOWED BY THE ASSESSEE IN THE ABSENCE OF BOOKS OF ACCOUNTS. THER EFORE, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AN D ESTIMATED THE INCOME AT THE RATE OF 8% ON THE GROSS RECEIPTS RECE IVED BY THE ASSESSEE TILL THE END OF THE YEAR 2010 AND ESTIMATE D THE INCOME AT THE RATE OF 8% ON GROSS RECEIPTS OF RS.53,51,61,122 /- WHICH WORKED OUT RS.4,45,65,113/-. FOR THE ASSESSMENT YEAR 2010 -11, THE ASSESSING OFFICER ESTIMATED THE INCOME AT RS.4,45,6 5,113/- AND FOR THE ASSESSMENT YEAR 2011-12, THE ASSESSING OFFICER ESTIMATED THE INCOME ON THE BALANCE RECEIPTS OF RS.3,27,33,922/- AT THE RATE OF 8% WHICH WORKED OUT TO RS.26,18,714/-. 4. AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFF ICER, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (APPEALS) AN D THE LD.CIT (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFI CER. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 6 I.T.A. NO. 511 & 512/MDS/2016 5. DURING THE APPEAL HEARING, APPEARING FOR THE ASS ESSEE, SHRI S. SRIDHAR, THE LD. ADVOCATE ARGUED THAT THE A SSESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD AND MAINTAI NING THE BOOKS OF ACCOUNTS. AS PER THE PROJECT COMPLETION METHOD, THE FINAL ACCOUNTS WILL BE ARRIVED AT ON COMPLETION OF THE PR OJECT AND THE RESULTANT INCOME WOULD BE OFFERED FOR THE PURPOSE O F TAXATION. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS MAINTAINING REGULAR BOOKS OF ACCOUNTS AND FOLLOWING THE CONSISTENT METHOD OF ACCOUNTING, RECORDING THE REVENUE FROM HOUSING PROJECT DEVELOPM ENT UNDER THE HEAD ADVANCES AND THE CUMULATIVE EXPENDITURE UNDER THE HEAD WORK IN PROGRESS. THE LD.AR SUBMITTED THAT THE ASSE SSEE IS NOT ENGAGED IN THE CONTRACT WORKS AND THE AS-7 AND AS- 9 ARE NOT APPLICABLE IN THE CASE OF THE DEVELOPERS. FURTHER, THE ASSESSING OFFICER HAS ESTIMATED THE INCOME OF THE 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 DISTINGUISHABLE ON FACTS. ACCORDING TO THE LD. AR, THE ASSESSING OFFICER SHOU LD HAVE ACCEPTED THE BOOKS OF ACCOUNTS. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7 I.T.A. NO. 511 & 512/MDS/2016 6. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERI AL PLACED ON RECORD. ACCORDING TO THE ASSESSEE, THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD CONSISTENTLY AND THE BOO KS OF ACCOUNT ARE REGULARLY MAINTAINED. SINCE, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD, THE ASSESS EE SHOULD BE ALLOWED TO COMPLETE THE PROJECT AND FURNISH THE RET URN OF INCOME ON COMPLETION OF THE PROJECT. ESTIMATION OF INCOME OR ARRIVING AT THE INCOME IN THE INTERVENING PERIOD IS NOT POSSIBLE WH ICH WILL LEAD TO DISTORTING TRADING RESULTS. THOUGH THE ASSESSEE C LAIMED TO HAVE FOLLOWED THE PROJECT COMPLETION METHOD, IT IS OBLIG ATORY ON THE PART OF THE ASSESSEE TO MAINTAIN THE REGULAR BOOKS OF ACCOU NTS AND SUPPORT THE CONTENTIONS WITH THE BOOKS OF ACCOUNTS, BILLS A ND VOUCHERS AND PROVE THE METHOD FOLLOWED BY IT AND ESTABLISH THE T RUE AND CORRECT FINANCIAL POSITION. THE EXPENDITURE DEBITED TO THE WORK IN PROGRESS / ADVANCE RECEIVED REQUIRED TO BE ACCOUNTED CORRECTL Y TO SHOW THAT NO INFLATION OF EXPENDITURE AND NO SUPPRESSION OF I NCOME WAS MADE BY THE ASSESSEE. THE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS. IN THE ABSENCE OF T HE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS THE CONTENTION OF THE ASSESSEE THAT IT WAS FOLLOWING PROJECT COMPLETION METHOD AND MAINTA INING REGULAR BOOKS OF ACCOUNTS IS WITHOUT ANY BASIS. FURTHER, THE ASSESSEE HAS 8 I.T.A. NO. 511 & 512/MDS/2016 NOT FURNISHED ANY EVIDENCE TO SHOW THAT IN THE SUBS EQUENT YEARS THE PROJECT WAS COMPLETED AND THE RETURN WAS FILED F OR THE AY 2007- 08 TO 2010-11 THE ASSESSEE FILED THE NIL RETURNS. IT IS NOTICED FROM THE LD.CIT(APPEALS) ORDERS THAT, THE ASSESSEE HAS NOT FILED THE RETURNS FOR THE A.Y 2014-15 AND 2015-16 AND NOT A SCERTAINABLE WHETHER THE ASSESSEE HAS COMPLETED THE PROJECT AND ADMITTED THE TAXABLE INCOME RELATING TO THE ABOVE PROJECTS IN TH E SUBSEQUENT YEARS. THE A.R. ALSO DID NOT FURNISH ANY INFORMATIO N REGARDING THE COMPLETION OF PROJECT AND ADMISSION OF INCOME IN RE SPECT OF THE ABOVE TWO PROJECTS. IN THE ABSENCE OF PRODUCTION OF BOOK OF ACCOUNTS, BILLS, VOUCHERS TRUE AND CORRECT INCOME C ANNOT BE DEDUCED. THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(APPEALS) AND ACCORDINGLY, WE CONFIRM THE ADD ITION MADE BY THE ASSESSING OFFICER AT THE RATE OF 8% ON THE GROS S RECEIPTS. THIS VIEW IS ALSO SUPPORTED BY ITAT LUCKNOW BENCH IN ITO IV(4) VS.M.A. BUILDER (P) LTD ITA NO.564/LKW/2011 DATED 28.05.201 3. THEREFORE, THE ASSESSEES APPEAL ON THIS ISSUE IS DISMISSED. 7. THE NEXT ISSUE RAISED BY THE ASSESSEE WAS THAT T HE ASSESSING OFFICER CANNOT ESTIMATE THE INCOME ON ACC UMULATED GROSS RECEIPTS IN THE ASSESSMENT YEAR UNDER CONSIDE RATION AND HAS TO CONFINE HIMSELF TO ESTIMATE THE INCOME FOR THE R ECEIPTS RECEIVED 9 I.T.A. NO. 511 & 512/MDS/2016 DURING THE YEAR. THIS ISSUE HAS BEEN CONSIDERED BY US. THE ASSESSEE HAS NOT ESTABLISHED BY PRODUCING THE BOOKS OF ACCOUNTS AND THE BILLS THAT IT HAS FOLLOWED THE PROJECT COMP LETION METHOD. AS PER THE ASSESSMENT ORDER, THE ASSESSEE HAS COMPLET ED THE WORKS OF 76% IN THE CASE OF SABARI AND 74% IN THE CASE O F SABARI AND 74% IN THE CASE OF MISTRAL THE PROJECTS AND RECO VERED MORE THAN 80% OF PROJECT INCOME. IT WAS NOT THE ASSESSEES CA SE THAT THE ASSESSEE HAS ADMITTED THE INCOME RELATING TO THE AB OVE PROJECTS IN THE EARLIER YEARS AND AGAIN ESTIMATION WAS MADE IN THE SUBSEQUENT YEAR. SINCE THE SUBSTANTIAL PROJECT WORKS HAVE BEE N COMPLETED AND THE RISKS WERE TRANSFERRED, THE AO ESTIMATED THE I NCOME ON THE GROSS RECEIPTS ACCUMULATED TILL THE END OF THE FY 2 009-10. FROM THE COMMENCEMENT OF THE PROJECT TILL THE AY 2010-11 AND SUBSEQUENT YEAR, THE ASSESSEE FILED NIL RETURN AND NO INCOME WAS ADMITTED. THE ASSESSEE HAS NOT SUBMITTED THE DETAILS RELATING TO COMPLETION OF PROJECT AND ADMISSION OF INCOME RELATING TO TH E ABOVE PROJECTS. IN THE ABSENCE OF BOOKS OF ACCOUNTS, THE CORRECTNES S OF THE EXPENDITURE COULD NOT BE ESTABLISHED. THEREFORE, O NLY OPTION AVAILABLE TO THE AO IS TO ESTIMATE THE INCOME AND COMPLETE THE ASSESSMENT. THE ASSESSEE HAS NOT ADMITTED ANY INCO ME IN THE EARLIER YEARS AND NO EVIDENCE HAS SHOWN REGARDING A DMISSION OF 10 I.T.A. NO. 511 & 512/MDS/2016 INCOME IN THE SUBSEQUENT YEARS AND THE ASSESSING OF FICER HELD THAT THE SUBSTANTIAL RISKS HAVE BEEN TRANSFERRED IN THE YEAR UNDER CONSIDERATION. THEREFORE, WE DO NOT FIND ANY ERROR IN THE LOWER AUTHORITIES ORDERS AND WE CONFIRM THE ORDER OF THE LD.CIT(A) AND DISMISSED THE GROUNDS OF APPEAL. 8. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR THE AY 2010- 11 AND 2011-12 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.