THE ITO 19(3)(2), MUMBAI V. M/S. K BHATIA CONSTRUCTION, MUMBAI

ITA 5159/MUM/2007

• Counselvise Citation: 515919914 RSA 2007
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 04-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 30-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS
• Keywords: Rejection of books of accounts
• Section: 145; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.5159/MUM/2007 (ASSESSMENT YEAR: 2004-05) ITO19(3)(2), R. NO.306, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI -400 012 ....... APPELLANT VS M/S. K. BHATIA CONSTRUCTION, FLAT NO.1, MAY QUEEN APT., 33 RD ROAD, BANDRA (WEST), MUMBAI -400 050 ..... RESPONDENT PAN: AAEFK 2578 D APPELLANT BY: SHRI GOLI SRINIWAS RESPONDENT BY: SHRI K. SHIVRAM DATE OF HEARING: 04.07.2011 DATE OF PRONOUNCEMENT: 30.08.2011 O R D E R PER R.S. PADVEKAR, JM IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A)-11, MUMBAI DATED 22.05.2007 FOR THE A.Y. 2004-05. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUN DS WHICH READ AS UNDER:- I. (I) THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT ( A) ERRED IN HOLDING THAT THE ADDITION MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC. 145 CANNOT BE SU STAINED, IGNORING THE FACTS. (A) THAT THE BOOKS OF ACCOUNTS WERE NOT MAINTAINED BY T HE ASSESSEE FIRM IN ACCORDANCE WITH THE PROVISIONS OF ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 2 SECTION 145 OF THE IT ACT, 1961 AND ACCOUNTING STAN DARD 7 ( AS 7); (B) THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESS EE NOT ONLY FAILS TO ASCERTAIN CORRECT PROFITS OF THE BUSINESS BUT ALSO ENABLES THE ASSESSEE TO DIFFER THE RECOGNI TION OF INCOME; (C) THAT THOUGHT THE CONSTRUCTION OF NEW VIRENDRA CHS PROJECT WAS ALREADY COMPLETED AND THE ASSESSEE RECEIVED ADVANCES OF MORE THAN RS 1 CRORE, NO REVEN UE WAS OFFERED FOR TAXATION FROM THIS PROJECT. 2. BRIEFLY STATED THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE-FIRM IS A BUILDER AND DEVELOPE R. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCO ME OF ` 4,28,640/- FOR THE A.Y. 2004-05 ON 30.10.2004. THE RETURN FIL ED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLE TED U/S.143(3). THE ASSESSEE HAS TAKEN TWO PROJECTS, NAMELY NEW VIR ENDRA CHS, KHAR AND NAVALKAR/SURYODAYA PROJECT. THE A.O. HAS OBSER VED THAT ONE PROJECT NAMELY NEW VIRENDRA CHS, KHAR PROJECT WAS A LREADY COMPLETED AND SECOND PROJECT WAS UNDER PROCESS. AS PER THE AGREEMENT WITH THE OWNERS NAMELY SHRI P.Y. NAVALKAR AND SHRI K.Y. NAVALKAR THE ASSESSEE UNDERTOOK THE CONTRACT WORK A T ` 4.12 CRORE. THE ASSESSEE HAS SHOWN CONTRACT RECEIPTS AT ` 3.79 CRORE IN THE A.Y. 2004-05. THE A.O. HAS GIVEN THE BREAK-UP OF THE CO NTRACT RECEIPTS ON PAGE NO.2 OF THE ASSESSMENT ORDER. IN THE OPINION OF THE A.O. THE ASSESSEE SHOULD HAVE SHOWN SOME AMOUNT IN RESPECT O F NEW VIRENDRA CHS, KHAR BUT ONLY THE EXPENSES ARE DEBITED IN RESP ECT OF BOTH THE PROJECTS BUT CONTRACT RECEIPTS TOWARDS SURYODAYA PR OJECT ARE ONLY SHOWN. ON EXAMINATION OF THE BALANCE-SHEET, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS SHOWN CONTRACT ADVANCE O F ` 1,18,50,300/- ON THE SALE OF THE FLATS OF THE NEW VIRENDRA CHS, K HAR BUT THE SAME WERE NOT CREDITED TO THE P&L ACCOUNT, THOUGH THE PR OJECT WAS COMPLETED. THE A.O. SOUGHT THE INFORMATION FROM TH E ASSESSEE ON THE ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 3 PROJECT. AS NOTED BY THE A.O. THE DIFFERENT LETTER S WERE ISSUED TO THE ASSESSEE BUT THE ASSESSEE FAILED TO FURNISH PROPER FULL INFORMATION AS PER THE ENQUIRY MADE BY THE A.O. THE A.O. HAD NOTE D THAT IN RESPECT OF THE DETAILS OF THE SALES, ALL THE FLATS OF THE N EW VIRENDRA CHS, KHAR, SALES OF ALL THE FLATS FILED BY THE ASSESSEE WIDE V ARIATIONS WERE FOUND IN THE RATES, EVEN THOUGH THE SALE IS MADE IN THE TIME SPAN OF FORTNIGHT. THE ASSESSEE FILED THE EXPLANATION TO THE A.O. VIDE LETTER DATED 18.12.2006 BY STATING THAT THE ASSESSEE CARRIED OUT THE CONSTRUCTION ACTIVITY ON DIFFERENT BUILDINGS AND MEETING ALL THE EXPENSES COLLECTIVELY ON THE PROJECTS FOR WHICH THE PROPER AND REGULAR BO OKS OF ACCOUNTS WERE MAINTAINED. IT WAS FURTHER STATED THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE TO PROVIDE PROJECT-WISE DETAILS OF INCOME AND EXPENDITURE AS COMMON BOOKS OF ACCOUNT ARE MAINTAINED FOR ALL THE PROJECTS. THE A.O. REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SEC. 145 AND PROCEEDED TO ESTIMATE THE INCOME ON THE GRO SS RECEIPT. THE A.O. ACCORDINGLY, CONSIDERED THE GROSS CONTRACT REC EIPT AS WELL AS ADVANCES AGAINST THE SALE, AS SHOWN IN THE BALANCE- SHEET ON THE GROSS AMOUNT OF ESTIMATE AT 10 % OF GROSS CONTRACT RECEIP TS AS AN INCOME OF THE ASSESSEE AND WORKED OUT TOTAL TAXABLE INCOME AT RS 50,17,663/-. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A) AND AFTER LD. CIT (A) DID NOT APPROVE THE VIEW TAKE N BY THE A.O. AND ALLOWED THE PLEA OF THE ASSESSEE AND HELD AS UNDER: - 4. I HAVE DULY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT. I HAVE ALSO PERUSED THE ASSESSMENT ORDE R AND OTHER RECORDS AVAILABLE. THE BOOKS OF ACCOUNTS HAV E BEEN REJECTED BY THE AO AND INCOME HAS BEEN ESTIMATED BY INVOKING PROVISIONS OF SECTION 145. IN RESPECT OF INCOME FROM CONTRACT RECEIPT IS IN ACCORDANCE WITH PROVISI ONS OF LAW. IN THIS REGARD, IT MAY BE MENTIONED THAT W.E. F. 1.4.1997 THE PROVISIONS OF SECTION 145 HAD BEEN AME NDED AND AS PER THE EXISTING PROVISION THE BOOK RESULT C AN BE REJECTED ONLY IN THE FOLLOWING POSSIBLE SITUATIONS: - ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 4 1) THE INCOME CHARGEABLE TO TAX HAS NOT BEEN COMPUTED IN ACCORDANCE WITH THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. 2) THE METHOD OF ACCOUNTING U/S.145(1) OF ACCOUNTING STANDARD AS NOTIFIED U/S. SUB-SECTION (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. 3) THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ASSESSEE. THUS, UNDER THE EXISTING PROVISIONS, THE BOOKS RESU LTS CAN BE REJECTED U/S.145 ONLY UNDER THE CIRCUMSTANCES AS MENTIONED ABOVE. IN THE INSTANT CASE, THE A.O. HAS NOT DISPUTED THAT THE INCOME CHARGEABLE TO TAX HAS BEEN COMPUTED IN ACCORDANCE WITH THE SYSTEM OF ACCOUNTIN G REGULARLY EMPLOYED BY THE ASSESSEE OR THAT THE ACCO UNTING STANDARD AS PRESCRIBED U/S.145(2) HAVE NOT BEEN COM PLIED WITH. THE A.O. HAS ALSO BROUGHT NO MATERIAL WHATSO EVER ON THE RECORD TO ESTABLISH THAT THE ACCOUNTS MAINTAINE D BY THE APPELLANT WERE INCOMPLETE OR INCORRECT. ON THE OTH ER HAND ACCORDING TO THE APPELLANT IT HAS COMPLIED WITH THE PROVISION OF SECTION 145 IN AS MUCH AS THE INCOME H AS BEEN OFFERED ON THE BASIS OF METHOD OF ACCOUNTING REGULA RLY FOLLOWED AND THAT THE ACCOUNTING STANDARD PRESCRIBE D UNDER SUB-SECTION (2) OF SECTION 145 HAVE BEEN DULY COMPLIED WITH. IT IS ALSO SEEN THAT BOOKS OF ACCOU NTS OF THE APPELLANT HAVE BEEN AUDITED U/S.44AB OF THE ACT AND THE AUDITORS HAVE NOT POINTED OUT ANY OMISSION IN THE MAINTENANCE OF THE BOOKS OF ACCOUNTS IN THEIR REPOR T. THE BOOKS OF ACCOUNTS MAINTAINED WERE PRODUCED BEFORE T HE AO WITH ALL SUPPORTING BILLS AND VOUCHERS AND NO DEFEC TS WHATSOEVER IN THE MAINTENANCE OF THE BOOKS OF ACCOU NTS HAS BEEN PIN-POINTED BY THE AO. THE AO ALSO DOES NOT SAY AS TO HOW THE INCOME OFFERED BY THE APPELLANT FROM CONTRACT ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 5 BUSINESS WHICH IS COMPLETED ON THE BASIS OF METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE IS INADEQUATE. THE ONLY REASON GIVEN BY THE A.O FOR ESTIMATING INCOME U/S.145 WAS THAT THE APPELLANT HA S FAILED TO FURNISH PROJECT-WISE DETAILS OF INCOME AN D EXPENDITURE. NON-MAINTENANCE OF PROJECT-WISE DETAI LS OF INCOME AND EXPENDITURE IN MY OPINION, ALONE, IS NOT SUFFICIENT FOR REJECTING THE BOOKS OF ACCOUNTS U/S. 145 OF THE ACT. 5. IN THE INSTANT CASE THE INCOME FROM CONTRACT BUS INESS HAS BEEN COMPUTED BY THE APPELLANT ON THE BASIS OF METHOD OF ACCOUNTING REGULARLY EMPLOYED AND AFTER COMPLYIN G WITH ACCOUNTING STANDARDS AS PRESCRIBED U/S. SUB-SECTION (2) OF SECTION 145. THERE IS ALSO NO MATERIAL ON RECORD T O SUGGEST THAT THE ACCOUNTS MAINTAINED BY THE APPELLANT WERE INCOMPLETE OR INCORRECT. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW THE FACT THAT ACCOUNTS OF APPELLANT HAVE BEEN AUDITED U/S.44AB OF THE ACT AND NEITHER THE AO NOR THE AUDITORS HAVE POINTED OUT ANY DEFECT IN THE MAINTENANCE OF ACCOUNTS OR ANY SIGNIFICANT OMISSION THEREIN, REJECTION OF BOOKS OF ACCOUNTS AND ESTIMAT ION OF INCOME U/S.145, IS NOT JUSTIFIED. THE ADDITION MAD E BY THE AO IS, THEREFORE, CANNOT BE SUSTAINED. 6. AS REGARDS THE ESTIMATION OF INCOME IN RESPECT O F NEW VIRENDRA PROJECT, I FIND THAT THIS PROJECT WAS STARTED BY THE APPELLANT IN EARLIER YEAR. AS THE ARGUMENT FOR SALE OF CLOSING WIP OF THIS PROJECT AT THE END OF THE YEAR WAS MORE THAN THE AMOUNT RECEIVED BY THE APPELLANT ADVANCE A GAINST SALE OF FLATS, I AM INCLINED TO AGREE WITH THE VIEW OF THE A/R THAT INCOME FROM SALE OF FLATS DID NOT ACCRUE IN TH E CURRENT YEAR. FURTHER THE INCOME HAS BEEN ESTIMATED BY THE AO BY ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 6 INVOKING PROVISIONS OF SECTION 145. AS STATED EARL IER THE BOOK RESULTS U/S.145 CAN BE REJECTED AND INCOME CAN BE ESTIMATED ONLY IN CERTAIN SITUATION AS MENTIONED IN PARA-4 OF THIS ORDER. THE AO HAS NOT DISPUTED THAT THE IN COME FROM THIS PROJECT HAS BEEN COMPUTED BY THE APPELLAN T ON THE BASIS OF SYSTEM OF ACCOUNTING REGULARLY EMPLOYE D OR THAT ACCOUNTING STANDARDS PRESCRIBED U/S.145(2), HA VE NOT BEEN COMPLIED WITH. HE HAS ALSO BROUGHT NO MATERIA L WHATSOEVER ON RECORD TO SUGGEST THAT ACCOUNTS MAINT AINED BY THE APPELLANT IN RESPECT OF NEW VIRENDRA PROJECT ARE INCORRECT OR INCOMPLETE. UNDER THESE CIRCUMSTANCES , ESTIMATION OF INCOME @10% OF THE AMOUNT RECEIVED AS ADVANCE AGAINST SALE OF FLATS BY INVOKING THE PROVI SIONS OF SECTION 145, IS NOT JUSTIFIED. IN ANY CASE THE ACTUAL PROFIT EARNED BY THE APPELLA NT FROM NEW VIRENDRA PROJECT HAS BEEN OFFERED FOR TAXATION BY THE APPELLANT IN THE NEXT FINANCIAL YEAR. THE RETURN F ILED BY THE APPELLANT HAS BEEN ACCEPTED BY THE DEPARTMENT. THEREFORE, ANY FURTHER ADDITION TO THE INCOME OF TH E APPELLANT FROM NEW VIRENDRA PROJECT ON ESTIMATION B ASIS, IS UNJUSTIFIED BECAUSE IF WOULD AMOUNT TO TAXATION OF THE SAME INCOME TWICE, WHICH IS NOT PERMITTED UNDER THE LAW. 3. NOW, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND ALSO PERUSED THE RECORDS. NOWHERE THE A.O. HAS DISPUTED THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT AS PER P RESCRIBED NORMS OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). IT APPEARS THAT THE A.O. DIRECTED TO FILE THE PROJECT-WISE DET AILS BUT THE ASSESSEE EXPRESS HIS INABILITY AS HE HAS MAINTAINED COMPOSIT E BOOKS OF ACCOUNTS. THE A.O. HAS ALSO NOT DISPUTED THAT THE ASSESSEE IS ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 7 REGULARLY FOLLOWING A PARTICULAR SYSTEM OF ACCOUNTI NG VIZ. AS-7. WE FIND FORCE IN THE ARGUMENTS OF THE LD. COUNSEL THAT MERELY BECAUSE THE ASSESSEE DID NOT GIVE INFORMATION AS DIRECTED BY TH E A.O. THAT CANNOT BE THE REASON TO REJECT THE BOOKS OF ACCOUNT. WE F IND THAT NOWHERE IT IS THE CASE OF THE A.O. THAT THE SUPPORTING BILLS E TC. HAVE NOT BEEN PRODUCED. THE LD. D.R. RELIED ON THE FOLLOWING DEC ISIONS: I) AWADESH PRATAP SINGH ABDUL REHMAN & BROS. VS. CIT -210 ITR 406 (ALL) II) BHAI SUNDER DASS, SARDAR SINGH (P.) LTD. VS. CIT -84 ITR 106 (DEL) III) ARIHANT BUILDERS DEVELOPERS & INVESTORS (P) LTD. ACIT -106 ITD 10 (IND)(SB) 5. WE HAVE ANXIOUSLY CONSIDERED THE ABOVE DECISIONS . IN OUR OPINION, THE FACTS ARE DISTINGUISHABLE HENCE THE AB OVE DECISIONS ARE NOT HELPFUL TO THE REVENUE. THE ASSESSEE HAS PRODU CED THE PAPER BOOK IN WHICH THE AUDITED STATEMENT OF ACCOUNTS AND OTHE R DETAILS ARE FILED. IN OUR OPINION, THE LD. CIT (A) HAS RIGHTLY HELD TH AT THERE IS NO JUSTIFICATION ON THE PART OF THE A.O. TO REJECT THE BOOKS ACCOUNT BY INVOKING SEC.145 OF THE I.T. ACT. WE FIND NO REASO N TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) AND ACCORDINGLY THE SA ME IS CONFIRMED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0TH AUGUST 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0TH AUGUST 2011. SD/- SD/- ( J. SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 30TH AUGUST 2011 ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 8 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)XIX, MUMBAI. 4) THE CIT, CITY-19, MUMBAI. 5) THE D.R. H BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 5159/MUM/2007 M/S. K. BHATIA CONSTRUCTION 9 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 12.08.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 23.08.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER