ADDL CIT RG 24(1), MUMBAI V. CONTINENTIAL FAIRWAYS, MUMBAI

ITA 6019/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2383 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SARVANAN
• Keywords: Rule of consistency; Tax effect
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER I.T.A. NO.5855/MUM/2012 (ASSESSMENT YEAR: 2008-09) M/S. CONTINENTAL FAIRWAYS SHOP NO. 2-A, KRISHNA HEIGHTS, UPPER GOVIND NAGAR, MALAD(EAST), MUMBAI-400097. V. ADDL.C.I.T.24(1) PRATAYAKSHAKAR BHAVAN, BANDRA (E), BANDRA KURLA COMPLEX, MUMBAI. I.T.A. NO.6019/MUM/2012 (ASSESSMENT YEAR: 2008-09) ADDL.C.I.T.24(1) PRTAYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E)MUMBAI. V. M/S. CONTINENTAL FAIRWAYS SHOP NO. 2-A, KRISHNA HEIGHTS, UPPER GOVIND NAGAR, MALAD(EAST), MUMBAI-400097. PAN/GIR NO. AAFFC0136N ( APPELLANT ) : ( RESPONDENT ) ASSESSEE FIRM BY : SHRI VIPUL JOSHI REVENUE BY : SHRI J. SARVANAN DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 20.11.2015 O R D E R PER RAMIT KOCHAR,ACCOUNTANT MEMBER .: THESE ARE CROSS APPEALS BY THE ASSESSEE FIRM AND TH E REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEAL S)-34, MUMBAI (HEREINAFTER 2 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 CALLED THE CIT(A)) DATED 20.07.2012 ARISING OUT O F THE ASSESSEES FIRM APPEAL CONTESTING THE ASSESSMENT ORDER DATED 29.12.2010 U /S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR THE ASSESSM ENT YEAR 2008-09 .SINCE THERE IS A COMMON ISSUE INVOLVED IN BOTH THESE APPEALS, BOTH T HE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE FIR M IN THE MEMO OF APPEAL FILED ARE: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF A.O. IN ESTIMATING WIP BEING 25% OF 61,02,002 AS CURRENT YEARS INCOME. UNDER THE FACTS & CIRCUMSTANCES OF THE MATTER HE OU GHT NOT TO HAVE UPHELD THE SAID ORDER OF A.O. BY CONFIRMING 25% OF WIP AS INCOME OF CURRENT YEAR. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED ARE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.61,02,002/- MA DE BY THE AO ON ACCOUNT OF CORRECT VALUATION OF CLOSING STOCK AFTER INCLUDING ALL OVERHEAD EXPENSES IN VIEW OF DECISION OF SUPREME COURT IN THE CASE OF CIT V. BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND MATTER BE DECIDED ACCORDING TO LAW. THE APPELLANT CRAVES LEAV E TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH BE NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F IRM IS ENGAGED IN THE DEVELOPMENT CONTRACTS OF GOLF FIELDS IN INDIA . THE CASE OF T HE ASSESSEE FIRM WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCE EDINGS IT WAS SEEN BY THE ASSESSING OFFICER (HEREINAFTER CALLED THE AO) THA T THERE ARE NO CLOSING STOCK OR WORK IN PROGRESS SHOWN BY THE ASSESSEE FIRM DESPIT E BEING ENGAGED IN THE CONTRACT WORKS. HENCE, THE ASSESSEE FIRM WAS ASKED TO EXPLAI N THE EXPENSES AND INCOME EARNED IN THE MONTH OF MARCH 2008. THE ASSESSEE FIRM SUPPL IED THE COPIES OF LEDGER EXTRACT 3 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 AND EXPENDITURE AND INCOME OF MARCH AND APRIL 2008 WHICH REFLECTED THAT THE LAST RUNNING BILL RAISED WAS ON 20.03.2008 TO M/S. PREST IGE ESTATES PROJECTS PVT. LTD. FOR RS.1,49,64,408/-. HOWEVER, THE ASSESSEE FIRM CONTIN UED TO INCUR EXPENSES FOR THE PERIOD 21.03.2008 TO 31.03.2008 WHICH AGGREGATED TO RS.61,02,002/- FOR WHICH NO INVOICE OF INCOME HAS BEEN RAISED BY THE ASSESSEE FIRM AND THE SAME IS ALSO NOT SHOWN AS CLOSING WORK-IN-PROGRESS TO THE CREDIT OF PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2008 WHICH IN THE OPINION OF THE A O , THE ASSESSEE FIRM IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE ASSESSEE FI RM SHOULD HAVE SHOWN CLOSING WIP AS AT 31.3.2008 TO THE CREDIT OF PROFIT & LOSS ACCOUNT BASED ON MATCHING PRINCIPLES IN MERCANTILE SYSTEM OF ACCOUNTANCY WHIC H LED TO UNDER-REPORTING OF INCOME . THE DETAILS OF EXPENSES OF RS.61,02,002/- INCURRED BY THE ASSESSEE FIRM FROM 21.3.2008 TO 31.03.2008 WERE AS UNDER : A) SALARIES AND WAGES AT SITE RS. 7,33,252/- B) FUEL AND LUBRICANTS RS. 6,86,201/- C) REPAIRS AND MAINTENANCE RS.1,77,402/- D) EXCAVATION AND DRILLING EXPENSES RS.6,04,649/- E) TRENCH EXCVATION AND BACK FILING RS.6,51,134/- F) DUMPER & MACHINERY HIRE CHARGES RS.32,49,364/- ------------------ RS.61,02002/- ------------------ THE AO OBSERVED THAT THE ASSESSEE FIRM HAS RAISED INVOICES ON THE FIRST DAY OF THE NEXT FINANCIAL YEAR I.E. FOR RS.23,13,991/- I.E. ON 1.4.2008 , WHEREAS THE TOTAL EXPENSES INCURRED ON 01.04.2008 ARE HARDLY RS.1,000/-. THUS, IN THE OPINION OF THE ASSESSING OFFICER THE ASSESSEE FIRM HAS FAILED TO ACCOUNT THE WORK DONE AS ON 31.03.2008 , BUT PENDING BILLING, AS WORKS-IN-PROGRESS IN THE PROFIT AND LOSS ACCOUNT. 4 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 THE ASSESSEE FIRM SUBMITTED THAT THE ASSESSEE FIRM IS RECOGNIZING REVENUE ONLY ON COMPLETION OF SPECIFIC PERCENTAGE OF WORK AND ON RA ISING THE BILLS ONLY. THE ASSESSEE FIRM SUBMITTED THAT THE ASSESSEE FIRM IS ALSO FOLLO WING THIS METHOD OF ACCOUNTING RIGHT FROM THE BEGINNING AND THE DEPARTMENT HAS ACCEPTED THE SAME TILL NOW. THE ASSESSEE FIRM FURTHER SUBMITTED THAT SINCE THE SAID AMOUNT W AS BILLED AND CONSIDERED INCOME IN THE NEXT FINANCIAL YEAR I.E. 2008-09, THERE IS NO L OSS TO REVENUE AS TAX RATES ARE SAME FOR BOTH THE YEARS AND HENCE HAS DULY PAID THE TAX TO REVENUE ON THIS INCOME ALBEIT IN THE NEXT YEAR. HENCE, THE ASSESSEE FIRM SUBMITTED T HAT AS PER THE ASSESSEES FIRM METHOD OF ACCOUNTING , THE INCOME SHOULD BE ALLOWE D AND ASSESSED TO TAX AS DECLARED BY THE ASSESSEE FIRM IN THE RETURN OF INCOME BASED ON THE METHOD OF ACCOUNTING FOLLOWED CONSISTENTLY BY THE ASSESSEE FIRM . THE ASSESSING OFFICER REJECTED THE EXPLANATION OF T HE ASSESSEE FIRM FOR THE FOLLOWING REASONS:- A) IN THE MERCANTILE SYSTEM OF ACCOUNTANCY, ALL THE D IRECT EXPENSES SHOULD HAVE A CORRESPONDING AND MATCHING INCOME ON THE CRE DIT SIDE OF THE P&L ACCOUNT. HENCE, THE VALUATION OF CLOSING WORK-IN-PR OGRESS IS ESSENTIAL. B) EACH AND EVERY YEAR BEING INDEPENDENT, THE INCOME O F EVERY YEAR IS TO BE ASCERTAINED PROPERLY AND BE TAXED IN THE SAID YEAR ONLY. INCOME TAXABLE IN ONE YEAR CANNOT BE PERMITTED TO BE CARRY FORWARD TO THE SUBSEQUENT YEARS. C) THE ASSESSEE MAY BE FOLLOWING A PARTICULAR METHOD Y EAR AFTER THE YEAR. BUT THAT DOESNT MEAN THAT THE SAME HAS TO BE ALLOWED F OR EVER. THE ASSESSING OFFICER HAS TO EXAMINE THE AFFAIRS OF THE ASSESSEE EVERY YEAR AND DETERMINE THE TAX LIABILITIES OF THE SAID YEAR. IN SUCH CASES , IT IS ALSO THE DUTY OF THE ASSESSING OFFICER TO ASCERTAIN THE TRUE AND PROPER TAXABLE INCOME BY ADOPTING ANY METHOD AS HE DEEMS TO FIT, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD. VS. CIT(188 ITR 44) (SC). WHILE DELIVERING THE ABOVE JUDGMENT, THE APEX COURT OBSERVED THAT EXCLUSION OF ANY COST IN VALUING THE CLOSING STOCK IS LIKELY TO RESULT IN A DISTORTED PICTURE OF TRUE STATE OF BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. THE COURT FURTHER HELD THAT IN SUCH A SITUATION IT IS 5 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 NOT ONLY THE RIGHT BUT ALSO THE RESPONSIBILITY OF T HE ASSESSING OFFICER TO ACT IN EXERCISE OF HIS POWER FOR DETERMINING THE CORREC T TAXABLE INCOME. IN RESPONSE THEREOF BEFORE THE AO, THE ASSESSEE FI RM SUBMITTED THAT THE ASSESSEE FIRM IS RECOGNIZING THE INCOME AS AND WHEN THE RUNNING B ILLS ARE RAISED. THESE EXPENSES OF RS.61,02,002/- INCURRED BY THE ASSESSEE FIRM FROM 2 1.03.2008 TO 31.03.2008 ARE ACCOUNTED FOR AS PART OF THE INCOME IN THE NEXT FIN ANCIAL YEAR AND HENCE THERE IS NO ESCAPEMENT OF INCOME IN ANY MANNER. FURTHER , THE ASSESSEE FIRM SUBMITTED THAT ITS RETURNED INCOME FOR THE ASSESSMENT YEAR 2008-09 AND THE SUBSEQUENT YEAR IS AT ABOUT 25% OF THE CONTRACT INCOME AND HENCE, THERE IS NO I NTENTION TO POSTPONE OR CONCEAL THE INCOME AND HENCE THERE IS NO NEED TO ESTIMATE WIP. THE AO REJECTED THE CONTENTION OF THE ASSESSEE FIRM AND HELD THAT THE INCOME OF EACH YEAR IS INDEPENDENT AND HAS TO BE DETERMINED SEPARATELY AS PER PROVISIONS OF THE ACT. THE ASSESSING OFFICER THUS BROUGHT TO TAX THE EXPENSES INCURRED AFTER 20.03.20 08 TILL 31.3.2008 I.E. AFTER RAISING THE LAST RUNNING BILL OF FINANCIAL YEAR 2007-08 AMO UNTING TO RS.61,02,002/- BY TREATING THE SAME AS CLOSING WIP . 4. AGGRIEVED BY THE ORDERS OF THE AO , THE ASSESSEE FIRM FILED THE FIRST APPEAL WITH THE CIT(A) AND SUBMITTED BEFORE THE CIT(A) THAT THE ASS ESSEE FIRM IS ENGAGED IN THE DEVELOPMENT OF GOLF FIELD IN INDIA ON CONTRACT BASI S AND TOTAL TURNOVER IN THE FINANCIAL YEAR 2007-08 WAS RS. 6.91 CRORES AGAINST WHICH THE NET PROFIT WAS OF RS.1.72 CRORES (BEFORE TAX ) WHICH IS ABOUT 25%. THE ASSESSEE FIRM SUBMITTED THAT THE ASSESSEE FIRM INCURRED THE EXPENSES OF RS.61,02,002/- AFTER 20.03 .2008 BUT TILL 31.3. 2008 AND THE NATURE OF EXPENSES ARE SALARIES AND WAGES AT SITE, EXCAVATION CHARGES, EQUIPMENT HIRE CHARGES ,REPAIRS , MAINTENANCE, EARTH FILLING ETC AND SINCE THE ASSESSEE FIRM IS RECOGNIZING THE REVENUE ONLY ON COMPLETION OF SPEC IFIC PERCENTAGE OF THE WORK EXECUTED AND ONLY AFTER THE BILLS ARE CERTIFIED BY CLIENTS ARCHITECT/ ENGINEER ABOUT THE QUALITY AND QUANTUM OF THE WORK, THE INVOICES ARE R AISED AND HENCE WIP FOR THE 6 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 PERIOD 21.03.2008 TO 31.03.2008 SHOULD NOT BE CONSI DERED. THERE IS NO LOSS OF REVENUE TO THE REVENUE AS TAX RATES ARE SAME FOR BOTH THE Y EARS AS THESE UN-BILLED WORK FROM 21.3.2008 TO 31.03.2008 WILL BE BILLED IN THE NEXT FINANCIAL YEAR I.E. 2008-09 AND DUE TAXES SHALL BE PAID TO THE REVENUE IN SUCCEEDING AS SESSMENT YEAR. THE ASSESSEE FIRM SUBMITTED THAT THESE METHOD DOES NOT SHOW INACCURAT E PARTICULARS OF INCOME AS THERE WAS NO INTENTION TO POSTPONE OR CONCEAL THE INCOME. THE ASSESSEE FIRM SUBMITTED THAT THE ASSESSEE FIRM WAS ENGAGED IN THE LABOUR CONTRA CT OF GOLF FIELD IN INDIA BY DOING LABOUR WORK IN THE CLIENTS GOLF FIELD WHEREBY NO ASSETS WERE CREATED IN THE NAME OF LABOUR CONTRACTOR AND THEREFORE, THE REVENUE HAS B EEN RECOGNIZED ONLY ON THE COMPLETION OF SPECIFIC PERCENTAGE OF WORK AND ONLY AFTER THE BILLS ARE CERTIFIED BY THE CLIENTS ARCHITECT/ ENGINEER THAT WORK PERFORMED BY THE ASSESSEE FIRM IS SATISFACTORY AND ACCEPTABLE TO THE CLIENT AS TO QUALITY AND ALSO QUA NTUM OF WORK DONE IS CERTIFIED. THE ASSESSEE FIRM SUBMITTED THAT IF THE WORK DONE BY TH E ASSESSEE FIRM IS NOT CERTIFIED OR APPROVED BY THE CLIENTS ARCHITECT AND ENGINEERS, T HE ASSESSEE FIRM CANNOT TAKE AWAY OR SELL THE WORK DONE ON THE CLIENTS GOLF FIELD AS NO ASSET IS CREATED IN FAVOUR OF THE ASSESSEE FIRM AS THESE ARE MAJORLY LABOUR CONTRACTS AND IT WILL BE A LOSS TO THE ASSESSEE FIRM AS THE WORK IS DONE ON THE CLIENTS LAND/PROPE RTY . MANY A TIMES , THE ASSESSEE FIRM HAS TO RECTIFY THE WORK AT ITS OWN COST ON THE BASIS OF CORRECTION GIVEN BY THE ARCHITECT OR CERTIFYING AGENCY OF THE CLIENT WHICH LEAD TO THE LOSS TO THE ASSESSEE FIRM ON ACCOUNT OF DEFECTIVE WORK CARRIED OUT EARLIER BY THE ASSESSEE FIRM WHICH IS NOW RECTIFIED AND THE ASSESSEE FIRM SUBMITTED THAT IT C ANNOT ASK FOR THE PAYMENT TILL THEIR BILL/WORK IS CERTIFIED BY THE CLIENTS ARCHITECTS/ E NGINEERS . THE ASSESSEE FIRM FURTHER SUBMITTED EVEN FOR THE SAKE OF ARGUMENT IF THE CLO SING WIP OF CURRENT YEAR IS CONSIDERED AS INCOME OF THE CURRENT YEAR , THE SAME WILL THEN BE THE OPENING WIP OF THE NEXT YEAR AND WILL BE CONSIDERED AS EXPENSE OF THE NEXT YEAR AND HENCE, THERE WILL NOT BE LOSS TO THE REVENUE IF THE CLOSING WIP IS NO T TAKEN INTO ACCOUNT IN THE CURRENT YEAR . 7 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 THE CIT(A) OBSERVED THAT THE ASSESSEE FIRM IS FOLLO WING THE METHOD OF DISCLOSING THE FIXED PERCENTAGE OF CONTRACT AS INCOME BASED ON THE BILLS CERTIFIED BY THE ARCHITECTS WHICH HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSE E FIRM IN SUPPORT OF WHICH THE ASSESSEE FIRM HAS PRODUCED THE COPIES OF THE ASSESS MENT ORDER PASSED U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007-08 WHEREBY REVENUE HAS ACCEPTED THE SAME METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE FIRM IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR ALONG WITH THE COPIES OF LEDGER EXTRACTS FOR THE PRECEDING YEAR TO PROVE ITS CONTENTIONS.THE CIT(A) ALSO OBSERVED THAT THE ASSE SSEE FIRM IS ENGAGED IN THE LABOUR CONTRACT IN THE DEVELOPMENT OF GOLF FIELD AND MAJOR EXPENDITURE GOES TOWARD LABOUR AND MACHINERY HIRE CHARGES AND HUGE EXPENSES ARE BE ING INCURRED TO LEVEL OR TO CREATE MOUNDS IN THE GOLF FIELD WITH THE USE OF EARTH MOVE RS AND EXCAVATORS. THE EXPENSES INCURRED FROM 21.03.2008 TO 31.03.2008 OF RS.61.02 LAKHS REVEALS THAT THE MAJOR EXPENDITURE ARE ONLY TOWARDS EXCAVATION & MACHINERY HIRE CHARGES TO THE TUNE OF RS.45 LAKHS WHICH REFLECT THAT IT IS A LABOUR CONT RACT AND THE ASSESSEE FIRM HAS NOT CREATED ANY ASSET TO DISCLOSE THE SAME AS WORK IN P ROGRESS. THE CIT(A) ALSO OBSERVED THAT THE ASSESSEE FIRM IS RECOGNIZING THE INCOME A S AND WHEN RUNNING BILLS ARE CERTIFIED BY THE ARCHITECT/ ENGINEERS AND EVEN THOU GH IF THE ASSESSEE FIRM MIGHT HAVE DONE WORK BUT IF THE WORK IS NOT DONE TO THE SATISF ACTION OF THE ARCHITECT AND THE ENGINEERS AS TO QUALITY AND ALSO QUANTUM IS TO CERT IFIED , THEN THE ASSESSEE FIRM CANNOT RAISE THE INVOICE OF INCOME TILL THE WORK IS CERTIF IED AND IF THE WORK IS CERTIFIED IN THE NEXT FINANCIAL YEAR, THE ASSESSEE FIRM WILL RAISE T HE INVOICE IN NEXT FINANCIAL YEAR AND THERE WILL BE NO LOSS TO THE REVENUE AS DUE TAXES W ILL BE PAID TO THE REVENUE. THE CIT(A) ALSO HELD THAT IF THE ITEM ARE ADDED AS CLOS ING WORK IN PROGRESS IN THIS FINANCIAL YEAR, THE SAME HAS TO BE ALLOWED AS OPEN ING WORK IN PROGRESS IN THE SUBSEQUENT YEAR AND HERE AGAIN THERE IS NO LOSS TO THE REVENUE, THUS THE IMPACT BEING REVENUE NEUTRAL. THE CIT(A) ALSO HELD THAT IF THE M ETHOD ARE CONSISTENTLY FOLLOWED BY THE ASSESSEE FIRM AND ASSESSING OFFICER IS NOT SATI SFIED AND HE FEELS THAT PROFITS ARE DISTORTED THE ONLY RECOURSE AVAILABLE TO HIM IS TO INVOKE THE PROVISION OF SECTION 145 8 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 OF THE ACT AND ESTIMATE THE INCOME. THE CIT(A) HELD THAT THE ASSESSING OFFICER HAS FAILED TO INVOKE THE PROVISION OF SECTION 145 OF TH E ACT IN THIS REGARD AND HE HAS ONLY ADDED THE WIP AS INCOME OF THE APPELLANT WHILE NO R EASONS HAS BEEN ADDUCED AS TO WHY THE CONSISTENT METHOD FOLLOWED TOWARDS THE INCO ME DISCLOSED WAS DISREGARDED BY THE ASSESSING OFFICER. THE CIT(A) ALSO HELD THAT ASSESSEE FIRM CASE IS OF PECULIAR NATURE OF THE CONTRACT WHERE THERE IS NO CREATION OF ASSETS UNLIKE IN A CO NSTRUCTION CONTRACT, THE PRINCIPLE OF MATCHING THE COST CANNOT BE APPLIED IN TRUE SENSE B Y RELYING ON CREDIT RATING INFORMATION VS. DEPUTY COMMISSIONER OF INCOME TAX REPORTED IN 84 ITD 247 MUM, WHILE THE CIT(A) HELD THAT THE ASSESSEE FIRM IN ST RICT SENSE IS NOT FOLLOWING THE PERCENTAGE COMPLETION METHOD LAID DOWN BY THE ACCO UNTING POLICIES. THE ASSESSEE FIRM IS DISCLOSING THE INCOME BASED ON THE WORK CER TIFIED BY THE ENGINEERS AND IT IS NOT BASED ON THE PROPORTIONATE COST INCURRED TO THE DAT E TO THE ESTIMATED TOTAL COST AND ULTIMATELY 100% OF THE CONTRACT REVENUES WILL BE DI SCLOSED BY THE TIME CONTRACT IS COMPLETED. THE ASSESSING OFFICER HAS NOT INVOKED TH E PROVISION OF SECTION 145 OF THE ACT TO ESTIMATE THE INCOME. THE ASSESSING OFFICER I S WRONG IN TAKING THE ENTIRE WIP AS INCOME OF THE ASSESSEE FIRM. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ESTIMATE THE 25% OF THE WIP AS INCOME OF THE CURRENT YEAR. T HE APPELLANT THUS, GOT RELIEF OF THE BALANCE AMOUNT VIDE THE CIT(A) ORDERS DATED 20.07.2 012. 5.AGGRIEVED BY THE ORDERS OF THE CIT(A) , BOTH THE ASSESSEE FIRM AND THE REVENUE IS IN APPEAL BEFORE US . THE ASSESSEE FIRM IS AGGRIEVED B Y ESTIMATION OF INCOME OF 25% OF WIP BY CIT(A) WHILE REVENUE IS AGGRIEVED BY RESTRIC TING THE ADDITION OF THE ENTIRE EXPENDITURE OF RS.61,02,002/- INCURRED AFTER 20.03. 2008 AND TILL 31.03.2008 AS MADE BY THE AO IN THE CLOSING WIP AS AT YEAR END TO ESTI MATING THE INCOME TO 25% OF CLOSING WIP. 9 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 6. THE ASSESSEE FIRM SUBMITTED BEFORE US THAT THE ASSESSEE FIRM IS ENGAGED IN THE LABOUR CONTRACT IN DEVELOPMENT OF GOLF FIELD FOR PR EPARING AND RENOVATING GROUNDS AND OTHER FACILITIES FOR GOLF COURSE, INCLUDING SUPPLY OF INCIDENTAL SAND AND GRASS FOR THE GROUND AND THE ASSESSEE FIRM PRODUCED BEFORE US T HE COPIES OF THE CONTRACT ENTERED BY THE ASSESSEE FIRM WITH PRESTIGE ESTATE PROJECT L IMITED AND KARNATAKA GOLF ASSOCIATION WHICH ARE PLACED IN THE PAPER BOOK FILE D BEFORE US. THE ASSESSEE FIRM ALSO PRODUCED THE RUNNING INVOICES RAISED BY IT ON ITS C LIENTS AS WELL THE INVOICES RAISED BY ITS VENDORS FOR THE JOBS/SERVICES RENDERED BY ITS V ENDORS TO ITS CLIENS IN PERFORMANCE OF THE MAIN CONTRACTS OF THE ASSESSEE FIRM WITH ITS CL IENS. THE ASSSESSEE FIRM REITERATED ITS SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. T HE ASSESSEE FIRM SUBMITTED THAT THE WORK ARE TO BE CERTIFIED BY CLIENTS ARCHITECTS/ ENGINEERS AS SATISFACTORY AS PER TERMS OF THE CONTRACT BOTH AS TO QUALITY AND QUANTU M OF WORK DONE AND BASED ON SUCH CERTIFICATION /APPROVAL THE INVOICES ARE RAISED BY THE ASSESSEE FIRM ON ITS CLIENTS . THE ASSESSEE FIRM SUBMITTED THAT THE LAST RUNNING BILL RAISED WAS ON 20.03.2008 TO M/S. PRESTIGE ESTATES PROJECTS PVT. LTD. FOR RS.1,49,64, 408/- WHICH WAS BASED ON THE CERTIFICATION OF THE WORK BY CLIENTS ARCHITECT/ENGI NEER WHO CERTIFY THE QUALITY AND QUANTUM OF WORK EXECUTED BY THE ASSESSEE FIRM .. T HE EXPENSES AMOUNTING TO RS.61,02,002/- INCLUDED SALARY AND WAGES AT SITE, HIRE OF THE MACHINERY/ EQUIPMENT , EXCAVATION CHARGES ETC. WHICH WORK IS DONE AT THE C LIENTS SITE AND NO ASSET IS CREATED IN FAVOUR OF THE ASSESSEE FIRM AND REPRESENT THE AM OUNT OF EXPENSES DEBITED FROM 21- 03-2008 TO 31-03-2008 IN THE BOOKS OF ACCOUNTS AND EVEN PERTAIN TO PERIOD PRIOR TO RAISING OF INVOICE I.E 20-3-2008 AMOUNTING TO RS.42 ,25,655/- AND ONLY BALANCE AMOUNT OF RS.18,76,347 PERTAINED TO EXPENSES INCURR ED FROM 21-03-2008 TO 31-03- 2008 . THE ASSESSEE FIRM ALSO SUBMITTED THAT AS P ER THE CONTRACTS , IT IS THE LABOUR WORK IN THE GOLF FIELD AND THE WORK IS TO BE APPROV ED AND CERTIFIED BY THE CLIENT ARCHITECT / ENGINEERS AND IN CASE THEY DID NOT APPR OVE THE WORK AS BEING NOT SATISFACTORY BOTH AS TO QUALITY AND QUANTUM OF THE WORK , IT IS TO BE DONE AGAIN BY THE ASSESSEE FIRM AT ITS OWN COST AND HENCE IN THIS PE CULIAR SITUATION NO AMOUNT CAN BE 10 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 TREATED AS WIP TILL THE WORK IS CERTIFIED BY THE CL IENTS ARCHITECT/ ENGINEER MORE SO THERE IS NO ASSET CREATED IN FAVOR OF THE ASSESSEE FIRM I N THESE MAJORLY LABOUR CONTRACT . THE ASSESSEE FIRM SUBMITTED THAT THE ASSESSEE FIRM HAS BILLED ITS CLOSING STOCK FOR THESE EXPENSES OF RS.61,02,002/- FOR THE PERIOD 21.03.200 8 TO 31.03.2008 IN THE NEXT FINANCIAL YEAR AND NO LOSS HAS BEEN CAUSED TO THE R EVENUE AS DUE TAXES HAVE BEEN PAID ALBEIT IN THE NEXT YEAR. THE ASSESSEE FIRM ALSO SUB MITTED THAT EVEN IF FOR THE SAKE OF ARGUMENT IT IS TO BE TREATED AS CLOSING WORK IN PR OGRESS AS ON 31.03.2008 , THEN THE SAME WILL BECOME OPENING WIP IN THE NEXT FINANCIAL YEAR AND IS TO BE ALLOWED AS EXPENSES IN THE NEXT FINANCIAL YEAR IN CASE THE SUM IS TREATED AS INCOME OF THIS FINANCIAL YEAR AND HENCE THE TAX EFFECT WILL BE RE VENUE NEUTRAL WHILE NO LOSS IS CAUSED TO REVENUE BY THE ASSESSEE FIRM BY ADOPTING THIS M ETHOD OF ACCOUNTING . THE ASSESSEE FIRM ALSO SUBMITTED THAT THE ASSESSEE FIRM IS FOLLO WING THIS METHOD FOR SEVERAL YEARS AND THE REVENUE HAS CONSISTENTLY ALLOWED THE SAME M ETHOD IN THE EARLIER YEARS AND BASED UPON THE PRINCIPLE OF CONSISTENCY, THIS METHO D SHOULD BE ALLOWED IN THIS YEAR ALSO THE ASSESSEE FIRM RELIED UPON THE DECISIONS IN CIT V. BILAHARI INVESTMENT PVT. LTD. (2008) 299 ITR 1(SC) , CIT V. WOODWARD GOVERNOR IN DIA PRIVATE LIMITED (2009)312 ITR 254(SC) AND CIT V. REALEST BUILDERS & SERVICES LIMITED (2008) 307 ITR 202(SC) . THE ASSESSEE FIRM SUBMITTED THAT IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE FIRM CASE WAS PROCESSED UNDER SC RUTINY U/S 143(3) OF THE ACT AND THE REVENUE HAS ACCEPTED THE METHOD OF ACCOUNTING F OLLOWED BY THE ASSESSEE FIRM. THE ASSESSEE FIRM SUBMITTED THAT THE LD. CIT(A) ERR ED IN ESTIMATING INCOME @25% OF CLOSING WIP OF RS.61,02,002/- 7. ON THE OTHER HAND THE LD. DR SUBMITTED THAT NO W IP IS DISCLOSED BY ASSESSEE FIRM AS AT 31.03.2008 BEING UN-BILLED REVENUE . THE LD. DR RELIED UPON THE ORDERS OF THE AO AND SUBMITTED THAT THE ENTIRE AMOUNT OF EXPENSES OF RS.61,02,002/- INCURRED BY THE ASSESSEE FIRM FROM 20.3.2008 TO 31.03.2008 SHO ULD BE TREATED AS CLOSING WIP TO THE CREDIT OF PROFIT AND LOSS ACCOUNT FOR THE ASSES SMENT YEAR AND BROUGHT TO TAX AS 11 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 THESE REPRESENT UN-BILLED REVENUE AND BASED ON MATC HING PRINCIPLES OF METHOD OF ACCOUNTING, THE SAME SHOULD BE BROUGHT TO TAX BY CR EDITING AS CLOSING WIP TO THE CREDIT OF PROFIT AND LOSS ACCOUNT. THE LD DR SUBMIT TED THAT THE CIT(A) ERRED IN ESTIMATING INCOME @25% OF THE CLOSING WIP. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF GOLF FIELD IN INDIA FOR PREPARING AND RENOVATING GROUND AND OTHER FACILITIES FOR GOLF COURSE, INCLUDING SUPPLY OF INCIDENTAL SAND AND GRASS FOR T HE GROUND ON CONTRACT BASIS WHEREBY MAJOR EXPENDITURE IS INCURRED ON SALARIES A ND WAGES AT SITE , FUEL AND LUBRICANT EXPENSES, EXCAVATION , DRILLING , FILING , REPAIRS AND MACHINERY HIRE CHARGES AS PER DETAILS SUBMITTED BEFORE AUTHORITIES BELOW A ND NOT DISPUTED BY THE AUTHORITIES BELOW . THE ASSESSEE FIRM HAS PLACED ON RECORD THE CONTRACTS WITH PRESTIGE ESTATE PROJECT LIMITED AND KARNATAKA GOLF ASSOCIATION WHIC H ARE PLACED AT PAPER BOOK PAGE 12 TO 34 AND PERUSAL OF THE SAID CONTRACTS WILL REV EAL THAT THESE ARE MAJORLY OF LABOUR, EXCAVATION AND HIRE JOBS WHEREBY THE WORK IS TO BE UNDERTAKEN ON THE CLIENTS GOLF FIELDS WHICH IS A CLIENTS SITE . THE ASSESSEE FI RM WORK HAS TO BE APPROVED BY THE ARCHITECT/ENGINEERS OF THE CLIENT TO THEIR SATISFAC TION AS TO QUALITY AND QUANTUM OF WORK AND THE ASSESSEE FIRM RAISES THE INVOICES THEREAFTE R ONCE THE WORK IS CERTIFIED , AS PER METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE A SSESSEE FIRM. THE ASSESSEE FIRM IS FOLLOWING THIS METHOD OF ACCOUNTING CONTINUOUSLY AN D CONSISTENTLY WHICH HAS BEEN ACCEPTED BY THE REVENUE IN THE PAST WHICH IS ALSO A N UNDISPUTED FACT AS THE ASSESSMENT OF THE ASSESSEE FIRM FOR THE PRECEDING ASSESSMENT Y EAR HAS BEEN FRAMED U/S 143(3) OF THE ACT WHEREBY THE SAID METHOD OF ACCOUNTING FOLLO WED BY THE ASSESSEE FIRM IS ACCEPTED BY THE REVENUE. WE HAVE ALSO OBSERVED THAT THESE EXPENSES ARE INCURRED AT CLIENT SITE AND IN THIS PROCESS NO ASSET IS CREATED IN FAVOUR OF THE ASSESSEE FIRM AS THESE ARE MAJORLY LABOUR CONTRACTS AND TILL THE WORK IS CERTIFIED TO THE SATISFACTION OF THE CLIENTS ARCHITECT/ ENGINEER AS TO QUALITY AND QUANT ITY, THE ASSESSEE FIRM CANNOT RAISE THE 12 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 INVOICE AND IF THE WORK DONE BY THE ASSESSEE FIRM I S NOT TO THE SATISFACTION OF THE CLIENTS ARCHITENT/ ENGINEER, THE ASSESSEE FIRM HAS TO RE-DO THE WORK AGAIN AT ITS COST AND IN THE PROCESS, THERE WILL BE LOSS TO THE ASSESSEE FIRM. THUS, THE CONTENTION OF THE ASSESSEE FIRM IS CORRECT THAT NO RIGHT TO RECEIVE T HE INCOME IS VESTED TILL THE WORK IS CERTIFIED TO BE SATISFACTORY BY THE ARCHITECT/ ENGI NEER OF THE CLIENT AS THE ASSESSEE FIRM MAY HAVE TO RE-DO THE WORK IF IT IS NOT TO THE SATI SFACTION OF THE CLIENT AT ITS COST LEADING TO LOSS TO THE ASSESSEE FIRM OF THE PREVIOU S DEFECTIVE WORK AND HENCE NO INCOME WILL GET ACCRUED IN FAVOUR OF THE ASSESSEE F IRM TILL THE WORK IS CERTIFIED AS SATISFACTORY BY THE CLIENTS ARCHITECT/ ENGINEER A ND SINCE NO ASSET IS CREATED IN FAVOUR OF THE ASSESSEE FIRM WHILE DOING WORK AS BEING MAJO RLY LABOUR CONTRACTS , SO NO CLOSING WIP AS AT YEAR END IS DETERMINED BY THE ASS ESSEE FIRM FOR ACCOUNTING IN ITS BOOKS OF ACCOUNTS . THUS, IN OUR CONSIDERED VIEW B ASED ON THE DISCUSSION ABOVE AND PECULIAR FACTS OF THE CASE IN HAND, THE ASSESSEE FI RM IS CONSISTENTLY FOLLOWING THIS METHOD OF ACCOUNTING WHEREBY THE INVOICES ARE RAISE D AFTER OBTAINING THE CERTIFICATE FROM CLIENTS ARCHITECT/ ENGINEER CERTIFYING THAT T HE WORK PERFORMED IS SATISFACTORY AND THE EXPENSES THEREAFTER ARE NOT INCLUDED IN THE CLO SING WIP AS AT YEAR END AS THERE IS NO CERTAINTY THAT THE WORK PERFORMED AFTER RAISING INVOICE WILL BE CERTIFIED SATISFACTORY BY THE ARCHITECT/ ENGINEERS OF THE CLIENT AND IN CA SE IT IS CERTIFIED AS NOT SATISFACTORY AS TO QUALITY AND QUANTUM OF WORK , THE ASSESSEE FIRM WILL BE REQUIRED TO RE-DO THE WORK AT ITS COST WHICH MEANS LOSS ON ACCOUNT OF EARLIER DEFECTIVE CONTRACT AND MAJORLY THESE CONTRACTS ARE LABOUR CONTRACT FOR WORK TO BE PERFOR MED AT CLIENT SITE , NO ASSET IS CREATED IN FAVOUR OF THE ASSESSEE FIRM SO THAT THE SAME CAN BE DISPOSED OF IN VIEW OF REJECTION BY THE CLIENTS ARCHITECT/ENGINEERS AND TH E LOSS COULD BE RECOVERED AND ALSO SINCE THE ASSESSEE FIRM IS FOLLOWING THIS METHOD CO NSISTENTLY EVEN PREVIOUSLY WHICH IS ACCEPTED BY THE REVENUE EVEN IN THE SCRUTINY ASSES SMENT U/S 143(3) OF THE ACT AND ALSO THE TAX EFFECT IS REVENUE NEUTRAL AS THE REVEN UE IN ANY CASE WILL GET DUE TAXES ALBEIT IN SUCCEEDING ASSESSMENT YEAR AS THE ASSESSE E FIRM HAS RAISED THE INVOICE OF INCOME IN THE SUCCEEDING ASSESSMENT YEAR EVEN IF TH E CONTENTION OF THE REVENUE IS 13 ITA NO5855 /MUM/2012 & ITA NO 6019/MUM/2012 ACCEPTED, KEEPING IN VIEW PECULIAR FACTS OF THE CA SE AND FOLLOWING THE PRINCIPLES OF CONSISTENCY WE ALLOW THE CONTENTIONS OF THE ASSESS EE FIRM AND DELETE THE ADDITIONS MADE BY AO ON ACCOUNT OF CLOSING WIP OF RS.61,02,00 2/- AND ALSO SET ASIDE THE ADDITIONS SUSTAINED BY THE CIT(A) OF INCOME TO BE C OMPUTED @25% OF THE CLOSING WIP OF RS.61,02,002/-. 9.IN THE RESULT, THE ASSESSEES FIRM APPEAL IS ALLO WED AND THE REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 2 0 TH , 2015 SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 20.11.2015 PS:- POOJA K COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI