Shri Satish Dagdu Darekar, Pune V. Dy. CIT, Circle-9, Pune

ITA 650/PUN/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0957 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Capital asset; Additional evidence; Revenue expenditure
• Section: 133A

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.650 /PN/2013 % % / ASSESSMENT YEARS : 2007-08 SHRI SATISH DAGDU DAREKAR, S.NO.51, LAXMITARA NAGAR, HOTEL SATISH EXECUTIVE, HINJEWADI ROAD, PUNE 411 033 PAN NO.AARPD2744F . / APPELLANT V/S DCIT, CIRCLE-9, PUNE . / RESPONDENT . / ITA NO.651 /PN/2013 % % / ASSESSMENT YEARS : 2008-09 SHRI SATISH DAGDU DAREKAR, S.NO.51, LAXMITARA NAGAR, HOTEL SATISH EXECUTIVE, HINJEWADI ROAD, PUNE 411 033 PAN NO.AARPD2744F . / APPELLANT V/S ACIT, CIRCLE-9, PUNE . / RESPONDENT / APPELLANT BY : SHRI KISHOR PHADKE / RESPONDENT BY : SHRI SUHAS KULKARNI, JCIT / DATE OF HEARING :26.07.2016 / DATE OF PRONOUNCEMENT:16.09.2016 2 ITA NOS.650 AND 651/PN/2013 / ORDER PER R.K. PANDA, AM : THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 21-12-2012 AND 26- 12-2012 OF THE CIT(A)-V, PUNE RELATING TO ASSESSMENT YEARS 2007-08 AND 2008-09 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE BOT H THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF B Y THIS COMMON ORDER. ITA NO.650/PN/2013 (A.Y. 2007-08) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A N INDIVIDUAL AND IS E NGAGED IN CO NSTRU C TI O N A CTIVITY THROUGH PROPR I ETARY CONCERN NAMED A S M/S . S . D . DA RE KA R . HE FILED HIS RETURN OF INCOME ON 29-09-2007 DECLARING TOTAL INCOME OF RS.18,30,560/-. A SURVEY ACTION U/S. 133A OF INCOME-TAX ACT WAS CONDUCTED IN CASE OF THE ASSESSEE ON 17-03-2009 . DURING THE COURSE OF SURVEY ACTION, INCR I MINATI N G DOCUMENTS IND I C AT I N G O N M ONEY RECEIPTS WERE FOUND . THE ASSESSEE O F F E R E D ADD I TIONAL INCO M E O F RS.9 8 , 28 , 403/- FOR A . Y . 2009-10. MEANWHILE, A SSESSMENT PROC E ED INGS F OR A . Y . 2007-08 WAS IN PROGRESS . THE AO NOTIC E D T HAT THE ASSESSEE HAS SHOWN NET PROFIT OF 4.08% E X CLUDING INTE R EST A ND OTH E R IT E MS ON THE SALES/TURNOVER OF RS.2 , 33 , 65,579 / - W HICH WAS SUB S T AN T IA L LY L OW COMPARED TO NET PROFIT OF 17 . 50 % SHOWN IN A . Y. 2008-09 . THE AO, THEREFORE, CONFRONTED THE ASSESSEE ON THIS ISS UE. IT WAS CONTENDED BEFO R E THE AO THAT THE ASSESSEE H A S O F FERED THE ENTIRE INCOME OVER A PERIOD OF TIME . THE AO T R E AT E D THIS AS 3 ITA NOS.650 AND 651/PN/2013 ADMISSION OF LOWER PRO F IT MARGIN. FURTHER, HE ANALYS ED TH E VA RIOUS SALE DEEDS AS PER PAGE 3 OF T HE ASSESSM E NT ORD E R AND NOT ED TH A T CER T A IN PROPERTIES , PARTICULAR L Y I N C A SE OF DR. DIPIKA PATIL, THE PROFIT M A RG IN WA S QU I TE L ES S. THE AO OBSERVED THAT DURING THE COURSE OF SURVEY RECORDS FOUND INDICATED THAT THE ASSESSEE USED TO TAKE ON-MONEY ON ACCOUNT OF SALE O F FLATS/ROW HOUSES. THE ASSESSEE EVEN ADMITTED THAT INVESTMENT IN A HOTEL IS NOT PROPERLY SHOWN AND TO COVER UP THE DISCREPAN CIES THE ASSESSEE HAD DECLARED ADDITIONAL INCOME OF RS.1.00 CRORE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE THE AO ADO P T E D THE NET PROFIT OF 1 1 . 08 % AND E NHANCED THE PROFIT BY 7 % W HICH W AS C A LCULATED AT RS.16,35, 59 0 /-. A CCORDINGLY, THE AO MADE ADDITION OF RS.16,35,590/ - TO THE TOTAL INCOM E O F T H E ASSESSEE. 3. BEFORE CIT(A) IT WAS SUBMITTED THAT THE SURVEY ACTION CONDUCTED IN CASE OF THE ASSESSEE FOR A.Y. 2009-10 IS TOT ALLY IRRELEVANT FOR ASSESSING THE TOTAL INCOME OF THE ASSESSEE FOR A.Y. 2007-08. IT WAS SUBMITTED THAT NO INCRIMINATING DOCUMENT S INDICATING RECEIPT OF ON-MONEY WERE FOUND DURING THE SURVE Y. NO ADDITION HAS BEEN MADE ON ACCOUNT OF RECEIPT OF ANY ON- MONEY. IT WAS SUBMITTED THAT ADMITTING THE INCOME BY THE ASSESSEE FOR A.Y. 2009-10 COULD BE FOR VARIOUS REASONS INCLUDING BUYING OF PE ACE. IT WAS SUBMITTED THAT SINCE THE ASSESSEE WAS INCURRING LOSSES AND WANTED TO FOCUS MORE ON HIS BUSINESS HE CEDED TO THE D ECLARATION SOUGHT BY THE SURVEYING OFFICER RATHER THAN TO LITIGATE A ND HENCE CONSENTED TO THE DECLARATION. THEREFORE, THERE IS NO REA SON WHATSOEVER TO INFER ANYTHING FROM THESE FACTS AND BRING IT TO THE YEAR ENDED 31-03-2007 TO TAX. IT WAS FURTHER SUBMITTE D THAT IN 4 ITA NOS.650 AND 651/PN/2013 ORDER TO DETERMINE THE ABILITY OF THE BUSINESS TO YIELD PRO FITS WHAT IS SEEN NORMALLY IS THE GROSS MARGIN AND NOT THE NET PR OFIT. THE MARGINS SHALL BE A FUNCTION OF THE LOCATION, AMENITIES PROVIDED AND THE SCALE OF THE SCHEME, THE MARKET IN THAT AREA, T HE COMMERCIAL CONTENT AND WIDE VARIETY OF OTHER VARIANTS. THE AO HAS FAILED TO APPRECIATE THE SIMPLE FACT THAT THE SAME FLAT THAT WAS SOLD FOR AN X AMOUNT DURING THE YEAR ENDED 31-03-200 7 WILL DEFINITELY BE SOLD FOR X+ AMOUNT IN THE SUBSEQUENT YEAR ENDING ON 31-03-2008. THE NET PROFIT FOR THE YEAR ENDED 31-03- 2008 SHALL DEFINITELY BE HIGHER THAN THE NET PROFIT FOR THE YEAR ENDED 31- 03-2007. THE AO HAS GONE BY HIS FANCY UNDERSTANDING AND STATED THAT CONSIDERING THE AVERAGE PROFIT OF THE YEAR UNDER AS SESSMENT AND THE FOLLOWING YEAR, THE ASSESSEE DOES NOT HAVE TO FILE HIS RETURN UPON COMPLETION OF THE FOLLOWING YEAR, FOR THE PREV IOUS YEAR. THE AO SHOULD HAVE POINTED OUT THE INACCURACIES IN THE ACCOUNTS AND SHOULD HAVE BASED HIS REASONING ON SUCH INACCURACIES POINTED OUT RATHER THAN HIS FEELINGS. THE MER E STATEMENT THAT THERE IS A POSSIBILITY OF TAKING ON-MONEY FR OM DR. PATIL IS NOT SUFFICIENT TO MAKE THE HUGE ADDITION. THE AO HA S FAILED TO POINT OUT ANY INACCURACIES OR MISTAKES IN THE ACC OUNTS AND HAS NOT REJECTED THE BOOKS OF ACCOUNT AND HAS DI RECTLY PROCEEDED TO ESTIMATE THE PROFIT AND THAT TOO NET PROFIT . THE ADDITION MADE BASED ONLY ON ESTIMATE WHICH IS NEITHER SUP PORTED BY ANY SUPPORTING CORROBORATIVE EVIDENCE NOR BASED ON ANY FALLACIES OR INACCURACIES POINTED OUT BY THE AO IN THE BOOK S OF ACCOUNT MAINTAINED AND AUDITED IS NEITHER SUSTAINABLE ON FACTS NOR ON LEGAL GROUNDS. IT WAS SUBMITTED THAT ADDITION CAN NOT BE MADE WITHOUT EVEN REJECTING THE RESULTS OF THE BOOKS OF ACCOUNT 5 ITA NOS.650 AND 651/PN/2013 AND ONLY BASED ON THE SURVEY DONE IN 2 YEARS POSTERIO R TO THE PREVIOUS YEAR UNDER ASSESSMENT. NOTHING HAS BEEN BRO UGHT ON RECORD AS CORROBORATIVE EVIDENCE TO SHOW THAT THE ASS ESSEE HAD COLLECTED ON-MONEY. RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE ADDITION MADE BY THE AO SHOULD BE DELETED. 4. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE EXPLANATIONS GIVEN BY THE ASSESSEE AND UPHELD THE ADDITIO N MADE BY THE AO BY OBSERVING AS UNDER : 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, THE CLAIM OF TH E APPELLANT THAT THE ADDITION WAS MADE ON THE BASIS OF FINDINGS OF SURVEY CO NDUCTED ON 17.03.2009 WHICH PERTAINS TO A.Y. 2009-10 IS NOT CORR ECT IN THE SENSE THAT THE ASSESSING OFFICER HAS SIMPLY HIGHLIGHTED THE FIN DINGS OF SURVEY IN THE ASSESSMENT ORDER. THEREAFTER, THE ASSESSING OF FICER HAS PROCEEDED TO EXAMINE THE LOW NET PROFIT RATIO OFFER ED BY THE APPELLANT. ON THE CONTRARY WHEN CONFRONTED BY THE A SSESSING OFFICER REGARDING LOW NET PROFIT RATIO, THE APPELLANT'S COUN SEL SUBMITTED THAT OVER A PERIOD OF TIME ENTIRE INCOME OF THE PROJECT HAS BEEN OFFERED FOR TAXATION. THIS CONTENTION OF THE LEARNED COUNSEL OF THE APPELLANT HAS BEEN TREATED AS ADMISSION OF LOW PROFIT BY THE ASSESSIN G OFFICER. FURTHER, THE APPELLANT HAS CONTENDED THAT ASSESSING OFFI CER SHOULD HAVE COMPARED GROSS PROFIT AND NOT NET PROFIT. IN THI S CONNECTION, IT IS SEEN THAT GROSS PROFIT FOR MARCH 2007 IS 20.51 % COMP ARED TO 29.66 AS PER PARA 5 OF THE REPLY. THEREFORE, THERE I S SHORTFALL IN GROSS PROFIT RATION FOR A.Y. 2007-08. IN ANY CASE THE APPE LLANT HAS NOT BEEN ABLE TO JUSTIFY THE LOW NET PROFIT WITH PLAUSIBLE REA SONS EXCEPT STATING BEFORE THE ASSESSING OFFICER THAT ENTIRE PROFIT HAS BEEN OFFERED FOR TAXATION OVER A PERIOD OF TIME. 8. THE APPELLANT HAS SUBMITTED THAT PRICE OF ROW HOU SE SOLD TO DR.PATIL CANNOT BE AN YARDSTICK FOR DETERMINING THE LOW NET PROFIT AS DONE BY THE ASSESSING OFFICER AS IT WAS AN UNAUTHORISED CO NSTRUCTION. IN THIS REGARD, THE APPELLANT SUBMITTED A COPY OF PLA N OF ROW HOUSE IN THE PROJECT STATING THAT THE SAME WAS NOT SANCTIONED. H OWEVER, WHEN THE LEARNED COUNSEL OF THE APPELLANT WAS QUESTIONED AS TO WHETHER THE PURCHASER WAS MADE AWARE ABOUT THIS FACT, REPLY WA S IN NEGATIVE. THIS BEING SO, IT CANNOT BE SAID THAT PRICE OF ROW HO USE SOLD TO DR. PATIL WAS LOW BECAUSE IT WAS UNAUTHORISED. THEREFORE, I DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE APPELLANT THAT PRI CE OF ROW HOUSE SOLD TO DR. PATIL WAS LOW BECAUSE IT WAS UNAUTHORISED, A ND THEREFORE THE SAME CANNOT BE USED AS YARDSTICK AS DONE BY THE ASSESS ING OFFICER. 6 ITA NOS.650 AND 651/PN/2013 9. NEXT CONTENTION OF THE APPELLANT RESTS ON THE POI NT THAT THE ASSESSING OFFICER HAS ESTIMATED THE PROFIT AT HIGHER SIDE WITHOUT FINDING ANY DEFECT IN THE BOOKS OF ACCOUNT AND REJEC TING THE BOOKS OF ACCOUNT. 10. IN THIS REGARD, IT IS NOTICED THAT THE ASSESSING OF FICER HAS HIGHLIGHTED THE LOW GROSS PROFIT RATIO AS WELL AS DISCR EPANCY IN THE SALE DEEDS AS FAR AS RATE OF AGREEMENT IS CONCERNED. FUR THER, IT IS NOTICED THAT CLOSING STOCK VALUATION HAS NOT BEEN DONE ON ANY SCIENTIFIC BASIS. THE AUDITORS HAVE ADOPTED THE VALUE OF CLOSING STOCK AS PER CERTIFICATE OF THE PROPRIETOR WHICH IS REPRODU CED AS UNDER: CERTIFICATE OF VALUE OF STOCK I, SATISH D. DEREKER, PROPRIETOR S.D. DAREKAR DEVELO PERS & BUILDERS AND M/S. SATISH BRICKS & POTTERIES DO HEREBY CERTIFY TH AT, WE HAVE PHYSICALLY VERIFIED STOCK IN HAND DURING THE F. Y. 20 06-07AT DIFFERENT INTERVALS. THE VALUE OF STOCK AS ON 31/03/2007 WORK IN PROGRESS, FINISHED GOODS, ETC. IN CASE OF S.D. DAREKAR, DEVELOPERS & BUILDERS AMOUNTS TO RS.1,97,18,500/- (ONE CRORE NINETY SEVEN EIGHTEEN THO USAND FIVE HUNDRED ONLY) AND IN CASE OF M/S. SATISH BRICKS & POTTE RIES AMOUNTS TO RS.9,00,000/- (NINE LAKH ONLY). THE ABOVE STATEMENTS ARE TRUE & CORRECT. 11. ACCORDINGLY, LEARNED COUNSEL OF THE APPELLANT W AS ASKED TO FILE THE BREAKUP OF THE CLOSING STOCK VALUATION. THE APPEL LANT SUBMITTED THE SAME VIDE LETTER DATED 18.10.2012 WHICH IS AS UNDE R: . 12. WHEN THE LEARNED COUNSEL OF THE APPELLANT WAS ASKE D TO PROVID E T HE BREAKUP OF THIS COSTING WITH RATE APPLIED , IT COULD NOT : BE SU B M ITTE D. T H IS SHOWS THAT CLOSING STOCK TOO HAS BEEN SHOWN AT ESTIMATED BASIS WI T HOU T SUPPORT I NG EVIDENCE. IT IS ALSO TRUE THAT THE ASSESSING OFF I C E R H AS NOT R EJECTED THE BOOKS OF ACCOUNT AND HAS PROCEEDED TO EST I MAT E THE PROFIT AT HIGHER SIDE. IDEALLY THE ASSESSING OFFICER SHOULD HAVE R E JECT E D THE BOOKS OF ACCOUNTS BEFORE PROJECT NAME AMOUNT (RS.) SHRIRANG VIHAR-FLATS 500,000.00 SHRIRANG VIHAR-SHOPS 1,011,000.00 SATISH COMMERCIAL 5,267,000.00 ABHIJEET APARTMENTS 2,250,000.00 SHWETA PARK 9,510,500.00 VACANT PLOTS 1,180,000.00 19,718,500,00 7 ITA NOS.650 AND 651/PN/2013 ESTIMATING THE PROFIT BUT NOT DOIN G SO, W ILL NOT BE FATAL SO LONG AS ESTIMATION IS JUSTIFIED. IN THE CASE OF PRAGATI E N G INEERING CORPORATION VS . ITO RAIBARELI, HON'BLE LUCKNOW BENCH 'B ' THIR D ME MBER I N IT APPEAL NO . 304(LKW) OF 2011 DATED 14.05.2012 IT HAS BE E N HEL D THAT LIMITED VIEW IN RESPECT OF SPECIFIC ITEMS CAN BE TAKEN WITHOUT R EJ E CT I NG BOOKS OF ACCOUNTS. THEREFORE, IN MY VIEW ADDITION OF NET PRO F I T ON T HE B ASIS OF ABOVE FACTS WITHOUT REJECTING THE BOOKS CAN BE ' DONE BY THE AS S ES SING OFFICER. T HE AP PELLANT HAS RELIED UPON MANY CASE LAWS. BUT ALL OF THE M RELAT E T O RE J E CTION OF BOOKS OF ACCOUNTS . T HEREFO R E, FACTS BEING DISTINGUISHABLE THE SAME CANNOT BE APPLIED. ACCORDING LY, ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS.16,35,590 /- IS UPHELD AND GROUND NO.2 TO 5 ARE DISMISSED. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE LEARNED CIT (APPEALS)-V, PUNE ERRED IN LAW A ND ON FACTS IN SUSTAINING ADDITION OF RS. 16,35,590/- MADE BY THE DCI T, CIRCLE 9, PUNE TO THE INCOME AS PER RETURN FILED U/S. 139(1) OF THE I . T . ACT, 1961 ALLEGING LOWER NET PROFIT I INCOME OFFERED TO TAX . 2. THE LEARNED CIT (APPEALS)-V , PUNE FURTHER ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS . 16 , 35 , 590/- MERELY ON THE BASIS OF ESTIMATES I CONJECTURES AND PURELY BASED ON SUSPICIONS. 3. THE LEARNED CIT (APPEALS)-V, PUNE FAILED TO APPRE CIATE THE WORKING PROVIDED TO SHOW THAT BASED ON THE PERCENTAG E COMPLETION METHOD THE PROFIT OFFERED FOR TAX WAS IN LINE WITH T HE GROSS REVENUE ACCRUED TO THE ASSESSEE FOR THE SAID YEAR AND THE REASONI NG FOR LOWER MARGINS IN THE RELEVANT YEAR. BASED ONLY ON THE SURMISE S DRAWN BY THE AO, WHICH WERE NOT SUPPORTED BY ANY EVIDENCE, CO NFIRMED THE ADDITION PURELY BASED ON LOWER NET PROFIT . THE COMPARABLE MARGINS CONSIDERED FOR THE PURPOSE WAS THE NET PROFIT OF THE E NSUING YEAR I . E. A . Y. 2008-2009 WHICH HAD A DIFFERENT PROJECT UNDERTAK EN AND OBVIOUSLY WOULD HAVE DIFFERENT PROJECT COST AND REVEN UE MATRIX. 4. THE APPELLANT CRAVES TO ADD/ MODIFY/ ALTER/ DELET E ALL/ ANY OF THE GROUNDS OF APPEAL . 6. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSED THE ORDER OF THE CIT(A) UPHOLDING THE ADDITION MADE BY THE AO. HE SUBMITTED THAT DURING THE COURSE OF SURVEY ON 17-03- 2009 THE ASSESSEE HAD SURRENDERED ADDITIONAL INCOME OF RS.98,28,403/ - FOR A.Y. 2009-10 ON ACCOUNT OF DISCREPANCIES ON ACCOUNT OF INVESTMENT IN THE HOTEL PROPERTY. HOWEVER, FOR THE IMPUG NED 8 ITA NOS.650 AND 651/PN/2013 ASSESSMENT YEAR NO EVIDENCE WHATSOEVER WAS FOUND ON A CCOUNT OF RECEIPT OF ON-MONEY DURING THE COURSE OF SURVEY. THEREFO RE, THERE WAS NO JUSTIFICATION ON THE PART OF THE AO TO MAKE SUCH HUGE ADDITION. FURTHER, THE AO HAD NOT REJECTED THE BOOKS O F ACCOUNT AND ACCEPTED THE BOOK RESULTS. THEREFORE, IN ABSENCE OF REJECTION OF BOOKS OF ACCOUNT AND IN ABSENCE OF ANY INCRIMINATING EVID ENCE SHOWING COLLECTION OF ON-MONEY FOUND DURING THE COURSE OF S URVEY THE AO COULD NOT HAVE MADE HUGE ADDITION BY ESTIMATING T HE PROFIT. FURTHER, THE ROW HOUSE SOLD TO DR. DIPIKA PATIL AT LOWER RATE WAS DUE TO VARIOUS REASONS SUCH AS LOCATIONAL DISA DVANTAGE, AMENITIES GIVEN, PAYMENT TERMS, CAPACITY OF NEGOTIATION ETC. THEREFORE, REDUCTION IN THE SALE RATE TO DR. DIPIKA PATIL CO ULD NOT HAVE BEEN A GROUND FOR ESTIMATING THE PROFIT ESPECIALLY IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SURVEY. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE LD.CIT(A) HAS GIVEN JUSTIFIABLE REASONS FOR UPHOLDING THE ACT ION OF THE AO IN REJECTING THE BOOK RESULTS AND ESTIMATING THE PROFIT. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UP HELD AND THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTANT CASE IS A DEVELOPER AND BUILDER. HE FILED HIS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF RS.18,30,536/-. A SURVEY WAS CONDUCTED IN THE CASE OF T HE 9 ITA NOS.650 AND 651/PN/2013 ASSESSEE ON 17-03-2009, I.E. A.Y. 2009-10 DURING WHICH CERT AIN INCRIMINATING MATERIALS WERE FOUND SHOWING RECEIPT OF ON-MONE Y FOR WHICH THE ASSESSEE HAD SURRENDERED ADDITIONAL INCOME OF RS.98,28,403/-. THE AO THEREFORE CONCLUDED THAT THE ASS ESSEE WAS INDULGING IN RECEIPT OF ON-MONEY. HE FURTHER NOTED THA T A ROW HOUSE HAS BEEN SOLD TO ONE DR. DIPIKA PATIL AT THE A VERAGE RATE OF RS.657/- PER SQ.FT. WHEREAS OTHER ROW-HOUSE WERE SOLD TO DIFFERENT PERSONS AT HIGHER PRICE. SINCE THE ASSESSEE WAS UNABLE TO EXPLAIN THE REASONS FOR RATE VARIATION TO THE SATISFACT ION OF THE AO AND SINCE ACCORDING TO THE AO THE NET PROFIT MARGIN R ATE OF 4.08% SHOWN BY THE ASSESSEE ON ACCOUNT OF CONSTRUCTION ACTIVITY IS VERY LOW AS COMPARED TO SUBSEQUENT YEARS, THE AO RE JECTED THE BOOK RESULTS AND ESTIMATED THE NET PROFIT AT 11.08% OF TH E TURNOVER. 9. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE TH AT IN ABSENCE OF ANY EVIDENCE FOUND SHOWING RECEIPT OF ON-MONEY FOR THIS YEAR THE AO CANNOT MAKE ADDITION TO THE TOTAL INCOM E OF THE ASSESSEE ON THE BASIS OF THE OUTCOME OF SURVEY FOR A SU BSEQUENT YEAR. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAD GIVEN JUSTIFIABLE REASONS FOR SELLING THE ROW HOUSE TO DR. DIPIKA PATIL AT A PRICE LOWER THAN THE RATE C HARGED FROM OTHER PERSONS SINCE THE ROW HOUSE SOLD TO DR. DIPIK A PATIL WAS NOT AUTHORIZED. APART FROM THIS, IT WAS ALSO SUBMITTED THAT THE RATE VARIATION WAS ALSO ON ACCOUNT OF VARIOUS FACTORS SUCH AS LOCATIONAL DISADVANTAGE, AMENITIES GIVEN, PAYMENT TERMS AND CAPACITY TO NEGOTIATE ETC. 10 ITA NOS.650 AND 651/PN/2013 10. WE FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSE L FOR THE ASSESSEE. IT IS AN ADMITTED FACT THAT THE ASSES SEE BEFORE THE CIT(A) HAD MADE A CATEGORICAL STATEMENT THAT THE RO W HOUSE SOLD TO DR. DIPIKA PATIL WAS NOT SANCTIONED. HOWEVER, HE RE JECTED THE ABOVE SUBMISSION ON THE GROUND THAT ASSESSEE COULD NOT SAY AS TO WHETHER DR. DIPIKA PATIL WAS MADE AWARE OF THIS FACT OR NOT. FURTHER, IT IS ALSO AN ADMITTED FACT THAT DURING THE COURS E OF SURVEY NO INCRIMINATING MATERIAL SHOWING RECEIPT OF ON-MONE Y FOR THIS ASSESSMENT YEAR WAS FOUND. AS MENTIONED EARLIER, SUR VEY TOOK PLACE ON 17-03-2009 WHICH RELATES TO A.Y. 2009-10 A ND EVIDENCES SHOWING RECEIPT OF ON-MONEY FOR THAT YEAR WAS FOUND. HOWEVER, THE ASSESSEE HAD DECLARED UNDISCLOSED INCOME FOR THE SAID ASSESSMENT YEAR ON ACCOUNT OF DISCREPANCY IN INVEST MENT IN THE HOTEL PROPERTY AND NOT ON ACCOUNT OF RECEIPT OF ON- MONEY. SINCE FOR THE IMPUGNED ASSESSMENT YEAR NO EVIDENCE WHAT SOEVER WAS FOUND SHOWING RECEIPT OF ON-MONEY AND THE ASSESSEE HAS GIVEN JUSTIFIABLE REASONS FOR SELLING THE ROW HOUSE TO DR.DIPIK A PATIL AT A LESSER RATE THAN THE ROW HOUSES SOLD TO OTHE R PERSONS AND CONSIDERING THE FACT THAT AO HAS NOT REJECTED THE BOOKS OF ACCOUNT, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT ESTIMATING THE PROFIT AT 11.08% IS NOT JUSTIFIED. WE ACCORDIN GLY SET ASIDE THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. ITA NO.651/PN/2013 (A.Y. 2008-09) : 11. GROUNDS OF APPEAL NO.1 TO 3 BY THE ASSESSEE READ AS UNDER : 1. THE LEARNED CIT (APPEALS)-V , PUNE ERRED I N LAW AND ON FACTS I N UPHOLDING THE ACTION OF THE LEARNED AO IN MAKING ADDITION OF RS.41 , 10 , 736/ - TO THE TAXABLE INCOME OF THE APPELLANT . THE LEARNED CIT (APPEALS) - V ALSO ERRED IN UPHOLDING THE AO VIEW OF MANDATING THE ASSESSEE TO FOLLOW AS-7 ISSUED BY ICAI DESPITE THIS ACC OUNTING 11 ITA NOS.650 AND 651/PN/2013 STANDARD NOT LEGALLY MANDATED U/S 145(2) OF THE INCO ME TAX ACT 1961 AND FAILING TO APPRECIATE THAT THE INCOME HAD TO BE COMPUTED BASED ON THE PROVISIONS OF THE INCOME TAX ACT 1961 . 2. THE LEARNED CIT (APPEALS)-V ERRED IN LAW AND ON F ACTS IN NOT APPRECIATING THE FACTS AND CIRCUMSTANCE PROVIDED AND EXPLAINED WITH RESPECT TO THE PROJECT ' PATIL PLAZA ' AND ALSO THE FACT THAT THE ASSESSEE HAD CONSISTENTLY FOLLOWED THE ACCOUNTING METHOD OF OFFERING THE AMOUNT OF PROFITS ON THIS PROJECT ON COM PLETION BAS I S AND UPON COMPLETION THE PROFIT WAS DULY OFFERED FOR TAX IN A . Y. 2010-2011 . 3. THE LEARNED CIT (APPEALS)-V FAILED TO APPRECIATE THE FACT THAT WHEN AT THE COMPLETION OF THE PROJECT , WHICH WAS TERMINATION OF THE CONTRACT , THE PROFITS ON THE ENT I RE PROJECT AMOUNTED TO RS . 49 . 32 LAKHS AND OFFERED FOR TAX IN A . Y . 2010-2011 WHEREAS THE AO BROUGHT TO TAX RS . 41 , 10 , 736/- MANDATING AS-7 AND ONLY ON 50% OF THE PROJECT COMPLETION STAGE. THE LEARNED CIT (A) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT WHEN ESTIMATING AND TAXIN G THE AMOUNT OF PROFITS ANTERIOR TO THEIR ACCRUAL , THE ASSESSEE COULD NOT OFFER 'NEGATIVE' PROFITS IN THE LATER YEARS WHEN IT IS FINAL LY REALIZED THAT THE ACTUAL PROFITS EARNED WERE LOWER THAN THE PROFITS TAX ED IN EARLIER YEARS . 12. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE FILED ORIGINAL RETURN OF INCOME ON 29-09-2008 DECLARING TOTAL INCO ME OF RS.35,01,390/-. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RE TURN OF INCOME ON 31-03-2010 DECLARING TOTAL INCOME OF RS.51,85,540/-. 13. DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO N OTED THAT THE ASSESSEE ALONG WITH SHRI. SIDDHARTH KANTILAL KHINWASARA, SIGNED A MOU SHRI. NARSING GOPALRAO PATIL FOR CONSTRUCTION OF TWO BUILDINGS COMPRISING OF 36 FLATS AND 9 SHOPS ON 19-04-2007 FOR A FIXED PRICE OF RS. 2.10 CRORES AND THE TIME FRAME FOR COMPLE TION OF THE CONSTRUCTION WAS STIPULATED AT 11 MONTHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSE SSEE WAS FOLLOWING COMPLETED CONTRACT METHOD WHILE AS A CONTRACTOR THE ASSESSEE WAS SUPPOSED TO FOLLOW PERCENTAGE COMPLETION ME THOD AS PER REVISED AS-7 APPLICABLE W.E.F. 01-04-2003 AS THE PER IOD OF 12 ITA NOS.650 AND 651/PN/2013 CONSTRUCTION CONTRACT WAS INCREASED BY MORE THAN ONE YEAR AS AGAINST STIPULATED 11 MONTHS STATED IN THE MOU SIGNED ON 19-04- 2007. ACCORDINGLY, THE AO CONFRONTED THE ASSESSEE AND A SKED THE ASSESSEE TO CLARIFY AS TO WHY THE REVENUE ACCRUING AS PER PERCENTAGE COMPLETION METHOD SHOULD NOT BE TREATED AS TAXABLE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 14. THE ASSESSEE IN ITS REPLY SUBMITTED THAT HE HAS A C HOICE TO CHOOSE ANY ONE METHOD FOR RECOGNIZING THE REVENUE ON A CCOUNT OF CONTRACT VIZ., 'PERCENTAGE COMPLETION' OR 'COMPLETED CONT RACT METHOD'. THE ASSESSEE SUBMITTED THAT ACCOUNTING STANDA RD AS-7 WAS NOT MANDATORY AND IN MANY CASES INCOME-TAX DEPAR TMENTAL ITSELF WAS NOT FOLLOWING THE SAME. THE ASSESSEE ALSO SUBMITTE D THAT DUE TO UNCERTAINTIES IN THE PROJECT, IT WAS NOT PRA CTICAL TO OFFER THE INCOME ON PERCENTAGE COMPLETION METHOD. RELIANCE WAS PLACED ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE SHRI B. K. PATE ENTERPRISES VS. DCIT (2009) 125 TTJ (P UNE) 974 AND VARIOUS OTHER DECISIONS. 15. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND HELD THAT AS-7 WAS APPLICABLE IN RESPECT OF 'PATIL PLAZA' PROJECT AS THE ASSESSEE WAS M ERELY A CONTRACTOR. HE ACCORDINGLY ARRIVED AT THE PROFIT OF RS. 41,10,736/- BY COMPUTING THE PROFIT AS UNDER : ACTUAL EXPENSES INCURRED UPTO 31-03-2008 RS.81,65,161/ - ESTIMATED TOTAL CONTRACT EXPENSES RS.1,45,00,000/- CONTRACT VALUE RS.2,18,00,000/- THUS, ESTIMATED PROFIT OF THE CONTRACT =(CONTRACT VAL UE) - (ESTIMATED EXPENSES) = (2,18,00,000) (1,45,00,000) = RS.73,00,000 ACCORDINGLY, PROFIT OF THE ASSESSEE FOR YEAR UNDER CONSI DERATION, OUT OF THE SAID CONSTRUCTION CONTRACT IS WORKED OUT AS UNDE R : 13 ITA NOS.650 AND 651/PN/2013 PROFIT FOR THE YEAR = 81,65,161 X 73,00,000 1,45,00,000 = 41,10,736/- ACCORDINGLY, THE AO MADE ADDITION OF RS.41,10,736/- TO THE TOTAL INCOME OF THE ASSESSEE. 16. BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME SUBMIS SIONS AS MADE BEFORE THE AO. IT WAS ARGUED THAT THE ASSESS EE IS CONSISTENTLY FOLLOWING PROJECT COMPLETION METHOD AND OFFERING THE PROFITS FOR TAX ON THE PROJECT PATIL PLAZA. THE PROJECT WAS FINALLY TERMINATED WITH BITTER TASTE AMONGST THE PARTIES TO THE MOU, ALBEIT WITH CONCLUSION BEING REACHED AT THE YEAR ENDED 31-03-2010. DURING THE PREVIOUS YEAR ENDED 31-03-2010 , THE ASSESSEE HAS DULY OFFERED TO TAX RS.49.32 LAKHS AS PROFIT FOR THE ENTIRE PROJECT, EXECUTED OVER 3 YEARS WHICH WAS LEFT WIT HOUT OBTAINING THE COMPLETION CERTIFICATE DUE TO LEGAL COMPLEXITIES INVOLVED AND HAS ALSO PAID THE INCOME TAX DUE THEREON. IT WAS ARGUED THAT FOR 50% OF THE CONTRACT VALUE THE AO HAS C OMPUTED THE PROFIT TO THE EXTENT OF RS.41.10 LAKHS WHICH IS ABSURD AND SHOWS THAT THE PROFITS AT THAT POINT OF TIME COULD NOT H AVE BEEN VISUALIZED, ESTIMATED AND FAIRLY COMPUTED AND CONSIDERED FOR THE PURPOSE OF RECOGNITION IN THE BOOKS OF ACCOUNT. THE INFOR MATION IN RESPECT OF THE EXPECTED COSTS ETC. WERE NOT EVEN AV AILABLE WITH THE ASSESSEE AT THE TIME OF THE FINALIZATION OF ACCOUNTS AND FILING OF THE RETURN FOR THE YEAR ENDED 31-03-2008. RELYING ON VARIOUS DECISIONS IT WAS ARGUED THAT SINCE THE INCOME EARNED ON THIS PROJECT HAS ALREADY BEEN OFFERED TO TAX IN A.Y. 2010-11, THEREFORE, THERE IS NO JUSTIFICATION IN MAKING THE ADDITION OF RS.41,10,736 /- TO THE TOTAL INCOME OF THE ASSESSEE IN A.Y. 2008-09. 14 ITA NOS.650 AND 651/PN/2013 17. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE ABOVE ARGUMENTS OF THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, IT IS UNDISPUTED FACT THAT THE APPELLANT IS A CONTRACTOR IN RESPECT OF 'PATIL PLAZA' PROJECT, WHICH WAS SIGNED ON 19.04.2007 FOR A FIXED PRICE OF RS. 2.10 CR ORES FOR THE TIME FRAME OF 11 MONTHS. HAD THE TIME FRAME OF THE 11 MON THS BEEN FOLLOWED, THE INCOME WAS REQUIRED TO BE OFFERED FOR TAXATION IN A.Y. 2008-09 ITSELF. HOWEVER, SINCE THE TIME FRAME OF 11 M ONTHS COULD NOT BE FOLLOWED THE BEST METHOD APPLICABLE IN THIS CASE IS AS-7 AS STIPULATED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF IN DIA WHICH WAS APPLICABLE FROM 01.04.2003. ACCOUNTING STANDARDS ARE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FROM TIME TO TIME. AS-7 WAS REVISED BY ICAI IN ITS JUNE 2002 PUBLICATION OF JO URNAL. REVISED AS-7 WAS MADE EFFECTIVE FOR ALL CONTRACTS ENTERED I NTO DURING ACCOUNTING PERIODS 0L.04.2003. WHILE THE PREVIOUS AS- 7 RECOGNIZED 2 METHODS FOR ACCOUNTING OF CONTRACTS I.E. THE PERCENTA GE COMPLETION METHOD AND COMPLETED CONTRACT METHOD, REVISED AS-7 R ECOGNIZES ONLY THE PERCENTAGE COMPLETION METHOD. IT IS TRUE T HAT AS-7 IS NOT MANDATORY IN THE SENSE THAT IT IS NOT BINDING UPON THE INCOME-TAX DEPARTMENT AS IT IS NOT NOTIFIED BY THE GOVERNMENT O F INDIA. HOWEVER, SINCE THE ACCOUNTING STANDARDS ARE ISSUED BY TH E INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE SAME NEEDS TO B E FOLLOWED SO LONG AS IT IS NOT IN CONFLICT WITH THE PROVISIONS OF IN COME-TAX ACT. IT IS SEEN THAT INCOME-TAX ACT DOES NOT CONTAIN ANY PROVISIO N DEALING WITH CONTRACT ACCOUNTING. THEREFORE, THERE IS NO QUESTION OF AS-7 BEING IN CONFLICT WITH THE PROVISIONS OF INCOME-TAX ACT. SINCE , THERE IS NO CONFLICT IN AS-7 VIS-A-VIS PROVISIONS OF INCOME-TAX AC T, THE AS-7 WHICH DEALS WITH CONTRACT ACCOUNTING NEEDS TO BE FOLLOWED. THE APPELLANT HAS RELIED UPON VARIOUS DECISIONS IN HIS REPLY. HOWEVER , IT IS SEEN THAT THE ABOVE DECISIONS ARE IN THE CASE OF BUILDERS AND DEV ELOPERS WHILE IN THE PRESENT CASE, THE APPELLANT IS A CONTRACTOR AND THEREFORE THE ABOVE DECISIONS ARE DISTINGUISHABLE ON THE FACTS OF THE CASE. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ACTION OF THE AO IN ADDING RS. 41,10,736/- ADOPTING AS-7, IS U PHELD AND GROUND NO.1 TO 6 ARE DISMISSED. 18. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 19. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT DURING THE PREVIOU S YEAR ENDED 31-03-2008 THE ASSESSEE ALONG WITH MR. SIDDHARTH KANTILAL 15 ITA NOS.650 AND 651/PN/2013 KHINWASARA HAD SIGNED MEMORANDUM OF UNDERSTANDING WITH ANOTHER INDIVIDUAL SHRI NARSING GOPALRAO PATIL AND TWO OTHER S FOR CONSTRUCTION OF 2 BUILDINGS COMPRISING OF 36 FLATS AND 9 SHOP S. THE MEMORANDUM WAS SIGNED ON 19-04-2007. THE PRICE FIX ED FOR THE ABOVE WAS FIXED PRICE OF RS.2.10 CRORES WITH NO ESCALA TION CLAUSE OR SAVINGS CLAUSE ETC AND THE TIME FRAME FOR COMPLE TION OF THE ASSESSMENT WAS STIPULATED AT 11 MONTHS. TILL END OF 3 1-03- 2008, I.E. 11 MONTHS AFTER SIGNING OF THE MOU THE QUANTUM OF CONSTRUCTION COMPLETED WAS APPROXIMATELY 50%. THE ASS ESSEE HAD INCURRED AND FUNDED ALL THE EXPENDITURE THAT WAS RE QUIRED FOR THE PURPOSE OF THE PROJECT PATIL PLAZA. SINCE THERE WA S LOT OF COMPLEXITIES AND MISUNDERSTANDING INVOLVED AMONGST THE PAR TIES TO THE MOU THE PROJECT COULD NOT BE COMPLETED IN TIME A ND THE PROJECT WAS COMPLETED FINALLY DURING THE YEAR ENDED 31-0 3-2010. THE ASSESSEE HAD OFFERED THE PROFIT IN A.Y. 2010-11 AND PA ID THE TAX. HOWEVER, ACCORDING TO THE AO, THE ASSESSEE SHOULD HAVE DISCLOSED THE PROFIT IN A.Y. 2008-09 ITSELF ON THE BASIS OF THE PERCENTAGE COMPLETION METHOD. HE SUBMITTED THAT THE AS SESSEE IS FOLLOWING PROJECT COMPLETION METHOD CONSISTENTLY AND THE P ROFIT HAS BEEN DISCLOSED IN A.Y. 2010-11. FURTHER THE ASSESSE E BEING AN INDIVIDUAL THE ACCOUNTING STANDARDS OF ICAI IS NOT BINDIN G ON HIM. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT (A) BE SET ASIDE ON THIS ISSUE AND THE GROUNDS RAISED BY THE ASSES SEE SHOULD BE ALLOWED. 20. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 16 ITA NOS.650 AND 651/PN/2013 21. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE ARISING IN THE ABOVE GROUNDS ARE REGARDING THE DISCLOSURE OF PROFIT FOR T HE PROJECT PATIL PLAZA IN A.Y. 2008-09. ACCORDING TO THE AS SESSEE IT IS FOLLOWING PROJECT COMPLETION METHOD AND IT HAS OFFERED THE ENTIRE INCOME DURING A.Y. 2010-11. THE ASSESSEE IS FOLLOWING THIS METHOD CONSISTENTLY. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS HARDLY COMPLETED 50% OF THE PROJECT. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ACCOUNTING STANDARDS-7 ISSUED BY THE ICAI IS NOT APPLICA BLE TO THE ASSESSEE BEING AN INDIVIDUAL. 22. WE FIND SOME FORCE IN THE ABOVE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. IT IS AN ADMITTED FACT THAT TH E PROJECT WAS SUPPOSED TO BE COMPLETED WITHIN 11 MONTHS FROM THE DATE OF THE MOU. IT IS ALSO A FACT THAT THE ASSESSEE DUE TO V ARIOUS REASONS COULD NOT COMPLETE THE PROJECT IN TIME AT THE C LOSE OF THE ACCOUNTING YEAR, I.E. UPTO 31-03-2008. THE ASSESSEE COULD COMPLETE ONLY ABOUT 50% OF THE PROJECT. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT IS FOLLOWING PROJECT COMPLETION METHOD CONSISTENTLY COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. IT IS ALSO A FACT THAT THE ASSESSEE HAD OFFERED THE ENTIRE INCOME DURING A.Y. 2010-11 AFTER THE PROJECT WAS COMPLETED. THE ACTION OF THE AO IN BRINGING TO TAX THE INCOME OF RS.41,10,736/- DURING A.Y. 2008-09 ITSELF ON TH E GROUND THAT THE ASSESSEE SHOULD HAVE SHOWN THE PROFIT DURING THE YEAR ON THE BASIS OF THE PERCENTAGE COMPLETION METHOD IN OUR 17 ITA NOS.650 AND 651/PN/2013 OPINION UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IS NOT JUSTIFIED. IT HAS BEEN HELD IN VARIOUS DECISIONS CITED BEFORE CIT(A) THAT SINCE AS-7 HAS NOT BEEN MANDATED U/S.145(2), THEREFO RE, THE REVENUE CANNOT FORCE THE ASSESSEE TO FOLLOW THE SAME. HOWEVER, WE FIND THE LD.CIT(A) IS COMPLETELY SILENT ON THESE DECISIONS. HE HAS ALSO ACKNOWLEDGED THAT AS-7 IS NOT MANDATORY SINCE IT IS NOT NOTIFIED BY GOVERNMENT OF INDIA. SINCE THE ASSESSEE IN TH E INSTANT CASE COULD NOT COMPLETE THE PROJECT WITHIN THE S TIPULATED PERIOD OF 11 MONTHS AND SINCE THERE WAS NO ESCALATION CO ST AND NO AGREEMENT FOR COST PLUS AND THE PROJECT WAS COMPLET ED IN A.Y. 2010-11 AND THE ASSESSEE HAS OFFERED THE ENTIRE PROFIT T O TAX IN A.Y. 2010-11 AFTER COMPLETION OF THE PROJECT, THEREFORE, WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSE E THAT NO ADDITION SHOULD HAVE BEEN MADE FOR THE IMPUGNED ASSESSME NT YEAR. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AN D DIRECT THE AO TO DELETE THE ADDITION. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 23. GROUNDS OF APPEAL NO.4 TO 6 BY THE ASSESSEE READ AS UNDER : 4. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS I N UPHOLDING THE ACTION OF THE LEARNED AO IN MAKING ADDITION OF RS. 11,28,223/- APPLYING PROVISIONS OF SEC . 41 (1) DISREGARDING THE FACT THAT THE OUTSTANDING WAS OUT OF THE BILL OF THE VENDOR DATED 3 1 ST MARCH 2008. 5. THE LEARNED CIT (A) FURTHER ERRED IN LAW AND ON FACTS I N NOT APPRECIATING THE FACT THAT THE OUTSTANDING AMOUNT WA S OUT OF THE BILL THAT WAS NOT CLAIMED AS A REVENUE EXPENDITURE BY THE ASSESSEE, EITHER IN THE RELEVANT YEAR NOR ANY OF THE EARLIER YEARS , BUT WAS RELATING THE CAPITAL ASSET NAMELY THE CONSTRUCTION OF THE HOTEL PREMISES USED BY THE ASSESSEE FOR HIS BUSINESS AND SEC . 41 (1) WAS NOT APPLICABLE TO THE SAID OUTSTANDING . 6. THE LEARNED CIT(A) FURTHER ERRED IN NOF APPRECIA TING THE FACT THAT THE ASSESSEE HAD DULY FURNISHED COPIES OF LEDGER AC COUNTS, PRODUCED BOOKS OF ACCOUNT AND BIL L S/VOUCHERS ETC FOR VERIFICATION DURING THE SCRUTINY ASSESSMENT , DETAILS OF THE TAX DEDUCTED AT SOURCE ANT ITS PAYMENT WITH RESPECT TO THIS VENDOR AND ALSO 18 ITA NOS.650 AND 651/PN/2013 ' CONFIRMATION LETTER ' OF THE OUTSTANDING BALANCE ALONG WITH HIS SELF CERTIFIED PAN CARD. HE FURTHER FAILED TO APPRECIATE THE FACT AND LAW THAT THE LEGAL L I ABI L ITY OF THE ASSESSEE WOULD NOT CEASE EVEN IF THE ASSESSEE WERE TO UNILATERALLY REVERSE THE LIABILITY I N HIS BOOKS , WHICH WAS NOT SO IN THIS CASE . IN FACT IN THE CASE OF THE ASSESSEE , THE BOOKS DULY ACKNOWLEDGED THE LIABILITY TO THE VENDOR AND W HICH WAS EVEN CONFIRMED AS OUTSTANDING AND PAYABLE BY THE VENDOR . 24. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT AN AMOUNT OF RS.11,28,223/- WAS OUTSTANDING TILL THE DATE OF HEARING. ACCORDINGLY, THE AO CONFRONTED THE ASSESSEE ON THE ISSU E AND ASKED THE ASSESSEE TO FURNISH THE DETAILS OF TRANSACTIONS , LEDGER EXTRACTS AS WELL AS DETAILS OF SUBSEQUENT PAYMENT DONE. I N REPLY, THE ASSESSEE FURNISHED THE CONFIRMATION FROM SHRI. DATTU AT ANURE BUT DID NOT FURNISH THE BILLS AND VOUCHERS FOR THE SAME. TH E AO THEREFORE DISALLOWED THE AMOUNT OF EXPENSES OF RS. 11,28,223 /-. WHILE DOING SO, THE AO ALSO OBSERVED THAT EVEN OTHERWISE THE AMOUNT WAS LIABLE TO BE TAXED U/S. 41(1) INCOME-TAX ACT AS CESSATION OF TRADING LIABILITY. 25. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS. 11,28,223/- WAS OUTSTANDING AND PAYABLE TO MR. DATTA ATANURE AS OF MARCH 31, 2008. THE AMOUNT IS PART OF THE BILL SUBMITTED FOR THE WORK OF CONSTRUCTION OF THE HOTEL PREM ISES DATED 31 ST MARCH 2008. MR. DATTA ATANURE HAD SUBMITTED HIS BILL FOR RS.14,00,000/- TOWARDS 'THE CONTRACTED CHARGES FOR THE PART CONSTRUCTION OF THE HOTEL PREMISES. DURING THE ASSESSMEN T PROCEEDINGS, THE ASSESSEE OBTAINED THE 'CONFIRMATION OF BA LANCES' LETTER AND MR. DATTA ATANURE CONFIRMED THE LEDGER ACCOU NT BALANCES AS PAYABLE TO HIM AND PROVIDED HIS INCOME TAX PERMANENT ACCOUNT NUMBER ALSO WHICH HAS BEEN PLACED ON THE 19 ITA NOS.650 AND 651/PN/2013 RECORDS OF THE ASSESSMENT. IT WAS ARGUED THAT THE A O AT THE TIME OF THE ASSESSMENT TRAVERSED TO THE YEARS MARCH 2009 AND MARCH 2010 AND IN VIEW OF NON-PAYMENT, DETERMINED THAT THE AMO UNT WAS NOT PAYABLE AS OF MARCH 31, 2008' ITSELF AND RESORT ED TO SEC. 41(1) TO TAX THIS AMOUNT. 26. IT WAS SUBMITTED THAT AS OF MARCH 31, 2008 THE A MOUNT WAS DUE AND OUTSTANDING. THE AMOUNT IS PART OF THE BILL OF RS. 14 LAKHS RECORDED ON 31 ST MARCH 2008 ITSELF. IN HIS ANXIETY TO TAX THIS AMOUNT, THE AO FAILED TO APPRECIATE THAT THE 'LIABILITY D OES NOT CEASE' AS OF MARCH 31, 2008 WHEN THE BILL ITSELF IS DATED 31 ST MARCH 2008. THE AO HAS NOT REJECTED THE BILL BUT HAS RE SORTED TO SEC. 41 (1) WHICH IS NOT APPLICABLE SINCE THE LIABILITY IS OUT OF B ILL DATED 31 ST MARCH 2008 ITSELF AND IT CANNOT CEASE TO EXIST ON THE SAME DATE IN ORDER TO PRESS SEC. 41 (1) PROVISION FOR THIS. IT WAS ARGUED THAT THE WORDING OF THE SECTION MAKES IT CLEAR T HAT OBTAINING OF THE REFUND OR OTHER BENEFIT BY WAY OF CESSA TION OR REMISSION OF A 'TRADING LIABILITY' SHOULD BE IN 'SUBSEQUENT YE AR'. WHERE THE AMOUNT IS ALLOWED AS REMISSION IN THE YEAR OF INCURRING OF THE LIABILITY ITSELF, SEC. 41 (1) WAS NOT ATTRACTED AND OTH ER SECTIONS SHOULD BE EXAMINED TO DECIDE WHETHER THE REMIS SION RESULTED INTO TAXABLE INCOME. THE ASSESSEE SUBMITTED THA T THE CREDITOR HAS CONFIRMED THE BALANCE AND PROVIDED HIS INCOM E TAX PERMANENT ACCOUNT NUMBER. TDS HAS BEEN MADE ON THIS A MOUNT AND ALSO DEPOSITED WITH THE INCOME TAX DEPARTMENT. TH E ASSESSEE SUBMITTED THAT THE AMOUNT IS NOT A TRADING LIA BILITY. FURTHER, THE ASSESSEE HAS NOT WRITTEN OFF THE AMOUNT. IT WAS ALSO ARGUED THAT SECTION 41(1) WOULD NOT BE ATTRACTED UNLESS THE DEDUCTION HAS BEEN MADE IN THE ASSESSMENT OF AN EARLIER YEAR. 20 ITA NOS.650 AND 651/PN/2013 FOR THE ABOVE PROPOSITION, THE ASSESSEE RELIED ON THE DE CISION IN THE CASE OF CIT VS. NATHUBHAI DESABHAI (1981) 130 ITR 238(MP) 27. THE ASSESSEE ALSO SUBMITTED THAT IT HAS NOT WRITTEN BACK AND CREDITED ITS PROFIT AND LOSS ACCOUNT WITH THIS AMOUNT. THIS 'UNILATERAL' WRITE-BACK HAS BEEN CONSIDERED BY THE AO WIT HOUT 'ADDUCING' ANY EVIDENCE THAT THE AMOUNT IS NOT PAYABLE AND THE LIABILITY HAS 'CEASED' AND HAS CEASED AS OF MARCH 31, 2008 . IT WAS ARGUED THAT IN ORDER TO ATTRACT SEC. 41 (1), THERE SHOULD BE EVIDENCE ON RECORD THAT PARTICULAR EXPENDITURE HAD IN FAC T BEEN' ALLOWED IN THE EARLIER YEARS. FINDING REGARDING THIS FACT CANN OT BE BASED ON MERE CONJECTURES AND SURMISES. RELYING ON V ARIOUS DECISIONS, THE ASSESSEE ARGUED THAT ADDITION OF RS.11,28,223 /- IS UNCALLED FOR AND UNJUSTIFIED. 28. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE ARGUMENT S OF THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 13. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT. THE APPELLANT CLAIMS THAT TH E AMOUNT IS PART OF THE BILL SUBMITTED FOR THE WORK OF CONSTRUCTION OF TH E HOTEL PREMISES DATED 31.03.2008 AND SHRI. DATTU ATRUVE HAS SUBMITTE D HIS BILL OF RS.14 LACS TOWARDS CONTRACT CHARGES FOR THE PART CONSTRU CTION OF THE HOTEL PREMISES. IT WAS ALSO SUBMITTED THAT CONFIRMATION OF BALANCE WAS ALSO FILED. IN THIS REGARD, IT IS SEEN THAT THE APPE LLANT HAS NOT SUBMITTED THE CRUCIAL DETAILS LIKE BILLS AS WELL AS LEDG ER ACCOUNT OF THE PARTY BEFORE THE ASSESSING OFFICER. IT IS ALSO NOT EX PLAINED AS TO WHY THE AMOUNT IN QUESTION WAS STILL PAYABLE AFTER 2 Y EARS OF THE END OF THE PREVIOUS YEAR. THEREFORE, THE ASSESSING OFFICER'S ACTION OF DISALLOWANCE OF RS.11,28,223/- IS QUITE JUSTIFIED. 14. AS FAR AS ASSESSING OFFICER'S CLAIM THAT THE SAME IS TAX ABLE U/S. 41 OF INCOME-TAX ACT ON ACCOUNT OF CESSION OF LIABILI TY, I FIND THAT THE IS NOT JUSTIFIED IN THE SENSE THAT THE LIABILITY PERTA INS TO THE PREVIOUS YEAR ITSELF AND THE ASSESSING OFFICER CANNOT INTERFERE U/S. 41 OF INCOME-TAX ACT UNLESS IT IS PROVED THAT LIABILITY HAS C EASED TO EXIST. HOWEVER, SINCE THE ADDITION HAS BEEN MADE ON ACCOUNT OF 21 ITA NOS.650 AND 651/PN/2013 DISALLOWANCE OF EXPENSES THERE IS NO NEED TO INTERFERE AS FAR AS ADDITION IS CONCERNED AND THEREFORE, ACTION OF THE A SSESSING OFFICER IN DISALLOWING RS.11,28,223/- IS UPHELD AS THE APPELLANT C OULD NOT PRODUCE THE BILLS BEFORE THE ASSESSING OFFICER BESIDES EXP LAINING WHY THE AMOUNT WAS STILL OUTSTANDING. THEREFORE GROUND NO. 11 TO 16 ARE DISMISSED. 29. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 30. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION MADE BY THE AO U/S.41(1). HE SUBMITTED THAT THE BILL TOWARDS CONSTRUCTION WORK OF THE HOTEL PREMISES WAS RECEIVED FROM MR. DATTA ATANURE FOR RS. 14 LAKHS ON 31-03-2008. REFERRING TO PARA 39 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE BILL DATE D 31-03- 2008 FOR RS.14,00,000/-. HE HOWEVER SUBMITTED THAT THIS B ILL COULD NOT BE PRODUCED BEFORE THE LOWER AUTHORITIES AND T HEREFORE REQUESTED FOR ADMISSION OF THE SAME AS ADDITIONAL EVIDENCE. HE HOWEVER SUBMITTED THAT THE AO WAS INFORMED OF THE SAM E AT THE TIME OF ASSESSMENT PROCEEDINGS ABOUT THE BILL DATED 31-03 -2008 FOR RS.14,00,000/-. HE SUBMITTED THAT THE BALANCE CONFIRMAT ION CERTIFICATE OBTAINED FROM THE ABOVE PARTY WAS ALSO FILED BE FORE THE AO. SINCE THE AMOUNT WAS OUTSTANDING AS ON 31-03-2008 THE AO COULD NOT HAVE DISALLOWED THE SAME U/S.41(1) OF THE ACT BY HOLDING THAT THE AMOUNT WAS NOT PAYABLE AS ON 31-03-20 10. HE SUBMITTED THAT SINCE THE ASSESSEE WAS INCURRING HUGE LO SSES HE COULD NOT PAY TO THE CREDITOR. THAT DOES NOT MEAN THA T THE CREDITOR HAS WRITTEN OFF THE AMOUNT AND THE AMOUNT WILL BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S.41(1) OF T HE I.T. ACT. HE SUBMITTED THAT THE LD.CIT(A) WHILE HOLDING THAT ADDITION IS NOT JUSTIFIED U/S.41(1) OF THE ACT, HOWEVER, HE UPHELD THE ADDITION 22 ITA NOS.650 AND 651/PN/2013 MADE BY THE AO ON THE GROUND THAT THE EXPENSES HAS BEEN DISALLOWED BY THE AO. HE SUBMITTED THAT THE BILL AMOUNT WA S RS.14 LAKHS WHEREAS THE AMOUNT OUTSTANDING WAS RS.11,28,223/-. THEREFORE, THE FINDING OF THE CIT(A) ITSELF IS ERRONEOUS. 31. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 32. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH TH E SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO IN THE O RDER PASSED U/S.143(3) AT PARA 3.3 OF THE ORDER HAS MADE DISALLO WANCE OF RS.11,28,223/- ON ACCOUNT OF SUNDRY CREDITOR OUTSTAND ING AS ON 31-03-2008 IN THE NAME OF MR. DATTA ATANURE ON THE GROUND THAT THE ASSESSEE DID NOT PRODUCE THE BILL AND VOUCHERS OF THE ABOVE PARTY AND SINCE THE AMOUNT IS OUTSTANDING TILL THE DATE OF THE ORDER, IT IS ALSO LIABLE TO TAX U/S.41(1) OF THE I.T. ACT, 1 961. WE FIND THE LD.CIT(A) HELD THAT THE AMOUNT CANNOT BE ADDE D U/S.41(1) OF THE ACT FOR WHICH THE REVENUE IS NOT IN APPEAL. HOWEVER, HE SUSTAINED THE ADDITION ON THE GROUND THAT THE AO HAS MADE THE ADDITION BY DISALLOWING THE EXPENSES. WE FIND THE ABOVE FINDING OF THE CIT(A) IS NOT CORRECT. THE BILL RAISED BY MR. DATTA ATANURE WAS FOR RS.14 LAKHS AND THE AMOUNT OUTS TANDING WAS RS.11,28,223/-. THE AO HAD MADE THE DISALLOWANCE OF RS.11,28,223/- U/S.41(1). HAD THE AO MADE DISALLOWANCE OF EXPENDITURE, WE WOULD HAVE DISALLOWED RS.14 LAKHS. HOWEVER, HE HAD DISALLOWED THE EXPENSES OF RS.11,28,223/- SHOWN AS PAY ABLE 23 ITA NOS.650 AND 651/PN/2013 TO SHRI DATTA ATANURE. THEREFORE, IT CANNOT BE SAID THAT THE AO HAS DISALLOWED THE EXPENDITURE AND NOT INVOKED PROVISIONS OF SECTION 41(1). SINCE THE AO HAS NOT MADE ANY DISALLOWANCE OF EXPENDITURE AND THE CIT(A) SUSTAINED THE ADDITION ON THE GROUND THAT AO HAS MADE THE ADDITION BY DISALLOWING THE EXPENDITU RE, THEREFORE THE ORDER OF THE CIT(A) IN OUR OPINION IS ERRONEO US ON THIS ISSUE. SINCE THE AO HAS MADE THE ADDITION U/S.41(1) OF THE ACT AND THE CIT(A) HAS HELD THAT PROVISIONS OF SECTION 41 (1) ARE NOT ATTRACTED ON THIS ISSUE, THEREFORE, THE ORDER OF THE CIT(A) BEING ERRONEOUS ON FACTS IS SET ASIDE. GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 33. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-09-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 16 TH SEPTEMBER , 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-V, PUNE 4. % S / THE CIT-V, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , // ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE