The ACIT, Circle-3, Baroda V. M/s. Radheshyam Developers, Baroda

ITA 751/AHD/2011

• Counselvise Citation: 75120514 RSA 2011
• Duration Of Justice: 4 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH BAINS
• Assessee Lawyers: MUKUND BAKSHI
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

ITA NOS.751 & 791/AHD/2011 ASSESSMENT YEARS: 2007-08 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD - [CORAM: PRAMOD KUMAR AM AND S.S. GODARA JM] ITA NO.751/AHD/2011 ASSESSMENT YEAR: 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, .......... ...APPELLANT CIRCLE-3, BARODA. VS. RADHEYSHYAM DEVELOPERS, ....................... .RESPONDENT F-55, UMIYA NAGAR DUPALEX-1, CHANAKYAPURI CHAR RASTA, NEW SAMA ROAD, BARODA. [PAN: AAEFR 1706 J] ITA NO.791/AHD/2011 ASSESSMENT YEAR: 2007-08 RADHEYSHYAM DEVELOPERS, ....................... ....APPELLANT F-55, UMIYA NAGAR DUPALEX-1, CHANAKYAPURI CHAR RASTA, NEW SAMA ROAD, BARODA. [PAN: AAEFR 1706 J] VS. ASSISTANT COMMISSIONER OF INCOME TAX, ........ .RESPONDENT CIRCLE-3, BARODA. APPEARANCES BY: SUBHASH BAINS , FOR THE REVENUE MUKUND BAKSHI, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : APRIL 24, 2015 DATE OF PRONOUNCING THE ORDER : JULY 21 ST , 2015 O R D E R PER PRAMOD KUMAR: 1. THESE CROSS APPEALS CALL INTO QUESTION CORRECTNE SS OF LEARNED CIT(A)S ORDER DATED 19 TH NOVEMBER, 2010, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) , FOR THE ASSESSMENT YEAR 2007-08. ITA NOS.751 & 791/AHD/2011 ASSESSMENT YEARS: 2007-08 PAGE 2 OF 5 2. ALL THE GRIEVANCES RAISED IN THE APPEAL FILED BY THE ASSESSING OFFICER AND THE APPEAL FILED BY THE ASSESSE ARE SOMEWHAT INTERC ONNECTED AND WE WILL TAKE THEM UP TOGETHER. THESE GRIEVANCES ARE AS FOLLOWS: GRIEVANCES RAISED BY THE ASSESSING OFFICER 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN REJECTING THE BOOKS OF ACCOUNT ON THE BASIS OF PECULIARITY OF THE METHOD ADOPTED BY THE ASSESSEE AND IN ESTIMATING T HE PROFIT @ 12% ON THE TOTAL RECEIPTS. THE LD. CIT(APPEALS) ERRED IN NOT A PPRECIATING THE FACT THAT THE ADDITION OF RS.1,51,15,562/- WAS RIGHTLY MADE U/S.41 (1) OF THE INCOME TAX ACT SINCE THE MEMBERS WERE ALLOTTED AND GIVEN POSSESSION OF THE PROPERTY LONG BACK, ALL THE DUES WERE CLEARED AT THAT POINT OF TIME AND THUS, T HE REVENUE WAS RECOGNISED LONG BACK ALTHOUGH THE SALE DEED WAS AFFECTED IN THE FINAN CIAL YEAR 2007-08. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.75 ,50,913/- BEING CREDIT UNDER THE BUILDING CONSTRUCTION ACCOUNT ON THE GROUND THAT SEPA RATE ADDITION ON CLOSING STOCK CANNOT BE MADE SINCE A PERCENTAGE HAS ALREADY BEEN APPLIED TO TOTAL RECEIPTS FOR WORKING OUT INCOME. THE LD. CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HAS RIGHTLY MADE THE ADDITIO N ON ACCOUNT OF BUILDING CONSTRUCTION ACCOUNT BALANCE AS REVENUE SINCE THE ME MBERS WERE ALLOTTED AND GIVEN POSSESSION OF THE PROPERTY LONG BACK, ALL THE D UES WERE CLEARED AT THAT POINT OF TIME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.1, 37,70,581/- ON ACCOUNT OF DISALLOWANCE OF THE CLAIM OF PURCHASE MADE DURING THE YEAR ON THE GROUND THAT SEPARATE ADDITION ON CLOSING STOCK CANNOT BE MADE S INCE A PERCENTAGE HAS ALREADY BEEN APPLIED TO TOTAL RECEIPTS FOR WORKING OUT INCO ME. THE LD. CIT(APPALS) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSING OFFICER HAS RIGHTLY MADE THE ADDITION ON ACCOUNT OF DISALLOWANCE OF THE CLAIM OF PURCHASE MADE DURING THE YEAR CONSIDERING IT AS BOGUS PURCHASE SINCE THE MEMBERS WE RE ALLOTTED AND GIVEN POSSESSION OF THE PROPERTY LONG BACK, ALL THE DUES WE RE CLEARED AT THAT POINT OF TIME. GRIEVANCES RAISED BY THE ASSESSE: 1. THE LD. CIT(A)-II, BARODA HAS ERRED IN LAW AND IN FACTS IN REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT IGNORING THE FACT THAT IN THE PAST THE ASSESSMENTS HAVE BEEN ACCEPTED BASED ON SIMILAR METHOD OF ACCOUNTING. THE ACTION OF THE LD. CIT(A) IS PATENTLY ERRONEOUS IN LAW AND IN FACTS AND IS PR AYED TO BE QUASHED. 2. THE LD. CIT(A)-II, BARODA HAS FURTHER ERRED IN LAW AND IN FACTS IN ESTIMATING THE NET PROFIT BY APPLYING NET PROFIT PERCENTAGE @ 1 2% OF THE CUMULATIVE GROSS ITA NOS.751 & 791/AHD/2011 ASSESSMENT YEARS: 2007-08 PAGE 3 OF 5 RECEIPTS OF THE APPELLANT FOR THE FINANCIAL YEARS 20 00-01 TO 2006-07 AND MAKING AN ADDITION OF RS.65,54,778/- BEING DIFFERENCE BETW EEN THE NET PROFIT SO DETERMINED AND THE NET PROFIT AS SHOWN IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPEAL BEFORE HIM RELATED TO THE A .Y. 2007-08 ONLY AND ESTIMATING THE NET PROFIT INCLUDING OF THE CUMULATI VE RECEIPTS OF THE EARLIER YEARS WAS BEYOND THE JURISDICTION. THE NET PROFIT, AT BES T, COULD BE ESTIMATED ON THE RECEIPTS FOR THE YEAR UNDER CONSIDERATION AND ACCORD INGLY APPROPRIATE RELIEF BE GRANTED. 3. THE LD. CI(A)-II, BORODA HAS FURTHER ERRED IN LAW A ND IN FACTS IN ADOPTING THE NET PROFIT RATE @ 12%, THE BASIS OF WHICH IS NEVER DIS CLOSED TO THE APPELLANT. THE NET PROFIT RATE @ 12% BEING EXCESSIVE SHOULD BE REJE CTED. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSE BEFORE US IS A PARTNERSHIP FIRM ENGAGED IN THE BUSI NESS OF CIVIL CONSTRUCTION. THE ASSESSE HAS FILED A RETURN OF INCOME DISCLOSING THE TAXABLE INCOME OF R 7,55,040. HOWEVER, DURING THE COURSE OF THE SCRUTINY ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT WHILE THE ASSESSE WA S SHOWING HUGE AMOUNTS AS MEMBERS CONTRIBUTIONS ON THE LIABILITY SIDE AGGR EGATING TO RS 1,51,15,562, THE ASSESSE HAD ALREADY GIVEN POSSESSION OF THE HOUSING UNITS. IT WAS ALSO NOTED THAT THE ASSESSE IS NOT RECOGNIZING WORK IN PROGRESS OR CLOSING STOCK. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSE DOES NOT HAVE ANY LIABILITY IN RESPECT OF THE CONTRIBUTIONS FROM MEMBERS, THE AMOU NT OF RS 1,51,15,562 SHOULD BE ADDED TO ITS INCOME. THE ASSESSING OFFICE R ALSO NOTED THAT THE ASSESSE HAS SHOWN A BUILDING CONSTRUCTION ACCOUNT AT RS 75, 50,913 BUT AS ENTIRE PROJECT IS COMPLETED AND THE POSSESSION IS ALREADY GIVEN, T HIS AMOUNT IS TO BE BOOKED AS REVENUE, AND, IN ANY EVENT, IT IS TO BE SHOWN AS CL OSING STOCK WHICH WILL BE ADDED TO INCOME. THE ASSESSING OFFICER FURTHER NOTED THA T THE ASSESSE HAS CLAIMED MATERIAL PURCHASES OF RS 1,37,70,581 BUT AS PROJEC T WAS COMPLETED LONG AGO, ENTIRE PURCHASES ARE BOGUS AND LIABLE TO BE DISALLO WED. ON THIS BASIS, HE PROCEEDED TO DISALLOW RS 1,37,70,581 AS WELL. ACCOR DINGLY, AS AGAINST A RETURNED INCOME OF RS 7,55,035, THE TAXABLE INCOME WAS FINAL LY ASSESSED AT RS 3,71,92,091. AGGRIEVED, ASSESSE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). IN APPEAL, LEARNED CIT(A) CAME TO THE CONCLUSION TH AT WHILE ACCOUNTS OF THE ASSESSE CANNOT INDEED BE RELIED UPON, THE RIGHT COU RSE OF ACTION WILL BE ESTIMATING 12% INCOME ON ENTIRE RECEIPTS BY THE ASS ESSE OVER THE LIFE OF THE ITA NOS.751 & 791/AHD/2011 ASSESSMENT YEARS: 2007-08 PAGE 4 OF 5 PROJECT. HE THUS HELD THAT DIFFERENCE BETWEEN AMOUN T ALREADY OFFERED TO TAX AND THE PROFIT SO COMPUTED IS TO BE BROUGHT TO TAX. THI S AMOUNT WAS QUANTIFIED AT RS 65,54,778. HE, HOWEVER, DELETED OTHER ADJUSTMENTS B Y THE ASSESSING OFFICER AND COMPUTED THE PROFITS ON THIS BASIS. NONE OF THE PAR TIES IS SATISFIED WITH THE APPROACH SO ADOPTED BY THE CIT(A) AND BOTH THE PART IES ARE IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 5. WE FIND THAT IN THE CASE OF THE ASSESSEES SISTE R CONCERN, I.E. RAVI ENTERPRISES, AND VIDE ORDER DATED 16 TH MAY 2014 IN THE CASE OF ACIT VS RAVI ENTERPRISES, A COORDINATE BENCH OF THIS TRIBUNAL HA S CONFIRMED THE SAME APPROACH ADOPTED BY THE CIT(A) AS ALSO THE RATE OF ESTIMATED PROFITS @ 12% IN MATERIALLY SIMILAR SITUATION. COPIES OF ASSESSMENT ORDER AND THE CIT(A)S ORDER IN THIS CASE WERE ALSO PLACED BEFORE US TO DEMONSTR ATE THAT ALL THE MATERIAL FACTS OF THE CASE ARE THE SAME. LEARNED DEPARTMENTAL REPR ESENTATIVE COULD NOT POINT OUT ANY POINTS OF DISTINCTION IN THESE CASES. SINCE PROFITS HAVE BEEN ESTIMATED AT 12%, ADDITIONS AND DISALLOWANCES MADE BY THE ASSESS ING OFFICER ARE RENDERED INFRUCTUOUS AND THE ASSESSING OFFICERS PRAYER TO R ESTORE THE SAME IS ONLY TO BE DISMISSED. IN THIS VIEW OF THE MATTER, AND RESPECTF ULLY FOLLOWING THE ESTEEMED VIEWS OF THE COORDINATE BENCH IN RAVI ENTERPRISES CASE (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. A COPY OF THE SAID ORDER OF THE TRIBUNAL WILL BE DEEMED TO BE ATTACHED TO, AND FORMING PART OF, THIS ORDER AS WELL. 6. LEARNED COUNSEL FOR THE ASSESSE NEVERTHELESS HIG HLIGHTS THAT SINCE THE CIT(A) HAS HELD THAT THE PROFITS @ 12% ARE TO BE BR OUGHT TO TAX IN RESPECT OF THE RECEIPTS OF ALL THE EARLIER YEARS AS WELL, THE CIT( A) HAS EXCEEDED HIS JURISDICTION WHICH MUST REMAIN CONFINED TO THIS ASSESSMENT YEAR ALONE. IN TAKING THIS LINE OF ARGUMENT, HOWEVER, HE OVERLOOKS THE POSITION THAT, ACCORDING TO THE ASSESSE, PROJECT WAS NOT COMPLETED BUT THEN THE CIT(A) HAS P ROCEEDED ON THE BASIS THAT PROJECT IS NOW COMPLETED, THE PROFITS OF THE PROJE CT ARE TO BE ESTIMATED @ 12% ITA NOS.751 & 791/AHD/2011 ASSESSMENT YEARS: 2007-08 PAGE 5 OF 5 OF OVERALL RECEIPTS AND THEREFORE, THE BALANCE PROF ITS HAVE TO BE BROUGHT TO TAX NOW. THE PROJECT WAS NOT COMPLETE IN THE EARLIER AS SESSMENT YEARS EVEN ACCORDING TO ASSESSEES OWN STAND AND, THEREFORE, T HE TAXABILITY IN THOSE YEARS WAS NOT IN RESPECT OF THE ENTIRE PROFITS OF THE PRO JECT AS SUCH. THE PROJECT IS HELD TO BE COMPLETED IN THIS YEAR AND THE TAXABILITY ON ESTIMATION BASIS @ 12% IS IN RESPECT OF THE ENTIRE PROJECT EARNINGS. IN SUCH A S ITUATIONS, WHAT IS TO BE BROUGHT TO TAX IS ENTIRE PROFITS OF THE PROJECT MINUS THE P ROFITS WHICH HAVE SUFFERED TAX IN THE EARLIER YEARS IN RESPECT OF THE SAME PROJECT. O NCE THE PROJECT IS TO BE TAKEN AS COMPLETED IN THIS YEAR AND THE BALANCE PROFITS O N THE RECEIPTS ARE TO BE BROUGHT TO TAX, THAT IS THE CORRECT APPROACH TO THE MATTER. WE REJECT THE CONTENTION OF THE ASSESSE. WE SEE NO INFIRMITY IN T HIS APPROACH FROM THE POINT OF VIEW OF EXCEEDING CIT(A)S POWERS. IN ANY CASE, THA T IS PRECISELY WHAT A COORDINATE BENCH HAS UPHELD IN THE CASE OF RAVI ENT ERPRISES, A SISTER CONCERN OF THE ASSESSE AND ON ADMITTEDLY SIMILAR MATERIAL FACT S. 7. IN THE RESULT, THE APPEAL AS ALSO THE CO ARE DIS MISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 21 ST DAY OF JUNE, 2015. SD/- SD/- S. S. GODARA PRAMOD KUM AR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 21 ST DAY OF JUNE, 2015 COPIES TO: (1) THE APPELLANT (2) THE RESPON DENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD