The ITO, Ward-1(1)(3), Ahmedabad V. Shri Barcatali B. Narsinhdani, Ahmedabad

ITA 888/AHD/2017

AI Insights

The case revolves around the appeal by the Income Tax Department against the decision of the CIT(A) which had favored the assessee, Barcatali B. Narsinhdani, a builder and developer. The primary contention was regarding the additions made by the AO under section 68 of the Income Tax Act, which pertained to unexplained cash credits and discrepancies in the assessee's capital account following the merger of his personal and business financial statements. The CIT(A) had deleted these additions, leading to the Revenue's appeal. The Tribunal examined the submissions, evidences, and the application of accounting standards, particularly AS-7, which pertains to accounting for construction contracts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134494 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-11-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 10-04-2017
• Other Referred Cases: DCIT Vs. Sulabh International Social Service Organisation [350 ITR 189 (Patna)], CIT Vs. Ranganathar& Co. [316 ITR 252 (Mad)], Gopai Purohit Vs. Jt. CIT [334 ITR 308 (SC)], Bhagyanagar Oil Industries vs. ITO (ITAT Hyderabad)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Rule of consistency; Set aside
• Section: 68; 69; 143(3); 145(3)

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ B” BENCH, AHMEDABAD BEFORE Ms SUCHITRA KAMBLE, JUDICIAL MEMBER, And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 888/AHD/2017 िनधा रण वष /Asstt. Year: 2011-2012 I.T.O, Ward-1(1)(3), Ahmedabad. Vs. Barcatali B. Narsinhdani, Aditya Bunglow, Opp. Sal Hospital, Drive-in-Road, Thaltej, Ahmedabad-380054. PAN: AAECS8430R (Applicant) (Respondent) Revenue by : Shri Prathvi Raj Meena, CIT, D.R Assessee by : Shri Tushar Hemani, Sr. Advocate with Shri Parimalsinh B. Parmar, A.R सुनवाई की तारीख/Date of Hearing : 30/11/2022 घोषणा की तारीख /Date of Pronouncement: 15/02/2023 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeal)-3, Ahmedabad, dated 10/02/2017 arising in the matter of Assessment Order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-2012. ITA no.888/AHD/2017 Asstt. Year 2011-12 2 2. The Revenue has raised the following grounds of appeal: (1) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.2,92,54,271/- made u/s 68 of the I.T.Act on account of unexplained Cash Credit. (2) That the Id.CIT(A) erred in law and on facts in deleting the addition of Its. 71,81,534/- made as against the net profit shown. (3) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.22,86,644/- made on account of estimated profit on WIP. (4) That the ld.CIT(A) erred in (aw and on facts in deleting the addition of R.S. 7,79,32,338/- made on account of unexplained credits. (5) That the ld.CJT(A) erred in law and on facts in deleting the addition of Rs.8,10,355/- made on account of disallowance of labour expenses. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 3. The 1 st issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,92,54,271/- on account of unexplained cash credit under section 68 of the Act. 4. The facts in brief are that the assessee in the present case is an individual and engaged in the business of builder & developer under the name and style of M/s Silver Construction Co. The assessee is also one of the director in a company namely M/s Classic Build Project Private Ltd. The AO during the assessment proceedings found certain changes in the capital account of the assessee which are detailed as under: i. Difference in the opening capital of the year under consideration as on 1 April 2010 viz a viz closing capital as on 31 March 2010 for an amount of Rs. 10,48,000/- towards downward direction. As such the assessee has shown closing capital as on 31-3-2010 at Rs. 34,78,956/- whereas the opening capital as on 01-04-2010 stands at Rs. 24,30,958/- only. ITA no.888/AHD/2017 Asstt. Year 2011-12 3 ii. Increase in the capital of the assessee for the amount of Rs. 87,03,758/- on account of personal assets brought into the proprietorship concern. iii. Increase in the capital of the assessee for the amount of ₹1.96 crores on account of investment in the land. 4.1 The AO, for the above changes in the capital account, sought an explanation from the assessee. The assessee in response thereto submitted that as far as the difference in the opening capital account is concern, that cannot be made subject to any adverse inference as there is a reduction in the capital account and therefore the same cannot be treated at par with the unexplained cash credit provided under the provisions of section 68 of the Act. 4.2 The assessee with respect to the addition of ₹ 87,03,758/- in the capital account submitted that there were certain personal assets and liabilities which were brought to the books of accounts of the proprietary concern as on 1 April 2010. The assessee in support of his contention has furnished the list of the assets and liabilities which were brought to the proprietary concern as on 1 April 2010 which is placed on page 8 of the assessment order. As such the difference in the assets and liabilities incorporated in the books of the proprietary concern was shown as addition in the capital account of the assessee. 4.3 The assessee with respect to the addition in the capital account by ₹1.96 crores submitted that there was a piece of land which was purchased by him on behalf of the company namely Classic Build Project Pvt. Ltd for its project “classic heights” and the same was subsequently transferred in the AY 2012-13. 4.4 However, the AO was not satisfied with the submission of the assessee on the reasoning that there was no evidence furnished by him (the assesse) that he was having the capital of ₹ 87,03,758/- in the personal capacity. As such the assessee by way of passing the journal entries has incorporated various assets ITA no.888/AHD/2017 Asstt. Year 2011-12 4 without furnishing any supporting vouchers/bills of such asset. No detail was furnished w.r.t. when such assets were acquired and what was the source of money for having acquired such assets in personal capacity. 4.5 Likewise, the assessee has not furnished the source for making the investment in the land for a value of ₹1.96 crores. Similarly, there was no information furnished by the assessee when the investment was made in the impugned piece of land. In view of the above, the AO treated the net credit entries in the capital account for ₹ 2,92,54,271/- as unexplained cash credit under section 68 of the Act and accordingly made the addition to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A). 5.1 The assessee before the learned CIT(A) submitted that he has been maintaining different set of books of accounts since F.Y. 2004-05 which were duly audited and disclosed in return of income. One set of books for trading of construction material in the name and style of M/s Silver Construction Co and another for contract work division under personal capacity. In the year under consideration, the assessee decided to merge both the books and accordingly assets aggregating to Rs. 5,87,42,201.87 and liabilities of aggregating to 5,00,38,444/- were transferred from personal books to the books of M/s Silver Construction Co. The difference between assets and liabilities transferred for Rs. 87,03,758/- was credited to the capital account of M/s Silver Construction Co. The assessee in support of his claim has furnished copy of books of account from F.Y. 2004-05 to 2009-10 and copy of ITR along with statement of income. 5.2 With regard to the credit of Rs. 1.96 crore in the capital account of M/s Silver Construction Co, the assessee submitted that the entry was passed by mistake as the land belonging to classic height was already included in the personal books of account and same has been rectified in F.Y. 2014-15. ITA no.888/AHD/2017 Asstt. Year 2011-12 5 5.3 The submissions of the assessee were forwarded to AO for his comment. The AO vide remand report dated 03-01-2017 submitted that the assessee in support of transfer entry of Rs. 87,03,758/- submitted copy of personal balance sheet as on 31 st March 2010 showing capital balance of Rs. 1,21,82,713 being Rs. 87,03,758/- in the name of B. Narsinhndani and Rs. 34,78,955/- in the name of M/s Silver Construction Co. However, the assessee in the return filed for the year ending 31 st March 2010 has shown capital balance of Rs. 34,78,955/- only. Hence, the assessee to substantiate that he has capital of Rs. 87,03,758/- in personal capacity other than proprietary business concern has filed the source of such capital balance. Likewise, the assessee with respect to credit of Rs. 1.96 crore furnished copy of ledger account of classic height in the books of Silver Construction Co where such amount was shown. The assessee also furnished copy of leger account of Shri B. Narsinhndani New A/c where several entries aggregating to Rs. 5,87,42,201.87 were appearing. However, no supporting document was furnished to substantiate such ledger account. 6. The learned CIT(A) after considering assessee’s submission and remand report deleted the addition made by the AO by observing as under: I have considered the facts mentioned in the assessment order and the remand report of the AO and the submission filed by the appellant carefully. The AO has) stated in Remand Report that the appellant could not explain the issue inspite of number of opportunities during assessment proceedings- The appellant is doing business as a proprietor of M/s. Silver Construction Company. The books of accounts for this! proprietorship business are maintained separately. Books of accounts of other transactions are maintained separately in personal books of accounts till Financial Year: 2009-2010. During financial Year 2010- 2011, i.e. AY 2011-12 the personal books of accounts have been merged with proprietorship accounts. So for merging the accounts, the respective assets were debited and capital account was credited. In this backdrop, appellant claimed that it was explained during the course of assessment proceedings. All these assets and liabilities pertain to appellant's individual books of accounts and accumulated over the years and duly reflected in earlier year's financials. In other words, the appellant has been maintaining two different sets of books of accounts, one for his proprietorship business in the name of M/s Silver Construction in which the appellant was doing trading of construction material and the other set of accounts was in relation to his business of contract division under Silver Construction Co. In contract division his personal transactions were also included. In computation of income ITA no.888/AHD/2017 Asstt. Year 2011-12 6 filed along with return of income the appellant was showing both the divisions and included income of both the separate set of accounts. Appellant filed evidences PP-4 to 98/B to justify his stand. The perusal of these documents shows that there is Balance Sheet, P&L A/c, Capita! A/c of Silver Construction Co. {trading division for the FY 2004- 05 to i 7 Y 2009-10) available on record. The copy of statement of income, IT return in which income of both books of accounts is shown separately for AY 2005-06 to AY 2010-11 has also been observed. It is observed that total capital as on 31.03.2010 is of Rs.1,21,82,713/-as under: Sr. No Balance of Capital as on 31/03/2010 Amount (Rs) 1 Capital of Silver Construction (Trading) 34,78,955/- 2 Capital of personal books (contract) 87.03.758/- TOTAL 1,21,82, 713/- It is submitted by appellant that on merger of both above accounts in A.Y.2011-12, capital of Rs.87,03,758.07/- was transferred to Silver Construction Co.'s by passing following entries In books of account: All assets shown in personal balance sheet aggregating to Rs.5,87,42,201/- transferred to asset a/c in the books of silver construction Co. All liabilities shown in personal balance sheet as on 01/04/2010 aggregating to Rs.5,00,38,444 /-transferred to liability a/c in the books of silver construction Co net balance i e. Total of assets less total of liabilities of personal set of books to Rs. 87,03,758/- credited to capital a/c of silver construction Co. The net balance i.e Total assets less total of liabilities of personal set of books amounting to Rs.87,03,758/- credited to capital a/c silver construction Co. Therefore, capital account of Baracatali Narsidani in the books of Silver Construction Co. is due to merging of personal assets and liabilities as appearing in the personal set of books as on 31/03/2010 with that of Silver Construction Go's books. PB-2 (PP-99 to 102) indicates ledger account for the explanation by the appellant. In Silver construction Co. books as on 31/03/2010 there was an account having opening balance of Rs. 10,48,001/- in the name of Baracatali Narsidani Capital a/c which was on account of transfer of personal assets in AY 2010-11 for which there is no adverse comment in Remand Report. The appellant has also claimed that debit entry to Classic heights land by Rs.1,96,00,000/- and credit entry to capital a/c i.e. due to mistake, Appellant has reversed this entry in F.Y. 2014-15 and copy of capital account is in Paper book-2 (PP 103 to 104). During remand proceedings copy of account of Classic Heights land for A,Y.2004-05 to 2010-11 in which all payments for the land have been made, has been submitted. The explanation of the appellant is accepted as there is no evidence on record to show that there is unexplained investment of Rs..1,96.00.000/- in A.Y.2011-12. It is further seen and as explained by the appellant that the profit for the year of Rs.22,61,0167- has also been transferred to the capital account which cannot be added as income as the tax has already been paid on this amount. In view of these facts, the issue gets explained for following amounts: Sr. No Particulars Amount (Rs) 1 Capita addition due to merging of personal books with that of Silver Constn. Company. 87,03,7587- ITA no.888/AHD/2017 Asstt. Year 2011-12 7 2 Entry passed by mistake in respect of classic Height now rectified in A. Y. 2015-16. 1,96.00,000V- 3 Profit credited to capital A/c explained 22,61,0167- Less: Op. balance difference (3478956-2430954)_ 1048,0027- Total 2,95,16,7727- Less: Withdrawals & Sundry Creditors 2,60,5027- 2,92,56,2707- it is further pointed out that there was totaling mistake by the AO of Rs.2,0007-, hence the addition of Rs.2,92,54,2707- stand fully explained. In view of evidences on record and explanation so submitted appear to be logical, hence ground No.1 is allowed. 7. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 8. The learned DR before us submitted that the onus was lies upon the assesse to justify the entries showing on the credit side of his capital account based on the documentary evidences. But the assesse has failed to do so. 9. On the contrary, the learned AR before us filed paper book running from 1 to 435 and contended that there were certain additions in the capital account of the assessee on account of merger of the personal assets and liabilities with the proprietary concern. All the assets and liabilities were pertaining to the earlier years and therefore the same cannot be made subject to tax under the provisions of section 68 of the Act in the year under consideration. All the transactions recorded in the personal and the propriety concern were duly reflected in the income tax return. Likewise, all the details relating to the personal assets and liabilities were duly furnished before the AO during the assessment and remand proceedings. 9.1 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. ITA no.888/AHD/2017 Asstt. Year 2011-12 8 10. We have heard the rival contentions of both the parties and perused the materials record. In the present case, there were certain additions in the capital account of the assessee amounting to Rs. 2,92,54,271/- which were treated as unexplained cash credit under section 68 of the Act. However, the learned CIT (A) deleted the addition made by the AO by observing that credit in the capital account is reflecting mainly on account of the merging of the books of accounts. 10.1 The admitted position relevant to the present case is this that the assessee being individual is maintaining two separate sets of financial statements. One set of financial statement pertains to his proprietary concern namely “Silver Construction Co” and other financial statement pertains to his personal capacity. Both the financial statements, pertaining to the years 2004-05 to 2009-10 are placed on pages 177 to 272 of the paper book. The assessee while disclosing the income in the return of income tax has merged the income from his proprietary concern as well as personal capacity. This fact can be verified from the copies of the income tax return along with the statement of income which are placed on pages 172 to 272 of the paper book. However, we could not find any clarity from the details available in the paper book whether the assessee while preparing the financial statements of his proprietary concern and personal capacity have merged into one. It seems to us, the assessee has not merged the financial statements of his proprietary concern and personal capacity. 10.2 Be that as it may be, we note that all the assets and liabilities in the personal capacity, have been merged by the assessee as on 1 April 2010. In other words, all the personal assets and liabilities shown in the personal financial statement as on 31 March 2010 have been transferred to the financial statements of the proprietary concern which has certainly resulted in the addition of the capital account in the year under consideration. In simple words, capital account of the proprietary concern was credited in the year under consideration but with respect to those transactions, belonging to the personal capacity, pertaining to the earlier years. As such, it is only the accounting adjustment which has been made ITA no.888/AHD/2017 Asstt. Year 2011-12 9 by the assessee in the proprietary concern for the transactions which were carried out by him in the earlier years. Thus, the question arises whether the provisions of section 68 of the Act can be attracted on account of cash credit shown by the assessee in the year under consideration. In the given case, the answer stands in negative. It is for the reason that there is a single assessee maintaining two sets of financial statements. Thus, the transactions shown by the assessee in the personal capacity can only be disturbed in the year to which it pertains. As far as, the year in dispute is concern, there is no addition in the capital account of the assessee to be verified in pursuance to the provisions of section 68 of the Act. Hence on this score only, the finding of the learned CIT (A) is not required to be interfered. 10.3 For the addition of ₹1.96 crores in the capital account of the assessee, we note that it was representing the duplicate entry made in the books of accounts inadvertently. As such the amount of ₹1.96 gross was already part of the personal assets shown by the assessee in the personal capacity. This error was rectified by the assessee subsequently in the financial year 2014-15. This fact has not been doubted by the AO. Accordingly we hold that, such addition of ₹1.96 crores is not sustainable and the finding on this issue of the learned CIT (A) does not required to be disturbed. 10.4 Likewise, the difference in the opening capital of the assessee, we note that there was no addition in the capital account of the assessee, rather the difference in the opening capital account of the assessee for Rs. 10,48,002/- was representing the debit entry. Therefore, the same cannot be subject matter of addition under the provisions of section 68 of the Act. Hence, we do not find any reason to interfere in the finding of the learned CIT (A). In view of the above and after considering the facts in totality, we uphold the finding of the learned CIT (A). Hence the ground of appeal of the revenue is held by dismissed. ITA no.888/AHD/2017 Asstt. Year 2011-12 10 11. The 2 nd issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹71 lakhs after rejecting the books of accounts under section 145(3) of the Act on the reasoning that the profit was not determined as per accounting standard 7 i.e. construction contract issued by the ICAI. 12. The assessee in the year under consideration has shown gross turnover of ₹6,47,46,780/- only on which he has shown net profit of Rs. 22,61,017/- only. However, the assessee was to recognize the revenue in the books of accounts as per accounting standard 7 i.e. accounting for construction business issued by the ICAI. But the assessee during the assessment proceedings failed to justify whether the revenue of ₹6.47 crores was computed as per the accounting standard. On question by the AO, the assessee submitted that the estimated cost of the project stands at ₹16 crores against which he has shown an income of ₹1.86 crores till the year 2013-14 which constitute 11.62% of the gross receipts. As per the assessee such income is reasonable enough from the activity of real estate construction and therefore no adverse inference can be drawn against the assessee. However, the AO was not satisfied with the submission of the assessee on the reasoning that the assessee was under the obligation to work out the income in pursuance to the accounting standard 7 issued by the ICAI. But in the absence of necessary details from the side of the assessee, it is not possible to calculate the profit in the manner provided in accounting standard 7. Thus the AO has aggregated total expenses being opening stock, purchases and other expenses and considering the same computed the income at Rs. 94,42,651/- at the rate of 15% of the total cost after rejecting the books of accounts. Thus, the AO made addition of Rs. 71,81,534/- after reducing the amount of profit i.e. Rs. 22,61,017/- already shown by the assessee. 13. Aggrieved assessee preferred an appeal to the learned CIT (A). ITA no.888/AHD/2017 Asstt. Year 2011-12 11 14. The assessee before the learned CIT (A) submitted that the AO while calculating the cost incurred by the assessee to work out the turnover of the assessee has considered the opening WIP which has already been made subject to tax in the earlier year. Therefore, the basis adopted by the AO is not reliable. 14.1 The assessee further submitted that he has completed its project to the tune of 30% and based on 30% completion of the project after taking the booking which is to the tune of 45% has calculated the turnover which is as per the accounting standard 7 issued by the ICAI. The assessee further contended that he has been showing reasonable profit in all the years beginning from assessment year 2010-11 to 2016-17 which were duly accepted by the revenue except in the year under consideration. Thus in view of the above, the assessee prayed not to make any addition to the total income. The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: Decision: I have considered the facts mentioned in the assessment order and the / remand report of the AO and the submission filed by the appellant carefully. The assessing / officer has not applied AS-7 and estimated addition @15% of W!P to make the totajl / addition of Rs.71,81,534/- over and above shown by the appellant at Rs.22,51,017/-. The I AO is of the opinion that the estimated cost of project is not available in this case therefore < the application of AS-7 is not possible. On the other hand, the appellant has submitted that the total project cost is at Rs. 11,78,27,697/-. It is further brought on record during remand 1 proceedings that the appellant has booked revenue of Rs.1,43,01,162/- form A.Y.2010-11 to A.Y.2016-17. If is further brought on record that the book results have been accepted in all the years and the appellant filed a copy of order u/s.143(3) for A.Y.2012-13 and A.Y. 2013-14. The relevant documents PP 105 to 234/PB-2 have been perused. I have gone through the guidance note AS-7 as revised in 2012 in respect of real estate and find that following parameters can be applied in percentage completion method, if to be followed. i) All critical approvals necessary for commencement of the project have been obtained. : ii) Each project should reach a reasonable level of development If the construction and development costs as defined and explained in the Guidance Note incurred on a project are less than 25% of the total such costs, which exclude costs on land and borrowing costs the project is not have achieved a reasonable level of progress. iii) At least 25% of the estimated project revenue should have been secured by contracts or agreement with buyers. iv) At least 10% of the total contacted revenue as per the agreements for sale or any other legally enforceable documents should have been realized. It should also be reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. Such contracts are only eligible to be considered for the application of the PCM. For example, if there are ten agreements of sale and 10% of gross ITA no.888/AHD/2017 Asstt. Year 2011-12 12 amount is realized in case of eight agreements, revenue can be recognized with respect to these eight agreements. It is mentioned here that percentage completion method is compulsorily be followed for corporate assessees. AS-7 which is proportionate method or project completion method have guidance value so far as instant case is concerned. The reasons given by the AO for not applying AS-7 are misconceived as far as facts of the case are concerned, wherein cost of project is intact available. [Secondly, the appellant has shown 12.137% profit over a period of time i.e. A. Y.2010-11 to A. Y.2016-17 wherein book results have been accepted by the department except A.Y.2011-12 under consideration, This is not the new issue, the principle of consistency required to be followed as has been held in various below mentioned case laws: (i) DCIT Vs. Sulabh International Social Service Organisation [350 ITR 189 (Patna)] (ii) CIT Vs. Ranganathar& Co. [316 ITR 252 (Mad)] (iii) Gopai Purohit Vs. Jt. CIT [334 ITR 308 (SC] The facts of the case are also similar in this year as compared to the project period (A.Y.2010-11 to A.Y.2016-17) and unsettling the accepted accounting system so applied by appellant would create avoidable litigation. On the other hand, the appellant has made out a strong case by placing all the facts on record In view of this, ground No.2 of appeal is allowed. 15. Being aggrieved by the order of the learned CIT (A), the revenue is in appeal before us. 16. The learned DR before us submitted that the assessee has not shown profit in pursuance to the provisions of accounting standards 7 issued by the ICAI. As per the learned DR the profitability for the year under consideration cannot be decided based on the financial position of the assessee in the earlier years. As per the accounting standard 7 issued by the ICAI, the assessee was under the obligation to show the income with respect to such work in progress. 17. On the contrary the learned AR before us submitted that that the AO has estimated the profit with respect to the project in dispute at Rs. 94,42,551.00 only whereas the assessee has already declared the income of Rs. 1,43,01,162.00 in the assessment years 2010-11 to 2016-17 which is substantially higher than the profit estimated by the AO. In the earlier and later years, the profit declared by the assessee was accepted by the revenue. Accordingly, the ld. AR contended that the principles of consistency needs to be adopted. ITA no.888/AHD/2017 Asstt. Year 2011-12 13 17.1 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 18. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has already recognized the gross revenue taking into consideration the 30% completion of the project and 45% of the booking amount which is as per the accounting standard 7 issued by the ICAI. Besides the above the assessee has already offered income in different assessment years almost at the same rate in the assessment year 2012-13 and 13-14 which was duly accepted in the assessment framed under section 143(3) of the Act. As such in all the years beginning from assessment year 2010-11 to 2016-17, the income declared by the assessee was duly accepted by the revenue except for the year under consideration. The assessee against the total project cost of ₹11.78 crores has offered total income over the project life at ₹1.43 crores i.e. during A.Y. 2010-11 to 2016-17. 18.1 On page 279 of the paper book, the assessee has declared the profit shown by him against the cost of project in the different assessment years and the overall profit from the entire project comes to 12.37% which is reasonable in the real estate activities. At the time of hearing, the learned AR has not brought anything contrary to the finding of the learned CIT (A). Thus, keeping in view the principles of consistency, we do not find any reason to disturb the finding of the learned CIT (A). Hence the ground of appeal of the revenue is hereby dismissed. 19. The 3 rd issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO by estimating the profit of Rs. 22,86,644/- only on WIP. ITA no.888/AHD/2017 Asstt. Year 2011-12 14 20. The AO during the assessment proceeding found that the assessee in the immediate preceding assessment year i.e. A.Y. 2010-11 has shown certain project in CWIP and also offered income on the same which are detailed as under: 1. WIP – Heights Rs. 2,90,593/- 2. WIP – Kankariya Rs. 17,21,672/- 3. WIP – Maratha Society Rs. 1,32,32,028/- 20.1 However, the assessee during the year under consideration has neither shown such project as opening WIP nor offered any income on such project. On question by the AO, the assessee submitted that the WIP – Heights belongs to the company namely M/s Classic Build Project Pvt. Ltd. The expenses were incurred by him on behalf of the company, therefore the same is now shown as loan in the year under consideration. 20.2 WIP – Kankariya represent amount incurred in connection with a project started by him at Kankariya in the year 2001 which was stopped due to earthquake. The project was again started in the year 2009 but without getting valid permission from AMC. Therefore, the AMC issued notice for demolition and sealed the property. Hence, considering the non-viability of the project, the same was transferred to personal account and no income is liable to be offered. Likewise, WIP – Maratha Society represents amount paid toward purchase of land and expenses in relation to such purchases. The project is yet to start, hence no income offered. 20.3 However, the AO not was satisfied with the explanation furnished by the assessee. The AO found that if WIP – Height represent expenses incurred in connection with the project of the company namely Classic Build Project Pvt Ltd then there was no occasion for the assessee to show such project as WIP in his book. Further, if entire WIP was transferred by the assessee to the company in the year under consideration then again the assessee was required to offer profit on such transfer. ITA no.888/AHD/2017 Asstt. Year 2011-12 15 20.4 The explanation of the assessee that demolition notice was issued against project at Kankariya, therefore he transferred the same to personal account is not acceptable for the reason that the AMC has issued demolition notice on 13-03- 2013 whereas the books of account for the year under consideration finalized much before the date of issue of notice by AMC. Further, the project to the date of assessment was not demolished, therefore the assessee was required to show the amount incurred as closing WIP. Likewise, no explanation was furnished that why the amount of WIP – Maratha Society disappeared in the year under consideration. 20.5 Therefore, the AO in view of the aforesaid discussion held that the assessee was liable to offer profit on such WIP in the year under consideration and accordingly estimated the profit at the rate of 15% on such WIPs which comes at Rs. 22,86,644/- and added the same to the total income of the assesse. 21. The aggrieved assessee preferred appeal before the learned CIT(A) and reiterated his submissions made during assessment proceedings. 22. The learned CIT(A) after considering the assessment order and submission of the assessee deleted the addition made by the AO by observing as under: Decision: I have considered the facts mentioned in the assessment order and the land report of the AO and the submission filed by the appellant carefully. The assessing officer has estimated the profit @ 15% on projects such as Maratha Society and Kankaria Project. The assessing officer has admitted that there was newspaper cuttings and notice dated 13.03.2013 form AMC relating to dispute in construction work of Maratha Society but has not accepted the contention of the appellant. The appellant has submitted PP 57 to 90/PB- 1 for A.Y.2009-10 to A.Y,2011-12 to indicate that the project approval had not been in their possession. The appellant has submitted that no work has been undertaken in respect of these projects except incidental expenses. It is contended by the appellant that in absence of any developmental work or bookings the income cannot be recognized as per AS-7. The AO has mentioned in remand report that no new evidence has been placed on record. I have gone through the evidences on record and am convinced that no profit can be estimated on virtually dead investments wherein no worthwhile business activity could be executed in the year under consideration. Therefore, ground No.3 of appeal is allowed. ITA no.888/AHD/2017 Asstt. Year 2011-12 16 23. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 24. The learned DR before us contended that the assessee in the earlier years has shown capital work-in-progress but the same were not shown as carried forward in the year under consideration. Accordingly, the learned DR contended that such work in progress is taxable in pursuance to the provisions of accounting standard 7 issued by the ICAI. 25. On the contrary, the learned AR with respect to the WIP- Maratha Society submitted that there was no activity carried out on such project and no approval was also obtained for the impugned project. Thus the question of estimating the income on such the WIP does not arise. 25.1 The learned AR with respect to the WIP- Kankaria submitted that the expenses on such project has been incurred which is less than 10% of the total project cost and therefore no income with respect to such WIP was recognized. Besides the above the project was illegal and the notice for the demolition of the same was received. 25.2 The learned AR with respect to the WIP- Heights submitted that such project belongs to M/s Classic Build Projects Private Ltd which have been transferred accordingly. Furthermore, no work has been done on such project. 25.3 Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 26. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has shown certain WIP in the earlier year but the assessee has not shown any income with respect to these WIP in the year under consideration. ITA no.888/AHD/2017 Asstt. Year 2011-12 17 Therefore, the AO estimated the profit on these WIP at Rs. 22,86,644/- being 15% of the value of the WIP of the last year. However, the learned CIT(A) deleted the addition made by the AO by observing that no income has accrued to the assessee as per accounting standard 7 issued by the ICAI. 26.1 Regarding, the WIP-Heights of Rs. 2,90,593/- we note that such WIP was transferred to the company namely Classic Build Project Pvt. Ltd which was shown as loan by the assessee in his books of accounts. Thus in such a situation we are of the view that no profit can be estimated on such WIP. 26.2 Likewise, the WIP – Kankariya of ₹ 17,21,672/-, we note that such WIP consist amount incurred for purchase, expenses for demolition of old structure on land and certain initial expenses. The total cost incurred till the year under consideration was less than 10 % of estimated project cost (2.5 crore). Therefore, considering the fact that project was in early stage the question of estimating any income from such WIP does not arise. 26.3 Regarding the WIP-Marathas Society of ₹1,32,32,028/-, we note that such WIP was representing the cost of the land with minor expense such as security and electricity. With respect to such WIP no project was approved yet. In other words, no activity of whatsoever was carried out on such land shown as WIP by the assessee. Accordingly, we are of the view that there is no question of estimating the profit with respect to such WIP shown by the assessee. In view of the above and after considering the facts in entirety, we do not find any infirmity in the order of learned CIT(A). Hence the ground of appeal of the revenue is hereby dismissed. 27. The next issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 7,79,32,338/- made on account of unexplained cash credit under section 68 of the Act. ITA no.888/AHD/2017 Asstt. Year 2011-12 18 28. The AO found that the assessee has shown advances from the society, namely The Classic Homes Co-operative Housing Society Ltd for Rs. 4,24,51,046/- out of which an amount Rs. 1,83,29,338/- was received during the year under consideration. The assessee was asked to explain the credit of the amount from society and also to explain other amounts deposited in bank account. The assessee in personal hearing dated 14-03-2014 submitted that he has also received amount aggregating to Rs. 5,96,03,000/- over and above the amount of Rs. 4,24,51,046/- but the same not recorded in the books. The AO from the bank statement found that the above amount of Rs. 5,96,03,000/- was utilized against purchase of land for Rs. 1.96 Crores and Bank FD for Rs. 4,00,03,000/-. The AO also found that the assessee has not furnished documentary evidences in support of his claim. Further, from the inquiry with registrar of society, it was found that the books of account of the society was never audited. Therefore, the AO held that the source of credit of Rs. 1,83,29,338/- and 5,96,03,000/- (total 7,79,32,338/-) was not established and remained unexplained. Hence, the AO treated the same income of the assessee under section 68 of the Act and added to his total income. 29. The aggrieved assessee preferred an appeal before the learned CIT(A). 29.1 The assessee before the learned CIT(A) submitted that he was acting as developer for the society namely The Classic Homes Co-operative Housing Society Ltd in the name and style of “Classic Homes”. The Society being owner and promoter of the project was collecting consideration/contribution from customers/members. The amount collected were transferred to him (the assessee) being developer which was utilized in connection with the development expenses of the project. Hence, such receipts were trading receipt against the development work of the project “classic homes” on which he has already offered income. Therefore, the provision of section 68 of the Act cannot be invoked against such credit. The assessee further submitted the break-up of the amount aggregating to Rs. 7,79,32,338/- as detailed under: ITA no.888/AHD/2017 Asstt. Year 2011-12 19 No. Particulars Amount 1 Document executed in respect of 90 customers 41950530 2 Document pending but amount received by cheque 10954042 3 Document pending amount received by cash-parties having PAN & Confirmation 7668000 4 Document pending amount received by cash-parties not having PAN but having proper ID proof with background of agriculture and small business 41 60000 5 Payment made by classic homes society to silver construction co. out of FY 2009-10 closing bank balance by withdrawing from bank by cheque 13199766 TOTAL 77932338 29.2 The assessee in support of his claim submitted following documentary evidences: (v) Copy of ledger A/c of Classic Home Co-op Society from the books of Silver Construction Co (vi) Copy of Contra A/c from the books of Classic Home Co-op Society Ltd. (vii) Copy of Balance sheet of Classic Home Co-op Society Ltd. (viii) List of Clients/members of the Society from whom amount against booking of flats received containing name, address, flat no, PAN details, amount received and confirmation of the member, allotment deed, bank statement, copy of receipt and other details. In case of members who do not have PAN, their identity proof like election card etc. submitted. 29.3 The AO in remand report only stated that the issue may be decided on merit. The learned CIT(A) after considering facts in totality deleted the addition made by the AO by observing as under: It is pertinent to note that the appellant has now furnished complete details like address/PAN/Confirmations/identity proof etc. of the customers from whom such amount has been received, therefore, sufficiently discharging his onus. The receipt is trading receipt and facts are not as envisaged under section 68 and the same therefore cannot be added to the income of the appellant by invoking the said provision because the corresponding sale value is already credited to profit and loss account by way of closing work in progress. Appellant relied on the ratio in the case of Bhagyanagar Oil Industries vs. ITO (ITAT Hyderabad), ITA No. 1178 of 2012, Date of Pronouncement - June 12, 2015. I ITA no.888/AHD/2017 Asstt. Year 2011-12 20 have gone through the judgment of ITAT, Hyderabad and is having guidance value to the issue involved, the relevant portion is reproduced as under: "However, as rightly submitted by the Id. Counsel for the assessee, the impugned credits being trade credits of the assessee on account of purchase of sunflower seeds are not in the nature of cash credits as envisaged under section 68 and the same therefore cannot be added lo the income of the assessee by invoking the said provision. Moreover, as pointed by him from the trading account of/he assessee for the year under consideration placed at page No. 2-f of the paper hook, the corresponding seeds purchased from the seven farmers far Rs, 54,49,961 were sold in the year under consideration itself for Rs. 58,89,195 and the said sale was duly credited to the trading account of the assessee. As rightly contended by the Ld. Counsel for the assessee, such sale not being possible without any corresponding purchases, the 6 ITA.No. 1178/Hyd/20I2 Mis. Bhagyanagar Oil Industries, Hyderabad, purchases so made could not otherwise be treated as bogus, despite the failure of the assessee lo establish the identity of the concerned creditors/suppliers. It is also observed that the resultant profit arising from the relevant transactions of purchase and sale of sunflower seed was duly disclosed by the assessee in the trading account. Having regard to all these facts of the case, we aj&o/the view that the addition made by the A. O. and confirmed by the CIT(A) by treating the trade ^K^it&rs as unexplained cash credits under section 68 is not sustainable. We therefore delete the Same, and allow ground No. 3 of assessee 's appeal." In view of facts on record, I am in agreement with the argument submitted by the appellant in view of facts of the case and comments contained in remand report, the conditions to invoke provisions of Section 69 are not prevalent hence the addition of Rs.7,79,32,338/- is hereby deleted. The ground No.4 is allowed. 29.4 Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 30. The learned DR before us submitted that there were receipts to the assessee from the society but the same was not recorded in the books of accounts of the assessee. Therefore, the same should be treated as unexplained cash credit under section 68 of the Act. 31. On the other hand, the learned AR submitted that the assessee was developing the project for the society and the income on such project has already been offered to tax in accordance to the accounting standard 7 issued by the ICAI. The receipts from the society has thus already suffered the tax. Therefore, any addition is made in the hands of the assessee under section 68 of the Act will ITA no.888/AHD/2017 Asstt. Year 2011-12 21 lead to the double addition which is not desirable. All the necessary details justifying the receipt of money from the society were duly furnished in the form of ledger accounts, balance sheet. Furthermore, the list of the members of the society from whom the booking amount was received by the society was also furnished. The AO during the remand proceedings cannot dispute such facts. 32. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 33. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has shown ₹ 7,79,32,338/- from the party namely Classic Homes Co- operative Housing Society Limited which was treated as unexplained cash credit under section 68 of the Act, and therefore the AO made the addition to the total income of the assessee. However, the learned CIT(A) found that the society is developing a project under the name of the scheme as ‘Classic Homes’ and the assessee is acting as a developer of the impugned scheme. Whatever amount was received by the society has been transferred to the assessee and the same was utilized for the purpose of the construction/development of the scheme by the assessee. The assessee out of the amount received from the society incurred on construction/ development of impugned project of the society which has been shown work-in-progress in his financial statement. The assessee has furnished the necessary details during the remand proceedings about the source of money received from the customers/members of the society. To that effect, the assessee has furnished the list of the parties/customers/members during the remand proceedings and no defect of whatsoever was pointed out by the AO during the remand proceedings. Thus the learned CIT(A) was pleased to hold that such amount cannot be treated as unexplained cash credit within the meaning of the provisions of section 68 of the Act. Furthermore, the amount received by the assessee represents the business receipts which is outside the purview of the ITA no.888/AHD/2017 Asstt. Year 2011-12 22 provisions of section 68 of the Act. Thus, the learned CIT (A) deleted the addition made by the AO. 33.1 On perusal of the details of the parties/customers/members who have acquired the property in the scheme developed by the society, which is placed on pages 140 of the paper book, we note that the amount was received by the assessee for the purpose of the construction. The assessee against such money has shown work-in-progress as evident from the financial statement which are placed on pages 23 to 39 of the paper book. At this juncture, it is also important to note that the assessee following the project completion method has also offered the income on the amount of money received by him and therefore we are of the view that no separate addition under the provisions of section 68 of the Act is warranted. At the time of hearing, the learned DR has not brought any iota of evidence contrary to the finding of the learned CIT(A). Hence, the ground of appeal of the revenue is hereby dismissed. 32. The last issued raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 8,10,355/- on account of disallowance of labor expenses. 33. The AO during the assessment found that the assessee claimed departmental labor expenses of Rs. 45,51,774/- incurred in cash which were only supported by self-made voucher. Further, such voucher was not containing address of the recipient and the signature of the person who was authorizing such payments. Therefore, the AO disallowed the 20% of labor expenses amounting to Rs. 9,10,355/- only . 34. On appeal by the assessee, the learned CIT(A) restricted the disallowance to the extent of Rs. 1 lakh only. In other words, the learned CIT(A) deleted the addition to the extent of Rs. 8,10,355/-. ITA no.888/AHD/2017 Asstt. Year 2011-12 23 35. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 36. Both the learned DR and AR vehemently supported the order of authorities below to the extent favorable to them. 37. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has disallowed 20% of the labour expenses incurred in cash on the reasoning that the necessary supporting details of the cash expenses were not available whereas the Learned CIT(A) restricted the same to the tune of ₹1 lakh only. It is the admitted position that the construction industry is labour intensive industry. Generally, the labourers are disorganized and not educated. Thus, under the common parlance, it is difficult to find necessary supporting evidence for the Labour expenses which are incurred in cash. Thus the question arises how to determine the genuineness of the Labour expenses in the absence of supporting documents. In such facts and circumstances the expenses and the construction activity carried out by the assessee over the period of time should be taken as the benchmark and after considering the inflation in the industry. Accordingly, the same should be compared. In other words, the AO in the absence of necessary supporting vouchers should have made reference to the earlier year and subsequent year labour expenses in order to find out whether the assessee has claimed excessive Labour expenses. But no such comparison was made by the AO. Likewise, the AO has also not made any comparison with the comparable cases qua the Labour expenses. Furthermore, there is no provision under the Act to make the disallowance of the expenses on ad hoc basis. If, sufficient supporting vouchers are not available, the AO cannot make the disallowance on ad hoc basis without comparing the reasonableness of expenses in comparison to the earlier and later years and after taking into account the comparable cases. In view of the above and after considering the facts in totality, we do not find any infirmity in the ITA no.888/AHD/2017 Asstt. Year 2011-12 24 order of the learned CIT(A). Hence the ground of appeal of the revenue is hereby dismissed. 38. In the result, the appeal filed by the revenue is dismissed. Order pronounced in the Court on 15/02/2023 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 15/02/2023 Manish