DCIT CC 31, MUMBAI V. GANGA DEVELOPERS, MUMBAI

ITA 949/MUM/2011

• Counselvise Citation: 94919914 RSA 2011
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 17-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 02-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Business income; Depreciation; Business expenditure; Additional evidence; Onus to prove
• Section: 143(3); 142(1); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH, MUMBAI .. , !'# $ $ $ $ %&. !.'.. $( ) !'# !* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM !./ I.T.A. NO. 949 /MUM/ ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEAR : 2004-05 DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE -31, CENT RANGE 7, ROOM NO. 409, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. ( ( ( ( / VS. M/S GANGA DEVELOPERS, LAALASIS, PLOT NO. 219, 11 TH ROAD, CHEMBUR, MUMBAI 400 071. #. !./ PAN : AAAFG8230C ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) APPELLANT BY SHRI O.P. SINGH RESPONDENT BY : SHRI J.P. BAIRAGRA !($ 2 / // / DATE OF HEARING : 17-9-2013 34- 2 / DATE OF PRONOUNCEMENT : 29-11-2013 [ '5 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) 40, MUMBAI DATED 25-10-2010. 2. THE FIRST ISSUE RAISED BY THE REVENUE IN THIS AP PEAL RELATES TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION MADE BY THE A.O. BY ESTIMATING THE INCOME OF THE ASSESSEE FROM FOLLOWING PROJECTS AT H IGHER VALUE AFTER REJECTING THE BOOKS OF ACCOUNT AS UNDER:- ITA 949/M/11 2 NAME OF THE PROJECT PROFIT ESTIMATED BY THE ASSESSEE (RS.) PROFIT ESTIMATED BY THE A.O. (RS.) GOPALA PROJECT 29,68,807/- 35,700,636/- KUKREJA PROJECT 5,10,325/- 26,704,191/- GANGA TOWER I - 30,022,192/- GANGA TOWER II - 33,635,031/- 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS TO PROJECT ITS GRIEVANCE ON THIS ISSUE:- (A) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) JUSTIFIED IN HOLDING THAT THE REJECTION O F BOOKS OF ACCOUNT IN TERMS OF SEC.145 OF THE INCOME TAX ACT, 1961 WAS NO T JUSTIFIED WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS FAILED TO RECOGNIZE REVENUE IN TERMS OF REVISED ACCOUNTING STANDARD, WHEREIN RE VENUE HAS TO BE RECOGNIZED IN THE YEAR IN WHICH IT HAS EARNED AND T HE SAME CANNOT BE POSTPONED TO FUTURE. (B) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) JUSTIFIED IN DELETING THE ADDITION OF RS. 3,36,35,031/- ON ACCOUNT OF INCOME FROM THE GANGA TOWER II PROJECT, HOLDING THAT IT CANNOT BE TAXED IN THE CURRENT YEAR, WHEN THE FACTS OF THE CASE SHOW THAT EVEN UNDER PROJECT COMPLETION METHOD, INCOME I S TAXABLE IN THE CURRENT YEAR AS THE PROJECT OF THE ASSESSEE IS 67.3 2% COMPLETE. THE LD.CIT(A) HAS ERRED IN OBSERVING THAT ASSESSING OFF ICER MADE NO ATTEMPT TO SHOW THAT SUBSTANTIAL PART OF THE PROJEC T IS COMPLETE. FURTHER CIT(A) HAS ERRED IN HOLDING THAT NO INCOME FROM THE PROJECT CAN BE TAXED IN THE CURRENT YEAR AS SUCH INCOME HAS BEE N OFFERED TO TAX IN THE SUBSEQUENT YEAR AS IS THE PRESENT CASE. (C) WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LDCIT(A) IS JUSTIFIED IN HOLDING THAT ENTIRE IN COME OF THE ASSESSEE FROM GANGA TOWER I IS NOT TAXABLE IN THIS YEAR, W HEN FACTS OF THE CASE SHOW THAT THIS PROJECT IS COMPLETE IN THE CURRENT Y EAR AND ONLY EXPENSES OF RS.31,513/- WERE INCURRED IN THE NEXT Y EAR. THIS SHOWS THAT THIS PROJECT IS 100% COMPLETE IN THE CURRENT Y EAR. (D) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) JUSTIFIED IN DELETING THE ESTIMATION OF I NCOME FROM THE PROJECT KUKREJA PLAZA AT RS.2,67,04,1911- WHICH WAS ESTIMAT ED ON THE BASIS OF REVENUE RECOGNIZED DURING THE RELEVANT FINANCIAL YE AR AS AGAINST DECLARED INCOME OF RS. NIL. (E) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) JUSTIFIED IN HOLDING THAT INCOME OF RS.2, 67,04,191/- IS NOT TAXABLE IN CURRENT YEAR WITHOUT APPRECIATING THE FA CTS THAT THE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS DURING THE ASSES SMENT PROCEEDINGS ITA 949/M/11 3 AND WITHOUT APPRECIATING THE FACTS THAT PROJECT WAS SUBSTANTIALLY COMPLETED. (1) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) JUSTIFIED IN DELETING THE ESTIMATION OF I NCOME FROM THE PROJECT GOPALA RS.3,57,00,6361- WHICH WAS ESTIMATED ON THE BASIS OF REVENUE RECOGNIZED DURING THE RELEVANT FINANCIAL YEAR AS AG AINST DECLARED INCOME OF RS.NIL. (G) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) JUSTIFIED IN ALLOWING THE EXPENSES OF RS36,3 7,375/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEES BOOKS WER E LIABLE TO BE REJECTED AND INCOME WAS ESTIMATED IN TERMS OF SEC.145 OF THE INCOME TAX ACT INTER-ALIA RESULTING REJECTION OF CLAIM OF EXPENSES . (H) WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) JUSTIFIED IN ALLOWING 50% OF DEPRECIATION AMOUNTING TO RS. 27,59,570/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO DISCHARGED ITS ONUS TO PROVE THAT THE ASSETS WERE P UT TO USE DURING THE RELEVANT FINANCIAL YEAR. 4. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS ISSUE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT, CIVIL CONSTRUCTION AND HOTELIER. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 1-11-2004 DEC LARING A LOSS OF RS. 35,80,734/-. DURING THE SAID YEAR, SEVEN PROJECTS O F THE ASSESSEE UNDER EXECUTION AND IN THE RETURN OF INCOME, PROFIT OF TH REE PROJECTS NAMELY GOPALA, ATUR PARK AND KUKREJA PLAZA AGGREGATING TO RS. 35,4 1,190/- WAS OFFERED BY THE ASSESSEE ON ESTIMATED BASIS. THE METHOD OF ACCO UNTING STATED TO BE FOLLOWED BY THE ASSESSEE WAS MERCANTILE AND THE REV ENUE IN RESPECT OF THREE PROJECTS NAMELY ATUR PARK, GOPALA AND KUKREJA PLAZA WAS CLAIMED TO BE RECOGNIZED BY FOLLOWING PERCENTAGE COMPLETION METHO D. THE REVENUE FROM OTHER PROJECTS WAS CLAIMED TO BE RECOGNIZED ON PROJ ECT COMPLETION BASIS. ACCORDING TO THE A.O., THE REVISED ACCOUNTING STAND ARD 7 (AS-7) WAS NOTIFIED AND MADE EFFECTIVE FROM A.Y. 2004-05 AND THE PROFIT OF THE ASSESSEE, THEREFORE, WAS LIABLE TO BE DETERMINED AS PER THE S AID STANDARD. HE, THEREFORE, REQUIRED THE ASSESSEE TO FURNISH CERTAIN DETAILS RE LATING TO ITS PROJECTS UNDER EXECUTION DURING THE YEAR UNDER CONSIDERATION. AS S TATED BY THE A.O. IN HIS ITA 949/M/11 4 ORDER, THE ASSESSEE HOWEVER, DID NOT PRODUCE SOME O F THE MATERIAL DETAILS REQUIRED BY HIM AND FURNISHED ONLY SOME DETAILS AND THAT TOO AT THE FAG END OF THE ASSESSMENT PROCEEDINGS. HE ALSO NOTED THAT D IFFERENT METHODS OF ACCOUNTING WERE ADOPTED BY THE ASSESSEE TO RECOGNIZ E THE INCOME FROM DIFFERENT PROJECTS. ACCORDING TO HIM, EVEN THE PERC ENTAGE COMPLETION METHOD ADOPTED BY THE ASSESSEE ON THE ADDITION OF COST TO THE OPENING WIP WAS NOT CORRECT AND THE SAME SHOULD HAVE BEEN APPLIED ON TH E PROJECTED SALES BASIS. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE TO THE AS SESSEE ASKING ITS EXPLANATION IN THE MATTER. IN REPLY, A LETTER DATE D 22-12-2006 WAS FILED BY THE ASSESSEE OFFERING ITS EXPLANATION AS UNDER:- E. THERE ARE TWO METHODS OF ACCOUNTING FOR THE CONS TRUCTION ACTIVITY. ONE IS ON PERCENTAGE COMPLETION METHOD AN D OTHER IS COMPLETION PROJECT METHOD, WHICH ARE RECOGNIZED MET HODS OF ACCOUNTING BY I. T. DEPT. WE ARE ADOPTING METHOD OF ACCOUNTING FOR PROJECT KU KREJA PLAZA, ATUR PART & GOPALA ON PERCENTAGE OF COMPLETION METHOD I N WHICH WE ARE DECLARING PROFIT ON WORK IN PROGRESS AS FG LOCATION ON SITE. MARKET CONDITION ETC. AND OTHER FACTORS TO DECLARE APPROPR IATE RATE OF ESTIMATED PROFIT ON WORK IN PROGRESS, WHICH HAS BEEN ACCEPTED BY THE DEPT. IN PREVIOUS YEAR. WE HAVE STARTED TWO NEW PROJECTS NAMELY MADHURI & G ANGA TOWER WHICH WERE SMALL PROJECT AND WE HAVE ADOPTED THE ME THOD & ACCOUNTING ON THE BASIS OF COMPLETION METHOD WHICH HAS ALSO BEEN ACCEPTED BY THE DEPT. THE PROJECT MADHURI HAS START ED IN YEAR NOV - 2000 ARID COMPLETED ON MAY 2002 AND HAVE DECLARE TH E PROFIT WHICH HAS BEEN ACCEPTED BY THE DEPT. IN A. Y.2003-2004. THE PROJECT GANGA TOWER II WHICH IS STARTED IN A.Y. JULY 2001 OUR BOOKS ARE AUDIT U/S.44AB OF I.T.ACT AND THE ACCOUNT ING METHOD FOR CONSTRUCTION HAS ALREADY BEEN DECLARED IN THE AUDIT ORS REPORT WHICH HAS BEEN ACCEPTED BY DEPT. IN PREVIOUS YEAR. IT HAS BEEN HELD IN NUMBER OF JUDGEMENT THAT THE CH OICE OF THE METHOD OF HIS ACCOUNTING LIES WITH THE ASSESSEE AND IT IS ALSO OPEN TO THE ASSESSEE TO FOLLOW ONE SYSTEM OF ACCOUNTING IN RESP ECT OF ONE SOURCE AND ANOTHER SYSTEM IN RESPECT OF ONE SOURCE AND ANO THER SYSTEM IN RESPECT OF ANOTHER SOURCE CIT V/S MC MILLAN & CO (1 950) 33 ITR 182- 188 S.C. ITA 949/M/11 5 BONAFIDE CHANGE OF METHOD PERMISSIBLE :- AN ASSESSE E IS ENTITLED TO CHANGE THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM. WHAT HE MUST ALTER, HOWEVER, HIS REGULAR METHOD, AND START A NEW REGULAR METHOD AND NOT MERELY A NEW METHOD FOR A CASUAL PER IOD (SARUPCHAND V. CIT, (1936) 4 ITR 420, 421 (BOM)]. WHEN AN ASSES SEE BONA FIDE CHANGES HIS METHOD OF ACCOUNTING THEREAFTER OR THAT HE HAS IN FACT INTENDS TO ADOPT CHANGED METHOD OF ACCOUNTING THERE AFTER OR THAT HE HAS IN FACT ADOPTED IT THEREAFTER, THAT SATISFIES T HE REQUIREMENT OF SECTION 145. NEITHER PRINCIPLE NOR AUTHORITY BARS A N ASSESSEE FROM SUBSTITUTING ONE METHOD OF ACCOUNTING FOR ANOTHER A T HIS CHOICE. A CHANGE IN THE METHOD OF THE ASSESSEES CHOICE OR TH E APPLICATION OF THE FIRST PROVISO TO SECTION 145 (1) [INDO-COMMERCIAL B ANK LTD. V. CIT (1962) 44 1TR 22, 36, 37 (MAD); FOREST INDUSTRIES T RAVANCORE LTD. V. CIT (1966) 61 1TR 395 (ALL); DR. ITR 329 (KER); NEW VICTORIA MILLS CO. LTD. V. CIT (1966) (ITR) 395 (ALL); ONCE. HAVING SO CHANGED THE METHOD OF ACCOUNTING, I F THE ASSESSEE CONTINUES WITH THE CHANGED METHOD, IT BECOMES HIS R EGULARLY EMPLOYED METHOD WITHIN THE MEANING OF SECTION 145(1) AND THE ASSESSING OFFICER IS BOUND TO BASE HIS ASSESSMENT ON THE CHANGED METH OD PROVIDED THAT INCOME CAN PROPERLY BE DEDUCTED FROM SUCH METHOD. I F, HOWEVER, THE CHANGED METHOD IS NOT FOLLOWED REGULARLY BY THE ASS ESSEE, THE TAXING AUTHORITY CANNOT FALL BACK UPON THE EARLIER METHOD OF ACCOUNTING. THIS IS SO BECAUSE IN SUCH A CASE IT CANNOT BE SAID THAT THE ASSESSEE HAD FOLLOWED THE EARLIER METHOD REGULARLY IN VIEW OF TH E INTERMEDIARY CHANGED METHOD OF ACCOUNTING. SUCH A CASE WILL BE A CASE FALLING UNDER SECTION 145(2) WHERE NO METHOD OF ACCOUNTING HAS BE EN REGULARLY EMPLOYED BY THE ASSESSEE ENTITLING THE ASSESSING AU THORITY TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION .144 ( REFORM FLOUR MILLS P.LTD. V. CIT(1978) 114 ITR 227, 230 (CAL)] 5. AFTER CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE, THE A.O. RECORDED HIS OBSERVATIONS/FINDINGS THEREON AS UNDER :- (1) THE ASSESSEES CONTENTION THAT THE CHOICE OF M ETHOD OF HIS ACCOUNTING LIES WITH THE ASSESSEE AND IT IS ALSO OP EN TO THE ASSESSEE TO FOLLOW ONE SYSTEM OF ACCOUNTING IN ONE SOURCE AND A NOTHER SYSTEM IN RESPECT OF ANOTHER SOURCE. CIT VS. MCMILLAN [1950] 33 ITR 182, 188 (SC) IS MISPLACED AND MISGUIDED AS THE SAME JUDGMEN T OF THE HONBLE SUPREME COURT HAS BEEN DELIVERED ON THE FACTS OF CA SH SYSTEM AND MERCANTILE SYSTEM OF ACCOUNTING. MOREOVER, THE ASSE SSEES SOURCE IS ONLY ONE AND I.E. BUILDING AND CONSTRUCTION ACTIVIT Y. THERE IS NO OTHER SOURCE AS CLAIMED BY THE ASSESSEE. THEREFORE, THE R ELIANCE OF THE ASSESSEE IS MISPLACED AND THE SAID JUDGMENT DOES NO T COME TO THE RESCUE OF THE ASSESSEE. ITA 949/M/11 6 (II) THE ASSESSEES SECOND CONTENTION THAT THE ASSE SSEES BONAFIDE CHANGES OF METHOD OF ACCOUNTING AT HIS CHOICE, IS A LSO MISPLACED AND MISGUIDED AS WITH THE NOTIFICATION OF ACCOUNTING ST ANDARD, THE PROFIT FROM THE SAID ACTIVITY IS TO BE DETERMINED AS PER T HE STANDARDS AND NOT OTHERWISE. (III) FROM THE FOLLOWING COMPARISON OF PERCENTAGE O F PROFIT OFFERED, IT IS CLEAR THAT THE ASSESSEE HAS NOT BEEN ADOPTING ANY V ALID METHOD CONSISTENTLY AND REGULARLY: PROJECT %GE IN AY. 03-04 %GE IN AY 04-05 GOPALA 12 20 ATUR PARK 12.5 12.5 KUKREJA PLAZA 12.5 20 (IV) IT MAY BE PERTINENT TO MENTION THAT THE ASSESS EE IN ITS SUBMISSION IN THE LAST SUB-PARA OF THE PARA (E) OF REPLY DATED 22.12.2006 HAS STATED AS UNDER: ONCE HAVING SO CHANGED THE METHOD OF ACCOUNTING, I F THE ASSESSEE CONTINUES WITH THE CHANGED METHOD, IT BECO MES HIS REGULARLY EMPLOYED METHOD WITHIN THE MEANING OF SEC TION 145(1) AND THE ASSESSING OFFICER IS BOUND TO BASE. HIS ASS ESSMENT ON THE CHANGED METHOD PROVIDED THAT INCOME CAN PROPERLY BE DEDUCTED FROM SUCH METHOD. IF, HOWEVER, THE CHANGED METHOD I S NOT FOLLOWED REGULARLY BY THE ASSESSEE, THE TAXING AUTH ORITY CANNOT FALL BACK UPON THE EARLIER METHOD OF ACCOUNTING. TH IS IS SO BECAUSE IN SUCH A CASE IT CANNOT BE SAID THAT THE ASSESSEE HAD FOLLOWED THE EARLIER METHOD REGULARLY IN VIEW OF THE INTERME DIARY CHANGED METHOD OF ACCOUNTING. SUCH A CASE WILL BE A CASE FA LLING UNDER SECTION 145(2) WHERE NO METHOD OF ACCOUNTING HAS BE EN REGULARLY EMPLOYED BY THE ASSESSEE ENTITLING THE ASSESSING AU THORITY TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144 (REFORM R MILLS P. LTD. V. CIT (1978) 114 1TR 227, 230 (CAL) (V) THE ASSESSEE HAS NOT FOLLOWED THE METHOD OF ACC OUNTING REGULARLY AND HAS BEEN CHANGING THE METHOD OF ACCOUNTING FROM COMPLETION METHOD TO PERCENTAGE METHOD AND THEN AGAIN, COMPLET ION METHOD FOR A PARTICULAR PROJECT, AND EVEN IN THE PERCENTAGE COMP LETION METHOD, THE RATES ARE VARYING FROM YEAR TO YEAR IN THE SAME PRO JECTS. THE ASSESSEE FIRM HAS ESTIMATED PERCENTAGE OF PROFIT, WHICH ARE EVEN DIFFERENT IN EVERY YEAR ON THE SAME PROJECT, AND APPLIED THE SAI D PERCENTAGE ON THE WORK CARRIED OUT DURING THE YEAR. (VI) THE SAID METHOD CANNOT BE ACCEPTED BECAUSE IT IS PT BRINGING THE REAL INCOME OF THE RESPECTIVE YEAR FOR TAX. TAX STA TUTES REQUIRE TAXING THE REAL INCOME OF THE YEAR. THE ONLY ACCEPTABLE AN D PROVEN METHOD FOR TAXING THE INCOME OF REAL ESTATE DEVELOPER IS THAT ESTIMATE OF PROFIT HAS ITA 949/M/11 7 TO BE MADE FOR ENTIRE PROJECT WHICH IS REQUIRED TO BE REVISED EVERY YEAR DEPENDING ON THE PREVAILING COST AND POSSIBLE PROJE CT REALIZATION. THE PROJECTED PROFIT SO COMPUTED HAS TO BE ADJUSTED PRO -RATA TO THE COMPLETION OF WORK TILL THE END OF THE RELEVANT YEA R AND SUCH PRO-RATA PROFIT HAS TO BE TREATED AS PROFIT EARNED BY THE PR OJECT TILL THE END OF SUCH YEAR AND TO TAX THE PROFIT FOR THE YEAR, SUCH PRORATA PROFIT COMPUTED UPTO THE IMMEDIATELY PRECEDING YEAR HAS TO BE REDUCED. THE ASSESSEE HAS NOT CARRIED OUT SUCH COMPUTATION AND T HEREFORE, PROFIT SHOWN BY IT CANNOT BE ACCEPTED. (VII) THE ASSESSEES CASE HAS TO BE EXAMINED UNDER THE PROVISIONS OF SECTION 145 OF THE ACT AND IN VIEW OF THE FINDINGS GIVEN BY THE HONBLE SUPREME COURT IN THE CASE OF M/S.CHALLAPALLI SUGARS LTD. VS. CIT [98 ITR 167 (SC)] WHEREIN IT IS HELD THAT 1THE ACCOUNTI NG STANDARD PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA HAS GOT TO BE ACCEPTED. HOWEVER, THE SUPREME COURT IN THE CASE OF TUTICURION ALKALI CHEMICALS AND FERTILIZERS LIMITED VS. CIT [2 27 ITR 172] HAS CAUTIONED THAT THE METHOD OF ACCOUNTING PRESCRIBED BY ICAI SHOULD BE ACCEPTED SUBJECT TO THE CONDITION THAT IT DOES NOT TRANSGRESS INTO THE PROVISIONS OF THE ACT FOR COMPUTATION OF INCOME UND ER DIFFERENT HEADS. IN THE CASE OF THE ASSESSES THE REVISED AS-7 (2002) PRESCRIBED BY ICAI HAS TO BE FOLLOWED. 6. ON THE BASIS OF ABOVE FINDINGS/OBSERVATIONS RECO RDED BY HIM, THE A.O. ARRIVED AT A CONCLUSION THAT THE ASSESSEE HAS NOT R EGULARLY EMPLOYED THE SAME METHOD OF ACCOUNTING FOR ALL THE PROJECTS AND THE A NNUAL PROFITS COULD NOT BE PROPERLY DEDUCED FROM THE METHOD SO EMPLOYED. HE T HEREFORE REJECTED THE BOOK RESULTS OF THE ASSESSEE AND DETERMINED THE INC OME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION FROM THE DIFFERENT PRO JECTS UNDER EXECUTION AS UNDER:- GANGA TOWER II :- 6.1 IT IS STATED ON RECORD BY THE ASSESSEE THAT EXC EPT GANGA TOWER II, PROFIT OF ALL THE OTHER PROJECTS HAS BEEN SHOWN ON PERCENTAGE BASIS ON PRORATA COMPLETION OF PROJECT. 6.2 MOREOVER, THE PROFIT DISCLOSED BY THE ASSESSEE ON ESTIMATION BASIS IN RESPECT OF VARIOUS PROJECTS DOES NOT INCLUDE PRO FIT ON GANGA TOWER II PROJECT I.E. THE SAID PROFIT DOES NOT INCLUDE PROFI T ESTIMATION ON GANGA TOWER II PROJECT. THE ASSESSEE HAS ADOPTED A METHOD OF ACCOUNTING, WHICH IS PARTIALLY APPLIED ON SOME PROJECTS AND NOT APPLIED AT ALL ON ONE PROJECT VIZ. GANGA TOWER II. AS HAS ALREADY BEEN ST ATED EARLIER THAT WHERE THE ASSESSEE HAS SUBSTANTIALLY REALIZED THE C ONSTRUCTION WORK CARRIED OUT BY IT BY MAKING AGREEMENTS AND RECEIVIN G CONSIDERATIONS ITA 949/M/11 8 UNDER SUCH AGREEMENTS, THE TAXABILITY OF INCOME ON SUCH ESTIMATION OF PROFIT ON SUCH RECEIPTS CANNOT BE ALLOWED TO BE POS TPONED. 6.3 THE ASSESSEE HAS NOT OFFERED ANY PROFIT ON THE SALES CONSIDERATION/ REALISATION FROM THE GANGA TOWER II PROJECT. THE IN COME UNDER THE PERCENTAGE COMPLETION METHOD DISCUSSED HERE-IN-ABOV E IS REQUIRED TO BE COMPUTED IN RESPECT OF THE GANGA TOWER II PROJEC T. AS HAS BEEN DISCUSSED IN THE FOREGOING PARAGRAPHS, INSPITE OF O PPORTUNITIES PROVIDED, THE ASSESSEE HAS FAILED TO OR DELIBERATEL Y AVOIDED FURNISHING THE INFORMATION AND EVIDENCES REGARDING THE PROJECT S CALLED FOR VIDE NOTICE U/S 142(1) ISSUED ON 10.11.2006. EVEN WHATEV ER SKETCHY AND INCOMPLETE INFORMATION IS PROVIDED BY THE ASSESSEE, IT HAS BEEN PROVIDED ONLY AT THE FAG END OF THE YEAR JUST A FEW DAYS BEFORE THE LIMITATION DATE THEREBY CLOSING ALL THE PATHS TO EX PLORE THE GENUINENESS OF THE SAID INFORMATION. IT IS ALSO NOT CLEAR AS TO WHAT PREVENTED THE ASSESSEE FROM FURNISHING THE REQUIRED INFORMATION A ND PRODUCING THE RELEVANT EVIDENCES INCLUDING THE BOOKS OF ACCOUNTS. 6.4 AS DISCUSSED IN THE FOREGOING PARAGRAPHS, THE P ROFIT/INCOME FROM THE GANGA TOWER II PROJECT IS COMPUTED ON TOTAL EST IMATED SALES BASIS IN THE FOLLOWING MANNER. THE INFORMATION GATHERED F ROM THE SUBMISSIONS OF THE ASSESSEE AS ALSO FROM THE RECORD S AVAILABLE WITH THE DEPARTMENT AS ON DATE IS AS FOLLOWS: TOTAL AREA CONSTRUCTED/UNDER CONSTRUCTION 50071 SQ. FT . TOTAL AREA SOLD UPTO 31-3- 2003 8144 SQ. FT. TOTAL SALES CONSIDERATION OF AREA SOLD RS. 2,27,18,350 AVERAGE RATE OF BOOKING MADE DURING THE YEAR RS. 2,474 (AVERAGE OF FIRST THREE AND LAST THREE BOOKINGS TOTAL ESTIMATED SALES RS. 12,64,45,748 (50071-8144) * RS. 2,474 + RS. 2,27,18,350 TOTAL PROJECTED COST RS. 7,64,82,838 AS AVAILABLE F ROM RECORDS TOTAL ESTIMATED PROFITS RS. 4,99,62,910 6.5 FROM THE ABOVE CHART, IT CAN BE SEEN THAT THE T OTAL ESTIMATED PROFITS AMOUNT TO RS. 4,99,62,910/-. THE COST OF PROJECT IN CURRED BY THE - ASSESSEE UPTO 31.03.2004 IS RS. 5,14,91,811/- WHICH IS 67.32% OF THE TOTAL PROJECTED COST. HENCE 67.32% OF THE PROJECTED PROFITS AMOUNTING TO RS.3,36,35,03 1/- MINUS THE PROFITS ALREADY DECLARE D UPTO THE ITA 949/M/11 9 IMMEDIATELY PRECEDING YEAR ARE TO BE TAXED IN THE Y EAR UNDER CONSIDERATION. IN RELATION TO THE GANGA TOWER II PR OJECT, THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD (WHICH IS NOT A VALID METHOD AT ALL) AND HAS NOT OFFERED ANY PROFIT FROM THE PROJECT IN THE PRECEDING YEARS. 6.6 HENCE, THE WHOLE OF THE PROFITS OF RS.3,36,35,0 31/- AS CALCULATED HERE-IN-ABOVE ARE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND ARE BROUGHT TO TAX ACCORDINGLY. SINCE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME/FURNISHED INACCURATE PART ICULARS OF THE INCOME, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE AC T ARE HEREBY INITIATED. 7. GOPALA PROJECT. 7.1 THE ASSESSEE HAS OFFERED ESTIMATED PROFIT OF RS .29,68,807/- @ 20% OF THE ADDITION DURING THE YEAR TO THE COST OF PROJ ECT ON PERCENTAGE COMPLETION METHOD. AS IS ALREADY DISCUSSED HERE-IN- ABOVE, THE SAID OF OFFERING PROFIT ON SOME PERCENTAGE OF ADDITION TO C OST IS NOT A METHOD FOR COMPUTING PROFITS OF THE ASSESSEES BUSINESS. I N THE PROFITS OF GANGA TOWER II PROJECT HAVE BEEN COMPUTED IN THE PARAGRAP H SUPRA, THE PROFITS OF GOPALA PROJECT ARE ALSO COMPUTED AS UNDE R: TOTAL AREA CONSTRUCTED/UNDER CONSTRUCTION 45094 SQ. FT. TOTAL AREA SOLD UPTO 31-3- 2003 31090 SQ. FT. TOTAL SALES CONSIDERATION OF AREA SOLD RS. 9,98,96,050 AVERAGE RATE OF BOOKING MADE DURING THE YEAR RS. 1,675 (AVERAGE OF FIRST THREE AND LAST THREE BOOKINGS) TOTAL ESTIMATED SALES RS. 12,33,52,750 (45094-31090)* 1675 + 99896050 TOTAL PROJECTED COST RS. 7,89,68,646 AS AVAILABLE FROM RECORDS TOTAL ESTIMATED PROFITS RS. 4,43,84,104 TOTAL COST OF PROJECT AS ON 31-03-2004 BEFORE PROFIT RS. 7,26,85,990 92.04% OF ESTIMATED PROFITS LESS: PROFITS DECLARED TILL 31- 3-2003 RS. 51,50,493 AS PER ASSESSEES SUBMISSIONS PROFITS TAXABLE IN THIS YEAR RS. 3,57,00,636 7.2 FROM THE ABOVE CHART, IT CAN BE CLEARLY SEEN TH AT THE TOTAL ESTIMATED SALES HAVE BEEN COMPUTED TAKING INTO ACCOUNT THE AR EA ALREADY SOLD BY THE ASSESSEE AT THE AMOUNT OF SALE CONSIDERATION SH OWN BY THE ASSESSEE ITA 949/M/11 10 AND THE ADDITIONAL AREA HAS BEEN VALUED AT AVERAGE BOOKINGS PRICE FOR THE YEAR. THUS A FAIR AND JUST ESTIMATE OF THE TOTA L PROJECTED SALES IS MADE. ON THIS ESTIMATE OF PROJECTED SALES, AFTER TA KING TO CONSIDERATION TOTAL PROJECTED COST OF THE PROJECT, ESTIMATED PROF ITS OF THE PROJECT HAVE BEEN COMPUTED. BUT ONLY THAT PORTION OF THE ESTIMAT ED PROFITS IS TAXED IN THE YEAR UNDER CONSIDERATION WHICH BEARS THE SAM E PROPORTION AS THE COST AS ON THE YEAR ENDING DATE BEARS TO THE TOTAL PROJECTED COST. THUS THE TAXABLE PROFITS ARE COMPUTED ON THE CORRECT PER CENTAGE COMPLETION METHOD AND AS PER THE ACCOUNT STANDARD 7 (AS 7). 7.3 THUS, THE PROFITS OF GOPALA PROJECT TAXABLE IN THE YEAR UNDER CONSIDERATION ARE COMPUTED AT RS. 3,57,00,636/-. SI NCE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME/FURNISH ED INACCURATE PARTICULARS OF THE INCOME, PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT ARE HEREBY INITIATED. 8. KUKREJA PLAZA - 8.1 THE ASSESSEE HAS OFFERED ESTIMATED PROFIT OF RS .5, 10,325/- @ 20% OF THE ADDITION TO THE COST OF PROJECT ON PERCENTAG E COMPLETION METHOD. AS IS ALREADY DISCUSSED HERE-IN-ABOVE, THE SAID MET HOD OF OFFERING PROFIT ON SOME PERCENTAGE OF ADDITION TO COST IS NOT A COR RECT METHOD FOR COMPUTING PROFITS OF THE ASSESSEES BUSINESS. IN TH E MANNER, PROFITS OF GANGA TOWER II PROJECT HAVE BEEN COMPUTED IN THE PA RAGRAPH SUPRA, THE PROFITS OF KUKREJA PROJECT ARE ALSO COMPUTED IN THE FOLLOWING MANNER. 8.2 THE ASSESSEE HAS NOT FURNISHED THE BASIC DETAIL S CALLED FOR IN RELATION TO THIS PROJECT. NO FIGURES OF THE TOTAL P ROJECTED SALES, TOTAL PROJECTED COST, TOTAL ESTIMATED PROFITS, TOTAL AREA OF CONSTRUCTION, ETC. HAVE BEEN FURNISHED. FROM THE PERUSAL OF THE RECORD S AND INFORMATION AVAILABLE WITH THE DEPARTMENT, THE FOLLOWING DETAIL S HAVE BEEN ASCERTAINED AND ACCORDINGLY THE PROFITS OF THE PROJ ECT ARE BEING COMPUTED. KUKREJA PLAZA: TOTAL PROJECTED COST OF PROJECT RS. 14,16,07,058 ASCERTAINED FROM RECORDS TOTAL AREA OF CONSTRUCTION 220228 SQ. FT. DERIVED FROM INFORMATION AVAILABLE AVERAGE RATE OF BOOKINGS FOR THE YEAR UNDER CONSIDERATION RS. 850 AVERAGE OF BOOKINGS DONE DURING THE YEAR TOTAL AREA SOLD UPTO 31-3- 2003 136354 SQ. FT. ITA 949/M/11 11 TOTAL ESTIMATED SALES OF THE PROJECT RS. 18,89,38,190 (220228-136354)* RS. 850 + RS. 11,76,46,290 TOTAL ESTIMATED PROFITS RS. 4,73,31,132 TOTAL COST OF PROJECT INCURRED TILL 31-3-2004 RS. 12,58,74,808 WIP AS ON 31-3- 2004 BEFORE PROFITS FOR THE YEAR PERCENTAGE OF THE ABOVE COST TO TOTAL PROJECTED COST 88.89% PROFITS UPTO 31-3-2004 RS. 4,20,72,643 88.89% OF ESTIMATED PROFITS LESS: PROFITS OFFERED TO TAX UPTO 31-3-2003 RS. 1,53,68,452 AS PER ASSESSEES SUBMISSIONS PROFITS TAXABLE IN THIS YEAR RS. 2,67,04,191 8.3 THUS, THE PROFITS OF KUKREJA PROJECT TAXABLE IN THE YEAR UNDER CONSIDERATION ARE COMPUTED AT RS. 2,67,04,191/-. SI NCE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME/FURNISH ED INACCURATE PARTICULARS OF THE INCOME, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE HEREBY INITIATED. 9. ATUR PARK PROJECT 9.1 REGARDING THE ATUR PARK PROJECT, THE ASSESSEE H AS SHOWN THE OPENING WIP AT RS.17,63,91486/-. ON THE ADDITIONS T O THE COST OF PROJECT DURING THE YEAR SHOWN AT RS.4,96,468/-, THE ASSESSEE HAS OFFERED PROFITS @ 12.5% AT O697-.OEFLSOF THE TOTAL AREA OF CONSTRUCTION, PROJECTED SALES, PROJECTED PROFITS, AREA SOLD, RATE OF SALE, NO. OF FLATS CONSTRUCTED/SOLD, ETC. HAVE BEEN FURNISHED BY THE A SSESSEE. IT IS GATHERED FROM THE RECORDS THAT THE OPENING WORK-IN- PROGRESS INCLUDES THE WIP OF THREE PROJECTS VIZ. GANGA TOWER I, GANGA ESTATE AND GANGA GREEN. 9.2 THE GANGA GREEN PROJECT SHOWS THE WIP OF RS.3,8 6,96,904/- AGAINST WHICH THE ASSESSEE HAS SHOWN ADVANCES RECEI VED AT RS.L0,04,31,325/-. DURING THE YEAR UNDER CONSIDERAT ION, THERE HAS BEEN NO ADDITION TO THE COST OF THIS PROJECT. HENCE, NO PROFIT NEEDS TO BE COMPUTED IN RELATION TO THIS PROJECT FOR THE YEAR U NDER CONSIDERATION. 9.3 IN CONNECTION WITH GANGA ESTATE PROJECT, THE PO SITION IS THE SAME AS WITH THE GANGA GREEN PROJECT DISCUSSED IN PARA 1 0.2 SUPRA. THERE IS NO ADDITION TO THE COST OF THE PROJECT AS ALSO TO T HE SALES/ADVANCES SHOWN AS ON 3 1.03.2003. HENCE, NO PROFIT NEEDS TO BE COMPUTED IN RELATION TO THIS PROJECT FOR THE YEAR UNDER CONSIDE RATION. ITA 949/M/11 12 9.4 THE ADDITIONS TO THE OPENING WIP OF ATUR PARK A RE TO THE GANGA TOWER I PROJECT. THE SAME ARE DEALT WITH IN THE FOL LOWING MANNER. 10. GANGA TOWER I :- 10.1 THE TOTAL ADVANCE TOWARDS SALE OF GANGA TOWER I PREMISES IS SHOWN AT RS.9,37,87, 104/- WHICH IS EQUIVALENT TO T HE SALES AND OTHER INCOME BOOKED BY THE ASSESSEE FOR THE YEAR ENDED 3 1.03.2005 IN RESPECT OF THE SAID PROJECT WHEREAS THE TRADING ACC OUNT PREPARED FOR THE YEAR ENDED 3 1.03.2005 FOR THE GANGA TOWER I PROJEC T SHOWS INCURRING OF COST AT ONLY RS.31,513/- AGAINST THE TOTAL COST OF PROJECT INCURRED UPTO 31.O3.2004 AT RS. 6,43,59,132/-. THE TOTAL ARE A CONSTRUCTED FOR THE SAID PROJECT IS 53,605 SQ.FT. OUT OF WHICH 52,4 80 SQ.FT. WAS SOLD ON OR BEFORE 31-3-2004 AND FULL SALE PROCEEDS AMOUNTIN G TO 8,91,66,000/- WERE REALIZED BEFORE THE END OF THE YEAR UNDER ASSE SSMENT AND OTHER SUMS COLLECTED FROM THESE BUYERS WERE AT RS.40,12,0 25/-. 10.2 ON THIS PROJECT, PROFIT SHOWN ON ESTIMATE BASI S IN EARLIER YEARS HAS ALREADY BEEN INCLUDED IN THE OPENING WIP SHOWN AT R S.6,43,59,132/-. THEREFORE, AFTER ADJUSTING THE CLOSING STOCK AT COS T FOR 1 125 SQ.FT AT RS.12,36,813/-, THE PROFIT ON THE SAID PROJECT NOT SHOWN BY THE ASSESSEE COMES TQ. RS.3,00,22,193/-.THE ADDITION OF RS.31,513/- TO COST HAS NOT BEEN EXPLAINED BY THE ASSESSEE. THE SA ID ADDITION IS NOTHING BUT JUST IMAGE THAT THE PROJECT HAS ACTUALL Y COMPLETED IN THE NEXT YEAR WHICH EVEN OTHERWISE DOES NOT HELP THE CA USE OF THE ASSESSEE AS THE SAID METHOD IS NOT ACCEPTABLE. IT IS RELEVAN T TO MENTION TIAT PROJECT GANGA TOWER I HAS ALREADY BEEN COMPLETED, H AS ALREADY BEEN SALTANTIA1LY SOLD AND THE SALE PROCEEDS OF THE SAME HAVE BEEN REALIZED. BUT THE ASSESSEE HAS NOT SHOWN ANY PROFIT FROM THIS PROJECT IN THE YEAR UNDER CONSIDERATION WHICH IS CLEAR EVASION AND CONC EALMENT OF INCOME. 10.3 IT HAS ALREADY BEEN ESTABLISHED IN THE FOREGOI NG PARAGRAPHS THAT THE ASSESSEE IS NOT FOLLOWING CORRECT METHOD OF ACC OUNTING WHEREBY., CORRECT PROFIT IS NOT BEING DECLARED AND AS A RESUL T OF THIS, THE BOOK RESULT HAS BEEN REJECTED. WHEN THE PROJECT WAS ALRE ADY COMPLETED AS ON 31.03.2004, THERE WAS NO QUESTION LEFT REGARDING ME THOD OF ACCOUNTING TO BE ADOPTED AS THE PROFITS OF THE ENTIRE PROJECT WHICH WAS COMPLETED DURING THE YEAR WERE TO BE COMPULSORILY INCLUDED IN THE TOTAL INCOME BY THE ASSESSEE ON ITS OWN. WHEN THE BOOK RESULTS HAVE BEEN REJECTED AND THE PROJECT HAS ALREADY BEEN COMPLETED, POSTPONEMEN T OF THE TAXABILITY OF INCOME AS PER ASSESSEES OWN CONVENIENCE IS NOT ALLOWED UNDER THE LAW. 10.4 HENCE, THE PROFIT OF THE PROJECT IS TAKEN AT R S.3,00,22, 193/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. SINCE TH E ASSESSEE HAS ITA 949/M/11 13 CONCEALED THE PARTICULARS OF ITS INCOME/FURNISHED I NACCURATE PARTICULARS OF THE INCOME, PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT ARE HEREBY INITIATED. ACCORDINGLY, THE INCOME OF THE ASSESSEE FROM THE FO UR PROJECTS IE. GANGA TOWER II, GANGA TOWER I, KUKREJA PROJECT AND GOPALA PROJECT WAS ESTIMATED BY THE A.O. AT RS. 33,635,031/-, RS. 30,022,192/-, RS. 26,704,191/- AND RS. 35,700,636/- 3,22,192 & RS. 2,67,41291/-, RS. 3,57, 636 RESPECTIVELY IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX A CT, 1961. 7. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DISPUTING INTER ALIA THE ADDITION TO ITS BUSINESS INCOME BY ESTIMATING THE I NCOME FROM FOUR PROJECTS AT HIGHER VALUES. BEFORE THE LD. CIT(A), THE FOLLOWIN G ARGUMENTS WERE MAINLY MADE BY THE ASSESSEE:- (A) T HE APPELLANT IS THE BUILDER AND DEVELOPER AND NOT A CONTRACTOR AND HENCE ACCOUNTING STANDARD AS-7 IS NOT APPLICABL E. (B) THE APPELLANT FOLLOWS MERCANTILE SYSTEM OF ACCO UNTING AND HAS MAINTAINED ITS BOOKS OF ACCOUNTS AND THERE IS NO CH ANGE IN THE METHOD OF ACCOUNTING. (C) THE APPELLANT IS ASSESSED UNDER THE CENTRAL CIR CLE IV SINCE 1995 AND ITS BOOKS OF ACCOUNTS HAVE ALWAYS BEEN ACCEPTED SAVE AND EXCEPT ASST. YEAR 2004-05. (D) IN VIEW OF THE ABOVE, THE INCOME I.E. LOSS OF R S. 35,80,734/- DECLARED BY THE APPELLANT AS PER ITS BOOKS OF ACCOU NTS AND THE RETURNS OF INCOME SHOULD BE ACCEPTED. 8. IN SUPPORT OF THE ABOVE ARGUMENTS, ALTERNATIVE S UBMISSIONS WERE MADE BY THE ASSESSEE BEFORE THE LD. CIT(A) IN WRITING VI DE LETTER DATED 14-3-2010 WHICH WERE AS UNDER:- ITA 949/M/11 14 (A) THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN PARA 4 OF HIS ORDER AND HE HAS CORRECTLY QUOTED THE METHOD OF ACCOUNTIN G AS MENTIONED IN THE TAX AUDIT REPORT I.E. THE ASSESSEE IS FOLLOWING THE PERCENTAGE OF WORK-IN-PROGRESS METHOD IN RESPECT OF ATUR PARK, GO PALA AND KUKREJA PLAZA AND FOLLOWING THE COMPLETION METHOD IN RESPEC T OF GANGA TOWER II. HOWEVER, IN PARA 4,2, THE ASSESSING OFFICER H AS WRONGLY CONCLUDED THAT THE FIRM IS DETERMINING THE REVENUE ON VARIOUS PROJECTS SOME TIMES ON THE BASIS OF PROJECT COMPLETION METHOD AND SOME TIMES ON PERCENTAGE COMPLETION METHOD. (B) THIS FINDING OF THE ASSESSING OFFICER IS ABSOLU TELY WRONG IN VIEW OF THE DETAILS OF THE VARIOUS PROJECTS AS MENTIONED AB OVE AND FROM WHICH, IT IS VERY CLEAR THAT THE FIRM WAS EARLIER FOLLOWIN G THE METHOD OF DECLARING ESTIMATED PROFIT ON THE BASIS OF PERCENTA GE OF WORK IN PROGRESS DURING THE PENDENCY OF THE PROJECT WHICH H AS BEEN ACCEPTED BY THE DEPARTMENT AND ONLY IN RESPECT OF TWO PROJEC TS WHICH WERE NEWLY STARTED I.E. MADHURI - STARTED IN ASST. YEAR 2001-0 2 AND COMPLETED IN ASST. YEAR 2003-04 AND GANGA TOWER-IL - STARTED IN ASST. YEAR 2002-03 AND COMPLETED IN ASST. YEAR 2005-06, THE FIRM HAS A DOPTED THE COMPLETION METHOD, WHICH IS ALSO ACCEPTED BY THE DE PARTMENT IN THE ASST. YEAR 2001-02, 2002-03 AND 2003-04 IN WHICH MA DHURI PROJECT WAS COMPLETED AND THERE IS NO BASIS FOR THIS FINDIN G THAT SOME TIMES REVENUE IS RECOGNIZED ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD AND SOME TIMES ON THE BASIS OF COMPLETION METHOD. REGARDING THE ARGUMENT OF THE ASSESSING OFFICER ON PAR 4.3 OF HIS ORDER IS THAT REVISED ACCOUNTING STANDARD - 7/2002 (WRONGLY MENTIONED BY THE ASSESSING OFFICER AS AS-7/2 000) ISSUED BY T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IS APPLICABLE ON THE APPELLANT FIRM, THE LEARNED AR OF THE APPELLANT STATED THAT THIS ACCOUN TING STANDARD IS APPLICABLE ONLY ON THE CONTRACTORS AS IN THE SCOPE OF THE ACCOUNTING STANDARD, IT IS CLEARLY MENTIONED THAT THIS STATEM ENT SHOULD BE APPLIED IN ACCOUNTING FOR CONSTRUCTION CONTRACTS IN THE FINANCIAL STATEMENTS OF CONTRACTORS. THE APPELLANT CLAIMED T HAT THE FIRM IS NOT A CONTRACTOR AND NOT TAKING ANY CONTRACT FOR CONSTRUC TION. THE APPELLANT FIRM IS A BUILDER AND CONSTRUCTS RESIDENTIAL AND CO MMERCIAL BUILDINGS FOR ITS OWN PURPOSES, WHICH ARE SOLD TO THE PROSPEC TIVE BUYERS. (C) REGARDING THE ASSESSING OFFICERS ALLEGATION TH AT HE ASKED FOR VARIOUS LENGTHY DETAILS FROM THE APPELLANT VIDE HIS LETTER DATED 10-11-2006 AND AGAINST THAT, THE APPELLANT SUPPLIED PART DETAILS A ND SOME OF THE DETAILS HAVE NOT BEEN SUPPLIED, IT WAS APPELLANT SUBMITTED THAT THE APPELLANT IS ASSESSED IN THE CENTRAL CIRCLE SINCE 1994 AND EACH ASST. YEAR S A SCRUTINY ASST. YEAR AND ALL THESE DETAILS ARE SUPPL IED EVERY YEAR. THEREFORE, THE ASSESSEE FIRM WAS NOT ABLE TO COMPIL E ALL THESE LENGTHY DETAILS IN A SHORT PERIOD OF TIME AS THE ASSESSMENT ITSELF WAS TAKEN UP IN THE MONTH OF DECEMBER WHICH WAS GETTING TIME BAR RED ON 31-12- 2006 AND THESE DETAILS ARE HAVING NO RELEVANCE AS A LL PRIMARY DETAILS ITA 949/M/11 15 ARE FILED VIDE THREE LETTERS DATED 25-11-2006, 27-1 1-2006 AND 22-12- 2006. (D) THE LEARNED AR FURTHER CLAIMED THAT THE APPELLA NT FIRM HAS CHANGED THE METHOD IN RESPECT OF THE NEWLY STARTED MADHURI PROJECT IN ASST. YEAR 2000-01 AND GANGA TOWER-IL PROJECT IN ASST. YEAR 20 02 -03 ARID THE SAME HAS BEEN ACCEPTED IN THESE TWO YEARS AND, THER EFORE, THIS IS NOT THE YEAR IN WHICH THE METHOD HAS BEEN CHANGED IN RE SPECT OF THESE TWO NEWLY STARTED PROJECTS. FURTHER, THE METHOD CANNOT BE CHANGED IN RESPECT OF THE EARLIER PROJECTS WHICH WERE IN PROGR ESS AS THE APPELLANT FIRM HAS ALREADY DECLARED THE INCOME ON PERCENTAGE OF WORK IN PROGRESS BASIS IN EARLIER YEARS. FURTHER, THE PROFIT IN RESP ECT OF THESE TWO PROJECTS IS ALREADY DECLARED IN RESPECT OF MADHURI PROJECT I N THE ASST. YEAR 2003- 04 WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT AND IN RESPECT OF GANGA TOWER-IL PROJECT IN THE ASST. YEAR 2005-06 AND THE APPELLANT FIRM IS FOLLOWING THE COMPLETION METHOD IN RESPECT OF PROJE CTS UNDERTAKEN SUBSEQUENTLY. (E) THE LEARNED AR STATED THAT THE COMPLETION METHO D FOR COMPUTING THE PROFIT BY A BUILDER IS A VERY MUCH RECOGNIZED METHO D WHICH HAS BEEN ACCEPTED BY THE HON. ITAT IN A NUMBER OF JUDGMENTS AND THE HIGH COURTS, SOME OF WHICH ARE LISTED HEREINBELOW:- (I) CIT V. GUTTOFFUNGASHUTTO STERKRADO 197 ITR 66 (ORISSA) (II) SHREE NIRMAL COMMERCIAL LTD. V. CIT 193 ITR 694 (BOM) (III) CIT V. V. S. DEMPO & CO. PVT. LTD. - 131 CTR 203 (BOM) (IV) D. K. ENTERPRISES V. ITO - 39 ITD 394 (ITAT - BOMBAY BENCH) (V) SHAPOORJL PALLONJI & CO. (RAJKOT) (P) LTD. V. I TO 49 ITD 479 (BOM) (VI) ITO V. W. D. ESTATE (P) LTD. - 45 ITD 473 (BOM BAY) (VII) HAPPY HOME DEVELOPERS V. ACIT- 115 TAXMAN 309 (BOMBAY) (VIII) MAGNUM INTERNATIONAL TRADING CO. (P) LTD. - 84 ITD 113 (TM) (DEL) (IX) H. M. CONSTRUCTIONS V. JCIT 84 ITD 429 (BANG ALORE) (F) FOR CHANGE IN METHOD OF COMPUTING PROFIT, THE LEARNED AR RELIED ON FOLLOWING DECISIONS - ITA 949/M/11 16 (I) CALCUTTA HIGH COURT IN THE CASE OF SNOW WHITE F OOD PRODUCTS CO. LTD. V. CIT 141 ITR 861, WHEREIN IT HAS BEEN HELD THAT WHEN IT IS FOUND THAT AN ASSESSEE HAS CHANGED HIS REGULAR METH OD OF ACCOUNTING BY ANOTHER RECOGNIZED METHOD AND HE HAS FOLLOWED TH E LATTER REGULARLY THEREAFTER, IT IS NOT OPEN TO THE AO TO GO INTO THE QUESTION OF BONA FIDES OF THE INTRODUCTION AND CONTINUANCE OF THE CHANGE. (II) CIT V. A.V. APPU CHETTIAR 45 ITR 152 (MADRAS ). IN THIS CASE, THE METHOD OF VALUATION OF STOCK HAS BEEN CHANGED. NEW METHOD OF STOCK VALUATION CANNOT BE REJECTED MERELY BECAUSE THERE W OULD BE LOSS OF REVENUE IN THE YEAR OF. CHANGE. WHAT IS RELEVANT IS TO CONSIDER WHETHER THE METHOD ADOPTED IS ONE OF THE RECOGNIZED METHODS AND FURTHER WHETHER THE CHANGED METHOD OF VALUATION IS FOLLOWED CONSISTENTLY EVERY YEAR. (III) CIT V. DELTA PLANTATION LTD. 71 TAXMAN 329 (CALCUTTA). IN THIS CASE, IT IS HELD THAT CHANGE OF METHOD SHOULD BE BO NA FIDE AND MUST NOT BE RESTRICTED TO A PARTICULAR YEAR. (IV) CIT V. ATUL PRODUCTS LTD. 125 TAXMAN 727 (GU JARAT). IN THIS CASE, IT IS HELD THAT WHEN AN ACCOUNTING METHOD IS CHANGED WITH A BONA FIDE INTENTION, THE CHANGE SHOULD BE ACCEPTED BY TH E REVENUE. (G) REGARDING THE SECOND OBJECTION OF THE ASSESSING OFFICER THAT WHILE ESTIMATING PROFIT ON PERCENTAGE OF WORK IN PROGRESS BASIS, THE APPELLANT APPLIED DIFFERENT PERCENTAGES IN RESPECT OF DIFFERE NT PROJECTS, AND EVEN IN RESPECT OF SAME PROJECT, DIFFERENT RATES IN YEAR TO YEAR, THE LEARNED AR SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE EARLIER YEARS IN APPELLANTS OWN CASE AND THE T RIBUNAL HAS ACCEPTED THIS SYSTEM. THE PERCENTAGE OF WORK IN PROGRESS TO BE TAKEN AS GROSS PROFIT IS DECIDED BY THE APPELLANT FIRM ON THE BASI S OF THE PROGRESS OF A PARTICULAR PROJECT, SALEABILITY OF THE PROJECT, MAR KET CONDITIONS, ETC. IN THIS REGARD, THE FOLLOWING ORDERS OF THE TRIBUNAL W ERE REFERRED TO : (I) ORDER DATED 29-12-2005 PASSED BY THE TRIBUNAL I N THE CASE OF ASSESSEE FIRM FOR ASST. YEAR 1999-2000 WHEREIN THE ISSUE WAS ESTIMATING THE PROFIT @ 20% OF WORK IN PROGRESS IN RESPECT OF THE PROJECT - ATUR PARK AND @ 15% OF THE WORK IN PROGRESS IN RE SPECT OF THE PROJECT KUKREJA PLAZA AS AGAINST 12.5% DECLARED BY THE ASSE SSEE FOR BOTH PROJECTS. THESE TWO PROJECTS WERE IN PROGRESS DURI NG THIS ASST. YEAR (PAGE NOS. 314-319). (II) ORDER DATED 14-7-2004 PASSED BY THE TRIBUNAL I N THE CASE OF THE ASSESSEE FIRM FOR ASST. YEAR 1997-98 WHEREIN AGAIN THE ISSUE WAS ESTIMATING THE PROFIT @ 20% OF WORK IN PROGRESS IN RESPECT OF THE PROJECT ATUR PARK AND @ 15% OF THE WORK IN PROGRESS IN RESP ECT OF THE PROJECT KUKREJA PLAZA AS AGAINST 12.5% DECLARED BY THE ASSE SSEE FOR BOTH ITA 949/M/11 17 PROJECTS. THESE TWO PROJECTS WERE IN PROGRESS DURIN G THIS ASST. YEAR. (PAGE NOS. 320-322). (III) ORDER DATED 24-11-2003 PASSED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FIRM AND OTHER TWO GROUP CONCERNS FOR ASST. YEAR 1996-97 WHEREIN AGAIN THE ISSUE WAS THAT AO HAS NOT ACCEPTE D THE PROFIT DECLARE @ 10% OF THE WORK IN PROGRESS IN RESPECT OF ALL FOU R PROJECTS AND MAD THE ADDITION OF RS. 3,15,94,761/- WHICH HAS BEEN DE LETED BY THE ID. CII(A) AND THE APPEAL OF THE DEPARTMENT IS DISMISSE D BY THE TRIBUNAL. (PAGE 323-326). (IV) ORDER DATED 23-8-2006 PASSED BY THE TRIBUNAL I N THE CASE OF GROUP CONCERN M/S MOTIRAM TOLARAM FOR ASST. YEAR 20 00-01. (PAGE NOS. 327-328). (V) ORDER DATED 19-3-2003 PASSED BY THE TRIBUNAL IN THE CASE OF FOUR GROUP CONCERNS FOR ASST. YEAR 1995-96. (PAGE N OS. 329-334). 9. IN ADDITION TO THE ABOVE SUBMISSIONS, THE ACTION OF THE A.O. IN REJECTING ITS BOOKS OF ACCOUNT WAS ALSO CHALLENGED BY THE ASS ESSEE BY SUBMITTING THAT IT HAD MAINTAINED ALL THE BOOKS OF ACCOUNT WHICH WERE AUDITED AND EVEN THE TAX AUDIT REPORT WAS OBTAINED. IT WAS CONTENDED THAT N O DEFECT WAS POINTED OUT BY THE A.O. IN THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE AND EVEN THE DEFECT POINTED OUT BY THE A.O. IN RESPECT OF METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE WAS NOT BASED ON THE ACTUAL FACT OF TH E CASE. 10. THE ASSESSEE ALSO FILED ADDITIONAL EVIDENCE BEF ORE THE LD. CIT(A) IN SUPPORT OF ITS CASE AND FILED A LETTER DTD. 17-06-2 007 SEEKING ADMISSION OF THE ADDITIONAL EVIDENCE ON THE FOLLOWING GROUNDS:- 1. IN CONTINUATION TO THE EARLIER SUBMISSION, WE W OULD LIKE TO HEREBY STATE THAT THE ASSESSING OFFICER FURTHER REQ UIRED CERTAIN DETAILS / DOCUMENTS FOR ASSESSMENT VIDE LETTER DT. 10/11/06 T O FURNISH IN WRITING AND VERIFIED IN PRESCRIBED MANNER, THE INFORMATION ASKED ON THE POINTS AND/OR MATTERS AS PER THE ANNEXURE. 2. THE REQUIRED DETAILS AS PER THE ABOVE LETTER HAS BEEN SUBMITTED POINT TO THE ASSESSING OFFICER VIDE ASSESSEES LETT ER DT . 27/11/06, THE COPY OF WHICH WAS FILED ALONG WITH EARLIER SUBMISSI ON. ITA 949/M/11 18 3. IT SEEMS THAT ASSESSING OFFICER HAS NOT GONE THR OUGH THE REPLY MADE BY THE ASSESSEE AND HAS MENTIONED IN PARA 4.5 OF HIS ORDER THAT THE ASSESSEE HAS SUBMITTED THE SKETCHY INFORMATION IN RESPECT OF THE PROJECTS. 4. APPELLANT HEREBY SUBMITS A CHART SHOWING THE DET AILS ALREADY SUBMITTED TO THE ASSESSING OFFICER AND FURTHER IN F ORMATION AS MENTIONED IN ORDER AS ADDITIONAL EVIDENCE UNDER RUL E 46 A TO THE FACTS OF THE CASE. 5. THE APPELLANT FURTHER SUBMITS THAT THE APPELLANT WITH THE DEPARTMENT SINCE LAST SEVERAL YEARS U/S.143 (3) AND HAS SUBMITTED ALL THE RELEVANT DETAILS REGARDING PROJECTS IN EACH ASS ESSMENT YEARS. SOME ADDITIONS WERE MADE IN THE ASSESSMENT ORDERS AGAINS T WHICH APPEALS WERE FILED AND THE ADDITIONS WERE DELETED IN APPEAL . THE DEPARTMENT HAS GONE TO ITAT, WHICH WAS ALSO DECIDED IN FAVOUR OF THE APPELLANT. 6. IN VIEW OF ABOVE, WE HEREBY REQUEST YOUR HONOUR TO CONSIDER THE ADDITIONAL EVIDENCE UNDER RULE 46 A AND DECIDE ON T HE FACTS AND CIRCUMSTANCES OF THE CASE. 11. THE SUBMISSIONS MADE BY THE ASSESSEE VIDE LETTE R DATED 14-3-2007 AND ADDITIONAL EVIDENCE FILED VIDE LETTER DATED 17-6-20 07 WERE FORWARDED BY THE LD. CIT(A) TO THE A.O. WHO SUBMITTED HIS REMAND REPORT DTD. 30-1-2009 TO THE LD. CIT(A) OFFERING HIS COMMENTS AS UNDER:- 1. AT THE OUTSET, IT IS SUBMITTED THAT THE ASSESSI NG OFFICER PERUSED THE DETAILS OF INCOME RETURNED BY THE APPELLANT IN RESPECT OF THE PROJECTS GOPALA, ATUR PARK, KUKREJA PLAZA, GANGA TO WER - I, AND GANGA TOWER II AND OBSERVED THAT AS PER TAX AUDIT REPORT, THE ASSESSEE HAD SUBMITTED A NOTE ON THE METHOD OF ACCOUNTING WHEREI N IT WAS MENTIONED THAT THE APPELLANT FIRM HAS ADOPTED MERCA NTILE METHOD OF ACCOUNTING AND THAT THERE HAS BEEN NO CHANGE IN THE METHOD FROM THAT OF THE PRECEDING PREVIOUS YEAR. IN RESPECT OF REVEN UE RELATING TO CONSTRUCTION WORK-IN-PROGRESS, IT WAS STATED THAT T HE SAME IS DETERMINED ON PERCENTAGE COMPLETION METHOD OF THE A TUR PARK, GOPALA AND KUKREJA PLAZA PROJECTS. IN AS FAR AS GANGA TOWE R II PROJECT, IT IS STATED THAT THE REVENUE WILL BE DETERMINED ON COMPL ETION, CONTRACT BASIS. THE AO ALSO OBSERVED THAT THE APPELLANT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT HAS BEEN DETERM INING THE REVENUE IN RESPECT OF VARIOUS PROJECT SOME TIMES ON THE BAS IS OF PROJECT COMPLETION METHOD AND SOME TIMES ON PERCENTAGE COMP LETION METHOD. IT WAS ALSO OBSERVED THAT THE REVISED ACCOUNTING ST ANDARD AS7 (2002) WAS NOTIFIED BY THE ICAI AND MADE EFFECTIVE FROM TH E A.Y. 2004-05 IN RESPECT OF CONSTRUCTION CONTRACTS. HE WAS THEREFORE OF THE VIEW THAT THE ITA 949/M/11 19 ASSESSEE SHOULD HAVE DETERMINED THE PROFITS FOR THE YEAR IN RESPECT OF VARIOUS PROJECTS HAVING REGARD TO THE SAID REVISED ACCOUNTING STANDARD. HE THERE FORE PROCEEDED TO ESTIMATE THE PROFIT FOR THE YEAR ON THE BASIS OF TOTAL ESTIMATED SALES AS PRESCRIBED BY THE REVIS ED ACCOUNTING STANDARD. 2. IN THIS REGARD, IT MAY BE MENTIONED THAT SINCE T HE ACCOUNTING STANDARDS HAVE BEEN MODIFIED BY THE INSTITUTE OF CH ARTERED ACCOUNTS, THE ENTERPRISES ENGAGED IN DEVELOPING & BUILDING HA VE TO OBSERVE THE REVISED STANDARDS AS NOTIFIED BY THE ICAI. THE INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAVE ALSO ISSUED GUIDANCE NOTE 23 ACCORDING TO WHICH THE ACCOUNTING STANDARD (AS) 9 IS APPLICABLE TO THE CASES OF REAL ESTATE DEVELOPERS, WHEREIN THE REVENUE IS TO BE REC OGNIZED IN THE YEAR IN WHICH IT HAS BEEN EARNED AND THE SAME CANNOT BE POSTPONED TO THE FUTURE YEAR ON THE GROUND OF NON-COMPLETION OF PROJ ECTS. 3. IT MAY ALSO BE MENTIONED THAT THE AO, IN THE COU RSE OF ASSESSMENT PROCEEDINGS, HAS CALLED FOR VARIOUS DETA ILS AS UNDER: - (1) THE TOTAL ESTIMATED COST OF THE PROJECTS (II) THE TOTAL ESTIMATED SALES OF THE PROJECTS (III) THE TOTAL ESTIMATED PROFITS OF THE PROJECTS (IV) LAND COST AND ACQUISITION DATES. (V) DEVELOPER AGREEMENT, IF ANY, (VI) APPROVED PLANS WITH EVIDENCES FOR PLOTS AND AP PROVALS FOR SUBDIVISION. (VII) COMMENCEMENT, COMPLETION AND OCCUPANCY CERTIF ICATES. (VIII) LOCATION ADDRESSES AND SITE TELEPHONE NUMBER S. (IX) TOTAL CONSTRUCTED AREA, BUILT-UP AREA, CARPET AREA, SALEABLE AREA OF EACH PROJECT / BUILDING (X) NUMBER OF UNITS CONSTRUCTED (XI) CHEQUE NUMBERS OF PAYMENTS RECEIVED. SINCE THE AFORESAID DETAILS WERE NOT SUBMITTED IN T OTO AND THE REQUIRED EVIDENCES WERE NOT PRODUCED AND SINCE THE INCOME / PROFIT AS PER THE PROVISIONS OF THE ACT AS WELL AS THAT REQUIRED THE REVISED ACCOUNTING STANDARD HAD NOT BEEN OBSERVED AND ALSO THE METHOD OF ACCOUNTING EMPLOYED WAS SUCH THAT PROFITS COULD NOT BE CORRECT LY DERIVED AT THEREFROM THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY THE ACCOUNT BE NOT DERIVED AT THEREFROM, THE ASSESSEE WS REQUIRED TO E XPLAIN WHY THE ACCOUNTS BE RPT REJECTED AS PER THE PROVISIONS OF S ECTION 145(3) AND THE ACCOUNTS BE NOT REJECTED AS PER THE PROVISIONS OF SECTION 145(3) AND ITA 949/M/11 20 ASSESSMENT BE COMPLETED IN THE MANNER PROVIDED U/S 144. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS ON THE ISSUE , IT WAS HELD THAT THE ONLY ACCEPTABLE AND PROVEN METHOD FOR TAXING TH E INCOME OF THE REAL ESTATE DEVELOPER IS THAT ESTIMATE OF PROFIT HA S, TO BE MADE FOR THE ENTIRE PROJECT WHICH IS REQUIRED TO BE REVISED EVER Y YEAR DEPENDING ON THE PREVAILING COST AND POSSIBLE PROJECT REALIZATI ON. THE PROJECTED PROFIT SO COMPUTED HAS TO BE ADJUSTED PRO-RATA TO THE COMP LETION OF WORK TILL THE END OF THE RELEVANT YEAR AND SUCH PRO-RATA PROF IT HAS TO BE TREATED AS PROFIT FOR THE YEAR AFTER REDUCING SUCH PRO-RATA PROFIT COMPLETED UPTO THE IMMEDIATELY PRECEDING YEAR. ACCORDINGLY, THE AS SESSING OFFICER PROCEEDED TO WORK OUT TAXABLE PROFIT IN RESPECT OF EACH PROJECT ON THE SAME LINES AS ENUNCIATED IN THE REVISED ACCOUNTING STANDARD 7 (2002) FOR RECOGNIZING REVENUE AND EXPENSES. 4. IT IS OBSERVED THAT AS PER ANNEXURE-8 OF TAX AUD IT REPORT, THE ASSESSEE HAS SHOWN THE OPENING WORK-IN-PROGRESS, CO ST OF CONSTRUCTION, ESTIMATED PROFIT AND CLOSING WORK-IN-PROGRESS FOR T HE YEAR AS UNDER: - PROJECT OPENING WIP COST OF CONSTRUCTION RATE OF EST. PROFIT ESTIMATE PROFIT CLOSING WIP GOPALA 57841957 14844033 20% 2968807 75654797 ATUR PARK 176391486 496468 12.5% 62058 176950012 KUKREJA PLAZA 158358429 (LESS: WIP OF K. STAR HOTEL -35035247 NET OF KUKREJA PLAZA 123323182 20277538 20% 510325 126385133 GANGA TOWER II 31214273 20277538 - - 51491811 IT IS ALSO SEEN THAT THE ASSESSEE HAS OFFERED PERCE NTAGE OF PROFIT IN RESPECT OF WORK EXECUTED DURING THE YEAR IN THE CAS E OF THE PROJECTS DURING THE A. Y.2003-04 & 2004-05 IS AS UNDER: - PROJECT %AGE IN AY 2003-04 %AGE IN AY 2004-05 GOPALA 12 20 ATUR PARK 12.5 12.5 KUKREJA PLAZA 12.5 12.5 IT IS OBSERVED FROM THE DETAILS TABULATED ABOVE THA T IN RESPECT OF GANGA TOWER - II PROJECT THAT NO INCOME WAS DECLARED DURING THE YEAR ALTHOUGH THE COST OF CONSTRUCTION OF GANGA TOWER - II PROJECT WAS CONSID ERABLE. IT IS AL A SEEN FROM THE ABOVE STATISTICS AS PER THE TAX AUDIT REPORT TH AT THE ASSESSEE HAS NOT OFFERED ANY ESTIMATED PROFIT IN RESPECT OF GANGA TO WER II PROJECT DURING THE YEAR AS IN THE PROJECTS GOPALA, ATUR PARK AND KUKRE JA PLAZA. IT IS STATED IN THE TAX AUDIT REPORT THAT THE REVENUE IN RESPECT OF GAN GA TOWER -II SITE WILL BE ITA 949/M/11 21 DETERMINED ON COMPLETION CONTRACT BASIS. IN RESPECT OF THE PROJECTS GOPALA, ATUR PARK AND KUKREJA PLAZA THE ASSESSEE HAS OFFERE D REVENUE IN RESPECT OF CONSTRUCTION WORK-IN-PROGRESS ON PERCENTAGE COMPLET ION METHOD BY DECLARING THE RELEVANT PERCENTAGES AS MENTIONED ABOVE ON THE COST OF CONSTRUCTION INCURRED DURING THE YEAR AT VARYING RATES. MOREOVER , PERUSAL OF SUCH PERCENTAGE OF PROFITS DECLARED DURING THE A.Y.2003- 04 & 2004-05 IN RESPECT OF THESE 3 PROJECTS AS TABULATED HEREINABOVE SHOWS THA T NO CONSISTENT PATTERN OF DECLARING PERCENTAGE PROFITS HAVE BEEN FOLLOWED AS ALSO NO VALID JUSTIFICATION FOR ADOPTING THE SAID PERCENTAGES HAVE BEEN SUBMITT ED AND EVIDENCES ADDUCED. THE ASSESSEE HAS DECLARED PERCENTAGE PROFI T IN RESPECT OF GOPALA, ATUR PARK AND KUKREJ PLAZA AT VARYING PERCENTAGES D URING THE YEAR. SINCE THE ASSESSEE HAS DECIDED TO DECLARE PERCENTAGE PROFIT I N THIS YEAR IN RESPECT OF THE AFORESAID 3 PROJECTS, IT WAS MANDATORY FOR IT TO AD HERE TO THE REVISED ACCOUNTING STANDARD 7 (2002) AS MANDATED BY THE ICA I AND NOT ADOPT WHATEVER PERCENTAGE IT CHOOSES ACCORDING ITS WHIMS AND FANCIES. THUS, IN RESPECT OF THESE 3 PROJECTS, THE AO HAS CORRECTLY A DOPTED THE REVISED ACCOUNTING STANDARD 7 (2002) AND ASCERTAINED THE PR OFITS FOR THE YEAR ON THE BASIS OF TOTAL ESTIMATED SALES OF THE PROJECT AS DE TAILED IN THE ASSESSMENT ORDER. IN RESPECT OF GANGA TOWER II PROJECT, THE A SSESSEE HAS NOT ESTIMATED ANY PROFIT FOR THE YEAR. THE ASSESSEE HAS CHOSEN T O DECLARE PROFIT ON COMPLETION OF THE PROJECT. THUS THERE IS AN INCONS ISTENCY IN THE MANNER OF PROJECTING PROFIT FROM PROJECT TO PROJECT WITHIN TH E SAME ACCOUNTING YEAR ITSELF. THEREFORE, THE A.O. HAS CORRECTLY WORKED OUT THE PR OFIT ON THE BASIS OF TOTAL ESTIMATED SALES IN RESPECT OF THIS PROJECT AS HAS B EEN DONE IN THE OTHER 3 PROJECTS, NAMELY GOPALA, ATUR PARK AND KUKREJA PLAZ A PROJECTS. AS HAS BEEN NARRATED IN PARAS 2 & 3 ABOVE, THE ASSESSEE HAS NOT OBSERVED THE SAID REVISED ACCOUNTING STANDARDS TO ARRIVE AT THE PROFITS OF EA CH OF THE PROJECTS DURING THE YEAR AND THERE BEING NO CONSISTENCY IN THE METHOD O F ACCOUNTING EMPLOYED, THE ASSESSING OFFICER WAS RIGHT IN REJECTING THE BO OK RESULTS AND ESTIMATING THE PROFITS OF THE PROJECTS ON THE ESTIMATED SALES BASI S AS HAS BEEN DONE IN THE ASSESSMENT ORDER AT PARAS 6,7,8 & 9 WHICH IS ON THE BASIS OF THE REVISED ACCOUNTING STANDARD. THUS, THE ASSESSEES CONTENTI ON AS OFFERED IN ITS LETTER DATED 14-03-2007 MAY NOT BE ACCEPTED. 12. WHEN THE REMAND REPORT OF THE A.O. WAS CONFRONT ED BY THE LD. CIT(A) TO THE ASSESSEE, THE LATER FILED A LETTER DTD. 16-2-20 09 OFFERING HIS COMMENTS ON THE REMAND REPORT OF THE A.O. AS UNDER:- 5.16. IN PARA 2 OF THE REMAND REPORT, THE LD. AO H AS AGAIN REPEATED THE SAME OBSERVATIONS THAT WE HAVE BEEN DETERMINING THE REVENUE IN RESPECT OF THE VARIOUS PROJECTS, SOMETIMES ON THE B ASIS OF PROJECT COMPLETION METHOD AND SOMETIME ON PERCENTAGE COMPLE TION METHOD, WHICH IS PATENTLY WRONG. APPELLANTS SUBMISSIONS ITA 949/M/11 22 (1) IN OUR WRITTEN SUBMISSIONS GIVEN VIDE OUR LETTE R DATED 14-3-2007, WE HAVE GIVEN THE COMPLETE HISTORY OF THE FIRM SINCE 1 986-87 AND WHEREIN WE HAVE CLEARLY MENTIONED THAT THE FIRM WAS FOLLOWI NG THE METHOD OF DECLA1ING ESTIMATED PROFIT ON THE BASIS OF PERCENTA GE OF WORK IN PROGRESS EVERY YEAR. HOWEVER, IN RESPECT OF NEW PRO JECTS STARTED FROM ASST. YEAR 2001-02 ONWARDS, THE FIRM HAS ADOPTED CO MPLETION METHOD OF ACCOUNTING FOR COMPUTING THE PROFIT AND BECAUSE OF THIS REASON, THE MADHURI PROJECT WHICH WAS STARTED IN THE ASST. YE AR 2001-02 AND COMPLETED IN ASST. YEAR 2003-04, THE FIRM HAS FOLLO WED COMPLETION METHOD AND THE AO HAS ACCEPTED THE SAME AND THEREBY , NOT COMPUTED ANY PROFIT IN THE ASST. YEAR .2001-02 AND 2002-03 W HEN THE SAID PROJECT WAS IN PROGRESS END ACCORDINGLY, THE PROFIT IN THIS PROJECT WAS DECLARED IN ASST. YEAR 2003-04 WHEN HE PROJECT WAS COMPLETED . (2) SIMILARLY, IN THE GANGA TOWER - II PROJECT, WHI CH WAS STARTED IN ASST. YEAR 2002-03, THE AO HAS NOT ESTIMATED ANY PROFIT O N THE BASIS OF PERCENTAGE OF WORK IN PROGRESS IN ASST, YEARS 2002- 03 AND 2003-04 AND THE FIRM HAS DECLARED THE TOTAL PROFIT ON COMPLETIO N OF THE PROJECT IN THE ASST. YEAR 2005-06. _ (3) IN PARA 6 OF THE SAID LETTER, WE HAVE GIVEN TH E COMPLETE SUMMARY AS TO THE ASST. YEAR IN WHICH THE PROJECTS WERE UNDERT AKEN, METHOD OF COMPUTING THE PROFIT ADOPTED AND IN WHICH ASST. YEA R THE PROJECTS WERE COMPLETED. ACCORDINGLY, IN RESPECT OF THE PROJECTS ON WHICH PROFIT IS DECLARED ON PERCENTAGE OF WORK IN PROGRESS BASIS, F INALLY THE BALANCE PROFIT/LOSS IS DECLARED ON COMPLETION OF THE PROJEC T AFTER ADJUSTING THE PROFIT DECLARED IN THE EARLIER YEARS ON PERCENTAGE OF WORK IN PROGRESS BASIS. (4) IN A NUTSHELL, IN RESPECT OF ALL THE PROJECTS W HICH WERE UNDERTAKEN PRIOR TO ASST. YEAR 2001-02, THE FIRM: C ONTINUED TO FOLLOW PERCENTAGE OF WORK IN PROGRESS METHOD AND IN RESPEC T OF THE PROJECTS UNDERTAKEN FROM ASST. YEAR 2001 -02 ONWARDS, THE FI RM HAS FOLLOWED THE COMPLETION METHOD AND CONTINUED WITH THE SAME. (5) THE AO HAS NOT GIVEN ANY COMMENTS ON THESE BASI C AND TRUE FACTS AND INSTEAD OF THAT, HE HAS AGAIN REPEATED TH E FINDING GIVEN IN THE ASSESSMENT ORDER THAT THE FIRM SOMETIMES FOLLOWS CO MPLETION METHOD AND SOMETIMES FOLLOWS PERCENTAGE OF WORK IN PROGRES S METHOD WHICH IS NOT JUSTIFIED IN LAW. 5.17 IN PARA 3 OF THE REMAND REPORT, THE AO HAS STA TED THAT ACCOUNTING STANDARD (AS) 7 IS APPLICABLE OR AS 9 IS APPLICABLE AND ACCORDINGLY, THE FIRM SHOULD COMPUTE THE PROFIT ON THE BASIS OF PERC ENTAGE OF WORK IN PROGRESS EVERY YEAR AND NOT ON COMPLETION METHOD. ITA 949/M/11 23 APPELLANTS SUBMISSIONS (6) AS ALREADY SUBMITTED IN OUR ABOVE SAID WRITTEN SUBMISSIONS, IN PARA 3.1 AND 3.2 UNDER GROUND NO.2, AS-7 IS NOT APPLICAB LE ON THE BUILDERS BUT IT IS ONLY APPLICABLE TO CONTRACTORS, AS IT IS CLEARLY MENTIONED IN AS- 7 THAT THIS STATEMENT SHOULD BE APPLIED IN ACCOUNT ING FOR CONSTRUCTION CONTRACTS IN THE FINANCIAL STATEMENTS OF CONTRACTOR S. (7) IN THIS REMAND REPORT, THE AC HAS RAISED A NEW ISSUE THAT AS-9 IS APPLICABLE TO THE CASES OF REAL ESTATE DEVELOPERS W HEREIN THE REVENUE IS TO BE RECOGNIZED IN THE YEAR IN WHICH IT HAS ARISEN AND AS PER THE SAID AS-9, REVENUE IS TO BE RECOGNIZED WHEN RISK AND REW ARD ARE TRANSFERRED. IN THE CASE OF THE FIRM, WHEN THE PROJECTS ARE UNDE R CONSTRUCTION, THE FLATS AND SHOPS ARE YET TO BE CONSTRUCTED AND POSSE SSION IS NOT GIVEN TO THE PROSPECTIVE BUYERS AND, THEREFORE, THERE IS NO QUESTION OF RISK AND REWARD BEING TRANSFERRED IN THESE YEARS. IN VIEW OF THESE CIRCUMSTANCES, AS-9 IS NOT APPLICABLE ON THE FIRM. IT IS FURTHER SUBMITTED THAT EVEN IN AS-9, IT IS ME NTIONED THAT- THE STATEMENT IS CONCERNED WITH THE RECOGNITION OF REVENUE ARISING IN THE COURSE OF THE ORDINARY ACTIVITIES OF THE ENTERP RISE FROM - SALE OF GOODS - THE RENDERING OF SERVICES, AND - THE USE BY OTHERS OF ENTERPRISE RESOURCES YIELDIN G INTEREST, ROYA1TIES AND DIVIDENDS. THEREFORE, AS-9 IS ALSO NOT APPLICABLE ON THE FIRM. 5.18 IN PARA 4, THE AC HAS MENTIONED THAT THE FIRM HAS NOT SUPPLIED THE VARIOUS DETAILS AS CALLED FOR BY HIS PREDECESSO R DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND AGAIN IN VIEW OF THE REVISED ACCOUNTING STANDARD 7, THE BOOKS OF ACCOUNTS OF THE FIRM ARE REJECTED AND PROVISIONS OF SEC. 145(3) ARE APPLIED. APPELLANTS SUBMISSIONS (1) IN THIS RESPECT, WE SUBMIT THAT FACTS MENTIONED IN OUR REPLY, IN PARAS 4.1 AND 4.2 UNDER GROUND NO. 2, ARE NOT CONSIDERED BY THE AO A S HE HAS KEPT SILENT AND NOT COMMENTED ON THE REAL FA CTS MENTIONED THEREIN. ITA 949/M/11 24 IN THESE PARAS, IT IS CLEARLY MENTIONED THAT ALL TH E REQUIRED DETAILS ARE FILED BEFORE THE AO AND THESE UNWANTED DETAILS ASKE D BY THE AO WERE NOT SUPPLIED AS THESE ARE THE LENGTHY DETAILS AND T HE FIRM WAS NOT ABLE TO SUPPLY THE SAME IN A SHORT PERIOD BEFORE 31-12-2 006 WHEN THE ASSESSMENT WAS GETTING TIME BARRED. AS SUBMITTED I N THESE PARAS, THE FIRM IS DOING THE BUSINESS SINCE ASST. YEAR 1986-87 AND THESE DETAILS ARE SUPPLIED IN THE RESPECTIVE ASSESSMENT YEAR AND WHICH ARE ON THE RECORD AND IF THEY WERE NECESSARY, THE AO COULD HAV E COMPILED THE SAME FROM THE SAID RECORDS. (2) SIMILARLY, THESE DETAILS WERE ONLY REQUIRED TO CALCULATE THE PROFIT ON THE BASIS OF PERCENTAGE OF WORK IN PROGRESS. SINCE IN THIS CASE IT IS ACCEPTED BY THE AO UPTO ASST. YEAR 2003-04 THAT IN RESPECT OF ALL THE PROJECTS TAKEN UP BEFORE 2001-02, PERCENTAGE OF WOR K IN PROGRESS METHOD IS APPLIED BY THE ASSESSEE AND IN RESPECT OF THE PROJECTS UNDERTAKEN IN THE ASST. YEARS 2001-02 AND 2002-03, COMPLETION METHOD OF ACCOUNTING IS BEING ADOPTED AND ACCEPTED BY THE DEPARTMENT. THEREFORE, NOT SUPPLYING OF THESE UNWA NTED DETAILS IN A SHORT PERIOD CANNOT BE REASON TO REJECT THE BOOKS O F ACCOUNTS U/S 145(3). 5.19 VIDE LETTER DATED 15 TH APRIL, 2009, THE APPELLANT FURTHER REITERATED THE SUBMISSIONS MADE EARLIER. 5.20 THE APPELLANT VIDE ITS LETTER DATED 27 TH AUGUST, 2009, FURTHER SUBMITTED THE FOLLOWING: WITH REFERENCE TO THE FURTHER HEARING OF THE ABOVE SAID APPEAL FIXED BEFORE YOUR HONOUR ON 28-08-2009 WE HAVE TO S UBMIT AS UNDER :- 1. THERE IS NO NOTIFICATION OF GBDT REGARDING APPLI CABILITY OF REVISED ACCOUNTING STANDARD 7. THE ACCOUNTING STANDARD-7 IS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, A COPY OF WHICH IS ALREADY GIVEN AT PAGE NOS. 294 - 211 OF THE COMPILATION FILED WITH OUR LETTER DATED 14-3 -2007. 2. WE ARE FILLING HEREWITH COPY OF ACCOUNTING STAND ARD NOTIFIED UNDER SEA. 145(2) BY THE CBDT BEING NO. 9949 (F NO. 132/ M95 FRZ) DATED 25-1-1996. 3. WE ARE FILING HEREWITH DETAILS OF WORK-IN-PROGRE SS AND ESTIMATED PROFIT FOR EVERY YEAR FROM BEGINNING TO COMPLETION OF THE PROJECT IN RESPECT OF 3 PROJECT I.E. (I) GOPALA; (II) ATUR PAR K AND (III) K-PLAZA. ITA 949/M/11 25 4. THE WRITTEN SUBMISSIONS REGARDING THE APPLICABIL ITY OF AS-7 IS GIVEN IN PARA 3.1 AND 3.2 OF THE WRITTEN SUBMISSIONS GIVEN VIDE OUR LETTER DATED 14.03.20O7. FURTHER, REGARDING NON-APPLICABIL ITY OF AS-9, THE WRITTEN SUBMISSIONS ARE GIVEN IN PARA 2 OF OUR LETT ER DATED .16-2-2009. 5.21 THE APPELLANT VIDE ITS LETTER DATED 24TH DECEM BER, 2009, FURTHER SUBMITTED THE FOLLOWING : V U B. NATURE OF ACCOUNTING SECTION 145 OF THE I.T. A CT 1. SECTION 145 OF THE I. T. ACT PRESCRIBES THAT THE ASSESSEE CAN EITHER FOLLOW CASH OR MERCANTILE SYSTEM OF ACCOUNTI NG AND THAT THE SAME SYSTEM SHOULD BE FOLLOWED REGULARLY. 2. IN THIS CASE, THE ASSESSEE FIRM HAS FOLLOWED THE T4ERCN TILE SYSTEM OF ACCOUNTING SINCE INCEPTION, FOR LAST NUMBER OF Y EARS AND THE SAID METHOD HAS NOT BEEN CHANGED. 3. MERCANTILE SYSTEM OF ACCOUNTING MEANS ALL THE RE CEIPTS AND PAYMENTS FOR EXPENSES ARE ACCOUNTED ON ACCRUAL BASI S AND NOT ON RECEIPTS BASIS. THE SAID SYSTEM IS BEING FOLLOWED BY THE ASSESSEE FIRM SINCE INCEPTION AND HAS NOT BEEN CHANGED. 4. IN THE CASE OF A BUILDER, COMPLETION OF A PARTIC ULAR PROJECT TAKES NUMBER OF YEARS, WHEREIN MANY BUILDINGS ARE CONSTR UCTED AND A COMPLETE COMPLEX IS ALSO PROVIDED INCLUDING AMENITI ES LIKE GARDEN, PLAYGROUND, ETC. (F A PROJECT TAKES A NUMBER OF YEA RS TO BE COMPLETED, THERE IS NO CERTAINTY OF THE EXPENSES AND RECEIPTS FROM THE PROJECT. DUE TO CHANGES IN THE REGULATIONS OF THE 8MC AND OTHER LAWS, THERE IS NO CERTAINTY OF EXPENSES WHICH ACCRUE DURING THE WORK IN PROGRESS OF THE PROJECT. SIMILARLY, THERE IS A VARIATION IN THE PRI CE OF THE FLATS WHICH ARE CONSTRUCTED AND SOLD FROM TIME TO TIME LOOKING TO T HE PREVAILING PROPERTY MARKET CONDITIONS DEPENDING UPON THE SLUMP /BOOM IN THE PROPERTY MARKET. 5. AS PER THE ACCOUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IT IS PROVIDED THAT THERE ARE TWO METHODS OF COMPUTING THE PROFIT IN SUCH TYPE OF PRO JECTS WHERE IT TAKES NUMBER OF YEARS TO BE COMPLETED. (I) PERCENTAGE OF WORK IN PROGRESS WHERE A PERCENTA GE OF PROFIT IS ESTIMATED ON V THE BASIS OF WORK IN PROGRESS AT THE END OF EACH YEAR. ITA 949/M/11 26 (II) THE PROFIT OR LOSS OF THE PROJECT IS COMPUTED ONLY ON THE COMPLETION OF THE PROJECT I. E. WHEN THE OC IS RECE IVED FROM THE BMC IN RESPECT OF ALL THE BUILDINGS CONSTRUCTED IN THE PRO JECT UNDERTAKEN BY THE ASSESSEE. 6. THE ASSESSEE AS MENTIONED IN OUR LETTER DATED 14 TH MARCH, 2007 HAS FOLLOWED THE METHOD OF COMPUTING PROFIT ON THE BASIS OF PERCENTAGE OF WORK IN PROGRESS IN RESPECT OF SUCH PROJECTS. HOWEV ER, SINCE THIS WAS NOT GIVING A TRUE PICTURE EACH YEAR AND TO KEEP IN STEP WITH THE PRACTICE FOLLOWED BY THE CONSTRUCTION INDUSTRY IN GENERAL, IT WAS DEC IDED BY THE ASSESSEE TO ADOPT THE COMPLETION METHOD OF PROFIT IN RESPECT OF NEW PROJECTS UNDERTAKEN FROM THE ASST. YEAR 2001-02 ONWARDS. SINCE THERE WE RE SOME PROJECTS IN WHICH THE ASSESSEE IS ALREADY FOLLOWING THE PERCENTAGE OF WORK IN PROGRESS METHOD, THE SAID METHOD CANNOT BE CHANGED IN THE MIDDLE OF THE PROJECT AND, THEREFORE, THE ASSESSEE CONTINUES TO FOLLOW THE PERCENTAGE OF WORK IN PROGRESS METHOD IN RESPECT OF SUCH EARLIER PROJECTS TILL THEY ARE COMP LETED IN FUTURE AND IN RESPECT OF THE NEW PROJECTS UNDERTAKEN FROM ASST. YEAR 2001 -02 ONWARDS, THE ASSESSEE IS FOLLOWING THE COMPLETION METHOD ONLY. 7. ACCORDINGLY, THERE IS NO CHANGE IN THE SYSTEM OF ACCOUNTING AS PRESCRIBED IN SECTION 145 OF THE I. T. ACT. THE ASSESSEE CONTI NUES TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING AND THERE IS NO CHANGE IN THAT . IT IS ONLY THE METHOD OF COMPUTING OF THE PROFIT IN RESPECT OF THE PROJECT W HICH TAKES NUMBER OF YEARS TO BE COMPLETED AND WHERE THERE IS NO CERTAINTY OF THE EXPENSES AND RECEIPTS. 8. WE AGAIN SUBMIT THAT TILL ASST. YEAR 2003-04, TH E DEPARTMENT HAS ACCEPTED THE METHOD OF COMPUTING THE PROFIT ON THE PROJECTS UNDERTAKING BY THE APPELLANT. EVEN IN RESPECT OF THE PROJECTS IN WHICH THE APPELLANT WAS FOLLOWING PERCENTAGE OF WORK IN PROGRESS METHOD, WHICH WERE C OMPLETED AFTER THIS ASST. YEAR I.E. IN ASST. YEARS 2005-06 AND 2006-07, THE D EPARTMENT HAS ACCEPTED THE PROFIT COMPUTED ACCORDING TO THE PERCENTAGE OF WORK IN PROGRESS METHOD. EVEN IN RESPECT OF THE PROJECTS UNDERTAKEN AFTER ASST. Y EAR 2001-02, PROFIT COMPUTED ON COMPLETION METHOD HAS BEEN ACCEPTED BY THE DEPAR TMENT IN RESPECT OF THE PROJECTS COMPLETED IN THE ASST. YEARS 2 005-06. 9. WE AGAIN REPEAT THAT THESE ARE THE METHODS OF CO MPUTING THE PROFIT IN THE CASE OF A BUILDER UNDER SPECIAL CIRCUMSTANCES AS ME NTIONED ABOVE AND THIS IS NOT A CHANGE IN THE METHOD OF ACCOUNTING AS THE APP ELLANT IS ALWAYS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING ALL THESE YEARS . 13. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE A SSESSEE, THE COMMENTS OF THE A.O. IN THE REMAND REPORT, COUNTER COMMENTS OFFERED BY THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A ) HELD FOR THE FOLLOWING REASONS GIVEN IN PARA 5.23 THAT THE METHODS OF ACCO UNTING FOLLOWED BY THE ITA 949/M/11 27 ASSESSEE TO RECOGNIZE ITS INCOME FROM DIFFERENT PRO JECTS WAS CORRECT AND THE A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULT S:- I HAVE CAREFULLY CONSIDERED THE ISSUES RAISED IN T HE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT, COMMENTS OF THE ASSES SING OFFICER IN THE REMAND REPORT AND VARIOUS LETTERS OF THE APPELLANT FOLLOWING THE REMAND REPORT. IT IS VERY APPARENT BOTH FROM ASSESSMENT OR DER AND THE REMAND REPORT ON THE ONE HAND,. AND VARIOUS SUBMISSIONS MA DE BY THE LEARNED AR BOTH BEFORE THE ASSESSING OFFICER AND BEFORE ME ON THE OTHER HAND, THAT THE APPELLANT HAS BEEN FOLLOWING PERCENTAGE CO MPLETION METHOD FOR SHOWING ITS PROFIT IN THE RETURNS OF ITS INCOME FOR ALL ITS PROJECTS UNTIL THE YEAR 2001. IN THE PERIOD RELEVANT TO A.Y.2001-0 2, MADHURI PROJECT WAS STARTED AND FROM THIS PERIOD ONWARDS, THE APPEL LANT BEGAN TO SHOW ITS PROFIT ON PROJECT COMPLETION METHOD ON THE NEW PROJECTS. THUS, PROFIT OF GANGA TOWER-II PROJECT STARTED IN A.Y.200 2-03, WAS ALSO WORKED OUT ON COMPLETION METHOD. FOR PROJECTS START ED BEFORE THIS PERIOD AND RUNNING OVER YEARS, THE APPELLANT COULD NOT CHANGE THE METHOD OF WORKING OUT THE PROFIT ON PROJECT COMPLET ION METHOD, SINCE THE ESTIMATED PROFIT ON PERCENTAGE COMPLETION WAS A LREADY SHOWN IN EARLIER YEARS FOR THOSE PROJECTS. THIS CHANGE IN ME THOD SHOWING PROFIT FOR A.Y.2001-02 ONWARDS FOR THE NEW PROJECT IS THE MAIN REASON FOR THE ASSESSING OFFICER TO CONCLUDE THAT THE APPELLANT HA S NOT BEEN SHOWING CONSISTENT METHOD OF ACCOUNTING PROFITS. 5.23.2 ANOTHER RELATED OBSERVATION OF THE ASSESSING OFFICER IS THAT THE APPELLANT HAS BEEN SHOWING DIFFERENT PERCENTAGES OF PROFIT ON WORK-IN- PROGRESS, AS THE PROFIT OF A PROJECT IN DIFFERENT Y EARS. 5.23.3 FURTHER, THESE ARE ISSUES RELATING TO NON-FU RNISHING OF COMPLETE DETAILS AND APPLICATION OF ACCOUNTING STANDARD AS-7 TO THE CASE OF THE BUILDERS. 5.23.4 IN THIS REGARD, IT IS IMPORTANT TO CONSIDER THAT PROJECT COMPLETION METHOD IS A VERY WELL RECOGNIZED METHOD OF REVENUE RECOGNITION AND PROFIT ESTIMATION IN THE CASE OF BUILDERS. A BUILD ER IS WELL WITHIN HIS RIGHTS TO SHOW PROFITS ON THIS BASIS FOR HIS PROJE CTS. MERELY BECAUSE HE HAD BEEN FOLLOWING A DIFFERENT METHOD EARLIER DOES NOT TAKE AWAY HIS RIGHTS TO SHOW HIS PROFITS ON PROJECT COMPLETION ME THOD FROM A PARTICULAR DATE. IT IS NOT, THE CASE OF THE ASSESSI NG OFFICER THAT HE HAS BEEN USING ONE METHOD OR THE OTHER HAPHAZARDLY OR T HAT IN RESPECT OF ANY ONE PROJECT HE HAS BEEN SWITCHING FROM ONE METH OD TO ANOTHER FROM YEAR TO YEAR. FOR ALL PROJECTS STARTED BEFORE A.Y.2OOF-O2 HE HAD BEEN SHOWING PROFITS ON PERCENTAGE COMPLETION METHO D AND THEREAFTER HE HAS IT IS ALSO NOT THE CASE OF THE ASSESSING OFF ICER THAT SUBSTANTIAL PART, SAY 75% OR SO, OF THE PROJECT GOT COMPLETED E ARLIER THAN SHOWN BY THE APPELLANT. IT IS ALSO NOT THE CASE OF THE ASSES SING OFFICER THAT ANY OF ITA 949/M/11 28 THE EXPENSES OR RECEIPTS BELONG TO YEAR OTHER THAN THE ONE SHOWN BY THE APPELLANT. NO SUCH FALLACY OR INCONGRUITY IN ACCOUN TING OF EXPENSES OR RECEIPTS WAS PROVED EVEN DURING THE REMAND PROCEEDI NGS. 5.23.5 THE CLAIM OF THE APPELLANT THAT ACCOUNTING S TANDARD AS7 IS APPLICABLE ONLY TO THE CASES OF THE CONTRACTORS, IS ABSOLUTELY CORRECT. IN A CONTRACT SYSTEM, THE PAYMENTS ARE RECEIVED ON THE BASIS OF WORK-IN- PROGRESS V AND SUCH RECEIPTS ARE IRRETRIEVABLY EARN ED BY THE CONTRACTORS. THE APPLICABILITY OF AS-7 IS CLEARLY M ENTIONED IN THE SAID ACCOUNTING STANDARD ITSELF, WHICH IS REPRODUCED AS UNDER:- ACCOUNTING STANDARD (AS)-7, CONSTRUCTION CONTRACTS (REVISED 2002), ISSUED BY THE. COUNCIL OF THE INSTITUTE OF C HARTERED ACCOUNTANTS OF INDIA, COMES INTO EFFECT IN RESPECT OF ALL CONTRACTS ENTERED INTO DURING ACCOUNTING PERIODS COMMENCING I N IR AFTER 1-4- 2003 AND IS MANDATORY IN NATURE FROM THAT DATE. ACC ORDINGLY, ACCOUNTING STANDARD (AS-7), ACCOUNTING FOR CONSTRUC TION CONTRACTS ISSUED BY THE INSTITUTE IN DECEMBER, 1983 IS NOT AP PLICABLE IN RESPECT OF SUCH CONTRACTS. EARLY APPLICATION OF THI S STANDARD IS, HOWEVER, ENCOURAGED: 5.23.6 IN THE, CASE OF BUILDERS, HOWEVER, RISK AND REWARD ARE NOT TRANSFERRED BY CONSTRUCTION. IF MARKET SITUATION GE TS ADVERSELY AFFECTED, THE PROJECT MAY NOT SELL OR EVEN THE FLATS IN RESPE CT OF WHICH AGREEMENTS ARE REACHED, MAY COME BACK TO THE BUILDER. THEREFOR E, REVENUE CAN BE RECOGNIZED IN THE CASE OF BUILDERS ONLY IF SALES AR E MADE AND ACTUAL PAYMENTS ARE SUBSTANTIALLY RECEIVED BY HIM. 5.23.7 THUS, IT IS APPARENT IN THE FACTS OF THE CA SE THAT THE TWO BASIC PRESUMPTION ON THE PART OF THE ASSESSING OFFICER, F IRSTLY THAT THE APPELLANT HAS CHANGED METHOD OF ACCOUNTING THE PROF IT AT WILL FROM PERCENTAGE COMPLETION TO PROJECT COMPLETION AND BA CK, AND SECONDLY THAT ACCOUNTING STANDARD AS-7 IS APPLICABLE TO THE CASE OF BUILDERS, ARE BOTH WRONG. THEREFORE, THE ASSESSING OFFICER I LED BY INCORRECT APPRECIATION OF FACTS AND APPLICABILITY OF ACCOUNTI NG TREATMENT, TO HOLD THE VIEW HELD BY HIM IN THIS ASSESSMENT ORDER. 5.23.8 IT IS PRECISELY FOR THIS REASON THAT WHILE F INALIZING THE ASSESSMENT FOR AYS. 2001-02 AND 2002-03, THE ASSESSING OFFICER HAS HIMSELF ALLOWED THE COMPLETION METHOD OF DECLARING PROFIT I N MADHURI PROJECT WHICH STARTED IN ASST. YEAR 2000-01. ALSO IN CASE O F GANGA TOWER II, WHICH COMMENCED IN ASST. YEAR 2002-03 THE SAID COMP LETION METHOD OF SHOWING PROFIT WAS ALLOWED IN THE ASSTT. YEARS 2002 -03 AND 2003-04. 5.23.9 THE LD. AR HAVE QUOTED PLETHORA OF JUDGMENTS IN SUPPORT OF THE CLAIM THAT THE CHOICE OF THE METHOD OF HIS ACCOUNTI NG LIES WITH THE ASSESSEE AND IT IS ALSO OPEN TO THE ASSESSEE TO FOL LOW ONE SYSTEM OF ACCOUNTING IN RESPECT OF ONE SOURCE AND ANOTHER SYS TEM IN RESPECT OF OTHER SOURCE, CIT V/S MC MILLAN & CO. (1950) 33 ITR 182-188 S.C. ITA 949/M/11 29 5.23.10 UNDER THE GIVEN FACTS OF THE CASE, THE APPE LLANT CAN ONLY BE SAID TO HAVE CONSISTENTLY FOLLOWED THE METHOD OF AC COUNTING FOR A PROJECT AS IT HAS NEVER CHANGED THE METHOD FROM PER CENTAGE OF COMPLETION METHOD TO COMPLETION METHOD AND VICE VER SA FOR A PARTICULAR PROJECT.. THE ASSESSING OFFICER HAS REAC HED THE CONCLUSION UNDER MISCONCEIVED NOTIONS ABOUT THE FACTS. 5.20.11 ALSO ACCOUNTING STANDARD AS 7 IS NOT APPL ICABLE TO THE APPELLANT SINCE FOR A BUILDER, THE REVENUE HAS TO B E RECOGNIZED WHEN RISK AN REWARDS ARE TRANSFERRED. 5.23.12 CONSIDERING THE FACTS NARRATED ABOVE, IT IS HELD THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE INCORR ECTNESS OR INCOMPLETENESS IN THE ACCOUNTS OF THE APPELLANT EVE N DURING THE REMAND PROCEEDINGS. THE APPELLANT IS RECOGNIZING RE VENUE WHEN RISK AND REWARD ARE TRANSFERRED AND BOTH PERCENTAGE COMP LETION AND PROJECT COMPLETION ARE WELL RECOGNIZED METHODS FOR SHOWING PROFITS BY THE BUILDERS. THEREFORE, THE CONDITIONS ENUMERATED IN S UB-SECTION 3 OF SECTION 145 CAN NOT BE SAID TO HAVE BEEN PROVED TO BE VIOLATED. THE ACTION OF THE LEARNED ASSESSING OFFICER IN REJECTIN G THE BOOKS OF ACCOUNT OF THE APPELLANT FORM U/S 145 OF THE INCOME TAX ACT WAS, THEREFORE, NOT JUSTIFIED AND THE SECOND GROUND OF APPEAL IS ALLOWE D ACCORDINGLY. 14. AFTER ACCEPTING THE METHODS OF ACCOUNTING FOLLO WED BY THE ASSESSEE, THE LD. CIT(A) CONSIDERED THE ISSUE OF ESTIMATION OF IN COME OF THE ASSESSEE FROM DIFFERENT PROJECTS AND FOUND OF SUCH CONSIDERATION THAT THE INCOME ESTIMATED BY THE ASSESSEE FROM DIFFERENT PROJECTS WAS FAIR AN D REASONABLE FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- GANGA TOWER : 6.6.3 IT IS FURTHER SEER THAT THE INCOME FROM GAN GA TOWER - II HAS BEEN DECLARED BY THE APPELLANT IN SUBSEQUENT YEAR RELEVA NT TO A.Y.2004-05, AND ACCEPTED BY THE LEARNED ASSESSING OFFICER AS SU CH. THERE IS NOTHING ON RECORD TO SHOW THAT ANY ATTEMPT IS MADE THE ASSE SSING OFFICER TO ESTABLISH THAT SUBSTANTIAL PART OF THIS, PROJECT: H AS BEEN COMPLETED DURING THE YEAR OF ASSESSMENT RATHER THAN THE SUBSE QUENT YEAR. THIS HAS ALSO LED TO ASSESSMENT OF SAME INCOME TWICE. UN DER THE CIRCUMSTANCES, I HAVE NO HESITATION TO HOLD THAT TH E INCOME FROM THE PROJECT GANGA TOWER-1I HAS BEEN CORRECTLY SHOWN BY THE APPELLANT ON COMPLETION OF THE SAID PROJECT IN THE PERIOD RELEVA NT TO A.Y.2005-06 AND THE SAME HAS BEEN CORRECTLY ACCEPTED BY THE ASSESSI NG OFFICER IN THAT YEAR, LEADING TO INESCAPABLE CONCLUSION THAT THE SA ME INCOME CANNOT BE TAXED IN THE YEAR IN QUESTION. IT HAS ALREADY BEEN ESTABLISHED BY THE ITA 949/M/11 30 APPELLANT WHILE DEALING WITH GROUND NO. 2 THAT REVE NUE HAS BEEN CORRECTLY RECOGNIZED BY THEM WHEN THE RISK AND REWA RD ARE BEING TRANSFERRED. THEREFORE, THERE IS NO JUSTIFICATION F OR ACCEPTING THE PROFIT OF THE PROJECT TWICE, I. E., ONCE IN AY 2004-05, AN D AGAIN IN AY 2005-06. THE LEARNED AO HAS NOT PROVED THAT A PENNY MORE THA N WHAT IS SHOWN AS RECEIPT HAS BEEN, RECEIVED, OR AN EXPENDITURE NO T SUPPORTED BY EVIDENCE OR HOT WHOLLY AND EXCLUSIVELY ATTRIBUTABLE TO THE BUSINESS HAS BEEN CLAIMED. THUS, BOTH THE RECEIPT AND PAYMENT SI DES HAVE BEEN ACCEPTED BY THE LD. AD. THEREFORE, THE ENTIRE ARGUM ENT VEERS AROUND THE ALLOCATION OF PROFITS IN RESPECT OF EACH OF THE PROJECT IN DIFFERENT ASSESSMENT YEARS. THEREFORE, THE ACTION OF THE LD. AO IN INCREASING THE OVERALL PROFIT OF THE PROJECT WITHOUT GIVING INSTAN CE OF EXTRA RECEIPT OR UNACCOUNTED/UNRELATED EXPENDITURE CAN NOT BE UPHELD . AS A RESULT, THIS GROUND OF APPEAL IS ALLOWED. 7.5.3 CONSIDERING THE VARIOUS FACTS ENUMERATED ABOV E AND THE DECISION IN RESPECT OF GR. NO. 2 OF THIS APPEAL, IT IS APPAR ENT THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT AND CONSEQUENTLY, MAKING AN ESTIMATE OF T HE INCOME. THE APPELLANT HAS NOT CHANGED THE METHOD ARBITRARILY BY CHANGING THE METHOD OF ESTIMATING THE PROFIT AT WILL FROM PERCE NTAGE COMPLETION METHOD TO COMPLETION METHOD AND VICE-VERSA. UNDER THE CIRCUMSTANCES, THE INCOME OF THE APPELLANT HAS TO B E WORKED OUT ON THE BASIS OF THE FACTS RELATING TO EACH PROJECT. 7.5.4 IT IS A FACT THAT THE PROFITS HAVE BEEN DECLA RED ON THE PERCENTAGE COMPLETION BASIS IN RESPECT OF GANGA TOWER I PROJEC T FROM THE AY 1986- 87 TO AY 1994-95 AND SUCH DECLARATION OF INCOME HA S BEEN ACCEPTED CO CONSISTENTLY BY THE ASSESSING OFFICER. IF THE AP PELLANT HAD UNDER- STATED ITS INCOME IN ALL THESE YEARS, THEN THE EXTR A INCOME NOT SHOWN, WILL GET ACCUMULATED TO BE INCLUDED AT THE END OF T HE PROJECT. SIMILARLY, IF IT HAD OVERSTATED ITS INCOME OVER THESE YEARS, T HE APPELLANT WOULD END-UP SHOWING LESS INCOME IN THE CONCLUDING YEAR. IN OTHER WORDS, IF THE ASSESSING OFFICER HAS NOT FOUND ANY RECEIPT OTH ER THAN THE ONES SHOWN BY THE APPELLANT IN ALL THESE YEARS, OR IF HE HAS NOT PROVED ANY INFLATION OF EXPENSES IN RESPECT OF THE PROJECT, TH E OVER-ALL INCOME OF THE PROJECT CANNOT BE DISTURBED. SINCE THE INCOME AS SH OWN HAS BEEN ACCEPTED BY THE RESPECTIVE ASSESSING OFFICERS AS SU CH TILL THE A.Y.2003- 04, AND THE PROJECT HAS BEEN SHOWN TO BE COMPLETED IN THE PERIOD RELEVANT TO A.Y.2005-06, NO USEFUL PURPOSE IS SERVE D BY MERELY DISTURBING THE REVENUE REALIZATION IN THE YEAR UNDE R CONSIDERATION. IT IS A FACT THAT THE APPELLANT HAS SHOWN VERY SMALL INCR EMENT IN THE WORK- IN-PROGRESS FOR A.YS 2004-05 AND 2005-05, BUT THAT CANNOT JUSTIFY THE INCOME SHOWN FOR AY.2005-06 TO BE SHIFTED TO A.Y.20 04-05 IN RESPECT OF THIS PROJECT FOR TWO REASONS. THE FIRST REASON IS T HAT THE INCREMENT IN WORK-IN-PROGRESS IS SMALL NOT ONLY FOR A.Y.2005-06 BUT ALSO FOR A.Y.2004-05. THE SECOND REASON IS THAT THE COMPLETI ON CERTIFICATE IN RESPECT OF THE PROJECT HAS BEEN RECEIVED ON 05.11.2 004 WHICH FALLS IN ITA 949/M/11 31 THE FINANCIAL YEAR RELEVANT TO A.Y.2005-06. THE ACT ION OF THE APPELLANT OF SHOWING THE BALANCING FIGURE OF PROFIT IN THE YE AR WHEN TECHNICAL APPROVAL FOR OCCUPATION I.E. OCCUPATION CERTIFICAT E WAS RECEIVED, CAN NOT BE FOUND FAULT WITH. THESE REASONS COUPLED WITH THE FACT THAT THE APPELLANTS SYSTEM OF SHOWING INCOME HAS BEEN ACCEP TED IN RESPECT OF THE SAME PROJECT FOR ALL PAST YEARS LEADS TO INESCA PABLE CONCLUSION THAT THERE IS NO SUFFICIENT REASON TO DISTURB THE SYSTEM OF ESTIMATION OF PROFIT BY THE APPELLANT. ACCORDINGLY, THE ASSESSING OFFICE R IS DIRECTED NOT TO DISTURB THE ESTIMATE OF PROFIT FOR THE CURRENT YEAR IN RESPECT OF THIS PROJECT. IT IS HELD THAT THE APPELLANT HAS COMPLET ED THE PROJECT IN THE PERIOD RELEVANT TO A.Y. 2005-06 AND HAS SHOWN THE B ALANCING FIGURE OF PROFIT OF THAT YEAR AND THEREFORE, THE ADDITION OF RS. 3,00,22,193/- MADE BY THE ASSESSING OFFICER BEING THE PROFIT OF GANGA TOWER-I IS DIRECTED TO BE DELETED FOR THE CURRENT YEAR. KUKREJA PROJECT 8.6 THE APPELLANT HAS STARTED THE PROJECT IN THE YE AR 1994-95 AND TILL 2005-06, THE ASSESSEE HAS DECLARED PROFIT ON PERCEN TAGE OF WORK IN PROGRESS METHOD TOTALING TO RS.1,72,68,519/- AND DE CLARED BALANCE PROFIT ON COMPLETION OF THE PROJECT IN THE ASST, YE AR 2006-07 AT RS.88,61,730/-. THE AO HAS COMPLETED THE ASSESSMENT FOR ASST. YEAR. 2006-07 AND ACCEPTED THE PROFIT OF THIS PROJECT WIT HOUT GRANTING ANY DEDUCTION IN RESPECT OF THE ADDITIONS MADE ON ESTIM ATE BASIS IN THE ASST YEAR 2004-05. THE LD ASSESSING OFFICER, THEREF ORE, CALCULATED THE PROFIT OF THIS PROJECT IN THE SAME MANNER AS HE CAL CULATED FOR GANGA TOWER II PROJECT. 8.7 SINCE THE METHOD. OF ACCOUNTING THE PROFIT ON P ERCENTAGE BASOS TO THE COST INCURRED ON THE PROJECT DURING THE YEAR HA S BEEN ACCEPTED BY THE ITAT IN THE CASE OF THE APPELLANT AS WELL AS GR OUP CONCERNS AND THE FACTS ARE IDENTICAL TO THE GROUND NO. 4 OF THIS VER Y APPEAL, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS,2,67,04,191/- , BEING THE ESTIMATED PROFIT OF KUKREJA PLAZA ADDED BY THE A.O. GOPALA PROJECT THE APPELLANT HAS STARTED THE PROJECT IN THE ASSESS MENT YEAR 1989-90 AND FROM ASST. YEAR 1989-90 TILL 2004-05, THE FIRM HAD DECLARED PROFIT ON PERCENTAGE OF WORK IN PROGRESS METHOD AND WHEN T HE SAID PROJECT WAS COMPLETED IN THE ASST. YEAR 2005-06 I.E. OCCUPA TION CERTIFICATE IS RECEIVED THE BALANCE PROFIT IS DECLARED. THE SAME W AS ALSO ACCEPTED BY THE ASSESSING OFFICER IN THIS SUBSEQUENT YEAR. BUT, THE LEARNED ASSESSING OFFICER DID NOT ACCEPT THE APPELLANTS ME THOD OF COMPUTING PROFIT. ITA 949/M/11 32 9.6 SINCE THE METHOD OF ACCOUNTING THE PROFIT ON PE RCENTAGE BASIS TO THE COST INCURRED ON THE PROJECT DURING THE YEAR HA S BEEN ACCEPTED BY THE ITAT IN THE CASE OF THE APPELLANT AS WELL AS GR OUP CONCERNS AND THE FACTS ARE IDENTICAL TO THE GROUND NO. 4 OF THIS VER Y APPEAL, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 3,57,00,636/ - BEING THE ESTIMATED PROFIT OF GOPALA PROJECT ADDED BY THE A.O. 15. THE LD. CIT(A) THUS ACCEPTED THE INCOME OFFERED BY THE ASSESSEE FROM DIFFERENT PROJECTS BY FOLLOWING THE METHODS OF ACCO UNTING CONSISTENTLY OVER THE YEARS AND DELETED THE ADDITION MADE BY THE A.O. BY ESTIMATING THE INCOME FROM THE SAID PROJECTS AT HIGHER VALUES. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE, THE DEPARTMENT HAS RAISED ITS GRIEVANCE IN THE PRESENT APPEAL FILED BEFORE TH E TRIBUNAL. 16. THE LD. D.R. SUBMITTED THAT THE SEVEN PROJECTS OF THE ASSESSEE UNDER EXECUTION DURING THE YEAR UNDER CONSIDERATION FOR W HICH DIFFERENT METHODS WERE FOLLOWED TO RECOGNIZE THE INCOME. HE SUBMITTE D THAT IN RESPECT OF THREE PROJECTS, PERCENTAGE COMPLETION METHOD WAS FOLLOWED BY THE ASSESSEE WHILE PROJECT COMPLETION METHOD WAS FOLLOWED IN RESPECT O F ONE PROJECT. HE SUBMITTED THAT IN RESPECT OF THE REMAINING THREE PR OJECTS, THE ASSESSEE HAD FOLLOWED MIXED METHODS. HE CONTENDED THAT AS PER T HE AS VII FOLLOWED IN A.Y. 2004-05, PROJECT COMPLETION METHOD WAS BARRED AND T HEREFORE THE A.O. RIGHTLY ADOPTED THE PROJECT COMPLETION METHOD TO ESTIMATE T HE INCOME OF THE ASSESSEE FROM THE FOUR PROJECTS WHICH WERE EXECUTED DURING T HE YEAR UNDER CONSIDERATION. HE INVITED OUR ATTENTION TO THE SPE CIFIC FINDINGS/OBSERVATIONS RECORDED BY THE A.O. AT PAGE 4 TO 6 OF THE ASSESSME NT ORDER AND SUBMITTED THAT THE METHODS OF ACCOUNTING FOLLOWED BY THE ASSE SSEE TO RECOGNIZE THE INCOME FROM DIFFERENT PROJECTS WERE REJECTED BY THE A.O. ON THE BASIS OF THE SPECIFIC ADVERSE FINDINGS. HE SUBMITTED THAT EVEN THE BASIS OF ESTIMATION OF INCOME OF THE ASSESSEE FROM DIFFERENT PROJECTS WAS SPECIFICALLY GIVEN BY THE A.O. IN THE ASSESSMENT ORDER. HE CONTENDED THAT TH E LD. CIT(A), HOWEVER, OVERLOOKED THESE SPECIFIC BASIS GIVEN BY THE A.O. A ND ACCEPTED THE METHODS ITA 949/M/11 33 ADOPTED BY THE ASSESSEE AS WELL AS INCOME COMPUTED BY THE ASSESSEE FROM PROJECTS BY ADOPTING SUCH METHOD RELYING ON THE SUB MISSIONS MADE BY THE ASSESSEE. HE CONTENDED THAT THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE THUS IS LIABLE TO BE SET ASIDE AND THAT OF THE A.O. IS DESERVED TO BE RESTORED. 17. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF BUILDER AND DEVELOPE R FOR THE LAST 35 YEARS AND THE PROJECT COMPLETION METHOD FOLLOWED BY IT TO REC OGNIZE THE INCOME FROM VARIOUS PROJECTS UP TO 31-3-2002 WAS REGULARLY ACCE PTED BY THE DEPARTMENT. HE SUBMITTED THAT THE ASSESSEE ADOPTING PROJECT COM PLETION METHOD TO RECOGNIZE THE INCOME OF THE PROJECTS STARTED AFTER 31-3-2000 AFTER HAVING FOUND THAT THE SAME WAS A BETTER METHOD IN THE CHAN GE SCENARIO. HE INVITED OUR ATTENTION TO THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND REPRODUCE PAGE 18 OF THE IMPUGNED ORDER OF THE LD. CIT(A) TO SHOW THAT THE PROJECT COMPLETION METHOD WAS FOUND TO BE NO MORE APPROPRIATE TO RECOGNIZE THE INCOME OF THE DIFFERENT PROJECTS IN T HE CHANGED MARKETING CONDITIONS. HE SUBMITTED THAT THE PROJECT COMPLETI ON METHOD, ON THE OTHER HAND, WAS FOUND TO BE MORE APPROPRIATE AND THE SAME ACCORDINGLY WAS ADOPTED BY THE ASSESSEE TO RECOGNIZE THE INCOME FRO M THE PROJECTS WHICH STARTED AFTER 31-3-2000. HE CONTENDED THAT THE METH ODS ADOPTED BY THE ASSESSEE FOR DIFFERENT PROJECTS, HOWEVER, WERE CONS ISTENTLY MAINTAINED BY THE ASSESSEE PROJECT-WISE AND, THEREFORE, THE ENTIRE IN COME FROM THE SAID PROJECTS WAS FINALLY ASSESSED TO TAX. HE SUBMITTED THAT EVE N THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE IN RESPECT OF CERTA IN PROJECTS COMMENCING AFTER 1-4-2000 WAS ACCEPTED BY THE A.O. IN A.Y. 200 3-04 AS WELL AS ASSESSMENT YEARS 2005-06 AND 2006-07. HE CONTENDED THAT THERE WAS THUS NO JUSTIFICATION IN THE ACTION OF THE A.O. TO CHANG E THE SAID METHOD ONLY IN A.Y. 2004-05 WHICH RESULTED IN DOUBLE ADDITION. HE INVITED OUR ATTENTION TO THE COPIES OF ASSESSMENT ORDERS FOR ASSESSMENT YEAR S 2003-04, 2004-05, ITA 949/M/11 34 2005-06 & 2006-07 PLACED IN HIS PAPER BOOK TO SHOW THAT THERE WAS NO ADDITION MADE BY THE A.O. ON ACCOUNT OF INCOME OFFE RED BY THE ASSESSEE FROM DIFFERENT PROJECTS THEREBY ACCEPTING THE METHOD FOL LOWED BY THE ASSESSEE. AS REGARDS AS VII RELIED UPON BY THE A.O. TO REJECT TH E METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AS WELL AS BOOK RESULTS DE CLARED IN ACCORDANCE WITH SUCH METHODS, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE SAME IS APPLICABLE TO THE CONTRACTORS AND NOT TO THE BUILDE RS. HE ALSO CONTENDED THAT THE SAID AS VII IN ANY CASE HAS NOT BEEN NOTIFIED B Y THE CENTRAL GOVERNMENT U/S 145(2) OF THE ACT. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IN THE P RESENT CASE IS ENGAGED, INTER ALIA, IN THE BUSINESS OF REAL ESTATE DEVELOPM ENT AND BOOK RESULTS DECLARED BY IT SHOWING PROFITS FROM THE DIFFERENT P ROJECTS UNDER EXECUTION DURING THE YEAR UNDER CONSIDERATION WERE REJECTED B Y THE A.O. MAINLY ON THE GROUND THAT THERE WAS A CHANGE IN METHOD ADOPTED BY THE ASSESSEE TO RECOGNIZE THE INCOME OF DIFFERENT PROJECTS FROM PER CENTAGE COMPLETION METHOD TO PROJECT COMPLETION METHOD. IT WAS ALSO NOTED BY THE A.O. IN THIS CONTEXT THAT DIFFERENT METHODS WERE SIMULTANEOUSLY FOLLOWED BY THE ASSESSEE TO RECOGNIZE THE INCOME OF DIFFERENT PROJECTS FOR THE YEAR UNDER CONSIDERATION. IT IS, HOWEVER, OBSERVED THAT THE METHOD OF RECOGNIZIN G INCOME FROM HOUSING PROJECTS WAS CHANGED BY THE ASSESSEE FROM PERCENTAG E COMPLETION METHOD TO PROJECT COMPLETION METHOD IN THE EARLIER YEARS BY D ECIDING TO FOLLOW PROJECT COMPLETION METHOD IN RESPECT OF ALL THE PROJECTS WH ICH COMMENCED AFTER 31-3- 2000. THE NEW METHOD ADOPTED BY THE ASSESSEE WAS C ONSISTENTLY FOLLOWED TO RECOGNIZE THE INCOME OF ALL THE PROJECTS WHICH STAR TED AFTER 31-3-2000 AND THE METHOD WAS ADOPTED BY THE ASSESSEE WAS ALSO ACCEPTE D BY THE A.O. IN THE EARLIER YEARS UP TO A.Y. 2003-04. DURING THE YEAR UNDER CONSIDERATION, SOME OF THE PROJECTS UNDER EXECUTION HAD STARTED PRIOR T O 31-3-2000 WHILE SOME OF THE PROJECTS WERE COMMENCED AFTER 31-3-2000. SINCE THE METHOD ADOPTED BY ITA 949/M/11 35 THE ASSESSEE WAS CONSISTENTLY FOLLOWED PROJECT-WISE , THE REVENUE OF THE PROJECTS WHICH HAD STARTED PRIOR TO 31-3-2000 WAS R ECOGNIZED BY THE ASSESSEE BY FOLLOWING PERCENTAGE COMPLETION METHOD WHEREAS T HE REVENUE OF THE PROJECTS WHICH WERE STARTED AFTER 31-3-2000 WAS REC OGNIZED BY THE ASSESSEE BY FOLLOWING THE PROJECT COMPLETION METHOD. IN OUR OPINION, THE METHOD CHANGED BY THE ASSESSEE IN RESPECT OF PROJECT COMME NCED AFTER 31-3-2000 THUS WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE AND AS RIGHTLY HELD BY THE LD. CIT(A), THE A.O. WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS OF THE ASSESSEE ON THE BASIS OF CHANGE IN THE METHOD ADOPTED BY THE ASSESSEE OR TO DIFFERENT METHOD ALLEGEDLY FOLLOWED BY THE ASSESSEE. IT WAS ALSO OBSERVED THAT EVEN THE CHANGE IN THE METHOD OF ACCOUNTING ADOPTED BY THE A SSESSEE WAS PROPERLY JUSTIFIED BEFORE THE LD. CIT(A) BY EXPLAINING WITH THE HELP OF RESULTS OF ONE PROJECT TO SHOW THAT HOW THE PROJECT COMPLETION MET HOD WAS MORE PROPER METHOD TO RECOGNIZE THE INCOME FROM THE PROJECTS IN THE CHANGE MARKET CONDITION. IT WAS ALSO POINTED OUT BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE REVISED AS VII RELIED UPON BY THE A.O. WAS NOT APPLICABLE IN THE CASE AND THE SAME NOT BEING NOTIFIED BY THE CENTRAL GOVERNME NT U/S 145(2), IT WAS NOT MANDATORY. WE, THEREFORE, UPHOLD THE IMPUGNED ORDE R OF THE LD. CIT(A) ACCEPTING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO RECOGNIZE ITS INCOME FROM BUSINESS INCOME AFTER HOLDING THAT THE A.O. WAS NOT JUSTIFIED TO REJECT THE BOOK RESULT DECLARED BY THE ASSESSEE AS PER THE SAID METHOD. 19. HAVING HELD THAT THE METHOD ADOPTED BY THE ASSE SSEE TO RECOGNIZE THE INCOME FROM THE PROJECT UNDER EXECUTION DURING THE YEAR UNDER CONSIDERATION WERE PROPER, THE NEXT ISSUE THAT ARISING IS WHETHER THE INCOME DECLARED BY THE ASSESSEE FROM THE SAID PROJECTS AS PER THE METHOD A DOPTED BY IT WAS FAIR AND REASONABLE VIS--VIS THE ESTIMATES MADE BY THE A.O. IT IS OBSERVED IN THIS REGARD THAT THIS ASPECT OF THE MATTER HAS BEEN CONS IDERED BY THE LD. CIT(A) IN DETAIL IN HIS IMPUGNED ORDER WHEREIN HE HAS GIVEN F INDING IN RESPECT OF EACH AND EVERY PROJECT WHICH WAS UNDER EXECUTION DURING THE YEAR UNDER ITA 949/M/11 36 CONSIDERATION AFTER DISCUSSING THE STAND OF THE ASS ESSEE AS WELL AS THAT OF THE A.O. AS NOTED BY HIM, GANGA TOWER II PROJECT WAS C OMMENCED IN A.Y. 2002- 03 I.E. AFTER 31-3-2000, THE ENTIRE PROFIT OF THE S AID PROJECT AMOUNTING TO RS. 4.23 CRORES WAS DECLARED BY THE ASSESSEE IN A.Y. 20 05-06 WHEN IT WAS COMPLETED BY FOLLOWING THE PROJECT COMPLETION METHO D. THIS METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE FOR THE SAID PROJECT WAS ACCEPTED BY THE A.O. IN A.Y. 2002-03. EVEN IN THE ASSESSMENT COMPLE TED FOR A.Y. 2005-06, THE ENTIRE PROFIT OFFERED BY THE ASSESSEE FROM GANGA TO WER II PROJECT ON PROJECT COMPLETION METHOD WAS ACCEPTED BY THE A.O. BRINGING TO TAX THE ENTIRE PROFIT OF THE SAID PROJECT IN THAT YEAR. THE A.O., HOWEVE R, DISTURBED THIS METHOD IN THE YEAR UNDER CONSIDERATION I.E. A.Y. 2004-05 AND ASSESSED THE INCOME OF RS. 3.36 CRORES AS PROFIT FROM THE SAID PROJECT IN THE HANDS OF THE ASSESSEE BY FOLLOWING PERCENTAGE COMPLETION METHOD. THIS CLEAR LY RESULTED IN THE DOUBLE ADDITION OF THE SAID INCOME ONCE IN A.Y. 2004-05 AN D AGAIN IN A.Y. 2005-06 WHICH WAS TOTALLY UNJUSTIFIED. AS REGARDS GANGA TOW ER I PROJECT, IT IS OBSERVED THAT THE SAME WAS COMMENCED IN THE PREVIOUS YEAR RE LEVANT TO A.Y. 1986-87 I.E. PRIOR TO 31-3-2000 AND INCOME FROM THE SAID PR OJECT WAS OFFERED BY THE ASSESSEE IN A.Y. 1986-87 TO A.Y. 1994-95 BY FOLLOWI NG PERCENTAGE COMPLETION METHOD WHICH WAS CONSISTENTLY ACCEPTED BY THE A.O. THE COMPLETION CERTIFICATE IN RESPECT OF THE SAID PROJECT WAS FINA LLY RECEIVED BY THE ASSESSEE ON 5-11-2004 AND ACCORDINGLY THE BALANCE PROFIT OF THE SAID PROJECT WAS OFFERED BY THE ASSESSEE IN A.Y. 2005-06 WHICH WAS ALSO ACCE PTED BY THE A.O. THE ENTIRE INCOME OF THE SAID PROJECT THUS WAS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE AS PER PERCENTAGE COMPLETION METHOD CONSIS TENTLY FOLLOWED BY THE ASSESSEE IN RESPECT OF THE SAID PROJECT AND THE A.O ., IN OUR OPINION, WAS NOT JUSTIFIED IN BRINGING TO TAX THE PROFIT OF RS. 3 CR ORES FROM THE SAID PROJECT IN THE YEAR UNDER CONSIDERATION BY TREATING THE SAID P ROJECT AS COMPLETED IN THAT YEAR WHEN THE SAID PROFIT WAS DULY OFFERED BY THE A SSESSEE IN A.Y. 2005-06 ON THE BASIS OF COMPLETION CERTIFICATE RECEIVED AND TH E SAME WAS ACCEPTED BY THE A.O. THIS ACTION OF THE A.O. ALSO RESULTED IN DOUB LE ADDITION OF THE SAME ITA 949/M/11 37 INCOME IN THE HANDS OF THE ASSESSEE WHICH WAS NOT J USTIFIED AS RIGHTLY HELD BY THE LD. CIT(A). SIMILARLY, THE PROFIT FROM KUKREJA PLAZA PROJECT WAS DECLARED BY THE ASSESSEE IN A.Y. 1994-95 BY FOLLOWING PERCENTAG E COMPLETION METHOD AGGREGATING TO RS. 1.73 CRORES AND THE BALANCE PROF IT FROM THE SAID PROJECT AMOUNTING TO RUPEES 0.89 CRORES WAS OFFERED BY THE ASSESSEE IN A.Y. 2006-07 WHEN THE SAID PROJECT WAS COMPLETED. THE ENTIRE IN COME OF THE ASSESSEE FROM THE SAID PROJECT THUS WAS ALREADY ASSESSED TO TAX I N THE HANDS OF THE ASSESSEE AS PER THE METHOD CONSISTENTLY FOLLOWED AND THERE W AS NO JUSTIFICATION IN THE ACTION OF THE A.O. IN BRINGING TO TAX THE SAID PROF IT AGAIN IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WHICH CLEA RLY RESULTED IN DOUBLE ADDITION OF THE SAME INCOME. THE POSITION AS REGAR DS TO GOPALA PROJECT WAS ALSO FOUND TO BE THE SAME BY THE LD. CIT(A) INASMUC H AS THE PROFITS OF THE SAID PROJECT WAS OFFERED BY THE ASSESSEE TO TAX ON A.Y. 1989-90 TO 2004-05 BY FOLLOWING THE PERCENTAGE COMPLETION METHOD WHICH WA S ACCEPTED CONSISTENTLY BY THE DEPARTMENT. EVEN THE BALANCE PROFIT OF THE SAID PROJECT OFFERED BY THE ASSESSEE IN A.Y. 2005-06 ON THE RECEIPT OF THE OCCU PATION CERTIFICATE WAS ALSO ACCEPTED BY THE A.O. STILL HE AGAIN BROUGHT TO TAX THE PROFIT OF THE SAID PROJECT IN THE HANDS OF THE ASSESSEE IN THE YEAR UN DER CONSIDERATION WHICH CLEARLY RESULTED IN DOUBLE ADDITION OF THE SAME INC OME IN THE HANDS OF THE ASSESSEE. 20. HAVING CONSIDERED ALL THE FACTS OF THE CASE AS DISCUSSED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER AND REMAINED UNCONTROV ERTED/REBUTTED BY THE LD. D.R., WE FIND THAT THE INCOME FROM DIFFERENT PR OJECTS UNDER EXECUTION DURING THE YEAR UNDER CONSIDERATION WAS OFFERED BY THE ASSESSEE TO TAX BY FOLLOWING CONSISTENTLY THE WELL RECOGNIZED METHOD A ND THERE WAS NO JUSTIFICATION IN THE ACTION OF THE A.O. IN ESTIMATI NG THE PROFIT OF THE SAID PROJECTS AT HIGHER VALUE BY DISTURBING THE METHOD C ONSISTENTLY FOLLOWED BY THE ASSESSEE WHICH CLEARLY RESULTED IN DOUBLE ADDITION OF THE SAME INCOME. IN OUR OPINION, THE ADDITION MADE BY THE A.O. ON THIS ISSU E THUS WAS NOT SUSTAINABLE ITA 949/M/11 38 EITHER IN LAW OR IN THE FACTS OF THE CASE AND THE L D. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE SAME. WE, THEREFORE, UPHOLD THE IMPUG NED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO. A TO F OF THE REVENUES APPEAL. 21. AS REGARDS GROUND NO. G, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO ASSESSEES CLAIM FOR DEDUCTION ON ACCOU NT OF BUSINESS EXPENSES OF RS. 36,37,375/- IS CONSEQUENTIAL TO THE MAIN ISSUE INVOLVED IN GROUND NO. A TO F OF THE REVENUES APPEAL INASMUCH AS AFTER RE JECTING THE BOOK RESULTS, THE A.O. ESTIMATED THE INCOME OF THE ASSESSEE FROM THE REAL ESTATE DEVELOPMENT WITHOUT ALLOWING ANY DEDUCTION ON ACCOUNT OF BUSINE SS EXPENSES OF RS. 36,37,375/- INCURRED BY THE ASSESSEE. THE LD. CIT( A), HOWEVER, HELD THE ACTION OF THE A.O. IN REJECTING THE BOOK RESULTS AS UNSUSTAINABLE AND DELETED THE ADDITION MADE BY THE A.O. BY ESTIMATING THE INC OME OF THE ASSESSEE FROM THE BUSINESS OF REAL ESTATE DEVELOPMENT ON HIGHER S IDE. CONSEQUENTLY, HE ALLOWED THE BUSINESS EXPENSES OF RS. 36,37,375/- CL AIMED BY THE ASSESSEE HOLDING THAT THERE WAS NOTHING BROUGHT ON RECORD BY THE A.O. TO ESTABLISH THAT THE EXPENSES SO CLAIMED BY THE ASSESSEE WERE E ITHER BOGUS OR WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. SINCE THE IM PUGNED ORDER OF THE LD. CIT(A) DECIDING THE MAIN ISSUE IN FAVOUR OF THE ASS ESSEE UPHELD BY US, THE CONSEQUENTIAL RELIEF ALLOWED BY HIM TO THE ASSESSEE BY ALLOWING THE DEDUCTION ON ACCOUNT OF BUSINESS EXPENSES OF RS. 36,37,375/- IS LIABLE TO BE SUSTAINED AS A COROLLARY. WE ORDER ACCORDINGLY AND DISMISS G ROUND NO. G OF REVENUES APPEAL. 22. IN GROUND NO. (H), THE REVENUE HAS CHALLENGED T HE ACTION OF THE LD. CIT(A) IN ALLOWING 50% OF DEPRECIATION AMOUNTING TO RS. 27,59,570/- CLAIMED BY THE ASSESSEE IN RESPECT OF HOTEL BUSINESS. 23. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD STARTED A NEW BUSINESS IN THE NAME OF K. STARS HOTEL. INVESTMENT OF RS. 8,34,82,152/- IN ITA 949/M/11 39 FIXED ASSETS WAS STATED TO BE MADE BY THE ASSESSEE FOR THE SAID BUSINESS AND DEPRECIATION THEREON WAS CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS. 55,19,141/-. WHILE EXAMINING THE CLAIM OF THE ASSES SEE FOR THE SAID DEPRECIATION, THE A.O. FOUND THAT PURCHASES OF AIR CONDITIONERS AND EQUIPMENTS WERE MADE BY THE ASSESSEE BEFORE 1-10-20 03 WHEREAS ADDITION TO THE PREMISES WAS SHOWN TO BE MADE AFTER 1-10-2003. SINCE THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY EXPLANATION IN THI S REGARD AND ALSO FAILED TO ESTABLISH HOW THE ASSETS PURCHASED WERE PUT TO USE IMMEDIATELY FOR THE PURPOSE OF HOTEL BUSINESS, THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION. 24. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION WAS DISPUTED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A) AND THE FOLLOWING EVIDENCE WAS PRODUCED BY THE IT BEFORE TH E LD. CIT(A) TO SHOW THAT THE HOTEL BUSINESS WAS COMMENCED DURING THE YEAR UN DER CONSIDERATION AND ALL THE ASSETS WERE PUT TO USE FOR THE SAID BUSINES S:- (I) FIRE NOC FROM NAVI MUMBAI MUNICIPAL CORPORATIO N DATED 03.01.2004 FOR HOTEL K PLAZA D WING. - V (II) LICENCE FOR EATING HOUSE FOR K STAR HOTEL FROM NMMC (III) LICENCE FO LODGING, FOR K STAR HOTEL FROM NMM C (IV) SHOP & ESTABLISHMENT LICENCE OF THE K STAR HOT EL (V) PERMISSION FROM NMMC FOR DISPLAYING CLOTH BANNE RS ON ELECTRICITY POLLS OF NMMC FROM 14.01.2004 TO 11.02. 2004 & 15.01.2004 TO L4,02.2004 IN BELAPUR & NERUL (VI) SALE BILL NO. 6 DATED 19.01.2004 OF K STAR. 25. WHEN THE ADDITIONAL EVIDENCE FILED BY THE ASSES SEE WAS FORWARDED BY THE LD. CIT(A) TO THE A.O. FOR HIS COMMENTS, THE A. O. DID NOT OFFER ANY MATERIAL ADVERSE COMMENT TO DISPUTE THE CLAIM OF THE ASSESSE E MADE ON THE BASIS OF THE SAID ADDITIONAL EVIDENCE. THE LD. CIT(A) ALSO FOUND THAT THE SAID EVIDENCE WAS SUFFICIENT TO ESTABLISH THAT HOTEL K. STARS HAD STARTED FUNCTIONING ON 17- ITA 949/M/11 40 1-2004 AND KEEPING IN VIEW OF THE SAME AS WELL AS T HE FACT THAT GROSS RECEIPTS FROM THE OCCUPANCY OF THE HOTEL HAS BEEN SHOWN AT R S. 18,23,766/-, HE HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATIO N ON THE ASSETS PUT TO USE FOR HOTEL BUSINESS. HE, HOWEVER, HELD THAT THE SAID ASSETS HAVING BEEN USED BY THE ASSESSEE FOR LESS THAN 180 DAYS DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ONL Y TO THE EXTENT OF 50%. ACCORDINGLY, HE DIRECTED THE A.O. TO ALLOW THE CLAI M OF THE ASSESSEE FOR DEPRECIATION TO THE EXTENT OF 50%. 26. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT SUFFICIENT EVIDENCE WAS PLACED ON RECORD BY THE ASSESSEE BEFORE THE LD. CIT(A) TO SHOW THAT THE HOTEL BUSINESS WAS STARTED ON 17-1-2004 AND THE ASS ETS THUS WERE PUT TO USE FOR THE SAID BUSINESS FROM THAT DATE. NEITHER THE A.O. IN HIS REMAND REPORT SUBMITTED TO THE LD. CIT(A) NOR THE LD. D.R. AT THE TIME OF HEARING BEFORE US HAS BEEN ABLE TO BRING ANYTHING ON RECORD TO DISPUT E THIS POSITION. WE, THEREFORE, FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) DIRECTING THE A.O. TO ALLOW THE CLAIM OF THE ASSESS EE FOR DEPRECIATION ON THE ASSETS PUT TO USE FOR HOTEL BUSINESS TO THE EXTENT OF 50% AS THE USE OF THE SAID ASSET WAS FOR LESS THAN 180 DAYS DURING THE YEAR UN DER CONSIDERATION. WE, THEREFORE, UPHOLD THE ORDER OF LD. CIT(A) DISMISSIN G GROUND NO. H OF THE REVENUES APPEAL. 27. AS REGARDS GROUND NO. (I), IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO ASSESSEES CLAIM FOR LOSS PERTAINING TO THE HOTEL BUSINESS IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. (H) INASMUCH AS T HE LD. CIT(A) AFTER HAVING ACCEPTED THAT THE HOTEL BUSINESS OF THE ASSESSEE WA S COMMENCED DURING THE YEAR UNDER CONSIDERATION, ALLOWED THE CLAIM OF THE ASSESSEE FOR RS. 8,18,327/- FOR THE YEAR UNDER CONSIDERATION. AS WE HAVE UPHEL D THE FINDINGS OF LD. CIT(A) THAT THE HOTEL BUSINESS OF THE ASSESSEE WAS COMMENC ED DURING THE YEAR UNDER ITA 949/M/11 41 CONSIDERATION WHILE DECIDING GROUND NO. (H), WE UPH OLD HIS IMPUGNED ORDER ALLOWING THE CONSEQUENTIAL RELIEF TO THE ASSESSEE I N TERMS OF THE LOSS CLAIMED IN RESPECT OF HOTEL BUSINESS OF RS. 8,18,327/-. TH E IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD AND GROUND NO. (I) O F REVENUES APPEAL IS DISMISSED. 28. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. . '5 2 34- 6'(7 29-11-2013 4 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 6'( DATED 29-11-2013 $.)(.!./ RK , SR. PS '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. ; () / THE CIT(A)40, MUMBAI. 4. ; / CIT CENTRAL II, MUMBAI 5. 9$> 0))( , , / DR, ITAT, MUMBAI GBENCH 6. %, ? / GUARD FILE. '5(! '5(! '5(! '5(! / BY ORDER, !19 0) //TRUE COPY// @ @ @ @/ // /!A !A !A !A ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI