THE ACIT, CEN. Circle-2(2), Ahmedabad V. M/S SHELTER INN HOTELS PVT. LTD., Bhavnagar

ITSSA 380/AHD/2003

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7765 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-02-2012
• Assessment Year: misc
• Appeal Filed On: 09-10-2003
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: M P SARDA
• Keywords: Business income; Business expenditure; Block assessment
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH BEFORE SHRI G.C.GUPTA, VICE-PRESIDENT (AZ) AND SHRI B.P. JAIN, ACCOUNTANT MEMBER IT(SS)A NO.03/RJT/2003 & IT(SS)A NO.380/AHD/2003 BLOCK PERIOD FROM:1/4/88 TO 29/7/98 ACIT CENTRAL CIRCLE-2(2), AHMEDABAD / V/S . M/S SHELTER INN HOTELS PVT. LTD. BHAVNAGAR PAN NO.AADCS2020E / APPELLANT .. / RESPONDENT /ASSESSEE BY SHRI M.P. SARDA, AR /REVENUE BY SHRI S.K. GUPTA, CIT-DR /DATE OF HEARING 14-02-2012 !'# /DATE OF PRONOUNCEMENT 17-02-2012 $ $ $ $ / // / ORDER PER B.P. JAIN, ACCOUNTANT MEMBER:- THESE TWO APPEALS OF THE REVENUE ARISE FROM TWO DIF FERENT ORDERS OF LD. COMMISSIONER OF INC-TAX (APPEALS)-III, AHMEDABAD DA TED 18-10-2002 AND 30-07- 2003 FOR THE BLOCK PERIOD FROM 01-04-1988 TO 29-07- 1998. THE REVENUE HAS RAISED THE REVISED GROUNDS OF APPEAL IN IT(SS)A NO.03/RJT/2003 AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO RECOMPUTE THE PROFIT FROM PRITHVI VALLABH PROJECT B Y CONSIDERING THE SALES AT RS.1,59,00,550/- AS AGAINST THE SALES OF RS.3,90,40 ,600/- ADOPTED BY THE AO. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ACCEPT THE OTHER INCOME AT RS.15,61,960/- AS OFFERED BY TH E ASSESSEE AS AGAINST THE OTHER INCOME OF RS.23,79,085/- ADOPTED BY THE AO FO R WORKING OUT THE NET PROFIT FROM THE AFORESAID PROJECT. IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 2 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ALLOW RS.13,44,900/- AS BUSINESS EXPENSES FOR THE PURPOSE OF DETERMINATION OF THE TOTAL PROFIT OF THE ASSESSEE FOR THE BLOCK PERIOD. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ADOPT THE REGULAR EXPENSES AT RS.2,11,78,000/-. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ALLOW THE PAYMENT OF RS.5,56,664/- U/S. 40A(3) OF THE I.T . ACT, 1961. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO ALLOW RS.13,76,916/- AS INTEREST EXPENSES DISALLOWED AS N ON-BUSINESS EXPENSES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE H\UPHELD THE ORDER OF THE ASSESSING OFFICER. THE REVENUE HAD ALSO RAISED THE ADDITIONAL GROUNDS OF APPEAL WHICH WERE ADMITTED BY THE C BENCH OF ITAT AHMEDABAD, VIDE INTERIM OR DER DATED 17-11-2011, THE SAME ARE REPRODUCED AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ADMITTING THE CLAIM OF THE ASSESSEE THAT THE PROJECT IN DISPUTE I.E. PRUTHVI V ALLABH PROJECT WAS COMPLETED ONLY 50%. 2. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND ON F ACT IN IGNORING THE PROFIT AND LOSS ACCOUNT AS APPEARING IN THE ANNEXURE A-15 SEIZ ED DURING THE SEARCH ON THE PRUTHVI BUILDERS GROUP OF CASES ON 29.07.1998. 2.1 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT TH E COMPUTERIZED ACCOUNTS IN ANNEXURE-15 ONLY REVEALS THE ACTUAL PICTURE OF TOTA L SALES, PURCHASES, INCOME AND EXPENSES INCURRED BY THE ASSESSEE COMPANY. THE ASSESSEE CANNOT BE ALLOWED TO RE-CAST THE ABOVE ACCOUNTS. 2.2 IN COMBINED PROFIT & LOSS ACCOUNT THE ASSESSEE HAS SHOWN GROSS RECEIPT FROM THE CUSTOMER ONLY AT RS.1,17,30,500/- AS AGAIN ST ACTUAL TOTAL RECEIPT IN TEST LEDGER OF RS.3,18,01,100/-. THE AMOUNT RECEIVA BLE FROM THE CUSTOMER TO THE TUNE OF RS.1,11,61,600/- HAS NOT BEEN CONSIDERE D AND ONLY ACTUAL RECEIPT IS SHOWN. THE RE-CASTING OF PROFIT AND LOSS ACCOUNT IS THEREFORE NOT AS PER THE MERCANTILE SYSTEM OF ACCOUNTING AND DESERVES TO BE REJECTED. 2. THE BRIEF FACTS IN BOTH THE APPEALS OF THE REVEN UE ARE AS PER ASSESSING OFFICERS ORDER IN RELEVANT PARAS AS POINTED OUT BY THE PARTIES ARE REPRODUCED FOR THE SAKE OF CLARITY AS UNDER:- IN THE COURSE OF SEARCH, CERTAIN COMPUTERIZED BOOK S OF ACCOUNT FED IN THE COMPUTERS WERE FOUND. THE COPIES OF ACCOUNTS WERE T AKEN OUT FROM THE COMPUTER FROM A DIVERTING LABELED SAHAS WHICH ARE MAINTAINED AND WRITTEN FOR FINANCIAL YEAR 1995-96, 1996-97, 1997-98 AND 19 97-98. THESE BOOKS OF IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 3 ACCOUNT WERE MAINTAINED FOR ALL THE CONCERNS I.E., M/S. PRITHVI BUILDERS AND ITS ASSOCIATES INVOLVING THE PRESENT ASSESSEE COMPANY. ALL PAGES IN THESE BOOKS OF ACCOUNT ARE LABELED AS TEST LEDGER MEANING THE DUPLICATE SET OF BOOKS OF ACCOUNT. IN THESE BOOKS OF ACCOUNT VAST CASH TRANSA CTIONS HAVE BEEN DISCLOSED WHICH ARE NOT FOUND ANYWHERE IN THE REGUL AR BOOKS OF ACCOUNT. THE ON MONEY RECEIVED AGAINST SALE OF PLOT OF LAND/FLAT S/OFFICES/SHOPS ETC., ARE RECORDED. THE ADVANCES RECEIVED AGAINST THE ASSET A RE ALSO RECORDED. ALL THESE TRANSACTIONS ARE BY & LARGE RECEIVED IN CASH. THE EXPENSES INCURRED ARE ALSO IN CASH. THUS, THE PICTURE DEPICTS BY THE TEST BOOKS OF ACCOUNT IS THE OVER ALL REAL PICTURE OF THE GROUP CONCERNS. IN THESE BO OKS OF ACCOUNT THE PROFIT & LOSS ACCOUNT, TRADING ACCOUNT, BALANCE SHEET ETC. A RE DRAWN. ON CAREFUL SCRUTINY, IT HAS BEEN FOUND THAT THE BOO KS ARE DIVIDED IN TWO COMPARTMENTS. ONE OF THEM SHOWS ACCOUNT OF DIFFEREN T PARTIES AND ANOTHER COMPARTMENT IS MEANT FOR THE CASH PAYMENT MADE OR R ECEIVED DATE WISE. IT IS FURTHER REVEALED THAT AGAINST EACH ACCOUNT, THE NAM E OF THE PROJECT HAS BEEN MENTIONED IN BRIEF LIKE P.B., P.C., P.V., A. I.E., P.P., WHICH ARE THE PROJECT DEVELOPED BY THE GROUP. THE MOST IMPORTANT BOOK IS ANNEXURE A-15 WHICH IS S EIZED BY THE DEPARTMENT AS PER PANCHNAMA DTD. 30.7.98. IN THIS COMPUTERIZED BOOKS OF ACCOUNT, THE POSITION REGARDING INCOME AND EXPENDITURE AS ON 30. 7.98 IS RECORDED. THE INCOME & EXPENSES RECORDED ARE PROJECT-WISE. FURTHE R IT HAS BEEN SEEN THAT TRIAL BALANCE FOR DIFFERENT PROJECT IS ALSO DRAWN. THE ASSESSEE IS A COMPANY ENGAGED IN THE CONSTRUCT ION OF COMMERCIAL AS WELL AS RESIDENTIAL COMPLEX KNOWN AS PRITHVI VALLAB H. INITIALLY, THE LAND WAS PURCHASED BY SHRI LOKENDRASINH CHANDRASINH RAOL WHO HAD INTENTION TO FLOAT THE PROJECT OF HOTEL KNOWN AS HOTEL SHELTER-INN B UT THE SAID PROJECT COULD NOT BE MATERIALIZED. MEANWHILE, THE ASSESSEE COMPANY HA D IN TURN PURCHASED THE SAID LAND FOR THE PURPOSE OF COMMERCIAL COMPLEX. TH E PROJECT PROPOSED TO BE FLOATED WAS NOMENCLATURE AS PRITHVI VALLABH COMPLEX . IT HAS BEEN STATED BY THE ASSESSEE THAT THE COMPAN Y HAS ENTERED INTO AGREEMENT FOR THE CONSTRUCTION OF THE PROJECT WITH M/S. PRITHVI BUILDERS. AS REQUESTED THE ASSESSEE HAS FILED THE COPY OF THE AG REEMENT ENTERED INTO WITH M/S. PRITHVI BUILDERS. ON CLOSE SCRUTINY OF THE AGR EEMENT, THE FOLLOWING CONDITIONS ARE FOUND TO HAVE BEEN LAID DOWN: 1. THE AGREEMENT WAS EXECUTED ON 15.10.96. THE OLD HOUSE STANDING ON THE PLOT WAS TO BE DEMOLISHED. THE TOTAL AREA OF THE CONSTRUCTION TO BE COVERED WAS 6771.01 SQ.MTS. AS PER THE PLAN A PPROVED BY THE MUNICIPAL CORPORATION. THE COMMERCIAL COMPLEX IS MU LTI STORIED AND PROPOSED TO BE CONSTRUCTED UPTO 7 FLOOR EXCLUDING L OWER GROUND FLOOR AND GROUND FLOOR. 2. THE RATE OF CONSTRUCTION WAS FIXED AT RS.310.60 PER SQ.FEET (SUPER BUILD UP AREA). THE TOTAL SUPER BUILD UP AREA IS ST ATED AT 72856 SQ.FTS. THE TOTAL COST OF CONSTRUCTION IS ESTIMATED AT RS.2,26,29,073. IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 4 3. THE ENTIRE PROJECT WAS TO BE COMPLETED WITHIN A PERIOD OF 36 MONTHS. 4. IF IT IS NOT COMPLETED WITHIN STIPULATED TIME, T HE PROVISION HAS BEEN PROVIDED REGARDING CHARGING OF RS.50 PER DAY TO THE ASSESSEE AS DAMAGES. DURING THE COURSE OF SEARCH PROCEEDINGS, CERTAIN B OOKS OF ACCOUNTS AND OTHER DOCUMENTS WERE FOUND AS TABLED HEREINABOVE. I T HAS BEEN SEEN THAT THE ASSESSEE COMPANY AND ITS ASSOCIATE CONCERN USED TO MAINTAIN NO.2 ACCOUNTS IN RESPECT OF THEIR INCOME AND EXPENDITURE WHICH AR E NOT TO BE DISCLOSED TO THE DEPARTMENT. THE DEPARTMENT THEREFORE RECOVERED SUCH TYPE OF COMPUTERIZED BOOKS OF ACCOUNT WHICH REFLECTED THE INCOME, EXPEND ITURE, LOAN ETC., IN THESE DOCUMENTS. THESE DOCUMENTS ARE MAINTAINED FOR ALL T HE CONCERNS OF THE ASSESSEE AND ITS ASSOCIATES. THE DETAILED DISCUSSIO N HAS ALREADY BEEN DONE HEREINABOVE. THE IMPORTANT SEIZED MATERIALS ARE DISCUSSED HEREU NDER:- ANNEXURE A15 IT CONTAINS COMBINED PROFIT & LOSS ACCOUNT AND BALA NCE OF M/S. PRITHVI BUILDERS AND ITS ASSOCIATES. THIS COMPUTERIZED ACCO UNTS COMPRISE OF THE TOTAL SALES AND PURCHASES AND EXPENSES INCURRED BY THE ASSESSEE COMPANY. THE SAME IS REPRODUCED AS UNDER:- PROFIT & LOSS ACCOUNT (PRUTHVI VALLABH) TO EXPENSES RS.1,88,20,239 BY SALES INCOME 3 ,18,01,100 TO ADVANCE EXP 18,03,400 BY OTHER INCOME 23,79,085 TO NET PROFIT 4,18,56,546 BY CLOSING ST OCK 2,83,00,000 TOTAL 6,24,80,185 6,24,80,185 THE ASSESSEE IN ITS SUBMISSION HAS ARGUED THAT THE RE-COMPUTATION OF PROFIT & LOSS ACCOUNT HAS BEEN WORKED OUT IN THE STATEMENT F ILED ALONG WITH THE RETURN OF INCOME. THE ASSESSEE HAS RECAST ITS PROFIT & LOS S ACCOUNT AS UNDER:- SHELTER-INN HOTELS PVT. LTD. COMBINED TRADING & PROFIT & LOSS ACCOUNT FOR THE PE RIOD ENDED 2.7.1998 PARTICULARS AMOUNT RS. PARTICULARS AMOUNT RS. TO EXPENSES ON PRITHVI VALLABH AS PER II 14601816 BY GROSS RECEIPTS FROM CUSTOMERS 11730500 TO ADVANCE EXPENSES ON PRITHVI VALLABH 1344900 BY OTHER INCOME 1561960 TO EXPENSES ON PRITHVI VALLABH AS PER I 21178235 BY CLOSING STOCK 5959549 BY NET LOSS FOR THE PERIOD 17872942 TOTAL 37124951 37124951 IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 5 IN ORDER TO WORK OUT THE CLOSING STOCK, THE COST O F LAND AND EXPENDITURE RELATED TO CONSTRUCTION HAS BEEN ADOPTED AS UNDER: COST OF LAND COST OF LAND AS PER RETURN OF INCOME FOR AY 97-98 13124258 PAYMENT AS PER TEST 12000000 TOTAL COST OF LAND 25124258 AS REGARDS EXPENSES, AS PER THE TEST LEDGER TOTAL EXPENDITURE IS SHOWN AT RS.1,88,20,239 WHICH INCLUDE COST OF LAND OF RS.1,2 0,00,000 AND THE AMOUNT OF DONATION OF RS.5000. THE AMOUNT OF DONATION HAS BEEN IGNORED, WHILE THE COST OF LAND IS SEPARATELY SHOWN ABOVE. FURTHER, TH E AMOUNT OF RS.29,55,469 SHOWN AS EXPENDITURE OF P.V. BOOKS IS REDUCED BY RS .85,200 WHICH THE AMOUNT OF TDS AND NOT ALLOWABLE. THE SAID AMOUNT IS REQUIRED TO BE PAID NOT BY THE ASSESSEE BUT BY THE CONTRACTOR. THUS, THE NE T EXPENDITURE WHICH IS CONSIDERED HERE IS RS.67,30,039/-. THE COST OF LAND HAS BEEN ADOPTED AS SHOWN IN THE RETURN OF INCOME FOR A.Y 1997-98. THUS THE COST OF CONSTRUCTION INCLUDING LAND IS WORKED OUT TO RS.3,18,54,297/-. COST OF CONSTRUCTION AS WORKED OUT ABOVE RS.3,18,54 ,297 AS SUCH, THE TOTAL COST IS WORKED OUT TO RS.3,18,54 ,297 FOR 72950 SQ. FTS. OUT OF WHICH, THE TOTAL AREA OF 42413 SQ.FTS. HAS BEEN SHOWN AS SALES. HENCE THE CLOSING STOCK REMAINED AS ON THE DATE OF SEARCH IS 30537 SQ. FTS. (TOTAL 72950 SOLD 42413). THE VALUE OF THE UNSOLD STOCK IS WOR KED AS UNDER:- TOTAL EXPENSES INCLUDING COST OF LAND = 3,18,54,29 7 X 30537 72950 = 1,33,34,286 AS SUCH, THE CLOSING STOCK IS TAKEN AT RS.1,33,34, 286 THE ASSESSEE IN ITS SUBMISSION DTD. 7.7.2000 SIMPL Y STATED AS BELOW: RECEIPT AS PER CASH BOOK RS.2,06,39,500 RECEIPT AS PER BANK RS. 28,21,500 AS PER THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN TOTAL RECEIPT OF RS.2,34,61,000 WHICH IS ACCORDING TO THE ASSESSEE I S THE REAL RECEIPT. OUT OF WHICH THE ASSESSEE COMPANY OFFERED 50% RECEIPT AT R S.11,73,500 FOR TAXATION ON THE GROUND THAT THE CONSTRUCTION WORK TILL THE D ATE OF SEARCH HAS BEEN COMPUTED 50%. THERE IS NO BASE FOR IT. THIS ISSUE H AS ALSO BEEN DISCOVERED IN DEPTHS IN THE PRECEDING PARAS. THE ASSESSEE HAS ALSO SHOWN THE AMOUNT OF RS.11161600 AS RECEIVABLES. AS DISCUSSED HEREINABOV E, THE ASSESSEES CLAIM THAT 50% RECEIPT IS PERTAINING TO THE PERIOD UP-TO THE DATE OF SEARCH IS WITHOUT ANY BASE. HOWEVER, LATER ON THE ASSESSEE CO MPANY IN ITS SUBMISSION IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 6 DTD. 16.5.2000 AND ALSO DTD. 13.7.2000 WHICH HAS BE EN REPRODUCED HEREINABOVE OFFERED THE ENTIRE AMOUNT OF SALES OF R S.3,18,01,100 I THE REVISED PROFIT & LOSS ACCOUNT FOR TAXATION. THUS THE ASSESS EE HAS NOW CORRECTED ITS WRONG METHOD OF ACCOUNTING SYSTEM NOW BY FILING THE REVISED PROFIT & LOSS ACCOUNT. HOWEVER, IN THE REVISED PROFIT & LOSS ACCOUNT, THE INCOME FROM THE OTHER SOURCES IS SHOWN AT RS.1561960 WHILE IN THE TEST L EDGER IT IS SHOWN AT RS.23,79,085. THE ASSESSEE WAS ASKED TO CLARIFY THE SAME. IN ABSENCE OF ANY EXPLANATION, THE INCOME FROM OTHER SOURCES IS TAKEN AT RS.23,79,085 AS SHOWN IN THE TEST LEDGER. SUBJECT TO THE ABOVE REMARKS, THE PROFIT & LOSS ACC OUNT IS WORKED OUT AS UNDER:- TO EXPENDITURE LAND REGULAR 13124258 BY SALES BY CHEQUE 2821500 BY CASH 20639500 BY RECEIVABLE 15572600 39040600 TO EXP. LAND AS PER TEST 12000000 BY OTHER INCOME 2379085 TO EXP. AS PER TEST EXCLUDING COST OF LAND 6730039 CLOSING STOCK 13334286 TO NET PROFIT 22899674 TOTAL 54753971 54753971 SUBJECT TO THE ABOVE REMARKS, THE TOTAL UNDISCLOSE D INCOME IS COMPUTED AS UNDER:- SR. NO/PAGE NO. DESCRIPTION AMOUNT F.Y. 1/21 NET PROFIT AS PER PROFIT & LOSS A/C. 2,28,99,674 98-99 2/25 DISALLOWANCES U/S.40A(3)IN ADDITION TO MADE BY THE ASSESSEE IN BLOCK RETURN. 5,56,664 97-98 3/27 DISALLOWANCE OF INT. 13,76,916 97-98 4/27 DONATION 32,051 96-97 6 DISALLOWANCE AS PER RETURN OF BLOCK PERIOD 1. DONATION 2. DISALLOWANCE 5,000 31,89,343 98-99 TOTAL 2,80,61,848 3. THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AS PER HIS ORDER DATED 18-10-2002. IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 7 4. APART FROM THE RELIEF GRANTED BY THE LD. CIT(A), THE ASSESSEE MOVED AN APPLICATION U/S.154 OF THE ACT BEFORE THE ASSESSING OFFICER AND THE ORDER OF THE AO DATED 20-02-2003 IS REPRODUCED FOR THE SAKE OF CLAR ITY AS UNDER:- ORDER U/S.154 OF THE IT ACT THE ASSESSEE, VIDE APPLICATION DATED 03.02.2003, PO INTED OUT THAT THERE IS A MISTAKE IN THE ORDER GIVING EFFECTS TO THE CIT(A)S ORDER IN AS MUCH AS THE EXPENDITURE OFRS.1,87,30,039 (LAND RS.1,200,000/- P LUS OTHERS RS.67,00,039/- AS PER TEST) ALLOWED BY THE ASSESSIN G OFFICER IN THE BLOCK PERIOD HAS NOT BEEN CONSIDERED; AND THE SAID EXPEND ITURE IS CONSIDERED; THE NET RESULT WOULD BE A LOSS OF RS.1,35,27,553. I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE, B UT I AM UNABLE TO ACCEPT THE SAME. THE BLOCK ASSESSMENT WAS COMPLETED ON THE BASIS THAT THE ENTIRE PROJECT HAS BEEN COMPLETED BY THE ASSESSEE. HOWEVER , THE CIT(A) HAS HELD THAT ONLY 50% OF THE PROJECT WAS COMPLETED ON THE D ATE OF SEARCH AND ACCORDINGLY HE DIRECTED TO ADOPT THE SALES, OTHER I NCOME, CLOSING STOCK AND THE EXPENDITURE WITH A SPECIFIC FIGURE. ACCORDINGL Y, THE INCOME ARRIVED AT IS CORRECTLY DONE. THERE IS NO MISTAKE APPARENT FROM T HE RECORD. THE APPLICATION OF THE ASSESSEE IS, THEREFORE, REJECTED. THE DEMAND MAY, THEREFORE, BE PAID FORTHWITH. 5. LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE AG AINST THE ORDER U/S.154 VIDE ORDER DATED 30-07-2003, THE ORDER OF THE LD. CIT(A) VIDE PARA-3.3 IS REPRODUCED FOR THE SAKE OF CLARITY AS UNDER:- 3.3 I HAVE GONE THROUGH THE ORDERS UNDER APPEAL AN D ARGUMENTS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE RELEVANT PA RAS OF MY APPELLATE ORDER REFERRED BY THE APPELLANT IN HIS SUBMISSION AND VER IFIED THE CALCULATION OF VALUATION OF CLOSING STOCK AS DONE IN THE APPELLATE ORDER. ON PAGE 20 OF MY ORDER, I HAVE MENTIONED THAT THE ASSESSEE HAS SUBMITTED A REVISED WORKING OF COST OF THE PROJECT AS ON THE DATE OF SEARCH VID E LETTER DATED 13.09.2002 BY APPLYING THE AFORESAID SCIENTIFIC METHOD AND I FIND IT ABSOLUTELY CORRECT AND LOGICAL. IN THE CALCULATION FOR THE DETERMINATION OF THE ACT UAL AND CORRECT VALUATION OF THE CLOSING STOCK OF PRITHVI VALLABH PROJECT, THE C ALCULATION WHICH FOLLOWED, COST OF LAND HAS BEEN TAKEN AS UNDER:- COST OF LAND EXPENSES AS PER REGULAR BOOKS OF ACCOUNT RS.1,31,2 4,258/- EXPENSES AS PER TEST LEDGER RS.1,20,00,000/- TOTAL COST OF LAND RS.2,51,24,258/- AT THE SAME TIME, THE A.O HAS ALSO ACCEPTED RS.1,20 ,00,000/- AND RS.67,30,039/- AS EXPENDITU9RE TO THE COST OF LAND ON PAGE 21 OF HIS ORDER U/S.158BC OF THE ACT. THIS CLEARLY INDICATES THAT W HILE DETERMINING THE VALUE OF CLOSING STOCK, THE EXPENSES SHOWN IN THE REGULAR BO OKS OF ACCOUNT AS WELL AS IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 8 IN THE TEST LEDGER WERE TAKEN FOR FINDING OUT THE C OST OF LAND. ACCORDINGLY, ONCE IT HAS BEEN ALLOWED IN THE ORDER U/S.158BC OF THE ACT AND CONSIDERED ACCEPTABLE IN MY APPELLATE ORDER, THERE IS NO REASO N WHY THE SAME SHOULD NOT BE ALLOWED WHILE GIVING APPEAL EFFECT. THE A.O IS, THEREFORE, DIRECTED TO ALLOW THE SAME. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT PROFITS OF THE ASSES SEE SHOULD BE TAXED ON PERCENTAGE COMPLETION METHOD. SINCE THE ASSESSEE HAD RAISED TH IS ISSUE BEFORE THE LD. CIT(A), WHERE THE SAID GROUND WAS DISMISSED AND THE ASSESSE E HAS NOT PREFERRED TO FILE THE APPEAL AGAINST THE SAID DECISION OF THE LD. CIT(A) IN PARA-8 OF LD. CIT(A). 7. BEFORE THE LD. CIT(A) THE MAIN ISSUES WERE TO WH AT EXTENT CONSTRUCTION WAS COMPLETED IN THE PRITHVI VALLABH PROJECT OF THE ASS ESSEE. THE ASSESSEE CONTESTED THAT ONLY 50% CONSTRUCTION WORK WAS CARRIED OUT IN THE SAID PROJECT. THE LD. CIT(A) VIDE PARA-10 OF HIS ORDER ACCEPTED THE CONTENTION O F THE ASSESSEE TO HOLD THAT 50% OF THE PROJECT WAS COMPLETED TILL THE DATE OF SEARC H, THAT IS THE LD. CIT(A) ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO CONSIDER THE SALE AT RS.1,59,00,550/- BEING 50% OF THE TOTAL SALES OF RS.3,18,01,100/- AND RE-WORK PRO FIT FROM THE PROJECT ACCORDINGLY. 8. THE ASSESSEE HAD CHALLENGED THE ADDITION OF RS.2 3,79,085/- AS OTHER INCOME INSTEAD OF RS.15,61,960/- AS OFFERED BY THE ASSESSE E IN THE BLOCK RETURN. THE LD. CIT(A) OBSERVED A DIFFERENCE OF RS.8,17,125/- BEING THE AMOUNT COLLECTED BY THE ASSESSEE FROM THE FLAT/SHOW-OWNERS TOWARDS MAINTENA NCE DEPOSITS WHICH WERE NOT PART OF OTHER INCOME. SINCE, THE ASSESSEE HAD TO HA ND-OVER THE SAID AMOUNT TO THE SOCIETY AS AND WHEN IT IS FORMED. THEREFORE, IN NO WAY, IT IS IN THE NATURE OF THE INCOME AND CANNOT BE CONSIDERED AS INCOME OF THE AS SESSEE. 9. THE ASSESSEE ALSO CHALLENGED THE DISALLOWANCE OF RS.13,44,900/- AS ADVANCE EXPENSES WHICH ARE GROUPED IN THE TEST LEDGER (ADVA NCE). THE ASSESSING OFFICER OBSERVED THAT THE SAID EXPENSES ARE NOT INCURRED FO R THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THEREFORE SHOULD NOT BE ALLOWED. THE L D. CIT(A) HOWEVER, APPRECIATED THE EXPLANATION OF THE ASSESSEE TREATING THE SAME A S BUSINESS EXPENDITURE. IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 9 10. THE ASSESSEE ALSO CHALLENGED THE DISALLOWANCE O F REGULAR EXPENSES CLAIMED BY THE ASSESSEE FOR NOT GIVING THE DEDUCTION AS COM MON EXPENSES INCURRED FOR THE PROJECT. THE LD. CIT(A) WAS SATISFIED TO CERTAIN EX TENT WITH THE EXPLANATION OF THE ASSESSEE AND THE THEREFORE ALLOWED THE DEDUCTION FO R RS.2,11,78,000/- IN DETERMINING THE TOTAL INCOME FOR THE BLOCK PERIOD. 11. THE ASSESSEE ALSO CHALLENGED THE DISALLOWANCE M ADE U/S.40A(3) OF THE ACT. THE LD. CIT(A) VIDE PARA 19.2 OF HIS ORDER OBSERVED THAT INTENTION OF THE LEGISLATURE WITH REGARD TO SECTION 40A(3) IS THAT IT APPLIES T O TRANSACTION WHICH ARE BOGUS AND NOT GENUINE. THE ASSESSING OFFICER HAS ACCEPTED THE TRANSACTION AS GENUINE AND THEREFORE IT WOULD BE UNFAIR TO DISALLOW THE EXPENS ES SEC. 40A(3) OF THE ACT. 12. THE ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 13,76,916/- OUT OF INTEREST EXPENSES. THE LD. CIT(A) VIDE PARAA-20.2 OF HIS ORD ER OBSERVED THAT IT WILL BE UNREASONABLE TO ACCEPT THAT ONLY AGREED AMOUNT OF T HE EXPENSES WILL BE INCURRED FOR THE PROJECT AS IT IS IMPOSSIBLE IN THE CONSTRUCTION WORK, ESPECIALLY WHEN IT IS SPREAD OVER A PERIOD OF 2-3 YEARS. THEREFORE INTEREST PAID ON THE BORROWED FUNDS SHOULD NOT BE DISALLOWED AND ACCORDINGLY DIRECTED THE ASSESSIN G OFFICER TO DELETE THE DISALLOWANCE. 13. AFTER HAVING HEARD THE PARTIES AT LENGTH AND ON PERUSAL OF THE ORDERS OF BOTH THE AUTHORITIES BELOW AND PAPER BOOKS FILED BY THE PARTIES, WE ARE OF THE VIEW THAT WHOLE CONTROVERSY IS WITH REGARD TO PERCENTAGE OF C ONSTRUCTION WORK COMPLETED TILL THE DATE OF SEARCH. THE ASSESSEE HAD CLAIMED 50% WH EREAS THE LD. CIT-DR ACCORDING TO WORK COMPLETED HAD CONTESTED THAT 57% OF THE CONSTRUCTION WORK HAD BEEN COMPLETED TILL THE DATE OF SEARCH. THE SECOND CONTROVERSY IS WITH REGARD TO SALE FIGURE WHICH ACCORDING TO LD. CIT-DR SHOULD BE AT R S.3,90,40,600/- AND ACCORDING TO THE ASSESSEE IT SHOULD BE AT RS.3,18,01,100/-. THER E IS NO DISPUTE TO THE FACT THAT ASSESSEE HAD FILED ITS WORKING ALONG WITH BLOCK RET URN BY MENTIONING THE COMPLETED WORK AND THE PERCENTAGE OF COMPLETED WORK. WE CONCU R WITH THE VIEWS OF THE LD. CIT(A) IN PAA-14.2 OF HIS ORDER THAT TOTAL SALES, C ASH AND CREDIT SHOULD BE CONSIDERED AS INCOME EARNED1 BY THE ASSESSEE AND NOT ONLY THE CASH SALES BEING TOTAL RECEIPTS AS CONTEMPLATED BY THE ASSESSEE. IF THE ASSESSEE SE LLS A PARTICULAR FLAT/SHOP, IT WILL BE ENTITLED TO RECEIVE THE TOTAL SALE CONSIDERATION AGREED WITH THE CONCERNED PARTY IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 10 AND ACCORDINGLY THE SAME SHOULD BE CONSIDERED AS IN COME OF THE RELEVANT PERIOD. FURTHER, THE ASSESSEE BEING A PRIVATE LIMITED COMPA NY, IT HAS TO OFFER THE INCOME ON ACCRUAL BASIS SINCE AS PER THE PROVISIONS OF THE AC T. IT CAN NOT FOLLOW CASH BASIS OF ACCOUNTING FOR OFFERING INCOME FOR TAXATION. HENCE, THE ASSESSING OFFICER HAS ADOPTED THE RIGHT METHOD TO DETERMINE THE TOTAL SAL ES OF THE ASSESSEE FOR THE BLOCK PERIOD. SINCE, THE FIGURES APPEARING IN THE TEST LE DGER ARE NOT RELIABLE AS IT IS AND FURTHER IT DOS NOT CONTAIN FULL DETAILS OF ACCOUNTE D TRANSACTIONS. THE ASSESSEE HAD CARRIED OUT AT AN EXERCISE TO ARRIVE AT THE FIGURES OF ACTUAL RECEIPTS IN CASH AND CHEQUE DURING THE BLOCK PERIOD. ASS PER THE SAID WO RKING TOTAL RECEIPTS COMES TO RS.2,34,61,000/-. FURTHER, THE TOTAL VALUE OF SALES AS APPEARING IN THE TEST LEDGER IS RS.3,18,01,100/- AND THEREFORE THE AMOUNT RECEIVABL E FROM THE CUSTOMERS TOWARDS THE CREDIT SALES CANNOT BE MORE THAN RS.80,40,100/- . HOWEVER, THE ASSESSING OFFICER HAS GROSSLY MISTAKEN IN CONSIDERING TOTAL RECEIPTS OF RS.2,34,61,000/- BEING CASH SALES AS PER THE WORKING SUBMITTED BY THE ASSESSEE WHILE FOR ARRIVING AT THE CREDIT SALE FIGURE, HE CONSIDERED THE FIGURE APPEARING IN THE TEST LEDGER. ACCORDINGLY, THE TOTAL SALE FIGURE CALCULATED BY HIM IS MORE THAN TH E TOTAL SALE FIGURE APPEARING IN THE TEST LEDGER, WHICH IS THE MAXIMUM, WHICH THE ASSESS EE CAN RECEIVE AT ANY POINT OF TIME. THEREFORE, IT IS VERY CLEAR FROM THE ABOVE TH AT THE ASSESSING OFFICER HAS MESSED UP IN CALCULATING THE SALE FIGURE AND EVEN COULD NO T NOTICE THE APPARENT MISTAKE COMMITTED BY HIM BY TAKING THE SALE AT RS.3,90,40,6 00/- INSTEAD OF RS.3,18,01,100/-. THEREFORE, IN THE CIRCUMSTANCES AND FACTS OF THE CA SE, WE ARE OF THE VIEW THAT THE TOTAL SALES SHOULD BE TAKEN AT RS.3,18,01,100/-. 14. AS REGARDS THE PERCENTAGE COMPLETION OF THE PRO JECT AS 50% OR 57%. THE ARGUMENTS MADE BY THE LD. CIT-DR WERE FOUND CONVINC ING THAT THE 57% OF THE PROJECT HAD BEEN COMPLETED TILL THE DATE OF SEARCH. THE LEARNED COUNSEL FOR THE ASSESSEE COULD NOT CONVINCE AND COULD NOT BRING ANY MATERIAL TO THE CONTRARY IN THIS REGARD. THEREFORE, WE HOLD THAT TOTAL PROJECT TILL THE DATE OF SEARCH HAD BEEN COMPLETED AT 57%. 15. AS REGARDS GROUND NO.2, 3, 5 AND 6 OF THE REVEN UE. THE ORDER OF THE LD. CIT(A) IN ACCEPTING THE OTHER INCOME AT RS.15,61,9 60/-, ALLOWING THE RS.13,44,900/- AS BUSINESS EXPENSES, ALLOWING RS.5,56,664/- SEC. 4 0A(3) AND ALLOWING IT(SS)A NO.03/AHD/2003 & IT(SS)A NO.380/AHD/2003 B. P.1/4/88 TO 29/7/98 ACIT CC-2(2) ABD V. M/S SHELTER INN HOTEL P.LTD. PAGE 11 RS.13,76,916/- AS INTEREST EXPENSES IS QUITE REASON ED ONE AND WE DO NOT INTERFERE THE SAME. 16. AS REGARDS REGULAR EXPENSES, THE ASSESSEE HAD N OT SUBMITTED THE EXACT DETAILS OF EXPENSES AND THE EXPLANATION OF ALLOWABI LITY OF THE SAME WAS NOT POSSIBLE BEFORE THE LD. CIT(A). SINCE, WE HAVE ALLOWED HEREI NABOVE THE COMPLETION OF PROJECT WORK AT 57%. THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE SAME ACCORDINGLY. KEEPING IN VIEW THAT THE TOTAL SALES ALLOWABLE SHOU LD BE AT RS.3,18,01,100/- AND PROJECT SHOULD BE TAKEN AS COMPLETED AT 57% AND ACC ORDINGLY AO IS DIRECTED TO WORK OUT THE UNDISCLOSED INCOME. THE AO IS DIRECTED TO M ODIFY THE ORDER U/S.S154 OF THE ACT IN APPEAL IT(SS)A NO380/AHD/2003 ACCORDINGLY . THUS, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED PARTLY FOR STATISTICAL PURPOSES . 17. IN THE RESULT, APPEAL OF REVENUE IN IT(SS)A NO.03/RJT/2003 AND IT(SS)A NO.380/AHD/2003 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. % $ !'# &'( 17 / 02 /201 2 ! , - . / THIS ORDER PRONOUNCED IN OPEN COURT ON 17/02/ 201 2. SD/- SD/- ( G.C.GUPTA ) ( B.P. JAIN ) (VICE PRESIDENT) (ACCOUNTANT MEMBER) &'(- 17/02/2012 1 / DKP* $ $ $ $ 223 223 223 223 43' 43' 43' 43' / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ''27 8 / CONCERNED CIT 4. 8- / CIT (A) 5. 3;. 2227, 27#, 1 / DR, ITAT, AHMEDABAD 6. .>? @% / GUARD FILE. BY ORDER/ $ , /TRUE COPY/ A/1 ' 27#, 1 /