M/S NISHIT CONSTRUCTION CO. P.LTD., v. THE DCIT CIR 1 (1),

CO 1/IND/2006 | misc
Pronouncement Date: 29-03-2010 | Result: Dismissed

Appeal Details

RSA Number 122723 RSA 2006
Assessee PAN AABCN8168N
Bench Indore
Appeal Number CO 1/IND/2006
Duration Of Justice 4 year(s) 2 month(s) 23 day(s)
Appellant M/S NISHIT CONSTRUCTION CO. P.LTD.,
Respondent THE DCIT CIR 1 (1),
Appeal Type Cross Objection
Pronouncement Date 29-03-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 29-03-2010
Date Of Final Hearing 22-03-2010
Next Hearing Date 22-03-2010
Assessment Year misc
Appeal Filed On 05-01-2006
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER & SHRI V.K. GUPTA ACCOUNTANT MEMBER ITA NO.846/IND/2005 ASSESSMENT YEAR: 2002-03 DY. COMMISSIONER OF INCOME TAX 1(1) INDORE APPELLANT VS M/S. NISHIT CONSTRUCTION CO. PVT. LTD. 13-14 RNT MARG INDORE (PAN AABCN 8168 N) RESPONDENT AND CO NO.1/IND/2006 (ARISING OUT OF ITA NO.846/IND/2005) ASSESSMENT YEAR: 2002-03 M/S. NISHIT CONSTRUCTION CO. PVT. LTD. 13-14 RNT MARG INDORE (PAN AABCN 8168 N) OBJECTOR VS DY. COMMISSIONER OF INCOME TAX 1(1) INDORE RESPONDENT DEPARTMENT BY : SHRI K.K. SINGH CIT DR ASSESSEE BY : S/SH. M.C. MEHTA & HITESH CHIMNANI CAS O R D E R PER BENCH THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I INDORE DATED 8.9.2005. THE FIRST GROU ND RAISED BY THE 2 REVENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS.1 43 53 246/- MADE U/S 69C OF THE AC T. 2. DURING HEARING WE HAVE HEARD SHRI K.K. SINGH L D. CIT DR AND SHRI M.C. MEHTA ALONG WITH SHRI HITESH CHIMNANI LD. COU NSEL FOR THE ASSESSEE. THE CRUX OF ARGUMENTS ON BEHALF OF THE REVENUE IS T HAT CONSTRUCTION WAS STARTED BY THE ASSESSEE COMPANY SOMEWHERE IN 1991-9 2 WHICH WAS COMPLETED IN 2002-03. MR. SINGH CONTENDED THAT AS P ER THE ACCOUNTS SUBMITTED THE INCOME WAS SHOWED ON THE SALE OF DAW A BAZAR IN ASSESSMENT YEAR 2002-03 WHICH WAS BASED UPON COMPLE TED PROJECT METHOD THEREFORE THE ACCOUNTS OF FY 2000-01 WILL NOT ENOUGH TO DETERMINE THE TRUE STATE OF AFFAIRS OF THE ASSESSEE SPECIALLY WHEN THE ASSESSEE DID NOT FURNISH COMPLETE DETAILS ON THE GR OUND THAT THE AUTHORITIES OF MUNICIPAL CORPORATION WERE BENT UPON TO DEMOLISH THE SAID BUILDING/DAWA BAZAR. A STRONG PLEA WAS RAISED THAT SINCE THE MD OF THE ASSESSEE WAS APPREHENDING COERCIVE STEPS WAS TRYING TO EVADE HIS ARREST CONSEQUENTLY THE NECESSARY DETAILS AS REQUIRED BY THE AUTHORITIES COULD NOT BE FURNISHED. THE LD. CIT DR PLEADED THAT THE EARLIER DVO CLAIMED THAT PROPER ACCOUNTS WERE NOT MAINTAINED BY THE ASS ESSEE AND IN THE ABSENCE OF NECESSARY DETAILS THE ASSESSING OFFICER HAD NO OPTION BUT TO REJECT THE BOOKS OF ACCOUNTS THEREFORE IN THE ABS ENCE OF NECESSARY DETAILS THE ASSESSING OFFICER COMPLETED THE ASSESS MENT TO THE BEST OF HIS JUDGMENT U/S 144 OF THE ACT. THE ASSESSMENT ORDER W AS SUPPORTED. THE 3 CRUX OF THE ARGUMENTS ON BEHALF OF THE REVENUE IS T HAT THE PROFIT AROSE EVEN ON THE PART SALE OF THE BUILDING AND THE INVES TMENT WAS MADE IN THE LAST TEN TO TWELVE YEARS AND NOT IN ONE YEAR. THE I NVOCATION OF SEC. 145 OF THE ACT WAS DEFENDED. A PLEA WAS RAISED THAT EVE N THOUGH A WRONG APPROACH WAS ADOPTED BY THE ASSESSING OFFICER STIL L EACH YEAR IS INDEPENDENT. 3. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE DEFENDED THE IMPUGNED ORDER BY RAISING A CONTENTION THAT FIRSTLY THE TRIBUNAL VIDE ORDER FRAMED U/S 263 CLEARLY HELD THAT NO EXPENSE W AS UNACCOUNTED AND THE REQUIRED NOTICE WAS NOT ISSUED TO THE ASSESSEE THEREFORE PROVISIONS OF THE ACT HAS BEEN DULY COMPLIED WITH. IT WAS CLAI MED THAT NO SPECIFIC NOTICE WAS GIVEN TO THE ASSESSEE. THE CRUX OF ARGUM ENTS IS THAT IDENTICALLY THE DEPARTMENT HAD BEEN ACCEPTING THE CLAIM OF THE ASSESSEE IN EARLIER YEARS AND IT IS NOT THE CASE OF THE ASSE SSEE THAT THE LAND WAS PURCHASED/ACQUIRED IN ONE GO RATHER THE ASSESSEE KE PT ON ACQUIRING THE LAND. OUR SPECIFIC ATTENTION WAS INVITED TO PAGE 10 OF THE ASSESSMENT ORDER TO THE EFFECT THAT SINCE NO BOOKS OF ACCOUNTS AND OTHER BILLS AND VOUCHERS HAVE NOT BEEN PRODUCED EITHER BEFORE THE AO OR DVO THERE IS NO ALTERNATIVE LEFT BUT TO INVOKE THE PROVI SIONS OF SEC. 145 AND REJECT THE BOOKS OF ACCOUNTS MAINTAINED BY THE AS SESSEE. THIS FINDING OF THE ASSESSING OFFICER WAS CLAIMED TO BE WRONG BY EXPLAINING THAT THE NECESSARY BOOKS/DETAILS WERE VERY MUCH PRO DUCED. THE 4 IMPUGNED ORDER WAS STRONGLY DEFENDED. RELIANCE WAS PLACED UPON THE DECISION OF TRIBUNAL IN S.F. WADIA VS. ITO (ITA NO. 489/AHD/1985). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY CONSTRUCTED THE BUILDING NAMED AS DAWA BAZAR AND INITIAL CONSTRUCTION OF THE SAID BUILDIN G WAS DONE DURING FYS 1990-91 TO 1992-93 (ASSESSMENT YEARS 1991-92 TO 1993-94) FOR WHICH ASSESSMENT WAS FRAMED ON THE BASIS OF REPORT OF THE DVO BY MAKING CERTAIN ADDITIONS BY THE ASSESSING OFFICER O N DIFFERENCE IN COST OF CONSTRUCTION DECLARED BY THE ASSESSEE AND AS ESTIMA TED BY THE DVO. THE REMAINING CONSTRUCTION OF THE SAID DAWA BAZAR CONTI NUED TILL ASSESSMENT YEAR 2002-03. THE ASSESSEE IS FOLLOWING COMPLETED C ONTRACT METHOD THEREFORE THE ASSESSEE DECLARED THE INCOME OF THE SAID PROJECT IN ASSESSMENT YEAR 2002-03 BY DEBITING THE COST OF CON STRUCTION ESTIMATED BY THE LD. CIT(A) AT RS.91 13 380/- FOR ASSESSMENT YEARS 1991-92 TO 1993-94 IN THE TOTAL COST OF THE ENTIRE PERIOD FROM ASSESSMENT YEAR 1991-92 TO 2002-03. THE ASSESSEE DID NOT DECLARE SE PARATE PROFIT FOR THE FIRST THREE YEARS BY CLAIMING TO BE FOLLOWING THE C OMPLETED CONTRACT METHOD. THE MATTER OF COST OF CONSTRUCTION FOR THES E THREE YEARS (AYS 1991-92 TO 1993-94) WAS SENT TO DVO WHO ESTIMATED T HE COST OF CONSTRUCTION AT RS.7 08 20 884/- BY MAKING AN ADDIT ION OF RS.3 97 42 055/- AGAINST THE COST OF RS.3 10 78 829 /- DECLARED BY THE ASSESSEE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) 5 WHO ESTIMATED THE COST AT RS.4 01 92 209/- WHICH RE SULTED INTO ADDITION OF RS.91 13 380/-. THE SUMMARY OF THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEARS 1991-92 TO 1993-94 (DETAILS AS PER PAGE 14 OF THE ORDER OF THE LD. CIT(A) DATED 10.1.2007) ARE SUMMAR IZED AS UNDER: (FIGURES ARE IN RUPEES) ASSESSMENT YEAR COST DECLARED BY ASSESSEE ADDITION MADE BY A.O. COST DETERMINED BY CIT(A) RELIEF ALLOWED BY CIT(A) NET ADDITION MAINTAINED BY CIT(A) 1991 - 92 7309505 10952620 9646130 8615995 2336625 1992 - 93 11305298 13261661 14409651 10157308 3104353 1993 - 94 12464026 15527774 16136428 11855372 3672402 TOTAL 3 10 78 829 3 97 42 055 4 01 92 209 3 06 28 675 91 13 380 THE ADDITION WAS TOWARDS ALLEGED UNEXPLAINED COST OF CONSTRUCTION FOR AFORESAID THREE YEARS WHICH RESULTED IN ADDITIO N BEING MAINTAINED AT 22.67% TO THE COST DECLARED BY THE ASSESSEE. KVSS S CHEME WAS OPTED BY THE ASSESSEE IN RESPECT OF ADDITIONS MAINTAINED BY THE LD. CIT(A) CONSEQUENTLY THE ADDITION OF RS.91 13 380/- WAS DE BITED IN ITS BOOKS OF ACCOUNTS IN ASSESSMENT YEAR 1999-00 TOWARDS COST OF CONSTRUCTION. 5. WHEN THE ASSESSMENT WAS GETTING TIME-BARRED ON 3 1.3.2005 THE LD. ASSESSING OFFICER CALLED FOR DETAILS FROM THE A SSESSEE AND ALSO REFERRED THE MATTER FOR ESTIMATION OF COST OF CONSTRUCTION O N 15.3.2005 TO DVO. THE DETAILS RUNNING INTO 267 PAGES WERE CLAIMED TO BE FILED BEFORE THE DVO (AS IS EVIDENT FROM CORRESPONDENCE WITH AO REPR ODUCED ON PAGES 7 & 8 OF THE ASSESSMENT ORDER AND ALSO PAGE 2 OF THE STATEMENTS OF FACTS FILED BEFORE LD. CIT(A)). HOWEVER SINCE THE DETAIL S AS REQUIRED BY THE DVO AT BHOPAL WERE NOT IN THE FORMAT PRESCRIBED B Y HIM THE MATTER 6 REGARDING VALUATION WAS RETURNED BACK BY THE DVO TO THE ASSESSING OFFICER. WE HAVE FOUND THAT THE ASSESSING OFFICER I N THE ASSESSMENT ORDER FROM PAGES 2 TO 10 HAS MADE CERTAIN REMARKS REGARDI NG NON-FILING OF DETAILS LIKE NON-PRODUCTION OF BOOKS NON-AVAILABIL ITY OF VOUCHERS ETC. THE ASSESSEE HAS CHALLENGED THIS OBSERVATION BY EXP LAINING THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE BEEN REGULARLY AUD ITED EVERY YEAR WHICH WERE ENCLOSED WITH THE RETURNS FILED BY THE ASSESSE E. FOR NON-PRODUCTION OF BOOKS WAS ONLY FOR ONE OCCASION. ALL THESE FACTS WERE DULY DISCUSSED BY THE TRIBUNAL IN ITS ORDER (ITA NO.294/IND/2007-ASSE SSMENT YEAR 2002-03) PASSED AGAINST THE ORDER OF THE LD. CIT U/S 263 (PA GES 23 TO 46 OF THE PAPER BOOK). THESE ALLEGATIONS WERE EMPHATICALLY DE NIED BY THE ASSESSEE THEREFORE WE ARE REPRODUCING HEREUNDER T HE RELEVANT PORTION OF THE ORDER DATED 30.9.2008. THE ABOVE APPEAL OF ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT-I INDORE DATED 30 TH MARCH 2007 U/S 263 OF THE IT ACT 1961. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AT LENGTH GONE THROUGH THE MATERIAL AVAILA BLE ON RECORD AND PERUSED THE FINDINGS OF THE AUTHORITI ES BELOW. 3. THE FACTS OF THE CASE ARE THAT ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S 144 ON 31.3.2005. THE L D. COMMISSIONER ON GOING THROUGH THE ASSESSMENT ORDER AND ORDER SHEETS MAINTAINED OBSERVED THAT THE AO H AD NOT BEEN ABLE TO GET THE COMPLETED BUILDING PROJECT S OR ON GOING PROJECTS FROM THE ASSESSEE. IT WAS FURTHER OBSERVED THAT THE AO WHILE PASSING THE ASSESSMENT ORDER U/S 144 OF THE IT ACT DID NOT MAKE USE OF VAR IOUS STATEMENTS OF ACCOUNTS CONTAINED IN FINAL ACCOUNTS ANNEXED WITH THE RETURN OF INCOME AND THEREFORE HI S BEST JUDGMENT ASSESSMENT WAS THUS ERRONEOUS AND PREJUDICIAL TO THE REVENUE AT THE TIME OF COMPUTING THE INCOME AS REQUIRED U/S 144 OF THE IT ACT. THE NOTIC E U/S 7 263 OF THE IT ACT WAS ISSUED ON 22.3.7 ON THE POINT S GIVEN AS UNDER: I. THE ASSESSEE HAD FAILED TO PRODUCE THE BOOKS OF ACCOUNTS AND OTHER DETAILS OF EXPENSES IN VARIOUS BUILDING PROJECTS BEFORE THE AO DUE TO WHICH THE AO HAD TO FRAME THE ASSESSMENT U/S 144 OF THE IT ACT. WHIL E DOING SO THE AO FAILED TO ANALYSE AND MAKE USE OF THE VARIOUS ACCOUNTS CONTAINED IN THE FINAL ACCOUNTS ANNEXED WITH THE RETURN OF INCOME. THEREFORE THE ASSESSMENT FRAMED U/S 144 IS PRIMA FACIE NOT A BEST JUDGMENT ASSESSMENT. II. THE AO HAS NOT INQUIRED INTO THE PRIMA FACIE INADMISSIBLE EXPENSES BOOKED TO THE P & L A/C. AS PERCEIVED FROM THE TAX AUDIT REPORT EXPENSES NOT PERTAINING TO THE SUBJECT YEAR HAVE BEEN BOOKED TO THE P & L A/C. THE SAID ITEMS ARE LISTED BELOW: A. SALES TAX 92-93 RS.25 000 B. - DO - 96-97 RS.7 358 C. - DO - 97-98 RS.84 667 D. ENTRY TAX 96-97 RS.18 695 E. - DO - 97-98 RS.42 474 F. CONST. EXP. 98-99 RS.30 500 III. T.D.S. CERTIFICATE ANNEXED WITH THE RETURN OF INCOME INDICATED RECEIPT OF RS.1 03 46 LAKHS FROM INDORE EDUCATION AND SERVICE SOCIETY AGAINST WHICH CREDIT OF TAX HAS BEEN CLAIMED IN THE RETURN OF INC OME. FINAL ACCOUNTS ON THE OTHER HAND DO NOT DEPICT CR EDIT OF RECEIPT IN QUESTION. THUS IT IS CLEAR THAT THE ASSESSEE IS CLAIMING CREDIT OF TAX BUT NOT INCORPORATING THE RECEIPT CORRESPONDING TO THE SAME. IN A BEST JUDGME NT ASSESSMENT U/S 144 ADDITIONS TO INCOME WERE WARRANTED. IV. SUBSTANTIAL AMOUNT OF MONEY HAS BEEN FOUND DEBITED TO THE ACCOUNT OF M/S. L.A. ASSOCIATES. AS ON THE BEGINNING OF THE FY IT STOOD AT RS.1 31 84 743 AND AT THE END OF THE FY RELEVANT TO THE SUBJECT AY IT RO SE TO RS.1 91 89 210/-. THE RECEIPT FROM THE ABOVE PARTY DURING THE YEAR AMOUNT TO RS.1 77 57 250/- ON WHICH PROFIT OF RS.9 88 593/- HAS BEEN WORKED OUT. THESE FINANCIAL AFFAIRS THEREFORE INDICATE THAT THE FUNDS HAVE BEEN ADVANCED TO THE ABOVE PARTY FOR CONSIDERATION OTHER THAN THE BUSINESS PURPOSES. ALTERNATIVELY ANOTHER CONCLUSION CAN BE DRAWN THAT THE RECEIPT FR OM THE ABOVE PARTY HAS NOT BEEN ACCOUNTED FOR TO THE F ULL EXTENT. IN A BEST JUDGMENT ASSESSMENT U/S 144 ADDITIONS TO INCOME WERE WARRANTED. 4. THE ASSESSEE APPEARED BEFORE THE LD. COMMISSIONER ON 28.3.7 AND FILED WRITTEN REPLY AND ANOTHER WRITT EN REPLY WAS ALSO FILED ON 29.3.7. THE SAME IS REPRODU CED BY THE LD. COMMISSIONER ON PAGES 2 TO 8 OF THE IMPU GNED 8 ORDER. THE LD. COMMISSIONER VIDE ORDER DATED 30.3.7 I.E. ON THE NEXT DAY SET ASIDE THE COMPLETE ASSESS MENT ORDER DATED 31.3.5 AND DIRECTED THE AO TO REFRAME T HE ASSESSMENT. HIS FINDINGS ARE REPRODUCED AS UNDER: 3. I HAVE SEEN THE SUBMISSIONS MADE. THE ABOVE SUBMISSIONS OF THE ASSESSEE ARE NOT CONVINCING IN T HE LIGHT OF FOLLOWING OBSERVATIONS: I. CHRONOLOGICALLY MAINTAINED ORDER SHEET BY THE AO HAS BEEN SEEN BY ME WHEREFROM IT IS NOTICED THAT T HE ASSESSEE DID NEVER PRODUCE BOOKS OF ACCOUNTS BEFORE THE AO. ACCORDINGLY THE PLEA THAT THE BOOKS WERE PRODUCED ON ALL OCCASIONS IS NOT CORRECT. SINCE THE BOOKS HAVE NOT BEEN GONE THROUGH BY THE AO THERE IS NO QUESTION OF APPLICATION OF SEC. 145(3). EVEN AFTER APPLICATION OF THE ABOVE PROVISIONS OF THE STATUTE IT DID NOT RESULT IN BEST JUDGMENT DUE TO THE FAILURE ON THE PART OF THE AO TOP MAKE THE NECESSARY ANALYSIS OF T HE AVAILABLE DOCUMENTS AND ACCOUNTS ON FILE. HE DID NO T WHILE PASSING THE BEST JUDGMENT ASSESSMENT LOOK IN TO THE VARIOUS ASPECTS OF THE CASE PARTICULARLY; EXPE NSES BOOKED UNDER DIFFERENT HEADS CONSIDERING OF RECEIP TS VIS--VIS TDS CERTIFICATES AS ALSO THE PARTIES ACC OUNTS. II. THE AO HAS FAILED TO MAKE INQUIRIES AS REGARDS TO ADMISSIBILITY IN RESPECT OF ITEMS LISTED BELOW: A. SALES TAX 92-93 RS.25 000/- B. - DO - 96-97 RS.7 358/- C. - DO - 97-98 RS.84 667/- D. ENTRY TAX 96-97 RS.18 695/- E. - DO - 97-98 RS.42 474/- F. CONST. EXP. 98-99 RS.30 500/- THE ASSESSEES REPLY ON THIS POINT IS NOT CLEAR. A GENERAL REMARK HAS BEEN GIVEN STATING THAT THE SAID ITEMS WERE ALLOWABLE U/S 43B. SEC. 43B PROVIDES FOR DISALLOWANCE OF EXPENSES NOT ACTUALLY INCURRED DURI NG THE SUBJECT YEAR. BUT HIS PART OF THE STATURE DOES NOT PERMIT ALLOWANCE OF EXPENSES NOT ATTRIBUTABLE TO TH E SUBJECT YEAR UNLESS THE SAME HAVE BEEN DISALLOWED IN THE RELEVANT AY AND PAID IN THE SUBJECT YEAR. III. THE ASSESSEES THEORY AS REGARDS TO CREDIT OF TDS AND NOT RECORDING CORRESPONDING RECEIPT IS NOT JUST IFIED. MOREOVER THERE ARE SEVERAL HOLES IN THE STORY SO F AR AS RECEIPT FROM IPS ACADEMY IS CONCERNED. THE ASSESSEE HAS FAILED TO SPECIFY AS TO HOW MANY SITES BELONGIN G TO THE ABOVE PARTY WERE BEING DEVELOPED BY THE ASSESSE E AND THE TOTAL CONSIDERATION INVOLVED AND RECEIVED THEREFROM. IT HAS BEEN CLAIMED THAT THE ABOVE ACCOUNTING HAS BEEN CARRIED OUT IN ACCORDANCE WITH THE ACCOUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. SUCH STANDARD MAY B E IN CONFORMITY WITH ACCOUNTING PRINCIPLES BUT THOSE 9 STANDARDS CANNOT OVERRIDE THE STATUTES GOVERNING TA X COLLECTION AND PAYMENT. A RECEIPT WHICH HAS NOT BEE N ACCOUNTED FOR CANNOT BE SUBJECTED TO TAX REFUND BY WAY OF TDS CREDITS. A RECEIPT WHICH HAS NOT BEEN SUBJEC TED TO TAX CANNOT CORRESPOND TO A TDS CERTIFICATE AND C LAIM OF CREDIT THEREOF. 4. THE ISSUE RAISED IN RESPECT OF ACCOUNT OF M/S. L .A. ASSOCIATES REMAINS UNRESOLVED DESPITE ABOVE TWO SUBMISSIONS OF THE ASSESSEE. THE ASSESSEES REPLY REVOLVES AROUND THE SAME THEORY OF PROJECT COMPLETI ON METHOD OF ACCOUNTING. UNLESS THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER AS TO HOW MAN Y SITES OF THE PARTY IN QUESTION ARE ATTENDED TO BY T HE ASSESSEE AND THE QUANTUM OF RECEIPT ATTRIBUTABLE AS ALSO NATURE OF FUNDS DEBITED TO THE SAID PARTY ARE INQUIRED INTO IT CANNOT BE ASCERTAINED HOW THE FINANCIAL TRANSACTIONS HAVE BEEN CARRIED OUT WITH T HE ABOVE PARTY. THE ASSESSING OFFICER DID NOT MAKE ANY USE OF THIS DISCREPANCY IN THE AVAILABLE ACCOUNTS A ND DETAILS WHILE PASSING A BEST JUDGMENT ASSESSMENT U/ S 144. PRIMA FACIE U/S 144 ADDITION WAS WARRANTED BUT NOT MADE. 5. IN VIEW OF THE FOREGOING PARAS IT IS CLEAR THAT THE AO HAS FAILED TO ASSESS THE AVAILABLE DOCUMENTS AND DE TAILS IN THE RETURN OF INCOME AND OTHER RECORDS. FAILURE ON THE PART OF THE AO HAS MADE THE ASSESSMENT ERRONEOU S IN SO ARE AS IT IS PREJUDICIAL TO THE INTEREST OF R EVENUE. SINCE APPARENTLY INCOME AT A MUCH HIGHER FIGURE SHO ULD HAVE BEEN ASSESSED U/S 144. AS SUCH THE SAID ASSESSMENT DATED 31.3.2005 IS HEREBY SET-ASIDE WITH THE DIRECTION TO THE AO TO FRAME THE ASSESSMENT U/S 144 AND USING HIS BEST JUDGMENT AFTER CONSIDERING AND ANALYSING THE DETAILS OF ACCOUNTS AVAILABLE ON FILE . BEFORE PASSING A FRESH ORDER U/S. 144 THE ASSESSEE MAY BE PROVIDED OPPORTUNITY TO EXPLAIN HIS CASE. 5. BEFORE CONSIDERING THE REASONS ON WHICH THE LD. COMMISSIONER SET ASIDE THE ASSESSMENT ORDER DATED 31.3.2005 IT IS NECESSARY TO REFER THAT THE AFORES AID ASSESSMENT ORDER DATED 31.3.5 REMAINED SUBJECT MATT ER IN APPEAL BEFORE LD. CIT(A)-I INDORE WHO VIDE ORDE R DATED 8.5.2005 ALLOWED THE APPEAL OF THE ASSESSEE PARTLY. THE AO CONSIDERING SEVERAL ISSUES ON MERITS AND BY ISSUING DETAILED QUESTIONNAIRE DATED 5.1.5 CALLE D FOR THE REPLY OF THE ASSESSEE ON 36 ITEMS. THE ASSESSEE FILED DETAILED WRITTEN SUBMISSION BEFORE AO ON THE DATE FIXED AND FURTHER FILED REPLIES ON SEVERAL OTHER DA TES OF HEARING AND THE AO MADE THE ADDITION OF RS.1 43 53 246/- U/S 69C OF THE IT ACT IN RESPECT O F DAWA BAZAR ACCOUNT BEING THE UNEXPLAINED EXPENDITUR E 10 IN THE SAID PROJECT. THE AO FURTHER ALLOWED RS.10 77 024/- OUT OF SET OFF OF THE LOSSES OF RS.2 36 74 166/- AND DISALLOWED RS.2 25 97 142/-. T HE LD. CIT(A) VIDE ORDER DATED 8.9.2005 DELETED THE PA RT ADDITION ON ACCOUNT OF DAWA BAZAR ACCOUNT IN A SUM OF RS.1 32 62 618/-. THE AO WAS DIRECTED TO ALLOW SET OFF IN RESPECT OF ALL THE LOSSES BROUGHT FORWARD INCLUD ING THE AMOUNT OF RS.2 36 74 166/-. THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED. THE ASSESSEE SPECIFICA LLY SUBMITTED BEFORE LD. COMMISSIONER THAT THE ASSESSME NT ORDER HAS MERGED WITH THE APPELLATE ORDER OF LD. CI T(A) THEREFORE THERE WAS NO NEED OF ANY CONSIDERATION F OR REVISION U/S 263 OF THE IT ACT. THE LD. COMMISSIONE R HOWEVER CHOOSE TO IGNORE THIS IMPORTANT ASPECT OF T HE MATTER AND DID NOT DECIDE THIS ISSUE AND PROCEEDED TO SET ASIDE THE ENTIRE ASSESSMENT ORDER DATED 31.3.5 AND DIRECTED THE AO TO FRAME THE ASSESSMENT AFRESH BY PROVIDING OPPORTUNITY TO THE ASSESSEE. EXPLANATION C TO SEC. 263 (1) OF THE IT ACT PROVIDES WHERE ANY ORDE R REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE A O HAD BEEN SUBJECT MATTER OF ANY APPEAL FILED ON OR BEFOR E OR AFTER THE 1ST JUNE 1988 THE POWERS OF THE COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEND AN D SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN S UCH APPEAL. HONBLE FULL BENCH OF MP HIGH COURT IN THE CASE OF CIT VS. MANDSAUR ELECTRIC SUPPLY CO. LTD. 140 ITR 677 HELD UNDER SECTION 263 OF THE IT ACT THE COMMISSIONER HAS NO JURISDICTION TO SET ASIDE AN OR DER OF ASSESSMENT PASSED BY THE ITO WHEN THAT ORDER IS THE SUBJECT MATTER IN AN APPEAL PREFERRED BY THE ASSESS EE BEFORE AAC. HONBLE FULL BENCH OF MP HIGH COURT IN THE CASE OF CIT VS. K.L. RAJPOOT 164 ITR 197 HELD (IN HEADNOTE) SCOPE OF COMMISSIONERS POWER U/S 263 PART OF ITOS ORDER SUBJECT MATTER OF APPEAL TO AAC . COMMISSIONER HAS NO JURISDICTION TO SET ASIDE THE E NTIRE ASSESSMENT ORDER PASSED BY THE ITO. 6. CONSIDERING THE FACTS OF THE CASE NOTED ABOVE IN TH E LIGHT OF THE ABOVE DECISIONS IT IS CLEAR THAT THE ASSESSEE DESPITE EXPLAINING BEFORE LD. COMMISSIONER THAT THE ASSESSMENT ORDER IN QUESTION MERGED WITH THE APPELL ATE ORDER OF LD. CIT(A) THE LD. COMMISSIONER INSTEAD O F CONSIDERING THE ISSUE IN THE LIGHT OF EXPLANATION C TO SEC. 263(1) OF THE IT ACT SET ASIDE THE ASSESSMENT ORDER DATED 31.3.2005 WHICH IS HAVING THE EFFECT THAT THE ENTIRE ASSESSMENT ORDER HAS BEEN SET ASIDE. HONBLE GAUHATI HIGH COURT IN THE CASE OF SMT. LILA CHOUDHA RY VS. CIT 289 ITR 226 HELD THAT THE EXPLANATION OF THE ASSESSEE IN RESPONSE TO NOTICE U/S 263 MUST BE CONSIDERED BY THE COMMISSIONER AND SUCH ORDER OF 11 REVISION WOULD NOT BE VALID WITHOUT CONSIDERING THE EXPLANATION OF ASSESSEE. HONBLE GAUHATI HIGH COUR T IN THE CASE OF B & A PLANTATION & INDUSTRIES LTD. & OT HERS VS. CIT 290 ITR 395 HELD THAT NOTICE U/S 263 ISSU ED ON THE BASIS OF THE AUDIT OBJECTION WHICH WERE DROPPED SUBSEQUENTLY NO INDEPENDENT APPLICATION OF MIND BY COMMISSIONER ORDER U/S 263 DIRECTING VERIFICATION OF ACCOUNTS NOT VALID. LD. DR HOWEVER RELIED UPON DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SHRI ARBUDA MILLS LTD. 231 ITR 50 IN WHICH THE AMENDMENT IN EXPLANATION TO SEC. 263 (1) WAS CONSIDERED AND HELD THAT THE CONSEQUENCES OF AMENDMENT MADE WITH RETROSPECTIVE EFFECT IS THAT TH E POWERS U/S 263 OF THE COMMISSIONER SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN A N APPEAL. THERE IS NO DISPUTE ABOUT THE LEGAL PROPOSI TION DECIDED IN THE AFORESAID CASE. HOWEVER THE FACTS O F THE PRESENT CASE CLEARLY PROVED THAT THOUGH THE LD. COMMISSIONER DID NOT ISSUE THE NOTICE U/S 263 OF TH E IT ACT ON THE ITEMS/ISSUES ON WHICH THE LD. CIT(A) DE CIDED THE APPEAL OF THE ASSESSEE BUT THE LD. COMMISSIONER SET ASIDE THE ENTIRE ASSESSMENT ORDER DATED 31.3.2005 A ND THEREBY CONSIDERED AND SET ASIDE THE ISSUES WHICH REMAINED SUBJECT MATTER IN APPEAL BEFORE THE LD. CIT(A). IT IS THEREFORE A CASE WHERE THE LD. COMMISSIONER EXCEEDED HIS JURISDICTION U/S 263 OF T HE IT ACT. THE LD. COMMISSIONER WHILE DOING SO HAS CONSID ERED THE ISSUE OF UNDISCLOSED INCOME IN THE CONSTRUCTION OF BUILDING AND DAWA BAZAR AS WELL AS SET OFF OF THE B /F LOSSES ON WHICH THE ORDER OF THE AO HAS MERGED WIT H THE APPELLATE ORDER OF THE LD. CIT(A) WHICH IS PASS ED PRIOR TO PASSING OF THE IMPUGNED ORDER. LD. COMMISSIONER WAS THEREFORE NOT JUSTIFIED IN SETTIN G ASIDE THE ENTIRE ASSESSMENT ORDER AFTER PASSING THE APPELLATE ORDER BY LD. CIT(A) ON 8.9.2005. THIS REA SON ALONE IS SUFFICIENT TO SET ASIDE AND QUASH THE IMPU GNED ORDER DATED 30.3.2007 BY THE CIT-I INDORE. 7. NOW WE EXAMINE THE ITEMS/ISSUES ON MERITS ON WHICH THE LD. COMMISSIONER ISSUED THE NOTICE U/S 263 OF T HE IT ACT. ITEM (I) . LD. COMMISSIONER NOTED THAT THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNT BEFORE AO THEREFORE THERE IS NO QUESTION OF GOING THROUGH THE BOOKS OF ACCOUNT BY THE AO. THE LD. COMMISSIONER THEREFORE HELD THAT THE AO HAS FAILED TO MAKE NECESSARY ANALY SIS OF THE AVAILABLE DOCUMENTS AND ACCOUNT ON FILE WHIC H INCLUDES EXPENSES UNDER DIFFERENT HEADS RECEIPTS A ND TDS CERTIFICATES. LD. DR PRODUCED THE ORDER OF THE LD. COMMISSIONER U/S 154 OF THE IT ACT DATED 7.5.2007 12 PASSED IN REFERENCE TO ORDER U/S 263 OF THE IT ACT DATED 30.3.2007 IN WHICH THE LD. COMMISSIONER CONCEDED T HAT CORRECTION IS REQUIRED IN THE IMPUGNED ORDER BECAUS E THE ASSESSEE PRODUCED SOME BOOKS OF ACCOUNT BEFORE THE AO AS PER ORDER SHEET DATED 20.2.5 WHICH WERE SEEN BY THE AO ON AN UNSCHEDULED VISIT BEFORE THE AO ON A SAMPLE BASIS. THE LD. COMMISSIONER FURTHER NOTED IN THE ORDER U/S 154 THAT BOOKS OF ACCOUNT AND DOCUMENTS NECESSARY FOR ASSESSMENT HAVE NOT BEEN PRODUCED BEFORE AO AND THAT AO FAILED TO MAKE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT. LD. COUNSEL FOR ASSESSEE IN VIEW OF THE FINDINGS OF THE LD. COMMISSIONER U/S 15 4 OF THE IT ACT SUBMITTED THAT THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT BEFORE THE AO WHICH HAVE BEEN CAREFULLY GONE THROUGH BY THE AO AND THEREFORE SUBMITTED THAT ORDER OF THE CIT IS INCORRECT AND AG AINST THE FACTS OF THE CASE. HE HAS SUBMITTED THAT ASSESS EE PRODUCED REGULAR BOOKS OF ACCOUNT FROM TIME TO TIME BEFORE AO EXCEPT ON ONE DAY WHEN THE ASSESSEE WAS PROHIBITED BY THE MUNICIPAL CORPORATION IN ENTERING THE OFFICE BECAUSE THE DEMOLITION DRIVE WAS GOING ON. H E HAS SUBMITTED THAT THE ASSESSEE SPECIFICALLY PLEADE D BEFORE LD. COMMISSIONER THAT ASSESSEE PRODUCED THE BOOKS OF ACCOUNT BEFORE AO ON 20.2.5 BUT SUCH SUBMISSION WAS IGNORED AND DECLINED IN THE IMPUGNED ORDER. HOWEVER LD. COMMISSIONER RECTIFIED HIS MIST AKE IN THE ORDER U/S 154 OF THE IT ACT. LD. COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT IT IS UNDISPUTED FA CT THAT THE AO ISSUED DETAILED QUESTIONNAIRE DATED 5.8.2005 ALONG WITH STATUTORY NOTICES IN WHICH THE AO CALLED FOR THE EXPLANATION OF THE ASSESSEE ON 36 IT EMS AND THE ASSESSEE FILED REPLIES TIME TO ITEM BEFORE AO EXPLAINING ALL THE QUERIES RAISED BY THE AO. COPIES OF SUCH REPLIES ARE FILED FROM PB 62 TO 79 OF THE PAPE R BOOK. HE HAS FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNT OF ASSESSEE ARE AUDITED AND COMPLETE DETAIL S WERE FURNISHED BEFORE AO THEREFORE FINDINGS OF THE LD. COMMISSIONER ARE INCORRECT AND AGAINST THE FACTS OF THE CASE. HE HAS FURTHER SUBMITTED THAT THE AO CONSIDER ING THE BOOKS OF ACCOUNT SUBMISSION AND REPLIES TIME T O TIME EXAMINED THE SAME AND DISCUSSED THE CASE ON AL L THE ITEMS AND ISSUES. HE HAS SUBMITTED THAT EVEN IF THE ORDER OF THE AO MAY BE BRIEF AND CRYPTIC BUT THAT B Y ITSELF IS NOT SUFFICIENT REASON TO BRAND THE ASSESS MENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. HE HAS SUBMITTED THAT WRITING AN ORDER IN DETAIL MAY BE A LEGAL REQUIREMENT BUT THE ORDER NOT FULFILLING THIS REQUIREMENT CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. IN SUPPORT OF THE ABOVE CONTENTION HE HAS RELIED UPON 13 DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GOYAL PVT. FAMILY SPECIFIC TRUST 171 ITR 698. ON T HE OTHER HAND LD. DR RELIED UPON ORDER OF THE LD. COMMISSIONER AND SUBMITTED THAT EVEN THE LD. CIT(A) MENTIONED THAT PROCEEDINGS U/S 144 ARE JUSTIFIED BECAUSE ASSESSEE HAS NOT MENTIONED COMPLETE AND RELIABLE EVIDENCES AND REPLIES BEFORE HIM. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE O F THE VIEW THAT THE LD. COMMISSIONER WAS NOT JUSTIFIE D IN SETTING ASIDE THE ASSESSMENT ORDER ON THIS ISSUE FO R NON- PRODUCTION OF BOOKS OF ACCOUNT AND OTHER MATERIAL BEFORE AO AND FOR FAILURE ON THE PART OF AO TO EXAM INE AND ANALYSE THE SAME. IT IS NOT IN DISPUTE THAT THE AO ISSUED DETAILED QUESTIONNAIRE DATED 5.1.5 TO THE ASSESSEE IN WHICH THE AO CALLED FOR EXPLANATION OF THE ASSESSEE FOR AS MANY AS 36 ITEMS/ISSUES WHICH PRACTICALLY INCLUDE ALL THE DETAILS MAINTAINED BY T HE ASSESSEE IN THE BOOKS OF ACCOUNT. THE ASSESSEE FILE D DETAILED REPLY TO THE ABOVE QUESTIONNAIRE BEFORE TH E AO EXPLAINING ALL THE 36 ITEMS ON WHICH REPLY OF THE ASSESSEE WAS SOUGHT. THE ASSESSEE FURTHER FILED VAR IOUS OTHER REPLIES BEFORE AO ON THREE OTHER DATES EXPLAI NING SEVERAL ISSUES AS PER THE BOOKS OF ACCOUNT. IT IS N OT IN DISPUTE THAT THE LD. COMMISSIONER NOTED IN THE ORDE R U/S 154 OF THE IT ACT THAT ON 20.2.5 ASSESSEE PRODUCED BOOKS OF ACCOUNT BEFORE THE AO WHICH HAVE BEEN EXAMINED BY THE AO ON SAMPLE BASIS. THE AO SPECIFICALLY MENTIONED IN THE ASSESSMENT ORDER THAT WRITTEN SUBMISSIONS OF THE ASSESSEE FILED HAVE BEEN EXAMINED BY HIM AND THE CASE HAS BEEN DISCUSSED TIM E TO TIME. THE AO CONSIDERED ALL THE ISSUES ON MERITS . IT IS HOWEVER DIFFERENT MATTER THAT WHILE CONSIDERING THE DETAILS AT THE ASSESSMENT STAGE THE AO DID NOT THOU GHT IT FIT TO REFER TO ALL THE 36 ITEMS IN THE ASSESSME NT ORDER ON WHICH REPLIES WERE CALLED FOR. IT WOULD THEREFO RE NOT GIVE ANY IMPRESSION AND PRESUMPTION THAT THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT BEFORE THE AO OR THAT THE SAME HAD NOT BEEN PROPERLY EXAMINED BY THE AO. IT IS THE SATISFACTION OF THE AO TO EXAMINE THE BOOKS OF ACCOUNT OR THE DETAILS ON ONE DAY OR ON DIFFERENT DATES. THE SATISFACTION OF THE AO AT THE TIME OF THE ASSESSMENT IS THE SOLE PREROGATIVE OF THE AO . THE RIGHT OF THE AO TO HAVE SATISFIED AT THE ASSESSMENT STAGE CANNOT BE TAKEN AWAY BY THE LD. COMMISSIONER AND TO SUBSTITUTE HIS OPINION. WE MAY MENTION HERE THAT THE LD. COMMISSIONER ISSUING THE SHOW-CAUSE U/S 263 OF THE IT ACT ON 22.3.7 AND THE ASSESSEES COUNSEL FIL ED WRITTEN SUBMISSION BEFORE HIM ON 28.3.7. FURTHER WRITTEN SUBMISSION WAS FILED ON 29.3.7. THE LD. COMMISSIONER PASSED THE IMPUGNED ORDER U/S 263 OF T HE 14 IT ACT ON THE VERY NEXT DAY ON 30.3.7. IF THE LD. COMMISSIONER COULD GO THROUGH THE REPLY OF THE ASSE SSEE AND MATERIAL ON RECORD WITHIN ONE DAY IN PASSING TH E IMPUGNED ORDER WHERE IS THE PROHIBITION FOR THE AO IN DOING SO IN ONE DAY IN EXAMINING THE BOOKS OF ACCOU NT OF THE ASSESSEE AND FORMING THE VIEW FOR PASSING THE ASSESSMENT ORDER IN THE MATTER. THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. GOYAL PVT. FAMILY SPECIFIC TRUST (SUPRA) SUPPORTS T HE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE AS WELL AS THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER DATED 31 .3.5. THE LD. COMMISSIONER HAS ALSO NOT COMMENTED UPON TH E SUBMISSION OF ASSESSEE THAT ONLY ON 8.3.5 THE BOOK S OF ACCOUNT COULD NOT BE PRODUCED DUE TO DEMOLITION DRI VE WAS GOING IN RESPECT OF DAWA BAZAR PROPERTY. LD. DR REFERRED TO THE FINDINGS OF LD. CIT(A) AS REGARDS PROCEEDINGS U/S 144 OF THE IT ACT BUT THIS ISSUE RE LATES TO THE ADDITION MADE BY AO ON ACCOUNT OF UNEXPLAINE D INVESTMENT IN DAWA BAZAR PROPERTY IN A SUM OF RS.1 43 54 246/- WHICH WAS MADE ON ACCOUNT OF NON- PRODUCTION OF THE DETAILS. THIS ISSUE CANNOT BE CONSIDERED IN THE PROCEEDINGS U/S 263 OF THE IT ACT AS PER EXPLANATION C TO SEC. 263(1) OF THE IT ACT. MOREOVER THIS ISSUE HAS NO CONCERN WITH OTHER ITEM S. THE CONTENTION OF LD. DR HAS NOT MERIT AND IS ACCORDINGLY REJECTED. HONBLE PRIVY COUNCIL IN THE CASE OF LAXMINARAYAN BADRIDAS 5 ITR 170 HELD THAT THE ESTIMATE OF INCOME SHOULD BE FAIR AND THE AO SHOULD NOT ACT DISHONESTLY OR VINDICTIVELY OR CAPRICIOUSLY. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND MORE PARTICULARLY THE ORDER OF THE LD. COMMISSI ONER U/S 154/263 IN RECTIFYING THE IMPUGNED ORDER WE AR E OF THE VIEW THAT LD. COMMISSIONER WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER. HIS FINDINGS AR E PERVERSE AND SET ASIDE. 9. ITEM (II) : THE LD. COMMISSIONER NOTED THAT AO HAS FAILED TO MAKE INQUIRIES ON THE EXPENDITURE OF SALES- TAX ENTRY TAX AND CONST. EXPENSES WHICH DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. THE ASSESS EE EXPLAINED THAT THESE EXPENDITURES WERE CLAIMED BY T HE ASSESSEE AS PER PROVISIONS OF SEC. 43B OF THE ACT. ON THE BASIS OF ACTUAL PAYMENT OF SUCH EXPENSES THE AO CORRECTLY ALLOWED THE DEDUCTION U/S 43B. THE LD. COMMISSIONER DID NOT ACCEPT CONTENTION OF THE ASSES SEE BECAUSE THE ACT DOES NOT PERMIT ALLOWANCE OF EXPENDITURE NOT ATTRIBUTABLE TO THE SUBJECT YEAR UN LESS THE SAME HAVE BEEN DISALLOWED IN THE RELEVANT AY AN D PAID IN THE SUBJECT YEAR. LD. COUNSEL FOR ASSESSEE EXPLAINED THAT THE ITEMS DISALLOWABLE U/S 43B HAVE ALREADY BEEN MADE IN THE STATEMENT OF TOTAL INCOME ON 15 PAGE 15 OF THE PAPER BOOK READ WITH PAGE 23 OF THE PAPER BOOK BEING THE TAX AUDIT REPORT. REMAINING IT EMS ARE ALLOWABLE ON ACTUAL PAYMENT BASIS WHICH WERE CONSIDERED BY THE AO AND ALLOWED DEDUCTION ON MERIT . THE SAME ARE ALSO MENTIONED IN THE TAX AUDIT REPORT PAGE 24 OF THE PAPER BOOK. LD. DR HOWEVER SUBMITTED THAT AO DID NOT EXAMINE THIS ISSUE. 10. ON CONSIDERATION OF RIVAL SUBMISSIONS AND MATERIAL ON RECORD WE ARE OF THE VIEW THAT THE LD. COMMISSIONER DID NOT CONSIDER THIS ISSUE PROPERLY. SEC. 43B WAS INSERTED BY THE FINANCE ACT 1983 W.E.F. 1. 4.84 IN RESPECT OF ITEMS SET OUT IN THE SIX CLAUSES OF T HIS SECTION ITS SUPERSEDES SEC. 145 AND PROVIDES THAT DEDUCTION SHALL BE ALLOWED ONLY ON THE BASIS OF ACT UAL PAYMENT IRRESPECTIVE OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. HONBLE P & H HIGH COURT I N THE CASE OF RAJ & SAN DEEPS LTD. 293 ITR 12 IN THE HEADNOTE HELD DEDUCTIONS U/S 43B ALLOWED ONLY ON ACTUAL PAYMENT. THE AO IN THE QUESTIONNAIRE DATED 5.1.5 (SUPRA) ON POINT NO.11 ASKED THE ASSESSEE TO FILE DETAILS OF PAYMENTS U/S 43B AND DETAILED WRITE UP O N ITS ALLOWABILITY OR DISALLOWABILITY. THE ASSESSEE IN HI S REPLY BEFORE AO EXPLAINED THAT THE DETAILS HAVE ALREADY B EEN FILED AND HE MAY REFER TO THE AUDIT REPORT IN QUEST ION. THE AO REFERRED THE PROVISIONS OF SEC. 43B IN THE ASSESSMENT ORDER AND THE COMPUTATION OF INCOME ETC. AND REPLIES FILED AND THE DISCUSSION THEREON. THE ASSESSEE IN THE COMPUTATION OF INCOME HAS DISALLOWE D PART OF THE CLAIM (PB 15) AND EXPLAINED ALL THE DET AILS WHICH ARE CONSIDERED BY THE LD. COMMISSIONER IN THE IMPUGNED ORDER AT PAGE 24 OF THE PAPER BOOK WHICH I S AUDIT REPORT U/S 44AB OF THE IT ACT EXPLAINING THAT THE ABOVE DEDUCTIONS ON SALES TAX ENTRY TAX AND CONST. EXPENSES ARE CLAIMED ON THE BASIS OF ACTUAL PAYMENT U/S 43B OF THE IT ACT. THE AO THUS APPLIED HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DETAILS FURNISHED BY THE ASSESSEE BEFORE HIM. THERE WAS NO REASON FOR THE LD. COMMISSIONER TO HOLD THAT AO HAS NOT MADE ANY INQUIRIES ON THIS ISSUE. IT WOULD RATHER P ROVE THAT THE LD. COMMISSIONER DESPITE THE ABOVE FACTS PLEADED BEFORE HIM DID NOT CONSIDER THIS ISSUE IN T HE LIGHT OF PROVISIONS CONTAINED U/S 43B OF THE IT ACT . THERE IS THUS NO INFIRMITY IN THE ASSESSMENT ORDER. THE ORDER U/S 263 OF THE IT ACT ON THIS ISSUE IS THEREF ORE UNREASONABLE AND IS LIABLE TO BE SET ASIDE. WE ACCORDINGLY SET ASIDE THE ORDER U/S 263 ON THIS ISS UE. 11. ITEM (III) : THE LD. COMMISSIONER NOTED FROM THE TDS CERTIFICATE THAT ASSESSEE WAS CLAIMING CRED IT OF TAX BUT NOT INCORPORATED THE RECEIPTS CORRESPONDING TO THE SAME. ACCORDING TO HIM IN THE BEST JUDGMENT 16 ASSESSMENT ADDITION TO THE INCOME IS WARRANTED. TH E ASSESSEE EXPLAINED BEFORE THE LD. COMMISSIONER THAT ASSESSEE WAS JUSTIFIED IN CLAIMING TDS AS PER THE CERTIFICATES THE RECEIPTS OF WHICH WERE DULY ACCOU NTED FOR IN THE YEAR UNDER CONSIDERATION BY DEBITING RS. 2 CRORES ON ACCOUNT OF CONTRACT RECEIPT DUE FROM IPS ACADEMY FOR NEW PROJECT UNDER CONSIDERATION. THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION ACTIVITIES AND WAS FOLLOWING THE ACCOUNTING STANDARD 7 ISSUED BY T HE INSTITUTE OF CA OF THE INDIA YEAR AFTER YEAR CONSIS TENTLY AND PROFIT APPROVED ON COMPLETION OF SAID SITE WERE TRANSFERRED TO P & L ACCOUNT AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. THE ASSESSEE IS ENTITLE D FOR TDS CREDIT ON THE RECEIPTS FROM IPS NEW SITE AS THE PAYMENT WAS RECEIVED AGAINST THE EXECUTION OF THE CONTRACT WHICH WAS UNDER PROCESS. THE PROJECT COMMENCED DURING THE FY 2001-02 BUT WAS NOT COMPLETED AND AS PER ACCOUNTING PRINCIPLE OF AS7 T HE CLAIM OF TDS IS ALLOWABLE TO THE ASSESSEE AS THE SA ME IS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. THE ASSESSEE RECEIVED THE CERTIFICATES TO THAT EFFECT AND AS PER PROVISIONS OF SEC. 199 OF THE ACT CREDIT SHALL BE GIVEN TO THE ASSESSEE FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE FURNISHED U/S 203 OF THE IT ACT F OR WHICH THE INCOME IS ASSESSABLE ON THE COMPLETION OF THE PROJECT. THE LD. COMMISSIONER HOWEVER DID NOT ACCEP T CONTENTION OF THE ASSESSEE BECAUSE SUCH STANDARDS CANNOT OVERWRITE THE ACT. LD. COUNSEL FOR ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD WHICH IS ACCEPTED BY THE DEPARTMENT. HE HAS SUBMITTED THAT FIVE SITES ON WHI CH CONTRACT WAS COMPLETED INCOME THEREON HAS ALREADY BEEN DECLARED AND THE DETAILS OF THE SAME ARE FILED AT PAGE 35 OF THE PAPER BOOK WHICH IS AUDITED ACCOUNTS AND COST OF CONSTRUCTION IN RESPECT OF IPS NEW SITE ACCOUNT IS FILED AT PAGE 37 OF THE PAPER BOOK WHICH IS AUDITED ACCOUNT AND THE SAME IS ALSO SEPARATELY SHO WN IN SCHEDULE F OF THE AUDITED ACCOUNTS UNDER CURRENT ASSETS LOANS AND ADVANCES (PB 42). THE AMOUNTS RECEIVED ON ACCOUNT FROM THE SAID SOCIETY ARE AVAIL ABLE ON PAGE 10 OF THE PAPER BOOK FROM WHICH TDS AS REQUIRED HAS BEEN DEDUCTED AND CREDIT FOR THE SAME CLAIMED IN THE RETURN OF TOTAL INCOME (PB 50). HE H AS SUBMITTED THAT THE CONTRACT BILLS/RECEIPTS ON COMPL ETION OF THE SAID CONTRACT WILL BE DECLARED WHICH WILL IN CLUDE THE AMOUNT OF RS.2 32 00 200/- AS IS MENTIONED AT P AGE 50 AND 10 OF THE PAPER BOOK. HE HAS SUBMITTED THAT WORK IN PROGRESS IS REFLECTED AS AN ITEM OF ASSET I N THE BALANCE-SHEET UNDER THE HEAD INVENTORIES AS PER 17 SCHEDULE F (PB 42). HE HAS SUBMITTED THAT THE AO CONSIDERED THIS ISSUE AND DID NOT FIND ANY INFIRMIT Y IN THE REPLIES OF THE ASSESSEE. LD. DR RELIED UPON ORD ER UPON THE COMMISSIONER AND SUBMITTED THAT CREDIT CAN BE GIVEN AS PER SEC. 119 OF THE IT ACT. 12. ON CONSIDERING OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT LD. COMMISSIONER WAS NOT JUSTIFIED IN DRAWING ADVERSE INFERENCE AGAINST THE ASSESSEE ON T HIS ISSUE. THE AO IN HIS QUESTIONNAIRE ASKED FOR THE DE TAILS ON THE TDS AT SL. NO. 15 AND ASSESSEE SUBMITTED REP LY THEREON. THE METHOD OF ACCOUNTING ADOPTED BY ASSESS EE WAS EXPLAINED TO BE ACCEPTED BY THE DEPARTMENT IN T HE EARLIER YEARS. THE LD. COMMISSIONER INSTEAD OF PROP ERLY APPRECIATING THIS ISSUE MERELY OBSERVED THAT STANDA RDS PRESCRIBED BY THE INSTITUTE OF CA CANNOT OVERRIDE T HE ACT. THE LD. COMMISSIONER FAILED TO NOTE THAT BOOKS OF ACCOUNT ARE MAINTAINED AS PER THE GUIDELINES ISSUED TIME TO TIME AND APPROVED BY THE CA. THE LD. COMMISSIONER HAS NOT POINTED OUT ANY ERROR IN THE STANDARD AND METHOD OF ACCOUNTING PRESCRIBED BY THE INSTITUTE. THE LD. COMMISSIONER HAS NOT MADE OUT A CASE OF ANY VIOLATION IN THIS REGARD OR THAT PROFITS CAN NOT BE PROPERLY DEDUCED. LD. COMMISSIONER HAS NOT GIVE ANY FINDINGS ON THE SUBMISSION OF ASSESSEE THAT SAME ACCOUNTING STANDARD IS CONSISTENTLY FOLLOWED BY THE ASSESSEE IN EARLIER YEARS AND HAVE BEEN ACCEPTED BY THE DEPARTMENT. HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. 243 ITR 83 HELD THAT T HE PHRASE PREJUDICIAL TO THE INTEREST OF REVENUE HAS TO BE READ IN CONGESTION WITH AN ERRONEOUS ORDER PASSE D BY THE AO. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF A N ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED A S PREJUDICIAL TO THE INTEREST OF REVENUE FOR EXAMPLE WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHER E TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW W ITH WHICH THE COMMISSIONER DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS THE VIEW TAKEN BY THE IT O IS UNSUSTAINABLE IN LAW. CONSIDERING THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT LD. COMMISSIONE R WAS NOT JUSTIFIED IN SUBSTITUTING HIS OPINION AGAIN ST THE OPINION OF THE ASSESSING OFFICERS WHICH THEY WERE FOLLOWING IN THE SAME SET OF CIRCUMSTANCES NOT ONLY IN THE YEAR UNDER CONSIDERATION BUT IN THE PRECEDING Y EAR ALSO. THE ORDER OF THE LD. COMMISSIONER ON THIS ISS UE IS THEREFORE SET ASIDE. 13. ITEM (IV) : THE LD. COMMISSIONER NOTED THAT FUNDS HAVE BEEN ADVANCED TO M/S. LA ASSOCIATES FOR CONSIDERATION OTHER THAN THE BUSINESS PURPOSES AND IN 18 ALTERNATIVELY IT WAS OBSERVED THAT THE RECEIPT FRO M THIS PARTY HAS NOT BEEN ACCOUNTED FOR TO THE FULL EXTENT THEREFORE ADDITIONS TO THE INCOME IN EXPARTE ORDER WERE WARRANTED. THE ASSESSEE FILED DETAILED REPLY BEFORE THE LD. COMMISSIONER WHICH IS INCORPORATED I N THE IMPUGNED ORDER. THE ASSESSEE BRIEFLY EXPLAINED BY PRODUCING THE MATERIAL THAT THERE WAS NO DIVERSION OF BORROWED FUNDS TO M/S. LA ASSOCIATES FOR NON-BUSINE SS PURPOSES. THE ENTIRE CONTRACT AMOUNT HAS BEEN ACCOUNTED FOR. IT WAS SUBMITTED THAT CHARGING OF INTEREST ON THE ACCOUNT RECEIVABLE FROM THE CUSTOME RS IS NOT THE POLICY OF THE ASSESSEE AND THAT ASSESSEE WA S NOT CHARGING ANY INTEREST FROM THIS PARTY. THE ASSESSEE HAS ALSO REDUCED THE LIABILITY OF UNSECURED LOANS. IT W AS SUBMITTED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE. M/S. LA ASSOCIATES IS A VALUABLE CUSTOMER OF THE ASSESSEE AND HAS REGULAR TRANSACTIONS AND PROPE R ACCOUNTS ARE MAINTAINED IN THIS REGARD IN WHICH AL L THE ENTRIES ARE RECORDED AND THE DETAILS ARE INCORPORAT ED IN THE IMPUGNED ORDER TO EXPLAIN THAT THERE WAS NO DIVERSION OF FUNDS. THE LD. COMMISSIONER HOWEVER DI D NOT ACCEPT CONTENTION OF THE ASSESSEE BECAUSE THIS FACT WAS NOT PROVED TO THE SATISFACTION OF THE AO WITH REFERENCE TO THE SITES OF THE PARTIES. LD. COMMISSI ONER THEREFORE NOTED THAT PRIMA FACIE ADDITION WAS WARRANTED WHICH WAS NOT DONE BY THE AO. 14. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT COPY OF THE ACCOUNT OF THIS PARTY FILED AT PB 11. THE AM OUNT OF CONTRACT COMPLETED HAS ALREADY BEEN DEALT TO THE EXTENT OF RS.1.77 CRORES AND RS.0.22 CRORES FOR IPS (OLD SITE). INCOME FROM LA ASSOCIATES AND IPS OLD SITE H AS ALREADY BEEN DECLARED AT RS.9 80 592/- AND RS.1 45 653/- RESPECTIVELY ON COMPLETED CONTRACT BA SIS (PB 35). THE TRADING ACCOUNT OF LA ASSOCIATES AND I PS OLD SITE ARE AVAILABLE AT PAGE 36 AND 37 OF THE PAP ER BOOK IN WHICH RECEIPTS OF RS.1 77 57 250/- AND RS.22 42 750/- HAVE ALREADY BEEN ACCOUNTED FOR IN T HE TRADING ACCOUNT. THE ACCOUNT OF LA ASSOCIATES ON PA GE 11 IS A TRADE DEBT ON WHICH NO INTEREST IS CHARGEA BLE AS PER REGULAR PRACTICE OF BUSINESS. ON THE OTHER HAND LD. DR SUBMITTED THAT AO SHOULD HAVE EXAMINED THIS ISSU E. NO COMPLETE DETAILS WERE FILED BEFORE AO. THE AO ON LY CONSIDERED UNEXPLAINED INVESTMENT WITHOUT CONSIDERI NG THIS ISSUE PROPERLY. LD. DR RELIED UPON 218 CTR 628 218 CTR 539 AND 212 CTR 152. 15. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT LD. COMMISSIONER WAS NOT JUSTI FIED IN SETTING ASIDE THE ASSESSMENT ORDER ON THIS ISSUE . HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JWALAPRASAD RADHAKRISHNA 198 ITR 415 CONSIDERED TH E 19 FACTS INTEREST WAS CHARGED ON DEBIT BALANCE FROM SI STER CONCERN BUT DUE TO THE FINANCIAL POSITION NO INTER EST WAS CHARGED IN THE YEAR OF APPEAL. IT WAS HELD THAT SINCE THERE WAS NO AGREEMENT BROUGHT ON RECORD FOR CHARGING INTEREST THEREFORE NO INTEREST ACCRUED TO THE ASSESSEE. HONBLE MP HIGH COURT IN THE CASE OF CIT VS. SANGHI FINANCE & INVESTMENT LTD. 190 CTR 207 HELD THAT TRIBUNAL HAVING RIGHTLY DELETING THE ADDITION OF NOTIONAL INTEREST ACCEPTING THAT THE TRANSACTION OF INTEREST FREE LOAN BETWEEN THE ASSESSEE AND THE BORROWER (SISTER CONCERN) IS GENUINE AND THAT THERE ARE VALID REASONS FOR NOT CHARGING INTEREST FROM THE SI STER CONCERN NO SUBSTANTIAL QUESTION OF LAW IS INVOLVED . AS PER EXPLANATION OF THE ASSESSEE THE ASSESSEE HAD BUSINESS DEALINGS WITH M/S. LA ASSOCIATES AND COPY OF THE ACCOUNT IS FILED AT PB 11 IN WHICH THERE ARE S EVERAL DEBIT AND CREDIT ENTRIES. IT WOULD THEREFORE PROVE THAT IT WAS THE TRADING TRANSACTIONS BETWEEN ASSESSEE AN D M/S. LA ASSOCIATES. THE ASSESSEE WAS NOT CHARGING A NY INTEREST ON THE BALANCES. THE LD. COMMISSIONER THEREFORE FAILED TO NOTE THAT THERE WAS NO AGREEME NT BETWEEN THE PARTIES FOR CHARGING OF ANY INTEREST AN D THAT THERE WAS NO DIVERSION OF BORROWED FUNDS FOR N ON- BUSINESS PURPOSES. THE NATURE OF DEBIT BALANCES WER E EXPLAINED TO BE THE TRADE BALANCES. STILL THE LD. COMMISSIONER WANTED THE AO TO MAKE THE ADDITION AGAINST THE ASSESSEE IN THE EXPARTE ORDER. THE LD. COMMISSIONER HIMSELF FAILED TO APPRECIATE THE FACTS OF THE CASE IN PROPER PERSPECTIVE. THE NON-CONSIDERATI ON OF SUBMISSION OF ASSESSEE BY THE LD. COMMISSIONER I TSELF IS SUFFICIENT TO HOLD THAT THE INVOKING OF JURISDIC TION U/S 263 WAS CLEARLY UNJUSTIFIED. THE ORDER OF THE LD. COMMISSIONER THEREFORE CANNOT SUSTAIN IN LAW. THE SAME IS SET ASIDE ON THIS ISSUE ALSO. 16. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE WE ARE OF THE VIEW THAT LD. COMMISSIONER WAS NOT JUSTIFIED IN HOLDING THAT AO HAS FAILED TO ASSE SS THE AVAILABLE DOCUMENTS AND DETAILS ON RECORD. THE LD. COMMISSIONER WAS THEREFORE NOT JUSTIFIED IN HOLDIN G THE ASSESSMENT ORDER TO BE ERRONEOUS IN SO FAR AS IS PREJUDICIAL TO THE INTEREST OF REVENUE. THE DETAILE D QUESTIONNAIRE ISSUED BY THE AO AND VARIOUS REPLIES FILED BEFORE AO CLEARLY PROVED THAT AO HAS EXAMINED ALL T HE ISSUES IN ACCORDANCE WITH LAW. THE DECISIONS CITED BY LD. DR IN HIS LIST OF CASES MAINLY PERTAINED TO THE FAC T THAT THE ORDER OF THE AO WOULD BE ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF REVENUE IF THE AO DID NOT MAKE P ROPER INQUIRIES INTO THE MATTER. HOWEVER WE DO NOT FIND IT PROPER TO REFER EACH AND EVERY CASE IN THIS ORDER BECAUSE OF THE FINDING OF FACT RECORDING ABOVE WHIC H 20 CLEARLY PROVED THAT THE AO CONDUCTED PROPER INQUIRY IN THE MATTER AT THE ASSESSMENT STAGE AND ALSO EXAMINE D THE BOOKS OF ACCOUNT IN REFERENCE TO THE DETAILED QUESTIONNAIRE ISSUED BY HIM. CONSIDERING THE ABOVE DISCUSSION WE SET ASIDE THE ORDER U/S 263 OF THE I T ACT AND RESTORE THE ASSESSMENT ORDER DATED 31.3.2005. 17. AS A RESULT APPEAL OF THE ASSESSEE IS ALLOWED. IN THE AFORESAID ORDER THE ISSUE HAS BEEN DISCUSSE D IN DETAIL AND THE FINDINGS ARE AVAILABLE SPECIFICALLY IN PARA 8 ( INTERNAL PAGES 12 & 13 AND PAGES 34 & 35 OF THE PAPER BOOK) WHEREIN THERE IS A SPECIFIC FINDING THAT ASSESSEE FILED DETAILED REPLY TO THE QUESTIONN AIRE BEFORE THE ASSESSING OFFICER EXPLAINING ALL 36 ITEMS ON WHICH THE REPLY OF THE ASSESSEE WAS SOUGHT AND ON VARIOUS OCCASIONS REPLI ES WERE FILED BEFORE THE ASSESSING OFFICER EXPLAINING SEVERAL ISSUES AS PER BOOKS OF ACCOUNTS WHICH WERE EVEN NOTED BY THE LD. COMMISSIONER IN OR DER PASSED U/S 154 OF THE ACT THAT ON 20.2.2005 ASSESSEE PRODUCED BOO KS OF ACCOUNTS BEFORE AO WHICH WERE EXAMINED BY THE ASSESSING OFFI CER ON SAMPLE BASIS. EVEN THE ASSESSING OFFICER HAS SPECIFICALLY MENTIONED THAT THE ASSESSEE FILED WRITTEN SUBMISSION AND THE SAME WERE EXAMINED BY HIM ALONG WITH THE CASE WAS DISCUSSED FROM TIME TO TIME . THERE IS A FURTHER MENTION IT IS HOWEVER DIFFERENT MATTER THAT WHILE CONSIDERI NG THE DETAILS AT THE ASSESSMENT STAGE THE AO DID NOT THOU GHT IT FIT TO REFER TO ALL THE 36 ITEMS IN THE ASSESSMENT ORDER O N WHICH REPLIES WERE CALLED FOR. IT WOULD THEREFORE NOT GIVE ANY I MPRESSION AND PRESUMPTION THAT THE ASSESSEE FAILED TO PRODUCE BOO KS OF ACCOUNT 21 BEFORE THE AO OR THAT THE SAME HAD NOT BEEN PROPERL Y EXAMINED BY THE AO. IT IS THE SATISFACTION OF THE AO TO EXAMINE THE BOOKS OF ACCOUNT OR THE DETAILS ON ONE DAY OR ON DIFFERENT D ATES. THE SATISFACTION OF THE AO AT THE TIME OF THE ASSESSMEN T IS THE SOLE PREROGATIVE OF THE AO. THE RIGHT OF THE AO TO HAVE SATISFIED AT THE ASSESSMENT STAGE CANNOT BE TAKEN AWAY BY THE LD. CO MMISSIONER AND TO SUBSTITUTE HIS OPINION. WE MAY MENTION HERE THAT THE LD. COMMISSIONER ISSUING THE SHOW-CAUSE U/S 263 OF THE IT ACT ON 22.3.7 AND THE ASSESSEES COUNSEL FILED WRITTEN SUB MISSION BEFORE HIM ON 28.3.7. FURTHER WRITTEN SUBMISSION WAS FILE D ON 29.3.7. THE LD. COMMISSIONER PASSED THE IMPUGNED ORDER U/S 263 OF THE IT ACT ON THE VERY NEXT DAY ON 30.3.7. IF THE LD. COMM ISSIONER COULD GO THROUGH THE REPLY OF THE ASSESSEE AND MATERIAL O N RECORD WITHIN ONE DAY IN PASSING THE IMPUGNED ORDER WHERE IS THE PROHIBITION FOR THE AO IN DOING SO IN ONE DAY IN EXAMINING THE BOOK S OF ACCOUNT OF THE ASSESSEE AND FORMING THE VIEW FOR PASSING THE A SSESSMENT ORDER IN THE MATTER.. IT IS PERTINENT TO MENTION HERE THAT THE AFORESAID ORDER OF THE TRIBUNAL DATED 30.9.2008 HAS ATTAINED FINALITY AS N O CONTRARY ORDER WAS BROUGHT TO OUR NOTICE . EVEN OTHERWISE VIDE ORDER DATED 16.3.2001 ASSESSMENT ORDER WAS FRAMED U/S 143(3) BOOKS OF AC COUNTS ALONG WITH VOUCHERS WERE PRODUCED AND THE SAME WERE EXAMINED B Y THE ASSESSING 22 OFFICER WHEREIN THE PROFITS SHOWN ON COMPLETED CONT RACTS WAS ACCEPTED THEREFORE AT THIS STAGE THE STAND OF THE REVENUE THAT NO BOOKS OF ACCOUNTS WERE FURNISHED CANNOT BE SAID TO BE JUSTIF IED. 6. THE IMPUGNED ADDITION HAS BEEN MADE U/S 69C OF T HE ACT THEREFORE WE ARE REPRODUCING HEREUNDER THE RELEVAN T SECTION: 85 69C. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATI ON ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREO F OR THE EXPLANATION IF ANY OFFERED BY HIM IS NOT IN THE OPINION OF THE 83 [ASSESSING] OFFICER SATISFACTORY THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF AS THE CASE MAY BE MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR :] 86 [PROVIDED THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT BE ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME.] IF THE AFORESAID SECTION IS ANALYSED IT CLEARLY S PEAKS ABOUT ANY FINANCIAL YEAR WHERE THE ASSESSEE HAS INCURRED ANY EXPENDITURE THEREFORE THE ASSESSING OFFICER IS SUPPOSED TO COM PUTE THE INCOME OF A PARTICULAR ASSESSMENT YEAR IN ONE ASSESSMENT ORDER AND TAX IT ACCORDINGLY @ APPLICABLE FOR THAT YEAR. SINCE THE A SSESSEE IS FOLLOWING THE PROJECT COMPLETED METHOD AND HAD BEEN ACQUIRING THE LAND AS PER NEED/AVAILABLE RESOURCES THEREFORE HE IS NOT REQU IRED TO COMPUTE THE INCOME OF VARIOUS YEARS AND CLUB THE SAME IN ONE AS SESSMENT YEAR BY MAKING ADDITION RELEVANT TO ALL THE YEARS. ON SPECI FIC QUERY FROM THE BENCH WHETHER SOME SHOPS WERE SOLD DURING THE PERI OD IT WAS EXPLAINED THAT SOME SHOPS WERE THOUGH SOLD BUT CANN OT BE CLAIMED TO BE 23 COMPLETE BECAUSE ALL NECESSARY INFRASTRUCTURE/FACIL ITIES WERE NOT PROVIDED AND IN THE ABSENCE OF THOSE FACILITIES NO BUSINESS COULD BE DONE BY THE SHOP OWNERS AS ELECTRICITY LIFT STAIRCASE ETC. WERE NOT COMPLETE AND MERELY STRUCTURE OF THE SHOP WAS COMPLETE. ANOT HER POINT PERTINENT TO MENTION HERE THAT AS FAR AS THE RATE OF 22.67% APPLIED FOR WORKING OUT THE ADDITION WAS ON THE BASIS OF ORDER OF THE LD. CIT(A) ORDER FOR EARLIER YEARS IS CONCERNED IT WAS ACCEPTED BY THE ASSESSE E AS ADDITIONS IN THOSE YEARS AND KVSS WAS OPTED IF THE SAME RATE IS APPLIE D OF THE EXPENDITURE OF RS.48 10 888/- (INCURRED ON THE CONSTRUCTION OF THE BUILDING) IT WORKS OUT TO RS.10 90 628/- AS RESTRICTED BY THE LD. CIT (A). THE REVENUE HAS ALSO CONTENDED THAT THE TERM PREVIOUS YEAR MEANT FINANCIAL YEAR. HENCE THE ADDITION MADE BY THE ASSESSING OFFICER I N RESPECT OF UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF PROPE RTY WAS RIGHTLY CONSIDERED IN THE YEAR IN WHICH THE ASSESSEE CLAIME D THE WHOLE EXPENDITURE. HOWEVER AS PER PROVISIONS OF SEC. 3 THE PREVIOUS YEAR MEANS FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSE SSMENT YEAR HENCE OTHER FINANCIAL YEARS I.E. PRIOR TO IMMEDIATELY PRE CEDING ASSESSMENT YEARS CANNOT BE CONSIDERED AS PREVIOUS YEAR AND THE REFORE THERE IS NO MERIT IN THIS CONTENTION OF THE REVENUE. WE FURTHER FIND THAT IN SEC. 68 THE TERM PREVIOUS YEAR HAS BEEN USED IN SEC. 69 THE WORDS THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR HAVE BEEN USED IN SEC. 69A AND 69B THE TERM FINANCIAL YEAR HAS BEEN USED HENCE IT IS EVIDENT THAT THE LEGISLATURE HAS USED SPECIFI C WORDS FOR IN SPECIFIC 24 SECTIONS. HENCE FOR THIS REASON ALSO THERE IS NO MERIT IN THE CONTENTION OF THE REVENUE. AS REGARD TO THE REVENUES CONTENTI ON THAT THE ASSESSEE DID NOT FOLLOW PROJECT COMPLETION METHOD CORRECTLY WE FIND THAT THE ASSESSEE HAS FILED RETURNS AS PER METHOD FOLLOWED BY IT AND IN ONE OF THE ASSESSMENT YEAR THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT U/S 143(3) ALSO HENCE AT THIS STAGE THIS ASPECT CANN OT BE AGITATED. THUS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A) AND THEREFORE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DISMISS ED. 7. THE NEXT GROUND PERTAINS TO DELETING THE ADDITIO N ON ACCOUNT OF SET OFF OF LOSS OF RS.2 25 97 142/-. AT THE OUTSET IT WAS POINTED OUT THAT THE ISSUE FOR THE ASSESSMENT YEAR 1998-99 IS PENDING DI SPOSAL ON MERIT BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) CONSEQUENTLY THIS GROUND IS ALSO SENT TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHO WILL DECIDE THIS ISSUE ON MERIT O N THE BASIS OF THE OUTCOME OF THAT APPEAL. NEEDLESS TO MENTION HERE TH AT THE ASSESSEE BE PROVIDED DUE OPPORTUNITY TO SUBSTANTIATE ITS CLAIM. THE ASSESSEE IS ALSO AT LIBERTY TO FURNISH EVIDENCE IF ANY BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN SUPPORT OF ITS CLAIM. THIS GROUND IS THEREFORE REMANDED BACK TO THE FILE OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW CONSEQUENTLY ALLOWED FOR STATISTICAL PURPOSES. CONSEQUENTLY THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 25 8. NOW WE SHALL TAKE UP CROSS OBJECTIONS (CO NO. 1 /IND/2006) RAISED BY THE ASSESSEE. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOLLOWING ADDITIONAL GROUND HAD BEEN RAISED WHICH WAS PURELY OF LEGAL NA TURE REQUIRING NO FRESH INVESTIGATION INTO THE FACTS HENCE IT COULD BE ADMITTED: 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN CONFIRMING THAT THE ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICER U/S 144 AND IN APPLYING THE PROVISIONS OF SEC. 145 THEREBY REJECTING BOOK RESULTS DECLARED BY THE ASSESSEE WAS LEGAL AND PROPER WHEN AS PER DETAILS FILED AND COMPLIANCES MADE BY THE ASSESSEE THE SAME IS WRONG AND UNCALLED FOR. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S GROUND WAS NOT RAISED ORIGINALLY DUE TO INAPPROPRIATE APPRECIATION OF THE SAME BY THE PREVIOUS COUNSEL AND FOR THE FAULT OF THE COUNSEL F OR THE ASSESSEE ASSESSEE COULD NOT BE MADE TO SUFFER. HE ALSO RELIE D ON VARIOUS JUDICIAL DECISIONS IN THIS REGARD. THE LD. CIT DR HOWEVER OPPOSED THE SAME. ON DUE CONSIDERATION OF FACTS WE ADMIT THE SAME FOR A DJUDICATION. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE FACTS RESUL TING INTO INVOCATION OF PROVISIONS OF SEC. 145 WHICH HAVE BEEN MENTIONED IN THE ORDER EARLIER HENCE NOT REPEATED. IT IS FURTHER NOTED THAT THERE HAVE BEEN A NUMBER OF DISCREPANCIES IN THE MAINTENANCE OF BOOKS OF ACCOUN TS AND SEVERAL QUALIFIED OBSERVATIONS HAVE BEEN MADE BY THE AUDITO R ALSO. FURTHER THE ASSESSEE HAS ALSO NOT SUBMITTED THE COMPLETE DETAIL S AS REQUIRED BY THE ASSESSING OFFICER AND THEREFORE WE DISMISS THIS A DDITIONAL GROUND OF THE 26 ASSESSEE. WE FURTHER FIND THAT AT PAGE 8 OF THE ASS ESSMENT ORDER THE ASSESSING OFFICER HAS CLEARLY MENTIONED THAT THE AS SESSEE WAS MADE AWARE OF THE INTENTION OF THE ASSESSING OFFICER OF MAKING AN ADDITION FOR UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF THE P ROPERTY AND IN FACT DETAILS WERE CALLED FROM THE ASSESSEE ITSELF AND WH O SUBMITTED THE SAME ALSO AND THEREFORE IN OUR OPINION THE COMPLIANCE OF PROVISIONS OF SEC. 144 BEFORE MAKING THE ESTIMATION TO THE BEST OF THE JUDGMENT OF THE ASSESSING OFFICER HAS ALSO BEEN COMPLIED. 10. THE CROSS OBJECTION NO.1 IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE DELETED THE ADDITION OF RS. 1 43 53 246/- AS AGAINST DELETED BY HIM VIDE ORDER DATED 8.9.2005 AM OUNTING TO RS.1 32 62 818/-. 11. DURING HEARING BEFORE US IT WAS EXPLAINED BY T HE LD. COUNSEL FOR THE ASSESSEE THAT SEVERAL OTHER SITES BESIDES THE P RESENT DAWA BAZAR SITE LIKE SIYAGANJ SITE LA ASSOCIATES SITE IPS (OLD) S ITE ETC. WERE COMPLETED AND THE PROFIT THEREON WAS DULY REFLECTED IN THE PR OFIT AND LOSS ACCOUNT. IT WAS POINTED OUT THAT FOR NEW SITES FOR WHICH THE CONSTRUCTION WORK WAS GOING ON LIKE BARYL DRUG SITE PITHAMPUR IPS (NEW) SITE ETC. THE COPIES OF CONSTRUCTION ACCOUNTS WERE FILED AND WERE ACCEPT ED BY THE DEPARTMENT. IT WAS FURTHER CLAIMED THAT THE ASSESS EE HAD BEEN FILING REGULAR RETURNS DECLARING YEAR-WISE PROGRESS IN CON STRUCTION OF DEVELOPING SITES AND OFFERING PROFIT ON COMPLETED S ITES WERE ALSO 27 ACCEPTED BY THE DEPARTMENT. ONE SUCH ORDER WAS SHO WED TO BE FRAMED U/S 143(3) FOR THE ASSESSMENT YEAR 1998-99 ORDER DA TED 16.3.2001 (PAGES 18 TO 22 OF THE PAPER BOOK) AND U/S 143(1) OF THE A CT. HOWEVER THE FACT REMAINS THAT THE ASSESSEE HAS ACCEPTED THE FACT OF UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF PROPERTY AND EVEN OPTED FOR KVSS. HENCE SUCH ACTION OF THE ASSESSEE IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE ASSESSEE WAS NOT INDULGE SUBSEQUENTLY IN MAKING UNDISCLOSED INVESTMENT IN THE CONSTRUCTION OF PROPE RTY AND HAVING REGARD TO THE FACT THAT MAJORITY OF INVESTMENT HAS BEEN MA DE IN ASSESSMENT YEAR 1994-95 95-96 BEFORE GOING FOR KVSS THEN IN OUR O PINION THE LD. CIT(A) HAS RIGHTLY ADOPTED THE SAME BASIS FOR MAKING THE I MPUGNED ADDITION IN THE YEAR UNDER CONSIDERATION. THUS THIS GROUND OF CROSS-OBJECTION NO.1 OF THE ASSESSEE IS DISMISSED. 12. CROSS OBJECTION NO. 2 I.E. ISSUING DIRECTIONS T O THE ASSESSING OFFICER TO ALLOW SET OFF IN RESPECT OF ALL THE CARRIED FORW ARD LOSSES INCLUDING THE AMOUNT OF RS.2 36 74 166/- FOR THE ASSESSMENT YEAR 1999-00 IS IN SUPPORT TO THE IMPUGNED ORDER CONSEQUENTLY IT WAS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE. IT IS DISMISSED AS N OT PRESSED. THUS CO OF THE ASSESSEE IS DISMISSED. 28 FINALLY APPEAL OF THE REVENUE STANDS PARTLY ALLOWE D FOR STATISTICAL PURPOSES AND CO OF THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.3.2010. SD SD (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29.3.2010 {VYAS} COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR/GUARD F ILE