M/s Smart Builders, Hyderabad v. ITO, Hyderabad

ITA 1127/HYD/2009 | 2005-2006
Pronouncement Date: 12-03-2010 | Result: Allowed

Appeal Details

RSA Number 112722514 RSA 2009
Assessee PAN AATFS5404K
Bench Hyderabad
Appeal Number ITA 1127/HYD/2009
Duration Of Justice 3 month(s) 24 day(s)
Appellant M/s Smart Builders, Hyderabad
Respondent ITO, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 12-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 12-03-2010
Date Of Final Hearing 04-03-2010
Next Hearing Date 04-03-2010
Assessment Year 2005-2006
Appeal Filed On 18-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.: 1127/HYD/2009 ASSTT. YEAR 2 005-06 M/S SMART BUILDERS SECUNDERABAD (PAN AATFS 5404K) VS ITO WARD 10(1) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. VASANT KUMAR RESPONDENT BY : SHRI K.V.N. CHARYA DR O R D E R PER: CHANDRA POOJARI ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) VI HYDERABAD DATED 29.6.2009 AN D PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 2. THE CIT(A) ERRED IN CONFIRMING THE ORDER OF TH E ASSESSING OFFICER REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE I NCOME AT RS.38 27 830/- 3. THE CIT(A) FAILED TO APPRECIATE THE FACTS THAT T HE ASSESSEE IS NOT A CONTRACTOR AND THE ACCOUNTING STANDARDS AS7 IS NOT APPLICABLE TO A BUILDER LIKE THE ASSESSEE. 4. THE CIT(A) FURTHER FAILED TO APPRECIATE THE FAC T THE ENTIRE WORK WAS GOT DONE ON CONTRACT AND HENCE TO HOLD THAT VOUCHER S FOR EXPENSES OF RS.3 31 86 187/- IS NOT PRODUCED IS NOT CORRECT AND THEREBY ERRED IN UPHOLDING REJECTION OF BOOKS OF ACCOUNT ON THIS GRO UND. 5. THE CIT(A) FURTHER FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS FOLLOWING THE METHOD OF ACCOUNTING CONSISTENTLY AND THE SAME WAS ACCEPTED BY THE SAME ASSESSING OFFICER AFTER SCRU TINY IN THE EARLIER YEAR AND THAT THE ASSESSEE HAS RETURNED INCOME ON C OMPLETION OF PROJECT IN THE NEXT YEAR AND THEREBY ERRED IN UPHOL DING THE REJECTION OF BOOKS OF ACCOUNT AND ESTIMATING INCOME APPLYING AS7 . 2 2 6. WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) ERRE D IN CONFIRMING ESTIMATION OF INCOME AT 10% AS AGAINST NORMAL RATE BEING ADOPTED BY ITAT AT 8% AND FURTHER ERRED IN NOT DIRECTING TO RE CTIFY THE ORDERS OF THE SUBSEQUENT YEAR WHEREIN THE INCOME IS ADMITTED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF CONSTRUCTION AND SALE OF RESIDENTIAL FLATS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE SHOWN AN AD VANCE RECEIPT FOR SALE OF FLATS AT RS.3 82 78 316/- AND ALSO SH OWN CLOSING WORK IN PROGRESS AT RS.3 31 86 187/-. THE ASSESSEE HAS BEEN ASKE D TO PRODUCE THE STOCK REGISTER AND DETAILS LIKE STOCK CONSUMED A ND THE WORK DONE ON DAY TO DAY BASIS IN THE COURSE OF ASSESSMENT. THE ASSESSEE COULD NOT PRODUCE RELEVANT BILLS. THE ASSESSING OFFICER OB SERVED THAT THOUGH THE ASSESSEE HAS COMPLETED 87% OF THE WORK THE ASSE SSEE HAS POSTPONED ITS TRUE INCOME TO THE NEXT YEARS AND NOT OFF ERED THE SAME AS THE SALE RECEIPTS. THE ASSESSEES VERSION IS THAT HE HAS BEEN FOLLOWING CONSTRUCTION COMPLETE METHOD THE ASSESSING OFFICER NOT CONVI NCED ABOUT THE REPLY AND ADDED 10% ON ADVANCES RECEIVED AS INCOME OF THE ASSESSEE. ON APPEAL THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE IS A DEVELOPER. ACCORDING TO HIM THE AS-7 STANDA RDS ISSUED BY THE CHARTERED ACCOUNTANTS OF INDIA IS NOT APPLICABLE TO THE ASSESSEES CASE. HE RELIED ON THE JUDGEMENT IN THE CASE OF D CIT VS. PRESTIGE ESTATE PROJECTS (P) LTD. (33 DTR (BANG) (TRIB ) 514 (BANGALORE BENCH) WHEREIN IT WAS HELD THAT: THE ASSESSEE UNDERTAKES CONSTRUCTION ACTIVITY FOR THOSE PERSONS TO WHOM IT INTENDS TO SELL THE SUPER BUILT AREA ALONG WITH UNDIVIDED SHARE OF LAND IN A PROJECT WHICH IT IS DEVELOPING AS A D EVELOPER. HENCE THE ASSESSEE IS NOT A CONSTRUCTION CONTRACTOR AND REVIS ED AS-7 WAS CONSIDERED AS NOT APPLICABLE. ACCOUNTING STANDARD 7 HAS NOT BEEN SPECIFIED BY THE CENTRAL GOVERNMENT UNDER S.145(2). HENCE THE ASSESSING OFFICER COULD NOT HAVE REJECTED THE ACCOU NTS U/S 145(3) ON THE GROUND THAT THE ASSESSEE HAS NOT FOLLOWED THE P RESCRIBED METHOD OF ACCOUNTING. AS PER S.145(1) INCOME IS TO BE COMP UTED IN ACCORDANCE 3 3 WITH SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE ASSESSEE WAS EMPLOYING REGULARLY THE PROJECT COMPLE TION METHOD AND THE PROJECT COMPLETION METHOD IS AN ACCEPTED METHOD OF ACCOUNTING. THE ASSESSEE HAS CHANGED THE METHOD OF ACCOUNTING F ROM PROJECT COMPLETION METHOD TO PERCENTAGE COMPLETION METHOD I N THE SUBSEQUENT YEAR. HENCE THE CHANGE IN THIS YEAR WILL BE REV ENUE NEUTRAL. MOREOVER THE ASSESSEE WAS UNDER THE BONA FIDE BELI EF THAT IT WAS ADOPTING A METHOD OF ACCOUNTING WHICH WAS APPLICABL E TO IT AS PER THE EXPERT COMMITTEE REPORT OF THE ICAI. THIS BONA FID E BELIEF IS EVIDENT FROM THE FACT CONTAINED IN THEIR LETTER DATED 3.9.2 007 ADDRESSED TO ASSESSING OFFICER. IN VIEW OF THIS REVISED AS-7 CA NNOT BE APPLIED IN THE CASE OF THE ASSESSEE. 5. FURTHER HE SUBMITTED THAT THE ASSESSING OFFICER NOT PROPER IN DISTURBING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE MIDDLE OF THE PERIOD OF CONSTRUCTION. 5.1 FURTHER HE RELIED ON THE FOLLOWING JUDGEMENT S: 1. NIRANJAN & CO. (P) LTD. (84 ITR 427) (CAL.HC) 2. CIT VS. MANGAL TIRTH ESTATES LTD. ( ITR 366 ) (MADRAS HC) 3. DHANVARSHA BUILDERS & DEVELOPERS (P) LTD. VS. DCIT (102 ITD 375) (PUNE) 6. HE ALSO DREW OUR ATTENTION TO THE FINANCIAL STATEM ENTS FROM 2005-06 TO 2008-09 TO THE PROPOSITION THAT IN ALL TH E ASSESSMENT YEARS THE ASSESSEE HAS BEEN FOLLOWING THE SAME ACCOUNTING METHOD AND MAKING ADDITION IN THE MIDDLE OF THE PERIOD OF CONSTR UCTION AND NOT GIVING THE CORRESPONDING SET OFF IN OTHER ASSESSMENT YEARS WHICH AMOUNTS TO DOUBLE TAXATION. HE PRAYED TO DELETE THE ADDITION. 7. ON THE OTHER HAND THE DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT THE ASSESSEE DID NOT PRODUCE EITHER STOCK RE GISTER OR DAY TO DAY DETAILS OF WORK. NO EXPENDITURE VOUCHER TO TH E EXTENT OF RS.3 31 86 187/- COULD BE PRODUCED BY THE ASSESSEE. IN T HE ABSENCE OF REQUISITE BILLS AND VOUCHERS THE ASSESSING OFFICER WAS TO CHO OSE THE 4 4 ESTIMATION OF INCOME BY ADDING 10% ADVANCE RECEIVED AS I NCOME OF THE ASSESSEE. 7.1. HE RELIED ON THE ORDER OF THE ITAT HYDERABAD BENCH IN THE CASE OF M/S BHAGYANAGAR CONSTRUCTIONS PRIVATE LTD. WHE REIN IT WAS HELD : THE ASSESSING COMPANY HAD UNDERTAKEN A PROJECT OF C ONSTRUCTION OF MULTI STOREY BUILDING. FOR THE ASSESSMENT YEARS 19 81-82 TO 1983 THE COMPANY HAS REALIZED CERTAIN AMOUNTS AS THE SALE PR OCEEDS OF FLATS. HOWEVER THE ASSESSEE COMPANY FILED NIL RETURNS F OR ALL THE THREE YEARS TAKING THE PLEA THAT THE IN THE CASE OF A BUILDING CONTRACTOR THE PROPHETS SHOULD NOT BE ASSESSED ON A YEAR TO YEAR B ASIS AND THE ASCERTAINMENT OF THE PROFITS SHOULD BE DONE ONLY AF TER THE CONTRACT WORK WAS COMPLETED. THE ASSESSING OFFICER HOWEVER DIFFERED WITH THIS OPINION AND STATED THAT THE PROFIT IN SUCH CASES IS TO BE DETERMINED ANNUALLY. THE HONBLE ITAT AGREED WITH THE VIEW OF THE ASSESSING OFFICER AND HELD THAT A LONG TERM CONTRACT PROFIT I S TO BE CALCULATED ON A YEAR TO YEAR BASIS. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE COUNSEL IS THAT DISTURBING THE METHOD OF ACCOUNTING IN THE MIDDLE OF THE CONTRACT PERIOD GIVES A DISTORTED PICTURE OF THE INCOME OF THE A SSESSEE. THIS ARGUMENT OF THE ASSESSEES COUNSEL CANNOT BE UPHELD IN THE PRESENT CIRCUMSTANCES OF THE CASE. IN CASE OF LONG TERM CONTRACT TH E CONTRACT COMPLETION METHOD IS FOLLOWED. WHEN THE ASSESSEE IS CONSISTE NTLY FOLLOWING CONTRACT COMPLETION METHOD ASSESSEE IS REQUIRED TO PRODUCE PROPER VOUCHERS AND BILLS IN SUPPORT OF HIS CLAIM. IN T HE PRESENT CASE ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE FAILED TO PRO DUCE THE EXPENDITURE VOUCHERS TO THE TUNE OF RS.3 31 86 187/-. THE ASSESSEES COUNSEL SUBMITTED BEFORE US THAT THE ASSESSEE HAS GIVEN THE SUB CONTRACT TO THE OTHER CONTRACTORS AND THEY WERE ISSUED RUN NING BILLS. IT IS A RUNNING ACCOUNT WITH THE SUB CONTRACTORS. BEING SO TH ERE IS NO NECESSITY OF FURTHER PRODUCING ANY BILLS OR VOUCHERS. HOWE VER THIS IS NOT CORRECT IN THE PRESENT CASE. 5 5 9. WE HAVE GONE THROUGH THE PROFIT AND LOSS ACCOUNT F OR THE YEAR ENDED ON 31.3.2005 WHICH CONTAINS THE FOLLOWING D ETAILS: OPENING WORK IN PROGRESS IN RS.1 49.86 909 CLOSING WORK IN PROGRESS (IN RS.) 3 31 86 187.50 DIRECT EXPENSES RS.1 69 37 091.50 - INDIRECT EXPENSES RS. 12 62 187.50 - NET PROFIT - TOTAL RS.3 31 86 187.50 3 31 86 187.50 THE ASSESSEE IS REQUIRED TO PRODUCE THE VOUCHERS TO THE EXP ENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAS PRODUCED BILLS TO THE EXTENT AT RS.15 15 7 50/- TOWARDS DEVELOPMENT AND SEWERAGE CHARGES AND INDIRECT EXPENSES T O THE EXTENT AT RS.12 62 187/-. IT MEANS THAT THE ASSESSEE HAS NOT PRO DUCED MAJORITY OF BILLS TOWARDS DIRECT EXPENSES OUT OF RS.169 37 091 IT HAS PRODUCED ONLY RS.15 15 750/-. HENCE THE ASSESSEE FORCED THE ASSESSING OFFICER TO ESTIMATE THE INCOME. IN THE ABSENCE OF PRODU CTION OF REQUISITE BILLS AND VOUCHERS THE ASSESSING OFFICER NOT IN A POSITION TO VERIFY THE VERACITY OF THE BOOKS OF ACCOUNTS ACCURATELY. THEN THE ASSE SSING OFFICER HAS TO MAKE REASONABLE ESTIMATION OF INCOME BY RESORTING TO BEST JUDGEMENT ASSESSMENTS. IN THIS CASE THERE IS A LAPSE ON THE PART OF THE ASSESSEE TO PRODUCE ALL THE VOUCHERS AND BILLS AND TAKEN A PLEA THAT IT IS RUNNING ACCOUNT WITH SUB CONTRACTS BUT WHEN WE GO THROUG H THE PROFIT AND LOSS ACCOUNT WE FIND THAT THERE IS THE EXPENDITURE WHICH IS NOT ONLY SUB CONTRACT CHARGES BUT ALSO OTHER CHARGES. THE ASSESSEE INDEPENDENTLY DEBITED DIRECT EXPENSES AND INDIRECT EXPE NSES TO THE PROFIT AND LOSS ACCOUNT AS SEEN FROM PAPER BOOK AT PAGE N O.28 FILED BY THE ASSESSEES COUNSEL. SINCE THE ASSESSEE HAS NOT PRODUCED THE PROPER VOUCHERS AND BILLS IN THE INTEREST OF JUSTICE WE FEEL I T APPROPRIATE TO SET 6 6 ASIDE THE ENTIRE ISSUE TO THE FILE OF ASSESSING OFFICER WIT H A DIRECTION TO THE ASSESSEE TO PRODUCE THE REQUISITE VOUCHERS IN SUPPORT O F HIS CLAIM OF EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE CITED VARIOUS CASE LAWS. THE FACTS ARE NOT SIMILAR TO THE PRESENT CASE SINCE THE MAIN ISSUE IN THIS CASE IS WITH REFERENCE TO NON P RODUCTION OF VOUCHERS. UNDER THE CIRCUMSTANCES THE ISSUE IS SET ASIDE TO T HE FILE OF ASSESSING OFFICER FOR FRESH ASSESSMENT. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT : 12. 3.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 12TH MARCH 2010 COPY FORWARDED TO: 1. SHRI K. VASANT KUMAR ADVOCATE 403 MANISHA TOWERS 10-1- 18/31 SHYAMNAGAR HYDERABAD 2. ITO WARD 10 (1) HYDERABAD 3. CIT(A)- VI HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP