Kishandham Developers Pvt.Ltd.,, Baroda v. The ACIT., Circle-1(2),, Baroda

ITA 3754/AHD/2008 | 1998-1999
Pronouncement Date: 28-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 375420514 RSA 2008
Assessee PAN AAACK8590L
Bench Ahmedabad
Appeal Number ITA 3754/AHD/2008
Duration Of Justice 2 year(s) 3 month(s) 10 day(s)
Appellant Kishandham Developers Pvt.Ltd.,, Baroda
Respondent The ACIT., Circle-1(2),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 28-02-2011
Date Of Final Hearing 21-12-2010
Next Hearing Date 21-12-2010
Assessment Year 1998-1999
Appeal Filed On 18-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER DATE OF HEARING : 23/12/2010 DRAFTED ON: 13/01 /2011 APPEALS BY SL.NOS ITA NO(S) ASSESSMENT YEAR APPELLANTS RESPONDENTS 1. 3754/AHD/2008 1998-99 KISHANDHAM DEVELOPERS PVT.LTD. 1&2 PADMAVATI COMPLEX NR.AMRAPALI SOC. MANJALPUR BARODA-390 001 PAN : AAACK8590L THE ACIT CIRCLE-1(2) BARODA 2. 3755/AHD/2008 2005-06 -DO- -DO- 3. 3778/AHD/2008 2005-06 REVENUE ASSESSEE ASSESSEE BY : SHRI S.N.SOPARKAR REVENUE BY : SMT. SHALINI VERMA D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THESE ARE CROSS APPEALS ARISING FROM THE TWO ORDE RS OF THE LEARNED CIT(APPEALS)-I BARODA BOTH IDENTICALLY DATED 17/09 /2008. FOR ASSESSMENT YEAR 1998-99 THE ASSESSEE IS IN APPEAL AND FOR ASSESSMENT YEAR 2005-06 BOTH REVENUE AS WELL AS ASSESSEE ARE I N APPEAL. (A) ASSESSEES APPEAL; ITA NO.3754/AHD/2008 FOR AY 1998-99 2. GROUND NOS.1 & 2 ARE AS UNDER: 1. THE LEARNED CIT (APPEALS I BARODA HAS ERRED I N UPHOLDING THE ISSUANCE OF NOTICE BY THE LEARNED A.O. U/S.148 AND MAKING ASSESSMENT U/S.143(3) R.W.S. 147 THOUGH THE ASSESSMENTS U/S.143(3) FOR YEARS 1999-2000 2000-01 2001-02 2 002-03 HAVE ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 2 - BEEN MADE AND ALSO ORDER U/S.143(3) R.W.S. 147 HAS BEEN MADE FOR A.Y. 2000-01 WITHOUT MAKING ADDITIONS ON GROUND S AND REASONS AS MENTIONED IN THE ORDER DATED 31.01.2006 AGAINST WHICH THIS APPEAL IS BEING MADE. 2. THE LEARNED CIT(APPEALS) I BARODA HAS ERRED IN UPHOLDING THE ISSUANCE OF NOTICE BY THE LEARNED A.O. U/S.148 AND CARRYING OUT ASSESSMENT AND PASSING AND ORDER U/S.143(3) R.W.S.1 47 EVEN THOUGHT BLOCK ASSESSMENT FOR THE ENTIRE PERIOD WHIC H INCLUDES THE A.Y. 1998-99 HAS BEEN DONE IN THE CASE OF THE C OMPANY AND ASSESSMENT ORDER U/S.158 BC R.W.S. 143(3) HAS BEEN PASSED. 2. ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION. FO R THE YEAR UNDER CONSIDERATION ASSESSMENT YEAR 1998-99 INCOME DECL ARED AT RS.1 55 793/- WHICH WAS PROCESSED U/S.143(1) OF THE I.T.ACT VIDE INTIMATION DATED 22/03/1999. THEREAFTER A NOTICE U/S.148 WAS SERVED ON 28/12/2004. IN RESPONSE A RETURN WAS FILED ON 28/ 01/2005 DECLARING THE SAME INCOME WHICH WAS ALREADY ASSESSED. THE ASSES SEE HAS ASKED FOR THE REASONS RECORDED WHICH HAVE ALSO BEEN SUPPLIED. THE BASIC REASON FOR THE RE-OPENING OF THE ASSESSMENT AS ASSIGNED BY THE ASSESSING OFFICER WAS THAT FOR ASSESSMENT YEAR 1998-99 SUBSTA NTIAL WORK OF CONTRACT WAS COMPLETED HOWEVER THE PROFIT WAS DEF ERRED TO SUBSEQUENT ASSESSMENT YEARS. AS PER ASSESSING OFFICER AFTER ASSESSMENT YEAR 1998-99 VERY LITTLE EXPENDITURE WA S INCURRED. THE ASSESSING OFFICER HAS GIVEN A CHART BEGINNING FROM ASSESSMENT YEAR 1997-98 UPTO ASSESSMENT YEAR 2004-05 AND ON THAT BA SIS HE HAS TRIED TO DEMONSTRATE THAT FOR ASSESSMENT YEAR 1998-99 THE W IP WAS AT RS.4 11 26 557/- HOWEVER WIP FOR ASSESSMENT YEAR 2004-05 WAS AT RS.4 13 24 419/- THIS FIGURE WAS STATED TO BE CLOS E TO THE PREVIOUS FIGURE OF WIP . IN HIS OPINION SINCE THE AMOUNT WAS RECE IVABLE OF ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 3 - APPROXIMATELY RS.4.24 CRORES AND AS AGAINST THAT W ORK-IN-PROGRESS WAS RS.4.11 LACS THEREFORE APPROXIMATELY AN INCOME OF RS.13 LACS HAD ESCAPED ASSESSMENT WHICH ACCORDING TO A.O. WAS CHAR GEABLE TO TAX. WHEN THE RE-OPENING WAS CONTESTED BEFORE THE LEARNE D CIT(APPEALS) HE HAS PLACED RELIANCE ON THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF CIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. REPORTED AT (2007) 291 ITR 500 (SC). ON THAT BASIS LD. CIT(A) HAS OPINED THAT SINCE THE INCOME WAS PROCESSED U/S.143(1) OF THE I.T.ACT ORIG INALLY HENCE THERE WAS NO QUESTION OF APPLICATION OF MIND THEREFORE THERE WAS ALSO NO QUESTION OF CHANGE OF OPINION. ACCORDINGLY THE A CTION OF RE-OPENING WAS UPHELD. 3. AFTER HEARING BOTH THE SIDES WE HAVE FOUND THAT THE REASONS WERE RECORDED AND DULY COMMUNICATED TO THE ASSESSEE. AFT ER EXAMINING THE FACTS WE ARE OF THE VIEW THAT PRIMA-FACIE THE ASSESSING OFFICER HAD SUFFICIENT REASON TO BELIEF THAT THERE WAS AN ESCAP EMENT OF ASSESSMENT HENCE UNDER THAT BONA FIDE BELIEF HE HAS RE-OPENED THE ASSESSMENTS. NOT FURTHER ELABORATING BEING HARDLY C ONTESTED SERIOUSLY IN CONSEQUENCE THEREOF THE SAID ACTION OF THE ASSESSI NG OFFICER IS HEREBY HELD JUSTIFIED GROUND NOS.1 AND 2 ARE THEREFORE DISMISSED . 4. GROUND NO.3 IS AS FOLLOWS :- 3. THE LEARNED CIT(APPEALS)- I BARODA HAS ERRED IN UPHOLDING THE ADDITIONS OF RS.19 67 575/- MADE BY THE LEARNED A.O. BY SUO- MOTO CLOSING THE CONTRACT ON 31.03.1998 I.E. A.Y. 1 998-99 ON PRESUMPTUOUS GROUND AND CONSIDERING ALL RECEIPT OF THE PROJECT WITHOUT ALLOWING THE DEDUCTION OF THE EXPENDITURE I NCURRED FOR THE ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 4 - PROJECT AND DISREGARDING THE SYSTEM OF ACCOUNTING FOLLOWED CONSISTENTLY FOR DISCLOSURE OF PROFITS AND INCOME AND THEREBY TAXING THE ERRONEOUSLY CALCULATED INCOME OF THE YEA R IN APPEAL. 5. THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND ONLY ONE PROJECT WAS UNDERTAKEN BY THE COMPANY NAMELY VRUDAVAN TOWN SHIP GOTRI ROAD BARODA. FROM THE ASSESSMENT YEARS 1997-98 UP TO 2004-05 THE ASSESSEE HAD DISCLOSED CLOSING WIP. HOWEVER THE FIRST AND THE FOREMOST REASON FOR REOPENING WAS THAT FOR ASSESSMENT YEAR 1 998-99 THE ASSESSEE HAS DISCLOSED WIP AT RS.4 11 26 557/- BUT NO SUBSTA NTIAL EXPENDITURE WAS INCURRED IN REST OF THE YEARS THEREFORE IT WAS CO NCLUDED THAT THE PROJECT WAS SUBSTANTIALLY COMPLETED DURING THE ASSESSMENT Y EAR 1998-99. AS PER ASSESSING OFFICER THE WORK-IN-PROGRESS FOR ASS ESSMENT YEAR 2004- 05 WAS AT RS.4 13 24 419/- WHICH WAS VERY NOMINAL C OMPARING THE WIP FOR ASSESSMENT YEAR 1998-99. AS PER ASSESSING OFFI CER WIP FOR ASSESSMENT YEAR 1998-99 WAS APPROXIMATELY 99.52% CO MPARING THE CLOSING STOCK WIP FOR ASSESSMENT YEAR 2004-05. ON THE BASIS OF THE DETAILS FURNISHED IT WAS FOUND BY THE ASSESSING OFF ICER THAT THE TOTAL ADVANCE RECEIVED FROM CUSTOMER UPTO ASSESSMENT YEAR 1998-99 WAS RS.4 02 11 121/- AND THEREAFTER RS.28 83 001/- WAS RECEIVABLE FROM THE CUSTOMER. THE AMOUNT WHICH WAS RECEIVABLE THUS ADD ED IN THE TOTAL RECEIPT OF ADVANCE FROM THE CUSTOMERS AND ARRIVED A T THE FIGURE OF RS.4 30 94 122/-. AS AGAINST THAT CLOSING WIP WAS AT RS.4 11 26 557/- FOR ASSESSMENT YEAR 98-99 . SINCE THE PROJECT WAS ALLEGED TO HAVE BEEN COMPLETED IN A.Y. 98-99 AS PER ASSESSING OFFICER THEREFORE THE DIFFERENCE BETWEEN TWO I.E. RS.19 67 565/- ( 4 30 94 122 4 11 26 557) ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 5 - WAS TAXED AS REMAINING PROFIT ESCAPED ON COMPLETION OF PROJECT. AGAINST THE SAID ADDITION ASSESSEE HAS PREFERRED A N APPEAL. 6. BEFORE THE FIRST APPELLATE AUTHORITY THE F IRST OBJECTION OF THE ASSESSEE WAS THAT THE PROJECT HAD NEVER BEEN COMPLE TED IN ASSESSMENT YEAR 1998-99. SINCE THE ASSESSEE WAS MAINTAINING PROJECT COMPLETION METHOD OR CLOSURE OF CONTRACT METHOD THEREFORE THERE WAS NO SUBSTANCE IN THE ASSESSING OFFICERS ARBITRA RY CHANGING IN THE METHOD OF ACCOUNTING. IT WAS CONTESTED THAT THE ASSESSING OFFICER HAS WRONGLY ADOPTED PERCENTAGE COMPLETION METHOD BY H OLDING THAT 99.52% COMPLETD AS AGAINST THE REGULAR METHOD DEPLOYED BY ASSESSEE OF PROJECT COMPLETION METHOD. HOWEVER LEARNED CIT( APPEALS) WAS NOT CONVINCED AND IN HIS OPINION A VERY NOMINAL EXPEND ITURE WAS INCURRED AFTER 1998-99 THEREFORE THE ASSESSING OFFICER HAS RIGHTLY CALCULATED A PROFIT FOR ASSESSMENT YEAR 1998-99. FURTHER LEARN ED CIT(APPEALS) HAS ALSO MENTIONED THAT THE ADMINISTRATIVE EXPENSES AND FINANCE CHARGES HAVE ALREADY BEEN DISCLOSED AND ALLOWED IN RESPECT OF YE ARS FROM 1998-99 TO 2004-05 THEREFORE THERE WAS NO NECESSITY FOR GRAN TING ANY REBATE IN THIS REGARD. ONE MORE FINDING HAS BEEN GIVEN BY LEARNED CIT(APPEALS) THAT THE DEVELOPMENT EXPENDITURE OF RS.14 24 251/- CLAIMED TO HAVE BEEN INCURRED FOR FINANCIAL YEAR 2004-05 REMAINED UNSUBSTANTIATED. WITH THESE REMARKS THE ACTION OF THE ASSESSING OFF ICER WAS AFFIRMED. 6. FROM THE SIDE OF THE ASSESSEE LD. SENIOR COUNSE L MR. S.N.SOPARKAR APPEARED AND CONTESTED THAT THE ASSESS ING OFFICER HAD GONE WRONG IN CHANGING THE METHOD OF DECLARATION OF PROF IT AS ADOPTED BY THE ASSESSEE IN NUMBER OF YEARS. MR. SOPARKAR HAS ARG UED THAT THE ASSESSEE ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 6 - HAS CONSISTENTLY FOLLOWED ONE METHOD AND ON THAT BA SIS DISCLOSED THE PROFITS FOR ALL THE YEARS STARTING FROM ASSESSMENT YEAR 1998-99 TO ASSESSMENT YEAR 2004-05. FURTHER HE HAS CONTESTE D THAT THE ASSESSEE HAD ALREADY DISCLOSED THE PROFIT ON THE DIFFERENCE OF THE OPENING WIP AND CLOSING WIP. THERE WAS NO OCCASION TO DISTURB THI S METHOD AT ONE PARTICULAR YEAR. HIS ANOTHER LIMB OF ARGUMENT WAS THAT MERELY ON PRESUMPTION ASSESSING OFFICER HAS HELD THAT THE PR OJECT WAS SUBSTANTIALLY COMPLETED FOR ASSESSMENT YEAR 1998-99 THOUGH THE FACT WAS THAT FOR FINANCIAL YEAR 2004-05 (ASSESSMENT YEA R 2005-06) THE ASSESSEE HAS INCURRED DEVELOPMENT EXPENDITURE OF RS .14 24 251/-. FINALLY HE HAS CONCLUDED THAT THE FIRST APPELLATE AUTHORITY HAD GONE WRONG IN MISUNDERSTANDING THE METHOD OF ACCOUNTING WHICH WAS FOLLOWED BY THE ASSESSEE THEREFORE HE HAS ARRIVED AT A WRONG CONCLUSION. HE HAS PLEADED THAT THE FINDING OF LEARNED CIT(APPE ALS) THAT THE ASSESSEE HAS FOLLOWED PERCENTAGE COMPLETION METHOD THUS DESERVES TO BE REVERSED. RELIANCE WAS PLACED ON THE DECISION OF SHAPOORJI PALANJI & CO.( RAJKOT) P.LTD.49 ITD 479 ( BOM.). 7. FROM THE SIDE OF THE REVENUE LD. DR SMT.SHALINI VERMA APPEARED AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. IT WAS CONTESTED THAT ONCE THE WORK-IN-PROGESS FOR ASSESSMENT YEAR 1998-9 9 WAS FINISHED UPTO THE EXTENT OF 99.52% AND ONLY PALTRY WORK-IN -PROGRESS WAS DISCLOSED IN ASSESSMENT YEAR 2004-05 THEN IT WAS A VERY NORMAL AND CONVINCING CONCLUSION THAT THE WORK HAD SUBSTANTIA LLY BEEN COMPLETED IN ASSESSMENT YEAR 1998-99. SHE HAS PLEADED THAT THOU GH THE PROJECT WAS ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 7 - COMPLETED IN ASSESSMENT YEAR 1998-99 BUT THE PROFIT S WERE DEFERRED IN REST OF THE YEARS TO GET THE UNDUE TAX BENEFIT. 8.WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES A T SOME LENGTH. WE HAVE ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHO RITIES BELOW IN THE LIGHT OF THE SHORT COMPILATION FILED BEFORE US. THE COMPA NY IS IN CONSTRUCTION BUSINESS AND THE PROJECT IN QUESTION WAS KNOWN AS V RUNDAVAN TOWNSHIP VADODARA. THIS WAS THE ONLY PROJECT WHICH WAS UNDE RTAKEN BY THE ASSESSEE-COMPANY FOR CONSTRUCTION ON CONTRACT BASIS . IT WAS NOTICED BY THE ASSESSING OFFICER THAT FOR ASSESSMENT YEAR 1998 -99 THE WORK-IN- PROGRESS WAS DISCLOSED AT THE END OF THE YEAR AT RS .4 11 26 557/-. IT HAS FURTHER BEEN NOTED BY THE ASSESSING OFFICER THAT AS SESSMENT YEAR 2004- 05 THE WORK-IN-PROGRESS WAS SHOWN AT RS.4 13 24 41 9/-. COMPARING THESE TWO AMOUNTS THE ASSESSING OFFICER HAS OPINED THAT ALMOST 99.52% OF THE PROJECT HAD ALREADY BEEN COMPLETED IN ASSESS MENT YEAR 1998-99. THIS WAS THE BASIS FOR THE START OF THE ASSESSMENT PROCEEDINGS. ONCE THE ASSESSING OFFICER HAD MADE UP HIS MIND THAT PROJECT WAS SUBSTANTIALLY COMPLETED IN ASSESSMENT YEAR 1998-99 THEN HE HAS W ORKED OUT THE ADDITIONAL OF PROFIT FOR THE SAID ASSESSMENT YEAR . THE ASSESSING OFFICER HAS COMPUTED THE PROFIT ON THE DIFFERENCE OF THE TO TAL AMOUNT RECOVERED FROM THE CUSTOMERS AND THE DECLARED WORK-IN-PROGRE SS. THE BASIS AND THE WORKING OF ALLEGED ESCAPED PROFIT HAS ALREADY BEEN REFERRED HEREINABOVE. AS PER ASSESSING OFFICER THE TOTAL ADVANCE RECEIVED FROM THE CUSTOMERS UPTO ASSESSMENT YEAR 1998-99 WAS AT RS.4 02 11 121/- AND PALTRY THEREAFTER OF RS.28 69 231/- THUS TOTALING AT RS.4 30 94 122/- . AS AGAINST THAT THE CLOSING WIP FOR 1998-99 RS.4 11 26 557/- THEREFORE THE DIFFERENCE BETWEEN THE TWO I.E. ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 8 - RS.19 67 565/- WAS TAXED AS ADDITIONAL APROFIT. THE RE WAS ONE MORE FACT IN DISPUTE THAT AS PER ASSESSEE AN EXPENDITURE OF RS.16 34 933/- WAS FURTHER INCURRED IN THE A.Y.2005-06 AND SO ADDED IN THE WIP OF THAT YEAR. REVENUE HAS QUESTIONED THAT WHEN THE PROJECT HAD AL READY BEEN COMPLETED IN THE PAST IN AY 98-99 THEN HOW THE SAI D AMOUNT WAS AT ALL RELATED THE PROJECT IN QUESTION. 8.1 WITH THIS FACTUAL BACKGROUND NOW WE HAVE TO SEE THE LEGAL SIDE OF THIS PROBLEM. THE PROBLEM IS THAT IF A CONTRACTOR WHO IS IN THE BUSINESS OF CONSTRUCTION HAS SUBSTANTIALLY COMPLETED A CONST RUCTION AS IS EVIDENT FROM THE WORK-IN-PROGRESS DETAILS THEN WHETHER HE IS STILL ENTITLED TO ADOPT PROJECT COMPLETION METHOD OR HE HAS TO FOLL OW THE PERCENTAGE COMPLETION METHOD. TO GET THE ANSWER WE HAVE TO SE E THE ACCOUNTING STANDARD. FOR THE PURPOSE OF RECOGNITION OF INCOME FOR THE CONSTRUCTION BUSINESS CERTAIN GUIDE LINES ARE ISSUED BY THE INST ITUTE OF CHARTERED ACCOUNTANTS AND PRESCRIBED ACCOUNTING STANDARD-7 ( IN SHORT A.S.-7) TITLED AS ACCOUNTING FOR CONSTRUCTION CONTRACT AN D AS PER CLAUSES 7.1 & 7.2 TWO METHODS OF ACCOUNTING FOR CONSTRUCTION NO W COMMONLY FOLLOWED BY THE CONTRACTORS ARE PRESCRIBED :- A) PERCENTAGE OF COMPLETION METH OD ( IN COMMON LANGUAGE PROJECT PERCENTAGE COMPLE TION METHOD) B) COMPLETED CONTRACT METHOD ( IN COMMON LANGUAGE PROJECT COMPLETION METHOD) THEREFORE AS PER ACCOUNTING STANDARDS BOTH THE METH ODS ARE RECOGNIZED. BECAUSE OF THE NATURE OF THE ACTIVITY UNDERTAKEN IN THE CONSTRUCTION CONTRACT BUSINESS THE DATE AT WHICH THE CONTRACT A CTIVITY IS ENTERED INTO AND THE DATE WHEN THE ACTIVITY IS COMPLETED USUALL Y FALL INTO DIFFERENT ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 9 - ACCOUNTING PERIODS. THEREFORE THE PRIMARY ISSUE IN ACCOUNTING FOR CONSTRUCTION CONTRACTS IS THE ALLOCATION OF CONTRAC T REVENUE AND THE CONTRACT COST TO THE ACCOUNTING PERIODS IN WHICH CO NSTRUCTION WORK IS PERFORMED. SIDE BY SIDE IF PROFITS ARISING FROM A P ARTICULAR PROJECT ARE OFFERED FOR TAXATION IN THE YEAR IN WHICH THAT PROJ ECT IS COMPLETED OR SUBSTANTIALLY COMPLETED AND IF NO DEFECT IS POINTED OUT THEN ALSO THE SAME IS AN ACCEPTABLE METHOD. SO AS PER THIS DISCUSSION THOUGH BOTH THE METHODS ARE AVAILABLE BUT MERELY BECAUSE AN ANOTHER METHOD IS AVAILABLE FOR ACCOUNTING THE PROFIT I.E. PERCENTAGE METHOD THE A.O. HAS NO JUSTIFICATION FOR REJECTION OF AN EQUALLY RECOGNIZE D METHOD OF ACCOUNTING WHEREBY PROFITS OF A PROJECT IS DETERMINED WHEN THE WHOLE PROJECT IS COMPLETE. REVENUES ONLY PLEA THAT THE ASSESSMENT C OULD NOT WAIT INDEFINITELY FOR THE COLLECTION OF TAX AND THE ASSE SSEE MUST PAY TAX ON THE EACH YEAR BASIS HAS SUBSTANCE BUT DIFFICULT TO UPH ELD THE SAME IN THE PRESENT CASE. IT WAS THE OBLIGATION ON THE PART OF THE A.O. TO FIRST DEMONSTRATE THAT THERE WAS DEFECT IN THE ACCOUNTING SYSTEM OR THE CORRECT PROFIT COULD NOT DEDUCED BY THE METHOD ADOPTED BY THE ASSESSEE. WE DRAW SUPPORT FROM ACIT VS. RAJESH BUILDERS 3 SOT 91 7 (MUM.) & ACIT VS. HEERAL CONSTRUCTIONS PVT. LTD.85 TTJ 49 ( CHENNAI). THEREFORE THE CASE LAW CITED BEFORE US BY LD. A.R. MR. SOPARK AR HAS APPLICATION ON THE PRESENT FACTS OF THE CASE. IT WAS OBSERVED QUO TE MERELY BECAUSE THE PROFIT ON A PROJECT WAS POSTPONED FROM THE YEAR OF COMMENCEMENT OF THE PROJECT TO THE YEAR OF COMPLETI ON OF THE PROJECT THE SAME WOULD NOT BE THE BASIS FOR CONSIDERING T HE ASSESSMENT MADE ON THAT BASIS AS ERRONEOUS. IN THE INSTANT CAS E THE RATE OF TAX WAS CONSTANT AND THEREFORE IN THE CONTEXT OF THE AFORESAID ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 10 - CIRCUMSTANCES IT COULD NOT BE SAID THAT THE ASSES SMENTS WERE IN ANY WAY PREJUDICIAL TO THE INTEREST OF THE REVENUE. ASSESSEE WAS CONSISTENT IN HIS SUBMISSIONS THAT IT HAD FOLLOWED CLOSURE OF CONTRACT METHOD CONSISTENTLY IN ACCORDANCE WITH A.S-7. THER EFORE THE VEHEMENT CONTENTION WAS THAT THE ACCOUNTS HAVE BEEN PREPARED AND FINALIZED ACCORDINGLY FOLLOWING THE SAID METHOD. A REASON AS SIGNED FOR NOT CLOSING THE ACCOUNTS IN THIS YEAR THOUGH SUBSTANTI AL WORK WAS DONE THAT THERE WERE THE POSSIBILITY OF CONTINGENCIES OUT-ST ANDING LIABILITIES OR UNEXPECTED LOSS THAT MIGHT ARISE IN FUTURE . WITHOU T FULLY COMPLETING THE WORK NO CONTRACT WOULD BE CLOSED PREMATURELY. THE P LOTS ON WHICH THE CONTRACT FOR CONSTRUCTION WAS ASSIGNED WERE OWNED B Y THE MEMBERS OF VRUNDAVEN SOCIETY. HENCE THE PAYMENTS WERE STATED T O HAVE BEEN RECEIVED BY THE ASSESSEE FROM INDIVIDUAL MEMBERS ON THE BASIS OF THE WORK DONE AS AGREED UPON. THE ARGUMENT WAS THAT THE INCOME WAS THUS NOT SIMPLY BASED UPON THE PAYMENTS RECEIVED. COLLECTION OF PAYMENT DID NOT INDICATE THE CONTRACT WAS PERFORMED. AT THI S JUNCTURE IT IS WORTH TO NOTE THAT THE A.O. HIMSELF HAS MENTIONED THAT AN AM OUNT OF RS.28 83 001/- WAS RECEIVED AFTER THE PERIOD ENDED ON 31.3.1998 REFER PAGE 3 SUB-PARA 2. THE A.O. WAS QUITE CATEGORICAL I N STATING THAT THE ASSESSEE HAD SHOWN THE FIGURE OF AMOUNT RECEIVED FR OM THE CUSTOMER AFTER 31.3.98 AT RS. 28 69 231/- BUT THE CORRECT FI GURE WAS 28 83 001/-. ONCE IT WAS AN UNDISPUTED FACT THAT THE AMOUNTS FR OM THE CUSTOMER WERE RECEIVED AS ADVANCE AFTER 31.3.98 THEN IT WAS PRETT Y ILLOGICAL TO ALLEGE THAT THE CONSTRUCTION WORK WAS FINALIZED BY THAT DATE. N O CONTRACTOR SHALL FINISH THE CONSTRUCTION FIRST AND THEN KEEP ON DEMA NDING THE BALANCE PAYMENT. THIS FACT ITSELF DEMONSTRATE THAT THERE WA S SOME WORK PENDING ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 11 - FOR WHICH THE PAYMENTS HAVE BEEN RECEIVED SUBSEQUEN TLY IN THE LATER PERIOD. BUT THE FIRST APPELLATE AUTHORITY HAS DECIDED PRIMARILY ON THE QUANTUM OF DEVELOPMENT EXPENDITURE INCURRED UPTO TH AT PARTICULAR YEAR. HE HAD FOUND THAT ALL OF A SUDDEN DEVELOPMENT EXPEN DITURE WAS SHOWN IN THE F.Y. 04-05 OF RS. 14 24 251/-. WHETHER THE ASSE SSEE WAS ABLE TO SUBSTANTIATE THE SAID EXPENDITURE IN THAT YEAR IS A LTOGETHER A DIFFERENT ASPECT BUT TO REJECT THE METHOD BY SAYING THE EXPEN DITURE HAD COME UP SUDDENLY HAD NO LOGICAL BASIS. LD. CIT (A) HAD EVEN WRONGLY MADE AN OBSERVATION THAT THE CLAIM OF THE ASSESSEE WAS THAT PERCENTAGE COMPLETION METHOD WAS FOLLOWED. IT WAS NOT THE CLAIM OF THE AS SESSEE. THE TWO MAJOR UNDISPUTED FACT FIRST THAT THE PAYMENTS ( R S.28 83 001/) HAVE BEEN RECEIVED AFTER 31.3.98 AND SECOND THAT THE DEVELOPMENT EXPENDITURE(RS.16 34 933/) AS WELL WAS INCURRED AFT ER 31.3.98 DEFINITELY DEMONSTRATE THAT THE WORK WAS NOT COMPLE TED BY THE END OF 31.3.98. WE ARE NOT CONVINCED BY THE REASONING GIVEN BY LD. CIT(A) TO UPHOLD THE ACTION OF THE A.O. CONSIDERING THE TOTAL ITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE CAN HOLD THAT YEAR OF CLOSURE OF THE PROJECT HAS WRONGLY BEEN CHANGED. IN THE RESULT THE ADDITION MADE OF RS. 19 67 565 BY PREPONEMENT OF THE CONTRACT AND TREAT ING THE WORK IN PROGRESS AS COMPLETED IN THE YEAR 1998-99 IS HEREBY REVERSED . GROUNDS RAISED IN THIS REGARD ARE ALLOWED. 9. GROUND NO. 4 IS ONLY IN RESPECT OF ADHOC DISALLOWANCE OF SITE DEVELOPMENT EXPENSES IN THE NATURE OF DRAINAGE ETC. INCURRED IN CASH. THE A.O. HAD MADE 10% DISALLOWANCE WHICH WAS SCALED DOW N TO 5% BY LD.CIT(A). THOUGH IT WAS AN ESTIMATION BUT THE FACT S HAVE REVEALED THAT ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 12 - THE ASSESSEE HAD FAILED TO VERIFY THE EXPENDITURE A ND UNABLE TO SUBSTANTIATE THE CLAIM. THE ASSESSEE HAD NOT DISCHA RGED ITS ONUS THEREFORE THE REVENUE HAD NOT OPTION BUT TO DISALLOW PART OF THE CLAIM. PRESENTLY IT WAS NOT THE CASE THAT THE ASSESSEE HAD FURNISHED SU PPORTING EVIDENCE EVEN THEN AN ADHOC ADDITION WAS MADE BUT IT WAS OTHERW ISE HENCE WE HEREBY UPHOLD THE ADDITION. THIS GROUND IS DISMISSE D. 9.1 ASSESSEES APPEAL IS PARTLY ALLOWED. (B) ASSESSEES APPEAL ITA NO.3755/AHD/2008 FOR AY 2005-06. 10. THE ASSESSEE HAS RAISED FOLLOWING TWO GROUNDS:- 1. THE LEARNED CIT(APPEALS)- I BARODA HAS ERRED I N UPHOLDING THE ORDER OF THE LEARNED A.O. TREATING AS INCOME TH E DIFFERENCE BETWEEN CLOSING WORK-IN-PROGRESS AND OPENING WORK-I N-PROGRESS ASSESSED AT RS.16 33 943/- (WHICH INCLUDES EXPENDIT URE RS.14 40 534/-) BY NOT ALLOWING EXPENSES INCURRED F OR THE PROJECT OF THE COMPANY WHICH ARE AS PER THE TERMS OF CONTRA CT GENUINE BUSINESS EXPENSES AND REGULAR METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED. 2. WITHOUT PREJUDICE TO THE ABOVE LEARNED CIT(APPEALS)-I HAS ERRED IN NOT GIVING RELIEF TO THE PROFIT OF THE YEA R RS.1 983 409/- AND ALSO OF ASSESSMENT YEARS SUBSEQUENT TO A.Y. 199 8-99 SUBJECTING THE PROFIT TO TAX AND THEREBY DOUBLE TAX ATION BY NOT ALLOWING RELIEF ON THE PROFIT. THE LEARNED CIT(APP EALS)-I HAS ALSO ERRED IN NOT GIVING RELIEF TO DOUBLE TAXATION OF PR OFITS FOR EARLIER YEARS AFTER THE PROJECT WAS CLOSED ON THE SAME GROU NDS. 11. BRIEF FACTS FOR THE YEAR UNDER CONSIDERATION AS APPEARED FROM ASSESSMENT YEAR 2004-05 PASSED U/S.143(3) OF THE I. T.ACT DATED 22/01/2007 WERE THAT THE ASSESSING OFFICER HAS DISC USSED THE PAST HISTORY OF THE CASE AND NARRATED THAT THE PROJECT HAD ALREA DY BEEN COMPLETED IN ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 13 - ASSESSMENT YEAR 1998-99. A QUESTION WAS ASKED THAT IF THE PROJECT WAS COMPLETED IN THE PAST THEN WHY THERE WAS AN ADDITI ON IN THE WORK-IN- PROGRESS OF RS.16 34 933/-. THE ASSESSEE WAS THER EFORE ASKED TO FURNISH THE DETAILS OF WORK CARRIED OUT. THE ASSESSEE WAS ALSO ASKED TO FURNISH THE NAMES AND ADDRESSES OF THE PARTIES WHO HAVE SU PPLIED THE MATERIAL. AS PER ASSESSING OFFICER THE ASSESSEE HAS FAILED T O FURNISH ALL THOSE DETAILS. THE ASSESSING OFFICER HAS THUS CONCLUD ED THAT IN THE ABSENCE OF PROPER VERIFICATION THE SAID CLAIM OF EXPENDITU RE WAS INADMISSIBLE HENCE TAXED THE SAME IN THE FOLLOWING MANNER: .. IN VIEW OF THE ABOVE AND SINCE THE PROJECT HAV E BEEN SHOWN TO BE COMPLETED IN THE PREVIOUS YEAR UNDER ASSESSMENT THE DIFFERENCE BETWEEN THE ADVANCES CARRIED TO WIP ACCOUNT AND THE OPENING WIP BROUGHT FORWARD FROM THE PREVIOUS YEAR IS HELD TO BE THE TAXABLE INCOME OF THE ASSESSEE IN CONSONANCE WITH T HE ACCOUNTING STANDARD 7 (REVISED) OF ACCOUNTING STANDARDS AND CO RPORATE ACCOUNTING PRACTICES. THUS THE ADDITION TO WIP FOR THE YEAR IS DISREGARDED TO THE TUNE OF RS.1634943/- . AS STATED ABOVE FOR THE YEAR THE ADVANCES HAVE BEEN TREATED AS SALES RECEIP TS THEREBY INDICATING THE CLOSURE OF THE PROJECT. THE WIP ACC ORDINGLY ALSO APPEARS TO HAVE BEEN ENHANCED TO MEET THE VALUE OF ADVANCES IN ORDER TO AVOID ANY LIABILITY OF TAX ENSURING FROM C OMPLETION OF THE PROJECT. ACCORDINGLY IN VIEW OF DISREGARD OF THE A DDITION TO WIP OF RS.1633943/- THE PROFIT OF BUSINESS BEING DIFFERENC E BETWEEN OPENING WIP (RS.41324419/-) AND THE VALUE OF SALES REFLECTED AT RS.42959352/- IS TREATED AS INCOME ASSESSABLE FOR T HE YEAR. IT IS ALSO STATED IN THIS REGARD THAT SINCE IN ACTUALITY NO BUSINESS WAS CARRIED OUT BY THE ASSESSEE THE QUESTION OF ALLOWIN G DEPRECIATION OF RS.1660/- AND ADMINISTRATIVE EXPENDITURE OF RS.1 4123/- ALSO DOES NOT ARISE. PENALTY PROCEEDING U/S.271(1)(C) A RE INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME BY WRONGFUL INTERPOLATE OF EXPENSES WHICH IN THE FIRS T PLACE HAVE NOT BEEN PROVED TO BE INCURRED BY THE ASSESSEE. ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 14 - 4. SUBJECT TO THE ABOVE REMARKS TOTAL INCOME OF T HE ASSESSEE IS COMPUTED AS UNDER TOTAL INCOME IS ASSESSED AS DISCUSSED ABOVE RS.1 633943/- 12. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY. THE LEARNED CIT(APPEALS) HAS MADE AN OPENING REMARKS TH AT THE ISSUE WAS INEXTRICABLY LINKED WITH THE ASSESSEES CASE FOR AS SESSMENT YEAR 1998-99. HE HAS MENTIONED THAT FOR ASSESSMENT YEAR 2005-06 AS PER THE ASSESSEE THE PROJECT WAS DECLARED AS COMPLETED AND THE INCOME WAS COMPUTED AND TAKING THE DIFFERENCE OF ADVANCES FROM CUSTOMERS DEDUCTED FROM THE DEVELOPMENT EXPENDITURE PLUS OPEN ING WIP. HE HAS MADE AN OBSERVATION THAT AFTER SHOWING NIL DEVELOPM ENT EXPENDITURE IN LAST 4-5 YEARS ALL OF A SUDDEN THE ASSESSEE HAS SH OWN DEVELOPMENT OF RS.14 24 251/-. IN HIS OPINION THE EXPLANATION O F THE ASSESSEE FOR THIS SUDDEN EXPENDITURE WAS NOT CONVINCING SPECIALLY WHE N THE ASSESSEE HAS FAILED TO PROVIDE THE NECESSARY EVIDENCES. THUS LEARNED CIT(APPEALS) HAS UPHELD THE SAID OBSERVATION OF THE ASSESSING OF FICER HOWEVER HE HAS GIVEN RELIEF ON ACCOUNT OF THE FACT THAT THE YEAR U NDER CONSIDERATION WAS NOT CORRECT YEAR TO ASSESS THE SAME AS PER FOLLOWI NG OBSERVATION: 2.3.1 AFTER HOLDING AS ABOVE THE A.O. TAXED THE D IFFERENCE BETWEEN THE ADVANCES FROM CUSTOMERS AND THE OPENING WIP AS INCO ME OF FINANCIAL YEAR 2005-06. WHEN THE PROJECT HAD ALREADY BEEN T REATED AS COMPLETED/CLOSED IN A.Y. 1998-99 BY SUBSTITUTING CL OSING WIP BY ADVANCES RECEIVED FROM THE CUSTOMERS UPTO 31/03/200 4 THE FULL PROFITS OF THE PROJECT ALREADY STOOD TAXED IN A.Y. 1998-99. IN FINANCIAL YEAR 2004-05 THERE WAS NO INCREASE IN THE ADVANCES FROM CUSTOMERS; THE SAME REMAINED AT RS.4 29 59 352/- AS AGAINST ADVANC ES ON 31/03/2004 OF RS.4 30 80 352/- THE DIFFERENCE BEING EXPLAINED AS DUE TO SOME REFUND TO CUSTOMER IN FINANCIAL YEAR 2004-05. A.O. S ACTION IN AY 2005-06 BY TREATING DIFFERENCE BETWEEN THE ADVANCES FROM CUSTOMERS AS ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 15 - ON 31.3.2005 AND THE OPENING WIP BY IGNORING DEVELO PMENT EXPENDITURE AMOUNTS TO DOUBLE TAXATION AS THESE PR OFITS ALREADY STAND TAXED IN AY 1998-99. HENCE IT IS HELD THAT THERE WAS NO JUSTIFICATION IN TREATING THE TOTAL INCOME FOR A.Y. 2005-06 AT RS.16 33 943/- WHICH IS CANCELLED AND THE RETURNED INCOME IS RESTORED. 13. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES WE ARE OF THE VIEW THAT TO RESOLVE THIS CONTROVERSY ONE HAS TO EXAMINE THE INGREDIENTS OF A CONTRACT COST . IT COMPRISES THE COST WHICH RELATE DIRECTLY TO TH E SPECIFIC CONTRACT. A COST MUST BE ALLOCABLE TO THE WORK AND SO ATTRIBUTABLE TO THE CONTRACT. THAT COST MUST BE CHARGEABLE TO THE CUSTO MER UNDER THE TERMS OF THE CONTRACT. NATURE OF COST FOR A CONSTRUCTION ACT IVITY ARE LIKE SITE SUPERVISION LABOUR AT SITE COST OF MATERIAL USED IN CONSTRUCTION COST FOR EQUIPMENT AND SO AND SO FORTH. THERE IS AN ANOTHER IMPORTANT ASPECT THAT IN THE CASE OF CONTRCT COST IT MUST ATTRIBUTE TO THE PERIOD OF THE CONTRACT . A COST IS FOR THE PERIOD FROM THE DATE OF SECUR ING THE CONTRACT TO THE FINAL COMPLETION OF THE CONTRACT. UNDISPUTED LY IT MUST BE SEPARATELY IDENTIFIED AND MEASURED RELIABLY. LASTLY THE COST M UST MATCH WITH THE GENERATION OF REVENUE. THE OUTCOME OF THE CONTRACT HAS TO BE THAT THE CONTRACT-REVENUE AND THE CONTRACT-COST MUST ASSOCIATE WITH EACH OTHER AND THAT THEY MUST ALSO BE WHOLLY AND EXCLUSIVELY F OR THE CONSTRUCTION ACTIVITY. THEREFORE THE AREA OF ENQUIRY CAN BE IN T HE AFORE MENTIONED DIRECTION. THE ASSESSEE HAD SHOWN AS PER THE ACCOU NTS AND THE CHART PRODUCED THAT FOR A.Y. 98-99 ADVANCE FROM THE CUSTO MERS WAS RECEIVED RS. 12 13 600 AND TOTAL UPTO THAT YEAR WAS 4 02 11 121/. IN THE NEXT YEAR A.Y. 99-00 IT WAS 16 90 001 AND FOR A.Y. 2000-01 I T WAS 9 78 000/-. IT WAS NOMINAL IN A.Y. 01-02 OF RS.40 000/. THERE WERE REFUNDS IN A.Y. 03-04 04-05 AND 05-06. TOTAL NET ADVANCE FROM CUS TOMERS WAS SHOWN AT ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 16 - RS. 4 29 69 362/-. UNDISPUTEDLY ACCOUNTS HAVE ALSO DEMONSTRATED THAT FOR A.Y. 98-99 THE DEVELOPMENT EXPENDITURE WAS AT RS.18 41 893/ FOR A.Y. 99-00 IT WAS RS. 32 012 AND THEREAFTER IN A.Y. 05- 06 RS. 14 24 251/-. IN BETWEEN YEARS ONLY NOMINAL ADMINISTRATIVE EXP. AND FINANCE CHARGES WERE INCURRED. IT IS NOW VEHEMENTLY CONTESTED THAT THE COMPLETE DETAILS WERE FILED AND IN SUPPORT PG. 42 OF THE COMPILATION WAS REFERRED. THIS CONTAINS THE NAMES OF THE SUPPLIERS SUCH AS BALAJI AGENCIES FOR GLAZED TILED NARANDAS & SONS FOR COLOURS SUNIL ELECTRI CALS FOR ELECTRICITY MATERIAL OTHER PARTIES FOR KOTA STONE SAND ETC. THE CONTENTION IS THAT GENUINENESS WAS NOT QUESTIONED BUT DISALLOWED ON TH E GROUND THAT IT HAD NOT BEEN INCURRED FOR THE CONSTRUCTION BEING ALREAD Y COMPLETED. WE ARE OF THE VIEW THAT ONCE WE HAVE ALREADY TAKEN A DECIS ION THAT IT WAS NOT JUSTIFIABLE ON THE PART OF THE REVENUE TO HOLD THAT THE CONTRACT WAS COMPLETED IN THE PAST IN A.Y 98-99 HENCE IN CONSEQ UENCE THEREOF THE EXPENDITURE IN QUESTION MUST NOT BE DISALLOWED ON T HE GROUND THAT IT DID NOT RELATE TO THE SAID CONSTRUCTION. BUT SIMULTANEO USLY THE ASSESSEE IS UNDER STRICT OBLIGATION TO DEMONSTRATE THAT THE SAI D EXPENDITURE HAD IN FACT BEEN INCURRED FOR THE CONSTRUCTION IN QUESTION AND ALSO TO PROVE THE GENUINESS OF THE CLAIM . THEREFORE WE DIRECT THAT I F PROVED ON BOTH THE COUNTS THEN ONLY ALLOWABLE. THE PARTIES ARE REQUIRE D TO RESOLVE THE ISSUE IN THE LIGHT OF THE TOTALITY OF THE DISCUSSION MADE HEREINABOVE NEEDLESS TO SAY AFTER PROVIDING A REASONABLE OPPORTUNITY OF HEA RING TO THE ASSESSEE. WITH THESE DIRECTION WE RESTORE THIS PART OF THE GR OUND BACK TO A.O. FOR AFRESH ADJUDICATION. ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 17 - 14. AS FAR AS GROUND NO.2 IS CONCERNED THE LEARNED CIT(APPEALS) HAD ALREADY COMMENTED THAT THE ASSESSEE IS FREE TO TAKE REMEDIAL MEASURES BY FILING APPROPRIATE PETITION BEFORE THE CONCERNED AUTHORITY. FOR REFERENCE PARAGRAPH IS REPRODUCED BELOW:- 2.3.2. WHEN THE PROJECT WAS COMPLETED IN AY 1998- 99 THE GROSS PROFIT OF RS.2 10 682/- [DIFFERENCE BETWEEN THE ADV ANCES FROM CUSTOMERS AS ON 31.3.2005 (RS 4 29 59 352/-) AND OPENING WIP PLUS DEVELOPMENT EXPENDITURE (RS.4 27 48 670/-)] DECLARED BY THE APP ELLANT IN THE RETURN OF INCOME FOR AY 2005-06 HAS ARISEN ONLY DUE TO PO STPONEMENT OF PROJECT CLOSURE BY THE APPELLANT TO THIS YEAR. IT IS UP-TO THE APPELLANT TO TAKE REMEDIAL MEASURES IN THIS REGARD BY FILLING AP PROPRIATE PETITIONS. 14.1. WE ARE NOT INCLINED TO INTERFERE WITH THIS OB SERVATION OF THE LEARNED CIT(APPEALS) AND SINCE THE FIRST GOUND HAS BEEN RESTORED THERE FORE NOW THE ASSESSE HAS TO APPROACH THE A.O. FOR A FRESH ADJUDICATION. 15. IN THE RESULT ASSESSEES APPEAL ITA NO.3755/A HD/2008 IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSE. (C) REVENUES APPEAL ITA NO.3778/AHD/2008 FOR A. Y. 2005-06 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CANCELING THE ASSESSED INCO ME OF RS.16 33 943/- AND RESTORING THE RETURNED INCOME OF RS.1 94 950/- FOR THE A.Y. 2005-06. 1(B) THE LD. CIT(A) FAILED TO APPRECIATE THAT IN T HE ASSESSMENT ORDER U/S.143(3) R.W.S. 147 FOR A.Y. 1998-99 THE W ORK-IN-PROGRESS FROM A.Y. 1997-98 TO A.Y. 2004-05 WAS ONLY CONSIDER ED BY THE A.O. WHILE WORKING OUT THE PROFIT OF RS.19 67 565/- FOR THE A.Y. 1998-99. THEREFORE THE ACTION OF THE A.O. DISALLO WING THE EXPENDITURE OF RS.14 24 251/- CLAIMED TO BE INCURRE D IN THE FINANCIAL YEAR 2004-05 (I.E. AFTER CLOSURE OF THE P ROJECT) AND ACCORDINGLY COMPUTING THE INCOME OF THE ASSESSEE FO R A.Y. 2005-06 ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 18 - AT RS.16 33 943/- AS AGAINST THE RETURNED INCOME OF RS.1 94 950/- IS FULLY JUSTIFIED. 16. IN THE LIGHT OF THE ABOVE VERDICT THIS GROUND OF THE REVENUE NOW STOOD DECIDED AND THEREFORE RESTORED BACK TO A.O. T O DECIDE AFRESH AS PER THE DIRECTION. 17. IN THE RESULT APPEAL OF THE ASESSEE FOR A.Y. 9 8-99 IS PARTLY ALLOWED. THE CROSS APPEALS OF THE ASSESSEE AND THE REVENUE F OR A.Y. 05-06 ARE ALLOWED ONLY FOR STATISTICAL PURPOSE BEING RESTORED FOR AFRESH ADJUDICATION AS PER THE DIRECTIONS. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 28/ 02 /2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 28/ 02 /2011 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I BARDOA 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD ITA NOS.3754 & 3755/AHD/08 (BY ASSESSEE) ASSESSMENT YEARS 1998-99 & 2005-06 ITA NO.3778/AHD/2008 (BY REVENUE) FOR A.Y.2005-06 KISHANDHAM DEVELOPERS PVT.LTD. VS. ACIT - 19 - 1. DATE OF DICTATION..13.1.11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.1.11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 28.12.02. 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28.12.02 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER