ACIT 19(3), MUMBAI v. DIVINE CONSTRUCTION COMPANY, MUMBAI

ITA 5713/MUM/2009 | 2006-2007
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 571319914 RSA 2009
Assessee PAN AACFD8420B
Bench Mumbai
Appeal Number ITA 5713/MUM/2009
Duration Of Justice 1 year(s) 3 month(s) 2 day(s)
Appellant ACIT 19(3), MUMBAI
Respondent DIVINE CONSTRUCTION COMPANY, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 28-01-2011
Date Of Final Hearing 05-07-2010
Next Hearing Date 05-07-2010
Assessment Year 2006-2007
Appeal Filed On 26-10-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI. V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 5713/MUM/2009. ASSESSMENT YEAR : 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX DIVINE CONSTRUCTION COMPANY 19(3) MUMBAI. VS. A-37/346 MIG COLONY GANDHI NAGAR BANDRA (E) MUMBAI 400 051. PAN AACFD 8420B APPELLANT RESPONDENT. APPELLAN T BY : SHRI JITENDRA YADAV. RESPONDENT BY : DR. DANIE L AND SHRI S.M. MAKHIJA. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE CIT(APPEALS)-XIX MUMBAI DATED 13-08-2009. 2. FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM AND IS IN THE B USINESS OF EXECUTING CIVIL ENGINEERING CONTRACTS OF GOVERNMENT AND SEMI-GOVERN MENT DEPARTMENTS. THE ASSESEE IS ALSO IN THE BUSINESS OF A REAL ESTATE DE VELOPER AND BUILDER. THE GROSS RECEIPTS FROM CIVIL ENGINEERING CONTRACTS IS RS.1 5 8 39 259/- AND THE GROSS RECEIPTS AGAINST THE SALE OF FLATS WAS RS.4 63 05 001/-. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.17 85 097/- ON 30 TH OCT. 2006. THE AO 2 REJECTED THE BOOKS OF THE ASSESSEE FOR THE REASONS MENTIONED IN PARA 9 PAGE 11 OF THE ASSESSMENT ORDER WHICH IS EXTRACTED BLOW FOR RE ADY REFERENCE : I) ASSESSEE IS NOT FOLLOWING CORRECT METHOD OF ACCOUNT ING. II) ASSESSEE HAS FAILED TO PRODUCE BILLS AND VOUCHERS A ND BOOKS OF ACCOUNTS TO SUBSTANTIATE HIS CLAIM OF EXPENSES. III) ASSESSEE HAS BOOKED LABOUR EXPENSES OF RS.14 42 402 /- IN RESPECT OF WHICH HE FAILED TO PRODUCE CONCERNED PERSONS AND NO ONE APPEARED EVEN AFTER ISSUING SUMMONS U/S 131. FURTHER MORE O NE OF THE LABOUR SERVICE PROVIDER MR. ANAND NAIK SPECIFICALLY REFUSE D TO HAVE ANY TRANSACTION WITH ASSESSEE. IV) ASSESSEE WRONGLY CLAIMED INTEREST EXPENSES WHICH AR E NOT RELATED TO PROJECTS ON WHICH HE DECLARED PROFITS. V) ASSESSEE HAS WRONGLY CLAIMED PROFIT ON SALE OF OFFI CE PREMISES AS LSONG TERM CAPITAL GAIN AS PER SECTION 45 WHEREAS IT SHOULD BE SHORT TERM CAPITAL GAIN AS PER SECTION 50. VI) ASSESSEE HAS SHOWN WORK IN PROGRESS OF RS.10 74 602 /- BUT NO W.I.P. REGISTER OR DAY TO DAY STOCK REGISTER HAS BEEN PROD UCED TO SUBSTANTIATE THIS FIGURE. THEREAFTER AT PARA 9.1 AND 9.2 THE AO HELD AS FOLL OWS : 9.1 IN VIEW OF THE ABOVE THE BOOK RESULTS OF THE ASSESSEE CANNOT BE ACCEPTED AND BOOKS OF ACCOUNTS OF THE ASSESSEE ARE LIABLE TO BE REJECTED AS PER THE PROVISIONS OF SECTION 145(3) OF THE I.T. AC T 1961 WHICH STATES THAT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTICED UNDER SUB-SECTION (2) HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144. 9.2 BUT DUE TO THE ACCEPTANCE OF THE FACT THAT THE ASSESSEE HAS DONE THE CONSTRUCTION WORK AND FOR THAT WORK HE MUST HAVE I NCURRED SOME EXPENDITURE THEREFORE I AM HEREBY ESTIMATING A CO NSERVATIVE ESTIMATION FOR ARRIVING THE TRUE PROFIT OF THE ASSESSEE WHICH IS 1 2% OF THE TOTAL RECEIPTS OF RS.6 21 44 296/-. THE 12% OF THE TOTAL RECEIPTS COM ES TO RS.74 57 315/-. PENALTY U/S 271(1)(C) IS INITIATED FOR FURNISHING T HE INACCURATE PARTICULARS OF THE INCOME. 3 THE AO ALSO MADE AN ADDITION ON ACCOUNT OF SHORT TE RM CAPITAL GAINS. THIS ISSUE IS NOT BEFORE US IN THIS APPEAL. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE C ARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY ACCEPTED THE CONTENTI ONS OF THE ASSESSEE AND DELETED THE ADDITIONS MADE FOR THE REASONS GIVEN AT PARA 4. 4 TO 4.11 OF HIS ORDER. FURTHER AT PARA 5 TO PARA 6.2 OF HIS ORDER THE CIT(APPEALS) G AVE REASONS FOR DELETING THE ADDITIONS. AGGRIEVED THE REVENUE IS IN APPEAL ON T HE FOLLOWING GROUNDS: 1 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT ACCEPTING THE REJECTION OF THE BOOKS BY THE AO U/S 145(3) WITHOUT GIVING THE AO AN OPPORTUNITY TO EXAMINE THE ASSESSEES SUBMISSIONS. THE LD. CIT(A) FURTHER ERRED IN EXCESS IVELY RELYING ON THE PERCENTAGE COMPLETION METHOD AND TERMING THE OTHER REASONS AS TOO WEAK FOR REJECTING THE BOOKS OF ACCOUNT. (II) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN REJECTING THE ESTIMATION OF PROFIT @ 12% OF SALE PROCEEDS OF AKHAND ABHAR PROJECT. (III) ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF LABOUR CHARGES OF RS.14.42 LACS WITHOUT REMANDING THE MATTER TO THE AO THE LD. CIT( A) OUGHT NOT TO HAVE DISREGARDED THE DENIAL OF SHRI ANAND NAYAK OF HIS T RANSACTIONS WITH THE ASSESSEE. (IV) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE INCOME OF AKHAND A BBAR C.H.S.L. HAS TO BE ASSESSED WITH THE CURRENT YEAR ON SUBSTANTIAL BA SIS IGNORING THE FACT THAT AN AMOUNT OF RS.3.29 CRORES OUT OF RS.3.82 CRORES H AS BEEN RECEIVED IN F.Y. 2004-05. (V) ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE PROJECT AT TAJDAR AMROHI HAD NOT TAKEN OFF AND HENCE THE INTEREST RELATED TO THE SAID INVESTMENT CANNOT BE ALLOWED U/S 36(1)(III) OF THE ACT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 4 4. THE LEARNED DR SHRI JITENDRA YADAV SUBMITTED T HAT THE ASSESSEE IN THIS CASE HAS NEVER PRODUCED BOOKS OF ACCOUNT OR VOUCHERS OR OTHER DETAILS BEFORE THE AO. HE DREW THE ATTENTION OF THE BENCH TO PARA 7.2 OF T HE ORDER OF THE AO WHEREIN IT IS RECORDED THAT EVEN TILL DATE THE ASSESSEE HAS NOT P RODUCED THE BOOKS OF ACCOUNT AND VOUCHERS IN ORDER TO VERIFY THE CLAIM OF EXPENSES. HE DREW THE ATTENTION OF THE BENCH TO PARA 6 OF THE ASSESSMENT ORDER AND SUBMITT ED THAT THE NOTICE U/S 132(6) WAS GIVEN TO MR. ANAND NAYAK WHO IS A LABOURER TO WHOM THE ASSESSEE STATED TO HAVE PAID SOME MONEY AND THAT THIS PERSON DENIED HA VING ANY TRANSACTION WITH THE ASSESSEE. THE LEARNED DR POINTED OUT THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE ABSENCE OF THE ASSESSEE PRODUCING BOOK S OF ACCOUNT VOUCHERS AND OTHER EXPENSES THE AO HAD NO OTHER ALTERNATIVE BUT TO REJECT THE BOOKS BY APPLYING THE PROVISIONS OF SECTION 145(3) AND THEREAFTER CON SERVATIVELY ESTIMATING THE PROFITS AT 12% OF THE TURNOVER. 5. LATER THE LEARNED DR REFERRED TO PARA 4.4 OF THE CIT(APPEALS) ORDER WHEREIN THE LEARNED CIT(APPEALS) HELD THAT THE BURDEN OF PR OOF WAS ON THE AO TO PROVE TO THE COURT THAT THERE IS UNDERESTIMATION OF PROFIT. HE FURTHER TOOK THIS BENCH TO PARA 4.5 AND PARA 5.5 OF THE ORDER AND SUBMITTED THAT TH E CIT(APPEALS) HAS TOTALLY MISDIRECTED HIMSELF IN MAKING A RECORDING OF CERTAI N FACTS WHICH ARE CONTRARY TO THE FACTS RECORDED BY THE AO. HE DREW THE ATTENTION OF THE BENCH TO PARA 8.6 PAGE 13 OF THE CIT(APPEALS) ORDER AND FOUND FAULT WITH THE FINDINGS OF THE CIT(APPEALS) THAT THE BURDEN IS ON THE AO TO CORROB ORATE ITS FINDINGS WITH OTHER EVIDENCE WHEN A PERSON DENIES HAVING TAKING A PAYM ENT. ON THE SECOND ISSUE OF ALLOWABILITY OF INTEREST THE LEARNED DR POINTED OU T THAT THE LOAN WAS TAKEN FOR A PARTICULAR PROJECT. HE SUBMITTED THAT THE PROJECT H AS NOT BEEN STARTED TILL DATE AND UNDER THOSE CIRCUMSTANCES THE QUESTION OF ALLOWING EXPENDITURE DOES NOT ARISE. HE 5 FURTHER SUBMITTED THAT MATCHING INCOME HAS NOT BEEN RECOGNIZED. HE PRAYED THAT THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT (APPEALS) BE SET ASIDE. 6. DR. P. DANIEL LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND OPPOSED THE CONTENTIONS OF THE ASSESSEE AND FILED A PAPER B OOK RUNNING INTO 146 PAGES. AT THE OUTSET HE DREW THE ATTENTION OF THE BENCH TO TH E COPIES OF THE RETURNS OF INCOME AS WELL AS ASSESSMENT ORDERS PASSED BY THE DEPARTM ENT FOR THE ASSESSMENT YEAR 2002-03 WHICH IS AT PAGES 110 TO 146 AND 149 TO 161 AS WELL AS FOR THE ASSESSMENT YEAR 2004-05 WHICH IS AT PAGES 147 TO 183 AND 162 T O 164 OF THE PAPER BOOK AND SUBMITTED THAT IN THESE YEARS THE ORDERS WERE PASSE D U/S 143(3) AND IT HAS BEEN RECORDED BY THE AO THAT THE BOOKS OF ACCOUNT HAVE B EEN PRODUCED AND ALL DETAILS REQUIRED WERE EXAMINED. HE SUBMITTED THAT THE ASSES SEE HAS BEEN CONSISTENTLY ADOPTING PERCENTAGE COMPLETING METHOD OF ACCOUNTIN G AND THAT FOR ALL THE EARLIER ASSESSMENT YEARS THE REVENUE HAS BEEN CONSISTENTLY APPROVING OF THE SAME. THUS HE SUBMITTED THAT THE FINDING OF THE AO IN THE ASSE SSMENT ORDER THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING I S TOTALLY INCORRECT. THUS HE ARGUED THAT THE VERY BASIS ON WHICH THE ASSESSMENT ORDER WAS FRAMED WAS ON AN ERRONEOUS ASSUMPTION THAT THE ASSESSEE WAS ADOPTING PROJECT COMPLETION METHOD. (PAGE 6 OF THE ASSESSMENT ORDER). 7. MR. DANIEL SUBMITTED THAT THE ASSESSEE HAS PRODU CED BOOKS OF ACCOUNT VOUCHERS AND OTHER DOCUMENTS BEFORE THE AO AND THIS FACT IS EVIDENT FROM THE LETTER WRITTEN BY THE AO TO THE ASSESSEE WHICH IS EXTRACTE D AT PARA 7 PAGE 9 OF THE ASSESSMENT ORDER. HE POINTED OUT THAT THE AO HAS NO T MENTIONED WHICH IS THE CORRECT METHOD OF ACCOUNTING AS PER HIS OPINION AND SIMPLY SAID THAT THE METHOD FOLLOWED BY THE ASSESSEE IS NOT CORRECT. HE SUBMITT ED THAT THE AO HAS NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT. ON THE ISS UE OF DENIAL BY A SUB-CONTRACTOR MR. ANAND NAYAK MR. DANIEL SUBMITTED THAT HE WAS P AID RS.1 51 556/- OUT OF A 6 TOTAL EXPENDITURE OF MORE THAN RS.4 CRORES. THE ASS ESSEE HAD PAID BY WAY OF CHEQUE HE HAD VOUCHERS SIGNED BY THIS PETTY CONTRA CTOR MR. ANAND NAYAK AS WELL AS BILLS RAISED BY HIM. HE SUBMITTED THAT MR. ANAND NAYAK IS A PETTY LABOUR CONTRACTOR AND ON BEING APPROACHED BY THE INCOME-TA X DEPARTMENT MIGHT HAVE OUT OF FEAR DENIED THE PAYMENT. HE SUBMITTED THAT THE ENTIRE EXPENDITURE CANNOT BE HELD TO BE UNRELIABLE JUST BECAUSE THE LABOUR CONT RACTOR WHO HAS TAKEN RS.1.5 LAKHS OUT OF RS.4 CRORES OF EXPENDITURE DENIED T O CONFIRM. 8. MR. DANIEL SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY OFFERING 6% OF THE PROJECT COST AS INCOME AND IN ONE YEAR THE AO R AISED IT TO 8% AND ON APPEAL THE CIT(APPEALS) REDUCED THE SAME TO 6% AND THE REV ENUE HAS NOT CARRIED THE MATTER IN APPEAL. HE SUBMITTED THAT ULTIMATELY THE ASSESSEE HAS OFFERED 9% PROFIT ON THE PROJECT. THE LEARNED COUNSEL RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. REALEST BUILDERS AND S ERVICES LTD. 307 ITR 202 FOR THE PROPOSITION THAT THE AO SHOULD ASCERTAIN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE PAST AND EXAMINE WHETHER A CHANGE I N THE METHOD OF ACCOUNTING WAS WARRANTED ON THE GROUND THAT PROFIT IS UNDER-ES TIMATED OR OTHERWISE THE PRESUMPTION WOULD BE THE ENTIRE EXERCISE IS REVENUE NEUTRAL. ON THE CLAIM OF INTEREST EXPENDITURE HE SUBMITTED THAT THE ASSESSE E MAINTAINS CONSOLIDATED ACCOUNT AND THUS THE CLAIM IS ALLOWABLE. ON THE ISSUE OF PR OFIT ON SALE OF OFFICE PREMISES THE LEARNED COUNSEL SUBMITTED THAT THE D-BENCH OF THE ITAT IN ITA NO. 5396/MUM/2009 ORDER DATED 28 TH DECEMBER 2010 ALLOWED THE APPEAL OF THE ASSESSEE. HE SUBMITTED THAT THE TRIBUNAL HELD THAT AS NO DEPRECIATION WAS EVER CLAIMED OR ALLOWED ON THIS PROPERTY THE PROVISIONS OF SECTION 50 CANNOT BE APPLIED. HE RELIED ON THE ORDER OF THE CIT(APPEALS). 9. IN REPLY THE LEARNED DR SUBMITTED THAT THE ASSE SSEE IS MAINLY A BUILDER AND THE PERCENTAGE OF 9% IS NOT REASONABLE AND IT HAS T O BE INCREASED. 7 10. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D WE HOLD AS FOLLOWS. 11. THE BASIS ON WHICH THE AO REJECTED THE BOOKS OF ACCOUNT IS BROUGHT OUT AT PARA 4 PAGE 3 OF THE CIT(APPEALS) ORDER. THIS IS E XTRACTED BELOW FOR READY REFERENCE: 4. THE SECOND GROUND OF APPEAL RELATES TO ACTION O F THE AO IN REJECTING THE BOOKS OF ACCOUNT MAINTAINED AND AUDITED WITHOUT POINTING OUT ANY PARTICULAR DEFICIENCY. THE AO HAS RESORTED TO THIS ACTION MAINLY ON THE FOLLOWING GROUNDS :- (A) APPELLANT WAS ADOPTING PROJECT COMPLETION METHOD AN D HENCE DEFERRING ITS TAXES. (B) THE ASSESSEE HAS FAILED TO PRODUCE BILLS AND VOUCHE RS AND BOOKS OF ACCOUNT TO SUBSTANTIATE ITS CLAIM. IT HAS BOOKED LA BOUR EXPENSES OF RS.14 42 402/- IN RESPECT OF WHICH HE HAS FAILED TO PRODUCE THE CONCERNED PERSONS AS NO ONE APPEARED EVEN AFTER ISSUING THE S UMMONS U/S 131. MOREOVER ONE OF THE LABOUR SERVICE PROVIDER MR. AN AND NAYAK HAS DENIED ENTERING INTO ANY TRANSACTION WITH THE ASSES SEE. (C) ASSESSEE HAS WRONGLY CLAIMED INTEREST EXPENSES RELA TING TO PROJECT EXPENSES FOR WHICH HE HAS DECLARED PROFIT. (D) THE ASSESSEE HAS WORK-IN-PROGRESS (WIP FOR RS.10 74 602/- BUT NO WIP REGISTER OR DAY TO DAY REGISTER WAS PRODUCED TO SUB STANTIATE THIS FIGURE. THEREFORE THE AO PROCEEDED TO INVOKE SECTION 145(3 ) BY REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING THE PROFIT @ 12% O F THE TOTAL RECEIPTS. 12. ON THE FIRST GROUND THAT THE ASSESSEE WAS ADOPT ING PROJECT COMPLETION METHOD WE FIND THAT THE AO WAS FACTUALLY INCORRECT . THE ASSESSEE WAS OFFERING SOME INCOME ON PERCENTAGE COMPLETION METHOD YEAR A FTER YEAR AND THE REVENUE HAS BEEN ACCEPTING THE SAME. THE ASSESSMENT ORDER P ASSED U/S 143(3) FOR THE ASSESSMENT YEAR 2003-04 AS WELL AS IN THE ASSESSME NT ORDER PASSED FOR THE ASSESSMENT YEAR 2004-05 ON 30-11-2006 U/S 143(3) TH E METHOD HAS BEEN ACCEPTED. 8 FOR THE ASSESSMENT YEAR 2003-04 THE ASSESSEE HAS IN FACT CARRIED THE MATTER IN APPEAL BEFORE THE CIT(APPEALS)-XIX AND THE CIT(APPE ALS) VIDE ORDER DATED 17- 11-2006 ACCEPTED THE PLEA OF THE ASSESSEE AND DELET ED THE ADDITION MADE BY THE AO BY WAY OF INCREASING THE PERCENTAGE OF PROFIT FROM 6% TO 8%. THE REVENUE HAS NOT CHALLENGED THIS ORDER BEFORE THE CIT(APPEALS). THUS THE FIRST GROUND ON WHICH BOOKS OF ACCOUNT WERE REJECTED IS INCORRECT. 13. COMING TO SECOND GROUND OF NON-PRODUCTION OF BO OKS BEFORE THE AO THE AO HAS AT PARA 7 PAGE 9 STATED AS FOLLOWS : 7. VIDE LETTER DATED 03.12.2008 THE ASSESSEE HAS BEEN SKED AS UNDER: THIS IS WITH REFERENCE TO ASSESSMENT PROCEEDINGS FOR AY 2006-07. YOU HAVE BEEN ASKED TO PRODUCE BOOKS OF ACCOUNTS AL ONG WITH VOUCHERS/BILLS FOR AY 2006-07 VIDE ORDER SHEET NOTING DT. 26.11.20 08 IN WHICH ON YOUR REQUEST 2.12.2008 WAS GIVEN AS DATE OF COMPLIANCE. BUT ON 2.12.2008 YOU HAVE SUBMITTED ONLY BANK BOOK CASH BOOK TRIAL BALA NCE AND PARTNERS CAPITAL ACCOUNT AND NOT BOOKS OF ACCOUNTS ALONG WITH VOUCHE RS. YOU ARE HEREBY ASKED AS WHY NOT PROVISIONS OF SEC. 145(3) SHOULD B E INVOKED. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAD PR ODUCED THE CASH BOOK BANK BOOK TRIAL BALANCES PARTNERS BOOKS OF ACCOUNT. THE AO HAS NOT SPECIFIED WHAT ARE THE OTHER BOOKS OF ACCOUNT WHICH HE WANTED THE ASSESSEE TO PRODUCE. A BLAND STATEMENT WAS MADE THAT BOOKS OF ACCOUNT ARE NOT PR ODUCED. 14. COMING TO THE ISSUE OF VOUCHERS EXCEPT FOR ANA ND NAYAKS DENIAL THE AO HAS NO BASIS TO COME TO A CONCLUSION THAT THE ASSES SEE DOES NOT HAVE THE REQUISITE VOUCHERS. IN THE CASE OF ANAND NAYAK HE IS A PETTY CONTRACTOR AND THE QUANTUM OF PAYMENT IS ONLY RS.1.50 LAKHS THAT TOO TOWARDS LA BOUR PAYMENT AND WHEREAS THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE DURING T HE YEAR IS MORE THAN RS.4 CRORES AND HENCE THIS IS A REPRESENTATIVE SAMPLE. THE BOOK S OF ACCOUNT ARE AUDITED U/S 9 44AB. THE ASSESSEE IN THIS CASE HAS NOT PRODUCED TH E VOUCHERS AND EVIDENCES BEFORE THE AO. THE CIT(APPEALS) AT PARA 4.6 OBSERV ED AS FOLLOWS: 4.6 IT IS NOT CORRECT TO STATE THAT THE APPELLANT FIRM HAS FAILED TO PRODUCE BILLS VOUCHERS AND BOOKS OF ACCOUNTS. AS THE AO H AS MENTIONED IN PARA 7.1 OF THE ASSESSMENT ORDER THAT ALL THE RELEVANT DETAI LS CALLED FOR HAS BEEN PRODUCED. THE ACCOUNTS OF THE ASSESSEE WERE AUDITED U/S 44AB AND THERE IS NO REASONS TO BELIEVE THAT THE ASSESSEE DID NOT PRO DUCE THE DETAILS WHEN THE FACTS POINTS TO THE CONTRARY. THIS OBSERVATION IN OUR CONSIDERED OPINION IS NOT CORRECT. THERE CANNOT BE A PRESUMPTION THAT THE ASSESSEE HAS PRODUCED THE DETA ILS WHEN THE AO STATES OTHERWISE. IT IS ANOTHER ISSUE THAT THE BOOKS ARE AUDITED U/S 44AB. THIS GIVES A REBUTTABLE PRESUMPTION THAT THE VOUCHERS IN FACT E XIST. FOR THE ASSESSMENT YEAR 2003-04 IN THE ORDER DATED 29-3-2006 THE AO HELD TH AT ; A) THE ASSESSEE WAS NOT ABLE TO PROVE WITH DOCUMENTARY EVIDENCE HOW HE ARRIVED AT THE COST OF CONSTRUCTION. B) NO BOOKS OF ACCOUNTS/BILLS/VOUCHERS WERE PRODUCED B Y THE ASSESSEE. C) MANY EXPENSES ARE IN CASH AND UNVERIFIABLE. D) NOTICES ISSUES U/S 133(6) WERE RETURNED BACK AND CO NFIRMATIONS WERE SIGNED BY SOME COMMON CHARTERED ACCOUNTANT. THUS HE REJECTED THE BOOK RESULTS AND ESTIMATED THE PROFIT AT 8%. THE CIT(APPEALS)-XIX MUMBAI VIDE ORDER DATED 17-11-20 06 AT PARA 5.1 OBSERVED AS FOLLOWS : 5.1 IT CAN BE SEEN FROM THE SUBMISSIONS MADE BY TH E APPELLANT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAD FURNISHED ALMOST ALL THE INFORMATION CALLED FOR BY THE AO. THE BOOKS OF ACCOUNTS WERE ALSO PRODUCED AND NO DEFECTS OR DISCREPANCIES WERE NOTIC ED BY THE AO IN THE BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNTS HAVE BEEN A UDITED U/S 44AB. THE AUDITORS HAVE ALSO NOT POINTED OUT ANY DISCREPANCY IN THE BOOKS. THE MAIN REASON CITED BY THE AO FOR REJECTING THE ACCOUNTS I S THE COST OF CONSTRUCTION 10 SHOWN BY ONE MR. RAJKUMAR G. AGARWAL PROPRIETOR OF R.G. AGARWAL DEVELOPERS. IN THIS REGARD I FIND THAT THE PROJECT UNDERTAKEN BY SRI RAJKUMAR AGARWAL IS LOCATED IN BHAYANDER WHEREAS TH E PROJECT UNDERTAKEN BY THE APPELLANT IS LOCATED IN BANDRA KHAR AND THER EFORE THE COST OF CONSTRUCTION OF THE PROJECT OF SHRI RAJKUMAR AGARWA L CANNOT BE CONSIDERED AS COMPARABLE PARTICULARLY WHEN DETAILS OF QUALIFY OF THE WORK AND OTHER RELEVANT FACTS WITH REGARD TO THE SIMILARITIES OR T HE DIFFERENCE OF THE TWO PROJECTS ARE NOT AVAILABLE. IN ANY CASE THE ADDITI ON CANNOT BE MADE MERELY FOR THE REASON THAT COST OF CONSTRUCTION SHOWN BY O THER PERSON IN SOME OTHER PROJECT BEING HIGHER THAN THAT OF THE APPELLANT. TH E DIFFERENCE IN COST OF CONSTRUCTION SHOWN BY THE ASSESSEE AND OTHER PARTIE S SHOULD IMPEL THE AO TO MAKE FURTHER IN DEPTH ENQUIRIES WITH REGARD TO THE ACCOUNTS MAINTAINED AND TO BRING ON RECORD SPECIFIC INSTANCES TO PROVE THAT THE EXPENSE COST OF CONSTRUCTION HAS BEEN ACTUALLY INFLATED. THIS HAS N OT BEEN DONE. AS REGARDS INFORMATION CALLED FOR BY THE AO U/S 133(6) IS CONC ERNED I FIND THAT IN SO FAR AS THE ASSESSEE IS CONCERNED HAD FURNISHED ALL NEC ESSARY EVIDENCES WITH REGARD TO THE TRANSACTIONS ALONGWITH THE TAX RETURN DETAILS AND IN RESPECT OF SOME PARTIES IN FACT THE CONFIRMATIONS WERE ALSO F ILED ON BEHALF OF THEIR PARTIES BY THEIR REPRESENTATIVES. FURTHER THE PAYME NTS HAVE BEEN MADE BY CHEQUE WHICH PROVE THE GENUINENESS OF THE TRANSACTI ONS. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE VIEW THAT SUFFICIENT MATERIAL HAS NOT BEEN BROUGHT ON RECORD BY THE AO TO COME TO CONCLUSION THAT BOOKS OF ACCOUNTS OF THE ASSESSEE C ANNOT BE RELIED UPON AND HIS DECISION OF REJECTING THE ACCOUNTS AND ESTIMATI NG THE INCOME CANNOT BE UPHELD. THE ADDITION MADE BY THE AO IN THIS REGARD IS DIRECTED TO BE DELETED. LOOKING INTO THE ISSUE IN A WHOLISTIC MANNER AND T HE FACT THAT THE CIT(APPEALS) IN THE EARLIER YEAR HAS CONCLUDED THAT THE AO WRONGLY HELD THE BOOKS OF ACCOUNT CANNOT BE RELIED UPON AND IN VIEW OF THE FACT THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS EXCEPT FOR SAYING THAT BOOKS AND VOUCHERS ARE NOT PRODUCED WHICH IS PROVED TO BE AT LEAST PARTLY TO BE A FALS E OBSERVATION AND IN VIEW OF THE TAX AUDIT REPORT WE UPHOLD THE ORDER OF THE CIT(APPEA LS) ON THIS ISSUE. 11 15. COMING TO THE CLAIM OF INTEREST EXPENDITURE ON A PROJECT WHICH HAS NOT YET TAKEN OF IT IS A CASE OF DISALLOWANCE OF EXPENDITU RE BUT NOT A CASE FOR REJECTION OF BOOKS. ON THE MAINTENANCE OF STOCK REGISTER THE CI T(APPEALS) FOR THE ASSESSMENT YEAR 2003-04 AS WELL AS FOR THE CURRENT YEAR HAS UP HELD THE CONTENTION OF THE ASSESSEE THAT IN THIS LINE OF BUSINESS WHERE VOLUM INOUS ITEMS ARE PURCHASED AND UTILIZED IN THE COURSE OF CONSTRUCTION ACTIVITIES THERE CAN BE NO JUSTIFICATION FOR TAKING AN ADVERSE INFERENCE FOR THE REASON OF NON-M AINTENANCE OF THE STOCK REGISTER. THUS THIS ALSO CANNOT BE A GROUND FOR REJECTING THE BOOKS OF ACCOUNT. 16. THE LEARNED CIT(APPEALS) AT PARA 8.6 HAS FOLLOW ED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ANEEZ AHMED AN D SONS 297 ITR 441 AND HELD THAT THE ASSESSEE CANNOT BE HELD RESPONSIBLE F OR NON APPEARANCE OF THOSE PERSONS TO WHOM SUMMONS WERE ISSUED BY THE ASSESSIN G AUTHORITY AND NO ADVERSE INFERENCE SHOULD BE DRAWN. 17. THUS IN VIEW OF THE ABOVE DISCUSSION WE UPHOL D THE ORDER OF THE FIRST APPELLATE AUTHORITY THAT THE REJECTION N OF THE BOOK RESULTS WAS BAD IN LAW. AS WE HAVE UP HELD THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE WE NEED NOT ADJUDICATE THE OTHER ISSUES AS IT WOULD BE AN ACADEMIC EXERCISE. 18. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011. SD/- SD/- (V. DURGA RAO)) (J. SUDHAK AR REDDY) JUDICIAL MEMBER. A CCOUNTANT MEMBER MUMBAI DATED: 28 TH JANUARY 2011. WAKODE 12 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR D-BENCH. (TRUE COP Y) BY ORDER ASSTT. REGISTRA R ITAT MUMBAI BENCHES MUMBAI.