ITO 14(2)(2), MUMBAI vs. SEA SAGAR CONSTRUCTION CO., MUMBAI

आयकर अपीऱीय अधिकरण “E” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No.3751/Mum/2014 (नििाारण वर्ा / Assessment Year: 2000-01) बिाम/ ITO 14(2)(2) M/s. Sea Sagar R.No. 304, 3 rd Floor, Construction Company, Earnest House, Abhay House, 1st Floor, v. Nariman Point, 428, Kalbadevi Road, Mumbai- 400021 Mumbai 400002 स्थायी ऱेखा सं./ PAN: AACFS2838L (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. Revenue by: Shri. D.G Pansari Assessee by: Shri. Nitesh Joshi सुनवाई की तारीख /Date of Hearing : 30.01.2019 घोषणा की तारीख /Date of Pronouncement : 30.04.2019 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member: This appeal, filed by Revenue , being ITA No. 3751/Mum/2014, is directed against appellate order dated 12.03.2014, passed by learned Commissioner of Income Tax (Appeals)-25, Mumbai (hereinafter called “the CIT(A)”) vide CIT(A)-25/IT-204/14(2)(2)/11-12, for assessment year 2000-01, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 29.12.2011 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 254 of the Income-tax Act, 1961 (hereinafter called “the Act”) for AY 2000-01. This is second round of litigation before the tribunal. 2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

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“1. On the fact and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.1,86,61,354/- made by the A.O. being 8 % of total Work In Progress(WIP) shown in books of the assessee ignoring the fact that projects undertaken by the assessee were at the stage of completion and no sale or opening/closing of WIP were shown by the assessee in P & L, A/c. for the year under consideration. 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in holding that assessee has offered income of Rs. 51,22,961/- in the A.Y. 2003-04 earned from the projects undertaken adopting Completion Contract Method (CCM) and the assessee has liberty to choose either PCM or CCM as per desire ignoring the fact that assessee had tried to evade the taxes by not showing income at all form sale of flats till the year under consideration. 3. The Ld. CIT(A) erred in law as well as on fact by applying the Hon'ble Supreme Court judgment in the case of Hyundai Heavy Industries Co. Ltd. [2007] 161 Taxman 191 (SC) and other decision in favour of assessee wherein the facts are entirely different from the case under consideration. 4. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.". 3. The assessee is a contractor. The assessee filed its return of income with Revenue which was processed u/s 143(1) of the 1961 Act. Later , it was observed by the AO that the assessee has not offered any income on work in progress reported by it , although the project was almost complete. The AO reopened assessment by invoking provisions of Section 147 of the 1961 Act with the requisite prior approval of Joint Commissioner of Income-tax and notice dated 27.03.2017 u/s 148 of the 1961 Act was issued to the assessee by the AO. This led to framing of an assessment by the AO u/s 143(3) read with Section 147 of the 1961 Act , vide reassessment order dated 31.12.2007, wherein income was estimating by the AO @15% on WIP which was brought to tax by the AO in the first round of litigation. The assessee filed first appeal with learned CIT(A) in the first round of litigation but without success. The assessee filed second appeal with the tribunal in the first 2

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round of litigation and the tribunal was pleased to set aside and restore the matter to the file of the AO , vide appellate order dated 24.11.2010 in ITA no. 789/Mum/2009 for AY 2000-01, with following directions: “ 3. We have heard the rival submissions and perused the relevant material on record. The case of the Assessing Officer is that the assessee completed the contract substantially in the year in question and hence income should have been offered. It is noted that the Assessing Officer took into consideration the fact that the assessee did not offer any income in assessment years 1998-99 and 1999-2000. The contract was taken by M/s.Mayuresh Builders, the partner in the assessee-firm and in assessment year 1997-98, the Assessing Officer made similar addition by applying 15% profit rate which was finally deleted by the Tribunal vide its order dated 18.01.2005 in ITA No.648/Mum/2001. Copy of the said order is available on record. In assessment year 1999- 2000 when the assessee-firm filed return, the A.O. again made addition by estimating profit at the rate of 15% on the sale proceeds which addition came to be deleted by the Tribunal vide its order dated 13.02.2009 in ITA No.4787/Mum/2007. Similarly for assessment year 1998- 99 such addition made was deleted. The learned A.R. has placed on record a copy of the assessment order passed u/s.143(3) for assessment year 2001-2002 in which return was filed declaring Nil income and the same was assessed as such, meaning thereby that the work in progress was allowed to continue without considering it to be completion M/s.Sea Sagar Construction Co. of project. For assessment year 2003-2004, the assessee furnished return declaring income of Rs.51,96,112. It is the case of the assessee that in this year the contract got completed and following project completion method the assessee offered income for taxation in such year. Copy of profit and loss account and balance sheet for assessment year 2003- 2004 has been placed on record from where it can be seen that income has been shown to the credit side of the profit and loss account from the contract and there is no work in progress in the balance sheet for the said year. It, therefore, transpires that following the project completion method the assessee offered income in respect of these projects in assessment year 2003-2004 which has been accepted by the Revenue. Once the income is taxed in assessment year 2003-2004 on the completion of the project, there cannot be any question of taxing the same

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amount in the earlier years by applying a particular percentage on the amount of work in progress shown in the balance sheet. 4. However, the learned Departmental Representative brought to our notice that the Tribunal in assessment year 1997-98 recorded a categorical finding that the total work done up to assessment year 1997-98 was Rs.36.78 crores and the total work in progress up to assessment year 2000-2001 was about Rs.63.67 crores. It was contended that the Assessing Officer in assessment year 2001-2002 has noted that the total work in progress was only Rs.19.59 crores. It was, therefore, contended that there was a possibility of the contracts getting completed in the assessment year under consideration and in the next year some new projects being taken up by the assessee. In the light of these facts it was contended that the factual matrix requires consideration at the Assessing Officer's end. We are agreeable with the view point canvassed by the learned Departmental Representative on the ground that if in the assessment year 1997-98 work in progress is more than Rs.60 crore as taken note of by the Tribunal and the assessee-firm took over the project as such from M/s.Mayuresh Builders, the work in progress in the instant year should have been more than that. However it is noted that the assessee had shown work in progress in this year at Rs.23.32 crores. Further in assessment year 2001-2002 the work in progress has been shown at Rs.19.59 crore. In view of these facts it appears that there is some confusion regarding the figure of work in progress vis-à- vis the project undertaken, which needs to be set right. In such a situation we set aside the impugned order and restore the matter to the file of A.O. for deciding as to whether the two projects referred to in the assessment order for the year under consideration were part of the work completed in assessment year 2003-2004 on which income was offered for taxation. If the work in progress for the current year at Rs.23.32 crores was carried over to subsequent years and the projects were complete in the assessment year 2003-2004 then no addition should be made in assessment year 2000-2001 as the income has been offered for taxation in this year. In the otherwise situation the Assessing Officer is free to decide as per law.” 4. This is second round of litigation. The whole controversy in this appeal revolves around whether any income on the work-in-progress on construction work carried out by the assessee is chargeable to tax

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in the impugned assessment year . The assessee had shown work in progress in its books of accounts of Rs. 23.33 crores but the assessee did not offer any income on the WIP declared by it in its books of accounts. Simultaneously, the assessee was showing advance received against booking of the flats which were been constructed by the assessee in its books of accounts. Thus in the opinion of the AO the income on the work in progress being flats under construction was not declared by the assessee in the return of income filed with Revenue while the main contention of the assessee is that it is following completed contract method and the entire income of the projects undertaken by the assessee has been duly declared in the AY 2003- 04 wherein total income of Rs. 51,22,966/- stood declared in the return of income filed with Revenue and due taxes stood paid to Revenue on this project. The assessee is following mercantile system of accounting. The assessee is a partnership firm having two partners namely Mayuresh Builder and M/s Satlej Properties Private Limited. The assessee firm entered into an agreement with two housing societies namely M/s Sea Breeze Co-operative Housing Society and M/s Sagar Darshan Co-operative Housing Society which were formed in the year 1993 for development of plot of land allotted to these two housing societies. The construction work was initially started by Mayuresh Builder in 1993 but the work was left incomplete due to financial difficulties and fall in real estate prices. This was the reason stated to be for formation of the assessee firm wherein Mayuresh Builder joined hand with Satlej Properties Private Limited in June 1997 as partners to constitute assessee as partnership firm for completing the construction and development work of these two societies. The assessee firm filed return of income for AY 1998-99 , declaring total income at Nil. Again for AY 1999-2000, the assessee declared Nil Income in its return of income filed with Revenue. In the impugned assessment year 2000-01 , as per the AO work of the assessee was almost complete but the assessee did not declared any income on the said work. However , the assessee declared work in

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progress at Rs. 23.33 crores in the year under consideration . The assessee had all along claimed that it is following completion contract method and income of Rs. 51,22,961/- was declared in the AY 2003- 04 when the construction work for these two societies were completed and due taxes paid to Revenue. The AO observed that the assessee has shown following figures in its audited financial statements , as detailed hereunder:

A.Y. Profit & Loss A/c. Balance sheet filed In Rs. WIP Advances 1998-99 No 3,08,17,384/- 2,07,70,148/- 1999-00 14,72,40,610/- No 10,15,03,145/- 2000-01 23,32,66,917/- No 23,92,70,508/- 2001-02 No 41,77,47,724/- 26,02,211/- 2002-03 No 45,09,25,184/- 4,56,64,855/- 2003-04 NIL Yes NIL

The AO also observed that even in AY 2003-04 , the assessee has not shown any sales, no opening and closing WIP. The AO observed that only income from service charges were shown. The AO was of the view that the assessee has not shown any income either on percentage completion method nor any income was shown on completion contract method even in AY 2003-04. The AO was of the view that since the assessee has not declared its income on completed contract method even in AY 2003-04, the same is to be brought to tax in the impugned assessment year on accrual basis in compliance with directions of the tribunal vide appellate orders dated 24.11.2010 in ITA no. 789/Mum/ 2009. The AO was of the view that the assessee has perpetrated fraud on Revenue and gross misrepresentations were made before the tribunal in first round of litigation. The assessee has claimed that it is 6

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following completed contract method of accounting and no income accrued to it as per AS-7(un-amended) issued by ICAI. The AO observed that 85% of the project is complete by the end of the previous year relevant to impugned assessment year and hence income is to be brought to tax in this year also. The AO was of the view that since in the earlier years no income was declared , then in this impugned assessment year income to the tune of 8% of work in progress needs to be brought to tax. The assessee on its part pleaded that learned CIT(A) has held in favour of the assessee in AY 1999-00 and prayers were made by the assessee that provisions of Section 147 of the 1961 Act be not applied. The contentions of the assessee did not found favour with the AO who brought to tax income to the tune of 8% of the total work in progress in second round of litigation , vide reassessment order dated 29.12.2011 passed by the AO u/s 143(3) read with Section 254 of the 1961 Act. 5. The assessee filed first appeal with learned CIT(A) in second round of litigation challenging additions made by the AO and detailed contentions by way of written submissions along with paper book were filed before the Ld. CIT(A) including filing of the details of work in progress shown in the books of M/s. Mayuresh Builders and Sea Sagar Construction Company(i.e. assessee). The assessee submitted details of WIP from year to year before learned CIT(A), as detailed hereunder : Sea Sagar Construction Company-Details of Work-in Progress

Mayuresh Builders (MB) Opening W1P during the Year Total - Upto 31/03/97 367,801,274 367,801,274 AY 98-99 367,801,274 1,293,912 369,095,186 AY 99-00 369,095,186 70,162 369,165,348

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369,165,348 AY 00-01 43,835 369,209,183 AY 01 -02, 369,209 ,183 (90,499,982) 278,709,201 AY 02-03 278,709,201 (7,075,500) 271,633,701 AY 03-04 271,633,701 (271,633,701) -

Sea Sugar Construction Co. MB+SSC Opening WIP during Exp. during Total Total Rs. the year (he year - Upto - - - 367,801,274 31/03/97 - AY '98-99 32,012,029 - 32,012,029 401,107,215 AY 99-00 32,012,029 115,228,581 - 147,240,610 516,405,958 602,476,102 AY 00-01 147,240,610 86,026,309 - 233,266,919 AY 01 -02 184,480,805 11,442,835 707,899,760 233,266,919 429,190,559 AY 02-03 429,190,559 33,177,460 3,360,034 465,728,053 737,361,754 AY 03-04 465,728,053 318,152,244 - 783,880,297 783,880,297

Transfer of work in progress from Mayuresh Builder to Sea Sagar Construction Co. Mayuresh Builder MB MB . MB (MB) FY 98-99 FY 99-00 Total Work- in -Progress -SB 148.184.666.75 148,184,666,75 Work -in -Progress ~SD 1 09, 133, 139,68 1.,09,133,139.68 Work- in- Progress-Office 21,784,959.96 43,832,04 21,828,792.00 Sea Breeze Shopping 4,581,881.50 4,581,881.50

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Sagar Darshan Shopping 4,084,752.50 . 4,084,752.50 Sea Breeze CHS Ltd. 43,099,018.60 . 43,099,018.60 Sagar Darshan CHS Ltd. 38,296,932,95 38,296,932.95 369,165,351,94 43,832.04 369,209,183.98

SSC SSC SSC SSC Sea Sagar Construction Co. (SSC) FY-01-02 FY -02-03 Total FY 00-01 Work- in -Progress -SB 148,184,666.75 148,184,666.75 Work -in -Progress —SD 109.133,139.68 109,133.139.68 Work- in- Progress -SB-SD 883.097,00 7,075,500.00 13,870,195.00 21,828,792.00 Sea Breeze Shopping 4,581,881.50 4.581,881.50 Sagar Darshan Shopping 4,084,752.50 4,084,752.50 Sea Breeze CHS Ltd .43,099,018.60 43,099,018.60 Sagar Darshan CHS Ltd. 38,296,932.95 38,296,932.95 445,701.00 (445,701,00) 70,75,500.00 271,633,702.43 90,499,981.55 369,209,183.98 Revenue Recognised (AY 2003-04)

Total (MB+SSC) WIP as above ' 783,880,297 Advance against Reservation 789,003,258 5,122,961

Note: „SSC‟ stands for Sea Sagar Construction Company and „MB‟ stands for Mayuresh Builder

5.2 The assessee explained before learned CIT(A) that in some places ITAT in its order dated 24.11.2010 has taken WIP figure of Mayuresh

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Builder while in others the figure of WIP for that year was taken, and not cumulative WIP. 5.3 The learned CIT(A) called for Remand Report from the AO wherein written submissions along with paper book filed by the assessee were forwarded by learned CIT(A) to the AO for submitting its remand report. The AO submitted its remand report to learned CIT(A) , dated 28.02.2013. 5.3.1 The AO observed in its remand report that two plots of land were allotted by CIDCO at Nerul on leased basis to M/s. Sea Breeze Co-operative Housing Society Ltd. and Sagar Darshan Co-operative Housing Society respectively which were formed in the year 1993 and they were permitted to carry out construction activity but since they were not having any expertise or financial facilities to develop or construct the premises, they appointed M/s. Mayuresh Builders in 1993 to carry out the construction and development work . It was observed that in the month of June 1997 M/s. Mayuresh Builders due to financial constraints and fall in the real estate prices was not able to carry forward the construction and development work of these two projects and later assessee firm namely Sea Sagar Construction Company was formed in June 1997 with Mayuresh Builder and Satlej Properties Private Limited as partners who took over the said construction and development work of these two societies in order to complete the work. The AO observed in its remand report that in first round of litigation , the AO computed income by estimating the same @15% of the WIP shown by the assessee in its books of accounts and matter reached the tribunal , who was pleased to set aside the matter back to file of the AO with certain observations/directions. The detailed conclusions of the tribunal are reproduced in preceding para‟s of this order which are not repeated here. The AO also observed that in second round of litigation, the income was computed by the AO by estimating the same @8% of WIP as the project was

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completed to the tune of 85% while no income was offered by the assessee. 5.3.2. During Remand proceedings before the AO, the assessee participated and submitted letter dated 26.11.2012 and claimed that M/s. Mayuresh Builders left the work incomplete during AY 1997-98 with WIP of Rs. 36,92,09,184/- which had been transferred to the books of accounts of the assessee firm in three years commencing from FY 2000-01 to 2002-03 as under:-

Amount Financial year [Rs.j 2000-01 9,04,99, 982 2001-02 70,75,500/- 2002-03 27,16,33,702/- Total 36,92,09,184-

5.3.3 However, the AO observed in its remand report that according to Balance Sheet for the year ending 31.03.1997, the WIP was shown as under: Work-in-progress-Sea Breeze Rs.14,74,80,448.75 Work-in-progress-Sagar Darshan Rs.10,89,79,275.68 Work-in-progress-Office Rs. 2,12,78,967.36 ------------------------- Rs.27,77,38,691.79 --------------------------

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5.3.4 The AO observed in its remand report that the assessee has claimed that WIP of Rs.9,04,99,982/- was transferred from Mayuresh Builder in the Financial Year 2000-01. The AO observed from Balance Sheet for Financial Year 2000-01 that however the WIP-A/c Mayuresh Builder was shown at only Rs. 8,83,096/-. The amount appearing for FY 2001-02 was only Rs. 70,75,500/- . The AO further observed in remand report that for FY 2002-03, the WIP a/c Mayuresh Builder is not at all appearing in the Balance Sheet. Hence, assessee‟s contention that it had transferred a sum of Rs. 9,04,99,982/- in FY 2000-01 and Rs. 27,16,33,702/ in FY 2002-03 was found by the AO to be not correct. 5.3.5. The AO also observed in its remand report from ITAT orders for AY 1997-98 that as per architect‟s certificate the total cost of the project was estimated to be Rs. 62.50 crores and there was no justification for an heavy increase in expenditure and profit ought to have been substantial. 5.3.6. The AO observed in its remand report that as per Balance Sheet for AY 2001-02 , the WIP declared by the assessee is Rs. 41,77,47,724/- and the AO noted the claim of the assessee that during the FY 2000-01, the assessee claimed to have added WIP of Rs. 19,59,23,641/- which included Rs. 9,04,99,982/- transferred from Mayuresh Builders. 5.3.7. The AO observed in its remand report that the assessee had claimed that it transferred WIP of Mayuresh Builder to its books of accounts in three years i.e. AY 2001-02, 2002-03 and 2003-04 while it also made contradictory statement in written submissions dated 26.11.2012 filed during remand proceedings before the AO that the project was completed in FY 2002-03 and till then WIP remained in the books of Mayuresh Builders and the entire WIP of Mayuresh Builder was transferred in FY 2002-03 to the books of accounts of the assessee firm. The AO noted in remand report that the assessee is

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making contradictory statements in remand report proceedings before the AO. 5.3.8 The AO observed in remand report that the assessee has shown following figures in its audited Balance Sheets and Profit and Loss Account , as under: Asst. Profit & Loss A/c Balance Sheet Year filed (In Rs.) WIP Advances 1998-99 No 3,08,17,384/- 2,07,70,148/- 1999-00 No 14,72,40,610/- 10,15,03,145/- 2000-01 No 23,32,66,917/- 23,92,70,508/- 2001-02 No 41,77,47,724/- 35,85,61,275/- 2002-03 No 45,09,25,184/- 45,66,48,455/- 2003-04 Yes Nil Nil

5.3.9 The AO observed in remand report that in the AY 2003-04, the assessee has not shown any sale, no opening or closing WIP. Only income from service charges has been shown. The AO also observed that the WIP for AY 2001-02 is Rs. 41,77,47,724/- and not Rs. 19.59 crores . Thus, it was stated by the AO in its remand report that the assessee has perpetrated fraud on Revenue and gross misrepresentation before the ITAT. The Income has not been shown either as per project completion method nor by percentage completion method. The AO also observed that sale has not been shown at all which the assessee was bound to declare in AY 2003-04 as per its own contentions that it is following project completion method and taxes were evaded. 5.3.10 The AO observed in remand report that meagre income by way of service charges to the tune of Rs. 51,22,961/- was shown by the assessee in AY 2003-04. The AO observed that substantial work was completed by AY 2000-01 which is evident from advances received and 13

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WIP, the income ought to have been declared by the assessee in the impugned assessment year and the AO rightly brought to tax said income by estimating the same @8% of WIP. Thus, the AO submitted in its remand report filed before learned CIT(A) that the assessment order dated 29.12.2011 passed by the AO u/s 143(3) read with Section 254 of the 1961 Act be upheld. It was also submitted by the AO in its remand report that learned CIT(A) is otherwise free to decide the issue on merits. 5.4 The assessee in rejoinder to remand report dated 28.02.2013 submitted before learned CIT(A) reiterated factual background of the case which are not repeated here. It was explained that Mayuresh Builder who was earlier responsible for construction and development of the two societies was also following completed contract method . The Revenue has accepted the said method in its case except for AY 1997-98, wherein income to the tune of 15% of WIP was brought to tax. The matter went to ITAT who was pleased to accept completed contract method and additions were deleted vide order dated 18.01.2005 and Revenue‟s appeal against said appellate order dated 18.01.2005 passed by tribunal was dismissed by Hon‟ble Bombay High Court vide its order dated 04.09.2008.It was explained that Mayuresh Builder incurred a total expenditure of Rs.36,78,01,274/- upto AY 1997-98 with respect to these two societies. It further incurred expenditure of Rs. 14,07,908/- towards the said two projects, thereby taking total expenditure to Rs. 36,92,09,183/-. It was explained that the aforesaid amount was brought to the books of accounts of the assessee as WIP in three tranches in FY 2000-01, 2001-02 and 2002-03 viz. Rs. 9,04,99,982/-, 70,75,500/- and Rs. 27,16,33,701/- respectively. It was explained that till AY 2003-04, the total amount spent on these two projects by Mayuresh Builders and the assessee taken together was Rs. 78,38,80,297/-. Thus, it was claimed before learned CIT(A) that owing to completed contract method followed by the assessee, the income from the aforesaid two

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projects were for not offered for taxation from AY 1998-99 to 2002-03. It was explained that there was delay in completion of the construction which could be completed only in previous year relevant to AY 2003-04. It was explained that total recoveries by Mayuresh Builders and the assessee from the members of the said societies were to the tune of Rs. 78,90,03,258/- and thereby leaving a surplus of Rs. 51,22,961/- as per agreements with societies which was offered for taxation in AY 2003-04 as it reflected remuneration earned by the assessee from executing these projects. It was submitted that Revenue has accepted said income vide intimation dated 09.02.2004 passed u/s 143(1) of the 1961 Act. 5.4.2. The assessee explained that for AY 1998-99 and 1999-00, the assessee by following completed contract method did not offer any income in the return of income filed with Revenue. The AO made additions to the income by estimating the same @15% of WIP by following percentage completion method. The assessee submitted before learned CIT(A) that the matter went upto tribunal for those years who was pleased to delete the said additions to the income of the assessee vide appellate orders dated 15.04.2009 and 13.02.2009 passed by tribunal for those years . It was explained before learned CIT(A) by the assessee that to the best of assessee‟s knowledge, the Revenue has not challenged said orders of the tribunal before Hon‟ble Bombay High Court as no appeal was filed by Revenue u/s 260A before Hon‟ble Bombay High Court. 5.4.3. The assessee then referred to tribunal decision in first round of litigation for impugned assessment year 2000-01 and submitted that tribunal accepted completed contract method of accounting followed by the assessee but there was some confusion as to the figure of WIP shown by the assessee and the matter was restored to the AO for limited purpose of ascertaining whether the two projects referred to in assessment year 2000-01 was part of the project completed in AY 2003-04 and income was offered for taxation.

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5.4.4 The assessee submitted before learned CIT(A) that the AO in second round of litigation erred in observing that in AY 2000-01 , the work of the project was complete. It was submitted that these two projects were completed in the previous year relevant to AY 2003-04.It was explained that the assessee was contractor and hence no sales could be shown as the assessee did not sell the units to the society members and it is only the service charges for services rendered by the assessee which was its income which was in excess of receipts from members of the society over the expenditure on construction as reflected in its account in the previous year ended 31.03.2003 which was offered for tax, amounting to Rs. 51,22,961/- which was infact income of the assessee from these projects which was also acknowledged by the AO to have been offered to tax in AY 2003-04. It was also submitted that AO erred in computing income of the assessee by estimating the same @ 8% of WIP for which there was no basis before the AO for estimating the aforsaid income. 5.4.5. It was also claimed by the assessee before learned CIT(A) that only aforesaid projects were carried on by the assessee from its inception till AY 2003-04. It was also submitted that the AO did not follow the directions of the ITAT in first round of litigation and went beyond the directions of ITAT while estimating income @8% of the WIP. Thus, it was claimed that no additions could have been made by the AO for AY 2003-04. 5.4.6 It is also claimed that the assessee has only shown as WIP of Rs. 23.33 crores as on 31.03.2000 and the WIP of Mayuresh Builder was transferred in AY 2001-02 onwards in three years and hence, the WIP of Mayuresh Builder is not relevant for the year under consideration. It was submitted that the AO has computed income by estimating the same @8% of WIP of Rs. 23.32 crores which is appearing in the assessee‟s Balance Sheet. It was also claimed that the ITAT has referred to WIP of Rs. 63.67 crores as on 31.03.2000 which infact is combined WIP of Mayuresh Builder and the assessee and the correct

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figure is Rs. 60.25 crores, of which Rs. 23.32 crores is appearing in assessee‟s Balance Sheet as at 31.03.2000 while Rs. 36.92 crores is appearing as WIP in books of accounts of Mayuresh Builder as at 31.03.2000. 5.4.7 So far as tribunal observation of WIP of Rs. 19.59 crores in AY 2001-02, it was explained that it was incremental WIP of AY 2001-02 of which Rs. 18.45 crores was appearing in column „WIP‟ during the year while Rs. 1.14 crores was appearing in column „Expenses‟ during AY 2001-02. The cumulative WIP over years appearing in assessee‟s books was Rs. 42.91 crores as on 31.03.2001 and hence it was explained that there is no confusion in the figure of WIP as on 31.03.2001. Thus, it was claimed that if ITAT order for AY 2000-01 in first round of litigation is properly implemented, then income to be assessed for impugned year should be Nil. It is claimed that no other project apart from these two projects namely Sea Breeze and Sagar Darshan were undertaken by the assessee.It was also claimed , without prejudice, that in any case income of the assessee from these two projects was Rs. 51,22,961/- and even if percentage completion method is to be applied, then also the aforesaid income on proportionate basis as is relatable to year under consideration is to be brought to tax for the impugned assessment year and in that situation, appropriate adjustment is to be made while assessing income for AY 2003-04 as otherwise there will be double taxation of the same income which is not permissible. The assessee strongly objected to remarks of the AO that the assessee has evaded taxes. 5.4.8. The AO had also submitted its comments in remand report dated 28.02.2013 in response to paper book filed by the assessee. The assessee gave its replies to the said comments by the AO which are discussed by learned CIT(A) in its appellate order at para 13. These are more concerned with reconciling the differences in WIP appearing in books of accounts of Mayuresh Builder and the assessee as well

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transfer of WIP as is appearing in books of accounts of Mayuresh Builder to the books of accounts of the assessee. 5.4.9 The assessee further submitted before learned CIT(A) that the AO itself in assessment order for AY 2001-02 had recorded that incremental WIP in previous year relevant to AY 2001-02 was Rs. 19.59 crores. It was submitted that learned DR infact before ITAT did not present facts correctly which led ITAT to hold that there is some confusion in WIP for AY 2001-02 as to Rs. 19.59 crores which was a lower figure of WIP than as appearing in AY 2000-01. it was explained that Rs. 19.59 crores is an incremental figure of WIP for previous year relevant to AY 2001-02 and not the total figure of WIP as at 31.03.2001 . It was explained that the AO while computing income of the impugned assessment year in second round of litigation did not follow the directions of the ITAT, as detailed hereunder: ITAT Direction Assessing Officer Observation from Order/Remand Act Report To Check whether WIP of AO not given any However, in PARA 6 of order AO Rs.23.32crores carry over direct finding give a chart of WIP account which to subsequent year or not clearly reflect that WIP for A.Y.2000-01 was Rs.23.32 Crore which carried over to sub-sequent year and incremental value. Thus, AO himself give finding that WIP shown for A.Y. 2000-01 as contended by the Ld. DR is wrong. In A. Y. 2003-04 assessee AO stated that Finding of AO itself contradict his offer income or not. assessee not offer stand. AO state that assessee not any income in A. Y. offer any income for Project in 2003-04 vide para A.Y.2003-04. However, the LD. 6. AO himself accepted in chart given in PARA 5 of order that in A.Y.2003-04 P&L account was

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prepared and filed. Further In remand report (Last para on second last page of Remand Report) AO clearly state that "However, it is noticed that assessee has not shown any profit from the venture but only a meager sum of Rs.51,22,961/- as service charges." This amount of Rs. 51,22,961/- is the profit which is earn by the assessee which is assessed by the AO. However, the same amount AO state that it is not from contract which is not justifiable

Thus, it was explained that the directions given by ITAT in its order for AY 2000-01 in first round of litigation had not been followed by the AO and hence assessment order dated 29.12.2011 passed by the AO u/s 143(3) read with Section 254 of the 1961 Act is bad in law. 5.4.10 It was submitted that service charges of Rs. 51,22,961/- were infact income from these two projects earned by the assessee which was offered for taxation in AY 2003-04. Our attention was drawn to Notes to accounts of the audited financial statements for AY 2003-04, which are reproduced hereunder: “1. During the year under consideration , the firm has settled accounts with both the societies viz. Sea Breeze Co-op Hsg. Society Ltd. & Sagar Darshan Co-op Hsg. Soc. Ltd. And as per clause of 10 of Article of Agreement dt. 20.07.1993 . The firm has debited the sum of Rs. 39,44,75,676/- Rs. 38,94,04,619/- being cost of building project that includes cost of land, work in progress, finance expenses and all other administrative/maintenance expenses till 30.09.2002. Similarly the firm has credited account of Sea Breeze Co-op Hsg. Society Ltd. & Sagar Darshan Co-op Hsg. Soc. Ltd. By Rs.39,60,87,168 & Rs.39,29,16,090/- respectively to both the societies towards amount

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recovered against allotment of flats, shop, parking spaces and cost of maintenance charges from the purchasers/allottees. 2. In the settlement of accounts with two societies, the firm has receive Rs. 51,22,963/- from Sea Breeze CH. LTD. & Sagar Darshan CHS Ltd. against these amount the two societies have empowered to the firm recover Rs.84,46,361/- from the allottees from whom the amount was due to both the Societies. In addition to that the firm has been given right to allot parking space to members or proposed members of the society.” The assessee submitted that it offered to tax income from these two projects in AY 2003-04 and the AO failed to comply with the directions of ITAT in its order in first round of litigation. 5.4.11. It was explained by the assessee before learned CIT(A) in second round of litigation that assessee is a contractor and it is only implementing the construction contract of these two societies and un- amended AS-7 issued by ICAI was applicable which was revised only in 2002. It was explained that prior to its amendment in 2002, both the methods of accounting viz. percentage completion method and completed contract method were valid and acceptable methods of accounting for contractors as well for those undertaking construction activities on their own account. It was explained that the assessee has chosen consistently the completed contract method and as per un-amended AS-7 , the assessee can compute the income based on completed contract method. It was submitted that the accounts of the assessee were maintained on mercantile basis and were audited by a qualified Chartered Accountant . It was explained that the auditors have not reported in their audit report that the assessee changed its method of accounting. The assessee had relied upon following judgments to support its contentions, which are as under:- 1. CIT v. Hyundai Heavy Industries Co. Limited (2007) 161 Taxman 191(SC) 2. Krish Infrastructure Private Limited v. ACIT (2013) 35 taxmann.com 38(JPR.trib.)

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(v). A.Y. 2001-02: No income was offered to tax by the appellant in respect of development of two societies. The assessment was completed u/s 143(3) vide order dated 28.03.2003 at Nil income, accepting that the construction work of two societies had been completed during F.Y. 2002-03 (A.Y. 2003-04) and the assessee had received income and had estimated its taxable income for A.Y. 2003-04 at Rs.52 lakhs approx. and as such no income was estimated for A.Y. 2001-02. ; (vi). A.Y. 2002-03: No income was offered to tax by the appellant in respect of development of two societies. Return was processed u/s 143(1) at Nil income. (vii). A.Y. 2003-04: The appellant claims to have offered the income to tax in respect of development of two societies. Return was processed u/s 143(1) at income of Rs.51,96,110/- 4.7. In A.Y. 2000-01 under consideration, the Hon'ble ITAT had observed certain discrepancies in the figures of WIP referred in orders for previous assessment years, such that the WIP upto A.Y. 1997-98 was Rs.36.78 crores, upto A.Y. 2000-01 was Rs.63.67 crores and upto A.Y. 2001-02 was only Rs.19.59 crores. It was contended by the departmental representative that there was a possibility of contracts getting completed in the assessment year under consideration and in the next year some new projects might have been taken by the assessee. It was also observed that the WIP for A.Y. 2000-01 should have been more than prior years, however the WIP shown for A.Y. 2000-01 under consideration was Rs.23.32 crores and upto A.Y. 2001-02 was Rs.19.59 crores only. In view of the confusion about the figures of WIP, the Hon'ble ITAT had restored the issue to the file of the AO for deciding as to "whether the two projects referred to in the assessment order for the year under consideration were part of the work completed in assessment year 2003-2004 on which income was offered for taxation. If the work in progress for the current year at Rs. 23.32 crores was carried over to subsequent years and the projects were complete in the assessment year 2003-2004 then no addition should be made in assessment year 2000-2001 as the income has been offered for taxation in this year.In the otherwise situation the Assessing Officer is free to decide as per law". 4.8, On careful perusal of Hon'ble ITAT's directions, it is observed that the Hon'ble ITAT had restored the issue to AO for limited purpose of ascertaining whether the WIP of

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two projects in current year of Rs.23.32 crores was part of work completed in A.Y. 2003-04. In the assessment order u/s 143(3) r.w.s. 254, the AO himself has given list of WIP as shown in audited balance sheet, i.e. AY 98-99 (Rs.3.08 crores), AY 99-00 (Rs. 14.72 crores), AY 00-01 (Rs.23.32 crores), AY 01-02 (Rs.41.77 crores), AY 02-03 (Rs.45.09 crores), AY 03-04 (Nil). I find that in all the consecutive assessment years, the WIP is accepted as increasing year on year, and finally was made Nil in AY 2003-04 on asessee's contention of having recognized revenue in respect of two projects. 4.9. I also find that the confusion over various figures of WIP referred in various orders have been clarified by the assessee in its written submissions dated 28.12.2011, which are not disputed by the AO except few discrepancies reported in the Remand Report. However, I find that the assessee, in rejoinder to the remand report on 10.02.2014, has clarified most of such discrepancies reported in the remand report. 4.10. Considering the purpose for which the matter had been set aside by Hon'ble ITAT to AO, and the appellant's explanation to the confusion in figures over which the matter was so set aside and also the appellant's proving of fact that there was no other project, under WIP in any of the years except the development of said two societies, I feel no justification in going beyond the directions of Hon'ble ITAT and thereby questioning the revenue recognized in A.Y. 2003-04. Further, when the revenue recognized in A.Y. 2003-04 is not to be questioned, there can also be no justification in assessing the revenue for current year on presumptive basis, as it would amount to double taxation. It is also a fact that the appellant's own cases in prior/subsequent years on similar issue have finally decided in favour of the appellant, and hence there is no justification in deviating from the same. 4.11. In view of the above, the addition made of Rs. 1,86,61,354/- in the assessment order is deleted, and the grounds No. 1 to 4 of appeal are allowed.” 6.2. Thus, the Ld. CIT(A) restricted its decision based upon directions given by ITAT in its appellate order dated 24.11.2010 in ITA no. 789/Mum/2009 for AY 2000-01 and further it was observed by Ld. CIT(A) that when the income had suffered tax in AY 2003-04 on completion of the two projects, the same cannot be brought to tax in AY 2000-01 as otherwise it will lead to double taxation . In nut-shell, 24

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the learned CIT(A) allowed the appeal of the assessee vide appellate order dated 12.03.2014 passed by learned CIT(A) and the additions as were made by the AO in second round of litigation stood deleted by learned CIT(A). 7. Now the Revenue is aggrieved by the appellate order dated 12.03.2014 passed by Ld. CIT(A) and has filed an appeal before the tribunal. It was submitted by learned DR that this is second round of litigation and in the first round of litigation the ITAT was pleased to set aside the matter to the file of AO with certain directions. It was submitted that in second round of litigation the AO had computed income by estimating the same @ 8% of WIP as the assessee has not shown any income from these projects during the impugned assessment . It was prayed that assessment order passed by the AO be upheld. 8. The Ld. Counsel for the assessee on the other hand submitted before the Bench that the tribunal vide order dated 24.11.2010 in ITA no. 789/Mum/2009 for the impugned assessment year in first round of litigation set aside the matter to the AO with certain directions. It was submitted that there are two societies namely, Sea Breeze Co.op. Housing Society and Sagar Darshan Co.op. Housing Society, which were being constructed by the assessee as contractor on behalf of the members of societies. It was submitted that plot of land was allotted to these societies by CIDCO at Nerul in 1993. It was submitted that earlier M/s. Mayuresh Builders were contractors since 1993 for these two societies for constructing their residential buildings on behalf of the members of the societies but since M/s. Mayuresh Builders was not able to complete the construction owning to financial difficulties and downturn in real estate, the said M/s. Mayuresh Builders entered into partnership with M/s. Satlej Properties Private Ltd., to form a new partnership in June 1997 namely the assessee to complete the construction of these two societies. It was submitted that the aforesaid projects were completed in AY 2003-04 by assessee. It was submitted

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that the assessee was merely the construction contractor and plots of land were allotted by CIDCO to these two societies at Nerul for developing residential flats for the members of these two societies. It was submitted that the assessee was only entitled to profits which are left over after completion of construction work which is the difference between the contribution received from members of these societies and the cost of construction and it was submitted that in any case margin of profit of the assessee could not have exceeded 10% of the project cost as per terms of agreement with these societies. It was submitted that M/s. Mayuresh Builders were contractors till June 1997 and they transferred work- in-progress appearing in their books of accounts in three tranches spread in three years starting from FY 2000-01 to 2002-03 to the assessee. It was submitted that accounts were finally settled by the assessee with these two societies in the AY 2003-04 and the surplus of Rs. 51.22 lacs was duly offered to taxation in AY 2003-04. The total contribution received from the members were Rs. 78.89 cores while expenditure towards cost of construction were 78.38 crores, leaving a surplus of Rs. 51.22 lac which was offered to taxation during the AY 2003-04 in the return of income filed with Revenue by following the completed contract method of accounting . It was submitted that the ITAT in first round of litigation set aside the matter to the file of AO after accepting the completed contract method and with direction to reconcile work in progress to see that income from these two projects were offered to taxation in AY 2003-04. It was also directed by ITAT to see whether the same projects were continued by the assessee in AY 2003-04 whose income was offered to tax by the assessee. It was submitted that learned CIT(A) held that the same projects were continued till AY 2003-04 which stood completed in AY 2003-04 and income offered to tax. It was submitted that the assessee had the choice of offering income from construction contract either by percentage completion method or by completed contract method , keeping in view un-amended Accounting Standard AS-7 issued by ICAI which was later amended in 2002. It was explained that the

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assessee was consistently following completed contract method since inception in June 1997. It was also explained that even Mayuresh Builder was also consistently following completed contract method since 1993. It was submitted that assessee has not undertaken any other project apart from these two projects. It was explained that entire work in progress was accounted for and stood explained before the authorities below but the AO estimated income @8% of closing work in progress for AY 2000-01 and computed income chargeable to tax while Ld. CIT(A) has already deleted the said additions as the assessee‟s WIP continued even till AY 2003-04 when both the projects were completed and income was offered to tax by the assessee by following completed contract method. It was submitted that in case of M/s.. Mayuresh Builders , the AO estimated income @15% of WIP in AY 1997-98. The matter went in appeal to the tribunal and the tribunal in ITA no. 648/Mum/2001 for AY 1997-98 vide orders dated 18.01.2005 was pleased to delete the addition for AY 1997-98 . The matter reached Hon‟ble Bombay High Court at the behest of Revenue in CIT v. Mayuresh Builders in ITA no. 363 of 2008 and Hon‟ble Bombay High Court vide orders dated 04.09.2008 noted that it is common ground that income was offered for taxation in AY 2003-04 and in this view Hon‟ble High Court held that no substantial question of law arises and the appeal of the Revenue stood dismissed. The aforesaid orders in the case of Mayuresh Builders as were passed by tribunal and Hon‟ble Bombay High Court for AY 1997-98 are placed in the file. Our attention was also drawn to assessment order dated 28.03.2003 passed by the AO u/s 143(3) for AY 2001-02 in the case of the assessee. The said assessment order is placed in file. It was explained that the AO has noted in assessment order for AY 2001-02 that the assessee carried out construction activities of two societies namely Sea Breeze Co-op. Housing Society and Sagar Darshan Co-op. Housing Society as their power of attorneys and the assessee was entitled for service charges as per agreement entered with these societies. It is stated that the assessee firm is a power of attorney

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holder of the two societies viz. Sea Breeze and Sagar Darshan and not a contractor or a builder. It is recorded that the assessee gives its professional expertise in completing the construction work of the said societies and the assessee firm is to get its income from the societies subject to surplus in the hands of the societies. It is recorded that the assessee is maintaining its books of accounts on cash basis and there is no income earned on cash basis of accounting. Since gross receipts till previous ended 31.03.2001 were lower than total outgoings of work in progress. It is also recorded in the said assessment order for AY 2001-02 that total outgoings during the year towards WIP was Rs.19.59 crores. It is also recorded in the assessment order for AY 2001-02 that work remained suspended for almost two years owing to provisions of Coastal Regulation Zone leading to time and cost overrun with no certainty and hence it was held that as on 31.03.2001 there is no surplus in the hands of societies leading to any surplus in the hands of the assessee. It is also recorded that the assessee has submitted that the construction work of the two societies was completed during the current financial year 2002-03 and the assessee has received income and estimated its taxable income for AY 2003-04 at Rs. 52 lacs and have paid advance tax of Rs. 19.10 lacs and hence no income need to be estimated for AY 2001-02, as was held by the AO in assessment order for AY 2001-02. Thus , the income for AY 2001-02 was assessed by the AO at Nil , vide assessment order dated 28.03.2003 passed by the AO u/s 143(3) of the 1961 Act. It was submitted that the assessee did not carried out any other project apart from these societies. Our attention was drawn to page 3 of learned CIT(A) appellate order. It was submitted that Rs. 19.59 crores were expenditure for AY 2001-02 towards construction with respect to residential buildings of these two societies. Our attention was drawn to page 12-15 of ld CIT(A) appellate order. It was contended that learned CIT(A) accepted the contentions of the assessee and the additions were deleted. It was prayed that the appeal of the Revenue be dismissed and appellate order of learned CIT(A) be upheld.

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for AY 1997-98, the AO rejected method of accounting followed by M/s Mayuresh Builders and brought the income to tax by estimating the same @15% of sales proceeds for AY 1997-98. The matter in the case of Mayuresh Builders for AY 1997-98 went to the tribunal in appeal and the tribunal by its appellate orders in ITA No. 648/Mum/2001 dated 18.01.2005 held that the project was incomplete till the end of previous year relevant to AY 1997-98. The tribunal also noted that the total WIP in the books of Mayuresh Builders as at 31.03.1997 was Rs. 36.78 crores. It also noted that the project was incomplete and the same was taken over by Sea Sagar Construction Company subsequent to AY 1997-98. It was also observed by the tribunal in its order dated 18.01.2005 that the AO in the case of Sea Sagar Construction Company has for AY 2001-02 assessed income of the assessee viz. Sea Sagar Construction Company at Nil. It also noted that the project was completed by Sea Sagar Construction Company i.e. the assessee in AY 2003-04 and profits from these two projects aggregating to Rs. 51,22,966/- were offered for taxation in AY 2003-04 and due taxes stood paid to Revenue by Sea Sagar Construction Company. It was also observed by tribunal that advances received from members of the society by the Mayuresh Builders were lower than the expenditure incurred towards cost of construction and hence no income could have been assessed to tax in the hands of Mayuresh Builders for AY 1997-98 as there was no surplus available to be taxed in the hand of Mayuresh Builders for the said assessment year i.e. AY 1997-98. The tribunal noted that the AO has disturbed the method of accounting consistently followed since 1993 by Mayuresh Builder only in AY 1997-98 and hence additions as were made by the AO were deleted by tribunal for AY 1997-98 vide its appellate order dated 18.01.2005 The Revenue being aggrieved by the aforesaid appellate order dated 18.01.2005 passed by the tribunal filed an appeal u/s 260A of the 1961 Act with Hon‟ble Bombay High Court for AY 1997-98 in the case of Mayuresh Builders which appeal stood dismissed by Hon‟ble Bombay High Court in ITA No. 363 of 2008 vide judgment dated

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04.09.2008 by holding that no substantial question of law arose in the appeal after noting that it is a common ground that on completion of the project the income was offered for tax in AY 2003-04. The said order of the tribunal and order of Hon‟ble Bombay High Court in the case of Mayuresh Builder for AY 1997-98 are placed in file. 9.3 Being unable to carry forward the construction and development of residential buildings for members of these two societies owing to financial constraints and downturn in real estate sector, M/s Mayuresh Builder then entered into partnership with one M/s Satlej Properties Private Limited as partners in June 1997 to form new partnership firm namely M/s Sea Sagar Construction Company viz. the assessee and the construction agreements with these two societies were assigned to the assessee in June 1997 to carry forward construction and development work for the members of these two societies. 9.4 The assessee also adopted completed contract method of accounting consistently since its formation in June 1997 viz. previous year relevant to AY 1998-99 & onwards to book its revenue. The expenditure incurred for construction and development of residential buildings for the members of these two societies were debited to Work- in-progress account in books of accounts of the assessee while advances received from members towards flats were shown as advances from members in its books of accounts, from year to year consistently till accounts were settled with societies by the assessee in the previous year relevant to AY 2003-04, wherein in AY 2003-04, the income from these two projects were offered for taxation by the assessee and due taxes paid to Revenue. The assessee firm was also declaring Nil Income in its return of income filed with Revenue since its formation in June 1997 i.e. AY 1998-98 till AY 2002-03, as construction of the residential buildings of these two societies were stated to be not completed until previous year relevant to AY 2003-04. It is claimed by the assessee that these two projects were completed

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in the previous year relevant to AY 2003-04 and the profit earned from these two projects were to the tune of Rs. 51,22,961/- which was offered for taxation by the assessee in return of income filed with Revenue for AY 2003-04 and due taxes paid to Revenue. The said return of income for AY 2003-04 along with audited financial statements for the financial year 2002-03 are placed on record in file and we have carefully perused the said return of income along with audited accounts for the said year. The said return of income was accepted by Revenue u/s 143(1) of the 1961 Act and no scrutiny assessment u/s 143(3) read with Section 143(2) was framed by the AO for AY 2003-04. It is also not brought to our notice by learned DR that any proceedings for reassessment were initiated by Revenue u/s 147 of the 1961 Act for the said AY 2003-04. Thus, it could be said that the assessment for AY 2003-04 attained finality wherein returned income stood accepted by Revenue . The perusal of audited financial statements for the financial year 2002-03 relevant to AY 2003-04 clearly shows that service charges of Rs. 51,22,92.80 stood credited in the Profit and Loss Account for financial year ended 31.03.2003, while the returned income was to the tune of Rs. 51,96,112/- and taxes to the tune of Rs. 19.10 lacs stood paid by the assessee to the Revenue . The claim of the assessee is that it is only persuing the construction and development of residential buildings for members of these two societies namely Sea Breeze and Sagar Darshan since its formation in June 1997 till its profits were finally declared in the return of income filed for AY 2003-04 and due taxes paid by it to Revenue in AY 2003-04. Thus, it is categorically and consistently averred by the assessee that its only business activities during all these years since its inception in June 1997 till previous year relevant to AY 2003-04 was to construct and develop the residential buildings for the members of these two societies namely Sea Breeze and Sagar Darshan and no other work/construction/business for any other person was undertaken by it in all these years. It is claimed that the assessee earned Rs. 51,22,963/- from the construction and

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development work carried out by it for the members of these two societies which was shown as service charges in AY 2003-04 when construction and development stood completed, in accordance with contract with the societies as the assessee was merely contractor and was entitled for profit which was the differential between amount received from members towards flats and the construction expenditure incurred by the assessee, which profit of the assessee in any case could not have exceeded 10% of the project cost as per terms of contract with these societies. It is claimed that since the land belonged to the society for which the assessee was constructing these flats for members of these two societies , it could not have shown the sale of units in its books of accounts but the assessee was entitled for service charges which it declared in AY 2003-04 when construction stood completed by following completed contract method and due taxes paid to Revenue. The assessee has explained that total advance received from members of the societies by it till the completion of the construction was Rs. 78.90 crores while expenditure on construction was to the tune of Rs. 78.39 crores , leaving surplus of Rs. 51.22 lacs lacs which stood offered for taxation as income in AY 2003-04. This is a plausible explanation offered by the assessee and it was for the Revenue to have rebutted the same with cogent incriminating material, while except with bald statements no cogent incriminating material is brought on record by Revenue. It was for the Revenue to have probed accounts of the assessee or to have made enquiries/investigations to bring cogent incriminating material to rebut contentions of the assessee. The method of accounting being completed contract method is also consistently followed by the assessee which was permitted by AS-7 issued by ICAI till it was amended in the year 2002. This is second round of litigation and despite that the Revenue is not able to controvert the contentions of the assessee with any cogent incriminating material even before us and only bald statements are made which has no basis whatsoever. We have no material on record to hold that the assessee had any other

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stream of income apart from these service charges which emanated from construction and development work carried out by the assessee for these two societies and which stood declared in return of income filed with Revenue for AY 2003-04. 9.5 The assessee has also claimed that WIP as was appearing in books of accounts of Mayuresh Builders till it continued constructing residential buildings for members of these two societies were transferred to the books of accounts of the assessee in three years viz. AY 2001-02, 2002-03 and 2003-04. The detailed charts and evidences were filed before learned CIT(A) in second round of litigation which is duly recorded by learned CIT(A) in its appellate order which we have also reproduced in this order and there is no reasons before us to hold otherwise more-so learned DR could not bring any material to the contrary. 9.6 In the case of the assessee for AY 1998-99, the learned CIT(A) has noted in its appellate order dated 12.03.2014 for the impugned assessment year 2000-01 that the AO estimated profit @8% of total receipts being presumptive rate u/s 44AD for AY 1998-99 and on appeal the learned CIT(A) deleted the addition. On further appeal by Revenue, the tribunal restored the matter to file of the learned CIT(A) who again deleted the addition. The tribunal in ITA no. 5285/Mum/2007 vide orders dated 15.04.2009 dismissed the appeal of the assessee. 9.6.2 It is further noted by learned CIT(A) in its appellate order dated 12.03.2014 for impugned assessment year 2000-01, that in AY 1999- 00, the assessee again did not offer any income for taxation with respect to construction and development of these two societies . The AO made additions which were deleted by learned CIT(A). 9.6.3 For AY 2001-02 , the learned CIT(A) noted in its appellate order dated 12.03.2014 for impugned assessment year 2000-01, that the AO while framing assessment u/s 143(3) vide order dated 28.03.2003

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( copy placed in file) for AY 2001-02 itself accepted that no income can be brought to tax for AY 2001-02 keeping in view that project was completed in AY 2003-04 and income was offered to tax in AY 2003-04 by the assessee. The said assessment order dated 28.03.2003 passed by the AO u/s 143(3) of the 1961 Act for AY 2001-02 is placed in file. 9.6.4 The learned CIT(A) has noted in its appellate order dated 12.03.2014 for impugned assessment year i.e. AY 2000-01 that for AY 2002-03 , the assessee again did not offer any income in return of income filed with Revenue from the construction and development of these two societies and the Revenue accepted return of income u/s 143(1) of the 1961 Act for AY 2002-03. 9.6.5. The learned CIT(A) further noted in its appellate order dated 12.03.2014 for AY 2000-01 that for AY 2003-04, the assessee declared income of Rs. 51,96,112/- in return of income filed with Revenue which was accepted by Revenue u/s. 143(1) of the 1961 Act. 9.6.6 The learned DR could not controvert before us that the details as are recorded in the appellate order dated 12.03.2014 passed by learned CIT(A) for impugned assessment year 2000-01 with respect to all these assessment years viz. AY 1998-99, 1999-00, 2001-02 , 2002- 03 and 2003-04 are perverse findings. Principle of consistency is also required to be followed in the income tax proceedings as is laid down by Hon‟ble Supreme Court in the case of Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321(SC) and additions could not be sustained on the ground of consistency alone more-so completed contract method was one of the recognised method of accounting as was provided in un-amended AS-7 issued by ICAI which was amended only from 2002. The Accounting Standards issued by expert bodies like ICAI cannot be discarded in a light manner unless there are contrary provisions in 1961 Act or it is not possible to compute income correctly under the 1961 Act by following such accounting standards, as is mandated u/s 145 of the 1961 Act. The assessee is

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consistently following the aforesaid method of accounting to book its revenue and in any case Revenue has got all its due taxes paid in AY 2003-04. If Revenue had any inhibition as it is alleging as to suppression of profits or inflation of construction expenses/WIP or as to nature of service charges declared by the assessee in AY 2003-04 , the Revenue ought to have scrutinised the return of income for AY 2003-04 u/s 143(3) or Section 147 of the 1961 Act for AY 2003-04 or ought to have conducted investigations / enquiries to threadbare verify total WIP of Rs. 78.38 crores, expenditure incurred towards construction or amounts received/receivable from members of these two societies of Rs. 78.90 crores vis-a-vis contract entered by the assessee with these two societies to unearth any fraud on Revenue perpetrated by the assessee or any excessive expenditure booked by the assessee towards construction cost or suppression of Income by the assessee.The Revenue did not scrutinised return of income for AY 2003-04 at all rather it was processed only u/s 143(1) of the 1961 Act but now bald statements based on conjectures and surmises are made without any cogent incriminating material on record that the assessee has perpetrated fraud on revenue and that heavy expenditures were claimed by the assessee vis-a-vis budgeted expenses without any basis. If Revenue is making any of such allegations, it was incumbent on Revenue to have brought cogent incriminating material to prove its contentions which unfortunately no such material is brought on record except bald statements. The budged total cost of project by Architect was Rs. 62.50 crores while the actual expenditure was to the tune of Rs. 78.38 crores . It was explained by the assessee that there was time and cost over runs. It is also mentioned in the assessment order dated 28.03.2003 passed by the AO u/s 143(3) of the 1961 Act for AY 2001-02 in para 5 /page 2 of the assessment order that in view of Coastal Regulation Zone the work had remained suspended for almost two years leading to time and cost overrun. In any case , it was for the Revenue to have made enquiries and investigations into affairs of the assessee as well Mayuresh Builder to find out whether there is

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any bogus expenses claimed by the assessee or whether there was any suppression of Income by the assessee intentionally with a view to defraud Revenue. No such exercise was conducted by Revenue. Reference is also drawn to decision of Hon‟ble Supreme Court in the case of CIT v. Bilahari Investment Private Limited (2008) 299 ITR 1(SC), wherein Hon‟ble Supreme Court accepted completed contract method as one of the acceptable method for computing income by holding as under: “15. Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. Completed contract method is one such method. Similarly, percentage of completion method is another such method. 16. Under completed contract method, the revenue is not recognised until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to P & L account. The said method determines results only when contract is completed. This method leads to objective assessment of the results of the contract. 17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. 18. The above indicates the difference between completed contract method and percentage of completion method. 19. In the judgment of the Bombay High Court in Taparia Tools Ltd.'s case (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the Assessing Officer that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the Chit Scheme is one integrated scheme spread over a period of time, sometimes exceeding 12 months. We have examined computation

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of tax effect in these cases and we find that the entire exercise is revenue neutral, particularly when the scheme is read as one integrated scheme spread over a period of time.”

9.7 This is second round of litigation before us. In the first round of litigation, the AO rejected the completed contract method followed by the assessee and brought to tax income by estimating @15% of WIP of Rs. 23.33 crores. The matter went upto tribunal who was pleased to set aside the matter back to the file of the AO for denovo adjudication wherein certain observations/directions were given by tribunal in its order dated 24.11.2010 in ITA no. 789/Mum/2009 for AY 2000-01. The observations/directions of the tribunal in the first round of litigation are reproduced hereunder: “4. However, the learned Departmental Representative brought to our notice that the Tribunal in assessment year 1997-98 recorded a categorical finding that the total work done up to assessment year 1997-98 was Rs.36.78 crores and the total work in progress up to assessment year 2000-2001 was about Rs.63.67 crores. It was contended that the Assessing Officer in assessment year 2001-2002 has noted that the total work in progress was only Rs.19.59 crores. It was, therefore, contended that there was a possibility of the contracts getting completed in the assessment year under consideration and in the next year some new projects being taken up by the assessee. In the light of these facts it was contended that the factual matrix requires consideration at the Assessing Officer's end. We are agreeable with the view point canvassed by the learned Departmental Representative on the ground that if in the assessment year 1997-98 work in progress is more than Rs.60 crore as taken note of by the Tribunal and the assessee-firm took over the project as such from M/s.Mayuresh Builders, the work in progress in the instant year should have been more than that. However it is noted that the assessee had shown work in progress in this year at Rs.23.32 crores. Further in assessment year 2001-2002 the work in progress has been shown at Rs.19.59 crore. In view of these facts it appears that there is some confusion regarding the figure of work in progress vis-à- vis the project undertaken, which needs to be set right. In such a situation we set aside the impugned order and restore the matter to the file of A.O. for deciding as to

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whether the two projects referred to in the assessment order for the year under consideration were part of the work completed in assessment year 2003-2004 on which income was offered for taxation. If the work in progress for the current year at Rs.23.32 crores was carried over to subsequent years and the projects were complete in the assessment year 2003-2004 then no addition should be made in assessment year 2000-2001 as the income has been offered for taxation in this year. In the otherwise situation the Assessing Officer is free to decide as per law.”

9.7.2 In the second round of litigation, the AO made additions to income by estimating income @8% of the WIP. The learned CIT(A) on the other hand deleted the additions as were made by the AO.The matter is now before tribunal at behest of Revenue. As could be seen from the appellate order of the tribunal in first round of litigation dated 24.11.2010, the tribunal has noted that the tribunal in assessment year 1997-98 has recorded a categorical finding that the total work done upto assessment year 1997-98 was Rs. 36.78 crores. This WIP upto 31.03.1997 was recorded by tribunal at page 8/para 11 in its order dated 18.01.2005 in ITA no. 648/Mum/2001 for AY 1997-98 in the case of Mayuresh Builder. The said order is placed in file. The assessee has contended that M/s Mayuresh Builder did incurred expenditure to the tune of Rs. 36.78 crores on construction till 31.03.1997 which was shown in books of accounts under the head WIP in books of accounts of Mayuresh Builders and total sum of Rs. 36.92 crores was incurred towards construction by Mayuresh Builder till 31.03.2000 which was reflected in WIP in books of accounts of Mayuresh Builder (see chart below after next para) and it was transferred to books of accounts of the assessee in three years starting from AY 2001-02 , 2002-03 and 2003-4, detailed as under:

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Amount Financial year [Rs] 2000-01 9,04,99, 982 2001-02 70,75,500/- 2002-03 27,16,33,702/- Total 36,92,09,184-

9.7.3 Further it is recorded by tribunal in its order dated 24.11.2010 , that the total work in progress was to the tune of Rs. 63.67 crores upto assessment year 2000-01 i.e. as at 31.03.2000. The assessee has duly explained that this is combined WIP which is appearing in the books of accounts of Mayuresh Builder and the assessee as at 31.03.2000. It is explained that transfer of WIP from the books of accounts of Mayuresh Builder to the books of accounts of the assessee firm started from AY 2001-02 to 2003-04 in three years as detailed above. Further it is explained that the correct combined figure of WIP as is appearing in the books of accounts of Mayuresh Builders and the assessee firm as at 31.03.2000 was Rs. 60,24,76,102/- , which comprised of Rs. 23,32,66,919/- in the books of accounts of the assessee firm as at 31.03.2000 and WIP of Rs. 36,92,09,183/- appearing in the books of accounts of Mayuresh Builders as at 31.03.2000. The details of WIP as is appearing in the books of Mayuresh Builders and the assessee are reproduced hereunder:

Mayuresh Builders (MB) Opening W1P during the Year Total - Upto 31/03/97 367,801,274 367,801,274 AY 98-99 367,801,274 1,293,912 369,095,186

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AY 99-00 369,095,186 70,162 369,165,348 369,165,348 AY 00-01 43,835 369,209,183 AY 01 -02, 369,209 ,183 (90,499,982) 278,709,201 AY 02-03 278,709,201 (7,075,500) 271,633,701 AY 03-04 271,633,701 (271,633,701) -

Sea Sugar Construction Co. MB+SSC Opening WIP during Exp. during Total Total Rs. the year (he year - Upto - - - 367,801,274 31/03/97 - AY '98-99 32,012,029 - 32,012,029 401,107,215 AY 99-00 32,012,029 115,228,581 - 147,240,610 516,405,958 AY 00-01 147,240,610 86,026,309 - 233,266,919 602,476,102 AY 01 -02 233,266,919 184,480,805 11,442,835 429,190,559 707,899,760 AY 02-03 429,190,559 33,177,460 3,360,034 465,728,053 737,361,754 AY 03-04 465,728,053 318,152,244 - 783,880,297 783,880,297

9.7.4 Thus, as could be seen above that Rs. 60.25 crores was the combined WIP as is existing in the books of accounts of Mayuresh Builders and the assessee firm as at 31.03.2000. This also stood explained by the assessee and it could not be controverted by learned DR. Then , the tribunal recorded in its order dated 24.11.2010 that in AY 2001-02 the WIP was shown at Rs. 19.59 crores , which as could be seen from the above chart is the incremental WIP including expenditure incurred in previous year relevant to AY 2000-01 by the assessee which is recorded in books of accounts of the assessee firm.

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The Incremental WIP during previous year relevant to AY 2001-02 was Rs.18,44,80,805/- while expenditure incurred during the year was Rs. 1,14,42,835/- leading to sum total of Rs. 19,59,23,640/- as is recorded in books of accounts of the assessee for the financial year ended 31.03.2001. The said sum of Rs. 18,44,80,805/- recorded as incremental WIP included WIP of Rs. 9,04,99,982/- transferred from the books of accounts of Mayuresh Builders to the books of accounts of the assessee firm in the previous year relevant to AY 2001-02. The factum of outgoings towards incremental WIP of Rs. 19.59 crores during the previous year relevant to AY 2001-02 is also recorded in the assessment order dated 28.03.2003 passed by the AO u/s 143(3) of the 1961 Act for AY 2001-02 at page 2 of the assessment order at para 5 of the said assessment order for AY 2001-02 . Thus, there is absolutely no confusion rather several different figures were got compared which were infact having no comparable reasoning and it is just like comparing oranges with apples. 9.7.5 So far as tribunal observations in its order dated 24.11.2010 in first round of litigation as to verification that the WIP for the impugned AY 2000-01 of Rs. 23.32 crores from the construction of residential buildings of these two societies being carried forward to subsequent years till the work was completed in AY 2003-04 of which income was being offered for taxation by assessee, we have no hesitation in holding that the assessee has sufficiently discharged its onus in proving that it only worked for these two societies since its formation in June 1997 till the construction was completed in previous year 2002-03 relevant to AY 2003-04 and the income earned from the construction work carried out with respect to these societies were ultimately offered for taxation in AY 2003-04 and due taxes paid to Revenue. The detailed reasoning is outlined by us in our conclusions as above in preceding para‟s of this order. Now it was for the Revenue to have brought on record cogent incriminating material to disprove and dislodge the contentions of the assessee by making necessary

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enquiries and investigations which in our considered view, the Revenue failed to bring on record any cogent incriminating material to dislodge contention of the assessee and we have no hesitation in confirming the well reasoned appellate order dated 12.03.2014 passed by learned CIT(A). We have also observed that in ground number 3 raised by Revenue it is averred that learned CIT(A) relied upon judgments of Courts/tribunal while granting relief to the assessee , while the fact of the matter is that the learned CIT(A) decided the appeal on merits by following directions of ITAT in first round of litigation rather than relying on the judgments as cited by Revenue in ground No. 3. Revenue fails in this appeal and all grounds raised by Revenue in its appeal stood dismissed. We order accordingly. 10. In the result appeal filed by Revenue in ITA No.3751/Mum/2014 for AY 2000-01 stood dismissed. Order pronounced in the open court on 30.04.2019. आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 30.04.2019 को की गई Sd/- Sd/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, dated: 30.04.2019

Nishant Verma Sr. Private Secretary

copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, 6. Master File // Tue copy//

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BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI