SOHANLAL M JAIN,MUMBAI vs. ITO 2(1), THANE

The Learned CIT (Appeals) has erred in by calculating the net profit @12.68% on closing WIP. The reasons assigned by him for doing the same are wrong and insufficient. Provision of the Act ought to have been properly construed before estimating the same. Regards being had to the facts and circumstances of the case, the said estimation ought not to have been made.

Order passed is bad in law and contrary to the provision of the Act.

Appellant leaves to add/ modify/ delete/ alter any/ all grounds of appeals.”

Aggrieved by the assessment order dated 24.12.2009 passed by the AO u/s 143(3) r.w.s. 263 of the 1961 Act, the assessee filed first appeal before the learned CIT-A who upheld the decision of the AO that percentage completion method be applied and also estimated net profit @12.68% on closing WIP of Rs. 1,63,74,535/- as against 40% applied by the AO by holding as under, vide appellate order dated 01-07-2013 :-

Aggrieved by the appellate orders dated 01-07-2013 passed by the learned CIT(A), the assessee filed an appeal before the tribunal . It is stated by ld. Counsel for the assessee before the Bench that the project was started in the year 1995 and since then the assessee is following project completion method which was accepted by Revenue . It was stated that the entire profit arising from this project was offered for taxation in AY 2008-09 and if this profit as estimated by learned CIT-A is brought to tax then in that case it will lead to double taxation of the same income which is not permissible . It was submitted that the project was completed in the financial year 2007-08 and assessee has voluntarily declared entire profit arising from this project in the AY 2008-09. The assessee also submitted that project completion method is one of the recognized methods of accounting. The assessee relied on the following case laws:- 1. CIT V/s DLF UNIVERSAL LTD. ITA N. 159 of 2010 (Del HC) 2. Sabh Infrastructure Limited, New Delhi vs. DCIT, of 2009 3. DCIT v/s Ansal Landmark Township P Ltd. ITA No.2859/ Del/2012 4. Unique Enterprises Vs. ITO [2010- TIOL -737- ITAT- MUM 5. Prestige Estate Projects (P) Ltd, vs. Dy. CIT (2010)33 DTR 514 (Bang.) 6. C1T v. Tata Iron & Steel Co. Ltd, (1977j 106 ITR 363 (Bom HC) 7. Swastik Group Versus ACIT 15(3), Mumbai 8. Sheth Developers P. Ltd, Mumbai vs ITO ITAT Mumbai 18 July, 2012 9. Asstt CIT v Dharti Estate(2011] 129 ITD 1 (Mum)(TM), 10. Prem Enterprises V/s ITO (2012] 25 taxmann.com 179 (Mum.) 11. Nandi Housing (P.) Ltd. V/.s DCIT (2004] 2 SOT 395 (BANG.) 12. H.M. Constructions V/s JCIT[2003] 84ITD 429 (BANG.) 13. CITv. Vraj Developers [IT Appeal No. 19 (Ahd.) of 2008 14. CIT V/s Umang Hiralal Thakkar 2014] 42 taxmann.com 194 (Gujarat) 15. Aditya Builders V/s CIT[2013] 39 taxmann.com 178 (Mumbai - Trib.) The Ld. DR on the other hand relied upon the orders of the authorities below and submitted that the matter can be restored to the file of the AO for verification of the contention of the assessee that the profits arising from this project had suffered taxation in AY 2008-09. 7.We have considered rival contentions and perused the material on record including case laws relied upon by both the parties . We have observed that the assessee is a builder & developer and is a proprietor of two concerns viz. M/s. Suvidha Developers & M/s. S.V. Developer. We have observed that the I.T.A. No.5776 & 5777/Mum/2013 assessee has claimed to be developing this project since 1995 on which income has been claimed to be offered to taxation on project completion method instead of percentage completion method . It is claimed that the Revenue has accepted this method of accounting in earlier years and during the impugned assessment year only the Revenue has applied percentage completion method. The AO applied net profit of 40% on WIP to assessee income on percentage completion method on this project while learned CIT(A) assessed the income @12.68% based on profit declared in earlier years. The assessee has claimed to have offered to tax entire income arising from this project in AY 2008-09 when the project was claimed by the assessee to have been completed. These contentions of the assessee need verification by the authorities below as it require verification of facts of several assessment years. It is claimed that the Revenue has consistently since 1995 accepted the project completion method in the case of assessee and it is only during the impugned assessment year vide proceedings conducted u/s 263 of the 1961 Act , it was proposed to deviate from the consistent stand taken by Revenue. The principles of res-judicata are not applicable to income-tax proceedings but consistency has to be maintained. At this stage we would like to reproduce here in under relevant extract of judgment of Hon’ble Delhi High Court in the case of CIT v. Manish Buildwell Private Limited reported in (2011) 245 CTR 397(Del) as under: “6. Questions Nos. 2 and 3 are connected. They assail the decision of the Tribunal rendered in paragraph 20 of its order. An addition of Rs. 28,21,000/-was made by the assessing officer on the footing that the assessee was adopting the project completion method or the completed contract method, which was not proper and the profits of the business should be computed on the basis of the percentage completion method under which the profits of the development and construction business of the assessee get assessed over a period of years, keeping pace with the progress in the construction/development of the project. The CIT (A) however held that the assessee had no reason to withhold the handing over of possession of the space to the purchaser in respect of a project which is completed and that wherever possession was not handed over to the purchaser, it was for the reason that the project was not completed. He further found that a buyer who has paid the entire sale consideration would immediately demand possession and the entire sale consideration could be received by the assessee only on completion of the project. On these facts it was noted by the CIT (A) that unless the buyer makes full payment the assessee could not & 5777/Mum/2013 hand over possession nor get the sale transaction registered. A further finding recorded by the CIT (A) was that the impugned project was completed only in the accounting period relevant to the assessment year 2008-09 and in support of this finding, he noted that a copy of the completion/occupancy certificate was placed on the record of the Assessing Officer. He further recorded a finding that after the issue of the occupancy certificate and till the date of the assessment order, possession of almost 75% of the developed area was handed over to the buyers who made full payment and the sale deeds were also executed. Thereafter, possession of 20% of the remaining area was handed over to the buyers. The possession of the balance 5% of the developed area could not be handed over to the remaining buyers because they could not make full payment and take possession. On these findings the CIT (A) held that the allegation of the assessing officer that the assessee was adopting a method of accounting namely the project completion method, to suit its convenience to book income was baseless. A further finding recorded by the CIT (A) is that there was no manipulation in the books of accounts. So far as the method of accounting is concerned, the CIT (A) held that the project completion method is a well recognized and accepted method of accounting and was the only method suitable for any developer who has to deliver a completed product to the buyer. Ultimately the CIT (A) held as under:- "Thus on overall perusal of the assessment order it is seen that neither any defect has been pointed out by the assessing officer in the method of accounting followed by the appellant nor any finding has been given that true and fair profits cannot be deduced following the said method of accounting. No evidence was found during the course of search to show that the books of account are not properly maintained by the appellant. The main thrust of the assessing officer in making the addition is that the assessee is deferring the payment of taxes. But this allegation of the assessing officer cannot be accepted as the assessee is consistently following a method of accounting which is well recognized in development business and has been accepted by the assessing officer also in the other group cases. Thus the addition is hereby deleted."

The aforesaid finding of the CIT (A) was approved by the Tribunal with the observation that the department has accepted the assessee's method of accounting namely, the project completion method and therefore there was no justification for adopting the percentage completion method for one year on selective basis.

In the result, appeal of the assessee in AY 2005-06 is allowed for statistical purposes.

Now we will take up appeal of the assessee in for AY 2008-09 . A Survey action was carried out by Revenue u/s 133A in the case of the assessee on 05.09.2008 in which the books of accounts/documents found were inventorised and Statement of son of the assessee Shri Jitendra Sohanlal Jain was recorded. In the statement , he has offered Rs. 1,71,00,000/- as income against investment in land pertaining to A.Y.2003-04, Rs. 50,89,283/- against un-genuine creditors pertaining to A.Y. 2006-07 and Rs. 53,11,000/- as cash pertaining to A.Y. I.T.A. No.5776 & 5777/Mum/2013 2008-09. Accordingly , the assessee revised the return of income for earlier years and filed return for the year under consideration by duly disclosing the declaration amount as income. Apart from this declaration , the assessee has disclosed profit of Rs.90,66,117/- from proprietary concern M/s. S. V. Developer and claimed loss of Rs. 9,98,408/- from M/s. Suvidha Developers the other proprietary concern. Thus the total returned income declared by the assessee was Rs. 1,33,78,801/- and after claiming the deduction u/s 80C at Rs. 1,00,000/- , the total taxable income was Rs.1,32,78,801/-. During the course of the assessment proceedings u/s 143(3) r.w.s. 143(2) before the AO, the assessee’s counsel Shri. Hasrnukh Palan voluntarily submitted that due to accountants mistake the compensation received in A.Y. 2008-09 from M/s. Chheda Housing by M/s Suvidha Developers remained to be considered as income. It was submitted that the accountant due to his ignorance treated this compensation as loan. Accordingly , the assessee offered the said compensation of Rs. 30,00,000/- as assessee’s income for AY 2008-09 which resulted in a profit of Rs. 20,01,592/- in said proprietary concern M/s Suvidha Developers instead of loss of Rs.9,98,408/- for the impugned assessment year under consideration before us. Penalty proceeding u/s. 271(1)(c) were initiated by the AO for assessee's act of furnishing inaccurate particulars of his income to the tune of Rs. 30.00.000/-, vide assessment order dated 31-12-2010 passed by the AO u/s 143(3) of the 1961 Act. Penalty proceedings were initiated by the AO u/s 271(1)(c) against the assessee for furnishing of inaccurate particulars of income to the tune of Rs. 30,00,000/- which duly found mentioned in the assessment order u/s 143(3) dated 31-12-2010 passed by the AO.

The AO initiated penalty proceedings u/s. 271(1)(c) for furnishing of inaccurate particulars of income which led to the levy of penalty of Rs. 10,19,700/- vide penalty order dated 27-06-2011 passed by the AO u/s 271(1)(c) , as the assessee did not attended before the AO nor filed any explanation before the AO w.r.t. declaration of compensation of Rs. 30,00,000/- from Chedda Housing as loan instead of being declared as income.

Aggrieved by the penalty order dated 27-06-2011 passed by the AO u/s 271(1)(c) , the assessee filed first appeal before the learned CIT(A) , the & 5777/Mum/2013 learned CIT-A confirmed the penalty levied by the AO u/s 271(1)(c), vide appellate order dated 08-07-2013, by holding as under:- 4. I have carefully considered the facts on record and submission of the ld. A.R. including the documentary evidences enclosed therewith. It is noticed that the case was selected under a scrutiny and hence notice under Section 143(2) was issued on 09/07/2009. Further notices u/s. 143(2) and 142(1) were issued on 16/09/2010 requesting assessee to furnish details and produce books of account, bank statement, bills, vouchers etc., in support of income declared in the return of income. The assessee through his AR submitted various details such as audit report, bank statement, purchase deed of properties, ledger extract of expenses, details of creditors, details of unsecured loans with confirmation and advances etc. Since the assessee was required to furnish confirmation in respect of unsecured loans and creditors, he at that point of time realized that he would be caught by the Assessing Officer for incorrect claim of loan of Rs. 30 lakhs. Then he came forward for disclosing a sum of Rs. 30 lakhs received as compensation for the taxation purposes vide letter dated 20/09/2010 stating that the sum was shown as loan by mistake. In his written submission, filed during the course of appellate proceedings, the appellant has stated similar reasons that the disclosure was made voluntarily and hence no penalty was imposable. In support of his contentions, he has relied upon various case laws as mentioned in the written submission reproduced in Para 3 above. From the facts of the case, thus it is clear that the assessee had no intention to disclose the compensation of Rs. 30 lakhs as income particularly when the chances of a scrutiny assessment are very rare as only less than 3% cases are scrutinised. Under these circumstances, the penal provisions are to be invoked in order to create effective level of deterrence so as to ensure voluntary compliance in disclosing the correct income in the returns of income. Since, the appellant has come forward for disclosing the income of Rs. 30 lakhs falsely shown as loan only after service of notices under Section 143(2) and 142(1) requiring various details, the same cannot be said to be a voluntary Act on the part of appellant. Even in the cases of filing of revised return of income showing higher income due to restrain and fear and suspected concealment by the A.O., penalty is held to be imposable by the Hon'ble Court in the cases of Hakam Singh and others, 124 ITR 228 (All.) and Radheshyam, 123 ITR 125 (All.) 4.1 I have also gone through the case laws relied by the appellant and find that these case laws pertained to those circumstances where the surrender was made on the condition that no penalty would be leviable or the surrender was made to buy mental peace and avoid litigation. However, in the present case of appellant, those conditions are not satisfied, and in fact, the disclosure was made of a false claim at the time when the Assessing Officer required the assessee to explain the loans and creditors by filing confirmation etc. 4.2 In view of the above facts and circumstances of the case, therefore, I am of the considered view that appellant has concealed particulars of income by showing the compensation of Rs. 30 lakhs as loan while filing the return of income and hence it is fit case for imposition of & 5777/Mum/2013 penalty u/s. 271(1)(c) of the Act. Accordingly, the penalty imposed by A.O. at Rs. 10,19,700 is confirmed.”

Aggrieved by the appellate orders dated 08-07-2013 passed by learned CIT(A), the assessee has come in an appeal before the tribunal . The Ld. Counsel for the assessee submitted that assessee has voluntarily offered to tax said income of Rs. 30,00,000/- which was compensation received from Chedda Housing but was earlier declared by mistake as loan of Rs. 30,00,000/- from Chedda Housing by the assessee. It was submitted by the Ld. Counsel for the assessee that it was voluntarily disclosure made by the assesse before being detected by the AO. The Ld. DR on the other submitted that survey was conducted by the revenue u/s. 133A and assessee did not declared said income during the course of survey u/s 133A on 05-09.2008 nor filed the said income in the return of income filed on 29-09-2008. The learned DR submitted that it is only when the assessee was cornered and was asked to file loan confirmations by the AO , the assessee came with the plea that this a compensation receipt from Chedda Housing and not the loan from said concern. The learned DR also relied upon the decision of the Hon’ble Supreme Court in the case of Mak Data Private Ltd (2013) 38 Taxmann.com 448(SC). The Ld. AR on the other hand relied upon the decision in the case of CIT vs. Bhavin Kumar M Dagli (2017)79 taxman.com 392 (Guj).

We have considered rival contentions and have perused the material on record including case laws relied on by both the parties. We have observed that the assessee is a builder & developer and proprietor of two concerns mainly M/s. Suvidha Developers & M/s. S.V. Developer. The assessee was surveyed by the revenue u/s. 133A on 05.09.2008 . Several books of accounts/documents during the course of survey were found which were inventorised by Revenue . Statement of son of the assessee was recorded and he made certain disclosure of income . The assessee filed return of income for the impugned assessment year on 29-09-2008. When the assessment proceedings u/s 143(3) r.w.s. 143(2) were going on , the assessee declared voluntarily income of Rs. 30,00,000/- being compensation received from Chedda Housing which was earlier declared as loan in the books of account and the same was offered as an income during the course of assessment. & 5777/Mum/2013 These facts are emanating from the assessment order passed by the AO u/s 143(3). While on the other hand learned CIT(A) has recorded an altogether contrary finding that when the assessee was asked to file details of loans along with confirmations vide notices issued by the AO u/s 142(1) and 143(2) both dated 16-09-2010 , the assessee being unable to submit loan confirmation and being cornered , offered the said amount of Rs. 30,00,000/- as income being compensation from Chedda Housing instead of being a loan as was disclosed earlier during survey u/s 133A on 05-09-2008 and return of income filed with the Revenue on 29-09-2008. These are altogether contrary findings of fact recorded by lower authorities and it is also not on record whether learned CIT(A) sought any remand report from the AO to arrive at this contrary findings of facts. The assessee is still maintaining that the assessee came forward with the said disclosure voluntarily without being cornered by Revenue while the Revenue is contending that it is only after when the assessee was cornered by revenue , the assessee came forward and made disclosure of income voluntarily being compensation from Chedda Housing which was earlier disclosed as an unsecured loan. It is very crucial to have correct facts on record and there has to be ad idem as to the findings of the authorities below so as to establish bonafide of the assessee or there need to be proper justification for arriving at contrary findings and it can not be left in the realm of speculation. It is also not on record as to under what circumstances, the said income was earned by the assessee and what made the assessee in not disclosing the said income. The assessee is claiming that the same to be an accountant mistake. This aspect also needs to be looked into to establish the bonafide of the assessee and whether the assessee is able to come out with reasonable explanations and justifications to come out of clutches of penalty provisions u/s 271(1)(c) of the 1961 Act. Thus, keeping in view the factual matrix of the entire case and records before us, we are of the considered view that this matter needed to be restored to the file of the AO for recording the entire factual matrix of the case and then arrive at the decision as to the leviability of penalty u/s 271(1)(c) of the 1961 Act in accordance with law. The assessee shall be granted proper and adequate opportunity of being heard in accordance with principles of natural justice in accordance with law. We order accordingly.