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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश आदेश /O R D E R आदेश आदेश
PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER:
These appeals of the assessee are directed against the orders of Commissioner of Income Tax (Appeals)-4, Chennai, dated 26.11.2015 & 27.11.2015 and pertains to the assessment years 2010-11 & 2011-12 respectively.
All the appeals are related to the assessment of income on estimation basis rejecting the books of accounts. The grounds of appeal are one and the same for both the assessment years.
The order of the Commissioner of Income Tax (Appeals) 4, Chennai – 600 034 dated 26.11.2015 in for the above mentioned assessment year is contrary to law, facts and in the circumstances of the case.
2. The CIT (Appeals) erred in sustaining the assessment of estimated income at 8% of the project receipts on the strength of the provisions of section 145(2) of the Act in the computation of taxable total income without assigning proper reasons and justification.
3. The CIT(Appeals) failed to appreciate that the assessment of income on estimated basis while overlooking the consistent method of accounting in reckoning the revenue from the housing project development was wrong, erroneous, unjustified, incorrect and not sustainable in law.
4. The CIT(Appeals) failed to appreciate that having noticed the fact of the percentage of completion of the housing projects in the previous year relating to the assessment year under consideration, the sustenance of the assessment of income by estimating such income at 8% of the project receipts was wrong, erroneous, unjustified, incorrect and not sustainable in law.
5. The CIT(Appeals) failed to appreciate that the sustenance of the assessment framed u/s 144 of the Act was wrong, erroneous, unjustified and not sustainable in law.
The CIT(Appeals) failed to appreciate that the relevance of the accounting standard referred to should be tested with the reference to the facts of the case and ought to have appreciated that having not recorded any positive/express finding on its applicability, the reference to such standards would fall on the grounds.
7. The CIT(Appeals) failed to appreciate that the method of accounting as well as reckoning of revenue under project completion method should be considered as acceptable and ought to have appreciated that the change of course for the purpose of making addition on estimated basis was erroneous and wholly unjustified.
The CIT(Appeals) went wrong in recording the findings in this regard in paras 8 to 23 of the impugned order without assigning proper reasons and justified.
The CIT(Appeals) failed to appreciate that the decisions relied upon were applied out of context and not applicable to the factual matrix of the case thereby vitiating the decision to sustain the wrong assessment framed by the original authority and ought to have appreciated that the entire computation of assessable income was wrong, erroneous, unjustified, incorrect and not sustainable in law.
The CIT(Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.
The Appellant craves leave to file additional grounds/arguments at the time of hearing.
The facts of the case for both the assessment years i.e., 2010-11 & 2011-12 are the same. Therefore, the facts are extracted from the assessment year 2010-11 and the appeals are disposed by a common Order for the sake of convenience. The assessee is engaged in the business of promoting residential flats.
For the assessment year 2010-11, the assessee filed return of income admitting total income of Rs.NIL on 26.03.2012. During the previous year relevant to the assessment year 2010-11, the assessee was engaged in developing a residential project named ‘Mistral’ & ‘Sabari Terrace’ at Sholinganallur and had spent an amount of Rs.52.09 crores till the close of financial year 2009-10.
The assessee has also received an amount of Rs.53.51 crores from the customers. Both these items of Revenue as well as the expenditure were retained as Balance Sheet items and furnished NIL returns. The case was selected for scrutiny and called for the details by the Assessing Officer. Before the Assessing Officer, the assessee submitted that the assessee is following the project completion method and has rightly accounted the income and expenditure as balance sheet items. In the case of expenditure, the assessee has shown the entire expenditure in the balance sheet under the head ‘Work in Progress, Net of cost’ and the receipts were admitted as ‘Advances from Clients’, in the balance sheet.
The appellant contented that on completion of the project, these items will be shifted to the P&L account and resultant income will be accounted in the return of income on final completion. However, during the assessment proceedings, the assessee has not produced the bills, vouchers, books of account and the relevant evidences before the Assessing Officer establishing that the assessee is correctly maintaining the books of accounts and the expenditure has been correctly accounted and categorized as ‘work in progress’ in the books of account. As per the assessee by the end of the financial year 2009-10, 76% of the construction was completed and received 92% of the project income for ‘SABARI’ and 74% of the construction was completed and received the 83% of the project income for ‘MISTRAL’ . According to the Assessing Officer, in case, the assessee is following Accounting Standard-7 having completed 76% & 74% of the projects, the assessee should have estimated the income on percentage completion basis and admitted the resultant income. If the assessee is following Accounting Standard-9, the assessee should have admitted the value of flats sold as income. In the assessee’s case, though the assessee claimed to have followed the project completion method, the books of accounts and the supporting evidences were not produced to establish the expenditure and the method of accounting. The information furnished before the Assessing Officer do not throw clear picture regarding the method followed by the assessee in the absence of books of accounts. Therefore, the Assessing Officer rejected the books of accounts and estimated the income at the rate of 8% on the gross receipts received by the assessee till the end of the year 2010 and estimated the income at the rate of 8% on gross receipts of Rs.53,51,61,122/- which worked out Rs.4,45,65,113/-. For the assessment year 2010-11, the Assessing Officer estimated the income at Rs.4,45,65,113/- and for the assessment year 2011-12, the Assessing Officer estimated the income on the balance receipts of Rs.3,27,33,922/- at the rate of 8% which worked out to Rs.26,18,714/-.
Aggrieved by the order of the Ld. Assessing Officer, the assessee went on appeal before the CIT (Appeals) and the Ld.CIT (Appeals) confirmed the order of the Assessing Officer. Hence the assessee is in appeal before us.
During the appeal hearing, appearing for the assessee, Shri S. Sridhar, the Ld. Advocate argued that the assessee is following the Project Completion Method and maintaining the books of accounts. As per the project completion method, the final accounts will be arrived at on completion of the project and the resultant income would be offered for the purpose of taxation. He further submitted that the assessee was maintaining regular books of accounts and following the consistent method of accounting, recording the revenue from housing project development under the head advances and the cumulative expenditure under the head work in progress. The Ld.AR submitted that the assessee is not engaged in the contract works and the AS-7 and AS-9 are not applicable in the case of the developers. Further, the Assessing Officer has estimated the income of the total gross receipts received till the end of the year, which is not permissible in law. The decision relied upon by the CIT (Appeals) is distinguishable on facts.
According to the Ld. AR, the Assessing Officer should have accepted the books of accounts. On the other hand, the Ld. DR supported the orders of the lower authorities.
6. We heard both the parties and perused the material placed on record. According to the assessee, the assessee is following the Project Completion Method consistently and the books of account are regularly maintained. Since, the assessee is consistently following the project completion method, the assessee should be allowed to complete the project and furnish the return of income on completion of the project. Estimation of income or arriving at the income in the intervening period is not possible which will lead to distorting trading results. Though the assessee claimed to have followed the project completion method, it is obligatory on the part of the assessee to maintain the regular books of accounts and support the contentions with the books of accounts, bills and vouchers and prove the method followed by it and establish the true and correct financial position. The expenditure debited to the work in progress / advance received required to be accounted correctly to show that no inflation of expenditure and no suppression of income was made by the assessee. The assessee has not produced the books of accounts, bills and vouchers. In the absence of the books of accounts, bills and vouchers the contention of the assessee that it was following project completion method and maintaining regular books of accounts is without any basis. Further, the assessee has not furnished any evidence to show that in the subsequent years the project was completed and the return was filed For the AY 2007- 08 to 2010-11 the assessee filed the ‘Nil’ returns. It is noticed from the Ld.CIT(Appeals) orders that, the assessee has not filed the returns for the A.Y 2014-15 and 2015-16 and not ascertainable whether the assessee has completed the project and admitted the taxable income relating to the above projects in the subsequent years. The A.R. also did not furnish any information regarding the completion of project and admission of income in respect of the above two projects. In the absence of production of book of accounts, Bills, Vouchers true and correct income cannot be deduced. Therefore, we do not find any error in the order of the Ld.CIT(Appeals) and accordingly, we confirm the addition made by the Assessing Officer at the rate of 8% on the gross receipts. This view is also supported by ITAT Lucknow Bench in ITO IV(4) vs.M.A.
Builder (P) Ltd dated 28.05.2013. Therefore, the assessee’s appeal on this issue is dismissed.
The next issue raised by the assessee was that the Assessing Officer cannot estimate the income on accumulated gross receipts in the assessment year under consideration and has to confine himself to estimate the income for the receipts received during the year. This issue has been considered by us. The assessee has not established by producing the books of accounts and the bills that it has followed the project completion method. As
per the Assessment Order, the assessee has completed the works of 76% in the case of Sabari and 74% in the case of Sabari and 74% in the case of Mistral the projects and recovered more than 80% of project income. It was not the assessee’s case that the assessee has admitted the income relating to the above projects in the earlier years and again estimation was made in the subsequent year. Since the substantial project works have been completed and the risks were transferred, the AO estimated the income on the gross receipts accumulated till the end of the FY 2009-10. From the commencement of the project till the AY 2010-11 and subsequent year, the assessee filed Nil return and no income was admitted.
The assessee has not submitted the details relating to completion of project and admission of income relating to the above projects.
In the absence of books of accounts, the correctness of the expenditure could not be established. Therefore, only option available to the AO is to estimate the income and complete the assessment. The assessee has not admitted any income in the earlier years and no evidence has shown regarding admission of income in the subsequent years and the Assessing Officer held that the substantial risks have been transferred in the year under consideration. Therefore, we do not find any error in the lower authorities orders and we confirm the Order of the Ld.CIT(A) and dismissed the grounds of appeal.