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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
आदेश ORDER �ी अिमत शु�ला,�या.स :- PER AMIT SHUKLA, J. M.: The aforesaid appeal has been filed by the revenue against impugned order dated 19.08.2011 passed by CIT(A) -33, Mumbai for the quantum of assessment passed under section 143(3) r.w.s 147 for the AY 2006-07, vide which following grounds have been raised:-
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the project completion method of accounting followed by the assessee, as against the percentage completion method adopted by the AO, relying on the judgment of the Hon’ble ITAT in 2 सुधीर वासू शे�ट� Sudhir Vasu Shetty ITA 7380/M/2011 the assessee’s own case for AY 2003-04 thereby disregarding the fact that the revenue is in appeal before the Hon’ble Bombay High Court on this issue in the assessee’s own case for AY 2003-04, vide Appeal No.ITXA/5524/2010 which was filed against the Hon’ble ITATs judgment and the decision of the Hon’ble High Court is still awaited.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee was effectively engaged only as a Civil Contractor in relation to a number of projects which were under progress during the relevant previous year, thereby making it mandatory for the assessee to declare a specified percentage of the work-in-progress as profits in conformity with the revised Accounting Standard-7.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the estimation of profit made by the AO in respect of “Mithul Phase-II”, disregarding the fact that this addition is closely linked to the method of accounting followed by the assessee and which stands rejected by the AO, in view of the fact that the soundness of the method of accounting followed by the assessee has been challenged by the revenue before the Hon’ble High Court of Bombay in the assessee’s own case for AY 2003-04 vide Appeal No.ITXA/5524/2010 whose outcome is awaited”.
The sole issue in the aforesaid appeal is rejection of project completion method by the AO, which has been followed by the assessee regularly. The AO noted that the assessee is engaged in the business of construction and during the year following projects 3 सुधीर वासू शे�ट� Sudhir Vasu Shetty ITA 7380/M/2011 were taken up for which work-in-progress were noted in the following manner:- Name of the Project W.I.P as on 31.3.2006 Profit percentage for the year Shri Laxminiwas 1,75,89,687 14,07,175 Navdurga 97,30,850 7,78,468 Mohan Villa --- Jagasia Property --- Panvel Property --- Mithul Phase II 4,80,07,568 38,40,605 Total 7,53,28,105 60,26,248 From the above figures, he concluded that assessee has completed the construction work to a large extent and therefore he should have disclosed the profits on the said WIP based on percentage completion method of accounting as per Accounting Standard-7. Before the AO, the assessee’s case has been that, he has been consistently followed project completion method for several years. However, the AO rejected the same on the ground that, each assessment is an independent unit and income accruing or arising during the year should be offered to tax as per the provisions of Income-tax Act and principle of res judicata does not apply in such cases. Accordingly, he worked out net profit @ 8% of WIP as on 31st March, 2007 and added amount of Rs 60,28,248/-.
Before the CIT(A), the assessee submitted that, the Tribunal in assessee’s own case in following earlier years precedence have held that Project Completion Method followed by the assessee is correct and have rejected the stand taken by the AO. The relevant observation of the CIT(A) in para 3.1 to 3.2 is reproduced hereunder:-
“During the appellate proceedings the appellant has reiterated what he has submitted in the statement of facts, reproduced above already. I have gone through the same. It is also the appellant’s case that in this method 4 सुधीर वासू शे�ट� Sudhir Vasu Shetty ITA 7380/M/2011 of account has been accepted by Hon’ble ITAT, Mumbai. The relevant portions of that order is reproduced as under:- "11.1 Grounds 1 to 3 are on the issue whether the first appellate authority was right in accepting the contentions of the assessee that it followed project completion method of accounting and the income from phase -I of the project in Laxrni Niwas Housing Project is rightly offered to tax on such basis. On this issue we find that the Tribunal in the assessee's own case for the earlier assessment year 1989-90 has decided the issue in favour of the assessee. In all the subsequent assessment years, the assessee has been consistently following project completion method and offering the same to tax. The revenue also has been consistently assessing the assessee's income on this method of accounting only. In fact, assessments have been completed u/s. 143(3) from the assessment years 1990- 91 to 1996-97 as well as in the assessment year 2001- 02 wherein the project completion method has been accepted. While so, we do not see any reason as to why the assessing officer should take a different view in this year. The reasons cited by the assessing officer for not accepting the project completion method, in our considered opinion, is bad in law."
Following the same for the assessment year 2007-08 1 have decided in appeal no. CIT(A)-33/IT/ 1430/09-10 dated 25.11.2010 as under: "4.4 .......................................................................................... .................Here in the case of the appellant as per the submissions made the project completion method was being followed prior to 1.4.03 and appellant has continued with the same even after 1.4.03 as the revised AS-7 was not applicable in his case. Further, as per AS-9 which is applicable he can follow either of the two methods and he is following project completion method. 4.5 Last but not the least, Hon'ble ITAT Mumbai in its order for Assessment Year 1989-90 and then again in Assessment Year 200-04 has decided that appellant is following project completion method. For the reasons ground Nos.1, 2 & 3 are allowed in favour of the appellant. The addition made on the estimation profit @ 8% on work-in-progress, an amount of Rs.1,21,56,668/- as business profit by applying percentage completion method is deleted.” . 3.2. For the assessment year 2006-07 which is in the instant appeal, it is seen that the project i.e. Laxrni Niwas Housing Project along with his other own project are undergoing and 5 सुधीर वासू शे�ट� Sudhir Vasu Shetty ITA 7380/M/2011 for which WIP has been measured 8%. The issue being the same the matter in the instant appeal for assessment year 2006-07 is decided on the same lines as decided for assessment year 2007-08. Accordingly ground Nos. 1, 2 and 3 are allowed”.
None appeared on behalf of assessee despite service of notice, accordingly, matter is being decided ex-parte on the basis of material on record and argument of the Ld. DR. It has been fairly admitted by the Ld. DR that so far as the issue, whether Project Completion Method should be followed in the case of the assessee or not has been decided in favour of the assessee by the Tribunal. However, he strongly relied upon the observations and findings given by the AO.
After going through the relevant finding given in the impugned orders, we find that, the only ground for making the addition by the AO is that, the assessee should have shown the profits on the basis of “Percentage Completion Method” and accordingly, estimated 8% net profit on WIP as on 31st March, 2006. It has been admitted fact that, assessee has been consistently following “Project Completion Method” for several assessment years. Such a method of accounting has been subject matter of dispute in the earlier years also wherein, from the stage of the Tribunal, it has been decided in favour of the assessee that the project completion method has rightly been followed. Accordingly, we do not find any reason to deviate from a consistent view taken earlier especially with regard to the method of accounting regularly followed. Accordingly, the order of the CIT(A) is affirmed and grounds raised by the revenue is treated as dismissed.
6 सुधीर वासू शे�ट� Sudhir Vasu Shetty ITA 7380/M/2011 6. In the result, appeal of the revenue stands dismissed. Order pronounced in the open court on 12th April, 2016.