IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘A’ KOLKATA
Assessment Year: 2012-13
ASSISTANT COMMISSIONER OF INCOME TAX
M/s NABA RUPAYAN CONSTRUCTION COMPANY
BC 1/10, DESHBANDHU NAGAR
BAGUIATI, KOLKATA – 700059
PAN NO: AAGFN7864D
J Sudhakar Reddy, AM & S S Godara, JM
Date of Hearing: May 13, 2019
Date of Decision: June 19, 2019
Appellant Rep by: Shri Sanjay Bhattacharya, FCA
Respondent Rep by: Shri C J Singh, JCIT Sr. DR
Income Tax – Section 250
Keywords – Complications in books of accounts – Rejection of books of accounts
THE assessee is a partnership firm and is in the business of real estate and development. The assessee had filed its return for the AY 2012-13 disclosing total income of Rs 14.85 lacs. The AO while completing the assessment determine the total income at Rs 4.30 cr, treating the advance received on sale of Rs 3.92 cr as income of the year and disallowing an amount of Rs.20.82 lacs out of expenditure claimed on account of labour charges on the ground that the entire expenditure could not be justified by the assessee. On appeal, the First Appellate Authority delete the disallowance and estimate profit @ 8% of the total sales of the year.
On appeal, the Tribunal held that,
Whether books of accounts can be rejected merely on the ground that there are many complications involved – NO: ITAT
++ the AO has not rejected the books of account of the assessee. The CIT(A) had rejected the books of accounts of the assessee on the ground that “there are lot of complications in the book of the assessee”. Tribunal is of the view that this is not a proper ground for rejection of the books of accounts. No defects have been pointed out by the CIT(A) in the books of account. The assessee had filed details as to the year in which the advances in question were booked as sales. He has maintained books of account which are audited. Earlier year assessments are based on the book results. Under these circumstances, this finding of the CIT(A) cannot be upheld. The rejection of books of account is bad in law. Accordingly, Tribunal restore the issue to the file of the AO with a direction to pass de novo assessment.
Revenue’s appeal partly allowed
Per: J Sudhakar Reddy:
This appeal filed by the revenue is directed against the order of the Learned Commissioner of Income Tax (Appeals) – 15, Kolkata, (hereinafter the “ld.CIT(A)”), passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 04/11/2016, for the Assessment Year 2012-13.
2. The assessee is a partnership firm and is in the business of real estate and development. It has been entering into joint venture development agreements with the owners of the land and was constructing buildings and thereafter selling the same. It filed its return of income for the Assessment Year 2012-13 on 26/09/2012 disclosing total income of Rs.14,85,296/-. The assessment was completed u/s 143(3) of the Act, determining the total income at Rs.4,30,25,520/- interalia, treating the advance received on sale of Rs.3,92,28,026/- as income of the year and disallowing an amount of Rs.20,82,000/- out of expenditure claimed on account of labour charges on the ground that the entire expenditure could not be justified by the assessee. Aggrieved, the assessee carried the matter in appeal. The ld. First Appellate Authority granted part relief.
3. Aggrieved the revenue is in appeal before us on the following grounds:-
“1. That on the facts and the circumstances of the case the Ld. CIT(A) has erred in taking the excess sale of only Rs. 1,44,04,040/- by making a computation of amount received on completed flats without considering the advance of Rs. 3,92,28,026/- shown by the assessee as advance received against completed flats and added by the A.O.
2. That on the facts & in the circumstances of the case the Ld. CIT(A)’s decision to reject the books of accounts & estimating net profit @ 8% on turnover is not consistent with the material on record as available before him
3. That on the facts & in the circumstances of the case the Ld. CIT(A) instead of directing to estimate net profit @ 8% on total sale consideration of Rs. 6,28,65,490/- (Rs. 4,84,61,450/- declared by the assessee + Rs. 1,44,04,040/- computed by CIT(A)) should have directed addition of Rs. 4,64,88,046/- being the aggregate of advance of completed flats as shown by the assessee of Rs. 3,92,28,026/- & the excess amount of Rs. 72,60,020/-from the list of Rs. 1,44,04,040/- [which is over & above Rs. 71,44,020/- of advance from flats received from some customers whose names are included in Rs. 3,92,28,026/-.]
4. That the Ld. CIT (A) has erred in estimating profit at 8% and thereby directing that no disallowance of labour charges of Rs. 20,82,000/- and subscription & donation of Rs.1,65,202/- would be required.
5. That the appellant craves leave to add, alter, amend or modify any ground/grounds before or during the appeal hearing.”
4. The ld. D/R submitted that the Assessing Officer was right in treating the advances received from prospective owners as income during the year, as the assessee could not explain its case properly. He submitted that all the building projects in question have been completed and that the relevant expenses have been booked to the profit and loss account as there is no work in progress or flats/shops in the final account. He found fault with the order of the ld. CIT(A) in treating only part of the evidence as income during the year. He relied on the assessment order and submitted that the so called advances, were nothing but sale proceeds and have to be recognised as such during the year. On the other grounds, he argued that the assessee could not substantiate the expenditure and it is wrong on behalf of the ld. CIT(A) to delete the disallowance and estimate profit @ 8% of the total sales of the year. He prayed that the order of the Assessing Officer be restored.
5. The ld. Counsel for the assessee submitted that the assessee has been in this business of joint development construction for a number of years and has been consistently following a method of accounting where, when a project is completed, the receipts therein is disclosed as income. He pointed out that during the year, the assessee has shown sales of Rs.4,84,61,450/- and that for the Assessment Year 2013- 14, he has shown sales of Rs.7,12,80,994/-. Thus, he argues that the advances received were offered to tax and as and when the income had to be recognised in a consistent manner on completion of the project, year after year. He pointed out that the ld. CIT(A) has treated certain part of the advance as income of this year i.e., to the extent of Rs.1,44,04,040/- and submitted that this act has resulted in double taxation, as this very amount of advance was offered as income in subsequent Assessment Year consistent with the method of accounting followed by the assessee. He submitted that the assessee chose not to litigate on the matter, thought it resulted in double taxation. He submitted that each year income is offered, as per the books of account and that the ld. CIT(A) has estimated the profit at 8% which the assessee chose not to litigate. He pointed out that the books of accounts were not rejected and hence the profit could not be estimated. He submitted that the disallowance made by the Assessing Officer was arbitrary and not based on record.
6. After hearing rival contentions we find that the ld. CIT(A) has given a factual finding and come to a conclusion that only Rs.1,44,04,040/- from out of Rs.3,68,30,000/- advances received by the assessee should be transferred to sales made during the year. He listed out 11 projects, which in his opinion were completed. Advances pertaining to these 11 projects were transferred to income. The Assessing Officer has not given cogent reason for treating the entire advances received by the assessee and reflected as such in its books of account and final accounts as income of the assessee during the year. The assessee follows project completion method of accounting and recognises income on completion of project. The order of the ld. CIT(A) is more logical. He came to a conclusion that the assessee had completed 11 projects during the year. This is not challenged by the assessee. Hence we uphold the order of the ld. CIT(A) on this issue and dismiss the ground of the revenue.
6.1. The Assessing Officer has not rejected the books of account of the assessee. The ld. CIT(A) rejected the books of accounts of the assessee on the ground that “there are lot of complications in the book results of the appellant”. In our view this is not a proper ground for rejection of the books of accounts. No defects have been pointed out by the ld. CIT(A) in the books of account. The assessee has filed details as to the year in which the advances in question were booked as sales. He has maintained books of account which are audited. Earlier year assessments are based on the book results. Under these circumstances, this finding of the ld. CIT(A) cannot be upheld. The rejection of books of account is bad in law. Accordingly, we restore the issue to the file of the Assessing Officer with a direction to pass de novo assessment, in accordance with law and allow this ground of the revenue for statistical purposes.
7. In the result, appeal of the revenue is allowed in part.
(Kolkata, the 19.06.2019)