Case Law Details
Brief of the case: In case of DCIT vs. M/s. Vaghasia Associates , the tribunal of Ahmedabad held that, where assessee, a builder, was following project completion method of construction and project was not completed during relevant year, income from said project was not assessable in this year, and thus the question of determination of quantum of income became academic. The tribunal held that merely because some estimated labour payment was written on the projected profit & loss account, the addition for unexplained expenditure cannot be made. In the absence of any corroborative evidences indicating the fact that assessee actually incurred more expenditure than what was shown in the books of accounts, no addition u/s 69C can be made.
Facts of the case: The assessee was engaged in construction and sale of flats. The assessee claimed exemption on said properties u/s 80IB. During the year , there was survey at the assessee’s premises. It was found that in books of assessee he disclosed an income of Rs.1,24,00,000/-which was credited to the Profit & Loss account for the year. There was a Trading and Profit & Loss account for the year ended on 28.03.2007; as per which, the net profit worked out to Rs.2,94,17,251/- However, in the return of income, the assessee did not offered any income from this project except the income surrendered at Rs.1,24,00,000/. Further, there was huge difference found in amounts of labour payment in Trading and Profit & Loss account and accounts filed along with the return of income. The Assessing Officer on account of suppression of profit made the addition of Rs.2,94,17,251/-, treating the same as business income of the assessee for the year under consideration. He also treated the difference of Rs.29,70,895/- as unexplained expenditure u/s 69C.
Contention of Assessee: The land for the project was purchased in the preceding year and the construction work was also started in the preceding year and has been shown as closing work-in-progress in the last year. The Profit & Loss account prepared till a particular date was only rough/estimated/projected Profit & Loss account. The figure of the profit in the said Profit & Loss account is near about the profit which was actually earned by the assessee from this project. He, therefore, submitted that merely because the assessee prepared some estimated/projected Profit & Loss account till a particular date in the year under consideration, income from the project cannot be assessed. Therefore, the assessee was entitled to exemption u/s 80IB and therefore, the entire income earned by the assessee from this project was exempt u/s 80IB. That the labour payment debited in the books of accounts is duly supported by bills and vouchers of the petty labour contractors. The complete details of the labour payment made by assessee alongwith necessary bills and vouchers were produced before the Assessing Officer during the assessment proceedings. The regular books of accounts are duly audited by the Chartered Accountant. The auditor has not pointed out any discrepancy in the maintenance of the books of accounts or in respect of labour payments. He, therefore, submitted that merely because some estimated labour payment was written on the projected profit & loss account, the addition for unexplained expenditure cannot be made.
Contention of Revenue: That on the said books found during survey, it was nowhere mentioned that it is an estimated profit & loss account or projected profit & loss account and not the real profit & loss account. He, therefore, submitted that the assessing Officer was fully justified in making the addition of net profit as disclosed by the Profit & Loss account as on 28.03.2007. That the accounting year ended just 3 days after 28.03.2007 and therefore, there cannot be much change in the net profit.
HELD by CIT(A): The CIT(A) deleted the same holding that in the absence of any corroborative evidences indicating the fact that assessee actually incurred more expenditure than what was shown in the books of accounts, no addition u/s 69C can be made.
HELD by ITAT: The first question is whether the income from the project is to be assessed in the year under consideration, because if the project income is to be assessed in the year under consideration, then only the question of determination of income from the said project would arise. There are two recognized methods for determination of income in the case of contractor or builder. One is “percentage completion method” and the second is “project completion method”. In the first method, the income is recognized on the basis of percentage of completion of the project, but in the second case, the income is recognized only after completion of the project. Admittedly, the assessee was following the project completion method. From the facts of the case it is evident that during the accounting year relevant to assessment year under consideration project was not completed. The assessee started the construction of building in the immediately preceding year and the construction work continued in the year under consideration and also in subsequent year. The assessee also started booking of the flats, but neither the building construction was completed nor the sale deed was executed. It was pointed out by the revenue that the amount credited in the loose paper as “contract work income” was only projected sale proceeds which assessee was to receive on the sale of the flats which were booked till the date of survey. That out of the actual sale consideration of flats at Rs.5,63,27,300/-, the amount received by the assessee till the end of the accounting year relevant to assessment year under consideration was only Rs.52,95,000/-. Thus, the sale consideration received was not even 10% of the total sale consideration of the flats. Not a single sale deed was executed.
From these facts, it is evident that the project under consideration was far from completion during the accounting year relevant to assessment year under consideration. It was also pointed out by the ld. Counsel that the project was actually completed in the previous year relevant to Assessment Year 2009-10 in which the income from the same project was offered. The assessment for Assessment Year 2009-10 is completed u/s 143(3) and copy of the assessment order is placed on record. These facts, stated by the ld. Counsel, have not been controverted before us at the time of hearing. Considering the totality of these facts, we have no hesitation to hold that the income from the project under consideration during the year under consideration was not assessable in this year, because the project was not completed. Once the income is not assessable, the question of determination of quantum of income from the said project is only academic. In view of above, the court do not find any merit in the Revenue’s appeal and the same is rejected. So far as the difference between the labour payment mentioned in the profit & loss account found at the time of survey, the Revenue has seized various papers and the books of accounts. However, there is no corroborative evidence in respect of labour payment mentioned in the profit & loss account found at the time of survey. On the other hand, complete details of the labour payments debited in the books of accounts have been furnished. Moreover, after the arguments of both the sides and the facts of the case, we are of the opinion that the profit and loss accounts found at the time of survey is only an estimated profit and loss account in which projected profit is worked out which the assessee expected to earn on the completion of the project. From the profit & loss account found at the time of survey, the court find that on income side there was a credit of Rs.5,63,27,300/- with the narration “contract work income”. The assessee is not doing any contract work, but this amount was the sale consideration which the assessee was expected to receive on the execution of sale deed of the flats booked till the date of survey. At the expenditure side, there is no debit for the value of the land or the opening work-in-progress. Considering the totality of these facts as well as the factual finding recorded by the CIT(A), the court is of the opinion that CIT(A) was justified in deleting additions made by AO.
