Friday, June 21, 2013

[aaykarbhavan] Judgments






IT : Where assessee was awarded a contract and in terms of contract certain amount was withheld by contractee towards retention money for satisfactory execution of contract by assessee, retention money did not represent assessee's accrued income
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[2013] 33 taxmann.com 139 (Gujarat)
HIGH COURT OF GUJARAT
Director of Income-tax ( International Taxation)
v.
Ballast Nedam International*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 144 of 2013†
MARCH  28, 2013 
Section 5 of the Income-tax Act, 1961 - Income - Accrual of [Retention money] - Assessment year 2002-03 - One 'A' awarded a contract to assessee for construction of a project - In terms of contract executed between parties certain amount was withheld by 'A' towards retention money for satisfactory execution of contract - Assessee claimed that it had no right on such retention money till completion of work and submission of mechanical certificate and, therefore, it did not form part of its income - Assessing Officer held that retention money represented assessee's accrued income - Whether in view of decision of Gujarat High Court in case of Anup Engineering Ltd. v. CIT [2001] 247 ITR 457/114 Taxman 584 retention money could not be said to have accrued to assessee - Held, yes - Whether, therefore, aforesaid amount did not represent assessee's accrued income - Held, yes [Paras 6 & 7] [In favour of assessee]

IT : Merely because capital gains claimed to be long-term was held to be taxed as short-term gains, penalty cannot be levied alleging concealment
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[2013] 34 taxmann.com 116 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Jaswinder Singh Ahuja*
BADAR DURREZ AHMED AND R.V.EASWAR, JJ.
IT APPEAL NO. 81 OF 2013†
FEBRUARY  8, 2013 
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income [Bona fide claims] - Assessment year 2002-03 - Assessee received stock option as a part of his employment by virtue of an agreement with his employer-company - Assessee sold stock option and declared gain in his return as long-term capital gain - Assessing Officer assessed same as short-term capital gain and also imposed penalty under section 271(1)(c) - Commissioner (Appeals) deleted additions made and also deleted penalty on ground that issue of capital gain was debatable at time of filing of return by assessee - Tribunal, though held gain as short-term, upheld order of Commissioner (Appeals) deleting penalty holding that there was no concealment - Whether, on facts, instant case could not be brought within provisions of section 271(1)(c) - Held, yes [Para 5] [In favour of assessee]
FACTS
 
■  The assessee received stock option as a part of his employment by virtue of an agreement dated 17-9-1992 with his employer-company. Assessee sold the stock option and declared in his return as long-term capital gain. The Assessing Officer assessed the same as short-term capital gain and also imposed penalty under section 271(1)(c).
■  On appeal, the Commissioner (Appeals) deleted the addition made by Assessing Officer and also deleted the penalty on the grounds that the issue of capital gain was debatable at the time when the assessee filed his return.
■  On revenue's appeal, the Tribunal reversed the view of the Commissioner (Appeals) holding that the gains were short-term capital gains. However, the Tribunal upheld the order of the Commissioner (Appeals) deleting penalty under section 271(1)(c) holding that it was not the case of concealment of fact or submission of incorrect fact and there was no furnishing of any inaccurate particulars as there was question of opinion.
■  On revenue's appeal to the High Court:
HELD
 
■  The Commissioner (Appeals) as also the Tribunal have approached the issue correctly. The question whether the sale of the stock options would result in long-term capital gains or short-term gains was not very clear at the time when the respondent/assessee filed his return for the assessment year 2002-03. In fact the view taken by the Assessing Officer in the quantum proceedings had been reversed by the Commissioner (Appeals) in the appeal filed by the assessee. The view taken by the Commissioner (Appeals) was ultimately reversed by the Tribunal and the view of the Assessing Officer was upheld in the quantum proceedings. This, in itself, is indicative of the fact that the issue was not very clear-cut. That being the position, the case of the respondent/assessee cannot be brought within the provisions of section 271(1)(c). [Para 5]
CASE REVIEW
 
CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 5) distinguished.
CASES REFERRED TO
 
CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 5).
Ms. Suruchi Aggarwal and Manish Kumar for the Appellant.
JUDGMENT
 
Badar Durrez Ahmed, J. - This appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the said Act') has been preferred by the revenue being aggrieved by the order dated 25.06.2012 passed by the Income Tax Appellate Tribunal in ITA No.3417/Del/2009 pertaining to the assessment year 2002-03. The present proceedings arose out of the penalty order passed by the assessing officer under section 271(1)(c) of the said Act on 24.06.2010.
2. The facts are that the respondent/assessee was employed with M/s Cadence Design Systems India Pvt. Ltd. and as a part of his employment he received stock options by virtue of an agreement dated 17.09.1992 with Cadence Designs System, USA. During the year in question the assessee sold the stock options and received Rs. 1,05,19,631/-. The same was declared by the respondent/assessee in his return as long term capital gains. However, the assessing officer took a different view and assessed the same as short term capital gains and also directed initiation of penalty proceedings under section 271(1)(c) of the said Act.
3. In the quantum proceedings the Commissioner of Income Tax (Appeals) deleted the addition made by the assessing officer on account of the change in treatment from long term capital gains to short term gains. The revenue went up in appeal before the Tribunal and the Tribunal allowed the appeals and upheld the view taken by the assessing officer. In other words the Tribunal settled the issue with regard to the manner in which the gains from the sale of stock options were to be considered. The Tribunal reversed the view taken by the Commissioner of Income Tax (Appeals) and held that the said gains were short term capital gains as held by the assessing officer.
4. In the penalty proceedings the assessing officer imposed a penalty of Rs. 15,69,445/-. The Commissioner of Income Tax (Appeals) deleted the said penalty on the ground that the issue was debatable at the time when the assessee filed his return and, therefore, he could not have been held to have furnished inaccurate particulars or to have concealed his income. This view has been upheld by the Tribunal by virtue of the order dated 25.06.2012. The Tribunal held as under: -
"5. In the assessee's case, evidently, there is no furnishing of any inaccurate particulars. It is not the case of the Revenue that the assessee has either concealed any fact or has submitted any wrong or incorrect fact. It is only the question of opinion whether the income from sale of stock option is assessable as short term capital gain or as long term capital gain. In view of the above, respectfully following the above decision of Hon'ble Apex Court in the case of Reliance Petro Product Pvt. Ltd., we uphold the order of learned CIT(A)."
5. We are of the view that the Commissioner of Income Tax (Appeals) as also the Tribunal have approached the issue correctly. The question whether the sale of the stock options would result in long term capital gains or short term gains was not very clear at the time when the respondent/assessee filed his return for the assessment year 2002-03. In fact the view taken by the assessing officer in the quantum proceedings had been reversed by the Commissioner of Income Tax (Appeals) in the appeal filed by the assessee. The view taken by the Commissioner of Income Tax (Appeals) was ultimately reversed by the Tribunal and the view of the assessing officer was upheld in the quantum proceedings. This, in itself, is indicative of the fact that the issue was not very clear-cut. That being the position, we cannot bring the case of the respondent/assessee within the provisions of section 271(1)(c) of the said Act. The reliance placed by the Tribunal on CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) is also apposite.
6. For the foregoing reasons we do not find any substantial question of law in this appeal. Consequently, the appeal is dismissed. There shall be no order as to costs.
SB
--
IT : Where portion of plot area was earmarked for laying roads, same should be considered as part of housing project in order to determine prescribed limit under section 80-IB
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[2013] 33 taxmann.com 523 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Sigma Constructions
v.
Income-tax Officer, Ward - 6(3), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SAKTIJIT DEY, JUDICIAL MEMBER
IT APPEAL NO. 364 (HYD.) OF 2012
[ASSESSMENT YEAR 2008-09]
MARCH  7, 2013 
Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Housing projects] - Assessment year 2008-09 - Whether where assessee entered into development agreement and, thereafter, a portion of plot area was earmarked for roads, area so earmarked should be considered as part of housing project in order to determine prescribed limit under section 80-IB - Held, yes - Whether if revenue was taxing profit in current year on ground that assessee was adopting 'Percentage Completion Method' then natural corollary should be that connected deduction ought to be granted simultaneously in current year - Held, yes - Whether other method of computation was that revenue must tax entire profit on completion of project by applying 'Project Completion Method' and would grant deduction in that year - Held, yes [Paras 13 & 18] [In favour of assessee]
Words and Phrases : 'Date of completion' as appearing in Explanation (ii) to clause (a) to section 80-IB of Income-tax Act, 1961
Interpretation of statutes : Rule of liberal interpretation
Circulars and Notifications : Instruction No. 4 of 2009, dated 30-6-2009
FACTS
 
■  The assessee had undertaken the project of construction of residential complex on 5130 sq. yard of land and claimed deduction under section 80-IB in respect of its income from that project.
■  The Assessing Officer disallowed the claim of deduction on the grounds that as per approved municipal plan of the project after taking out the area earmarked for road, the total area of the plot was less than one acre and there was no completion certificate obtained from the municipal corporation.
■  On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer.
■  On second appeal, the assessee argued that the area of plot was more than one acre and the area earmarked for road cannot be excluded from the area of plot.
HELD
 
■  In the instant case deduction under section 80-IB(10) was denied on the reason that the project was executed in a plot area admeasuring less than one acre and there was no completion certificate obtained from the City Municipal Corporation. The assessee pleaded that the project was executed on an area exceeding one acre and in the course of completion of the project 1373 sq. yards of land has been earmarked for acquisition of the City Municipal Corporation for the purpose of making roads and this was not acquired by the City Municipal Corporation and still in the possession of the assessee. Regarding completion certificate it was submitted that the assessee duly applied for completion certificate videapplication dated 30-9-2008 and duly acknowledged by the City Municipal Corporation vide acknowledgement dated 17-10-2008 and also flats are fully completed in all respects which are duly connected by electricity and water supply and individual Distinct Number was allotted by the City Municipal Corporation and they are assessed to municipal tax.
■  It is held that as per provisions of section 80-IB(10), the housing project should be on the size of a plot of minimum one acre. If the building project was sanctioned by the Municipal Corporation for developing the project in the area of one acre land or more, the assessee is entitled for deduction under section 80-IB(10). [Para 12]
■  The assessee submitted that the total plot area is 5130 sq. yards which is more than one acre. It is also pleaded that the assessee's plot is more than one acre and, beyond his control, a portion of the plot was earmarked for roads. Being so, liberal interpretation of section 80-IB is to be considered. If a portion of the plot area is earmarked for roads after the assessee entered into development agreement and the plan was duly sanctioned by the competent authority, it is not the fault with the assessee to deny the deduction under section 80-IB(10). Accordingly, the area of the plot available to the assessee for housing project is more than one acre. Accordingly, the claim of the assessee cannot be denied. [Para 13]
■  Coming to the facts of the instant case, the project was approved by the Municipal Corporation of Hyderabad. As per certificate of assessee's architect dated 3-9-2008, the project was completed on 1-10-2007. The assessee submitted that the assessee has completed the project by this date and the assessee is following contract completion method. The claim for deduction under section 80-IB(10) was made by the assessee for the first time which was denied by the authorities on the reason that there is no completion certificate. [Para 15]
■  The meaning of 'date of completion' has been given in Explanation (ii) to clause (a) to section 80-IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction under section 80-IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction under section 80-IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee's claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption under section 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted under section 80-IB(10) for the earlier years if it is not so produced. As held by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. [Para 16]
■  A project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) of section 80-IB(10) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80-IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certificate from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. If such period exceeded the prescribed limit, revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer cannot insist on the completion certificate in the impugned year. This view has also been taken by CBDT in its Instruction No. 4 of 2009, dated 30-6-2009. [Para 17]
■  The objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognized by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction under section 80-IB(10) is to promote housing projects. If the proposition of the Department that the deduction under section 80-IB(10) has to be granted only a taxpayer who follows only 'Project Completion Method' is accepted it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction under section 80-IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the instant situation, the revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the revenue is accepted then only on completion of project an assessee would be entitled for deduction under section 80-IB(10), then undisputedly an anomally shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting 'Percentage Completion Method' then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the revenue must not tax the profit of the project yearly on the basis of 'Percentage Completion Method' but tax the entire profit on completion of the project by applying 'Project Completion Method'. [Para 18]
CASE REVIEW
 
Vidhi Builders v. ITO [IT Appeal No. 1212(Mum) of 2009, dated 8-4-2011 (para 12) followed.
CASES REFERRED TO
 
Vidhi Builders v. ITO [IT Appeal No. 1212(Mum.) of 2009 dated 8-4-2011] (para 12), Umiya Enterprises v. ITO [IT Appeal No. 2750(Mum.) of 2009] (para 12), Manan Corpn. v. Asstt. CIT [2013] 29 taxmann.com 15 (Guj.) (para 14), Keerthi Estates (P.) Ltd. v. Dy. CIT [2012] 54 SOT 273/26 taxmann.com 259 (Hyd.) (para 14) and Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC) (para 16).
K. Gopal for the Appellant. Smt. Amisha S. Gupt for the Respondent.
ORDER
 
Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 21.12.2011 for assessment year 2008-09.
2. The grievance of the assessee in this appeal is with regard to non-granting of deduction u/s. 80IB(10) of Income-tax Act, 1961.
3. Brief facts of the issue are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed deduction of Rs. 62,85,119 u/s. 80IB(10) of the Act. By way of a note the assessee explained that it had undertaken construction of a residential complex 'Sri Niketan' at 7-1-39, Sham Karan Road, Ameerpet, Hyderabad on 5130 sq. yards of land belonging to M/s. Bestotin Printers on development basis. It was explained that the firm had commenced the business of construction of flats during the F.Y. 2004-05 thereon and the area of each flat was less than 1500 sq. ft. Accordingly, it was claimed that the assessee firm was eligible for exemption u/s. 80IB(10) of the Act in respect of its income from that project.
4. During the course of assessment proceedings, the Assessing Officer deputed his Inspector for taking physical dimensions of the plot. It was found that the physical dimension was 247.09 ft x 141 ft. = 34,839 s. ft. = 3871 sq. yards. Therefore, the total area of the plot of Sri Niketan project was less than 1 acre, i.e. 4840 sq. yards. Besides, from the sale deed executed by the assessee with the flat owners, he noticed that out of 5130 sq. yards, land to the extent of 1373 sq. yards had been affected by road widening, and therefore, the present extent of the property was 3575 sq. yards only, which was less than 1 acre.
5. The Assessing Officer opined that in view of the provisions of Sec. 80IB(10)(b) of the Act, the project should be on the size of a plot of land having minimum area of 1 acre. He, therefore, required the assessee to explain as to why its claim of deduction u/s. 80IB should not be disallowed. In response, the assessee submitted that the project had been executed on a plot of 5130 sq. yards (4291 sq. mts). It was submitted that the approved plan FSI of 1:1.75 had been granted on the entire land of 5130 sq. yards and additional area was also granted on the land to be utilised for the roads on the East and West sides. The assessee submitted that the land on which proposed roads are expected to be laid is still in their possession. It was claimed that since they had constructed 1,18,250 sq. ft., it establishes that the area of land used for the project was in excess of 1 acre.
6. On a consideration of the assessee's explanation, however, the Assessing Officer found it unacceptable on the following reasons:
(i)  The approved municipal plan clearly earmarked the area of plot which is to be utilized for road widening. After taking out the area earmarked for road, the total area of the plot is less than one acre.
(ii)  The assessee has received the extra FSI of 1153.6 sft., to compensate the area which is acquired by the government for road widening. The Assessee has utilised the extra FSI and constructed the building utilizing the extra FSI.
(iii)  The Municipal authorities have clearly marked the road while sanctioning the plan. Just because, the assessee is in possession of the area, it cannot be considered as if, the assessee has executed project on area more than 1 acre. The vacant land which the assessee is claiming to be in possession is actually a road. The road may not be laid at present and the assessee may be utilizing the same, but, the fact that the land acquired for road will remain as road only.
(iv)  Though the assessee is in possession of the plot earmarked for road, it does not imply the ownership of the plot.
(v)  The assessee has not furnished completion certificate till date.
(vi)  The valuation officer in his report at para No. 5 clearly mentioned that out of the total area of the plot 1032.7 sq. yards in the east and 77 sq. yards in the west totalling to 1379.7 sq. yds. are earmarked for roads and the extent of the plot is 3750.3 sq. yards, which is less than one acre.
7. From the above, the Assessing Officer concluded that the area of plot on which the project was executed being less than 1 acre, the assessee had violated the provisions of sec. 80IB(10). Accordingly, the claim of deduction of Rs. 62,83,119 u/s. 80IB(10) was disallowed.
8. During the course of 1st appellate proceedings, the representative of the assessee submitted that while denying the deduction u/s. 80IB(10) the Assessing Officer stated that a portion of the land had been earmarked for laying roads. However, the representative of the assessee contended that the entire land of 5130 sq. ft. is in possession of the assessee even today on which the construction was made and a portion of land had only been earmarked for the roads. He averred that possession of such earmarked land was not taken by any authorities even till date. He averred that the Municipal Authorities had granted approval for construction for FSI of 1:1.75 taking the entire land of 5130 sq. yards without excluding the portion of land earmarked for roads. Accordingly, he argued that it was clear that the land on which the flats were constructed was more than one acre, and therefore, the claim of deduction u/s. 80IB(10) could not have been denied on this ground.
9. The representative of the assessee reiterated that as per the approved plan, FSI was granted in the ratio of 1.75:1 on the total area of 5130 sq. yards, showing that the project was executed on an area exceeding 1 acre. He reiterated that 1373 sq. yards of land earmarked for roads, has till date not been acquired by the MCH and is in the possession of the Developer/flat owners, and is being used for parking/play ground.
10. With regard to the Completion Certificate, which could not be furnished before the Assessing Officer, the assessee submitted that after completing the project by 1.10.2007, the assessee had applied to the MCH Authorities for issue of completion certificate on 30.09.2008, which has been acknowledged by them on 17.10.2008. This fact has been acknowledged by the Departmental Valuation Officer also in para 4 of his report. However, the MCH authorities have not issued the said certificate so far for the project as a whole, but have issued 15 certificates individually, either in favour of the assessee or flat owners, stating that those have been completed. The representative averred that this establishes that the project has been completed. He also mentioned that such certificates specifically state that those have been issued in lieu of Occupancy certificate. He maintained that the flats had been handed over to the buyers on different dates during November - December, 2010, which shows that the project had been completed long back.
11. On appeal the CIT(A) observed that as per the provisions of sec. 80IB(10), it is mandatory that" the project is on the size of a plot of a land which has a minimum area of 1 acre. Even though the project 'Sri Niketan' had been initially planned on development basis on a plot admeasuring 5130 sq. yards, out of the same, land admeasuring 1373 sq. yards was earmarked for roads, on submission of plans for construction of the project itself. Therefore, even if the assessee was compensated by granting FSI in the ratio of 1: 1.75, and consequently, constructed a total area of 1,18,250 sq. ft. on the plot, it cannot be denied that all of such construction as on date stands on an area of 3575 sq. yards only, which is indeed less than 1 acre. It is clear that even if the land earmarked for road, 1373 sq. yards, is still date in the possession of the Developer or flat owners, and is being utilised by them for parking / play ground, it cannot be denied that the same cannot be legally claimed to be a part of the project. Having earmarked such land for roads at the time of approval itself, the MCH Authorities are well within their rights to take up such road construction at any point of time. Accordingly, the mere possession of the area earmarked for roads as on date cannot imply that such area is till date a part and parcel of the project itself. Since the final area on which the entire construction of 1,18,250 sq. ft. of the 'Sri Niketan' project is located, as on date, is on a plot having area less than 1 acre, it is clear that the assessee has not satisfied the condition laid down in clause (b) of sec. 80 IB(10). The claim of the assessee was rejected by the CIT(A). Against this, the assessee is in appeal before us.
12. We have heard both the parties and perused the material on record. In this case deduction u/s. 80IB(10) was denied on the reason that the project was executed in a plot area admeasuring less than one acre and there was no completion certificate obtained from MCH. The assessee pleaded before us that the project was executed on an area exceeding one acre and in the course of completion of the project 1373 sq. yards of land has been earmarked for acquisition of MCH for the purpose of making roads and this was not acquired by MCH and still in the possession of the assessee. Regarding completion certificate it was submitted that the assessee duly applied for completion certificate vide application dated 30.9.2008 and duly acknowledged by MCH vide acknowledgement dated 17.10.2008 and also flats are fully completed in all respects which are duly connected by electricity and water supply and individual Distinct Number was allotted by MCH and they are assessed to municipal tax. According to the AR the area of plot is exceeding one acre and the area earmarked for roads cannot be excluded from the area of plot as decided by the Tribunal in the case of Vidhi Builders v. ITO [ITA No. 1212/Mum/2009 for A.Y. 2005-06 dated 8th April, 2011] wherein the Tribunal held that the area earmarked for road setback, recreation open space and internal road setback cannot be excluded for the purpose of calculating the total plot area. While deciding the issue, the Tribunal placed reliance on the earlier order of the Mumbai Bench in the case of Umiya Enterprises v. ITO [ITA No. 2750/Mum/2009 for A.Y. 2004-05]. In view of this, we are inclined to hold that as per provisions of section 80IB(10) of the Act, the housing project should be on the size of a plot of minimum one acre. If the building project was sanctioned by the Municipal Corporation for developing the project in the area of one acre land or more, the assessee is entitled for deduction u/s. 80IB(10) of the Act.
13. We have carefully gone through the approved building plan as per which total area of the project is 4310.89 sq. metres, East side road widening area is 1089.21 sq. metres, West side road widening area is 8439 sq. metres and the net plot area is 3127 sq. metres. The learned AR submitted before us that the total plot area is 5130 sq. yards which more than one acre. It is also pleaded before us that the assessee's plot is more than one acre and, beyond his control, a potion of the plot was earmarked for roads. Being so, liberal interpretation of section 80IB is to be considered. In our opinion, if a portion of the plot area is earmarked for roads after the assessee entered into development agreement and the plan was duly sanctioned by the competent authority, we cannot find fault with the assessee to deny the deduction u/s. 80IB(10) of the Act. Accordingly, we are of the opinion that the area of the plot available to the assessee for housing project is more than 1 acre. Accordingly, the claim of the assessee cannot be denied on this ground if it is available at the time of entering into development agreement and deduction u/s. 80IB(10) is to be given to the assessee.
14. Regarding non-production of completion certificate, the learned AR submitted that the circumstances brought on record show that the project is completed. He relied on judgement of Gujarat High Court in the case of Manan Corpn. v. Asstt. CIT [2013] 29 taxmann.com 15 wherein held that there is no necessity of strict interpretation of section 80IB(10) of the Act as it is a beneficial provision and the facts brought on record show the completion of the project and deduction has to be given. He also relied on the order of the Tribunal in the case of Keerthi Estates (P.) Ltd. v. Dy. CIT[2012] 54 SOT 273/26 taxmann.com 259 (Hyd.), wherein held as follows:
"14. Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only "Project Completion Method" it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method.
15. In view of the foregoing discussion, we direct the Assessing Officer to allow deduction u/s. 80IB(10) of the Act in the light of the order of the Tribunal in Hiranandani Akruti JV v. DCIT (39 SOT 498)."
15. Coming to the facts of the present case, the project was approved by the Municipal Corporation of Hyderabad vide their permit No. 48/49 f. No. 0069/CSC/TP-5/04 dated 3.11.2004. As per certificate of assessee's architect dated 3.9.2008, the project was completed on 1.10.2007. The learned AR submitted before us that the assessee has completed the project by this date and the assessee is following contract completion method. The claim for deduction u/s. 80IB(10) was made by the assessee for the first time which was denied by the authorities on the reason that there is no completion certificate.
16. The meaning of "date of completion" has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction u/s. 80IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee's claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80IB(10) species that such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction, -
(i)  in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii)  in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 [but not later than the 31st day of March, 2005], within four years from the end of the financial year in which the housing project is approved by the local authority;
17. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit, Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer cannot insist on the completion certificate in the impugned year. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009, paras 2 to 4 of which are reproduced hereunder:
"2. Clarifications have been sought by various Chief CITs on the issue whether the deduction under s. 80IB(10) would be available on a year-to-year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the project under s. 80-IB(10).
3. The above issue has been considered by the Board and it is clarified as under :
(a)  The deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project in every year.
(b)  In case it is late and it is found that the condition of completing the project within the specified time-limit of 4 years as stated in s. 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn.
4. The above instruction will override earlier clarification on this issue contained in Member (R.)'s D.O. Letter No. 58/Misc/2008/CIT (IT & CT), dt. 29th April, 2008 and Member (IT)'s D.O. Letter No. 279/Misc/46/ 2008-ITJ dt. 2nd May, 2008."
18. Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only "Project Completion Method" it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method".
19. In view of the above discussion, the Assessing Officer is directed to consider the claim of the assessee in the light of the above observations.
20. In the result, appeal of the assessee is allowed.


IT : Where assessee was able to show that admission made during survey by surrendering income on excess stock was incorrect, on basis of seized material itself, addition was unjustified
■■■
[2013] 34 taxmann.com 144 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Assistant Commissioner of Income-tax, Central Circle, Agra
v.
Maya Trading Co.*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 31 (AGRA) OF 2012 
C.O. NO. 20 (AGRA) OF 2012
[ASSESSMENT YEAR 2008-09]
OCTOBER  5, 2012 
Section 133A, read with sections 69 & 69A, of the Income-tax Act, 1961 - Survey [Admissions] - Assessment year 2008-09 - Partner of assessee-firm surrendered excess stock calculated by survey party on basis of provisional trading account - Excess cash found was also declared as income of assessee - Later, assessee contended that figures of sale and purchase in provisional trading account were incorrect and that excess cash was invested by a partner in firm which was reflected in his return - Whether, admissions made during survey are not conclusive proof of matter and can be shown to be untrue or having been made under mistake of fact or law, having regard to circumstances - Held, yes - Whether, assessee should be given opportunity to show and prove that admission made by him was not correct and true - Held, yes - Whether, therefore, where assessee, on basis of seized material itself, was able to show that admission made during survey by surrendering income on excess stock was not correct, and also that excess cash was actually invested by partner, deletion of substantial addition was justified - Held, yes [Para 4] [In favour of assessee]
FACTS
 
■  During search and seizure operation, the survey party worked out excess stock of Rs. 37.11 lakhs by preparing a provisional trading account. The partners of assessee-firm, not being able to explain the excess stock, surrendered same and agreed to pay tax on the value of excess stock. Excess cash found during survey was declared by the partners as income of firm other than regular income.
■  The return filed after survey did not disclose the excess stock and excess cash found during survey. Therefore, the Assessing Officer rejected assessee's books of account and made addition for excess stock under section 69 as unexplained investment, and on account of excess cash under section 69A as unexplained moneys.
■  On appeal, the assessee contended that the provisional trading account prepared by the survey party was not correct as the figures of sale and purchase had not been worked out correctly. After working out the revised figure of sale and purchase on the basis of impounded bills, excess stock was shown to be only Rs. 1.1 lakhs. With regard to the excess cash, it was claimed to have been invested by a partner in the assessee firm, which was reflected in his return. The Commissioner (Appeals), therefore, reduced substantially the addition made by the Assessing Officer.
■  On revenue's appeal:
HELD
 
■  It is well settled law that admission are not conclusive proof of the matter. They may be shown to be untrue or having been made under mistake of fact or law. Circumstances have to be seen under which same are made. It can be withdrawn unless it is estoppel and conclusive. The Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18, held that the assessee should be given opportunity to show that admission is incorrect or does not show correct state of facts. The Punjab & Haryana High Court in the case of Kishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293, held that it is an established principle of law that a party is entitled to show and prove that admission made by him was in fact not correct and true. Considering the facts of the case in the light of the legal proposition above, the Commissioner (Appeals) has committed no error in reducing substantial addition. [Para 4]
■  The case of the assessee is entirely based upon provisional trading account prepared at the time of survey showing the figure of purchase and sales differently as against the figures pointed out by the assessee. It is also not in dispute that the assessee prepared the working of the purchase and sales figures on the basis of the impounded bills. The Commissioner (Appeals) verified all the figures at the appellate stage in the presence of the Assessing Officer, and after verification of purchase and sales, found that correct figures had been pointed out by the assessee. Thus, the sole basis of making addition, i.e., provisional trading account was not found having correct figures of purchase and sales. Whatever items had been declared by the assessee on account of excess stock were given benefit correctly by the Commissioner (Appeals). Since the figures of the sales and purchases were based on factual figures, therefore, it is a case of factual mistake committed by the Survey party as well as by the Assessing Officer, which has been rightly corrected by the Commissioner (Appeals). Thus, the assessee on the basis of seized material itself has been able to show that the admission made at the time of survey, surrendering the additional income on account of excess stock was not correct and did not show correct state of facts. Therefore, no addition could be made against the assessee on the basis of mere admission according to the facts and circumstances of this case. The Commissioner (Appeals) correctly, on the basis of the material on record, deleted the substantial addition. Therefore, no infirmity is found in the order of the Commissioner (Appeals) in deleting the addition. [Para 4]
■  In the result, the departmental appeal is dismissed. [Para 5]
CASE REVIEW
 
Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) (para 4) and Kishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. & Har.) (para 4) followed.
CASES REFERRED TO
 
Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi AIR 1960 SC 100 (para 2.4), Thiru John v. Returning Officer AIR 1977 SC 1724 (para 2.4), Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170/[1999] 105 Taxman 386 (Delhi) (para 2.4), CIT v. S. Khader Khan Son[2008] 300 ITR 157 (Mad.) (para 3), ITO v. Vijay Kumar Kesar [2010] 327 ITR 497 (Chhattisgarh.) (para 3), Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) (para 4) and Kishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj & Har.) (para 4).
Km. Anuradha for the Appellant. Rakesh Gupta for the Respondent.
ORDER
 
Bhavnesh Saini, Judicial Member - This appeal by the Revenue and the cross-objection by the assessee against the order of ld. CIT(A)-I, Agra dated 29.06.2011 for the assessment year 2008-09. In the departmental appeal, the Revenue has challenged the order of the ld. CIT(A) in restricting the addition made on account of excess stock to Rs.1,68,795/- as against the addition of Rs.37,11,782/- made by the AO. The part of the additions maintained by the ld. CIT(A) though challenged in the cross-objection but Ld. AR seeks permission to withdraw the cross objection. The cross objection of the assessee is dismissed as withdrawn.
2. We have heard the ld. Representatives of both the parties, perused the findings of the authorities below and considered the material on record. In this case, a survey was conducted on 30/31.01.2008 during the course of search and seizure operation in the case of Shankar Gutkha group. At the time of survey, an excess stock of Rs.37,11,782/- was worked out by the survey party on the basis of a provisional trading account prepared, Since partner of the appellant firm could not explain excess stock of Rs.37,11,782/-, the same was surrendered and they agreed to pay taxes on the value of excess stock. At the time of survey, an excess cash of Rs.2,14,000/- was also found and the same was also declared by the partners of the firm as the income of firm other than its regular income. After the survey operation, the appellant firm filed a return of income declaring an income of Rs.2,60,620/-. In this return of income, the amount of excess stock disclosed during the survey amounting to Rs.37,11,782/- was not found to be included by the AO, Similarly, the AO has also noted that an excess cash of Rs.2,14,000/- found during the survey and declared by the partner of the firm as the income of the firm other than its regular income, was not included. In view of these findings, the AO relying on the report of survey found that books of account of the appellant was not maintained correctly and hence, he rejected books of account invoking the provisions of section u/s 145(3) and thereafter, he made addition of Rs.37,11,782/- u/s 69 on account of unexplained investment made by the appellant firm in the excess stock found during the course of survey and Rs.2,14,000/- was added u/s 69A on account of excess cash found during the course of survey and thus, the assessed income of the appellant firm was determined at Rs.41,86,402/- as computed below:-
Income shown by the assesseeRs.2,60,620/-
Add :  
1. Addition u/s. 69 as discussed aboveRs.37,11,782/-
2. Addition u/s. 69A as discussed aboveRs. 2,14,000/-
  Rs.41,86,402/-
The working of excess stock of Rs.37,11,782/- made during the course of survey operation has been discussed in the assessment order as under:-
"During the course of survey operation u/s. 133(A) on 30.01.2008, inventory of stock were prepared in the business premises of Maya Trading Co. SR. Market, Rawat Para, Agra and its godown. The stock worh Rs. 37,25,1001/- was found which is as under:-
 S.No. 1 Name of Item Supari Quantity in Bags 292 Rate 70x85 Value (Rs) 17,37,400
  2Plastic Bardana 340x20 800
  3Kattha 26315x20 1,63,800
  4Powder  715x20 2,100
  5Supari (chura) 3060x20 36,000
  6Supari 30070x85 I 17,85,000
        37,25,100/-
After considering the above stock and figures of purchases and sales as per assessee's books of account, a provisional Trading account of M/s Maya Trading Co. was prepared on 30.01.2008 by the survey team which is as under:-
 Opening Stock15,80,000Sales 74,20,097
 Purchases49,00,465 Closing stock13,318
 Freight 2,52,654  
  GP. (9.43%)6,99,715  
   74,33,415  74,33,415
On the basis of above figures, excess stock worth Rs.37,11,7821/- (37,25,100-13,318) was found. During survey, the main partner Shri Neeraj Maheshwari was specifically required to explain excess stock but he could not explained the same and he had surrendered the amount of Rs.37,11,7821/- on account of excess stock at the time of survey and he had agreed to pay the due taxes."
2.1 The assessee challenged the addition of Rs. 37,11,782/- before the ld. CIT(A) and filed the written submissions also. In the written submissions, it has been pointed out that that the 'provisional trading account made by the survey party to arrive at the excess value of the stock was not correct because the sale and purchase figures were not correctly worked out. In this written submission, working out of sale and purchase figures was made on the basis of the impounded bills and the value of the sales was arrived at Rs.67,58,352/- and the value of purchase was arrived at Rs. 71,79,376/-. After working out the revised figure of sale and purchase on the basis of the impounded bills, it was shown that the excess figure of stock was coming to only Rs.1, 11,242/- taking, into account the figure of excess stock of Rs.6,60,000/- included in the profit & loss account filed alongwith the return of income. The Ld. AR pointed out that the assessee has already surrendered the value of 160 bags of Rs.6,00,000/- while finalizing its final account which was well reflected in the details filed along with the trading account. On the basis of revised computation of sale and purchase filed in the written submission, it has been pleaded that no further addition is required to be made in the assessment order on account of excess stock in the income declared by the appellant taking into account the fact that the valuation of stocktaking was not done by the survey team properly resulting into over valuation by Rs.5,02,742/-. With regard to excess cash of Rs.2,14,000/-, it has been submitted that this excess cash was not surrendered in the hand of the firm but it was the investment made by the partner Shri Neeraj Maheshwari in the appellant firm and the same has been reflected in the return of income filed by him.
2.2 In view of the submission made by the Ld. Counsel for the assessee in the above mentioned written submission, a letter A.No.382(10-11)/CIT(A)-I/Agra/ACIT-CC/Agra/2011-12 dated 03.05.2011 was written to the AO asking his report about the computation of sale and purchase figures of Rs.74,20,097/- and Rs.49,00,581/- respectively, shown in the provisional trading account as shown in para no. 3.2 of this order, on the basis of which, excess stock of Rs.37,11,782/- was worked out. Similarly, for excess cash of Rs.2,14,000/-, the AO was asked to c1arify as this cash was declared under whose hand during the course of survey operation. The queries raised to the AO in the letter dated 03.05.2011 are reproduced as under :
"(1) The first addition is made u/s. 69 of Rs.37,11,742/- on the basis of excess stock found during survey. The value of excess stock has been computed after preparation of provisional trading account of the appellant on the basis of assessee's books of account. In the written submission, the Ld. AR has disputed the computation of purchase and sales shown in the provisional-trading account prepared in the assessment order. In this provisional trading account, you have computed purchases as Rs.49,00,581/- and sales as Rs.74,20,097/- respectively. As against this computation, Ld. AR in his written submission has computed sale and purchase as Rs.71,79,376/- and Rs.67,58,352/- respectively. It has been argued that if these figures of purchase and sales are taken in the provisional trading account in place of sales and purchases computed by you, there will not be any excess stock. After examination of the facts given by the Ld. AR in his written submission, please clarify following issues-
(i)  The basis for computation of purchase of Rs. 49,00,581/- should be explained as shown in the provisional trading account prepared by you and supporting documents should also be produced during hearing on the basis of which this figure of purchase has been computed by you.
(ii)  The basis for computation of sales of Rs. 74,20,097/- should be explained and supporting document should also be produced during the hearing on the basis of which this figures of sales has been computed by you.
(iii)  Provide your specific comments on the computation of sale and purchase given by the Ld. AR in his written submission. His computation is correct or not and if it is not correct what are the specific defects in the computation of Ld. AR should be specifically mentioned.
(2) As against the addition of Rs. 2,14,0001- u/s 69A for the excess cash found during survey, it has been submitted by the Ld. AR in the written submission that this cash was surrendered by the partner Mr. Neeraj Maheshwary in his hand. In support of this argument, the statement given by him during the course of survey operation is a/so enclosed in the written submission at page no.9 wherein it has been shown to me that he stated that this cash should be considered as his undeclared income and it has been also stated that it is in addition to the regular income of the firm and he is ready to pay tax on this income. Despite this statement of partner the addition for unexplained cash is made in the assessment order of the firm on the ground that during survey, it was stated by the partner that he has no explanation for this cash and the excess cash surrendered is undisclosed income of the firm. I find contradiction in the statement shown by the Ld. AR and what is discussed in the assessment order by you. Therefore, you are required to produce before me the statement of the partner of the firm relied upon by you for which it was discussed in the assessment order by you that this cash is undisclosed income of the firm. You should also give your specific comments whether the statement enclosed with the written submissions page no.9 by the ld. AR is correct. The Ld. AR has also informed that this cash amount has already been disclosed by the partner in his return income as his income. The same may be verified and commented by you.
2.3 In response to the above letter, a report was submitted by the AO vide his letter F.No. ACIT/CC/Maya,Tdg/Remand/11-12 dated 16.05.2011 and the same is reproduced as under:-
"1. During the course of survey conducted at the business premises of the assessee on 30.01.2008 provisional trading account was prepared by the survey team on the basis of available document and information gathered from different sources, calculating the figures of purchase and sale at Rs.49,00,581/- and Rs.74,20,097/- respectively which were confronted to the assessee at the time of survey and same was well accepted by the assessee and accordingly a surrender of Rs.37,11,782/- was made by the partner of the firm Shri Neeraj Maheshwari (copy of provisional trading account and confessing statement of the partner enclosed). Acceptance of the assessee at the time of survey on the basis of physical stock taken and provisional trading account were itself legal evidences for its correctness and genuineness. No objection regarding provisional trading account was raised by the assessee at the time of survey. On the basis of survey material and report of survey team and ADI, the said addition was made in the income of the assessee.
Reliance is made on the following case law in which it is held that confessing statement is the best evidence.
The Hon'ble Supreme Court in the case of Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi AIR 1960 (SC) 100 and Thiru John v. Returning Officer AIR 1977 (SC) 1724, 1726 an admission, made clearly and unequivocally, is the best evidence against the party making it and though not conclusive, shifts the onus on to the maker on the principle that what a party himself admits to be true may reasonably be presumed to be so and until the presumption was rebutted, the fact admitted must be taken to be established.
The above conclusion is also supported by following court decisions - (Jindal Photo Films Ltd. v. DCIT [1998] 234 ITR 170, 177, 178-179 (Del).
2. During the course of survey a sum of Rs. 2,14,000/- cash was found in excess which was surrendered by the partner Shri Neeraj Maheshwari. In his statement at page no.7 (copy enclosed) the partner Shri Neeraj Maheshwari has surrendered Rs. 39,25,782/- Rs. 37,11,782 + Rs.2,14,000/- in the hands a firm M/s Maya Trading Co. After considering the survey report of the ADI in which it was clearly mentioned that the sum of Rs. 2,14,000/- was surrendered in the hands of the firm, hence, the same was added in the hands of the firm as Mr. Neeraj Kumar Maheshwari could not prove the sources of excess cash found in the premises of the firm M/s Maya Trading company.
3. During the course of survey proceedings number of books of account and loose papers and incriminating papers were impounded. As mentioned above a provisional trading was prepared by the survey team on the basis of material and documents available at the time of survey. Since there was difference in the stock physically found during the course of survey and availability as per record /accounts. On the basis of provisional trading account prepared by the survey team the excess stock of Rs.37,1,182/- was found. Considering all the facts and circumstances of the case the books of account of the assessee were rejected u/s 145 (3) of the I.T. Act, 1961."
2.4 In the above report, the AO after relying on two case laws in the case of Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak GosaviAIR 1960(SC) 100 and Thiru John v. Returning Officer AIR 1977 SC 1724 & Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170/[1999] 105 Taxman 386 (Delhi) argued that the admission during the course of a survey is the best evidence and therefore, the excess declared by the assessee during the survey should be accepted. However, he did not give any comment on the basis of computation of purchase figures of Rs. 49,00,581/- and sale figure of Rs. 74,20,097/- as shown in the provisional trading account. No supporting documents have been produced to justify working of these two figures. Therefore, in the hearing held on 15.06.2011, the AO was asked to submit his report with regard to three specific queries (i), (ii) & (iii) raised in my letter dated 03.05.2011 (reproduced in para no. 5.2) because the Ld. AR in his rejoinder filed on 15.06.2011 has again specifically questioned the correctness of computation of sale figure of Rs.71,79,376/- and purchase figure of Rs. 49,00,581/- shown in the provisional trading account. The Ld. AR argued insisting that his working of sale figure of Rs. 67,58,352/- and purchase figure of Rs. 71,79,376/- is based on the impounded sale bills and purchase bills which were in the possession of the department and the same were found during the course of survey. Therefore, in view of the Ld. AR, since for working out figures of purchase and sale as shown by him in his written submission, no additional documentary evidence have been deduced by him and therefore, either the AO should justify his own figure of purchase of Rs. 49,00,581/- and sale figure of Rs.71,39,376/- based on supporting documentary evidence or he should comment on the correctness of the sale and purchase figures worked out by him on the basis of impounded sale bills. In view of the objection raised by the Ld. AR in his rejoinder filed on 15.06.2011, the AO was further asked to submit his report on the computation of sale and purchase figure shown in provisional trading account. In response to my direction, the AO has further submitted his report vide his letter F. No. ACIT/CC/Maya Tdg/Remand/11-12 dated 22.06.2011 and the same is reproduced as under:-
"In continuation of remand report filed and explanation asked on 15.6.2011 in connection with the figures of provisional trading account worked out during the course of survey it is submitted as under:
(1) That the figures of purchases Rs.49,00,581/- and sales of Rs.74,20,097/- worked out by survey team were re-examined with the impounded material. It was noticed that consignment sales of Rs. 6,86,753. 85 against Form F seems to be wrongly added in the figures of sales reflected in provisional trading account. After deducting the consignment sales the figure of sales comes to Rs. 67,33,344/- while the appellant submitted the total sales at Rs. 67,58,352/-. The difference comes to Rs.25,008/-. So far as the figure of purchases are concerned it was further re-examined and the figures submitted by the appellant were also re-examined with the impounded material and no discrepancy was noticed. As the figures of purchases shown in the provisional trading account worked out by the survey team was confronted to the appellant and he admitted the same as correct. Based on the figures worked out by the survey team which were well accepted by the appellant thereby the said addition of Rs. 37,11,782/- was made in the assessment order."
2.5 The ld. CIT(A) after considering the explanation of the assessee in the light of the seized material, restricted the addition on account of excess stock to Rs.1,68,795/- as against addition made by the AO at Rs.37,11,782/-. The findings of the ld. CIT(A) in paras 5.5 to 6.5 of the appellate order are reproduced as under :
"5.5 After receiving the second remand report of the AO vide his letter dated 22.06.2011, a hearing was held on 28.06.2011 along with the Ld. AR and the AO. In order to verify the correctness of purchase bills, impounded document A-11 containing various purchase bills were also examined by me personally along with the AO who was present during the hearing. After verifying each and every bill in Annexure A-11, it has been found that total purchases is coming to Rs.71,79,376/- as computed by the Ld. AR. In the provisional trading account, total purchases were shown as Rs.49,00,581/-. However, no working was given in the survey file and hence correctness of working of purchase of Rs.49,00,581/- could not be verified. The AO during the hearing also could not justify the purchase amount of Rs.49,00,581/- taken in the provisional trading account. Therefore, in view of the impounded purchase bills as produced before me by the AO in form of Annexure A11, it has been decided to take purchase amount as Rs.71,79,376/-. In the second remand report dated 22.06.2011, the AO himself has admitted that the consignment sales of Rs.6,86,753.85/- against form F seems to be wrongly added in the figures of provisional trading account and, therefore, after deducting the consignment sales, the figures of sales comes to Rs.67,33,344/- through the figures of sales reported by the appellant was at Rs.67,58,352/-. During the course of hearing on 28.06.2011, the AO has agreed to take sale figure at Rs.67,58,352 shown by the Ld. AR in the provisional trading account made by him. Therefore, after discussion with Ld. AR and AO, it has been decided that the amount of excess stock found during the course of survey operation should be reworked after making another trading account by taking sale figure at Rs.67,58,352/- and purchase figure at Rs.71,79,376/-.
5.6 Regarding excess cash of Rs.2,14,000/-, after examining the statement of Shri Neeraj Kumar Maheshwari, partner of the appellant firm, it has been found that this amount was finally surrendered in the hand of the firm stating in the statement that this amount is his unaccounted income which is in addition to regular income of the firm. The relevant portion of the statement of Shri Neeraj Kumar Maheshwary is given as under:-
Further, from the answer to question no.23 in the statement of Shri Neeraj Kumar Maheshwari, it becomes more clear that excess cash of Rs.2,14,000/- was declared in the hand of the firm and not in the hand of Shri Neeraj Kumar Maheshwari. The relevant portion of this answer is reproduced as under: -
5.7 In the above answer, the total amount of Rs.39,25,782/- declared in the name of the appellant firm includes Rs.37,11,782/- on account of excess stock and Rs.2,14,000/- on account of excess cash. Rs.10,50,000/- declared by Sri Neeraj Kumar Maheshwari in his individual name includes Rs.6,50,000/- for AY 08-09 and Rs.4,00,000/- for AY 07-08. On verifying the assessment order of Shri Neeraj Kumar Maheshwari also, for AY 08-09 passed u/s 143(3) vide order dated 10.12.2010, it has been found that though Rs.6,50,000/- declared by him in his personal capacity was considered by the AO for making necessary addition in his hand but the amount of Rs.2,14,000/- was not included in his income. Therefore, it has become very clear Rs.2,14,000/- of excess cash declared in the hand of firm was neither considered in the hand of Shri Neeraj Kumar Maheshwari partner of the firm, nor it was declared in the hand of the appellant firm. Therefore, the excess cash of Rs.2,14,000/- found during the course of survey operation and declared as being in addition to regular income of the appellant is required to be considered in the hand of the appellant firm only.
6.1 In view of the above findings with regard to working of excess stock and excess cash found during the course of survey as it has emerged during the course of hearing of appeal, Grounds no.3 & 4 have been decided in which both the additions on account of excess stock and on account of excess cash were challenged. In Ground no.3, the appellant challenged the addition of Rs.37,11,782/- on account of excess stock. With regard to this addition, I have already discussed in detail in previous para that on making verification from the impounded purchase bills and sales document the correct figure of the purchase have been found to be Rs.71,79,376/- and sale figure has been found to be Rs.67,58,352/-. While making the provisional trading account, the GP of 9.43% was taken by the survey party and the freight figure was taken to be Rs.2,52,654/-. After deducting these figures and taking the figures of purchase and sale as per the impounded documents, the provisional trading account of the appellant is made as under:-
Trading account
 Opening stock15,80,465/- Sales67,58,352/-
  Purchase71,79,376/-Closing stock28,91,455/-
 Freight2,52,654/-   
 G.P. (9.43% of sale) 6,37,312/-  
   96,49,807/-   96,49,807/-
6.2 As per the above trading account, the stock of the appellant is coming to Rs.28,91,455/- as against the stock of Rs.37,25,100/- found during the course of survey operation. Therefore, the excess stock would come to Rs. 8,33,645/- 37,25,100 - 28,91,455). As against this excess stock, the appellant has shown that he has already declared the excess stock of Rs.6,64,850/- as his additional income in the Profit & Loss account and hence the figure of excess' stock declared by the appellant was found short by Rs. 1,68,795/- (Rs.8,33,645 - Rs.6,64,850/-) and therefore, the AO is directed to add Rs.1,68,795/- in the income of the appellant u/s. 69 on account of the figure of excess stock as computed above and not disclosed by the appellant in the return of income. Therefore, the addition of Rs.37,11,742/- made by the AO in the assessment order on account of undisclosed stock is sustained to the extent of Rs.1,68,795/- and the appellant gets relief of Rs.35,42,987/-. In the result Ground no.3 is partly allowed.
6.3 As regards to the argument of the AO in the remand report dated 16.05.2011, that the confession statement during the course of survey should be considered as best evidence, I find that in the decisions cited by the AO, it has also been held that though such evidence are best evidence but they are not conclusive and these evidences can be considered during the course of assessment proceeding only till they are not rebutted by the assessee with supporting evidence. Recently, it has been held by the Hon'ble Delhi High Court in the case of CIT v. Dhingra Metal Works [2010] ITA No. 111/2010 dated 4.10.2010 (copy of the order is placed at Annexure A-1) that the word 'may' used in section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and statement recorded during the survey is not a conclusive piece of evidence by itself. The Court has also agreed as it was held by the Hon'ble Allahabad High Court in case of Dr. S.C. Gupta v. CIT 248 ITR 782 (All) as cited by AO that it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. By citing this general principle, their Lordships were of the opinion that since the responded assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant records including the excise register of an associate company namely M/s D.M.W.P. Ltd., the AO could not have made the aforesaid addition solely on the basis of the statement made on behalf of the respondent assessee during the course of survey.
6.4 In the present case under appeal also, though the appellant declared the excess stock of Rs.37,11,782/- during the course of survey on the basis of provisional trading account prepared by the survey party but on making verification from the impounded sales and purchase bills later on, it was found that the working of sales and purchases were not done by the survey party correctly and therefore, the working of excess stock made by the survey party was not found to be correct. I have already discussed in para No. 5.5 that the sale and purchase figures were worked out on the basis of the impounded document in the presence of the AO on 28.06.2011 and it has been found that sale and purchase figures shown in the provisional trading account made by the survey party was not correctly worked out and the AO also could not justify the figures of sale and purchase shown in the provisional trading account. Therefore, in my opinion, the Ld. AR was able to rebut the confession made by the appellant during the course of survey operation on the basis of impounded document and such rebuttal cannot be brushed aside only on the basis of a statement recorded during the survey operation which was based on a provisional trading account, the correctness of which could not be established by the AO with any supporting evidence. Therefore, in my considered opinion, no addition on the basis of confessional statement can be sustained unless such confession is supported by some documentary evidence and this view has been clearly emphasized by the CBDT in its Instruction No.286/2/2003-IT(lnv.) in which it has been stated as under:-
"Instances have come to the notice of the Board where assessee have claimed that they have been forced to confess the undisclosed income during the course of search and seizures and survey operations. Such confessions, if not based upon creditable evidence, are later retracted by the concerned assessee while filling returns of income. In these circumstances, confessions during the search and seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidences of income which leads to information on what has not been disclosed or is not likely to be disclosed before the income tax department. Similarly, while recording statement during the course of search, seizure and survey operations no attempt should be made to obtain confessions as to the undisclosed income. Any action on the contrary shall be viewed adversely."
The above instruction is placed at Annexure A-2
6.5 In view of the above Instruction of the CBDT as well as the decision of Delhi High Court in the case of CIT v. Dhingra Metal Works (supra), I find that the AO was not justified in making addition of Rs.37,11,782/- just on the basis of a confessional statement without examining the impounded document. On examination of the impounded document and return of income filed by the appellant, it has been found that the addition to the extent of only Rs.1,68,795/- is sustainable and the same has been confirmed by me in this order."
3. The ld. DR relied upon the order of the AO and submitted that the AO, correctly, on the basis of provisional trading account prepared at the time of survey made the addition on account of excess stock in a sum of Rs.37,11,782/-. On the other hand, the ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the survey party did not take correct figures of sales and purchases. Therefore, the provisional trading account prepared at the time of survey was not correct and when all the sales and purchase vouchers were impounded during the course of survey and correct figures have been taken as per impounded documents and revised figures have been taken by the ld. CIT(A) of purchase and sales, there were no differences with regard to the stock and only small difference in stock was found in a sum of Rs.1,68,795/-. Therefore, no interference is called for in the matter and for part addition maintained by the ld. CIT(A), the assessee did not challenge the cross-objection. He has submitted that the statement given at the time of survey is not conclusive and it is open to the assessee to establish that the same was not true and correct by filing the cogent evidence. In support of his contention, he has relied upon the decision of Madras High court in the case of CIT v. S. Khader Khan Son [2008] 300 ITR 157 and also submitted that the said decision has been confirmed by the Hon'ble Supreme Court recently. He has also relied upon several decisions in support of the same contention. The copies of the same are filed in the paper book and also relied upon the decision of Hon'ble High Court of Chhattisgarh in the case of ITO v. Vijay Kumar Kesar [2010] 327 ITR 497. He has also cited some other decisions of the Tribunal, copies of which are filed in the paper book on the proposition that addition was merely made on the basis of statement recorded during the course of survey without bringing any corroborative evidence and the addition cannot be sustained.
4. We have considered the rival submissions and do not find any justification to interfere with the order of the ld. CIT(A). It is well settled law that admission are not conclusive proof of the matter. They may be shown to be untrue or have been made under mistake of fact or law. Circumstances have to be seen under which same are made. It can be withdrawn unless it is estoppel and conclusive. Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 held that the assessee should be given opportunity to show that admission is incorrect or do not show correct state of facts. Hon'ble Punjab & Haryana High Court in the case of Kishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 held that it is an established principle of law that a party is entitled to show and prove that admission made by him was in fact not correct and true. Considering the facts of the case in the light of the legal proposition above, we do not find if the ld. CIT(A) has committed any error in reducing substantial addition. The case of the assessee is entirely based upon provisional trading account prepared at the time of survey showing the figure of purchase and sales differently as against the figures pointed out by the assessee. It is also not in dispute that the assessee prepared the working of the purchase and sales figures on the basis of the impounded bills and value of the sale was arrived at Rs.67,58,352/- and the purchases have been found at Rs.71,79,376/- as against the sales and purchases of Rs.74,20,097/- and Rs.49,00,581/- as per the provisional trading account. The correct figures pointed out by the assessee of sales and purchases were based upon the impounded documents. The ld. CIT(A) verified all the figures at the appellate stage in the presence of the AO and after verification of purchase and sales found that correct figures have been pointed out by the assessee. Thus, the sole basis of making addition, i.e., provisional trading account was not fund having correct figures of purchase and sales. Whatever items have been declared by the assessee on account of excess stock have been given benefit correctly by the ld. CIT(A). Since the figures of the sales and purchases were based on factual figures, therefore, it is a case of factual mistake committed by the Survey Party as well as by the Assessing Officer, which has been rightly corrected by the ld. CIT(A). Thus, the assessee on the basis of seized material itself has been able to show that the admission made at the time of survey surrendering the additional income on account of excess stock was not correct and did not show correct state of facts. Therefore, no addition could be made against the assessee on the basis of mere admission according to the facts and circumstances of this case. The ld. CIT(A) correctly on the basis of the material on record, deleted the substantial addition. The case law relied upon by the ld. CIT(A) support the findings of ld. CIT(A). It is a departmental appeal and no material has been produced before us to contradict the findings of the ld. CIT(A) in deleting the addition. We, therefore, do not find any infirmity in the order of the ld. CIT(A) in deleting the addition.
5. In the result, the departmental appeal is dismissed and the cross objection of the assessee is dismissed as withdrawn
--
Regards,

Pawan Singla
BA (Hon's), LLB
Audit Officer


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