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10-07-2019, Sunil Prahladbhai Sewani, Section 145(3), Tribunal Ahmedabad

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3 months 6 days ago #10050 by amit
Section - 145(3), 36(1)(iii)
Order Date - 10-07-2019
Favouring - Revenue allowed for statistical purposes
Court - Tribunal Ahmedabad
Appellant - DCIT
Respondent - Sunil Prahladbhai Sewani
Citation - 719Taxpundit146
Appeal No. - I.T. (SS)A. Nos. 179 & 180/Ahd/2015
Asstt. Year - 2011-12 & 2012-13



The captioned appeals have been filed by the Revenue concerning AYs 2011-12 & 2012-13 against the respective orders of the Commissioner of Income Tax (Appeals)- I, Ahmedabad (‘CIT(A)’ in short), both dated 18.03.2015 arising from the respective assessment orders both dated 24.03.2013 passed by the AO under s.143(3) r.w.s. 153A(1)(b) of the Income Tax Act, 1961 (the Act).

2. The assessee has also filed cross objection in the respective appeals of the Revenue. Both the Revenue’s appeals and the cross objections of the assessee thereon have been heard together owing to similarity of the issues involved.

3. We shall first take up Revenue’s appeal in IT(SS)A No. 179/Ahd/2015 concerning AY 2011-12.

4. The grounds of appeal raised by the Revenue read as under:

“1) The Ld. CIT(A) has erred on law and on facts and circumstances of the case in deleting the addition of Rs.1,70,39,124/- being increase in the net profit by rejecting books of account u/s 145(3) of the Act.”

5. Briefly stated, the assessee is engaged in the business of construction of Real Estate and follows Percentage Completion Accounting Method (PCAM) for working out the profits. A search under s.132 of the Act was carried out in the case of Sewani Group on 20th December 2011. The assessee, an individual, is one of the entities of the Sewani Group. Following the aforesaid search, proceedings under s.153A of the Act were initiated in the case of the assessee for the specified period covered under first proviso to Section 153A of the Act i.e. in respect of AYs. 2006-07 to 2012-13. With regard to the AY 2012-13 (also subject matter of appeal), the return of income was filed after the date of search on 30th September, 2012. However, in respect of preceding six assessment years, the original return of income were already filed by the assessee within time permitted under s.139(1) of the Act. In response to the notices issued under s.153A of the Act, the return of income for AY 2011-12 in question was again filed declaring the same income in parity with original return of income. The assessment proceedings relating to AY 2011-12 falling within the period of six assessment years referred to under s.153A of the Act and pending on the date of initiation of search under s.132 of the Act stood abated and the assessment was framed under s.153A(1)(b) of the Act.

5.1 In the course of the assessment proceedings under s.153A of the Act, the AO inter alia raised queries regarding correctness of profits declared as per the books of accounts, the replies thereof were not found satisfactory by him. It was observed by the AO that books of accounts were inconsistent vis-à vis the closing stock valuation shown by the assessee. It was alleged that the assessee has arbitrarily claimed expenses without justification and also did not capitalize the interest expenses adequately in proportion to the project size. The AO accordingly re-casted the project-wise ‘construction account’ of the assessee representing the stock, WIP, direct expenses relating to various projects undertaken and the closing stock of various projects were increased as a result of certain adjustments. As a result of readjustments, year-wise net profit/loss of the assessee was re-computed as under:

We are however presently concerned with proceedings in relation to AY 2011-12 and 2012-13 in question.

5.2 It was alleged by the AO that the books of accounts of the assessee did not give true and fair picture of the affairs of the business under s.145(3) of the Act. The AO gathered information from the assessee in connection with various projects in progress and method of the accounting vis-à-vis closing stock valuation and consequently re-computed taxable profits for various assessment years falling within the specified period in search assessment on the basis of re-computation of ‘ cost of goods’ sold and closing workin-progress’ on year to year basis.

5.3 The books of accounts were rejected by invoking Section 145(3) of the Act and the ‘cost of sales’ and ‘closing stock’ was reworked whereby the additions were made in respect of understatement of profits to the extent of Rs.1,70,39,124/- to the total income of the assessee for AY 2011-12 in question. Similar
additions were made in respect of other assessment years as tabulated above.

6. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) after consideration of the detailed submissions made on behalf of the assessee and the comments of the AO thereon in the remand report, found the action of the AO to be unsustainable. The relevant operative para of the order of the CIT(A) is reproduced hereunder for ready reference:

“7. The appellant contended that the A.O. recast construction account on cast basis and when there was plus difference, the same was added to the closing work in progress as disclosed in the audited

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