2014 (1) TMI 859 - AT - Income Tax

ITAT dismisses Revenue and Assessee appeals on income addition, citing builder not bound by accounting standard.

The appeals by Revenue and Cross-Objections by the assessee were dismissed by the ITAT. The primary issue was the addition of income by the Assessing ... Deletion of addition made on accrual basis – Project completion method or percentage completion method – Held that:- The assessee-company is a builder engaged in construction and sale of immovable property and not carrying out construction contract on behalf of others has not been disputed by the revenue - the CIT(A) has rightly held that revised accounting standard AS-7 issued by ICAI is not applicable to the facts of the assessee-company – the CIT(A) has given relief to the assessee as he found that assessee has shown the income in the years in which sales deeds were executed by him i.e. in A.Y. 2008-09 and 2009-10 by holding that additions made in the years under appeal by way of an estimated profit on work in progress were unwarranted – there was no infirmity in the order of CIT(A) because in case the additions made by AO in the years is confirmed, it will amount to double taxation in the hands of assessee-company – Decided against Revenue. Issues:Revenue's appeals and COs by the assessee against the common order of Ld. CIT(A)-I dated 29-014-2010.Analysis:The Revenue's appeals and COs were consolidated and disposed of together as they belonged to the same assessee. The primary issue revolved around the addition of income made by the Assessing Officer based on the difference between project completion method and percentage completion method prescribed by the ICAI under Accounting Standard 7. The AO contended that income accrued yearly and estimated income based on net working progress. However, the assessee argued that AS-7 applied to construction contracts, not builders, and income should be recognized upon significant risk or obligation transfer, which had not occurred as no sale deeds were executed until A.Y. 2007-08. The assessee also highlighted the distinction between construction contracts and builders' activities, citing relevant case law and the inapplicability of the AO's references. The Ld. CIT(A) allowed the appeal, noting that the revised AS-7 and the AO's reliance on specific cases were not applicable to the assessee's situation. The Ld. CIT(A) found no justification for estimating profits without evidence of under-assessment, leading to the direction to delete the additions.The Revenue appealed the Ld. CIT(A)'s decision, leading to a hearing where the AO's order and the Ld. CIT(A)'s decision were contested. The ITAT upheld the Ld. CIT(A)'s ruling, emphasizing that the assessee, a builder, was not engaged in construction contracts and thus not bound by AS-7. The ITAT agreed that the additions based on estimated profit were unwarranted, as the assessee declared income upon executing sale deeds in A.Y. 2008-09 and 2009-10. Confirming the Ld. CIT(A)'s decision, the ITAT noted that upholding the additions would result in double taxation for the assessee. Consequently, all appeals by the revenue were dismissed.Regarding the Cross-Objections (COs) filed by the assessee, the learned counsel did not press them during the hearing, leading to their dismissal. Ultimately, the appeals by the revenue and the COs filed by the assessee were dismissed, affirming the Ld. CIT(A)'s decision and concluding the matter with no further relief granted.