TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>High Court emphasizes flexible application of accounting standards AS-9 & AS-7 in real estate business</h1> The High Court ruled in a case concerning the applicability of accounting standards AS-9 and AS-7 in a real estate business. The Court sided with the ... Revenue recognition - Applicability of accounting standard was AS-7 rejected - differential treatment of revenue on the basis of whether it was development of plots or construction of flats. The assessee had inter alia contended that AS-9 has provided the flexibility to treat development of cost of group housing residential projects at 30% whereas in the case of development of plots it could claim 50% towards cost - Held that:- This Court notices that the guidance note was issued in 2012 and could not have been the basis for the additions made. Under such circumstances, in our opinion, the correct approach should be to examine the reasonableness of claim rather than strictly apply a guidance note, formulated and published later. Issues:1. Applicability of accounting standards AS-9 and AS-7 in real estate business.2. Treatment of revenue for development of housing and commercial real estate projects.3. Accounting for borrowing costs in real estate projects.Analysis:Issue 1: Applicability of accounting standards AS-9 and AS-7 in real estate businessThe High Court addressed the contention between the revenue and the assessee regarding the applicability of accounting standards AS-9 and AS-7 in the context of a real estate business. The assessing officer (AO) had insisted on applying AS-7, rejecting the assessee's argument that AS-9 was more suitable for their business activities. The Court noted that the assessee's interpretation of AS-9 allowed for flexibility in treating development costs differently based on the type of project. The revenue, on the other hand, relied on a guidance note issued by the Institute of Chartered Accountants of India, which the Court deemed irrelevant as it was issued after the assessment period. The Court emphasized the need to assess the reasonableness of the claim rather than rigidly adhering to a guidance note introduced post-assessment.Issue 2: Treatment of revenue for development of housing and commercial real estate projectsThe second issue raised by the revenue was the failure of the assessee to account for borrowing costs related to three specific projects. The AO initially disallowed the profits under AS-7, but the CIT corrected this decision, which was subsequently upheld by the ITAT. The Court concluded that there was no substantial question of law arising from this issue, indicating that the treatment of borrowing costs had been appropriately addressed by the authorities.ConclusionThe High Court found the revenue's appeal to be without merit and dismissed it accordingly. The judgment highlighted the importance of interpreting accounting standards in a manner that aligns with the specific circumstances of the business, emphasizing the need for reasonableness in assessing claims rather than strict adherence to later-issued guidance notes. The Court's decision provided clarity on the application of accounting principles in the real estate sector, ensuring a fair and just treatment of revenue and costs in line with the relevant standards.
TaxTMI 
TaxTMI 
