TaxTMI 
TaxTMI 
2012 (9) TMI 758
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....cted by the assessee during the year on the basis of Revised Accounting Standard-7. 4. Regarding first issue, learned counsel submitted that as per the instruction of the assessee, this issue is not pressed as the assessee is proposing to file application under Section 154 in the assessment year 2007-2008 to seek the claim. Thus, this issue is treated as not pressed, and hence, is being dismissed. 5. The only issue for adjudication before us is addition on account of estimate of presumptive profit at the rate of 8% on booking advance received during the year. The facts relevant for the issue involved are that the assessee is a partnership firm and is engaged in the business as builder/developer in Navi Mumbai. During the year the assessee has undertaken a redevelopment project at Navi Mumbai. The assessee has been through out following the 'project completion method' for recognising the income from such projects. On the perusal of the profit loss account and the balance sheet, the Assessing Officer observed that work-in-progress as on 31-3-2006 has been valued at Rs..6,59,21,547/- and all the expenses incurred in respect of the project under consideration during the year have....
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....sessees, who are following 'project completion method' and have offered income-tax in the year in which substantial work has been completed, the same should be accepted. On the other hand, learned DR submitted that the assessee has not offered any income in this year, even though it has received substantial in view of the Revised Accounting Standard-7. The assessee being a builder was required to prepare the accounts as per Accounting Standard-7. He thus, heavily relied upon the finding of the Assessing Officer as well as CIT(A). 8. We have carefully considered the rival submissions and also the findings given by the CIT(A) as well as the Assessing Officer. It is not denying fact that assessee has been offering income on 'project completion method'. From the facts of the case, it is noted that the project of the assessee had commenced on 9-1-2005 by execution of development agreement and the project was approved on 17-2-2005. It is also admitted that the project was mostly completed in the financial year 2006-2007 (i.e. AY 2007-08), wherein the income has been shown in that assessment year (i.e.2007-2008). The Assessing Officer as well as CIT(A) have held that the income should ....
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....ically negotiated for the construction of an asset or a combination of asset that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use." From reading of the above makes it clear that revised AS-7 issued in the year 2002, does not apply to builders and real estate consultants. The Institute of Chartered Accountants of India has in reply to a query given in the Compendium of Opinions - Vol.XXIII - 95 Query No. 15 as stated as follows: "B. Query 5. In the light of the above, the querist has sought the opinion of the Expert Advisory Committee on the following issues: (a) Whether the revised AS-7 would be applicable t the company for accounting for new housing projects, which may be undertaken by the company on or after 01.04.2003 on the same business model as mentioned in the facts of the case. (b) In case revised As-7 is not applicable to the company, whether the company can value its inventories in accordance with Accounting Standard (AAS)2, "Valuation of Inventories', issued by the Institute of Chartered Accountants of India, considering the definition of inventory as 'an asset in the process of ....
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....r the report of the Expert Committee of the ICAI - Therefore, revised AS-7 cannot be applied in the case of the assessee - Even otherwise, in case revised AS-7 is to be applied, the opening inventories are to be valued as per revised AS-7- That apart, on the principle of consistency, Revenue should have accepted the method of accounting adopted by the assessee as the same was being followed for many years - Hence AO is directed to accept the project completion method of accounting. 16. Moreover, the Institute of Chartered Accountants of India has issued Guidance Note on Recognition of Revenue by Real Estate Developers. The recommendations are at para 6, which is extracted for ready reference : "Revenue in case of real estate sales should be recognized when all the following conditions are satisfied: (i) The seller has transferred t the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership; (ii) No significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate sales; and (iii) It is not unreasonable to expect ulti....