TaxTMI 
TaxTMI 
2015 (11) TMI 1217
X X X X Extracts X X X X
X X X X Extracts X X X X
....e percentage completion method to the Assessee? (b) For AY 2006-07, whether the ITAT was justified in setting aside the order of the CIT (A) deleting the addition of the sum received by the Assessee on account of advance from bookings and restoring the case to the file of the AO for a fresh decision? 4. The background to the filing of the present appeals is that the Appellant Assessee is engaged in the business of real estate as a developer. The Assessee either purchases land in its own name or gets the power of attorney from the land owner in case the property is owned by another party so as to carry out activities of development on the land in terms of a collaboration agreement. The Assessee enters into agreements to develop and sell overall projects in terms of sharing with the owner. It enters into contracts with various buyers and receives sums by way advance for booking or reserving flats/shops/areas. On completion of the project, the Assessee hands over the possession of the flats booked to the respective customers/buyers along with the execution of the sale/conveyance deed. 5. It is stated that the Assessee regularly follows Accounting Standard (AS) 9 issued ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were rejected under Section 145 of the Act and its profits were computed by applying the AS-7. The AO added a sum of Rs. 1,56,88,100 to the Assessee's declared income by applying the percentage completion method. Apart from this the AO disallowed certain other sums including the sums on account of depreciation and under Section 14A of the Act. The income of the Assessee was determined at Rs. 2,28,68,559/- as against the declared income of Rs. 57,75,159/-. 9. Aggrieved by the order dated 28th December, 2007 passed by the AO, the Assessee file an Appeal before the Commissioner of Income Tax (Appeals) [CIT (A)]. By the order dated 2nd July, 2010 the CIT (A) held that the Assessee was only a developer and not a contractor and that AS-7 would not apply to it. It was held that the action of rejecting the books of account of the Assessee under Section 145 of the Act could not be upheld. The AO was directed to compute the income of the Assessee in terms of the Revenue recognition method followed by the Assessee. The addition made by the AO in the sum of Rs. 5,23,00,137/- was directed to be deleted. Significantly, the CIT (A) also noted that the entire exercise was revenue neutral a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. The further factor which weighed with the ITAT was that some of the buyers had transferred their rights in construction to third parties during the currency of the construction. 15. A separate order was passed by the ITAT in ITA No. 235/Del/2010 being the Revenue's Appeal for AY 2006-07. The ITAT recorded the submission that the parties were agreement that there was not much discussion on the factual aspects either in the order of the AO or the order of the CIT (A). The ITAT proceeded to set aside the order of the CIT (A) and remand the matter to the AO for deciding it afresh in conformity with the ITAT's order for AYs 2004-05 and 2005-06. 16. At the outset, it is required to be noticed that the ITAT has in the impugned order dated 17th February, 2015 in ITA No. 4316/Del/2010 upheld the finding rendered by the CIT (A) that the Assessee was only a developer and not a contractor. This finding is significant because, as noticed hereinbefore, the agreements entered into by the Assessee are only on the basis that it is a developer. The Assessee has throughout been contending that it is not a contractor. This finding has been accepted by the Revenue inasmuch as it has not fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of an Assessee unless he comes to a determination that notified accounting standards have not been regularly followed by the Assessee. As pointed out by the CIT (A) in the order dated 2nd July, 2010, the AS of the ICAI did not have any statutory recognition under the Act although it was binding under the Companies Act, 1956. The method of accounting followed by the Assessee in the present case i.e. project completion method was certainly one of the recognized methods and has been consistently followed by it. 20. In Commissioner of Income Tax v. Bilahari Investment P Ltd. (2008) 299 ITR 1 (SC) it was observed as under: "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accou....