TaxTMI 
TaxTMI 
2016 (7) TMI 9
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....ion conducted in the case of the appellant. 2. The Learned CIT(A) has erred in not appreciating that no incriminating evidences were found during search action and therefore the A.O. ought not to have made the additions which are not based on any evidence found during search action, thereby rendering the additions beyond jurisdiction. 3. The Learned CIT(A) has erred in upholding the addition made by the learned A.O. which was without any basis and not supported by facts or legal principles. 4. The Learned CIT(A) erred in not appreciating the fact that the appellant has been following the project completion method consistently over the years. 5. The Learned CIT(A) erred in ignoring the settled principle that the taxpayers are entitled to follow a particular method of accounting, as long as it is an accepted method and is consistently followed by the assessee. 6. The Learned CIT(A) erred in not appreciating that "project completion method" is an accepted and valid method of accounting, well recognized by law and supported by decisions of the courts. 7. The Learned CIT(A) erred in concluding that the "project completion method" is no more in existence since 104.2003, in to....
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....assed by the ld. CIT(A). 5. We have heard rival contentions, perused the materials on record and gone through the orders of authorities below. The main dispute in this case is for computation of profits, whether "Project Completion Method" adopted by the assessee is correct or "Percentage of Completion Method" adopted by the Assessing Officer is correct to determine the revenue and costs of a project. Both the Assessing Officer and the ld. CIT(A) have observed that the Project Completion Method adopted by the assessee has no existence at all since 01.04.2003. We find that before the ld. CIT(A), the assessee has relied on various decisions including the decision in the case of Unique Enterprises v. ITO [2010-TIOL-737-ITAT-Mum] for the assessment year 2005-06, wherein, it was held that the Accounting standards (AS) 7 - Construction Contract (revised) issued by the Institute of Chartered Accountants of India (ICAI) is applicable only to the contractors and not to builders and real estate developers. Accordingly, the project completion method followed by the tax payer for recognizing revenue in the books of accounts cannot be regarded as unreasonable. Further, the tax department canno....
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.... Jalan (supra) related to the profit declared by a contractor. The case of a contractor is different from that of the real estate developer. The profit earned by a contractor depends upon the quantum of work done and is not dependent on whether the flats/shops constructed are actually sold by the owner or not. Therefore, in case of a contractor, profit can be estimated on the basis of work done. In case of real estate developer, he can earn the profit only when the space constructed sold. In case, due to some reasons, the project is terminated or is abandoned the builder has to refund the advances received from the buyers and in that case, there cannot be any profit because the flats/ shops could not be sold as the construction remained incomplete. In that case, it will be only a case of investment by the builder profit from which will arise only on sale of flats. Similarly the case of Champion Construction Co. (supra) is also distinguishable as in that case construction was complete and 80 per cent of the flats had been sold. 2.8 It is established legal position that an assessee can follow any recognised method of accounting and condition is that the same method has to be follow....
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....roject was complete. The same income, therefore, cannot be assessed in the earlier year by rejecting the regular and recognised method being followed by the assessee. We are, therefore, unable to sustain the order of CIT(A) upholding the order of Assessing Officer rejecting the method followed by the assessee. The order of CIT(A) is set aside and the claim of the assessee is allowed. 3. The appeal of the revenue in ITA No. 3695/M./2008. In this appeal, the only dispute raised by the revenue is regarding estimation of net profit. The Assessing Officer had estimated the net profit rate at 10 per cent on the advances received till the end of the relevant assessment year. The assessee disputed the matter and submitted before CIT(A) that in the assessment year 2007-08 on completion of the project the assessee had declared net profit rate of 6.95 per cent on the basis of audited accounts. Therefore, adopting net profit rate at 10 per cent by the Assessing Officer was not correct. CIT(A) was satisfied by the claim of the assessee and observed that it would be appropriate to adopt the rate shown by the assessee on the basis of books of account maintained for assessment year 2007-08 which....