TaxTMI 
TaxTMI 
2020 (7) TMI 524
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..... The assessee has filed condonation petition dated 2.11.2018 supported by an affidavit and prescriptions by the treating doctor, stating the reasons for filing the appeal delay. In the petition, it is stated that due to ill health of Sri Tirupati Chaudhury, the Director looking after the finance and taxation of the company, the appeal could not be filed within due time. It is also requested to condone the delay in filing the appeal for 158 days. 4. Ld counsel for the assessee reiterated the submissions stated in the petition and prayed for condoning the delay. Ld CIT DR opposed the condonation petition. 5. After considering the condonation petition and considering the rival submissions, we are satisfied that the assessee was prevented by sufficient cause for filing the appeal before the Tribunal late. Therefore, we condone the delay of 158 days in filing the appeal and admit the appeal for hearing. APPLICATION FOR ADMISSION OF ADDITIONAL GROUND: 6. Ld A.R. by way of application dated 14.2.2020, sought to raise the following additional ground of appeal: " "Because that the Pr. CIT-1, Bhubaneswar erred in law as well as in fact by setting aside the assessment ig....
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....or limited scrutiny under CASS with reason to examine "Real Estate Business with high closing stock" and to verify whether the assessee had adopted percentage completion method alongwith other two reasons for financials year 2012-13. But for A.Y. 2013-14, the case was selected for comprehensive scrutiny and not for limited scrutiny. Drawing our attention to copies of assessment order for A.Y. 2013-14 (APB page 27-35) and assessment order for assessment year 2015-16 (APB para 36 to 39) , the ld A.R. further submitted that for assessment year 2015-16 the case was selected for limited scrutiny on four issues/points as noted in para 3 of impugned order. Thus, it is amply clear that at the time of initiating revisional proceedings, issuing notice u/s.263 of the Act and while passing order u/s.263 of the Act, ld Pr. CIT has not considered relevant assessment order for A.Y. 2013-14 dated 29.3.2016 which was selected for complete scrutiny but he considered the irrelevant assessment order for assessment year 2015-16 dated 3.11.2017, which was selected for limited scrutiny on four points. Thus, it is a clear case of non-application of mind by the ld Pr. CIT and he initiated revisional procee....
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....ssion thereof is transferred to the buyer through registered conveyance deeds and the revenue has been shown on completion method. Ld A.R. submitted that the gross revenue as per service tax is the amount received by the assessee company in instalments from customers during the year. However, the sales as per statement of profit and loss account is the value of flats transferred and sold i.e. the flats registered in the name of the customers during the year. The sale value as per statement of profit and loss account also includes amount received during the earlier years treated as advance brought forward from customers at the beginning of the year and at the instance of sale of flats and registration of sale deed therefore, the same is reduced from the advance amount from customers. Ld A.R. submitted that the value of sales on account of sale of flats and on account of sale of land has been shown clearly in the P&L account and the incidence of service tax is the amount received during the year and, therefore, same shall not tally with that of the revenue as per statement of profit and loss account. 14. Ld A.R. submitted that Pr. CIT picked up the case for the assessment year 201....
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....uate enquiry, hence, the same cannot be tagged as erroneous and prejudicial to the interest of revenue. The ld A.R. submitted that the AO, during original scrutiny assessment proceedings, issued show cause notice u/s.142(1) of the Act vide dated 23.11.2015 and it was compiled by the assessee through its Authorised Representative and the assessee alongwith audit report, books of account and other relevant financial statements also submitted written submissions vide dated 23.3.2016 explaining the accounting method and policy, which was consistently followed by the assessee and accepted by the department without any dispute or doubt. The ld A.R. also submitted that the assessee vide said letter dated 23.3.2016 also explained reason for difference in the amounts shown in the Service Tax Return and as per statement of profit, thus, there was an adequate, sufficient and proper inquiry by the AO during scrutiny assessment proceedings on the various issues including issue of method of accounting adopted by the assessee for recognition of revenue on sale of flats/plots and made total addition of Rs. 2,11,82,595/- on six issues. Therefore, ld A.R. submitted that the due to this reason,....
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....cts in setting aside the assessment order on the premise that AS-7 (revised) issued by ICAI in 2002 is applicable to the appellant which is clearly contrary to the facts and circumstances of business modus operandi of the assessee as the appellant is a builder constructing residential units on its own land on commercial consideration and AS-7 (revised) is not applicable to the assessee based on the opinion and guideline issued by ICAI for assessment year 2013-14. Ld A.R. further submitted that Pr. CIT has erred in setting aside the assessment order ignoring the method of accounting regularly and consistently followed by the assessee in recognising the revenue from sale of residential flats., which was submitted and considered during scrutiny assessment proceedings u/s.143(3) of the Act for assessment year 2013-14 and subsequent assessment year 2015-16. 18. Ld A.R. has placed reliance on the following judgments/orders of Hon'ble High Courts and Tribunal: (i) Manjusha Estates (P) ltd vs CIT, 393 ITR 644 (Guj) (ii) CIT vs. Principal Officer, Hill View Infrastructure Pvt Ltd.,384 ITR 451 (P&H) (iii) Paras Buildtech India (P) Ltd vs CIT, 382 ITR 630 (Del) ....
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....revenue to frame assessment order as per applicable method of accounting for the business of the assessee. Ld CIT DR lastly submitted that the assessee was duty bound to follow AS-7 for revenue recognition. Therefore, Pr. CIT was right in pressing into service the revisional provision of section 263 of the Act and directing the AO to reframe assessment order denovo. 21. Placing rejoinder to the submission of ld CIT DR, ld A.R. drew our attention towards a sample agreement for sale of flat/apartment placed at APB 65 to 106 and submitted that the assessee is constructing flats/residential units on the land owned by it and there is no contract between the assessee and customers to build flats or residential units on behalf of the customers. Ld A.R. submitted that the assessee is constructing flats/residential units on the land owned by it, by incurring cost from its own resources and simultaneously the assessee entered into contract with the customers for sale of flats/residential units and on completion of construction and on receipt of all entire sale consideration, the assessee transfers the possession and right over the sold units/flats in favour of the customers and at that....
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.... assessee for assessment year 2013-14 cannot be held as wrong or incorrect method of revenue recognition. 23. On careful consideration of the rival submissions, we are of the considered view that undisputedly the assessee is a construction company, which is constructing flats/residential units on the land owned by it. It is also not in dispute that the assessee company is following completion method for recognising revenue, wherein, the revenue recognition is made on transfer of flats/residential units to the respective customers by way of registered sale deed and completed flats/residential units have been shown as stock in trade at cost and work in progress is also shown in the balance sheet at cost. 24. First of all, we proceed to consider and adjudicate the contention of ld A.R. on behalf of the assessee that at the time of initiation of revisional proceedings, issuing notice u/s.263 of the Act and while passing revisional order u/s.263 of the Act, the ld PCIT has not considered and applied his mind to the relevant assessment record for assessment year 2013-14 and at the time of initiation of said proceedings and passing order u/s.263 of the Act, ld PCIT had taken into co....
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....or revision of assessment order, wherein, first of all, he would call and examine the record of any proceedings under the Act, and if he consider that any order passed therein by the AO is erroneous and so far as prejudicial to the interest of revenue, then he may, after allowing due opportunity of being heard to the assessee and after making or causing to be made such enquiry as he deems necessary pass such order thereon as the circumstances of the case justify including an order of enhancing or modifying the assessment or cancelling the assessment and directing the AO for fresh assessment. Meaning thereby, at the very first stage, the ld PCIT is required to call and examine the assessment record, including assessment order, of relevant assessment year which the revisionary authority, wants to revise. But in the present case, para 3 of notice & para 3 of impugned order u/s.263 of the Act clearly shows that the ld PCIT called & examine the assessment record and assessment order of A.Y. 2015-16 and not relevant assessment year 2013-14, which is a very fatal act on the part of the revisionary authority. In view of above, we are compelled to hold that the ld. Pr.CIT initiated proceedi....
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....he profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage completion method (PCM) in accordance with the income computation and disclosure standards notified under sub-section (2) of Section 145 of the Act. Thus, this provision is applicable from assessment year 2017-18 onwards and the ld CIT DR, in all fairness, agreed that the provisions of section 43CB is applicable from assessment year 2017-18. On being asked by the Bench, the ld. CIT DR could not controvert the fact that same is not mandatorily applicable to assessment year 2013-14, which is under consideration. 30. From auditor's report clause 2(d) Report on other legal and regulatory requirements available at page 43 of APB, it is ample clear that the auditor opined that " in our opinion, the balance sheet and the statements of profit and loss comply with the Accounting Standards" referred to in sub-section (3C) of the Section 211 of the Company Act, 1956.". 31. From para 6 of the impugned revisionary order of Pr. CIT, we observe that the revisionary authority only picked up first half part of said clause 2(d) of auditor's report and th....
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....dated 23.3.2016 alongwith related documents and ledger copy and detailed information as called for and same was verified by the AO. 34. From the copy of the written reply dated 23.3.2016 submitted by the assessee before the AO, it is clear that the assessee explained the method of accounting of revenue recognition on account of sales by explaining that the company has developed residential flats on the land owned by it and selling the same to the customers. It was also explained by the assessee that there is no contract between the assessee and the customers for constructing the residential units on behalf of the customers and the company constructed residential flats on its own land and sold it to the customers after completion of the building. It was also explained that so long as the flats are not sold the same are treated as stock in trade and, accordingly, the closing stock and work in progress have been worked out at the end of the year at cost at the end of the year. It was also explained that the company follows mercantile system of accounting and follows completion method of accounting in case of residential projects developed, constructed and sold to the customers as t....
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....nition of revenue. It is also explained that AS-9 would be relevant for recognition of revenue. The legislative intent, as noted by us in earlier paragraph of this order, clearly reveals that the percentage completion method is mandatory for construction company from assessment year 2017-18 and not for assessment year 2013-14 and this point has not been considered and adjudicated by Pr. CIT in this revisionary impugned order u/s.263 of the Act. 37. In the case of Manjusha Estates Pvt Ltd., (supra), Hon'ble Gujarat High Court held that the Tribunal was not justified in rejecting the projection completion method which was followed consistently by the assessee and instead applying work-in-progress method and taxing 80 per cent thereon as net profit. 38. In the case of Hill View Infrastructure (P) Ltd., (supra), Hon'ble P&H High Court held that the assessee developer consistently following project completion method, the CIT(A) and the Tribunal rightly deleted the addition made by the AO by applying percentage completion method and in absence of any prohibition or restriction under the Act for doing so, it cannot be held that the approach of the ld CIT(A) and the Tribunal was e....
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....he assessee has declared that the project is completed in the assessment year 2005-06 and the assessee has offered M/s Unique Enterprises the income on project completion method in that year. Thus, only the year of taxation is under dispute. The issue is whether the method of accounting followed by the assessee has been rightly rejected by the A.O. The A.O's contention, which is affirmed by the CIT(A) is that AS-7 issued by the Institute of Chartered Accountants of India is applicable to the builders and real estate developers. This finding in our opinion is erroneous. AS-7 prior to its revision in the year 2002 dealt with the Accounting for Construction Contracts, in the financial statements of enterprises. We extract a part of this statement for ready reference: "This statement deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts thereafter referred to as "contractors"). The statement also applies to enterprises undertaking construction activities of the type dealt with in this statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered int....
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....f India in December 1983, states in paragraph 1 that "The statement also applies to enterprises undertaking construction activities of the type dealt with in this statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered into agreements for sale". Therefore, the Standard was applicable to the activities carried on by the company as stated in paragraphs 1 and 2 above. The Committee also notes that the revised Accounting Standard (AS) 7, 'Construction Contracts', issued by the Institute of Chartered Accounts of India in 2002, does not contain the aforesaid sentence contained in the pre-revised AS-7. On the other hand, paragraph 1 of revised AS-7, clearly states that, "This Statement should be applied in accounting for construction contracts in the financial statements of contractors". Therefore, the Committee is of the view that the revised AS 7 is not applicable to such enterprises." [Emphasis own] Thus, the revised AS-7 cannot be applied to enterprises which is in the business of real estate developers. 15. The Bangalore Bench of the Tribunal in the case of Prestige Estate Projects (....
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....f the construction was completed. At para 18, page 507-508, the Tribunal held as follows: "We have examined the facts of the case from this point of view. We find that out of the total accommodation of 58,970 sq.ft. constructed, the assessee was able to sell only 25,530 sq.ft. during the previous year relevant for the assessment year 1977-78. Neither the construction of the multi-storeyed building was complete nor even the half portion of the building sold. The net sale proceeds received were much less than the total expenditure/cost incurred by the assessee upto date. In the circumstances so far as the assessment year 1977-78 is concerned we accept the assessee's submission that it would be in order if no profits or losses are estimated from the venture for the assessment year 1977-78. the assessment for this year is, therefore, cancelled even on this score." 18. In this year the assessee has admittedly completed only 53.95% of the construction and hence, it cannot be said that the assessee has substantially completed the project, so as to recognize income under the project completion method of accounting. 19. At para 19, the Hon'ble Tri....
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.... attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. 18. the above indicates the difference between completed contract method and percentage of completion method. 19. In the judgment of the Bombay High Court in Taparia Tools Ltd. (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessee is relevant. In the present case, there is no finding recorded by the AO that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the Chit Scheme is one integrated scheme spread over a period of time, sometimes exc....
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....patram v. CIT (24 ITR 481), the Hon'ble Full Bench of the Supreme Court has held that while valuing closing stock, anticipated losses are taken into account and that the anticipated profit in the shape of appreciation in the value of stock is not brought into account. This case law, in our considered opinion, is not of much help to assessee. 24. The Ho'ble Bombay High Court in the case of CIT vs. Tata Iron & Steel Co. Ltd. (106 ITR 363) held that when the method of accounting followed by the assessee company cannot be said to be an unreasonable method, and that in such a case, even if a better method could be visualized, the method consistently followed can be accepted. 25. In view of the above discussion, we have to necessarily uphold the contention of the assessee and allow ground No. 1 of the assessee. We have allowed this ground of the assessee on the propositions discussed above, we do not give any finding on whether revenue has to be recognized in this year based on the Guidance Note issued by the Institute of Chartered Accountants of India on Recognition of Revenue by Real Estate Developers, by interpreting the Agreement of Sale, etc., as t....
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....e completion method or project completion method with the only rider that it should be consistently adopted and in case of any deviation the effect of profit or loss should be offered to tax as the case may be. Revenue has not disputed this fact that assessee has offered the impugned advances to tax in the subsequent years i.e. from financial year 2014-15 based on sale deed registered which proves that there has been no loss to the revenue. Mere postponement of tax as a result of method employed by assessee has not been viewed adversely by courts so long as the method is regularly and consistently employed as held by Hon'ble Apex Court in the case of Excel Industries Ltd (2013) 358 ITR 295. 42. Before parting of with adjudication of this issue it would be relevant to take note of the amendment brought in statute with retrospective effect w.e.f. 1.4.2017 by way of insertion of Section 43CB for the purpose of computation of income from construction and service contract. The relevant provision of Section 43CB of the Act reads as follows; "43CB. Computation of income from construction and service contracts.-- (1) The profits and gains arising from a const....
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....hod of accounting has been consistently adopted by the assessee and even have been accepted by the revenue authority for the A.Y. 2010-11 and A.Y. 2011-12. We therefore set aside the findings of Ld.CIT(A) and delete the addition of Rs. 16,12,34,754/- for Assessment Year 2012-13. 45. As regards Appeal No.ITA No.686/Ind/2016 pertaining to A.Y 2013-14 as the issue are being the same we apply our decision of Assessment Year 2012-13 in assessee's own case referred above on the appeal for the year 2013-14 and accordingly set aside the findings of both the lower authorities and delete the addition of Rs. 12,25,55,171/- and allowed all the ground No. 1 & 2 s raised by the assessee in its appeal for the A.Y. 2013-14. 44. In the present case, as we have noted above, the assessee is a construction company engaged in the construction of flats/residential units on the land owned by it without any contract with the customers for construction of flats/residential units. It is ample clear that the assessee company is consistently following revenue recognition method by adopting completed project method, wherein, the revenue is recognised at the time of sale of flats/residential uni....