2020 (12) TMI 338

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....2/- on account of development expenses and development funds respectively. 4. Brief facts of the case on hand are that the assessee in the present case is a listed company and engaged in the business of development of real estate and operation of holiday resorts & club. The assessee for the year under consideration filed its return of income declaring an income of Rs. 20,55,330/- only. Thereafter, the case of the assessee was selected under scrutiny and income for the year was assessed under Section 143(3) of the Act at Rs. 4,29,46,219/- after making the additions as detailed under: (i) Sales proceeds directly taken to balance sheet Rs. 3,79,26,874/- (ii) Development fund Rs. 23,28,084/- (iii) Disallowances of interest Rs. 6,35,935/- 5. The assessee carried the matter before the Learned CIT(A) who vide order dated 25th March 2002 granted partly relief to the assessee. Aggrieved by the order of the Learned CIT(A) both the Assessee and Revenue filed cross appeals before ITAT 'C' Bench Ahmadabad. The Tribunal vide order dated 26th February 2012 set aside the issue to file of the AO for fresh verification and adjudication. 6. The assessee before the A....

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....the expenditure incurred for the development i.e. it can be said that company have a profit margin of 40% in the development funds 50%of (60%+20%) & %50% is actual exp. but as per policy and method of accounting profit transfer to the P & L A/c in the year of actual expenditure incurred for the development. 9. The assessee further claimed that it has employed the above method of accounting regularly and consistently. 10. However, the AO being dissatisfied with the method of accounting for the receipt of development expenses fund of Rs. 2,36,91,967/-, held that the receipt of development expenses fund are trading receipt of the assessee. Hence, the same should have been recorded fully in its profit and loss account. The AO further found that the assessee out of the entire receipt of Rs. 2,36,91,967/- has transferred part of the amount of Rs. 97,54,060/- to the Profit and loss account. Accordingly, the AO added the balance amount of Rs. 1,39,37,907/- to the total income of the assessee. 11. The AO, similarly, for the amount of Rs. 78,97,322/- shown by the assessee as receipt of Development Fund under liability found that it was received for providing certain facilities in fu....

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.... of accounting adopted by it for recognizing the revenue was also accepted by the AO in the assessment framed under Section 143(3) of the Act for the Assessment Year 2010-11 dated 16th November 2012. 17. In view of the above, the assessee prayed before the Learned CIT(A) that its claim should be allowed without any disallowance as made by the AO. 18. The Learned CIT(A) after considering the submission of the assessee deleted the addition made by the AO vide combined order for A.Y. 1995-96, 1997-98, 2001-02 and 2002-03 dated 23rd February 2017. The relevant extract of the order for the Assessment Year 1995-96 is reproduced as under: "5.8 After carefully perusing the order of the AO, I find that the AO erred in law in making this addition as he failed to appreciate the nature of development work involved. The assessee has been following mercantile system of accounting since its inception. It is a matter of record that the AO has not rejected the method of accounting which is consistently followed by and accepted by the department in the past completed It is also a matter of record that the assessee has been following the completed contract method of accounting for reco....

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.... amount of actual development expenditure from year to year to the profit & loss account. The assessee has incurred such expenditure for various works like development of land, levelling the same, fencing, road work, tube-well, electric supply cable etc. In the circumstances, in my opinion, the above directions of the CIT(A) in appellate order for A.Y. 1995-96 do not take into consideration the income aspect but it considers only receipts of the appellant which is not correct. To this extent I differ from the said appellate order. The method of accounting for this item of receipt and income there from adopted by the appellant is found to be reasonable and therefore it is the correct income which is offered but the appellant in the relevant year. Hence, I direct the assessing officer to tax only that amount which is credited to the P& L account in the year under consideration against the development expenditure instead of the funds for which collection is made from persons booking the premises. The appellant therefore, gets a relief of the amount of Rs. 2,36,91,967/- referred to above." 5.10 Having regard to the aforesaid findings given by my Ld. Predecessor, I don't fi....

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....d no right to Enforce this facilities. The AO has not fully taken into consideration standard agreement, in para 7, 20% of sale proceeds after excluding and cost, contribution for electricity connection, one time maintenance contribution and contribution for life membership of the club has Been allocated for development fund deposit and the development deposit is supposed to provide following specific facilities existing or in future. It is not in dispute as agreed upon by the AO that work had not started that in itself is proof that the money collected is a liability and not an income as income is to be taken into account after expenses laid are accounted for. These amenities have to be provided for which land has been provided by the purchasers free of cost (refer to clause-16 of the sale agreement). Since the assessee is following mercantile system of accounting and the sale of plot has taken place." Significantly, the AO himself has noted at para 6 that assessee has incurred expenditure of Rs. 34,11,050/- which is transferred to P&L account, while discussing the issue of 'development expenses'. The averment of the AO that the assessee has made no efforts whatsoever to d....

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.... the year under consideration. Thus, the AO made the addition to the total income of the assessee for an amount of Rs. 2,18,35,222/- (1,39,37,907 + 78,97,322). However the Learned CIT(A) was pleased to delete the addition made by the AO. 24. Before, we touch upon the issue whether a particular receipt represents the income of the assessee in the years under consideration as discussed above, we find that the assessee has been following a unique method of accounting for recognizing the certain receipts as income in the future years. This method has been accepted by the Revenue in the assessment framed under Section 143(3) of the Act including the Assessment Year 2010-11 except in few of the Assessment Years namely 1995-96, 1997-98, 2000-01 and 2002-03. In other words, we find that the method of accounting adopted by the assessee since incorporation 14-05-1992 was accepted by the revenue till the Assessment Year 2010-11 without pointing out any flaw in such method of accounting. Accordingly, we are of the view that the revenue has no authority to change the method of accounting of the assessee until and unless it contains the defects or there is any specific prohibition under the p....