TaxTMI 
TaxTMI 
2021 (10) TMI 1195
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....Tax proceedings as each assessment year is a separate year? 3. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting addition by ignoring the findings of the Assessing Officer (the AO) in assessment order that the installments received by the assessee from its customers and reinvested during the year, included an element of profit also? 4. That the appellant craves leave to add, amend, alter or forgo any ground/(s) of appeal either before or at the time of hearing of the appeal." 2. Briefly stated facts of the case are that in the previous year corresponding to the assessment year under consideration, the assessee company was engaged in the business of building and developing housing/commercial real estate projects. For the year under consideration, the assessee filed return of income on 30/09/2012 declaring loss of Rs. 1,06,69,938/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short the Act) were issued and complied with. In the assessment completed under section 143(3) of the Act on 26/02/2015, the Assessing Officer rejecte....
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....e., 2011-12 [65% of gross receipts] 10,00,65,850 Less: Administrative, depreciation & other expenses claimed as per ROI 36,96,923 Estimated Net profit Profit till the end of financial year under consideration 9,63,68,927 as per PCOM as the assessee company has not offered any income before. (Gross advances received from customers) Add : Income from other source NIL Total income 9,63,68,927 6. Before the Ld. CIT(A), the assessee filed a detailed submission and stated that 'completed contract method' is a recognised method in accordance with Accounting Standards-9 issued by the ICIA. Further submitted that assessee has been consistently following the method of completed contract and which has been accepted by the Revenue. The assessee relied on the decision of the Hon'ble Delhi High Court in the case of Paras buildtech India private limited vs. CIT reported in 382 ITR 630, DCIT vs. M/s. Sabh infrastructure Ltd. dated 07/01/2015 (ITA No. 111/2014 and 113/2014), CIT vs. Manish Buildwell private limited reported in 245 CTR 397 and....
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....hat under the method of accounting followed by it, there is no loss to the revenue since it is declaring revenue after execution of the sale deed and as such, the whole exercise is revenue neutral. In this regard, the appellant placed reliance on several judicial decisions including the decision of the Hon'ble Supreme Court in Excel Industries Ltd. 358 ITR 295. The appellant stated that the accounting method followed by it was supported by several judicial decisions, and also the opinion given by the expert advisory committee of the Institute of Chartered Accountants of India and the guidance note issued by the Institute on accounting for real estate transactions." 8. Further, following the decisions cited by the assessee, the Ld. CIT(A) deleted the addition holding as under: "4.10 Considering the facts, it is clear that the appellant is a builder and not a contractor. The appellant has pointed out that in view of the stipulations in the agreement in this case, it cannot be said that significant risks and rewards on ownership had been transferred to buyers prior to execution of the sale deeds. The appellant stated that it has consistently recognized revenue at the t....
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....ed for getting prelaunch or post launch bookings including were debited to Work in progress. Thus neither, advances received on booking of flats were treated as revenue nor expenditure incurred was claimed as an revenue expenditure till the sale of flats started, i.e., transfer of apartments was made. In fact, the appellant had capitalized the cost of construction and reflected the cost of construction as project in progress and as such, the adverse inference drawn is patently misconceived, misplaced and wholly untenable. 8.5 In nutshell, it is submitted that since appellant is a developer and not a contractor and is recognizing revenue as and when sale deed is executed and possession is handed over and till that time advances received against booking are credited to account "Advances against booking" similarly all expenditure for purchase of land, seeking sanctions from the concerned authorities, developing the land in accordance with those sanctions, all types of expenses incurred on construction, i.e. capital expenditure incurred for getting prelaunch or post launch bookings including were debited to Work in progress, as such, AS-7 is per-se in applicable and hence addi....
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....y even at the start of construction and revenue of the construction is also predetermined at the very start of the construction whereas in the case of real estate developer both the components cannot be determined till the unit is ultimately sold to the ultimate customer. That AS-7 defines the contract revenue as under: 10. Contract revenue should comprise: (a) the initial amount of revenue agreed in the contract; and (b) variations in contract work, claims and incentive payments: (i) to the extent that it is probable that they will result in revenue; and (ii) they are capable of being reliably measured. 8.8 It is submitted that in the case of real estate developer, contract revenue is not determined at the start of development of real estate project. As such, in the case of real estate developer, neither the outcome of a units/spaces can be estimated reliably nor the cost associated with the same can be estimated with reasonable certainty, hence contract revenue and contract costs associated with the construction contract cannot be recognized as revenue and expenses respectively by reference to the stage of completion of the co....