TaxTMI 
TaxTMI 
2022 (6) TMI 887
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.... of the appellant, made by the assessing officer, is totally illegal on the facts of the case and as per law. 2. That the learned CIT (Appeal) erred in upholding the contentions of the assessing officer for treating the 70% salaries as part of the Project cost instead of 50% as taken by the appellant company. The appellant has been following percentage completion method for computing its income and accordingly income was computed accordingly on consistent basis. 3. That the orders of the Assessing Officer & CIT (A) are not based on the facts of the case & as per law and hence additions sustained by the CIT (A) are totally illegal." 3. The assessee in this case is a real estate developer and said to be following percentage completion....
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.... from operations 158.27 0 23.00 0.89 (ii) Expenses on material 3209.39 3918.35 1184.16 1518.78 (iii) %age of revenue over expense 4.93 - 1.94 0.58 (iv) Inventories 3055.00 7127.34 Or 7046.17 7983.16 9501.95 Thereafter ld. CIT (A) made a theoretical observation that assessee is not permitted to postpone the revenue recognition as under and confirmed the addition :- "5.4 The appellant is not permitted to postpone the revenue recognition due to the following settled preposition of accounting principles: a) Section 145 of the Act provides for the method of accounting because Sub-section (1) states that income chargeable under the head "Profits and gains of business or profession" or "Income from othe....
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.... tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. The taxation principle relevant for present purpose is contained in section 5 in the form of scope of total income which includes all income from whatever source derived which accrues or arises or is deemed to accrue or arise. Under the mercantile system of accounting, an income becomes taxable when right to receive an income is finally acquired. c) Income becomes taxable only when it accrues and it accrues when right to receive it is finally acquired. In consideration of this concept, Institute of Chartered Accountant was propelled to come out with guidance note in 2006 requiring the adopting of the percentage completion met....
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....e transferred the risks, and rewards of ownership and If there is a prior agreement but, there is no transfer of risks and rewards of ownership to the buyer, then no income would accrue till the passing of risks and rewards at the time of completion or substantial completion of the construction activity. On the other hand, if there is no prior agreement for sale, then income accrues only when sale is actually made, which event may happen after the completion or substantial completion of construction. e) The essence of the project completion method is the completion on the substantial completion of construction. But when such a developer, having initially transferred all the risks and rewards of ownership, offers income at the time of the....
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....(A) has held that assessee is not permitted to postpone the revenue recognition. He has even mentioned that assessing officer can pass order under section 144 of the Income-tax Act, 1961. Thereafter, he has confirmed the AO's action. 7. We find that the above order of ld. CIT (A) does not exhibit proper application of mind. As per ld. CIT (A), the project has been completed more than what the assessee has reflected. In such case, the addition should have been made according to the stage of completion as per the Revenue authorities. The ld. CIT (A) has made no examination or remanded the matter to the AO for finding of the actual completion. What is the justification of AO holding that 70% of the salary and wages should be debited to projec....