TaxTMI 
TaxTMI 
2022 (6) TMI 887
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....) upholding the additions in the returned income 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 es....
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....inancials :- 2011 2012 2013 2014 (i) Revenue recognized 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 ....
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....the provisions of the Act. b) For the purpose of taxability, the Act takes into account two points of time at which the liability to 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 conc....
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....ccrues only upon the completion or substantial completion of the construction activity. Here again, the same caveat applies that the developer should have 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 substanti....
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....rred and inventory is piling up which according to the ld. CIT (A) indicates that the project is being substantially completed on year to the basis. Thereafter ld. CIT (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 o....