TaxTMI 
TaxTMI 
2022 (7) TMI 472
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....tion (Civil) No.3/20 and lastly vide its order dated10th January 2022 in Miscellaneous Application No.665 of 2021 in Suo Moto Writ Petition (c) No.3 of 2020, wherein the period from March 15th 2020 to February 2022 was excluded for the purposes of limitation , Therefore, there is no delay as such in the filing of the appeal. 2.1 The challenge to the order passed u/s. 263 by the assessee is on the aforesaid grounds: 1. The Ld. Pr. CIT has erred in law and on facts initiating and passing the order U/S 263 of the Income Tax Act, 1961 as the assessment order sought to be revised is neither erroneous nor prejudicial to the interests of the revenue. 2. The Ld. Pr. CIT has failed to apply his mind in proper perspective of the facts of the case and erred in setting aside tie order passed U/S 143(3) of the Income Tax Act, 1961 by the Ld. A.O. 3. On the fact and circumstances of the case and in law, Ld. Pr. CIT has erred in setting aside the assessment order passed by the Ld. A.O. U/S 143(3) directing to examine and verify again whether expenditure made on account of Interest for Rs. 1 ,47,08, 801/- is included in closing working in progress. 3. Briefly state....
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.... method for revenue recognition. You have debited an amount of Rs.1,47,08,801 /- towards interest expenses to Profit & Loss account, however, the same was not included in the Capital Work In Progress (C-WiP) even though you were following project completion method, 3. Moreover, the A.O. had inter-alia failed to verify whether percentage .completion-method as per Guidelines Note on accounting for Real Estate business (Revised) 2012 has been followed for revenue recognition and other aspects for selection. Hence, it is apparent that to that extent the order passed u/s. 143(3) dated 05.04.2017 is erroneous in so far as it is prejudicial to the interest of revenue. You are therefore requested to show cause as to why a fresh assessment not be made by invoking the provisions of section 263 of the I.T. Act, 1961, after proper consideration of above issue. 4. In case you have any objection to the action proposed. You are requested to furnish your reply on the proposed action by 27.01.2020 at my office at Room No. 4II, C-Wing, Pratyakshkar Bhavan, Ambawadi, Ahmedabad or through e-filing portal. You may also avail opportunity of personal hearing or through your Authorized R....
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.... scrutiny by Assessing Officer, proceedings u/s. 263 is not justified and even contrary to the material available on record. ii) The assessee had filed complete break up of closing WIP as on the last day of the year and as per the same interest debited in Profit & Loss account of Rs.1,47,08,801/- have been considered and included in Valuation of closing WIP, which has been duly verified by the Assessing Officer. iii) The assessee is consistently following the method of revenue recognition based on significant transfer of risk and reward and the sale is recognized on execution of sale deed. iv) The risk and reward do not get transferred to purchaser on execution of any agreement including agreement to sell. It can only be transferred on execution of sale deed. v) The assessee followed Accounting Standard (AS) 9 for revenue recognition as per guidance note issued by the ICAI and not followed percentage completion method, which has been duly considered by the Assessing Officer while concluding the assessment. 5.1. The submission is not acceptable because i) ICAI has issued revised accounting guidelines for Real Estate Development A....
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.... Assessing Officer to pass a fresh assessment order after properly ascertaining the genuineness of claims keeping in view the discussions above and also after gathering and examining other suitable evidence / making field enquiries and verification as necessary on facts of the case and make the assessment denovo. 6. We have gone through the order of the Ld. PCIT and also gone through the documents filed before us in the form of paper book comprising of 64 pages and referred to by the ld. Counsel for the assessee. Before us the ld. Counsel for the assessee has reiterated the submissions made before the Ld. PCIT that all the issues were duly inquired into by A.O. during assessment proceedings, due explanation and reply filed by the assessee and after considering which the A.O. was duly satisfied and therefore there was no error in the order of the A.O. on the said two issues. 7. After considering all of the above, we hold that the findings of the Ld. PCIT that the assessment order was erroneous so as to cause prejudice to the Revenue on the impugned issues, are totally contrary to the facts on record and thus not sustainable. 8. As noted above the error noted in the assessme....
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....nnexure forming part of Annual Accounts. We invite your kind attention towards Annexure No.22 forming part of Profit and Loss Account pertaining to Finance Cost which shows that we have debited interest and financial expenses of Rs. 1,47,08,8017/- to the profit and loss account. 4.2 We invite your kind attention towards Annexure No. 20 forming part of Profit and Loss Account pertaining to Inventory and more precisely Work In Progress of ongoing project and stock in trade of Land of Rs. 23,75,44,0607=. We have filed complete break up of closing Work in Progress as on the last day of the year before AO, same is filed herewith page No. 41 to 42) for your perusal. AO considered and verified above Work In Progress in depth during assessment proceeding and after due consideration concluded the assessment. The perusal of break- up of Closing Work In Progress clearly shows that Interest debited in Profit and Loss Account of Rs. l,47,Q.t,801/= have been considered and included in valuation of closing Work In Progress. There is no error on the part of AO as far as your finding for non-consideration of interest in valuation of Closing Work In Progress is concerned. We would like to s....
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.... of Assessment order on page no. 2, para 2 last 12 lines is produced herewith for your ready reference. "2.. During the course of hearing the assessment company has filed various details so as to verify the reasons for which the case has been selected for scrutiny, i.e. examination of high value of closing stock in real estate business, mismatching of sales reported in the Audit Report and figures uploaded in the ITR and verification of payments made to the persons u/s. 40A(2)(b) of the Act. These details have been verified and placed on record. It has been contended that the assessee company is following AS-9 and recognizing the revenue only on sale of flats, constructed properties to the customers in the years when the possession is handed over and the sale deeds are executed. The assesse company has also purchased and sold the land and profit of Rs. 2,25,000/- has been credited and also credited the projects income for which all necessary details have been furnished. We herewith submit copies of relevant notice, submission with Annexure and assessment order for your consideration (page no. 43 to 55). Perusal above will shows that A.O. during assessment....
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....th the Guidance Note issued by the ICAI (Revised2012) for accounting for Real Estate Transactions. We have noted that even the AO noted in the assessment order that the method followed by the assessee for Revenue recognition was correct ,when at para 2 of his order he noted that the Revenue was correctly recognized as per AS-9,where Revenue is recognized on transfer of risks and rewards, as in Project completion method. 14. Moreover we have noted that the assessee had explained all these facts to the Ld.PCIT also pointing out firstly to him that the assessee had all along been consistently following this method of recognizing Revenue and it had also been demonstrated to him from the Guidance Note of the ICAI(Revised in 2012) on accounting for Real estate transactions, that the project completion method was also recommended in the said Guidance Note in specific circumstances ,which the assessee had demonstrated existed in its case justifying the adoption of even as per the guidance note of the ICAI. The relevant submissions of the assessee in this regard reproduced at para 5-5.5 of the order of the Ld.PCIT is as under: 5. With reference to the aforesaid issue No (ii) as ....
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....Sale Deed and transfer of risk and reward, same is submitted herewith for your perusal (Page No. 56 to 58). 5.3 AO during assessment proceeding issued notice u/s. 142(1) dated 06/02/2017 and vide Point No. 1 of notice called working of closing and opening stock same have been provided at the time of assessment proceedings. For ready reference relevant portion of notice and its reply reproduced hereunder: 5.4 AO vide Point No. 1 of notice dated 06/02/2017 have specifically called for further details and explanation regarding method adopted for revenue recognition and Accounting Standard AS 09 with reference to our earlier submission dated 30/01/2017, relevant part of the notice is produced herewith for your ready reference "1. In your reply dated 30.01.2017, you have stated that you have been adopting the Accounting Standard- 9 (AS-9) and not the percentage completion method and recognized the revenues only on their realization. With reference to this contention, the profit & loss account has been examined which showed the total receipts of Rs. 14,07,66,372/- which have been arrived at by grouping the following receipts:- Extra work income account Rs....
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....nsaction; No significant uncertainty exists regarding the amount of consideration that will be derived from the real estate sales; and It is not unreasonable to expect ultimate collection of revenue from buyers Application of Percentage Completion Method: The percentage completion method should be applied in the accounting of at real estate transactions/activities when the outcome of a real estate project can be estimated reliably and when all the following conditions are satisfied: - Total project revenues can the estimated reliably; - It is probable that the economic benefits associated with the project will flow to the enterprise; - The project costs to complete the project and the stage of project completion at the reporting date can be measured reliably; and - The project costs attributable to the project can be dearly identified and measured reliably so that actual project costs incurred can be compared with prior estimates. When the outcome of a project can be estimated reliably, project revenues and project costs associated with the project should be recognized as revenue and expenses respectively apply....