TaxTMI 
TaxTMI 
2022 (11) TMI 772
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. Rs. 39,83,94,525/- as against the returned income of a sum of Rs. Nil under the facts and circumstance of the case. 3. Grounds on whether the learned Commissioner of Income Tax (Appeals) is justified in holding that the Appellant ought to have followed the percentage completion method of recognizing revenue. a) The learned Commissioner of Income Tax (Appeals) is not justified in upholding the addition made by the learned Assessing Officer of Rs.39,83,94,525/- by following the percentage completion method of recognition of revenue on the facts and circumstances of the case. b) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the percentage completion method is not an appropriate method of determining the income on the facts and circumstances of the case. c) The learned Commissioner of Income Tax (Appeals) is not justified in holding that the Appellant ought to have followed the percentage completion method merely because the developer has followed the percentage completion method on the facts and circumstances of the case. d) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n land in favour of prospective purchasers of units in the project has been followed consistently by the Appellant and accepted by the income tax authority in the scrutiny assessment proceedings of earlier assessment years. k) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Appellant as a land owner is not responsible for the obligations connected to the development of the common areas and the construction of the units in the project which is the sole responsibility of the Developer and that being the case, the revenue recognition policy of the Developer which is based on a completely different set of risks, rewards and obligations, cannot be thrust on the Appellant who is a land owner on the facts and circumstances of the case. l) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that Accounting Standard - 7 is not applicable to a land owner and the question of applying percentage completion method does not arise on the facts and circumstances of the case. m) The learned Commissioner of Income Tax (Appeals) erroneously held that risk and reward have been tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Appellant submits that the calculation of interest by the Assessing Officer under Section 234A, 2348 and 234C of the Act is incorrect, inter alia, on the quantum, period, rate and method in which it has been calculated. 9) The Appellant denies himself liable to be charged interest under Section 234A, 234B and 234C of the Act on the facts and circumstances of the case. 10) The Appellant craves for leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary, at the time of hearing. 11) For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity. Additional grounds:- 2. The assessee has also raised following additional grounds in all appeals along with petitions for admission of additional grounds as follows:- "Grounds on the learned Assessing Officer has not assumed proper jurisdiction under section 153A of the Act in the absence of incriminating material found during the course of search. a) The learned Assessing Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) of the Act is bad in law on the facts and circumstances of the case. b) The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act. c) The learned Assessing Officer failed to verify various aspects before issuing the notice under section 153A of the Act as the valid search under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act. d) The appellant denies himself liable to be assessed under section 153A of the Act under the impugned order on the ground that:- i) The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii) That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise on record. Accordingly, these additional grounds are admitted for consideration. 3. Facts of the case:- Since facts in all appeals are common, we consider the facts of the case for the A.Y. 2016-17 as follows:- 3.1 The Assessee is a domestic company engaged in the business of real estate. The assessee filed return of income for the assessment year 2016-17 under section 139(1) of the Act on 13.10.2016 declaring Nil income and for the assessment year 2017-18 under section 139(1) of the Act on 04.10.2017 declaring loss of Rs. 12,59,36,710/-. There is no assessment u/s 143(3) of the Act. For the assessment year 2017-18, assessee filed return of income on 4.10.2017. No assessment has been framed till the date of search i.e. on 10.1.2018. For the assessment year 2018-19, it was a regular assessment u/s 143(3) of the Act, which is after the date of search. 3.2 The Assessee, being a constituent of the MRG Group, was subject to a search action under section 132 of the Act on 10.01.2018. The learned Assessing Officer issued statutory notices and the Assessee, in response thereto, furnished the details sought by the learned Assessing Officer. 3.3 The assessee filed return of i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....keside Habitat Project. However, the AO adopted the percentage completion method of revenue recognition and accordingly made an addition of Rs. 39,83,94,525/-, Rs. 201,74,10,242/- and Rs. 108,59,10,257/- for the assessment years 2016-17, 2017-18 and 2018-19 respectively. Apart from the same there is an addition of Rs. 2,01,556/- in the assessment year 2017-- 18 being expenditure of personal nature. 3.11 The various issues that arise in these appeals are as under - a) The assumption of jurisdiction under section 153A of the Act is bad in law in the absence of any incriminating material unearthed during the course of search and consequently the order passed under section 143(3) r.w.s. 153A of the Act is bad in law. b) Whether was there a valid search under the provisions of section 132 of the Act on the assessee and further whether the mandatory requirements for assuming jurisdiction under section 153A of the Act have been complied with on the facts and circumstances of the case. c) The notices issued under section 153A of the Act are bad in law. d) Additions made under the income from business by computing the income based on percentage complet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mers with respect to the Prestige Lakeside Habitat project were reflected in the balance sheet under the head 'other long term liabilities' as under;- Particulars 31.03.2015 31.03.2016 31.03.2017 Advances received from customers 1,28,41,50,822 3,01,95,11,031 475,17,21,292 Page Ref. to Paper book Page 26 Pages 26 & 61 Page 61 e) The assessee company has further in the notes forming part of the financial statements stated as under - "The Company has entered into a Joint Development Agreement with M/s. Prestige Estates Pvt. Ltd. and the project is titled as "Prestige Habitat Ventures" at Varthur/ Gunjur property for a land area of 93 acres and is in receipt of its share of advances received from the customers towards the sale of undivided share of land. As the company is only a land owner and is not involved in any developmental or construction activity in any manner, the revenue from transfer of right, title and interest in land will be offered as income in the year in which the risks and rewards of the ownership is transferred in favour of the purchasers in accordance with the revenue recognition as per AS 9 of Institute of C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to have been found during the course of search. The assessee has made submissions with respect to the joint development agreement and its method of revenue recognition several times as enumerated above and consequently the same cannot be said to be incriminating material. 3.16. In the instant case as could be seen from the order of assessment passed under section 153A r.w.s 143(3) of the Act, the learned Assessing Officer has made addition under the head income from business by adopting percentage completion method of revenue recognition. The ld AR submitted that the addition is made based on the opinion of the learned Assessing Officer that the significant risk and rewards of ownership have been transferred and consequently the percentage completion method of revenue recognition ought to have been followed. The same is not based on any incriminating material found during the course of search. 3.17. In view of the above, the ld AR submitted that the learned Assessing Officer did not assume proper jurisdiction to issue notice under section 153A of the Act and consequently the notice issued under section 153A of the Act and the assessment order passed under section 153A r.w.s 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....b) and (c) of the Act and consequently the notice issued under section 153A of the Act pursuant to such illegal search action are bad in law and void ab- initio. e) It is further contended that the search under sect ion 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132 of the Act is bad in law and consequent assessment order passed under section 143(3) r.w.s. 153A of the Act is null and void-ab-initio on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80 f) It is further contended that the learned assessing officer has to discharge the burden of proving that there is a valid initiation of search under section 132(1)(a), (b) & (c) of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment under section 153A of the Act. It is submitted that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153 A of the Act on the parity of the ratio of the decision....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Pvt Ltd, 374 ITR 595(SC) ii) Sri. C. Ramaiah Reddy Vs. DCIT, reported in 339 ITR 210 (Kar) iii) ITO Vs. Seth Brothers reported in (74 ITR 836) (SC) iv) Agarwal Iron Industries reported in (370 ITR 180) (SC) v) Southern Herbals Ltd vs DIT reported in (207 ITR 55) (Kar.) l) The ld. AR submitted that the learned Assessing Officer ought to have verified the following aspects before issuing the notice under section 153A of the Act as the same as sine qua non for a valid search under section 132 of the Act - i) Whether sanction of warrant has been properly issued by competent authority or not; ii) Whether the warrant has been properly executed; iii) Whether warrant has been obtained by the officer for each occasion the officer visits the premises of place of search; iv) Whether the right person has signed the warrant; v) Whether the witness as contemplated in law are there or not; vi) Whether the procedure contemplated under Rule 112 have been complied with or not; vii) Whether the name of the officer in the Panchanama & Warrant are one and the same; viii) Whether all the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iii) S.M. Kamal Pasha v. DCIT in ITA No. 155 of 2017 dated 02.08.2022 (Kar.) 5. The Ld. D.R. submitted that during the course of search action, a loose sheet containing the amount received by Trishul Buildtech & Infrastructure Pvt. Ltd. from M/s. Prestige Habitat Ventures till Nov'17 was found and seized as per No.1 of folder A/TBIPL/CO/08, which has been reproduced by the AO at the top of assessment order at page 4 and on that basis notice u/s 153A of the Act has been issued and there was valid search warrant issued u/s 132 of the Act. Consequently, assessment framed u/s 143(3) r.w.s. 153A of the Act is valid. Thus, he supported the order of the AO. Findings on 1st Additional ground:- 6. We have heard the rival submissions and perused the materials available on record. In the present case, the assessee is questioning the validity of search action u/s 132 of the Act and framing of assessment by issue of notice u/s. 153A of the Act. In our opinion, this issue has been settled by the decision of the Special Bench in the case of Proman Ltd. v. DCIT, 95 ITD 489 (Del) (SB) wherein it was held that Tribunal cannot adjudicate upon issue relating to validity of search conducted un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt case as well so long that the said Amendment holds the field. Therefore, the Appellate Authorities of the Department cannot be expected to go into the said question. It is only for the Constitutional Courts to examine the vires and validity of such Amendment and for that, a separate writ petition is already said to be pending. However, no such challenge to the Amendment has been made in the present case." 11. In these circumstances, the impugned order Annexure A dated 11.2.2015 passed by the learned CIT(A) cannot be faulted and it stands to the reason for the learned CIT(A) to have followed the Chattisgarh High Court's decision and refused to do so. 6.3 Being so, the assessee cannot question the validity of search before this Tribunal. Accordingly, this ground of appeal of assessee is dismissed. 2nd Additional ground:- 7. The assumption of jurisdiction u/s 153A of the Act is bad in law in the absence of any incriminating material unearthed during the course of search and consequently the order passed under section 143(3) r.w.s. 153A of the Act is bad in law. Consequently, the notice issued under section 153A of the Act is bad in law a) The ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g an affidavit cannot be brushed aside without reasoning. b) Without prejudice, the amount added by the AO and declaration has no co-relation and further there is no rational basis of adopting the developer's statements without even cross verifying the same. Further, there is no prohibition in law for the assessee to retract statements made on the legal aspects and in fact the 153A notice was issued on 19.12.2018 and retraction was filed on 22.5.2019 before AO. According to ld. AR this retraction is made within a reasonable time especially when the entire issue was completely legal. Thus, the retraction is in order and the case laws relied by lower authorities upon have no bearing on the facts of the present case. c) Without prejudice, the Assessee submitted that it is settled position of law that mere consent does not confer jurisdiction. The Assessee places reliance on the following decisions - i) Bhandari Metals v. State of Karnataka ILR 2004 Kar 2025 ii) CIT v. V. Mr. P. Firm, Muar [1965] 56 ITR 67 (SC) iii) Pullangode Rubber Produce Co. Ltd v. State of Kerala (1973) 91 ITR 18 (SC) iv) Nirmala L. Mehta v. A. Balasubriman....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e has to assess or reassess total income of these six years. In this respect also, the word used is 'shall' and, therefore, the Assessing Officer has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words, pending proceedings will not be proceeded with thereafter. The assessment has now to be made under section 153(1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B. When the original assessment for the assessment years 2016-17 & 2017-18 has not been completed or time limit to complete the assessment has no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 9 but on or before the 31st day of March, 2021, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years : Provided that the Assessing Officer shall assess or reassess the total income i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 132. Initiation of proceedings under Section 153A is not dependent on any undisclosed income being unearthed during such search. The proviso to the aforesaid section makes it clear the assessing officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six assessment years referred to in the aforesaid sub-section on the date of initiation of the search under Section 132, the said proceeding shall abate. If such proceedings are already concluded by the assessing officer by initiation of proceedings under Section 153A, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the "total income" of the six assessment years in question in separate assessment orders. The Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed dur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer without rejecting the books of account of the assessee, and also without there being any adverse comment made by the Assessing Officer with regard to the books of account that were maintained by the assessee, which were duly audited. 6. In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material had been found, and merely on the basis of further investigating the books of accounts which had been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assesseee, on the basis of which assessment had been concluded, cannot be reappreciated by the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de and remanded to the Tribunal for fresh consideration in accordance with law. 14. In the case of Principal Commissioner of Income Tax V/s. Ramesh Bhai Jivraj Desai [(2020) 121 Taxxman.com 333 (Gujrat)], it has been held that having regard to the materials on record, the Tribunal is right in holding that once it is held that the assessment has attained finality, then the assessing officer, while passing independent assessment order under Section 153A read with 143 (3) of the Act cannot disturb the assessment/reassessment which has attained finality, unless the materials gathered in the course of proceedings under Section 153A of the Act establish that the reliefs granted in the final assessment/reassessment were contrary to the facts coming during the course of Section 153A proceedings. 15. The Hon'ble High Court of Gujarat in Principal Commissioner of Income Tax- 4 V/s. Saumya Constructions (P) Ltd. [2017 81 Taxxman.com 292 (Gujarat)], has held thus: "14. Essentially, therefore, both the provisions contemplate search and requisition where the assessee is not likely to disclose his income. It appears that the object of both the provisions is to unearth t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under Section 153A of the Act is annulled in appeal or any other proceeding." 16. In the decision of E.N. Gopakumar V/s. Commissioner of Income Tax (Central) [(2016) 75 Taxxman.com 215 (Kerala)], the Hon'ble High Court of Kerala has held that Section 153A is a provision which deals with assessment in case of search or requisition. Section153A (1) (a) authorizes the issuance of notice calling for filing of returns. Once that is done, it is well within the jurisdiction of the assessing authority to proceed with any lawful modes of assessment as prescribed in the Act. The statute nowhere makes it conditional that the department has to unearth some incriminating material to conclude some method against the assessee in events where the assessment is triggered by a notice under Section 153A (1)(a) of the Act. When such notice is triggered following the search, the assessment proceedings can be concluded in any manner known to law including under Section 143(3) of the Act or even144 of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., would make assessment and compute the total income of the assessee including the undisclosed income, notwithstanding the assessee had filed the return before the date of search which stood processed under Section 143(1)(a) of the Act. 11. In the light of the aforesaid, the reasons given by the Tribunal that no material was found during the search cannot be sustained, since we have held that the Assessing Officer has the power to reassess the returns of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to the material that was available at the time of the original assessment. We find that the Tribunal dismissed the appeal while relying upon the decision of a Coordinate Bench of the Tribunal in the case of Anil Kumar Bhatia Vs. ACIT (2010) 1 ITR (Trib.) 484 (Delhi). We find that the said decision of the Coordinate Bench of the Tribunal was set aside by the Delhi High Court in Commissioner of Income Tax Vs. Anil Kumar Bhatia (2012) 24 taxmann.com 98 (Delhi). We find that the Tribunal only dismissed the appeal on this legal issue and had not considered the matter on merits." 18. In Commissioner of Inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing authority" who will take note of it while determining total income." 20. In Principal Commissioner of Income Tax and Others V/s. Meeta Gutgutia Prop. Ferns 'N' Patels and Others [(2017) 295 CTR 0466 (Del)], Hon'ble High Court of Delhi while considering the substantial question of law relating to invoking of Section 153A of the Act has analyzed the catena of judgments more particularly, Smt. Dayawanti Gupta V/s. CIT [(1954) 26 ITR 736 (SC)J and Kabul Chawla supra and held that there was a clear admission by the assessee in Dayawanti Gupta supra of a failure in maintaining regular books of accounts, on the basis of material recovered during search, the additions were made for all the years. The Hon'ble Court held that what weighed with the Court in the said decision was the "habitual concealing of income and indulging in clandestine operations". Thus, it has been held that the distinguishing factors of Dayawanti Gupta supra, do not detract from the settled legal position in Kabul Chawla supra which has been followed by several High Courts and thereby recorded a finding that the Tribunal was justified in holding that invoking of Section 153A by the Revenue for the assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 21. The Judgment of Meeta Gutgutia, supra was challenged before the Hon'ble Apex Court by the Rev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve disturbed the assessment order finalised on 29.12.2000 relating to Section 80HHC deduction and consequently the C.I.T. could not have invoked jurisdiction under Section 263 of the Act." 23. In the case of Commissioner of Income Tax V/s. Continental Warehousing Corporation [(2015) 374 ITR 0645 (BOM)], an endeavor made by the Revenue contending that the ambit and scope of powers conferred on Assessing Officer under Section 153A of the Act was not properly appreciated in Murli Agro Products Ltd., and the same requires re-consideration was negated and the law laid down in Murli Agro Products Ltd., supra, was followed. 24. It is relevant to refer to the dicta pronounced by the High Court of Judicature at Bombay in the case of Murli Agro Products Ltd., supra wherein the Hon'ble High Court of Bombay in para 12 has held thus: "12. Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section 80 HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-122000 would attain finality. In such a case, the A.O. while passing the independent assessment order under Section 153A re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovisions and introduced Sections 153A, 153B and 153C in the Act. Section 153A would contemplate that on initiation of proceedings under said Section 153A, the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessment/reassessment already finalized. The CBDT Circular No.8/2003 dated 18.09.2003 clarifies that on initiation of proceedings under Section 153A of the Act, the proceedings pending in appeal, revision/application against finalized assessment shall not abate. It is clarified in the said CBDT Circular that the then existing provisions of Chapter XIV-B provided for a single assessment of the undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and laid down the manner in which such income is to be computed. The new Section 153A provides the procedure for completion of assessment where a search is initiated under Section 132 or books of acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d intimation issued u/s 143(1) - Time limit for issue of notice u/s 143(2) not expired. Since intimation is not akin to assessment and time limit for notice u/s 143(2) hs not expired, even though return has been processed, it will be case where return has not attained finality. Consequently, AO would have authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3). 4. Return of income filed by the assessee. Intimation passed or not u/s 143(1) and time limit for issue of notice u/s 143(2) has expired. Return of income of the assessee shall be treated as having being accepted and attained finality. AO loses jurisdiction to verify the return of income Since, no assessment would be pending there would be no abatement of any proceedings. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search. 5. Notice u/s 143(2) issued and assessment pending u/s 143(3) Pending regular assessment proceedings would abate and would converge/merge in proceedings u/s 153A. Accordingly the scope of assessment under section 153A would cover the pending return filed as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u/s 143(2) of the Act was already lapsed as on the date of search, no assessment could be made without basis of incriminating material found during the course of search. We find force in the argument of the Ld. Counsel for the AY 2016-17, the addition is not based on any seized material and the AO made addition only on the basis of change in method of recognition of income i.e. percentage completion method versus contract completion method. In our opinion, completed assessment cannot be tinkered without the support of any incriminating material found during the course of search, therefore, framing assessment for AY 2016-17 without any incriminating material found during the course of search is bad in law. The contention of ld. DR is that there is a seized material coupled with sworn statement recorded from the Managing Director of Assessee company. The sworn statement recorded u/s 132(4) of the Act on 12.1.2018 from the Managing Director of assessee company Shri K. Prakash Shetty. In our opinion, there should be a valid seized material and sworn statement of Managing Director cannot substitute the seized material found during the course of search, though sworn statement is a piece ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either eligible to tax ITA Nos.709 to 712 /Bang/2018 ITA Nos.1142 to 1148 /Bang/2018 CO Nos.88 to 89 /Bang/2018 under the taxing statute or it is not. If it is not, the Income- tax Officer has no power to impose tax on the said income." Hence, mere admission of additional income would not automatically entitle the assessing officer to assess the same, if the assessee disputes the same subsequently with corroborative evidences. 10.7. The Hon'ble Bombay High Court has dealt with this issue in case of Balmukund Acharya (310 ITR 310), wherein it was held as under:- "31. Having said so, we must observe that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. The Tribunal, therefore, in our view did not commit any error in directing to fix the correct annual letting value of the premises in question, in accordance with the provisions of section 23 of the said Act with reference to the municipal valuation, although such sum was lower than the figure shown by the assessee in his returns of total income." 10.9. In the instant cases, the Managing Director has stated that an amount of Rs.131 Crores be offered as income from the construction revenue as discussed above. The reason cited for his admission is that till date the revenue is not recognized for the advance received as the assessee was of the opinion that the percentage completion method is not applicable to assessee company as their revenue share was derived from transfer of right,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... manner, the revenue from transfer of right, title and interest in land will be offered as income in the year in which the risks and rewards of the ownership is transferred in favour of the purchasers in accordance with the revenue recognition as per AS 9 of Institute of Chartered Accountants of India". 10.13 The fact that the method of accounting is clearly mentioned in the financial statements which is much before the date of search indicates that - it is not incriminating material as it is merely a change of perception and consequently outside the scope of section 153A of the Act. 10.14. There is no dispute that the revenue recognition policy being followed by the assessee with respect to the Prestige Lakeside Habitat Project was further clarified by the Assessee during the course of assessment proceedings for the assessment year 2014-15 and 2015-16 and during the course of proceedings before the Deputy Director of Income Tax (Investigation). 10.15 It is also admitted fact that the Assessee submitted during the course of assessment proceedings for the assessment year 2014-15, vide letter dated 02.12.2016 filed before the learned Assessing Officer that it would be declar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Assessing Officer did not assume proper jurisdiction to issue notice under section 153A of the Act and consequently the notice issued under section 153A of the Act and the assessment order passed under section 153A r.w.s 143(3) of the Act for the assessment year 2016-17 is bad in law. Accordingly, the assessment for the AY 2016-17 is quashed. AY 2017-18:- 11. In the assessment year 2017-18, the assessee filed the original return u/s 139(1) of the Act on 4.10.2017 admitting the nil return. The time limit to issue notice u/s 143(2) of the Act was on or before 6 months from the end of the financial year in which the return is furnished. Thus, the time limit available to assessee is 6 months from 31.3.2018. Thus, the time limit to issue notice was upto 30.9.2018. The search took place on 10.1.2018. The assessment is pending during this time. As such, in case of pending assessments only one assessment shall be made separately for each assessment year on the basis of the income unearthed during the search or any other material existing or brought on the record of the AO. Even in the absence of any incriminating material abated assessment or reassessment could be done. The returns....
X X X X Extracts X X X X
X X X X Extracts X X X X
....39; as a judicial proprietary demand which the ld. CIT(A) has failed to do. c) The learned Assessing Officer has come to the conclusion that the Assessee ought to have recognized income by way of percentage completion method on the basis of the revenue recognition policy adopted by the developer. The ld. AR submitted that the land owner i.e, the Assessee and the developer are two independent assesses in the scheme of the Act. Merely because the developer has followed the percentage completion method the land owner need not follow the same as each of them are independent assessable entities under the scheme of Act and are entitled to choose the method that is preferred by them. d) The Assessee submitted that the opinion of the expert advisory committee of the Institute of Chartered Accountants of India have opined that the provisions of the Accounting Standard - 7 - Construction Contracts are not applicable developers and that the provisions of Accounting Standard - 9 - Revenue Recognition would apply to them e) It is relevant point out to Page 186 of the paper book which deals with possession of the property which clearly indicates that no possession has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved for the land owner is from transfer of the undivided share of right, title and interest in the entire land and the developer share of revenue is from construction and transfer of the super built and development of common area in the project. The Ld. A.R. relied on the Guidance note on accounting for real estate transaction (Revised) 2012 to hold that percentage completion method has to be followed is incorrect proposition as even the Guidance note states that revenue should not be recognized till such time legal title is validly transferred to the buyer. 13.2 Further, he submitted that assessee has been following project completion method of recognition of revenue and this system of accounting has been followed by from year to year which can be seen from the assessment order in assessment years from 2014-15 and 2015-16. Thus, it was the submission ld. AR that it is not open to the department to change the method of accounting in the middle of the period of completion of the project even percentage competition method is applicable. He submitted that rule of consistency has to be followed. For this purpose, he relied on various judgements. 14. Additions made under the incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch he receives as a member of that family out f the income of that family. If the said HUF has escaped assessment for any year, the ITO, subject to the conditions laid down in section 34(1) of the 1922 Act, may issue a notice thereunder calling upon the said HUF to submit a return of its income for that year and proceed to assess it in terms thereof. It is manifest from a combined reading of the said provisions of sections 3, 14, 2, 22 and 34 of the 1922 Act that the ITO can issue a notice to a HUF under section 34 of the 1922 Act on the ground that it has escaped assessment. In the counter-affidavit filed by the ITO in the High Court, it was stated that he had reason to believe, in consequence of information in his possession, that income, profits or gains chargeable to income-tax had escaped assessment. His information was that, notwithstanding the compromise decree, the members of the family were living together had joint mess and the business was run by the assessee. In short, the case of the revenue was that the compromise was a make-believe one and the family in fact continued to be a joint Hindu family. The exercise of the option to do one or other of the t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act, particularly section 14(1) of the 1922 Act. Therefore, if the assessment proceedings initiated under section 34 of the 1922 Act culminates in the assessment of the HUF, appropriate adjustments have to be made by the ITO in respect of the tax realised by the revenue in respect of that part of the income of the family assessed on the individuals of the said family. To do so was not to reopen the final orders of assessment, but in reality to arrive at the correct figure of tax payable by the HUF. The only question that arises at the time the ITO proposes to take proceedings under section 34 of the 1922 Act is, whether the income has escaped assessment or has been under assessed in the hands of the person against whom the said proceedings are initiated. At this stage, the question of resolving the conflict between the proposed assessment and an earlier assessment made on a wrong person does not arise. Therefore, the High Court went wrong in holding that the ITO had no jurisdiction to initiate proceedings under section 34 against the assessee as the karta of a HUF. Further, the High Court had not expressed its opinion on the question based upon section 25 of the 1992 Act. In t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s further not under the spirit and the scheme of the Act. 14.8 It is submitted by ld. A.R. that needless to add that the department is excepted to assist the assesses in computing taxable income as per the provisions of the Act as enunciated by the CBDT in Circular No. No. 14 (XL-35) of 1955, dated 11.04.1995 and amplified by the decision of the Hon'ble Karnataka High Court in the case of Rajeshwari Cotton Ginning & Pressing Industries v. ALIT (2017) 88 taxmann.com 463 (Kar.). Therefore, the officers of the department ought to have atleast guided the assessee in offering income correctly. Failure to even suggest the same during the course of enquiry and therefore, the statement of the CIT(A) that the assessee was not directed to offer income in subsequent years is absolutely not within the spirit and intent of the Act and also unsustainable in law. Thus, the observation of the CIT(A) is neither fair on facts nor legally permissible. Ld. D.R's submissions:- 15. The Ld. D.R. submitted that the assessee being owner of vacant and undeveloped land, had evaluated the potential in the area and decided to get the said land developed and construct residential villas and high-ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l estate project. 15.2 He also drew our attention to the relevant clauses of JDA and submitted that as per JDA, the assessee would retain legal possession, domain and control over the Schedule Property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in the Agreement. So even if 'a part of the developed property is sold to prospective purchaser the control of the assessee no longer exists on such part of the scheduled property. That is why the power of attorney given by the assessee to the developer allows it to carry out all such activities which a land owner will normally do to sell its land. In fact, even the custody of the original title deeds of the land is given to the developer. In case of dispute, the assessee can seek only part of the total available/unsold area in each phase as Owner's share of built-up area and it has no control on the remaining area. The registration of the land in the name of the buyer is a mere formality and thus the accrual of income was there in the hands of the assessee as soon as the developer had entered into an agreement with the buyer for sale of undivided share of land and the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any condition or subject to only such conditions which do not materially affect his right to benefits in the property. 15.5 Thus, going by the Guidance note, even an allotment letter or unregistered agreement for sale may also be considered as transfer of significant risk and reward of ownership for real estate developers. Further, as in the case of the assessee, where revenue generation is akin to revenue on account of sale of the developed plots, here again the percentage completion method was required to be followed as conditions laid down in paras 3.3. and 5.1 of the guidance notes are duly met. Thus, although the assessee is not bound to follow the same method of accounting as followed by the developer, however looking into the facts of the case, as discussed supra, the appropriate method of accounting for determining true income of the assessee for the year under consideration is the same as adopted by the AO, as recognition of the income which has already accrued cannot await registration of the sale deeds. 15.6 The ld. D.R. submitted that there is no merit in the argument of assessee's counsel as the income has been subjected to tax in later years and it cannot be tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny and that the Act left no option to the ITO. So this decision does not help the assessee. As regards the decision in the case of Ram Shankar Prasad(Supra), the High Court held that the ITAT could not have deleted the addition made by the AO by just holding that the addition was made in two different years. The HC held that the ITAT should have either decided the correct year of taxability or asked the AO to do it afresh. So the above decision nowhere lays down the ratio as contended by the assessee. The argument of the assessee that its income is getting taxed twice is also misplaced. The AO has taxed the income of the assessee in the year under consideration and not in any other year. The assessee has neither been directed by the AO to offer this income in any subsequent year nor it is required to do so. So the issue of taxing the same income twice does not arise. In fact, in the case under consideration the AO has brought to tax the income in the correct year and as such the same is required to be upheld. Findings on 1st & 2nd main grounds:- 16. We have heard the rival submissions and perused the materials available on record. The assessee is the land owner of the propert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roject was further clarified by the Assessee during the course of assessment proceedings for the assessment year 2014-15 and 2015-16 and during the course of proceedings before the Deputy Director of Income Tax (Investigation). The details of the same are as under: 16.4 During the course of assessment proceedings for the assessment year 2014-15, the Assessee vide letter dated 02.12.2016 submitted before the learned Assessing Officer that it would be declaring revenues from the Prestige Lakeside Habitat project relating to its share arising from transfer of right, title and interest in the land to the ultimate purchasers when the risk rewards of ownership of land are transferred to them. i) The AO passed assessment order under section 143(3) of the Act dated 14.12.2016 without making any addition on this account. ii) During the course of assessment proceedings for the assessment year 2015-16, the Assessee reiterated its revenue recognition policy vide letter dated 13.12.2017. The submission was accepted and the AO completed the assessment without making any addition on this count. iii) The Assessee also made similar submissions before the Deputy Directo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee to prospective purchasers. What was received from the prospective buyers was in the nature of advance, therefore, it cannot be considered as amount received towards absolute transfer of price of flats intended to be sold. The system of accounting of working out profits on completed contract basis was an accepted system of accounting and such system had been followed consistently in the past by the assessee, which had been accepted by the department in earlier years, therefore, there was no justification, whatsoever to reject this system by invoking the provisions of section 145 of the Act and making estimate of profit by AO. 16.6 At this stage, it is appropriate mention the Third member decision in the case of JCIT Vs. Magnum International Trading Company Ltd. (84 ITD 113) (Third Member) (Del.) wherein held that: "Assessee following project completion method, AO not justified in rejecting the method midway and estimated profit more so on when it was not permissible for the assessee or for the revenue to correctly work out the profit by changing the method of accounting in midway and make estimate of the income from ongoing contract for which there is no specific ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly in the case of construction contracts only. Further, the assessee is following consistently this method of revenue recognition in prior years as well as in subsequent years and which has been accepted by the revenue and thus rule of consistency also demand that in the year under consideration the assessing officer is not justified in deviating the consistent approach of the Department. In view of above, there is no error in the order of the CIT(A) on the issue in dispute. Revenue's appeal dismissed." 16.10 In the case of DCIT Vs. Ankit Chirag Developers Pvt Ltd. 40 CCH 18 (Jodh) (Trib). held that "On perusal of clause 10 & 11 of AS-9 it is noted that in the appellant's case the retractions involving of sale of good, the performance can be regarded as achieved when conditions laid down in clause 11 are fulfilled. In this connection it may be noted that the appellant has not transferred to the buyers the property i.e. flats in as much as significant risk and rewards of ownership have not been transferred. No sale deeds of sale of flats or any legally enforceable documents have been executed by the appellant. Though the AO has mentioned in the assessment order that sale....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. In this case, the stock-in-trade in immovable property and the title in immovable property can be transferred or alienated in accordance with the provisions of the Transfer of Properties Act. The right, title or interest in the immovable property can be transferred only by way of registering the conveyance deed executed in this behalf. Even the accounting standard 9 dealing with the recognition of income also lays down that the income in respect of transfer of immovable property can be recognized only when the risks, rewards and ownership of the property is transferred to the buyer. Therefore the matter requires fresh examination by the Assessing Officer in the light of the above position of law. Therefore, court remand this matter back to the file of the Assessing Officer with a direction that the income in respect of sale of plots can be recognized only in the year in which conveyance deed executed is registered in favour of the buyers and to allow the development expenditure incurred as expenditure or the expenditure likely to be incurred on the plots sold as expenditure. And this direction also goes in line in consonance with the provisions of accounting standard 9 which cle....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... real estate developers, the assessee has itself changed the method of accounting. Hence the AO is directed to accept the project completion method of accounting for the year under reference.-Motor Industries Company Ltd. vs. Asstt. CIT (ITA Nos. 335 & 336/Bang/2005, dt. 12th June, 2008) followed. (Para 3.25) Conclusion: Assessee developer having regularly employed project completion method which is an accepted method of accounting, and the Central Government having not notified AS-7 under s. 145(2), AO could not reject the accounts under s. 145(3) on the ground that the assessee had not followed the percentage completion method." 16.13 In the case of CIT Vs. Banjara Developers & Constructions P. Ltd. 425 ITR 673 (Karn.) wherein held that: "7. We have considered the submissions made on both the sides and have perused the record. Section 145 of the Act deals with method of accounting. Section 145(1) provides that income chargeable under the head 'profits and gains of business or profession' or 'income from other sources' shall subject to provisions of sub-section (2) be computed in accordance with either cash or mercantile system of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....145 of the Act. Therefore, the aforesaid submission made on behalf of the revenue also does not deserve acceptance. 10. In view of preceding analysis, the substantial question of law framed by this court is answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed." 16.14 In the case of CIT Vs. Prestige Estate Projects P. Ltd. 440 ITR 343 (Karn.) wherein held that "10. In the instant case, assessee entered into a Development Agreement with M/s. Karnataka Realtors Private Limited, under which agreement the assessee was to develop the property and after development of the property, the owner and the developer were entitled to a specified percentage of super built area and both were free to sell the super built area allotted to their respective shares before construction of the built up area fallen to the share of the assessee, it (assessee) entered into agreement with the proposed buyer to construct the portion as per their specification. In other words, construction is undertaken by the assessee on behalf of the proposed buyer. However, for the purposes of stamp duty....
X X X X Extracts X X X X
X X X X Extracts X X X X
....property in the goods for a specific price or on significant risks and rewards of ownership has been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; (ii) no significant uncertainty exists regarding amount of consideration that has been derived from the sale of the goods. In the instant case, it has been noticed by the appellate Tribunal that assessee was in the activity of projects and was not a construction contractor. Thus, the revised AS-7 would be applicable to an enterprise undertaking construction activities on their own account as a venture of commercial nature. Where as, the assessee undertakes construction activities for those persons to whom it intends to sell super built area along with undivided share of land in a project which it is developing as a developer. 11. There cannot be any dispute to the fact that every assessee being entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. Under similar circumstances as obtained from the facts on hand, Hon'ble Apex Court in the case of CIT v. Bilaha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ITR 241 cited (supra). 16.17 In the case of DCIT Vs. Varun Developers (440 ITR 354) (Karn.) 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The first three substantial questions of law are answered in favour of the assessee for the reasons assigned by learned Senior counsel for the assessee in the judgments referred to supra. So far as fourth substantial question of law is concerned, it is pertinent to note that under section 145(1) of the Act, the income chargeable under the head Profits and Gains of Business shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The general provision is subject to accounting standards that the Central Government may notify. The assessee is a builder and developer and not a construction contractor simplicitor. Accounting Standard 7, titled construction contracts is applicable only in case of contractors and does not apply to the case of developers and builders which is evident from opinion rendered by expert advisory committee of ICAI. It is pertinent to note that the assessee had offered the income for. Assessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;s of Apex court while dealing provisions of section 13 of 1922 Act (the provisions of which are in pari-materia of section 145 of 1961 Act) have held as under: "Section 13 of 1922 Act merely prescribes that the computation of taxable profits shall be made according to the method of accounting regularly employed. Where in the opinion of the ITO the income, profits and gains cannot be properly deduced from the method of accounting, it is open to ITO to compute the income upon such basis and in such manner as he may determine". Comparing the provisions with the English provisions, it is held, "the only departure made by section 13 of 1922 Act from tax legislation in England is that whereas under English legislation the commissioner is not obliged to determine profits of a business venture according to method of accounting adopted by the assessee, under the Indian Income Tax Act, prima-facie, the ITO has for purposes of section 10 & 12 of 1922 act to compute income, profits and gains in accordance with method of accounting regularly employed. If, therefore, there is a system of accounting regularly employed and by appropriate adjustments from the accounts maintained taxable profits m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... flats to a separate account and shown as a liability in balance sheet. At this stage it may be relevant to mention that in those years also the appellant has credited the advance received against proposed sale of flats to the Advance against sale of Flat A/c and not treated the same as income for said years on the basis that revenue in respect of sale of said flats would be recognized only on execution and registration of sale deeds of flats. The assessment of the said years have been completed by AO by the same common order, accepting the method of accounting and method of recognition of revenue. Thus the method followed by appellant is a consistent method which has been accepted by AO for two years i.e. AY 2010-11 & 2011-12 Since the said method has been consistently followed by appellant and even accepted by department, the same cannot be deviated in the present two years without there being any finding as contemplated u/s 145(3) on the basis of satisfaction required by that section viz., (1)about correctness or completeness of the accounts of the assessee or (2) about the fact that the assessee has not regularly employed the method of accounts provided in section 145(1) or (3)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lable, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the Revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different sand and that too, without hearing the assessee". 35. Further in another judgment by CIT Vs. Umang Hiralal Thakur (2014) 42 taxmann.com 194 (Guj) is placed on the following paragraphs of its judgment. "In the present case, it is not the Assessing Officer's case that the appellant is not reporting or under reporting its income. In fact, I find in the subsequent assessment year, i.e. the assessment year 2007-08, the appellant has disclosed substantial income from the projects undertaken in the business proprietary concerns, viz, M/s. Neelkanth Enterprises, M/s. Ghanshyam Enterprises and M/s. Swaminarayan Enterprises. In the subsequent year, i.e. the assessment sear 2007-08 the profit declared from the projects run by these three proprietary concerns ranges from 43 per cent to 46 per cent. The Supreme Court in the case of Sanjeev Woolden Mills v. CIT (supra), has clearly held that to attract the proviso to section 145(1)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of income tax. We find that the issue is to be decided in accordance with the provisions of section 145 of the Act shows that the business income which is assessable under the Income tax Act is to be computed in accordance with the consistent system of accounting followed by the assessee unless such system, of accounting is defective and/or from such system of accounting, profit cannot be deduced. Thus, in our considered opinion, the option for choosing the system of account is with the assessee and not with the learned Assessing Officer provided the system chosen by the assessee is consistently followed by him and such system is not a defective system. In our considered view, provisions of AS7 cannot override the provisions of section 145 in so far as the computation of business income under the Income Tax Act for the purpose of determining income is concerned. In the instant case, we find that the learned Assessing Officer has brought no material on record to show that the system of accounting adopted by the assessee for the year under appeal was not consistently followed y the assessee or the system adopted was a defective system. In our considered view, even a project complet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p to the relevant assessment year the income should have declared on the percentage completion method. The Coordinate Bench decided in favour of the assessee holding that the results declared by the assessee on the basis of method of accounting consistently followed and the entire profit of the project has been offered in subsequent assessment year therefore there is no justification in rejecting the method of accounting followed by the assessee and substituting the same by adopting accounting AS-7 issued by ICAI and followed it for accounting. 38. Similarly Hon'ble High Court of Punjab & Haryana in the case of Commissioner of Income Tax (Central), Gurgaon V. Principal Officer, Hill View Infrastructure (P) Ltd (2017) 81 taxmann. corn 58 (Punjab & Haryana) order dated 13.8.2015 confirmed the view taken by the Tribunal deciding in favour of the assessee relating to the issue of the project completion method adopted by the assessee vis-a-vis percentage completion method applied by us, the Assessing Officer observing as follows; "The assessee in reply to the query raised by the Assessing Officer had inter alia claimed that it had been consistently following method of booking of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that it is following one of the accepted accounting standards approved by ICAI for recognizing the revenue generated by it. The assessee had followed project completion method which had been consistently followed by the assessee for the preceding years also. The Assessing Officer on the other hand, had applied percentage completion method to compute the income in the hands of the assessee. The Commissioner of Income Tax (Appeals) had allowed the claim of the assessee. Both the methods of accounting are i.e. project completion method and percentage completion method is accepted standards of accounting and either of the methods can be applied by the assessee. In the facts of the present case before us, the assessee had chosen to compute its income on the basis of project completion method i.e. recognizing the income on -the completion of the project and not from year to year whereas the case of the revenue was that it should account for the income as it is generated in the hands of the assessee i.e. from year to year on the basis of the work completed being relatable to the revenue generated from year to year. The Hon`ble Supreme Court in CIT Vs. Bilahari Investment (P) Ltd (supra)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al raised by the revenue." The Delhi High Court in CIT V. Manish Build Well (P) Ltd. (2011) 16 taxmann.com 27(2002) 204 Taxman 106 noted that project completion method is one of the recognized methods of accounting. It was held as under:- "It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act" The assessee respondent had been consistently following one of the recognized methods of accountancy, i.e project completion method, for computation of its income. In the absence of any prohibition or restriction under the Act for doing so, it cannot be held that the approach of the CIT (A) and the Tribunal was erroneous or illegal in any manner so as to call for interference by this Court. No substantial question of law arises. Consequently, finding no merit in these appeals, the same are dismissed." 38. It is well settled that the project completion method is one of the recognized methods of accounting. In CIT v Hyundai Heavy Industries Co. Ltd (2007) 291....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thod followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (Supra), the finding of the CIT(A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year(the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we axe of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3." 41. From perusal of all the judgments it has been consistently held rather a settled law that the action of revenue authorities cannot be held justified if they substitute another method of accounting on th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion method adopted by the assessee to the percentage completion method unless all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership. The assessee has referred to BU permission etc. and has demonstrated on facts that the risks associated with the project continued with the developer in a significant way during the year under consideration. It is also not in dispute that the income has been ultimately offered in the later assessment year and duly assessed. Thus, the entire exercise of the AO is revenue neutral. The CIT(A) has correctly appreciated the facts and circumstances of the case and has taken note of the revenue recognition in the later year. The assessee has also demonstrated that the revenue recognized from project has been actually assessed and accepted in 143(3) r.w.s. 263 of the Act proceedings. (Para 8) Conclusion: AO cannot challenge the project completion method adopted by the assessee, a developer and constructor of the building project, to the percentage completion method unless all significant risks and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....age 184 of the paper book, the purchasers do not have a right to obstruct the development. Page 181 of the paper book deals with execution of sale deed and most importantly at Page 176 of the paper book it is stated that if the prospective purchases do not make the payments, the agreement can be terminated. Consequently to hold that the purchasers are in control of the property is absolutely not correct. Reference is also made to Para 1.3 of the development agreement at Page 115 of the paper book which clearly states that the parties confirm that the owner shall retain legal possession, domain and control over the property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in the agreement. 16.22 The issue is whether project completion method or percentage completion method has to be followed and both being species of mercantile system of accounting, the Assessee has a right to choose one of the two methods. The Assessee having chosen the project completion method, it is impermissible for the revenue to modify it by invoking the decision of British Paints (supra) more so when the jurisdictional High Court has approved project co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on. It is absolutely not applicable as the CIT(A) himself held that a person in possession of the property in his own right would be the owner and the CIT(A) says that registration of land is a mere formality which is contradictory with the agreement with the purchasers. 16.26 Another decision referred to by the CIT(A) is the decision of the Mumbai Tribunal in DCIT v. Sudhir V. Shetty (2014) 50 taxmann.com 372 (Mum. - Trib.). In fact, the said decision is not against the assessee. The entire decision stems of out of right to seek specific performance. The assessee submits that as held by the Hon'ble Supreme Court in K.S. Vidyanadam v. Vairavan (1997) 3 SCC 1, grant of the relief of specific performance if discretionary and the Court is not bound to grant it. Consequently, the decision of the Tribunal is not applicable to the facts and circumstances of the case. And further, the decision of Sudhir Shetty is more on the construction aspect and not that of land as in the case of the assessee. 16.27 The decision of ACIT v. Alcon Developers (2015) 54 taxmann.com 54 (Panaji - Trib.) is also not applicable to the facts of the present case as in the said case, the work was 100% o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w the same as each of them are independent assessable entities under the scheme of Act and are entitled to choose the method that is preferred by them. It is relevant to point out that the developer has entered into a construction contract with prospective purchasers which is at Pages 213 - 237 of the paper book and consequently AS-7 is applicable and he might have rightly applied percentage completion method. In so far as the assessee is concerned, it does not get into any construction activity, therefore the question of applicability of AS-7 does not arise and consequently percentage completion method is not applicable. Even as per ICDS - III that ICDS shall apply for determination of income for construction for construction act of a contractor. 16.32 It is observed that it is the land owner with respect to the said project and it entitled to 30% shares of the entire revenue which is attributable to the consideration to be received for the land owned by the Assessee. 16.33 The transaction of the Assessee is explained that, the Assessee enters into an agreement to sell with the prospective purchaser for sale of the undivided right, title and interest and ownership in the pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have not been complied with and consequently it cannot be applied. 16.38 It is also noted that as per Accounting Standard - 9, for applicability of proportionate completion method there should more than one act and for applicability of completed contract method there should be only orra act. In the instant case, there is only one act involved which sale of the property and consequently completed contract method is applicable. 16.39 Further, section 145(2) of the Act has been amended w.e.f 01.04.2015 to substitute the word accounting standards to income computation and disclosure standards. To the best of our knowledge, ICDS-III deals with construction contracts which is not applicable to the assessee and there is no standard for a development project. 16.40 It is an admitted fact that assessee not engaged in construction contract and on the other hand, assessee is only land owner getting the consideration on account of entering into JDA with Prestige Lakeside Habitat at a prescribed percentage of constructed area. In these circumstances, we have to examine whether revenue can thrust upon the assessee to adopt percentage completion method of accounting though the revenue ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....291 ITR 482 wherein Hon'ble. Apex Court held as follows:- "Lastly, there is a concept in accounts which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method." 25. Thus, we note that completed contract method and percentage complete method both were recognised method of accounting for computation of gains from construction contract. Section 43CB was inserted by the Finance Act, 2018 w.e.f. 1.4.2017 which provides that profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roject completion method of recognition of revenue and has been consistently following it over the years. In fact, the, same was queried during the course of assessment proceedings for the AY 2014-15 and 2015-16 and assessment orders were passed without making any addition on this count. It is observed that it is not open to the revenue to reject the method which has been consistently followed by the Assessee merely because the learned assessing officer is of the opinion that another method is preferable. The following judgements support the case of Assessee: i ) CIT v. Aditya Builders (2015) 378 ITR 75 (Born.) wherein held that "Assessee had chosen/adopted the Project completion method of accounting and had been consistently following it over the years. It was not open to the revenue to reject a method because, according to the Assessing Officer, another method was preferable. Moreover, the most appropriate method of accounting to correctly reflect the true financial statement is a matter of opinion and debate, Issues of debate are not amenable to the revisional jurisdiction under section 263." (ii) CIT v. Manish Build Well (P.) Ltd. (2011) 245 CTR 397 (Del.) wherei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the percentage of completion method." (underlining ours) After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (Supra), the finding of the CIT (A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year (the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we are of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3." (iii) Radhasoami Satsang v. CIT (1992) 193 ITR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 stated: ". . . At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity...." (p. 10) Assessments are certainly quasi-judicial and these observations equally apply. 13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 12. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter-and if there was no change it was in support of the assessee-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oportionate income? The answer is an emphatic no. Any number of such examples is possible to demonstrate that a transaction of this nature especially when the contractual obligation contemplates termination of contract on failure of pay the consideration is clear indication that the computation and accrual of income takes place only on the completion of the transaction. It is not the case of the department that that assessee has received 100% money of the land and the department itself even on the percentage completion method is only considering the income progressively. Thus, the question of applying the project completion method does not apply on these type of transactions. 16.48 In view of the above, the lower authorities have committed an error in adopting the percentage completion method of income recognition in computing the income from business. 16.49 It is also noted that adopting percentage completion method of recognizing revenue has resulted in double taxation which is impermissible in law and also brought on record by assessee that the same income has been offered for taxation in subsequent assessment years and paid tax thereon. 16.50 The assessee has recognize....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a) The Commissioner of Income Tax (Appeals) issued notice under section 250 of the Act dated 30.11.2021 requiring the Assessee to file written submissions through online mode. This notice only requires the assessee to file written submission and does not give a date of hearing to the assessee. In response to the said notice, the Assessee filed written submissions vide letter dated 04.12.2021 and further craved leave to make further written submission before the date of personal hearing. b) The Commissioner of Income Tax (Appeals) issued one more notice dated 13.12.2021 which notice is also not in accordance with law and pursuant to this notice the assessee had replied vide letter dated 20.12.2021 wherein it had stated as under:- "We will be appearing for the personal hearing along with our Authorized Representatives as and when scheduled." c) Thus, it is clear from the above that no notice was issued giving personal hearing and consequently the appellate order dated 07.01_:2022 passed by the Commissioner of Income Tax (Appeals) under section 250 of the Act is in violation of the principles of natural justice. d) The Commissioner of Income Tax (A....