TaxTMI 
TaxTMI 
2023 (12) TMI 536
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....3A is bad in law. 2. The ld CIT(A) has erred in confirming the action of the AO in applying the percentage completion method for revenue recognition for the year under consideration on the ground that the appellant firm through its managing partner had agreed to follow the said method during search operation and had filed its return of income for A.Y. 2016-17 by following percentage completion method and the ld AO cannot follow two different methods of accounting for recognizing the revenue for A.Y. 2015-16 and A.Y. 2016-17 in respect of the same project as he was completing the assessment for both the years simultaneously without appreciating the facts of the case and disregarding the submissions given by the appellant. 3. The learned CIT(A) erred in confirming the action of the AO in applying the same method of accounting for A.Y. 2015-16 and A.Y. 2016-17 on the ground that the appellant has failed to point out and specific mistake or fault of the AO in applying AS-7 for computing the income, as all the figure adopted by the AO were supplied by the appellant during assessment proceedings and the appellant had not raised any dispute or that computation disregardi....
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....detailed analysis of facts on the entire issue. The assessee is a builder and developer and has been following Project Completion Method of accounting for the purposes of revenue recognition. There was a search action at the business premises of Siddhivinayak Group at Camp, Pune and a statement of Managing Partner Shri Rajesh Sakla was recorded u/sec. 132(4) of the Act on 01/09/2016. The relevant questions and answers of this statement have been reproduced by the Assessing Officer (AO) in the assessment. In answer to question No. 9, the assessee has stated that they are following Project Completion Method. Thereafter, in answer to question No.10, Shri Rajesh Sakla stated that he was not aware of the Percentage Completion Method and, therefore has not paid any advance tax for F.Y. 2015-16 relevant to A.Y. 2016-17 though there was net profit of Rs. 12,54,84,333/- in 04 projects that they have undertaken. Thereafter, he had declared that as the income for F.Y. 2015-16 relevant to A.Y. 2016-17 in respect of those 04 projects, he would include the said income while filing the return of income, since due date of filing the return was still there, and then he promised that he would includ....
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....ment for the year under consideration. We observe from the Guidance Note on Accounting for Real Estate Transactions (Revised 2012) which is guidance note for accounting treatment in case of real estate developers and builders, therein both the standard of accounting i.e. Project Completion Method and Percentage Completion Method can be adopted and there is no binding obligation on such developers and builders to adopt only a particular method of accounting while recognizing the revenue and profit elements for the year under consideration. We further find that in A.Y. 2013-14 in case of the assessee, order dated 24/04/2018 assessment completed u/sec. 143(3) r.w.s. 153A of the Act, Department has accepted the Project Completion Method adopted by the assessee. That, further for A.Y. 2014-15 also, in assessee's case, order dated 24/04/2018 assessment completed u/sec. 143(3) r.w.s 153A of the Act and again the Department has accepted the Project Completion Method adopted by the assessee. The point noted is that in both these assessment years, the date of order is the same i.e. they were passed on the same date and by the same AO. That, again assessment for the present year i.e. A.Y. 201....
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....Managing Partner had categorically stated for adopting Percentage Completion Method from A.Y. 2016-17 onwards and not for the present assessment year. The ld.DR also could not demonstrate from the findings of the AO as well as the ld. CIT(A) as to where distortion or ambiguity, if any, has taken place while determining the profit of the assessee for the current assessment year while adopting Project Completion Method, for which the Department is imposing the Percentage Completion Method on the assessee and making the addition in this year. We take guidance from the decision of the Hon'ble Supreme Court in the case of CIT v. Bilahari Investment (P) Ltd. [2008] 299 ITR 01 (SC) wherein the Hon'ble Court has observed and held as follows:- 19. In the judgment of the Bombay High Court in Taparia Tools Ltd. (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessee's is relevant. In the ....
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....ther decision by Hon'ble Karnataka High Court where their Lordships have observed when the Department has accepted in the previous years, in the light of guidance note applicable to developers a certain method of accounting and the profit arrived at is revenue neutral, then in such scenario, the substantive question of law has to be answered in favour of the assessee and against the Revenue. The relevant part of the judgment in the said case of CIT v. M/s. Prestige Estate Projects Pvt. Ltd. [2020] TaxCorp (DT) 82901 (HC-Kar.) is extracted as follows:- "In the instant case, the Tribunal has rightly held that in case of revised AS-7 is to be applied, then the opening inventories is also to be valued as per revised AS-7. In fact, the revenue had accepted the method of accounting adopted by the assessee for the previous years and in the light of guidance note provided that AS-7 is applicable to real estate developers, assessee itself has changed the method of accounting and for the subsequent years. It has changed from Project Completion Method to Percentage Completion Method in the subsequent year and as such, there is revenue neutral in the assessment year in qu....