TaxTMI 
TaxTMI 
TaxTMI 
2024 (2) TMI 637
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....ucted on 05.02.2014 at the business and residential premise of the assessee and its group cases. The assessee e-filed its return for AY 2014-15 on 31.03.2015 declaring loss of Rs. 17,07,932/-. Statutory notices under section 153A/143(2)/142(1) along with questionnaire were served upon the assessee which were duly complied with. The Ld. Assessing Officer ("AO") found that the assessee has not shown any income from the Project. In the notes to the account of the assessee it is mentioned that sale of land/flat is recognised when the possession of the land/flat is handed over to the buyer and company has adopted Project Completion Method for revenue recognition. In his statement recorded on 07.03.2014 under section 132(4) of the Act Shri Shiv Kumar Garg, main promoter of the Group stated that though substantial booking have been received in respect of the project but the income will be accrued on the basis of final sale of project on Project Completion Method. 4.1 During assessment proceedings the assessee was show caused as to why income be not determined on the basis of Percentage of Completion Method. The assessee filed reply on 31.03.2016 which is reproduced in para 3.5 at page 4-....
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.... The Hon'ble Delhi High Court had examined the applicability of the Completed Contract Method vis-à-vis POCM method in the case of Paras Buildtech India Pvt. Ltd. reported in 382 ITR 630 and held as under:- "4. The background to the filing of the present appeals is that the Appellant Assessee is engaged in the business of real estate as a developer. The Assessee either purchases land in its own name or gets the power of attorney from the land owner in case the property is owned by another party so as to carry out activities of development on the land in terms of a collaboration agreement. The Assessee enters into agreements to develop and sell overall projects in terms of sharing with the owner. It enters into contracts with various buyers and receives sums by way advance for booking or reserving flats/shops/areas. On completion of the project, the Assessee hands over the possession of the flats booked to the respective customers/buyers along with the execution of the sale/conveyance deed. 5. It is stated that the Assessee regularly follows Accounting Standard (AS) 9 issued by the Institute of Chartered Accountants of India (ICAI). In this method, revenue is recogniz....
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....head Current loans and advances' a sum of Rs. 7,09,93,957. The explanatory Schedule 4 describes the said figure as 'Stock and inventory, It is also stated in Item No. 1 (b) of Schedule 19 in the Notes to the Accounts forming part of the final audit statement as under:- "(b) Revenue Recognition Sale of building: (i) When building is ready to be delivered - Sale is booked in the books of accounts on the date of possession agreed upon or on the date of sale if the sale deed is executed before the date of possession agreed. (ii) When the building is not ready to be delivered- Sale is booked on the date of the building transferred and possession handed over. The income and expenditure are accounted for on accrual basis revenue of sale of offices/shops etc is recognized on signing of title deeds. All sums received till then for the construction project are treated as advances and shown as liability." 18. Section 145 (1) of the Act states that the income chargeable under the heads 'Profits and gains of business or profession' shall be computed in accordance with either cash or mercantile system of accounting "regularly employed by the Assessee". It is only wi....
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....ted contract method and the percentage of completion method." 21. In the present case, there was therefore no good reason for the ITAT to have reversed the finding of the CIT (A). The only reason given in the impugned order of the ITAT is that 'risks and rewards' of ownership were transferred to the buyers who had paid the booking advance amounts and in some cases these rights were transferred to third parties. However, this does not in any manner affect the treatment of the said amounts in the books of the Assessee. As noted hereinbefore, the expenses of construction were not debited to the P & L account of the Assessee. It was shown as cost of construction or block of buildings. It is only as and when a conveyance deed was executed or possession delivered that the receipt was shown as income. The explanation added by way of Notes to the Accounts was not taken note of by the ITAT when it came to the conclusion that the percentage completion method should apply to the Assessee. 22. The other aspect that appears to have escaped the attention of the ITAT is that the Assessee offered to tax in the subsequent FY the amounts received and therefore there was no actual loss to....
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....nder:- "8. It is well settled that the project completion method is one of the recognized methods of accounting. In Commissioner of Income Tax and Another vs. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) the Supreme 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". This view was reiterated by the Supreme Court in Commissioner of income Tax vs. Bilahari Investment P Ltd. (2008) 299 ITR 1 (SC) with the following observations: "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. I....
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....ecision of the ITAT, Mumbai Bench in the case of ACIT vs. Sheth Developers Pvt. Ltd. in ITA No. 3777/Mum/2010 dated 16th December, 2011. In this case Tribunal has held that it is established legal position that the asessee can follow any recognized method of accounting on the condition that the same method is to be followed consistently. The assessee in this case has followed project completion method which is one of the prescribed methods. The assessee was offering incomes on the completion of building itself whether the flats are sold or not completely. We do not find any reason to disturb the assessee's method of accounting which was being consistently followed from assessment year 2000-01 onwards and was also accepted in other years. 9.2 Assessee has further placed reliance upon the ITAT, Mumbai Bench decision in the case of Haware Construction Pvt. Ltd. vs. ITO in ITA No. 5601/Mum/2009 vide order dated 5.8.2011. In this case it was held that assessee is regularly following the project completion method and has offered the income in the year of completion of project. There was no reason as to why the same should be rejected and percentage completion method should be followe....
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..... Ltd., (2008) 299 ITR 1, to this effect which discussed both the percentage completion and the project completion methods, and noted its difference were considered. In Manish Buildwell (supra) it was held that it cannot be said that project completion method would result in deferment in payment of taxes which are to be assessed annually. The ITAT in these circumstances held in relation to the assessee/respondent that the adoption of the project completion method is an established method of accounting. In these circumstances, without there being any rationale or new development, the Revenue could not have concluded that the project completion method was not appropriate for the assessee. Consequently, it is held that no substantial question of law arises for consideration. The appeals are accordingly dismissed." (Emphasis supplied) (iv) Further following the aforesaid judgement, Hon'ble Tribunal in its order dated 24.02.2016 in ITA No. 5809/DEL/2013 has held as under: 5. In view of above we are incline to hold that the Hon'ble High Court has upheld that conclusion of the ITAT that the adoption of PCM is in establish method of accounting and without there being any ration....
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....n method. For this proposition we derive further support from the orders of Delhi Bench of ITAT in the cases of Sabh Infrastructure Limited for assessment year 2006-07 to assessment year 2009-10 decided by the Co-ordinate 'G' Bench at Delhi. It has been held in the case of the above company for assessment year 2006-07 and 2007-08 in ITA No. 4572/Del/2009 and 2813/Del/ 2010 that where the assessee was a Real Estate Developer and not a construction contractor, AS7 was not applicable. Even in the case of Sabh Infrastructure Limited (supra) the assessee recognised revenue at the time of execution of sale deed through which significant risks and rewards of owner of the property were transferred to the buyer and the same was stated to be in accordance with AS-9 issued by ICAI and that the advance received from buyers of the flats was shown as advances from customers. The ITAT in this case found that the method of accounting adopted by the assessee is an accepted method of accounting and placed reliance for this proposition on the judgement of Hon'ble Delhi High Court in the case of CIT vs. Manish Buildwell Private Ltd. in ITA No. 928/2011 dated 15.11.2011. This order of the I....
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..... (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144." Section 145 of the Act prescribes that business income shall be computed in accordance with "cash or mercantile system of accounting regularly employed by the assessee". The choice of method of accounting is with the assessee and unless conditions prescribed in section 145(3) are satisfied, profits have to be computed in accordance with the method of accounting followed by the assessee: i) 33 ITR 182 (SC) CIT v. McMillan & Co. ii) 53 ITR 122 (SC) CIT v. A. Krishnaswami Mudaliar and Others Section 145(2) of the Act provides that the Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. It is therefore submitted that unless an accounting standard is notified by the Central Government, sa....
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.... given by the Institute for the expert committee on the queries raised by the companies. We had already pointed out that the learned Authorised Representative has filed opinion of the expert committee in respect of applicability of revised AS-7 to an enterprise undertaking construction activities on their own account as a venture of commercial nature. The assessee undertakes construction activity for those persons to whom it intends to sell the super-built area along with undivided share of land in a project which it is developing as a developer. Hence, the assessee is not a construction contractor and revised AS-7 was considered as not applicable. The assessee in view of the opinion given by the expert committee felt that it is not required to follow the revised AS-7 for the assessment year under reference. 3.18. It is true that AS-7 has not been specified by the Central Government under section 145(2) of the IT Act. Hence, the AO could not have rejected the accounts under section 145(3) on the around that the assessee has not followed the prescribed method accounting. As per section 145(1), income is to be computed in accordance with system of accounting regularly employed by t....
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.... (ii) The settled legal position as far as section 145 of the Act is concerned is that it is not open to an AO to reject the accounts of an assessee unless he comes to a determination that notified accounting standards have not been regularly Vollowed by the assessee. iii) The Accounting Standards of ICAI did not have any statutory recognition under the Act although it was binding under the Companies Act, 1956. (iv) The method of accounting followed by assessee in the present case, i.e. Project Completion Method was certainly one of the recognised methods and has been consistently followed by it. Considering the facts and judicial decisions on this issue, the addition of Rs. 24,32,00,000/- made by the AO is therefore deleted." 6. The Revenue is dissatisfied and is before the Tribunal and both the grounds relate thereto. 7. Ld. DR relied on the order of the Ld. AO. He drew our attention to para 3.7 and 3.8 of the assessment order and submitted that the Ld. AO has applied Percentage Completion Method relying on the Guidance Note of ICAI. The Ld. DR also submitted that the reply of the assessee to the show cause has not been accepted and the Ld. AO gave reasons therefore. He ....
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....een relied upon. 9. We have given careful thought to the submission of the parties and perused the records. It is not in dispute that the assessee company is in the business of real estate as stated by the Ld. AO in the last sentence of para 2 of the assessment order. It is also admitted by the Ld. AO that notes to the account of the assessee mentioned that sale of land/flat is recognised when the possession of the land/flat is handed over to the buyer and company has adopted Project Completion Method for revenue recognition. In his statement recorded under section 132(4) of the Act during search the main promoter Shri Shiv Kumar Garg stated on 07.03.2014 that though substantial bookings have been received in respect of Antriksh Heights project but the income will accrue on the basis of final sale i.e. on Project Completion Method. It is observed that during assessment proceedings it was submitted by the assessee that it obtained the license from DTCP Haryana. On that basis the construction was started and following the Project Completion Method for recognition of revenue and whatever expenses were incurred were debited to work in progress account. The project is not yet completed....