TaxTMI 
TaxTMI 
2024 (6) TMI 1136
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.... basis of project completion method. Therefore, it recognized Revenue from sale of land, complete property, project in progress and development right is recognized in the financial year in which significant control of right (i.e. registration of the property in the name of buyers and possession thereof is given) was adopted. Therefore, assessee was called upon to explain the reasons for changing the method of account during this year and to produce documentary evidences for the Revenue recognized in the financial year in which registration executed, supporting document with copy of agreements registered during the year and in Revenue recognition during the year from sale of land or any property. In response, the assessee has submitted as under:- "during the year there is a change in accounting policy which has been reported in the Form 3CD at point no. 13 and also at note 27 of the audited financial statement. It is further submitted that during the year the company has changed its accounting policy for revenue recognized from sale of land, completed property, project in progress and development right. Now the company is recognizing revenue in accordance with the significa....
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....work in progress) that the customer controls as the asset is created or enhanced (see paragraph B5); or (c) the entity's performance does not create an asset with an alternative use to the entity (see paragraph 36) and the entity has an enforceable right to payment for performance completed to date (see paragraph 37)." It may be noted that Paragraph 35(b) & (c) of Ind AS 115 are intended to address situations of real estate sector. In view of the above, recognition of revenue as the construction progresses is possible considering the prevalent long established legal system/jurisprudence in India, and facts and circumstances of individual case/contract". 3. After considering the above submissions the Assessing Officer rejected the same by observing that percentage completion of method also a recognized method (as per revised in AS 115) and further he observed that the assessee itself has stated that in the earlier years the company was recognizing its Revenue on percentage of completion method and had the company followed the earlier policy of Revenue recognition, it would have resulted in net increase in profit by Rs. 9,47,14,870/-. Further observed that it....
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....Mills Co. Ltd. reported in 33 ITR 681). Again the Apex Court in CIT vs. Excel Industries Ltd. reported as 358 ITR 295 at page 304, it was held that the dispute raised by the revenue is entirely academic or at best may have a minor tax effect." 5. After considering the submissions of the assessee and assessment order Ld. CIT(A) dismissed the grounds raised by the assessee by observing as under:- "5.4 The appellant submitted that it used to recognise revenue following percentage of completion method which was changed to other method wherein the revenue would be recognised upon transfer of control. The appellant contested that the letter method is prescribed under Ind AS which is being prescribed method for accounting as per ICAI. The appellant also submitted the documents such as sample of copies of agreement registered during the year under consideration. 5.5 The appellant also contested that it is not prerogative of the Assessing Officer to determine which accounting method is to be followed. It also contested that agreement registered during the year under consideration were merely sort of arrangement between appellant and its customer. No physical possession ....
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....ailed to comprehend, that the assessment framed by the NFAC had not been made in accordance with the provisions contained in section 144B of the Income Tax Act, in as much as the assessment had been superficially framed by not strictly following the provisions of section 144B (1) to 144B(7) of the Act. 3. That in any case and without prejudice the learned CIT(A) has erred in disposing off the appeal arbitrarily without granting to the assessee a proper and valid opportunity of being heard, so much so that even the written submissions dated 20.02.2023 have not been considered and dealt while disposing off the appeal. 4. That the learned CIT(A) while sustaining the addition made of Rs. 9,47,14,870/- has failed to comprehend that, the assessee had computed its income in accordance with the mercantile system of accounting regularly employed by it and that it had computed its income in accordance with mandate of section 145A of the Act. 5. That the learned CIT(A) has failed to appreciate that the findings of the learned NFAC in its order that, there was a 'reduction in profit by a sum of Rs. 9,47,14,870/- is wholly erroneous and unsustainable in law. In so....
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....much as no interest u/s 234A of the Act was leviable. 14. That the learned CIT(A) ought to have held that the proceedings initiated u/s 270A of the Act has no application and as such proceedings initiated was bad in law." 7. At the time of hearing, the Ld. AR has not pressed grounds No.1, 2 & 3 and proceeded to make submissions on the issue of change of accounting policy and addition proposed by the Assessing Officer of Rs. 9,47,14,870/-. In this regard, he filed detailed written submission discussed on the whole issues. 8. After considering the written submissions, we have reproduced the relevant submissions, which is relevant for our discussion. "11. It is submitted that the perusal of the Balance sheet Note 5 (Pg. 18) would show that inventories i.e. closing stock of the preceding year aggregating to Rs. 19,22,41,278/-; whereas the same at the end of the year aggregated to Rs. 79,10,66,339/- and thus increase which represented capital expenditure on the construction has not been claimed as deduction. 12. It is most humbly submitted as to what the auditors have stated that as compared to the method of accounting followed by the assessee till the p....
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....the bookings and likewise expenditure incurred on the construction had been capitalized which was an inappropriate method of accounting, the learned AO has erred in making an addition and the learned CIT(A) has accordingly erred in sustaining said addition. The submissions made by the appellant are at Pg. 259310 of PB. Neither the learned CIT(A) nor the learned AO has disputed any of the factual submissions made by the appellant. 15. To demonstrate that advances received against bookings from the prospective customers, details had also been placed on record to justify that the appellant had offered an income on the basis of POCM, even on advances since it had refunded the sums of advances on the cancellation of the bookings. (See Pg. 209/329) 16. It is reiterated that the following judgment of the Supreme Court in the case of CIT vs. Bilahari Investment Pvt. Ltd. reported in 299 ITR 1 the expenditure incurred during the year on the construction, as also not been claimed as expenditure while computing the total income. It is because of this the learned AO while computing the income has allowed proportionate expenditure from the advances received from the customers,....
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....method for a causal period. This is the rule of law laid down by the High Court of Bombay in the case of Sarupchand vs. CIT reported in 4 ITR 402 at Pg. 421. It had been held that when an assessee bona fide changes his method of accounting and satisfies the department that he intends to adopt changed method of accounting thereafter or that he has in fact adopted it thereafter, that satisfies the requirement of section 145 of the Act. The aforesaid submission is supported by judicial pronouncements as are stated as below: (i) Indo-Commercial Bank Ltd. vs. CIT, 44 ITR 22 (Mad.) (ii) Forest Industries Travancore Ltd. vs. CIT, 51 ITR 329 (Ker.) (iii) New Victoria Mills Co. Ltd. vs. CIT, 61 ITR 395 (All.) (iv) Dr. Ishwari Prasad vs. CIT, 143 ITR 789 (All.) (v) CIT vs. Shriram Associated Bearing Pvt. Ltd. SLP (Civil) No. 6665 of 1982, 150 ITR (St.) 77 (SC) (vi) CIT vs. Hind Lamps Ltd., (1987) Taxation 85(3)-225 (All.) (vii) CIT vs. Mopeds India Ltd., 173 ITR 347 (AP) (viii) CIT vs. Bikaner Trading Co., 180 ITR 286 (Cal.) (ix) CIT vs. Hollungooree Tea Co., 192 ITR 125 (Cal.) (x) CIT vs. Bharat Commer....
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....icy of revenue recognition on the basis of agreement to sale an amount of Rs. 17,18,65,013 would have shown as "Revenue from constructed property". Rs 150.143 as "Cost of Revenue" Otherwise this would have net increase in profit and loss account by Rs. 9,47,14,870/- and decrease in inventory by Rs. 7,71,50,143/- Similarly the Auditor also qualified it at point No 13 in the Form 3CD wherein it was indicated that because of change of method adopted by the assessee, it may have increased the profit by Rs. 9,47,14,870/- and decreased inventory by Rs. 7,71,50,143/. We observed that the Assessing Officer during the assessment proceeding observed that there is a change in method of accounting recognized by the assessee and is not satisfied with the submissions made by the assessee. He is of the view that assessee has changed the method of accounting to understate the profit of the company and not brought on record any justified reasons for such change of method of accounting during the year, consequently he proceeded to make the addition. After careful consideration of the facts on record, we are of the view that there is no restriction on the assessee to follow a single or same method....
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....e abnormal way above the industry average. 11. After considering the above facts on record, we are of the considered view that assessee should submit the financial impact in the financial years 2016-17, 2017-18 respectively and also impact in computation of taxable income declared under Income Tax Act before the AO. Accordingly, the AO is directed to verify the above impact in the financial statements and may verify the declared financial impact in both financial years as well as Income Tax computation, we direct him to verify the profit declared by the assessee in the earlier years as per old method of accounting and because of change of method of accounting, there may be under statement or over statement of declared profit, this under or over statement of profit in the earlier years has to be acknowledged as an impact on such change of profit and ultimately the correct profit alone has to be charged to tax. 12. Merely because a understatement of profit during the current year due to change of method of accounting does not mean that the assessee has understated the profit and AO cannot proceed to make any adjustment based on such financial impact. It is only a declaration on....