TaxTMI 
TaxTMI 
2024 (9) TMI 356
X X X X Extracts X X X X
X X X X Extracts X X X X
.... had made additions in respect of disallowance of general expenses, disallowance of WIP and undisclosed revenue. Aggrieved with the order of the AO, the assessee has filed an appeal before the First Appellate Authority, which was decided by the Ld. CIT(A) vide the impugned order, who had allowed substantial relief to the assessee. 3. Now, the Revenue is in appeal before us. 4. The following grounds have been taken in this appeal: 1) "Whether the Ld. CIT(A) has erred in law and on facts in restricting the disallowance of general revenue expenses of Rs. 42,65,761/- to Rs. 19,28,265/- without appreciating the facts of the case 2) Whether the La CIT(A) has erred in law and on facts in deleting the addition of Rs. 82,53,21,404/- towards undisclosed portion of profit pertaining to Phase 1, without appreciating the facts that the assessee was following Accounting Standard-7 (popularly known as Percentage of completion method) and the project had already been completed 100%?" 3) "Whether the Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,84,31,150/- being profit on unrecorded sales without appreciating the facts of the case? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....keting expenses of Rs. 33,88,529/-, consultancy charge of Rs. 20,12,799/- for RERA & GST, travelling expenses of Rs. 6,25,904/-, office renovation expenses of Rs. 15,05,967/-, other expenses of Rs. 16,89,241/- etc. After excluding these expenses directly attributable to Phase-1, the Ld. CIT(A) had apportioned the remaining general expenses of Rs. 41,64,473/- between Phars-1 & Phase-2 in the ratio of cost allocation. Accordingly, the addition of Rs. 19,28,265/- only was upheld by the Ld. CIT(A). The Revenue has not pointed out any defect in the finding of the CIT(A) in respect of expenses pertaining to Phase-I and in the allocation of balance expense as made by the Ld. CIT(A). We, therefore, do not find anything wrong with the order of the Ld. CIT(A) on this issue. Accordingly, the disallowance of Rs. 19,28,265/- on account of general expenses as restricted by the Ld. CIT(A) is upheld and the ground taken by the Revenue is dismissed. 8. Ground No.2 pertains to addition of Rs. 82,53,21,404/- towards cost of construction of unsold flats pertaining to Phase1 and Ground No.3 pertains to addition of Rs. 1,84,31,150/- being profit margin of flats sold. As both these issues pertain to P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The additions had been made on wrong presumption of the accounting standards. The Percentage Completion method doesn't stipulate that all the flats will be deemed to be sold on completion of the project and that revenue will be deemed to be realized without actual sale of the flats. Therefore, the addition of Rs. 82,53,21,404/- in respect of cost of construction of 149 unsold flats is found to be based on total wrong presumption. The addition of Rs. 1,84,31,150/- in respect of profit margin of booked flats is also not found correct. The finding given by the Ld. CIT(A) in respect of these additions is found to be as under: "I have gone through the facts of the case and submission made by the appellant in this regard. The AO's action of addition of Rs. 82,53,21,404/- being cost of construction of 149 flats, which were not sold and shown as inventories, is prima facie erroneous. The cost of construction can never be said as profit in any method of accounting. So far as the 0 booked flats are concerned, the appellant stated that booking of 4 flats were cancelled and for remaining 5 flats the booking amount received were less than 10% of total consideration, therefore, in r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled. (i) the seller of goods has transferred to the buyer the property in the goods for a price or 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, and (1) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. 12. In a transaction involving the rendering of services, performance should be measured either under the completed service contract method or under the proportionate completion method, which ever relates the revenue to the work accomplished Such performance should be regarded as being achieved when no significant uncertainty exists regarding the amount of the consideration. In the instant case, the appellant....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been transferred on signing of a legally enforceable individual contract but significant performance in respect of remaining components of the project is pending, revenue in respect of such an individual contract should not be recognised until the performance on the remaining components is considered to be completed on the basis of the aforesaid principles. This Guidance Note, thus, provides guidance in the application of: * Principles of AS 9 in respect of sale of goods for recognizing revenue, costs and profits from transactions of real estate which are in substance similar to delivery of goods where the revenues, costs and profits are recognised when the revenue recognition process is completed; and * Percentage completion method for recognising revenue, costs and profess transactions and activities of real estate which have the same economic substance as construction contracts. This guidance note provides that the substance of the transaction is similar to delivery of goods, principles of AS-9 will apply with respect to the sale of real estate. Revenue in such cases shall be recorded on fulfillment of para 11 and para 12 of AS 9. Also the substance s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... only 5 flats are booked which is lesser than 4%, therefore it is not possible that lesser than 4% of booked flats covers 25% or more of saleable area. According to last criterion 'd', 10% or more of total revenue is realized in respect to each of the contract as per agreement of sell. However, in the instant case, maximum 8% and minimum 6% of revenue were realized in respect of booked flats. The case of the appellant didn't fulfill the criteria 'c & 'd', therefore, the appellant was not required to apply the method of percentage completion. AO has not brought out any fact in his order wherein it can be concluded that appellant has taken advance of more than 10% even for 9 booked flats. Therefore, the conditions stipulated in AS-7 read with Guidance Note on Real Estate Business do not trigger for recognition of revenue even for these 9 flats. Considering the accounting policies and Guidance Note issued by the ICAI the appellant has followed legitimate accounting principle and was not required to recognize revenue of 158 flats of Phase-I. The appellant gets relief in these grounds. Hence, the addition made by the AO based on percentage compl....