TaxTMI 
TaxTMI 
2024 (11) TMI 1245
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....lined to decide the Revenue's Appeal i.e. ITA No.3751/M/2023. Relevant facts in brief are that the Assessee, is a partnership firm being engaged in the business of real estate since 2004 and during the AY under consideration had declared its income at a loss of Rs. 16,15,58,455/- by filing its return of income on 31.10.2018, which was selected for scrutiny under CASS for certain issues vis-a-vis: (1) Verification of genuineness of expenses (2) Income from real estate business (3) Default in TDS and disallowance for such default (4) Investments/advances/loans (5) Sales turnover/receipts & (6) Business expenses 2.1 Therefore, statutory notices were issued to the Assessee, in response to which the Assessee uploaded its replies with supporting documents, on considering the same, the AO found that the Assessee during the A.Y. 2018-19 has shown sales/turnover of Rs. 39,01,93,560/- as per the details of sales furnished in annexure 'K' but in the ITR has shown sales of Rs. 3,76,74,000/- and therefore there is variation/difference between sales/turnover as per the ITR and GST returns and therefore vide notice dated 10.03.2021 u/s 142(....
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....ill be liable to GST Tax. The Sales comparison of Sales as per ITR with GSTR Return is not tenable. Therefore, We request you not to make any addition relating to undisclosed income/sales and is added to the total income of the assessee and not to initiate penalty proceedings u/s270A of the Income Tax Act, 1961." 3. The AO though considered the aforesaid reply of the Assessee but found the same as not acceptable and ultimately made the addition of Rs. 35,25,19,560/- being difference between sales as per ITR and GST returns by holding as under: "3.2 The reply of the assessee has been considered. The assessee has furnished information of sale of properties in annexure "K" of reply dated 06/03/2021. As per this annexure, details of properties sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and registered with the Sub Registrar, Borivali. Thus the properties stand transferred and sale of properties amounting to Rs. 39,01,93,560/- stand finalized. Further, the assessee has shown TDR (transfer of development rights) sales of Rs. Rs. 3,76,74,000/- only in the P & L account. Transfer of Development Rights ....
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....as per GST return was treated as undisclosed sales of the assessee and is added to the total income of the assessee. 6.3. The appellant vide submission dated April, 12, 2021 explained that during the year, there were sales agreements registered with the Sub Registrar, Borivali 5. The construction activity was carried out in this year and completed 1st Slab of said building. The said project is 23 Storeyed Residential Building. Few Clients had made the sales agreement and the same is wrongly considered as "sales" by the NeAC but the said project is still under construction. Only around 10 percent of the project is completed by the assessee. 6.4. Further, in GST Returns, the assessee shown the turnover towards advances received from the buyers as sales. The assessee has adopted project completion method, hence the assessee has shown amount invested in the project as work in progress and advances received on account of Flat Booking from the prospective buyers as Advance against sales in current liabilities. Though the advance received from the prospective buyers has been taken as current liabilities, the same is not repayable to the respective creditors and it is sho....
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.... the Assessee has also paid brokerage expenses on account of sales, which strengthen the case of the Revenue. Further, may be the Assessee is following the project completion method, however, the Assessee has incurred more than 25% of the project cost and therefore the benefit of project completion method cannot be given to the Assessee. As per the project details submitted by the assessee before the A.O, the estimated project cost was Rs 227 crores and as per its P & L account for the year, its work in progress stood at Rs 87,87,68,238/-. Thus, based on the Assessee's own financials, it had completed 38.71% of its project. Therefore, the Ld. Commissioner has erred in concluding that only 10% of the project was completed. 5.1 The Ld. DR further submitted that sales of certain units of the project were finalized, as in the Assessee's own submission it had submitted that the receipts against such sales were not repayable to the customers. Hence, the Assessee ought to have offered the same as sales executed during the year in the P & L account. Further there are inconsistencies in the method of accounting followed by the Assessee, which claimed to be adopting the project completion....
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.... Court in the case of Commissioner of Income Tax vs. Aditya Builders 378 ITR 65 (Bombay), it is not open to the Revenue to reject the method followed by the Assessee consistently. 6.1 The Ld. Sr. Counsel further submitted that even assuming a percentage completion method is to be applied, even then also the Assessee does not reach the minimum threshold for revenue recognition as per INDAS-11 read with Guidance note on accounting for real estate transactions, which prescribes that at least 25% of the saleable project area is secured by contracts or agreements with buyers and at least 10% of the contract consideration as per the agreements of sale or any other legal enforceable documents, are realized at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms, as defined in the payment contracts. 6.2 The Ld. Counsel further submitted the Assessee was/is supposed to construct total three wings i.e. A, B & C each consisting four podiums and 19 upper floors and each floor of each wing has four flats. Therefore, the Assessee was/is supposed to construct saleable building consisting o....
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....n as advance receipt. 6.5 Further, the figure of Rs. 35,25,19,560/- is the difference between the total Agreement value and ITR turnover, whereas total value of the agreements during the assessment year under consideration was Rs. 39,01,93,560/-. ITR turnover is on account of the sale of TDR i.e. Rs. 3,76,74,000/- as per the audited financials and therefore the difference between the total agreement value and ITR turnover and shown in the GST returns, are not comparable, as the Assessee has not recognized any revenue from the sale of flats. 6.6 The Ld. Sr. Counsel further, by producing the sample agreements to sell, submitted that the Assessee with various buyers has executed agreements to sell but not the sale deeds and as per the agreements to sell, though the entire consideration has been fixed, however, most of the respective buyers were/are supposed to pay the consideration fixed, in installments and therefore consideration fixed cannot be considered, as sales in its P & L account. 7. We have heard the parties and perused the material available on record including the sample agreements to sell, Guidance notes on accounting for real estate transaction, relevant section....
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....nst sales in current liabilities. Though the advance received from the prospective buyers has been taken as current liabilities, the same is not repayable to the respective creditors and it is shown as Advance Receipt. As per Sales as per GST Laws" any amount received or receivable as per construction schedule will be liable to GST Tax. The Sales comparison of Sales as per ITR with GSTR Return is not tenable. Therefore, we request you not to make any addition relating to undisclosed income/sales". 7.4 The AO though considered the reply of the Assessee, however, found the same as not acceptable, and ultimately made the addition of Rs. 35,25,19,560/- and added the same in the income of the Assessee, by holding as under: "That as per Annexure-A of reply dated 06.03.2021, the details of property sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and registered with the Sub Registrar, Borivali. Thus, the properties stand transferred and sale of properties amounting to Rs. 39,01,93,560/- stands finalized. Further, the Assessee has shown TDR (Transfer of Development Rights) sales of Rs. 3,76,74,000/- only in....
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....the Assessee has shown the amount invested in the project as "work in progress" and advances received on account of booking of flats from the prospective buyers, as advance against sales in "current liabilities". As the Assessee has consistently been following the project completion method, hence such method as approved by the Ld. Commissioner may be upheld. 7.6 On the contrary, the Ld. D.R. has raised the issue, as the Assessee has estimated the project cost at Rs. 227 crores, however, as per its P&L Account for the year, its work in progress stood at Rs. 87,87,68,238/- thus based on the Assessee's own financials, it has completed 38.7% of the project. Therefore, the contention of the Assessee and the conclusion drawn by the Ld. CIT(A) that only 10% of the project has been completed is devoid of merits. Further, the Ld. D.R. also raised the issue that reading of INDAS-11 by the Ld. Commissioner is also erroneous, as nowhere the said accounting standard laid down that Revenue ought to be recognized in construction contracts only, when a stage of 25% is completed. Further, the said AS laid down that stage of completion may be determined by the proportion that contract's cost i....
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....s method leads to objective assessment of the result of the contract. 8.2 The Hon'ble Kolkata High Court in the case of Principal Commissioner of Income Tax vs. Salarpuria Simplex Dwelling LLP. (Cal) (2003) 455 ITR 712 has also considered the method of accounting i.e. completion method as followed by the Assessee in the present case and by taking into account that as per section 145 of the Act, 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 followed by the Assessee. The Hon'ble High Court further affirmed the finding of the tribunal that as per Accounting Standard-7 (AS-7) issued by the Institute of Chartered Accountants of India, the Assessee can follow either the project completion method or the percentage completion method and therefore the AO is not empowered to adopt the percentage completion method for one year on selective basis as it will distort the computation of the true profits and gains of the business. 8.3 The Hon'ble Apex Court in the case of CIT vs. Bilahari Investment Pvt. Ltd. (2008) 168 taxman 95/299 ITR 1 (SC) as well, also elaborated the completed....
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.... 8.6 On the aforesaid analyzations, we answer the question posed as under: "The Assessee is at liberty to follow a particular accounting method for project as per its choice and if the Assessee is following the particular project method, which is otherwise not in derogation of any provisions or restrictions provided under the provisions of the Act, then the AO is not empowered to reject the project method, which has consistently been followed by the Assessee and to adopt a different method, as done by the AO in this case". 8.7 Coming to the instant case, admittedly, as the Assessee is consistently following the project completion method, and therefore there was no logic or plausible reason to discard the accounting method being continuously followed by the Assessee, hence the action of AO in rejecting the project completion method followed by the Assessee and applying "percentage completion method" is un- sustainable and contentions raised by the Ld. DR in support of decision of AO qua this aspect, are untenable and hence the same are rejected and 'project completion method' approved by the Ld. Commissioner is sustained. 9. Coming to other contentions raised by the....
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...................................................... 1.3 The Guidance Note primarily provides guidance on application of percentage of completion method where it is appropriate to apply this method as explained in subsequent paragraphs as such transactions and activities of real estate have the same economic substance as construction contracts. For this purpose, the Guidance Note draws upon the principles enunciated in Ind AS 11, Construction Contracts. In respect of transactions of real estate which are in substance similar to delivery of goods principles enunciated in Ind AS 18, Revenue, are applied. ........................................................................... ................................................................... 2. ........................................................................ 3. ........................................................................... 4. ........................................................................... ................................. 5. Application of Percentage Completion Method 5.1 The percentage completion method should be appli....
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....iii) Title to land or other rights to development/ construction. (iv) Change in land use. (b) When the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25% of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. (c) Atleast 25% of the saleable project area is secured by contracts or agreements with buyers. (d) Atleast 10% of the contract consideration as per the agreements of sale or any other legally enforceable documents are realised at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate If there are 10 Agreements of sale and 10% of gross amount is realised in case of 8 agreements, revenue can be recognised with respect to these 8 agreements only. 5.4 When the outcome of a real estate project can be estimated reliably and the conditions stipulated in paragraphs 5.2 and 5.3 are satisfied....
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....the Bank has declared the loan availed by the Assessee as NPA and therefore the Assessee during the assessment year under consideration, has completed 10% of the project/saleable building only and few clients have made agreements to sell but not the sale deeds and therefore, the parameters/conditions as prescribed for application of "percentage completion method" though not admitted but even otherwise has not being achieved. On the aforesaid analyzations, we are of the considered view that even otherwise for the sake of argument though submitted but not admitted by the Assessee, still the Assessee has not achieved the minimum threshold to declare the revenues received and therefore contentions raised by the Ld. DR that the Assessee has completed 38.71% of its project and therefore the Assessee would have recognized the revenue under the percentage completion method and/or thus the Ld. Commissioner had erred in concluding that only 10% of the project has been completed, are also untenable, hence rejected. 11. Coming to next issue raised by the Ld. DR, which pertains to making payments qua Commission/Brokerage Expenses. The Ld. DR claimed that because the Assessee has paid the ....
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....eters and cannot be equated with each other. As in the CGST Act, the consideration which is received or receivable is supposed to be disclosed, as it appears from the definition and therefore in compliance to the terms of GST Act, the Assessee has shown the amount received or receivable and paid the relevant taxes as per CGST Act accordingly. Whereas for the income tax purposes, as the Assessee has been consistently following the project completion method and therefore treated the consideration received on account of flats sold, as advances as current liabilities, but not as sales/turnover. Hence, in our considered view, the difference between the turnover shown in GST Return and ITR has been properly reconciled by the Assessee before the authorities below, as well as before us and therefore addition made by the AO on this aspect, at all is not sustainable and therefore has rightly been deleted by the ld. Commissioner. 12.1 Consequently, on the analyzations made above, the decision of the Ld. Commissioner in deleting the addition under consideration is sustained and the appeal i.e. ITA No.3751/M/2023 filed by the Revenue Department is dismissed. 13. Coming to the CO No.42/M/2....
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....ad of Mr. Rajesh Manaldar Panchal (Architect) and therefore the Assessee subsequently vide submissions dated 12.04.2021 filed before the AO, had rectified its mistake and discharged its onus of proof by providing all possible details pertaining to the transactions carried out with the architects i.e. PANs, address, ledger account and TDS deducted etc.. The Assessee further submitted that before the Ld. Commissioner as well, the Assessee vide submissions dated 12.06.2022 and 14.06.2022, has submitted the details of several parties, however, the same remained unverified. The Assessee for the proper and just decision of the case is filing sample invoices of parties to whom architect and professional fees were paid, hence the same may be considered. 14.3 On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting that the Assessee has submitted additional evidences vide letter dated June 6, 2024 and pleaded for its admission. In this context, it is stated that ample opportunities had been provided by the A.O during the assessment proceedings to submit supporting evidences for proving the genuineness of the said expenses. However, the Assessee failed to submit the r....
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....y/clarification, requires if any, by the AO. 16. Coming to the 2nd issue/addition, which pertains to the addition of Rs. 5,27,107/- being 30% of Rs. 17,57,023/- (transportation charges paid) made u/s 40(a)(ia) of the Act, on account of disallowance qua transportation charges paid to the transporters. It appears from the Assessment order that the Assessee vide notice dated 15.12.2020 was asked to furnish the details of payment made and TDS deducted on account of payment made for loading and transportation charges. In response, the Assessee filed its reply, wherein the details were furnished qua TDS deducted and paid, along with challans on expenses-wise. The AO though partly allowed the claim of the Assessee, however, on the ground "that the Assessee had not deducted TDS on the payment made to the transporters but claimed that the transporters are assessed u/s 43AE of the Act but has not filed any documentary evidence to show that transporters are filing ITRs u/s 43AE of the Act or not", ultimately made the addition of Rs. 5,27,107/- being 30% of Rs. 17,57,023/-, on account of payment made exceeding Rs. 30,000/- to 8 transporters. 16.1 The Assessee, being aggrieved, though cha....