TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 374
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....was developing and constructing housing project known as "Vandemataram Fabula" having total 221 units namely 200 residential units and 21 commercial units on its own land at Charodi by way of sale deed executed on 06.11.2015. The assessee on the direct and indirect expenses in connection with the developing and the construction of the housing project have been debited under the head construction work-in-progress and shown in the Balance Sheet as on 31.03.2018. The revenue earned from the said scheme was recognized when significant risk and reward in immovable property transfer to the respective purchaser as per Accounting Standard-9 (in short "AS-9") read with guidance note on accounting for real estate transaction (Revised 2012). Since no conveyance deed was executed during the A.Y. 2018-19 and possession of housing and commercial units were not given to the purchasers and no revenue has been recognized from the said project. Revenue is recognized by the assessee from the A.Y. 2019-20 onwards on the basis of conveyance deed executed in the name of the purchasers and offered to tax. The assessee firm is following this method consistently from the first year of the project till the ....
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.... usually enters into an agreement for sale with the buyer at initial stages of construction. This agreement for sale is also considered to have the effect of transferring all significant risks and rewards of ownership to the buyer provided the agreement is legally enforceable and subject to the satisfaction of all the following conditions which signify transferring of significant risks and rewards even though the legal title is not transferred or the possession of the real estate is not given to the buyer" 4.4.2 I find that while considering the amount of Rs. 3,56,16,215/- as the income from the project constructed by the appellant for this year the AO had considered all the aspect including the nature of the business of the appellant, facts and figures relating to the agreements value and amount received for such agreements by the appellant from the customers, applicability of Accounting Standard 9 and Guiding notes of ICAI as to how the revenue in the case of construction business is to be recognized. I therefore find that there was no infirmity in the assessment order in the case of the appellant when the AO had computed income from the project constructed by the appellant for....
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....s in not appreciating the fact that the provisions enshrined under Section 250 (1) of the Income Tax Act, which unequivocally mandates that upon the filing of an appeal "The Commissioner will be scheduling a day as well as fixing a venue to hear the appeal and notify the appellant and Assessing Officer against whom the appeal was favoured". This statutory provision is not merely directory but imperative in nature, signifying the legislature's intent to ensure that appellants are accorded a fair and impartial opportunity to present their case and have their responses/concerns addressed through due process. However the Lt. CIT(A) disregard for this statutory mandate has resulted in flagrant violation of the appellant's statutory entitlement and constitutional rights. II. Addition on account of income estimated by percentage completion method Rs. 3.56.16.215/- 1. The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs. 3,56,16,215/- on account of income estimated by percentage completion method merely on surmises and conjectures. 2. The ld. CIT(A) has erred in law and on facts in not appreciating that the appellant firm recognize the revenue in the....
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....te Development of Housing and Commercial Project. The appellant is developing and constructing housing and commercial project namely VANDEMATRAM FABULA on its own land and the appellant is not a construction contractor providing construction service. Therefore, Accounting Standard - 7 and method prescribed therein i.e. Percentage Completion Method (PCM) is not applicable to the appellant firm. 5. The Ld. CIT(A) as well as the Ld. AO failed to properly consider written submissions made before them by the appellant as well as various judicial pronouncements relied upon by the appellant company. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing." 5. Ld. Counsel appearing for the assessee submitted before us statement of year-wise sale of units as per registered sale deeds and possession given to the purchasers and recognition of sales Revenue in the Profit and Loss Account and status of completed assessment proceedings by the Revenue from the A.Y. 2016-17 to 2021-22 are as follows: Assessment Year No. of Units sold Sales Revenue recognised in P&L A/C (in Rs.) Assessment Order Remarks ....
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....000 Intimation u/s 143(1) No adverse inference has been drawn regarding method of accounting of revenue recognition as per Accounting for Real Estate Transactions (Revised) 2012. The Appellant is attaching the following documents for ready reference : (1) Intimation u/s 143(1) as per Annexure -VI. 2024-25 1 23,75,000 Intimation u/s 143(1) No adverse inference has been drawn regarding method of accounting of revenue recognition as per sale deed executed and possession given to the buyer as per AS-9 read with Guidance note on Accounting for Real Estate Transactions (Revised) 2012. The Appellant is attaching the following documents for ready reference : (1) Intimation u/s 143(1) as per Annexure -VII. 5.1 Thus, Ld. Counsel submitted that for the first two Assessment Years, the revenue has accepted the Project Completion Method accounting adopted by the assessee and passed regular assessment orders. However, for the present A.Y. 2018-19 the Ld. Assessing Officer in the faceless assessment proceedings applied Percentage Completion Method as specified in AS-7 and demanded tax thereon. However, the assessee offered Project Completion Method and offered to tax a sum of Rs. 37,63....
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....erefore, it recognized income only when possession of flat is handed over and sale deed is executed to various purchasers. Further, the assessee firm from its inception, any amount received against booking are credited to "advances against booking" account. Similarly, all expenditure for purchase of land, seeking sanctions from the concerned authorities, developing the land in accordance with those sanctions, all types of expenses incurred on construction, i.e. capital expenditure incurred for getting pre-launch or post launch booking including were debited to work-in-progress. Thus, neither advances received on booking of flats were treated as revenue nor expenditure incurred was claimed as revenue expenditure till the sale of flats started i.e. transfer of apartments was made. In fact, the assessee had capitalized the cost of construction and reflected the cost of construction as project in progress and as such the adverse inference drawn by the Assessing Officer is patently misconceived and Accounting Standard 7 is not applicable to the facts of the present case. 7.1 The Coordinate Bench of this Tribunal in the case of Aaryan Buildspace LLP (cited supra) held as follows: "8. ....
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....n ownership of the land and the nature of contractual obligations. A contractor undertakes construction on behalf of another party under a contract and does not own the land on which construction takes place. The project belongs to the customer, and the contractor merely executes the work as per the terms of the agreement. A developer, in contrast, owns the land, undertakes the project at its own risk, and sells completed units to customers. The buyer does not engage the developer for "construction services" but purchases a completed asset from the developer. The transaction is one of sale of property, not a contractual construction assignment. 8.2. Since the assessee does not provide construction services to any third party under a contract, it does not fall within the ambit of Section 43CB of the Act, which is specifically designed to regulate the revenue recognition of contractors executing construction projects for clients rather than developers selling self-constructed properties. 8.3. The Accounting Standard (AS) applicable to a business further reinforces the distinction. AS-7 (Construction Contracts) applies only to construction contracts where revenue is recognized bas....
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....t "contract revenue" but part of the consideration for the ultimate sale of property. The DR's contention that the judicial precedents relied upon by the CIT(A) relate to periods before the introduction of Section 43CB of the Act and are therefore not applicable is flawed. The principle that real estate developers must recognize revenue upon the transfer of ownership and not on a percentage completion basis has been established through long-standing jurisprudence, which remains applicable even after the introduction of Section 43CB of the Act. 8.6. The judicial precedents relied upon by the assessee conclusively establish that revenue from real estate development is taxable only upon the transfer of title and possession. The principle of consistency must be followed. The Revenue had accepted the same method in earlier and subsequent assessment years, and there is no material change in facts warranting a deviation. 8.7. In view of the above, we find no infirmity in the order of the CIT(A), who rightly deleted the addition made by the AO. 9. Accordingly, the appeal of the Revenue is dismissed." 7.2 Hon'ble Jurisdictional High Court in the case of Shivalik Buildwell Pvt. Ltd. (....