TaxTMI 
TaxTMI 
2026 (8) TMI 445
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....the assessee for the relevant assessment year. 5. The brief facts are that the assessee is partnership firm and is one of the sister concerns of the SNN group, which is engaged in the business of real estate. The assessee filed its ROI u/s. 139 of the Act offering an income to taxation to the tune of Rs. 1,49,35,860/- only. During the previous year relevant to the AY 2015-16, the assessee commenced a projected named 'SNN Raj Spiritua'. 6. A search and seizure action u/s. 132 of the Act was carried out in the case of M/s Ibrox Real Estate Development Pvt Ltd, M/s SNN builders Pvt Ltd, M/s SNN homes LLP and others on 09.01.2020. In connection with the said search, a survey was also carried out at the business premises of the assessee. Documents having a bearing on the determination of total income were seized from the premises of the assessee and, consequently, a notice under section 153C of the Act was issued, calling upon the assessee to file its return of income. 6.1 However, the assessee failed to file any ROI in response to the notice issued u/s. 153C of the Act and consequently, the AO passed an order u/s. 144 of the Act with the materials available on record. In order....
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.... explained that, as a matter of trade practice in the real estate industry, prospective buyers often visit the project site, select a flat, and block the same by paying a token advance. This practice is commonly referred to as "booking" of flats. At this stage, no legally binding or written agreement is entered into. Only after the buyer and his family members approve the unit and the buyer enters into a formal agreement for sale, which constitutes a legal and enforceable document. 9.2 Accordingly, assessee contended that the computation of income under the Percentage Completion Method must be carried out only with reference to the agreements actually entered into and not on the basis of mere "booked value" or booked area. 9.3 The assessee further submitted that the above submissions were also made during the course of assessment proceedings vide letter dated 18.03.2022. However, the same were not accepted by the Assessing Officer, who concluded that revenue was required to be recognised by considering the booked area, which included saleable area for which no agreement for sale had been entered into and only token advances had been received. The Assessing Officer proceeded o....
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....only at a later point. The assessee furnished a tabulated statement of flats which were only booked during the relevant year and where agreements were executed in subsequent years, to demonstrate that booking does not result in transfer of risks and rewards. 13.1 The assessee further submitted that revenue under the PCM cannot be computed on the basis of booked value. In this regard, reliance was placed on paragraph 5.3 of the Guidance Note, which mandates that at least 10 percent of the agreement value as per legally enforceable documents must be realised at the reporting date in respect of each flat. 13.2 To support this contention, the assessee placed on record a separate table showing flats which were included in revenue by the AO even though the amount realised as on the reporting date was less than 10 percent of the agreement value. It was pointed out that, for these flats, the mandatory condition prescribed under the Guidance Note was not satisfied. Hence, the ld. AR submitted that the AO treated booking advances as equivalent to enforceable contracts merely because the booked area and consideration could be identified. 13.3 On the basis of the above facts and the t....
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.... does not result in transfer of significant risks and rewards and therefore, the same cannot form the basis for recognising revenue under the PCM. 15.3 We further note that paragraph 5.3 of the Guidance Note mandates that at least 10 percent of the agreement value as per legally enforceable documents must be realised at the reporting date in respect of each flat. The assessee has furnished a separate table showing flats which were included by the AO for revenue recognition even though the amount realised as on the reporting date was less than the prescribed 10 percent of the agreement value. These facts have not been disputed by the Revenue. 15.4 The approach of the AO in treating booking advances as equivalent to contracts merely because the booked area and consideration could be identified is not in accordance with the Guidance Note. Ability to estimate consideration or receipt of advances cannot substitute the mandatory requirement of a legally enforceable agreement or fulfil the specific conditions prescribed for revenue recognition. 15.5 The accounting standards issued by ICAI are mandatory in nature and have to be followed while computing income. When the Guidance No....