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2015 (11) TMI 1217 - DELHI HIGH COURTRejection of books of accounts - AO held that AS-7 is applicable to the Assessee confirmed by ITAT - ITAT setting aside the order of the CIT (A) deleting the addition of the sum received by the Assessee on account of advance from bookings and restoring the case to the file of the AO for a fresh decision - Held that:- The settled legal position as far as Section 145 of the Act is concerned is that 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. As pointed out by the CIT (A) in the order dated 2nd July, 2010, the AS of the ICAI did not have any statutory recognition under the Act although it was binding under the Companies Act, 1956. The method of accounting followed by the Assessee in the present case i.e. project completion method was certainly one of the recognized methods and has been consistently followed by it. In the present case, there was therefore no good reason for the ITAT to have reversed the finding of the CIT (A). The only reason given in the impugned order of the ITAT is that ‘risks and rewards' of ownership were transferred to the buyers who had paid the booking advance amounts and in some cases these rights were transferred to third parties. However, this does not in any manner affect the treatment of the said amounts in the books of the Assessee. As noted hereinbefore, the expenses of construction were not debited to the P & L account of the Assessee. It was shown as cost of construction or block of buildings. It is only as and when a conveyance deed was executed or possession delivered that the receipt was shown as income. The explanation added by way of Notes to the Accounts was not taken note of by the ITAT when it came to the conclusion that the percentage completion method should apply to the Assessee. The other aspect that appears to have escaped the attention of the ITAT is that the Assessee offered to tax in the subsequent FY the amounts received and therefore there was no actual loss to the revenue. - Decided in favour of assessee. As far as AY 2006-07 is concerned, it is apparent that the ITAT in the impugned order lost sight of the fact that the advances received by the Assessee were in respect of a project that never took off. A part of the advance amount was returned in the following FY since the transaction itself fell through. In the circumstances the question of treating the amounts as income in the hands of the Assessee did not arise. No purpose was going to be served in remanding the matter to the AO for a fresh determination - Decided in favour of assessee.
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