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2016 (5) TMI 1555 - AT - Income TaxChange of method of accounting - recognized method of accounting - validity of Project Completion Method followed by the assessee - HELD THAT - The assessee, in this case, has followed project completion method which is one of the prescribed methods by the Institute of Chartered Accountants of India. Even in terms of the revised accounting standard which was applicable for most part of the work done by the assessee the income had been correctly declared as per project completion method in the year of completion. The assessee has followed project completion method which was one of the prescribed methods and the same method has been accepted by the department in the earlier years. Department, therefore, cannot reject the method and apply percentage completion method in a subsequent year. Project Completion Method followed by the appellant is a recognized method of accounting prescribed by the ICAI which has been regularly followed by the assessee. The assessee being a real estate developer and not a construction contractor, Project Completion Method is the right method for determining the profits. The Project Completion Method being followed should not have been disturbed by the Assessing Officer as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method. We, accordingly, uphold the findings of the Ld. CIT(A) on this issue. Deduction u/s 80IB (10) - Proportionate deduction - As per the Department, the claim u/s 80IB(10) was not allowable as no separate approval for the four projects viz. Vista A, B, D E was taken and only a consolidated approval for the entire Vista Project was taken from the GDA containing seven projects (Vista A to F and one Commercial) - HELD THAT - We concur with the finding of the Ld. CIT(A) that the assessee was eligible to get proportionate deduction u/s 80IB(10) of the Act in respect of flats sold during the year on fulfilling the prescribed conditions. Requirement of a separate approval for each housing project - A Housing Project may comprise of both eligible as well as ineligible units. The deduction will be available and limited to the claim on eligible units irrespective of the fact that the entire project comprising of eligible and ineligible units has been approved by the authority by way of a single approval/composite approval. Section 80IB(10) refers to the approval of a housing project but does not prescribe a pre-condition that the deduction will be available in respect of only that unit or part of the project which has been separately approved by the local authority. Hence, it is our considered view that a separate approval for each eligible unit or project is not the intention of the Act. The Hon ble Madras High Court in the case of Viswas Promoters (P) Ltd. vs ACIT 2012 (11) TMI 1117 - MADRAS HIGH COURT has held that the mere fact that one of the blocks have units exceeding built-up area of 1500 sq ft per se, would not result in nullifying the claim of the assessee for the entire project. Consequently, it was held, that assessee was entitled to the benefit of deduction u/s 80IB (10(c) of the Act in respect of each of the blocks. The Pune Bench of the ITAT has held in the case of Siddhivinayak Kohinoor Venture 2013 (10) TMI 1295 - ITAT PUNE that construction of even one building with several residential projects of the prescribed size would constitute a housing project for the purpose of section 80IB(10) of the Act. The Pune Bench further held that each block in a particular project has to be taken as an independent building and hence is to be considered a housing project for the purpose of claiming deduction u/s 80IB(10). Whether the projections open to sky are to be included or excluded in the calculation of the built-up area of a particulars residential unit? - We find that this issue is covered in favour of the assessee by the decision of the ITAT Pune Bench in the case of Naresh T. Wadhwani 2014 (11) TMI 689 - ITAT PUNE In the proceedings before us, the Department could not point out any judgment/judicial precedent to the contrary. We accordingly hold that the balconies open to the sky are to be excluded from the calculation of the built-up area of a particular residential unit. We, therefore, direct that the assessee be allowed the claim of deduction u/s 80IB (10) in respect of flats which have been excluded from the benefit of deduction by including the balconies open to sky for the purpose of calculating the built-up area of the individual units. Assessee challenging the measurements of the DVO in respect of flats at Sl. no. 1 4 of the chart - It is the assessee s contention that the correct measurement is 988.79 sq ft whereas the DVO has calculated the build up area at 1029.28 sq. ft. It is also the assessee s plea that it had not been afforded a proper opportunity to explain the discrepancy before the Ld. CIT (A). Hence in the interest of justice, we deem it proper to restore this limited issue of discrepancy in measurement, as claimed by the assessee, to the file of the Assessing Officer for fresh examination and adjudication thereon after giving due opportunity to the assessee to present its case. In the result, the appeal of the assessee is partly allowed.
Issues Involved:
1. Method of Accounting: Project Completion Method vs. Percentage Completion Method. 2. Deduction under Section 80IB(10) of the Income Tax Act. 3. Separate Approval for Housing Projects. 4. Calculation of Built-up Area for Deduction Eligibility. Issue-wise Detailed Analysis: 1. Method of Accounting: Project Completion Method vs. Percentage Completion Method The primary issue was whether the assessee should follow the Project Completion Method or the Percentage Completion Method for recognizing revenue. The assessee, a real estate developer, followed the Project Completion Method, recognizing revenue upon the registration of residential units. The AO rejected this method, asserting that the substantial receipt of sale consideration indicated the project was substantially complete, thus necessitating the Percentage Completion Method. The First Appellate Authority upheld the Project Completion Method, recognizing it as a valid method prescribed by the ICAI, consistently followed by the assessee. The Tribunal concurred, emphasizing that the Project Completion Method is appropriate for real estate developers and should not be disturbed if consistently applied and previously accepted by the department. 2. Deduction under Section 80IB(10) of the Income Tax Act The assessee claimed a deduction under Section 80IB(10) for profits derived from housing projects. The AO disallowed the deduction, arguing that some residential units exceeded the prescribed area limit and the commercial area exceeded the permissible limit. The First Appellate Authority allowed the deduction proportionately for units meeting the criteria, rejecting the AO's disallowance based on the commercial area. The Tribunal upheld this decision, agreeing that pro rata deduction is permissible when some units meet the eligibility criteria, citing precedents from various ITAT benches. 3. Separate Approval for Housing Projects The AO argued that the entire Vista Project was approved as a single project, including commercial establishments, thus disqualifying it from Section 80IB(10) benefits. The assessee contended that separate books and approvals for different sub-projects should allow for the deduction. The Tribunal ruled that Section 80IB(10) does not necessitate separate approvals for each unit or project. It held that a housing project could comprise both eligible and ineligible units, and the deduction should be available for eligible units irrespective of a composite approval. This view was supported by judicial precedents, including the Madras High Court and Pune ITAT decisions. 4. Calculation of Built-up Area for Deduction Eligibility The dispute involved whether projections open to the sky should be included in the built-up area calculation. The AO included these areas, disqualifying some units from the deduction. The Tribunal ruled in favor of the assessee, excluding open-to-sky projections from the built-up area calculation, aligning with the ITAT Pune Bench's decision in Naresh T. Wadhwani vs. DCIT. The Tribunal directed the AO to allow the deduction for units where the built-up area, excluding open-to-sky projections, was within the prescribed limit. Conclusion The Tribunal dismissed the department's appeals, upheld the assessee's method of accounting, allowed proportionate deductions under Section 80IB(10), and excluded open-to-sky projections from the built-up area calculation. The matter of measurement discrepancies was remanded to the AO for fresh examination. The assessee's cross-objection was allowed for statistical purposes, and the appeal was partly allowed.
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