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2019 (3) TMI 1942 - AT - Income TaxRevision u/s 263 by CIT - non recognition of revenue - Method of accounting - Non booking of sale of TDRs (Transferable Development Rights) received against the SRA Project - as per AO has failed to examine and conducted inquiries as regards the nature of TDRs and sale proceeds of TDRs vis-a-vis the agreement with SRA - credit of the receipt from sale of TDR to current liability awaiting the discharge of assessee s total obligations under the slum rehabilitation project - HELD THAT - The issue of income and receipt arising out of sale of TDR, the detailed thereof and the method of accounting for profit recognition adopted by the assessee were duly available before the AO. Hence from the above it is evident that Ld. CIT is totally incorrect in observing that the sale of TDR and the profit method of the assessee was not examined by the AO. Whether the method of accounting adopted by the assessee and accepted by the AO is a legally permissible one not? - We note that the observations of the revenue authority on the incorrectness of the method of accounting adopted by the assessee are not by reference to any Accounting Standards or any provision of the Act - AO has noted that the method of accounting adopted by the assessee cannot over ride the Income tax Act. Here we note that there is no specifications as to which provision of income tax provides that the method of accounting adopted by the assessee is incorrect. We find that the percentage completion method for revenue recognition in case of assessee engaged in real estate development is well recognized as per the ICAI guidelines as well as case laws in this regard. In this regard, we may refer that the Hon ble Supreme Court explained the 'Project Completion Method or Completed Contract Method' and 'Percentage of Completion Method' in the case of C.I.T. Vs. Bilahari Investment Pvt. Ltd. 2008 (2) TMI 23 - SUPREME COURT - Thus, we note that the adverse comments passed on the assessee s method of accounting is in contravention to settled accounting principle and case laws. Assessee submission is quite germane that the sale of TDR cannot be considered in isolation of the assessee obligation under the SRA agreement to complete the slum rehabilitation project. The reading of the agreement in this regard clearly shows that assessee was under obligation to complete the slum rehabilitation project as per the agreement. The said agreement has to be considered on an overall basis and the construction of the parts of the agreement has to be done in a harmonious manner. As rightly contended by the Ld. Counsel of the assessee TDRs were meant to provide finance to the assessee company to complete the project. In such circumstances the assessee has credited the amount received on sale of TDR to current liability which is utilized in the development of the project - this treatment by the assessee finds support from ITAT decision in the case of Skylark Build 2012 (6) TMI 440 - ITAT, MUMBAI The method adopted by the assessee and accepted by the assessing officer is legally permissible one. Once it is held that the method adopted is a legally permissible one, it has been held in the Catena of case laws that learned Commissioner of income tax cannot exercise of jurisdiction under section 263 of the act if he is of a different opinion. Thus the view adopted by the assessing officer is a permissible one. Hence, we are of the considered opinion that exercise of jurisdiction under section 263 of the IT Act by the learned Commissioner of income is liable to be quashed. - Decided in favour of assessee.
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act. 2. Legality of the revision order under Section 263. 3. Nature of Transferable Development Rights (TDRs) and their taxation. 4. Applicability of the percentage completion method for revenue recognition. 5. Directions for de novo assessment. Detailed Analysis: 1. Invocation of Section 263 of the Income Tax Act: The primary issue was whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in invoking Section 263 of the IT Act. The Pr. CIT invoked this provision, arguing that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue. The Pr. CIT contended that the AO failed to properly examine the nature and taxation of TDRs and did not recognize the revenue from the sale of TDRs on an accrual basis. 2. Legality of the Revision Order under Section 263: The assessee argued that the revision order under Section 263 was bad in law and should be set aside. It was contended that the AO had made detailed inquiries and verification before passing the order under Section 143(3). The Tribunal noted that the AO had indeed examined the assessee's method of accounting and the details of TDR sales, and had accepted the percentage completion method for revenue recognition. The Tribunal concluded that the Pr. CIT's order under Section 263 was not justified as the AO had adopted a legally permissible view. 3. Nature of Transferable Development Rights (TDRs) and Their Taxation: The Pr. CIT alleged that the assessee was engaged in trading TDRs and that the income from the sale of TDRs should have been recognized on an accrual basis. The assessee, however, argued that the TDRs were received as part of a composite Slum Rehabilitation Authority (SRA) project and were necessary for financing the project. The Tribunal found that the TDRs were linked to the development of the SRA project and that the revenue from TDR sales should be recognized in line with the percentage completion method. The Tribunal also noted that the assessee had consistently followed this method and that it was in accordance with the guidelines issued by the Institute of Chartered Accountants of India (ICAI). 4. Applicability of the Percentage Completion Method for Revenue Recognition: The Tribunal examined whether the percentage completion method was applicable to the assessee's business. The assessee argued that this method was appropriate and had been consistently followed. The Tribunal agreed, noting that the method was recognized by the ICAI and had been accepted by the AO in previous assessments. The Tribunal also referred to various case laws supporting the use of the percentage completion method for real estate developers. 5. Directions for De Novo Assessment: For the assessment year 2013-14, the Pr. CIT directed the AO to conduct a de novo assessment and consider two methods for income computation: a holistic method based on the entire project's cost and revenue, and a method attributing costs to each TDR sold. The Tribunal found these directions to be hypothetical and not based on any accounting principles or case laws. The Tribunal held that the method adopted by the assessee was legally permissible and that the Pr. CIT's directions for a de novo assessment were not justified. Conclusion: The Tribunal concluded that the AO had properly examined the issues related to the sale of TDRs and the method of accounting adopted by the assessee. The Tribunal held that the Pr. CIT's invocation of Section 263 was not justified as the AO had adopted a legally permissible view. The Tribunal quashed the Pr. CIT's order under Section 263 and allowed the appeals filed by the assessee.
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