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2018 (10) TMI 1401 - AT - Income TaxAccrual of income - method of account - construction project - although 100% advance had been received during the year, the sales was not recognized - CIT(A) while allowing the assessee s appeal by deleting the addition made u/s 68 enhanced the assessee s appeal by ₹ 1,27,07,336/- by invoking provisions of section 251(1)(a) - method of accounting followed by the Assessee is project completion method - Held that - Neither any defect has been pointed out in the method of accounting being followed by the assessee nor any concrete finding has been given that correct profits cannot be computed following the method of accounting adopted by the assessee. The main thrust of the Ld. CIT (A) seems to be that the assessee is deferring the payment of taxes. But this inference of the Ld. CIT (A) cannot be accepted as the assessee has been consistently following one method of accounting which has been accepted by the Department in earlier assessment years. 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. In similar circumstances, the Supreme Court in CIT v. Excel Industries Limited 2013 (10) TMI 324 - SUPREME COURT observed that the dispute if any raised at the instance of the Revenue would be at best academic. The stand of the Assessee in the present case also finds support in the decision of the Gujarat High Court in CIT-IV v. Shivalik Buildwell (P) Ltd. 2012 (10) TMI 1019 - GUJARAT HIGH COURT . It was held that the Assessee in that case, who was a developer, was entitled to book the amount received as booking advance as income on transfer of the property. Till then the advance booking amounts could not be treated as his trading receipt. The High Court recognized that the Assessee in that case was entitled to apply the project completion method in terms of the applicable AS. Accordingly we set aside the order of the Ld. CIT (A) making the impugned enhancement and also direct the Assessing Officer that the income as declared by the assessee in its Return of Income be taken as the figure for the purpose of calculation of the tax liability. - Decided in favour of assessee.
Issues Involved:
1. Enhancement of income by the CIT (A) under section 251(1)(a) of the Income Tax Act. 2. Rejection of the assessee's books of accounts under section 145(3) of the Income Tax Act. 3. Consistent method of accounting followed by the assessee. 4. Revenue recognition in terms of Accounting Standard 9. 5. Revenue neutrality of the enhancement. 6. Taxation of sale proceeds without registered sale deeds. 7. Delay in registration of sale deeds attributable to buyers. Detailed Analysis: 1. Enhancement of Income by CIT (A): The CIT (A) enhanced the income of the assessee by ?1,27,07,336 under section 251(1)(a) of the Income Tax Act. This enhancement was based on the gross profit earned on the sale proceeds of ?1,53,91,253 from eight plots, where 100% advance was received but sales were not recognized. The CIT (A) argued that this deferred tax liability and increased the cost of closing stock. The ITAT, however, found that the assessee consistently followed a recognized method of accounting accepted by the department in earlier years. The ITAT held that changing the method now would result in recomputation of income for multiple years, which is contrary to the Supreme Court's judgment in Excel Industries Ltd. and Bilahari Investment. 2. Rejection of Books of Accounts: The CIT (A) rejected the assessee's books of accounts under section 145(3) of the Income Tax Act, stating that the method of accounting deferred tax liability. The ITAT noted that no defects were pointed out in the assessee's method of accounting, and it was consistently followed and accepted in earlier years. The ITAT held that the rejection was not justified as the method did not distort profits. 3. Consistent Method of Accounting: The assessee followed a method where revenue was recognized upon the execution of registered sale deeds. This method was consistently followed since the company's incorporation in 2005 and accepted by the department in previous assessments. The ITAT emphasized that consistency in the method of accounting is crucial, and any change should be based on concrete findings of distortion of profits, which was not demonstrated by the department. 4. Revenue Recognition in Terms of Accounting Standard 9: The assessee recognized revenue as per Accounting Standard 9, which aligns with the transfer of significant risks and rewards of ownership. The ITAT supported this method, noting that the sale deeds were executed, and corresponding receipts were treated as income in the profit & loss account. The ITAT also referred to the Supreme Court's judgment in CIT vs. Balbir Singh Maini, which held that unregistered documents have no effect for the purpose of section 53A of the Transfer of Property Act. 5. Revenue Neutrality of the Enhancement: The ITAT observed that the enhancement by the CIT (A) was revenue-neutral. The method adopted by the CIT (A) would only result in different profit figures for each year but would not change the overall profitability. The ITAT cited the Supreme Court's judgment in Excel Industries Ltd., which stated that tax-neutral exercises need not be pursued. 6. Taxation of Sale Proceeds Without Registered Sale Deeds: The CIT (A) held that sales should be taxed when the entire sale consideration is received, irrespective of the registration of sale deeds. The ITAT disagreed, emphasizing that the assessee's method of recognizing revenue upon registration of sale deeds was consistent with the Transfer of Property Act and the Registration Act. The ITAT noted that possession was not given to buyers without registered sale deeds. 7. Delay in Registration of Sale Deeds Attributable to Buyers: The ITAT considered the assessee's argument that delays in registering sale deeds were due to buyers and not the assessee. The ITAT found this argument valid and noted that the department did not contest this point. Conclusion: The ITAT set aside the CIT (A)'s order enhancing the income and directed the Assessing Officer to accept the income declared by the assessee in its return. The appeal of the assessee was allowed, and the ITAT emphasized the importance of consistency in the method of accounting and the revenue-neutral nature of the enhancement. The ITAT also highlighted the legal principles from Supreme Court and High Court judgments supporting the assessee's method of accounting.
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