9911796707
TMI Blog2012 (7) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it is reasonably certain that the ultimate collection will be made. As per the statement made from the side of the assessee, it was wrong on the part of the AO to assess the income irrespective of the year of completion of project when the amount received in advance has not reached certainty and that too the AO has merely estimated 10% as the recognition of Revenue of the construction contract, without assigning any specific basis of such an estimation, the such an estimation is not approved, resultantly the view taken by the ld.CIT(A) is upheld - in favour of assessee. - ITA Nos.488 & 489/Ahd/2010 - - - Dated:- 25-6-2012 - SHRI MUKUL Kr.SHRAWAT, And SHRI ANIL CHATURVEDI, JJ. Appellant by : Shri B.L.Yadav, Sr.D.R. Respondent by : Shri Mukund Bakshi, A.R. O R D E R PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER : These two appeals have been filed by the Revenue respectively for AYs 2005-06 2006-07 arising from a consolidated order of CIT(A)-II, Baroda dated 20/11/2009. Revenue has raised identically worded grounds for both the years, reproduced from the AY 2005-06 (lead assessment year) as follows:- 1. On the facts and in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponding assessment order passed u/s.143(3) of the Act dated 31.12.2007 (for A.Y. 2005-06) and dated 31.12.2008 for A.Y. 2006-07) were that respectively returns filed by the assessee in the status of AOP for construction business at Rs.NIL and at Rs.1,28,76,990/-. Undisputedly the assessee has undertaken civil construction of Trident Commercial Complex . For AY 2005-06, assessee has disclosed work-in-progress at Rs.1,24,03,761/-. Related expenses were duly debited to P L account. Further, it has also been noted by the AO that for AY 2005-06, the assessee has received new booking advances of Rs.52,87,000/-. As per AO, the assessee has not shown any sales of units and, therefore, the assessee has followed project completion method of accounting. A show-cause was issued as to why no construction sales were disclosed. The explanation of the assessee was that the amount received was in the nature of booking advance and no sale-deed was executed. The assessee s submission was as under:- The method of accounting employed by the assessee is Completed Contract Method wherein the revenue in respect of sale of shop or office is recognized on completion of the sale of the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, worked out at percentage of the advances from members declared during the F.Y. Rate of net profit as shown the by the assessee itself is 15.54%. Accordingly, an addition of Rs.45,30,900/- is made to the total income of the assessee being 15% of the booking advance of rs.3,02,05,998/- and the same is added back to the total income of the assessee. Penalty proceedings u/s.271(1)(c) of the Income Tax Act are initiated for concealing true particulars of income. Total income as per return of Income of the assessee Rs.1,28,76,990/- Add:Addition made as discussed in Para-8 of the order Rs. 45,30,900/- TOTAL INCOME .. Rs.1,74,07, 890/- ========== 3. When the matter was carried before the first appellate authority, ld.CIT(A) was of the opinion that the controversy has two issues; first, whether the assessee worked as a contractor as contemplated in AS-7 or, second, the method of revenue recognition was correctly applied by the assessee. Ld.CIT(A) has opined that AS-7 refers to the method of accounting in respect of construction contracts awarded to a contractor. Thereafter, ld.CIT(A) has given a factual finding that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut AY 2006-07 corresponding receipts considered for taxation were at Rs.11,26,91,971.00, for AY 2007-08 Rs.8,61,52,498.00 and for AY 2008-09 Rs.5,62,72,400.00. Ld.AR has also referred guidance note on recognition by revenue by real estate developers. 5. We have heard both the sides. We have perused the material placed before us. At the outset, we want to refer a decision of the Respected Coordinate Bench ITAT D Bench Ahmedabad order dated 31.05.2012 pronounced in the case of ACIT/Dy.CIT vs. M/s.National Builders bearing ITA Nos.879 and 3535/Ahd/2008 for A.Ys 2004-05 2005-06 (one of us, i.e. JM is the party), wherein the relevant discussion was made as under:- 6. We have heard both the sides at some length. At the outset, it is worth to mention that there was a change in the AS-7 with effect from 01-04-2003 and the relevant portion is like this:- 21. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognized as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessees could become allottees only on the approval by the GSRTC. Due to the said reason, it was vehemently contested that an enforceable transaction could take place only on approval by GSRTC. Hence, the assessee s stand for recognition of revenue was that it could be recognized at the time only upon obtaining such approval. According to assessee, the assessee could legally earn income on the occasion of granting of approval by GSRTC for the allotment to such lessees. Rather it has been emphasized that the collection although made before such approval, in case of denial of approval, was to be refunded. The provisions of AS-7 have thus kept in mind such eventuality as well. Although the recognition of Revenue as per AS-7 is upto the stage of completion of a contract but it has also been prescribed that an enterprise is generally able to make reliable estimates after it has agreed to a contract which establishes each parties enforceable rights regarding the assets to be constructed. The Institute has prescribed percentage of completion method as per para-24, reproduced below:- 24. The recognition of revenue and expenses by reference to the stage of completion of a contract is oft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at stage cannot be estimated reliably, no profit can be recognized. The clauses of the agreement dated 1st March-2002 i.e. clause Nos.8 13 prescribes that the lease of units agreed to be allotted by the assessee to the intending allottees become legally enforcible only upon the GSRTC approving the allotment and uptill that time, there would be no legally tenable transaction by the appellant in favour of the intending lessee. Facts of the case have further revealed that such approvals have in fact been granted by GSRTC in the F.Y. 2004-05 relevant for A.Y. 2005-06 onwards. Rather, there was some controversy and our attention has been drawn that vide an order dated 18/5/2004 the District Collector has restrained the assessee from leasing in any manner whatsoever any of the shop in the GSRTC project. On account of these reasons, we are of the view that the AO has incorrectly applied AS-7 on the assessee. 6.3. Although it can be said that as per the revised AS-7 of 2002 which is effective from 01/04/2003, a project completion method has been recognized and AS-7 has not approved completed contract method, although with certain riders, but in a situation when a contractor is also wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, AS-9 as per the question of uncertainties not remained untouched and that eventuality has also been prescribed therein. Thus AS-9 has prescribed that the recognition of Revenue requires that Revenue is measurable and that at the time of rendering of service it would not be unreasonable to expect ultimate collection. Where the ability to assess the ultimate collection with reasonable certainty is lacking, then Revenue recognition is to be postponed to the extent of uncertainty involved. It has therefore been prescribed vide para-9 that it is appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Para-9.4 thus streamlined the situation as under:- 9.4. An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 6.4. In the light of the above discussion, since the assessee can be termed as a contractor as also a developer, therefore the Revenue can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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