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TMI Blog2012 (10) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... n certain prudent norms, such as, turnover of the assessee firm, profit during earlier years, similar comparable cases, etc. The learned Assessing Officer as well as the Ld. C.I.T.(Appeal) has ignored all prudent norms in the instant case and have unilaterally determined the net profit at 7.2 %. 5. The Learned A.O. has not allowed an opportunity to the assessee for placing due rebuttal before determination of Net Profit at 7.2% 6. That the case of the assessee company squarely falls under Accounting Standard-9 read with Accounting Standard-2. The Ld. A.O. and Ld.C.l.T (Appeals) has taken a wrong view by adopting Accounting Standard-7, which is applicable to a Contractor. 7. That in case of a Developer engaged in Real Estate Development, the proper accounting standard to be followed is AS-9 (Recognition of Revenue) read with AS-2 (Valuation of Inventories). The learned A.O. as well as the Ld. CIT(Appeal) erred in adopting AS-7, which is liable to be deleted. 8. The appellant craves leave to add or amend any ground of appeal at the time of hearing." 2. The learned Counsel for the assessee initiating his arguments submitted the brief facts along with his submissions that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en whole adventure/project is completed, is consistently being followed by the assessee and the said method does not suffer from an infirmity/defect calling upon for a rejection of the same, the same could not be rejected merely on the fact that there exists a method of accounting for profit of each year. Further the learned Counsel for the assessee submitted that the reasons advanced by the learned A.O for change in the method of accounting are not justified and/or not sustainable in the eye of law because the assessee was a builder and Developer. It started construction of residential project on a plot of land consisting of 114 flats and 9 shops. The assessee was following project completion method for accounting of income. Since the project was not complete, the assessee was capitalizing the work done as work in progress as well as the advance received from its customers. It is not the case of the learned A.O that the Assessee had understated the income in a particular year. The dispute was regarding the year of accounting of income. He submitted that the assessee had been following the project completion method as per which income had to be accounted in the year in which projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of accounting but the condition is that the same method has to be followed consistently. In case of a building project, the Institute of Chartered Accountants of India, which is an authority on prescribing accounting standards, had prescribed accounting standard AS-7 in 1983 for accounting of income in respect of real estate projects and in terms of AS-7, which was applicable to both contractor and real estate developer, a person was free to follow either of project completion method or percentage completion method depending upon the nature of project. The assessee, in the instant case, had followed project completion method, which was one of the prescribed methods by the Institute of Chartered Accountants of India. The accounting standard AS-7 was subsequently revised and revised statements were made applicable to housing projects undertaken on or after 1-4-2003 and as per the revised standards, revised AS-7 was applicable only to a contractor and in case of real estate developer, revised AS-9 was prescribed as per which the income had to be accounted only on completion of project when the flats were sold, i.e., when legal title passed to the buyer or when seller entered into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O of Rs. 50 to Rs.80/- is prescribed for unskilled labour and not for skilled labour. The rate adopted by the assessee was the prevailing labour rate for skilled labour. The general labour working in agricultural filed cannot work in the construction of flats. Since the labour engaged in the construction of multi storied Building were to work standing on a Bamboo stick on a high height and since life risk is involved, therefore they are demanding more price. That apart if the minimum labour rate which has been accepted by both the party i.e. Rs.80 will be taken in to account then it will be clear that the assessee had never claimed more labour charges i.e Rs. 80 *17*365 = Rs. 4, 96,400.00 should have been the labour charges, where as the assessee has claimed only Rs.4,32,000.00. In view of the above calculation, it may be appreciated that the assessee has never inflated the labour charges. In respect of cash payment in respect of sand, chips and boulders, the assessee respectfully submits that it had procured the same from the local people as the same was available in a very low price. In respect of allegation of non maintenance of work-in-progress register and stock register, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before the bank for the purpose of obtaining loan justifies that the income rendered is on the basis of sales which have been recorded and undisputed as per the final sales in the Assessment Year 2006-07. In fact in the Assessment Year 2006-07, the learned CIT(A) has found the noting of the Assessing Officer incorrect to the extent that the same income cannot be taxed in the last year which was returned by the assessee cumulative of the earlier years returns by the assessee choosing to file the return on project completion method. In the case of Awadesh Builders v. Income-tax Officer, ITAT, Mumbai Bench "B", relied on by the learned Counsel for the assessee, has held in paragraph 2.8 as under: "2.8 It is established legal position that an assessee can follow any recognized method of accounting and condition is that the same method has to be followed consistently. In case of a building project, the Institute of Chartered Accountants of India which is an authority on prescribing accounting standards had prescribed accounting standard AS-7 in 1983 for accounting of income in respect of real estate projects and in terms of AS-7 which was applicable to both contractor and rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that having invoked the provisions of Section 145(3), the Assessing Officer was stopped from estimating income on the basis of a balance sheet filed before the bank for obtaining loan was not sacroscent insofar as he was making the assessment on the returns filed by a Private Limited Company being a statutory entity which account cannot be changed. Projection of income to the bank for obtaining loans is invariably different insofar as certain deductions allowable under the Act as deduction are not claimed therein. Therefore, without ruling out the fact that the assessee was not to follow a particular system of accounting the learned CIT(A) having agreed to the proposition of computing income in accordance with the provisions of the I.T.Act, the CIT(A) misdirected himself to hold that the assessee was not a developer of real estate but merely a contractor. This fact was never observed by the Assessing Officer when he readily agreed to the proposition that a contractor cannot be subjected to tax on percentage method and the estimation was an advance against sales. Therefore, having contradicted their own findings the respective authorities have brought to tax the incomes which otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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