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TMI Blog2012 (12) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was carrying on a project and was consistently following the project completion method and the assessee declared its profit from the project in assessment year 2007-2008, on the basis of completion of project and the occupation certificate issued by the BMC on 22.09.2006. 4. The CIT(A), in the impugned order, has reproduced the AO's observations, against the declared results and observed as under: "During the assessment proceedings, the Assessing Officer observed that the appellant is following project completion method for determining the profit of the project. The profit shown in the project was offered for taxation for the AY 2007-2008 on the basis of completion of the project and occupation certificate issued by the B.M.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot be determined during the previous year relevant to assessment year under consideration. The appellant's project was of constructing second floor on a one plus building by purchasing an existing building and utilization of TDP in the project. The Assessing Officer has further argued that land has been purchased during the period relevant to AY 2003-2004. As per the working of the Counsel of the appellant, the total cost including land cost, construction cost, Municipal Tax and Administrative expenses amounting to Rs. 4,58,07,762/- as against the total expenditure debited to the accounts of Rs. 5,69,18,846/- and final profit for Assessment Year 2007-2008 was shown at Rs. 52,75,919/-. The Assessing Officer has observed that 80% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. rendering of services. This accountancy gives the option i.e. proportionate completion method and completed service contract method. Proportionate complete method is defined as perfornmance3s consists of the execution of more than one act. Revenue is recognized proportionately by reference to the performance of each act. When services are provided by an indeterminate number of act over a specific period of time, revenue is recognized on a straight line basis over the specific period unless there is evidence that same other method better represents the pattern of performance. Completed services contract method is performance consists of the execution of a single act. Alternatively, services are performed in more than single act and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Construction Contracts. The revised AS-7 recognized only the percentage completion method and is to be applicable only to the Construction Contractors' Financial accounting and not be builders and developers doing activity in their own account. These builders will have to recognize the Revenue as AS-9 "Revenue Recognition". Under the circumstances and facts stated above, we request you to kindly adopt the accounting method as followed by our client as stated above and allow the above appeal and oblige". 6. The CIT (A), while deciding the issue recognized the fact that the applicability of AS-7 and AS-9 are debatable issues. However, the CIT(A) came to the conclusion that the AO was correct in bringing to tax the amount of deemed profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the assessee declared its profit and paid the taxes thereon. 11. If we strictly go into the computation of profits for both the years under consideration, applicability of 8% is acceptable if the profit is to be accepted as per section 44AE, where no books are claimed to have been maintained. The AO neither ignored the books nor rejected the books, but he applied 8% of the profit as estimated/ computed, which according to us is neither legal nor permissible. We also cannot endorse the observation of the CIT (A), when he holds that the AO has inherent power given in section 145 to estimate the income of the assessee, if he is not showing the correct profit by applying the particular method. Section 145(3) is very clear, where it prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business it was the sole choice of the assessee to adopt a particular method of accounting contemplated under section 145 of the Act". The AR also referred to the case of Asstt. CIT v Dharti Estate [2011] 129 ITD 1 (Mum)(TM), wherein it was held (head notes), "On appeal, Commissioner (Appeals) held that method of accounting followed by assessee, i.e., percentage completion method, was in consonance with Accounting Standard No. 7 issued by Institute of Chartered Accountants of India. On revenue's appeal, it was noted that assessee had followed percentage completion method consistently since its inception and had been declaring income / loss from year to year and same was accepted in earlier years - Moreover, Assessing Officer had not r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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