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TMI Blog2014 (10) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... ived prior to the agreement and balance of payments which is to be made - But under the Mercantile System of accounting, when once the said amount accrues, it has to be offered to tax in the year of accrual - when the amount is due to the assessee, a portion of which was already paid and a portion of it is payable in the near future as per the dates prescribed, the amount mentioned in the said agreement accrued on 25.6.1998 and therefore, the amount should have been offered to tax for the AY 1999-2000. Though the parties entered into agreement in 1995, there were modifications, alterations and supplementary agreements also came to be executed - Finally, the terms between the parties were crystallized under the agreement dated 25.6.1998 - when the assessee was following Mercantile System of Accounting, he should have offered to tax the amounts accrued to him under the agreement for the assessment year 1999-2000 - the order passed by the Tribunal holding that the amount to be offered to tax for the year 2003-04 applying Accounting Standard (AS) 7 and treating the transaction as Complete Project Method is opposed to the admitted facts of the case – thus, the order of the Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrued to the assessee by virtue of the sale agreement dated 25.6.1998 falls in the assessment year 1999-2000. Having regard to the payments made, the credit for the entire amount of ₹ 4,83,40,000/- stands crystallized in favour of the assessee within the assessment year 2000-01 and therefore, that is the year in which the income from nomination fees is assessable. Therefore, the Assessing Authority assessed the said income for the assessment year 2000-01. 3. The assessee preferred an appeal against the said order before the Commissioner of Income Tax (Appeals). The Appellate Authority on a careful examination of all the agreements held that the Assessing Officer is not justified in bringing to tax the income from nomination fees in respect of business venture at Bangalore amounting to ₹ 4,04,40,000/- for the assessment year 2000-2001 as the said income falls for consideration for the assessment year 1999-2000 only. Accordingly, the addition made for ₹ 4,04,40,000/- was deleted and the Assessing Officer was directed to recompute the interest chargeable under section 234B of the Act. 4. Aggrieved by the said order, both the assessee as well as the revenue pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod though the assessee was not a builder but a confirming party to the agreement? 7. The learned counsel for the revenue assailing the impugned order contended that admittedly the assessee is following the Mercantile System of Accounting. Under the agreement dated 25.6.1998, the right of the assessee was crystallized and an amount of ₹ 4,83,40,000/- became due to him. Therefore, he should have offered the said income to tax for the assessment year 1999-2010 as rightly held by the Commissioner of Income Tax (Appeals). As the assessee is not a Contractor, Accounting Standard (AS 7) is not attracted and therefore, the Tribunal erred in holding that the income should have been offered to tax in the year 2003-04 on the basis of the aforesaid Accounting Standard (AS 7) which has no application to the facts of this case. 8. Per contra, the learned counsel appearing for the assessee submitted that the contract between the parties originally was entered into on 30.1.1995. Subsequently, several agreements have come into existence modifying the terms of the agreement. Under the terms of the agreement not only the assessee received cash payment, but also received amount towards p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the day the agreement was entered into as he was following Mercantile System of Accounting. 10. Accounting Standard (AS) 7 applies to Complete Project Method. The said system deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts i.e., by the contractors. It also applies to enterprises undertaking construction activities of the type dealt within this statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered into agreements for sale. In other words, a person who enters into such contract should undertake the construction personally. If those conditions are fulfilled, it is only after the completion of the contract the consideration of the contract has to be offered to tax at the completion of the contract. 11. In the instant case, as per the agreement, though the assessee is carrying on the business of builder and may be contractor, having regard to the terms of the contract, his role was only to identify the purchaser. After identifying the purchaser, a tripartite agreement has been entered into. As per the terms of tripartite agreement, certain amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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