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TMI Blog2015 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... red profit in respect of its three projects viz. Woods, Meadows and Hermitage, but no profit is offered in respect of two projects viz. Iraisaa and Costarica. It was further observed by the AO that the assessee was following project completion method and no profit is declared on the basis of percentage completion method. The AO also observed that the assessee did not declare any profit in respect of work-in-progress during the year. The total work-in-progress during the year in respect of all the five projects is Rs. 32,84,47,955/-. In the opinion of the AO, accounting system followed by the assessee by not offering taxable profit on the basis/of percentage completion method is not in accordance with the I.T Act and as per the methods prescribed by the Chartered Accountant's Institute for developers. On the other hand, at the time of assessment the assessee submitted that it has correctly declared profit from various projects. It was further submitted that the assessee is following the same method of accounting consistently during the last* several years, but the AO did not agree with the contentions of the appellant and it 'was held by him that with effect from 1.4.2003 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant that in the new projects i.e. Costarica and Iraisaa also, the consistently followed method of accounting of the assessee should be allowed. The principle of consistency does not extend to the new project. In this 'regard, I do agree with the finding of the AO that as per the revised accounting standard AS-7, the profit is required to be recognized on the basis of work-in-progress as it is a more scientific manner, which gives a correct picture of the profit as compared to the method adopted by the assessee on the basis of percentage of area sold. This fact gets further strengthened from the assessee's own statistics, wherein by the method adopted by the assessee profit of project Iraisaa is worked out at 3.74%, whereas in Costarica it is 24.48%, whereas work-in-progress during the year in both the projects are almost similar i.e. in the range of 12 crores each. The appellant has not. been able to submit any satisfactory explanation regarding such huge variation in 'the profits of these two projects, which are of almost same magnitude. Under these circumstances, taking a holistic view of the matter, I am convinced that the method adopted by the AO by applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in earlier years. However, in respect of project Iraisaa and Costarica, the AO made an addition by taking 10% profit on work-in-progress in respect of these projects and the same has been confirmed by the CIT(A) and assessee is in further appeal before us. 9. From the record, we found that assessee in respect of the project Costarica, had on its own recognized the profit on percentage of completion method of accounting as in the past. We also found that the AO has also treated administrative expenses as part of the cost of work done which is absolutely wrong. It appears that assessee has recognized revenue by applying percentage of completion method prescribed by the ICAI vide the Guidance Note on recognition of revenue by real estate developers read with the Accounting Standard 9 and 7 of the ICAI. It is also clear from the record that the AO has estimated profit without rejecting method of accounting and the books of accounts maintained by assessee. The AO has also not invoked provisions of Section 145 for rejection of books of accounts. In case of Iraisaa, we found that during the year 43.22% area has been sold on, profit was declared at 3.74%. The assessee has duly declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively for the said projects, the work of which is under progress. In view of these facts allegation of AO to the effect that the assessee did not declare any profit with regard to work-in-progress and the completed project, is also having no basis. We found that assessee has recognized profit for these two projects, which was under progress. The details are as under :- Project Profit of the year Method of accounting Woods 21,84,818 Actual Sales basis Meadows (9,16,107) Actual Sales basis Hermitage 1,77,78,443 Actual Sales basis Iraisaa 3,60,509 Percentage Completion Costarica 4,74,060 Percentage Completion 11. In view of above discussion, we set aside the order of lower authorities for making addition by estimating 10% profit on work-in-progress for both the years. The AO is directed to reframe assessment keeping in view our above observation. Needless to say the assessee should be given full opportunity before finalizing the assessment. 12. In the assessment year 2008-09, the AO has also disallowed business expenditure of Rs. 65,68,500/-. From the record, we found that assessee had paid an amount of Rs. 65,68,500/- during the year to certain persons, to whom th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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