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TMI Blog2015 (11) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT (A). The only reason given in the impugned order of the ITAT is that ‘risks and rewards' of ownership were transferred to the buyers who had paid the booking advance amounts and in some cases these rights were transferred to third parties. However, this does not in any manner affect the treatment of the said amounts in the books of the Assessee. As noted hereinbefore, the expenses of construction were not debited to the P & L account of the Assessee. It was shown as cost of construction or block of buildings. It is only as and when a conveyance deed was executed or possession delivered that the receipt was shown as income. The explanation added by way of Notes to the Accounts was not taken note of by the ITAT when it came to the conclusion that the percentage completion method should apply to the Assessee. The other aspect that appears to have escaped the attention of the ITAT is that the Assessee offered to tax in the subsequent FY the amounts received and therefore there was no actual loss to the revenue. - Decided in favour of assessee. As far as AY 2006-07 is concerned, it is apparent that the ITAT in the impugned order lost sight of the fact that the advances re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of the flats booked to the respective customers/buyers along with the execution of the sale/conveyance deed. 5. It is stated that the Assessee regularly follows Accounting Standard (AS) 9 issued by the Institute of Chartered Accountants of India (ICAI). In this method, revenue is recognized as and when significant risk and reward of ownership/title is transferred. All sums received for the construction project till such time are treated as advances and shown as liability. All expenses incurred in the construction are accounted for in the stock in trade and/or block of buildings and are reflected as such in the balance sheet of the Assessee. 6. The Assessee started construction of a nine floor commercial complex, viz., 'Paras Down Town Centre' at Sector-53, Gurgaon in the financial year (FY) 2003-04. The said project was completed during FY 2004-05. As per the P L Account and Balance Sheet, for financial year 2004-05, the Appellant had received ₹ 15,39,84,824/- of which ₹ 11,11,03,624/- was on account of advance bookings and ₹ 4,28,81,200/- on account of actual sale. The Assessee incurred ₹ 11,91,40,472 as total expenditure shown as tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in terms of the Revenue recognition method followed by the Assessee. The addition made by the AO in the sum of ₹ 5,23,00,137/- was directed to be deleted. Significantly, the CIT (A) also noted that the entire exercise was revenue neutral as the AO had only advanced the accrual of income from AY 2006-07 to AYs 2004-05 and 2005-06. 10. As far as AY 2006-07 is concerned, the AO by the assessment order dated 31st December, 2007 again applied the percentage completion method and made an addition of ₹ 10,76,70,521 (constituting the advance booking amounts received) to the income of the Assessee. It was urged by the Assessee before the AO in respect of the aforementioned advance booking amount, that the civil work/construction activities had not even started and no amount could therefore be booked either under the project completion or the percentage completion methods. It was further pointed out that a sum of ₹ 53.5 lakhs had been refunded in the immediate next year since the transaction could not materialise. The AO, however, negatived the above pleas. 11. The appeal filed by the Assessee for AY 2006-07 was allowed by the CIT (A) by a separate order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as noticed hereinbefore, the agreements entered into by the Assessee are only on the basis that it is a developer. The Assessee has throughout been contending that it is not a contractor. This finding has been accepted by the Revenue inasmuch as it has not filed any appeal against the impugned order of the ITAT. 17. The other significant aspect is that the Assessee has been able to make good its plea regarding treatment of the sum received by it as advance in its books of accounts. The balance sheets filed by the Assessee, copies of which are enclosed with the memorandum of Appeal, do bear out the fact that the cost of construction is capitalized as regards the flats the construction of which is yet to be completed, and no conveyance deed has been executed or possession has not been handed over. The Assessee s balance sheet dated 31st March, 2005 discloses under the sub-head 'Inventory' under the head Current loans and advances a sum of ₹ 7,09,93,957. The explanatory Schedule 4 describes the said figure as Stock and inventory . It is also stated in Item No. 1 (b) of Schedule 19 in the Notes to the Accounts forming part of the final audit statement as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under the method determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method. 21. In the present case, there was therefore no good reason for the ITAT to have reversed the finding of the CIT (A). The only reason given in the impugned order of the ITAT is that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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