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TMI Blog2018 (1) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... it should be subject to tax in terms of section 5 of the Act. Before us, the percentage of work completed by the assessee on the project, is not available and, thus, we are unable to compute the revenue recognized from the project. Set aside the order of lower authorities on the issue in dispute raised in both the appeals and restore the matter to the file of the Assessing Officer for deciding afresh in view of observation made by us above. - ITA No. 1710/Del/2013, ITA No. 2099/Del/2013 - - - Dated:- 17-1-2018 - Sh. Amit Shukla, Judicial Member And Sh. O. P. Kant, Accountant Member Assessee by : None Respondent by : Smt. Aparna Karan, CIT (DR) ORDER Per O. P. Kant, A. M. These cross appeals of the assessee and the Revenue are directed against order dated 11/01/2013 of Ld. Commissioner of Income- tax (Appeals)-IV, New Delhi [in short the Ld. CIT-(A) ] for assessment year 2009-10. 2. The grounds of appeal raised by the assessee in ITA No. 1710/Del/2013 are reproduced as under: 1. On the facts and circumstances of the case, the Learned Commissioner of Income-tax (Appeals) has erred in confirming the addition of ₹ 1,34,37,679/- on account of As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and on facts in deleting the expenses made by account of Advertisement and Marketing Expenses, Employees Salary, Travelling Expenses, Legal Expenses and Brokerage Expenses, amounting to ₹ 10,32,42,076/- ignoring the facts that these expenses incurred by the assessee are of capital in nature. 2. The Appellant craves for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearting of this appeal. 4. When these appeals were called for hearing, neither anyone attended on behalf of the assessee nor any application for adjournment was placed before the Bench. On perusal of the record, we find that these appeals are pending since, 2013 and on many occasions, the case was adjourned on the request of the assessee. The Ld. counsel of the assessee also filed two paper books containing written submission on 14/02/2014 and 18/08/2016 respectively. During the hearing dated 25/04/2017, the Ld. counsel of the assessee requested for issue of notice of hearing on the official liquidator of the company, at the address provided by him. In view of his request, notice for hearing was issued on 23/08/2017 on the Assistant Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee provided detail of the administrative expenses as under: Particulars Total Amount Transferred to inventories Balance claimed as revenue expenditure Basis of Transfer Salaries and Bonus 8612713 2109667 6503046 Related to employeesworked for project Travelling and conveyance expenses 1038407 111514 926893 Related to employees worked forproject Legal and professional expenses 4366080 2446149 19,19,931 Service taken for projects Marketing Expenses 58449543 58449543 Service taken forprojects Miscellaneous expenses 913221 252496 660725 Bifurcated for the project. 5.2 The assessee further pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) allowed the disallowances except amount of ₹ 1,34,37,679/- related to assured returns. 5.7 Aggrieved, both the assessee and the Revenue are in appeal before the Tribunal raising the respective grounds as above. 6. Before us, the Ld. CIT(DR) arguing both the ground of the appeal of the assessee as well as grounds of the appeal of the Revenue, submitted that the assessee in its submission before the learned CIT-(A) has accepted the fact of following the guidance note of ICAI for revenue from real estate developers and according to which the assessee was required to recognize the revenue corresponding to the sales booked, if substantial work was already done on the project and substantial risk and rewards have been transferred to the customer. According to her, in view of the Percentage Completion Method (PCM) provided for real estate developers in guidance note of ICAI and income accrued or arisen in terms of section 5 of the Income Tax Act in case of the assessee following Mercantile method, the assessee was required to recognize revenue from sales booked of ₹ 54.35 crores in proportion to the expenses incurred in respect of the project. In view of her, rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs to completion, and the expected revenues from the projects and the foreseeable losses to completion. ii) Interest income is accounted for on accrual basis. 8. We note that ICAI has issued Guidance Note on recognition of Revenue by the Real Estate Developers (2006), which has been made part of pages 25 to 28 of the paper book, dated 14/02/2014. The relevant clause 6 of Guidelines is submitted by the assessee is reproduced as under: 6. Revenue in case of real estate sales should be recognized when all the following conditions are satisfied: (i) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership; (ii) No significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate sales; and (iii) It is not unreasonable to expect ultimate collection. 9. We have further observed that the Institute of the Chartered Accountants of India (ICAI) has revised the Guidance Note on Accounting for Real Estate Transaction (Revised 2012), which is available on page 29 to 33 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or any other legally enforceable documents are realized at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate - If there are 10 Agreements of sale and 10 % of gross amount is realized in case of 8 agreements, revenue can be recognized with respect to these 8 agreements. 5.4 When the outcome of a real estate project can be estimated reliably and the conditions stipulated in paragraphs 5.2 and 5.3 are satisfied, project revenue and project costs associated with the real estate project should be recognized as revenue and expenses by reference to the stage of completion of the project activity at the reporting date. For computation of revenue the stage of completion is arrived at with reference to the entire project costs incurred including land costs, borrowing costs and construction and development costs as defined in paragraph 2.2. Whilst the method of determination of stage of completion with reference to project costs incurred is the preferred method, this Guidance Note does not prohibit other methods of determination of sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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