9911796707
TMI Blog2019 (10) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of the advance money. The appellant filed a written submission dated 26.03.2015 before the AO stating that the degree of work completed and certified by architect till 31.03.2009 is 73% and the assessee-company has recognized the revenue by applying 73% to the value of agreements executed till 31.03.2009. It was further stated before the AO that the revenue in respect of balance advances could not be recognized as passing of risks and rewards by virtue of ownership is an essential condition for revenue recognition as per AS-9, which has not been fulfilled in the instant case, as no agreement is executed and no possession have been given to the buyer. The case laws relied on by the Ld. counsel and Ld. DR have been narrated at length hereinbefore. One principle which emerges from the above case laws is the role of agreement executed. Immovable property is not conveyed by delivery of possession, but by a duly registered deed. Further, it is the date of execution of registered document, not the date of delivery of possession or the date of registration of document which is relevant. Once the executed documents are registered, the transfer will take place on the date of executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itute of Chartered Accountants of India regarding real estate transactions. 3. The Ld.CIT(A) completely misapplied himself and erred in confirming the stand taken by the assessing officer in invoking the provisions of sec. 2(47) which apply to capital asset and not to stock-in-trade. 4. The Ld.CIT(A) erred in appreciating that for two assessment years 2005-06, and 2008-09, in assessment orders framed under section 143(3) the method of accounting adopted by the appellant had been accepted and a deviation there from militated against the principle of consistency. 5. Without prejudice to the above and in the alternative the Ld.CIT(A) failed to appreciate that, since the appellant was a company where tax rates were virtually constant there is no revenue loss to the department even if the income was taxed in a year different from that in which it was submitted to tax by the appellant, as the entire income was submitted to tax albeit in different assessment years. 3. Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2009-10 on 24.09.2009 declaring total income of ₹ 1,01,56,550/-. The assessee-company is in the business of develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has been dispensed with in cases falling under AS-9, the AO worked out the profit on the project at ₹ 3,59,87,333/- as under : A. Total Revenue to be recognized from entire project ₹ 62,47,20,998/- B. Income to be recognized as on 31.03.2009 (73%) ₹ 45,60,46,329/- C. Cost of the project as on 31.03.2009 ₹ 36,23,59,833/- D. Income to be recognized up to 31.03.2008 (45%) ₹ 28,11,24,449/- E. Cost of the project as on 31.03.2008 (45%) ₹ 22,23,72,500/- F. Sale to be recognized of FY 2008-09 (B-D) ₹ 17,49,21,879/- G. Cost of the project FY 2008-09 (C-E) ₹ 13,89,87,333/- H. Profit from the project 28% (F-G) ₹ 3,59,87,333/- As the appellant had already declared an income of ₹ 1,01,56,547/- from the project, the AO made an addition of ₹ 2,58,30,786/- (₹ 3,59,87,333/- minus ₹ 1,01,56,547/-) to the income shown by the assessee. 4. In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and thereafter, following the appellate order in the case of the assessee for AY 2011-12, dismissed the appeal. 5. Before us, the Ld. counsel for the assessee submits that in the impugned year the appellant had undertaken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognized till the end of the year is 80% of the total value of all agreements executed till date. Thus the difference between the total revenue, so determined and the revenue recognized up to end of the preceding year is incremental revenue and is recognized in the P L account for the year. As far as costs are concerned, from the total expenditure actually incurred till date, the value of work-in-progress (WIP) as on the last day of the year (aggregate of cost pertaining to unsold flats and costs pertaining to incomplete portion of sold flats) is reduced to arrive at the costs, which represent expenditure incurred in respect of completed construction of flats sold and is charged to the P L account for the year under consideration. The difference between revenue recognized for the year and costs incurred is net profit for the year which is offered to tax. Finally it is stated that the AO has not disputed the cost incurred by the appellant at all and the only dispute is about recognition of revenue where the appellant recognizes the same only when agreements with the buyers are executed, whereas the AO desires to have it recognized when advances are received. It is thus argued that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inguishable from the above decision. In the case of Malibu Estates Pvt. Ltd. (supra), the assessee is a developer and recognized the sale of plots on execution of conveyance deed duly registered. The Tribunal held that considering all the aspects, there is no reason to change the method of accounting in the impugned assessment year, which was accepted in the past. In the case of Ankit Chirag Developers Pvt. Ltd. (supra), the assessee was engaged in business of constructing flats and selling same to retail purchasers. Assessee adopted project completion method of accounting for same, which was rejected by the AO and addition was made by applying percentage completion method. The Tribunal held that in the absence of any sale agreement or execution of any sale deed, it cannot be said that AS-9 for revenue recognition was applicable in the appellant s case. In Nagri Mills Co. Ltd (supra), the Hon ble Bombay High Court held:- 3. We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the case of Alcon Developers (supra), the assessee had accounted the accrual of sale proceeds on the basis of registration of sale deed in favour of the intended buyer. The AO in this case noted that the development of the plots has been carried out fully by the assessee as on 31.03.2009 but against this the assessee has received consideration to the extent of 70-90 percent and balance consideration has to be received. The assessee contended before the CIT(A) that it was following the percentage completion method. But the Tribunal noted that the assessee has not recognized revenue on the basis of project completion method. The Tribunal further observed that the development work on the plots has been completed. On the facts of the case, the Tribunal held that registration of the sale deed represents only the transfer of the title in favour of the buyer from the assessee; it has nothing to do with the method of accounting followed by the assessee; under AS-7 this is not a recognized method of recognized revenue; this method is neither project completion method nor percentage completion method and recognizing the revenue when the sale deed has been registered by the assessee in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct ultimate collection of revenue from buyers. 4.3 Where transfer of legal title is a condition precedent to the buyer taking on the significant risks and rewards of ownership and accepting significant completion of the seller's obligation, revenue should not be recognized till such time legal title is validly transferred to the buyer. 7.3 In the instant case as recorded by the AO when a prospective buyer approaches the assessee for booking the flat, allotment letter is issued to the buyer on receipt of the advance money. The appellant filed a written submission dated 26.03.2015 before the AO stating that the degree of work completed and certified by architect till 31.03.2009 is 73% and the assessee-company has recognized the revenue by applying 73% to the value of agreements executed till 31.03.2009. It was further stated before the AO that the revenue in respect of balance advances could not be recognized as passing of risks and rewards by virtue of ownership is an essential condition for revenue recognition as per AS-9, which has not been fulfilled in the instant case, as no agreement is executed and no possession have been given to the buyer. The case laws relied on by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
