9911796707
TMI Blog2020 (5) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... vities of real estate which have same economic substance as construction contracts. Though, it is clear that only when the economic substance in real estate development and construction contract has to be same. Project NOP does not have same economic substance as construction contract. The difference in revenue generating pattern. NOP project already completed but certain portion of development remain unsold. It shows that revenue model is not same i.e. in construction contract, the whole revenue is already determined and only construction has to be completed. Revenue can be recognized significantly based on principle of AS-9 (Accounting Standard as per ICAI). Where the sale of goods for recognizing revenue, cost and profits from transactions which are in substance similar to delivery of goods. Principle of AS-9 alone can be applied as far as revenue recognition is concern. We notice that percentage of margin recognized by assessee upto 31.03.12 at 13.94% and the revised estimate indicate that it is at 25.97% of the whole project. Short recognition of profit of past sales. As per prudent method of accounting, the revised estimate cost to be recognized immediately and as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, Ld. CIT(A) deleted the addition made for this AY 2013-14. Ld. CIT(A) observed that assessee was following percentage completion method of accounting for computing its profit from the project. He noted that the profit from the project called NOP was not determined using the percentage completion method by the assessee. Accordingly, Ld. CIT(A) issued enhancement notice and asked for the clarification from the assessee. In order to enhance the profit from the project NOP at ₹ 2,60,77,525/- for the current assessment year, a notice was issued in this regard. In reply, assessee filed following submissions before him:- In this regard, under instructions from our client, we object to the proposed enhancement in the following grounds: You have furnished the working that forms the basis of arriving at the income of ₹ 2,58,43,592/- by which you propose to enhance the income. We respectfully submit that the method improperly rests on an assumption that 25.97% was the margin on sales even in the years prior to F.Y.2012-13, which is incorrect. For example, in your working, you work out the absolute profit of the project at ₹ 8,41,32,873/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,14,643 Profit expected from Soles of 12,20,51,357 @ 45% 5,50,14,643 Thus, It may be noted that the maximum profit that can be attributed to previous year relevant to A. Y.2013-14 is ₹ 33,76,100 which is worked out without considering the expenses. Though the NOP project was completed before the relevant previous year, it was not the case where no expenses were incurred after the construction of the NOP project was completed. Thus, the actual profit from NOP project is lower than Ks. 33,76,100/-. A statement showing expenses incurred in F.Y.2012-13, and the net profit is worked out as under: Sales As per formula As per Books Less: Cost of Sales 1,30,00,000 1,26,04,476 96,23,900 43,10,000 33,76,100 82,94,476 Less: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example above, the profit was Rs, 3 lakhs though there was no sale during the second year. Therefore, the appellant's contention that the profit for the year cannot exceed the sale during the year is not correct. The profit may exceed the sale value in some years where the profit for the earlier years are understated due to a conservative estimate of the profit of the project. 7.4.4 In his reply to the notice proposing enhancement, the appellant contended that expenses incurred in respect of the NOP' project was not accounted for. This claim is not correct. It can be seen from para 7.2.4 above that cost incurred during the year of ₹ 80,34,214/- {as per appellant's own claim} was taken into account while arriving at the projected cost and, in turn, in arriving at the profit for the year. Therefore, the claim of the appellant is rejected. 7.4.5 Accordingly, the income of the appellant is enhanced by ₹ 2,58,43,592/- as proposed. 6. Aggrieved with the above order, assessee is in appeal before us raising the following grounds of appeal:- 1.1 Uncalled for Enhancement of Income The learned CIT(A) erred on facts and in law in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FIT AFTER THE ESTIMATE WAS REVISED Sales up to 31 March 2012 18,88,63,756 Less: Cost of Sales 16,25,37,264 Profit up to 31 March 2012 2,63,26,492 Project Profit (Revised) (As per the appellate order) 8,41,32,873 Less: Profit booked till 31 March 2012 2,63,26,492 Profit to be booked from sale of inventory 5,78,06,381 Sq ft to be sold after 1 April 2012 Total sq ft 56,727 minus already sold 46006 till 31 March 2012 =10721 sq ft Per sq ft profit=57806381/10721 5,391.88 Profit for FY 2012-13 Sale of Sq f 1032 Profit of Rs. 5,391.88 Total profit 1032 x 5391.88 = 55,64,424 9. On the other hand, Ld. DR relied on the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost to be recognized immediately and as far as income is concerned, the construction is already completed and still 9689 Sq. ft pending for sale. The economic situation might change when the actual sales of stock in trade i.e. pending area of sale. The prudent method would be to recognize the profit based on the unsold stock and balance profit to be recognized based on actual sales. In the given case, unsold stock as of 31.03.12 is 10721 Sq. Ft and balance profit is ₹ 5,78,06,381/-. The balance profit can be absorbed based on sales of the balance unsold area of 10721 Sq. Ft. The assessee sold 1032 Sq. Ft. in this assessment year, hence proportionate of profit alone should be charged to tax and balance can only be charged to tax as per actual sales in the subsequent assessment years. 11. After careful consideration of the revised calculation submitted by the assessee, we are in agreement with the proposed absorption of the profit during this year based on the revised estimation of profit of ₹ 5,391.88 per Sq. ft. Accordingly, we direct the AO to estimate the profit of the assessee to the extent of sales achieved by the assessee during this year i.e. 1032 Sq. ft. a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
