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TMI Blog2022 (2) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... ion based on the gross sales effected by the TATA Housing Development Company Ltd., and not based on the stage of project completion - gross revenue and the related cost for the project will depend upon the receipt of gross consideration from the TATA Housing Development Company Ltd., not depends upon stage of completion of the project - merely because assessee has received a certificate of statement from the TATA Housing Development Company Ltd. that the project completed is less than 25% it does not mean that assessee has to modify the method of accounting or the revenue from the project. The joint development agreement remains same and the compensation to the assessee remains same, the assessee has received 24% of the gross sales effected by TATA Housing Development Company Ltd. Therefore, the change of method proposed by the assessee in order to revise the return of income is not as per the fact brought on record. As stated earlier the Accounting standards and guidance notes are applied to present the financial statement reliably and for consistency. Certainly not for filing return of income. In the given case assessee is an LLP and no doubt accounting standard and guidance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued and served on the assessee. In response Ld. AR of the assessee attended and filed the relevant information as called for. The assessee is a developer and has undertaken project of developing the property jointly with TATA Housing Development Company Ltd and a joint development agreement in this regard was entered into by both the parties on 11.11.2010. The income is mainly derived from the income from business and profession. During assessment proceedings Assessing Officer observed from the original return of income that the assessee declared income of ₹.1,70,65,640/- and in the revised return of income, the same was reduced to Nil. The assessee filed letter dated 15.11.2016 with the reasons for revisions of the return of income. Assessing Officer after going through the submissions observed that assessee declared the income from the joint development project and the same was further revised to Nil income. When the assessee was asked to submit why revised return of income has to be considered and what basis computation of revised return of income was made and also asked to justify their claim to accept the revised return of income in the light of AS-9 and AS-7. In respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the question of project completion as well as construction contract. 5. During the assessment proceedings, Assessing Officer observed that how AS-9 and AS-7 can be the basis of revised return of income filed, which unbelievable and without any basis. If the assessee claims that it followed AS-9 AS-7 and consistently following the same method for recognition of revenue, the same cannot changed as per provisions of the Act. Further Assessing Officer observed from the joint development agreement the following points: - a. As is specifically mentioned in the agreement between TATA and the assessee it has been decided that expenses in respect of residential House Units, proportionate to the assessee will be borne by the assessee and proportionate to TATA Housings will be borne by TATA Housing but only to the extent of ₹ 800/- per sq.ft. It is also mentioned in the agreement that in case the construction cost of RHU Units of TATA Housing exceeds ₹ 800/- sq.ft. TATA Housing will deduct the excess cost from the 24% share which TATA Housing will give to the assessee. The same has been followed by the assessee in the original return of income. b. It is crystal cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexed as Annexure C . Hence we withdraw our appeal on this particular matter. being Ground No. 2 of the grounds of appeal filed with your good self. 3. In continuation of our written submissions dated 18 January 2019 filed at your office on 21 January 2019, appellant would like to further submit the following. This is without prejudice to our earlier submissions in this matter. As per guidelines of the ICAI appellant submits that no revenue should be recognized in the financial statements in accordance to the Guidance Note on Real Estate Transaction issued by ICAI dated 11 February 2012 read with Accounting Standard - 7 are Accounting Standard - 9, if cost incurred is less than 25% of the total projected cost. 3.1. Guidelines laid down by the ICAI for recognizing revenue from a construction project following percentage completion method, reads as under: Further to the conditions in paragraph 5.2 there is a rebuttable presumption that the outcome of a real estate project can be estimated reliably and that revenue should be recognized under the percentage completion method only when the events in (a) to (d)below are completed. (a) All critical approvals necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue should not be recognised in a project unless as mentioned at para (b), the stage of completion of project @ 25% is achieved. In other words, unless 25% of the construction development costs are incurred, the project revenue cannot be reliably estimated. However, we continue our practice of offering revenue to tax, although we have not completed the project upto 25% during the said year. In this connection appellant has placed reliance upon the following decisions: - The Hon'ble ITAT Cuttack Bench in the case of DCIT Circle 5(1), Bhubaneswar V. M/s. Sri Jagannath Properties developers ITA.No. 283/CTK/2017. The Hon'ble ITAT Mumbai Bench in the case of Bhoomi construction Projects V. ACIT, Central circle 2 in ita 1267 The ITAT Mumbai bench in the case of DDIT (International taxation), 2(1) v. Stork Engineers Contractors [127 ITD 211] 7. After considering the detailed submissions of the assessee, Ld.CIT(A) allowed the appeal filed by the assessee with the following observations: - 4.2 On an analysis of the facts of the case and the submission of the appellant, it appears that subsequent to the original return of income filed, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised return of income. Once the revision of return of income is as per law and the subject matter of revision is in accordance with proper guidelines or law, I find merit in the contention of the AR of the assessee that the revised return ought to have been considered. In view of the above observations, the AO is directed to consider the revised return of income filed by the assessee and compute the income as per the aforesaid discussion. Accordingly, the Ground of appeal no. 1 to 5 is Allowed. 8. Aggrieved revenue is in appeal before us raising following grounds in its appeal: - 1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in not appreciating the complete fact that the assessee received final receipt of ₹ 18.89 Cr from its partner against which the assessee depicted that the percentage of work completed was less than 25% and thus no income is recognized? . 2. Whether the facts and circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that the assessee could not produce the supportive evidences for working of revised receipts to ₹ 5.30 cr.? 3. Whether on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Page No. 23 of the Paper Book). Accordingly, based on the audited financial statement of Financial Year 2014-15 the profit was reworked in accordance with GN-2012 and revised the return and filed within prescribed time on 24.09.2015 declaring loss of ₹.2,87,19,393/-. She further submitted that basis of profit working in the original and revised returns with supporting statements were submitted before the Assessing Officer which is placed in Page No. 63 to 66. She brought to our notice Para No. 4.7 of the Assessment Order and Para No. 4.2 of the appellate order and submitted that Assessing Officer has rejected the revised return of income after considering the detailed submissions and justification for revising the return of income. However, Ld.CIT(A) observed that validity of the revised return was not questioned before the Assessing Officer and since the subject matter of revision is in accordance with law Assessing Officer ought to have considered the revised return. She submitted that the Guidance Notes issued by ICAI can be relied upon and the fair and real income which is liable to tax under the Act can be arrived at after applying the Guidance Note, for that purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting standards that had been laid down under the law. If assessee has followed AS-7 and AS-9 consistently the same method, for reorganization of revenue, the same cannot be changed. Assessee rebutted before the Assessing Officer by submitting that assessee has adopted a good and recommended policy for offering revenue for the projects exceeding duration of 12 months and assessee has followed subsequently this method of accounting for declaring the revenue and accordingly followed consistently in subsequent Assessment Years. 14. We have considered the submissions of both the counsels and we observe that the assessee has declared its significant accounting policies in the notes forming part of accounts which for the sake of convenience we are reproducing here: - 5. All expenditures incurred by the LLP (Land and land development cost, administrative cost, selling and distribution cost and finance cost us debited to Work In Progress account. The LLP has entered into an agreement with Tata Housing Development Company Limited in which Tata Housing Development Company Limited will develop the land into housing project at their own cost and the LLP would bring in the a portion of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the status of the project it has to first modify the balance sheet and declare the impact. But in this case assessee preferred only to file revised return of income. In our considered view assessee and the TATA Housing Development Company Ltd. jointly developed the project and as per the joint development agreement assessee has brought proportionate land for the project and as per the joint development agreement assessee would receive the sale consideration based on the gross sales effected by the TATA Housing Development Company Ltd., and not based on the stage of project completion. Therefore, the gross revenue and the related cost for the project will depend upon the receipt of gross consideration from the TATA Housing Development Company Ltd., not depends upon stage of completion of the project. Therefore, merely because assessee has received a certificate of statement from the TATA Housing Development Company Ltd. that the project completed is less than 25% it does not mean that assessee has to modify the method of accounting or the revenue from the project. The joint development agreement remains same and the compensation to the assessee remains same, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee but only filed the revised return of income. It is immaterial whether assessee followed the revised method of account in the subsequent assessment year, what is relevant is whether the assessee has followed the proper method of accounting to declare the revenue for this assessment year. In this assessment year assessee has revised return of income just because JV partner has certified that the project completed is less than 25% but it has to follow the revenue sharing method prescribed in the joint development agreement based upon which the financial statement was finalized/prepared. As discussed above the consideration received by the assessee is not based on the stage of completion of the project. It is only depends upon the gross sales effected by the TATA Housing Development Company Ltd. Therefore, we are in agreement with the findings of the Assessing Officer and we sustain the addition proposed by the Assessing Officer. Accordingly, the appeal filed by the Revenue is allowed. 18. In the result, appeal filed by the Revenue is allowed. Order pronounced on 07.02.2022 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board. - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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