9911796707
TMI Blog2022 (7) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... ed existed in its case justifying the adoption of even as per the guidance note of the ICAI. This issue too had been duly examined during assessment proceedings and it had duly demonstrated to the PCIT also that the project completion method of revenue recognition followed by the assessee was in compliance with the accounting guidelines issued by the ICAI for Real Estate revised in 2012 in this regard. PCIT has not pointed out any infirmity in the above explanation, but simply dismissed it by stating that the assessee has not followed the Guidelines issued by the ICAI and the AO has not examined the issue, both observations we find are factually incorrect. Therefore vis a vis the issue of accounting for income by the assessee whether in accordance with the Guidelines of the ICAI, we find that there is no error in the order of the AO who had accepted the method followed by the assessee, i.e Project Completion, on being demonstrated that it was in accordance with the Guidelines issued by the ICAI, which fact has not been controverted by the Ld.PCIT when demonstrated to him also during revisionary proceedings. Also the uncontroverted fact that the assessee has been consistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returned income of Rs.23,02,070/- which was assessed u/s 143(3) at Rs.23,25,991/-. 3.1 Subsequently the Ld. PCIT exercised revisionary power u/s. 263 of the Act on finding the assessment order passed being erroneous and causing prejudice to the Revenue on the following grounds: (i) that the assessee despite following the Project Completion Method for accounting of Revenue and having debited interest of Rs. 1,47,08,801/- to the profit and loss account, however the same was not included in the capital work in progress as at the end of the year. And, (ii) on account of the fact that the A.O. failed to verify whether the assessee had followed the Percentage Completion Method for recognizing revenue as prescribed by the guidance note issued by the Institute of Chartered Accountants of India(ICAI) for accounting income from Real Estate business (revised on 2012). 4. The contents of the show cause notice, which was placed before us at paper book page no 27 28, are as under: To, PAN AAFCR2520Q Principal Officer, M/s. Rushabhdev Infra Project Pvt. Ltd. 509, Iscon Elegance, S.G. Highway, Satellite, Ahmedagad-380015 Sir Sub:- Notice u/s. 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sufficient compliance. Yours Faithfully, (Naresh Kumar Balodia) Pr. Commissioner of Income Tax-3, Ahmedabad 5. Before the Ld. PCIT, the assessee contended that both the issues had been duly examined during assessment proceedings by the Assessing Officer (A.O.), who was duly satisfied with the reply of the assessee, which fact he had noted in his assessment order passed u/s. 143(3) also. Attention of the Ld. PCIT was drawn to the queries raised by the A.O. with respect to the said two issues and the reply filed by the assessee. Ld. PCIT however dismissed the contention of the assessee and held that the assessment order having been made without proper verification of the issue pointed out by him, the order was erroneous in terms of explanation 2A 2B of Section 263(1) of the Act. Accordingly he set aside the order passed u/s. 143(3) of the Act by the A.O. directing him to pass afresh assessment order after properly ascertaining the genuineness of the claims and after gathering and making suitable enquiries and verification in this regard. He directed the A.O. to make assessment de novo. The relevant findings of the Ld. PCIT at Para 5 to 7 of the order is as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. This guideline has been issued in February 2012 and is mandatory for all the assessees being the companies to follow. The assessee has not followed the same and the Assessing Officer has not conducted any enquiry into this while completing the assessment. ii) Various decisions have been stated by the assessee including Motilal C Patel - 176 ITR 666 (Guj.), Shivalik Buildwell Pvt Ltd - 2)13 - 40 Taxman.com 219 (Guj), Ashaland Corporation - 133 ITR 55 (Guj), Madhav Prasad Jatia v. CIT - (1979 ) 118 ITR 200, Dalmia Cement (B) Ltd (2002) 254 ITR 377 but they are all for periods prior to 2012 and hence they cannot be applied to the present case since accounting guidelines have been amended and are mandatory. iii) Regarding the deductibility of interest on borrowed funds, the Assessing Officer has not conducted any enquiry whether it is part of project cost or allowable separately as deduction. The assessing Officer should examine the same also. 6. This is a case where assessment has been made without making proper verification of the cost of improvement claimed by the assessee on account of interest payments on borrowed fund. Reliance is also placed on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t completion method of recognizing revenue and, 2) the A.O. having not conducted any enquiry regarding the method of accounting followed by the assessee for recognizing revenue whether in compliance with the Guidance Note issued by the chartered accountants in this regard (revised in 2012). 9. However, the order of the Ld. PCIT reproducing the assessee s submission in this regard on para 4 of the order from page 2 to15 of the order reveals that the assessee had demonstrated to the Ld. PCIT that both the issues had been examined during assessment proceedings to the satisfaction of the A.O and it had been explained to him also that there was no error in the order of the AO on these counts. 10. With respect to the issue of interest debited to profit and loss account amounting to Rs. 1,47,08,801/- whether included or not in the capital work in progress we find that the assessee had submitted that the AO had asked for working of opening and closing stock which had been duly submitted to him and the detail reflected interest included in the valuation of WIP. We find that this fact of interest being included in the WIP was also pointed out to the Ld.PCIT from the audited Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial to the interest of revenue. Above issue seems to have arisen without considering this facts on records. The averment on your part that assessment order passed by AO is erroneous as far as debit of interest of Rs.1,47,80,8017/- in Profit and Loss Account is concerned is far from the fact and not justified and based on non-consideration of facts, same may kindly be dropped. 4.3 We would further like to state that the method of evaluating closing work in progress have been consistently followed by us year on year as evident from Audited Annual Accounts and they are admitted by A.O. We followed consistent practice of debiting interest in profit and loss account and including the same in valuation of closing work in progress. This method is rightly followed and there is no deviation. Kindly treat debit of interest to profit and loss account and its inclusion in valuation of closing work in progress as correct and there is no error committed by A.O. whilling concluding assessment. 4.4 AO during assessment proceeding issued notice u/s 142(1) dated (36/02/2017 and ide Point No 12 of notice called working of closing and opening stock same has been provided at the time of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the A.O. cannot said to be erroneous and prejudicial to the interest of the revenue. 12. As is evident, the assessee had furnished details of stock/WIP to the AO during assessment proceedings which clearly reflected interest included in the same. Even the Ld.PCIT was pointed out from the audited financial statements of the assessee that the stock/WIP was valued inclusive of interest debited to the Profit and Loss account. Therefore the assessee had clearly demonstrated both to the AO and even the Ld.PCIT that the valuation of closing stock of WIP was in accordance with the method of accounting followed by it, i.e. Project Completion method and that all costs relating to incomplete projects as at the end of the year, including interest cost, was included in the valuation of WIP. No infirmity has been pointed out by the Ld.PCIT in the explanation of the assessee. With the interest debited to the Profit and Loss account being duly demonstrated both to the AO and the Ld.PCIT to be included in the cost of WIP, there surely could not have been any error in the order of the AO on account of non inclusion of the said interest in WIP or for that matter non examination of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and perusal, which is in record with AO and has already been considered by him while concluding assessment. 5.1 We have been consistently following the method of revenue recognition based on significant transfer of risk and reward. Accordingly, the point of time at which all significant risks and rewards of ownership can be considered as transferred on execution of Sale Deed. This method has been followed consistently year on year. The risk and reward get transferred to purchaser form seller on execution of Sole Deed in case of immovable property. This fact was brought to the notice of Assessing Officer during assessment proceeding and explained in depth. AO, after due consideration of explanation and factual aspect on record, hove accepted that Sales is recognized on execution of Sale Deed as shown in Profit and Loss Account is correct. 5.2 The risk and reward do not get transferred to purchaser on execution of any agreement including Agreement to sell. It can only be transferred only on execution of Sale Deed. The Agreement to sell is a document executed whereby seller of the property agrees to transfer property upon compliance/fulfillment to certain terms and conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... you ire engaged in the construction work and received the sale consideration of flats/houses constructed and sales effected during the year under consideration, You are, therefore, specifically requested to as to what the precise method of accounting, i.e. accounting standards applicable in your case i.e. percentage completion method (based on % of work completed on yearly bases by projecting the total revenue of the project right from the purchase of land till the completion of project. In reply to the above query we have made detailed submission before AO as under; 1. In this regard the necessary details and explanation has been already furnished at para (a) of our submission dated 30.01.2017 and further we submit as under, The Guidance Note on Accounting for Real Estate Transactions (revised 2012) issued by ICAI provides guidance in the application of: Principles of Accounting Standard (AS) 9 in respect of sale of goods for recognizing revenue, costs and profits from transactions of real estate which are in substance similar to delivery of goods where the revenues, costs and profits are recognized when the revenue recognition process is completed; and Percentage co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts attributable to the project cannot be clearly identified and measured reliably so that actual project costs incurred can be compared with prior estimated. Under such circumstances the Company has adopted the principles of Accounting Standard (AS) 9 for revenue recognition as per the guidance note issued by the Institute of Chartered Accountants of India (ICAI) . 5.5 AO, during assessment proceeding considered this issue in depth and after having satisfied with method adopted for revenue recognition is correctly followed, concluded the assessment He discussed his issue on Page No. 2, Para 2 last 6 line whereby he concluded that revenue is correct recognized in line with AS- 9. He admitted that revenue is correctly recognized in view of transfer of risk and rewards which on the point of execution of Sale Deed. These facts can be verified form copy of submission, copy of notice and copy of assessment order submitted with this submission, It is unfair to say that AO inter alia failed to verify whether percentage completion method as per Guidance Note on accounting for Real Estate Business (Revised) 2012 has been followed for revenue recognition as stated in above notice. Thus ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
