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TMI Blog2022 (6) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... e Note issued by the ICAI contains a clause (5) which speaks about application of PCM in the accounting of real estate transactions or activities as per it cost of construction and also saleable project area needs to be taken into account while recognizing revenue under the PCM. In the present case, we notice that the condition mentioned in clause (c) of para 5.3 of the ICAI Guidance Note is not satisfied since the saleable area for the year under consideration as a percentage tot the total saleable area (104685 / 526645 sq.ft.) is much less than 25%. The cost of land and the estimated project cost have to be looked into, based on the facts and the documentary evidence. We, therefore, remit the issue back to the Assessing Officer with a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adjustment was determined by the TPO u/s. 92CA of the Income-tax Act, 1961 [the Act]. 5. The AO called for various details with regard to the project LAPAPLAZZO . On a perusal of the submissions of the assessee, the AO noticed that the assessee hast not adopted PCM for recognition of revenue as per AS-9. Directions u/s. 144 on this issue was provided to the assessee and as per directions received from Addl.CIT, Range 4(1), assessment was concluded by the with the following observations:- 6.1 Revenue recognition as per percentage completion method as per AS-9:- The assessee has filed his submission vide his letter dtd: 10.12.2018 before the Addl. CIT Range-4(1), Bangalore. The assessee has submitted the calculation of revenue recognition f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,259 04 Cost incurred( excluding land cost) till end of the reporting period Rs. 42,75,20,083 05 Cost of the land Rs. 58,47,01,271 06 Total area sold till the date of reporting period =104,685 sft. 07 Total sale consideration as per agreement of sale Rs. 54,00,09,975 08 Amount realized till the end of reporting period Rs. 37,65,68,120 09 Percentage of completion of work till the end of reporting period Rs. 42,75,20,083 / Rs.120,61,19,259= 35.44%. 6.4 Since, the level of construction is more than 25% of the construction cost and more than 10% of the agreement value has been realized. Hence, revenue will be recognizable from the above project during this period, as per AS-9. Sl. No. Description Amount 10 Percentage of completion of work inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant provisions contained in the Guidance Note issued by the ICAI whereby certain conditions are specified for recognition of revenue under PCM. It was the contention of the ld. AR that the conditions set out are cumulative in nature and have to be satisfied cumulatively. Even if one of the conditions is not satisfied, then the revenue will not be recognized in that year. Even assuming that the cost incurred is more than 25% during the year satisfying the condition in clause (b) of the Guidance Note, the condition mentioned in clause (c) is not satisfied whereby total area sold as a percentage of total saleable area is less than 25%. He therefore prayed that the addition made by the AO is to be deleted. 8. The ld. DR relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable 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 realised in case of 8 agreements, revenue can be recognised with respect to these 8 agreements. 10. It is clear from the above clause that the cost of construction and also saleable project area needs to be taken into account while recognizing revenue under the PCM. In the present case, we notice that the condition mentioned in clause (c) of para 5.3 of the ICAI Guidance Note is not satisfied since the saleable area for the year under consideration as a percentage tot the total saleable area (104685 / 526645 sq.ft.) is much less than 25%. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 Sale Deed 22375/2004-05 dated 07.12.2004 Purchase cost 88,59,375 Add: Registration charges and stamp 8,90,220 97,49,595 Total cost of land 1,08,54,285 11. Alternatively, the ld. AR submitted that in the estimated project cost of Rs.179,02,24,904, the AO has considered only the purchase cost of the land and if the percentage needs to be calculated, the estimated project cost has to be increased by the revalued cost of land and the AO cannot take the revalued value only for the limited purpose of cost of land. 12. We find force in the argument of the ld. AR and are of the considered view that the cost of land and the estimated project cost have to be looked into, based on the facts and the documentary evidence. We, therefore, remit the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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