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TMI Blog2024 (11) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has erred in not appreciating the fact that the assessee, having executed the sale agreements and having received 100% of the consideration in most of the cases, the condition 'transferring to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership' laid down in AS-9 stood fulfilled in the case and therefore, the assessee was obliged to recognize its income in terms of the said AS-9 issued by ICAI. 3) On the facts and in the circumstances of the case and in law, the Id. CIT(A) was not justified in not appreciating that with the insertion of Section 43CB with retrospective effect from 1.4.2017, profits and gains arising from construction contract and service contracts were to be determined on the basis of percentage completion method only and therefore, assessee was mandatorily obliged disclose its income relating to the real-estate business by following the Percentage Completion Method. 4) The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon'ble Tribunal." 3. Both the learned representatives next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment order enclosed) 6. During the year under appeal, the scrutiny notice received and questionnaire was issued, very short time was given. The main objection raised by AO was regarding the project completion method adopted. Inspite of making submission along with the various judgments, the A.O rejected "Project Completion Method". After this rejection, the AO did not adopt the percentage completion method which is alternate method. However, he applied 20% of amount of the total booking advances received and assessed the Income. Even this method is also not percentage completion method which is one of the two methods available to appellant. He assessed Income on "adhoc basis" as can be observed from the assessment order. 7. During the year 2017-18, the possession of the first flat was given in the month of June 2017. Therefore, the appellant offered Income in the A.Y. 2018-19 from the project. 8. Double Addition - The appellant had already offered Income from the construction project in A.Y 2018-19 and onwards the A.O was aware of the same at the time of assessment proceedings. Inspite of the same, he made estimate of income of Rs. 7,57,32,042/- and this is nothing but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Project completion method. Kindly refer to the notes to accounts para e - Revenue recognition. "Revenue from sale of shops and residential units is recognized when all the significant risk and rewards of ownership have been transferred to the buyer and the company retains no effective control on such units transferred to a degree usually associated to the ownership and cost of such units incurred or to be incurred can be measured reliably i.e. on completion/substantial completion of the project." 6. We hereby reproduce the Expert Advisory Committee notes para 10 and 11 of AS 9 which states as below: "10. Revenue from sales or service transactions should be recognised when the requirements as to performance set out in paragraphs 11 and 12 are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i) the seller of goods has transferred to the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT vs. Tata Iron & Steel Co. Ltd. (106 ITR 363) held that when the method of accounting followed by the assessee company cannot be said to be an unreasonable method, and that in such a case, even if a better method could be visualized, the method consistently followed is to be accepted. 14. In the case of CIT v. Bill Hari Investment Ltd. (299 ITR 1, the Hon'ble Supreme Court has held as follows: In the judgment of the Bombay High Court in Taparia Tools Ltd. (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. 15. In the case of Unique Enterprises v/s ITO - 1TA No.5109/Mum/2008, IT AT Mumbai held that the Accounting Standard (AS) 1 - 'Construction Contract' (revised) issued by the Institute of Chartered Accountants of India (ICAI) is applicable only to contractors and not to builders and real estate developers. Accordingly, the Project Completion Method followed by the taxpayer for recognising revenue in the books of accounts cannot be regarded as an unreasonable. Further, the tax dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session of the flats/shops was transferred only after receiving completion certificate received from the Municipal Corporation. The cost of work carried out by the appellant in F.Y. 2017-18 and 2018-19 are Rs. 15.20 crores and 13.34 crores. From the above, it is clear that the work was not completed in respect of apartments/shops for which entire agreed amount was received. Further, the income under the Income-tax arises after deducting from gross revenue the expenses incurred or likely to be incurred. But in the present case, estimating the income only when the advance is received is incorrect on the part of the AO. The commencement certificates issued from time to time change the area under construction. Thus, the appellant was not certain in respect of the cost to be incurred in the project. The terms and conditions mentioned in the agreement to sale also support the contention of the appellant. Therefore, this contention of the AO is also rejected. 3.8 The appellant has consistently been following the method of recognizing revenue on sale and possession of the premises to the customers after receiving total sale consideration. This method has been regularly followed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds Nos. 1 & 2 are, thus, allowed." This leaves the Revenue aggrieved. 4. Learned CIT-DR's first and foremost argument before us quotes the relevant accounting standard AS-9 to reiterate the Revenue's stand that the Assessing Officer herein had rightly adopted percentage than project completion method to assess the impugned advances in assessee's hands. The assessee on the other hand invites our attention to the above AS-9 (at pages 144 - 156 in the paper book) wherein clause 2(i) makes it clear that "This statement does not deal with the following aspects of revenue recognition to which special condition apply (i) Revenue arising from construction contracts". We thus see no merit in the Revenue's instant first plea seeking to invoke AS-9 in very terms. 5. The Revenue's 2nd substantive ground submits that section 43CB of the Act also gets attracted in assessee's case for the purpose of revenue recognition w.r.e.f. 01.04.2017, attracting percentage completion only. We note that section 43CB itself envisages revenue recognition in light of the "income computation and disclosure standards/ICDS" notified u/s 145(2) of the Act, which in turn, take us to"ICDS-3" containing not only c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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