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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 ..... e 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. Section 43CB 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 clause 9 that contract revenue shall be recognized when there is reasonable certainty of its ultimate collection but also clause 22.2 in the nature of Transitional Provisions making it explicitly clear that only the regular method followed ought to be adopted for revenue recognition relating to construction contracts commenced on or before 31.03.2016 and not completed upto this clinching date, as the case may be. Learned counsel at this stage highlights the point that the assessee s impugned residential project admittedly commenced prior to the said cut of date and had not attained completion upto 31.03.2016. This being the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e our attention to the CIT(A) s lower appellate discussion reversing assessment findings assessing assessee s advances of Rs. 7,57,32,042/- received from the customers, as it s taxable income of the relevant previous year, as under :- 3.2 I have gone through the facts of the case, the Assessment Order, the legal and factual submission made by the Appellant during assessment as well as appellate proceedings are the grounds of appeal are decided as under. Vide these grounds of appeal the appellant has pleaded that the AO has erred in making addition of Rs. 7,57,32,042/- to the total income and in observing that the appellant has deliberately postponed the sales of flats even after receiving 100 percent of the total consideration. The appellant has further submitted that the AO has failed to appreciate the revenue recognition policy of the appellant and the submission that the impugned sales are taxable in FY 2017-18 (A.Y.2018- 19). The appellant has submitted that the AO has not appreciated the fact that in the year under consideration all the details to determine the area to be sold. cost to be incurred etc. were not available before the end of the year. The appellant has further ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant offered total Income of Rs. 15.93 Crore from the project in A.Y.2018-19. 9. The various judicial judgements given in our detailed submission support the case of the appellant. There, the main summary of all the judgements is that once particular method is adapted and constantly followed in all the years, the same cannot be rejected. Prayer The appellant has consistently followed Project Completion Method for the project which is option available as per Law and accordingly offered the profit of the project in A.Y. 2018-19 when the project completed. The appellant prays that the assessment made be cancelled as income estimated by the A.O. is already offered to tax in A.Y. 2018-19 and which has been assessed u/s 143(3) of the I.T. Act by his successors. There is no loss to the revenue when your honour cancel the order of the A.O. 3.4 In continuation of the submission the appellant filed further submission on 23.01.2024, the same is reproduced below. 1. The assessee was running printing press at Pune and due to residential and commercial establishment coming around, the appellant removed printing press and decided to convert and construct residential CUM commercial complex. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (it) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. The Expert Advisory Committee is of the view that revenue should be recognized by the company in respect of its housing projects only when the conditions in respect of sale of goods as aforesaid are satisfied. ACCOUTING PRACTICE AND COMPUTATION OF INCOME CONSIDERED BY THE INCOME TAX OFFICERS IN SCRUTINY ASSESSMENTS. 7. The company in the AY 2016-17 has followed the project completion method and Assessment was completed without any variance vide order dated 23.12.2018. Similarly for AY 2018-19 the assessment was completed on 23.04.2021 without any variation. In both the above cases, the methodology adopted by the assessee company is accepted and no variation was made. 8. However in scrutiny assessment for AY 2017-18, the Assessing officer disturbed the methodology and estimated 20% of advances received as income without any basis. 9. We would like to draw your attention that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while passing the above order has relied on the various judgements of High Court and Supreme Court [Copy attached]. Prayer: - In view of the above, kindly delete the addition made by the A.O. on merits and also to save from the double taxation levied by the A.O. 3.5 I have carefully considered the facts of the case and rival contentions. On perusal of the same it has been noticed. that the AO has made this addition by estimating gross profit on the proposed sale of flats/shops in respect of which, revenue has been recognized by the assessee on possession of the flats/shops to the customers after completion of construction when flats/shops become ready for occupation and total consideration is received from the customers. The AO has treated the appellant, who is a builder, as contractor and held that the percentage of completion method should have been applied to the case of the appellant. This contention of the AO for applying percentage completion method is not found to be proper. 3.6 The AO has held that provisions of IND-AS- 9 are applicable to the case of the appellant. However, on perusal of the copy of the said Accounting Standard, it is evident that Revenue in the case of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognizing revenue which is regularly followed by the assessee and accepted by the department in earlier years cannot be rejected unless, it does not show true and fair profits. Further, the method of recognizing revenue regularly followed by the appellant is an acceptable method, which has been recognized by the Income-tax department and the same is also accepted as an acceptable method of accounting by various courts. The above proposition of law is supported by following decisions relied upon by the appellant. i) CIT Vs. Bilahari Investment(P) Ltd. Dated 27.02.2008(SC) ii) CIT V.s Tata Iron and Steel Co. Ltd. [1977] 106 ITR 363(Bom) iii) Shapoorji Pallonji and Co. (Rajkot) P. Ltd. V ITO [1994] 49 ITD 479(Bom) 3.9 The appellant has also pointed out that if the stand of the AO is accepted, it will lead to double taxation as the income is offered in subsequent years. Therefore, there is no loss to the Revenue. The contention of the appellant of the non-applicability of percentage of project completion method is supported by following decisions. i) CIT v. Advance Construction Co. P Ltd. [2005] 275 ITR 30 (Guj) ii) CIT v. Triveni Engineering and Industries Ltd. [2011] 336 ITR 374 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Transitional Provisions making it explicitly clear that only the regular method followed ought to be adopted for revenue recognition relating to construction contracts commenced on or before 31.03.2016 and not completed upto this clinching date, as the case may be. 6. Learned counsel at this stage highlights the point that the assessee s impugned residential project admittedly commenced prior to the said cut of date and had not attained completion upto 31.03.2016. This being the assessee s clinching case, we hold that neither AS-9 nor section 43CB r.w.s. 145(2) r.w. ICDS-3, apply and therefore the CIT(A) s impugned findings deleting the impugned addition stand upheld. 7. The assessee s remaining arguments inter alia quoting lack of reasonable certainty of the impugned advances for the purpose of revenue recognition as per Chainrup Sampatram vs/ CIT (1953) 24 ITR 481 (SC) and that it s projects stood completed much later and the department has itself accepted the very book results in preceding and succeeding assessment years and the corresponding sale deed getting executed thereof, stand rendered academic once we have rejected the Revenue s twin arguments in principle. 8. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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