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TMI Blog2024 (11) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. Commissioner is sustained. In the instant case, the admittedly Assessee out of 228 flats, has entered into agreements to sell of 24 flats only, which is admittedly 10.5 % only. The Assessee has also been able to demonstrate that though the project of Assessee consists of 23 storey residential building which is saleable, however, during the assessment year under consideration it has completed 1st slab only and thereafter the project was/is on hold owing to certain legal impediments and financial difficulties, as appears from the letter of the bank (supra) whereby the Bank has declared the loan availed by the Assessee as NPA and therefore the Assessee during the assessment year under consideration, has completed 10% of the project/saleable building only and few clients have made agreements to sell but not the sale deeds and therefore, the parameters/conditions as prescribed for application of percentage completion method though not admitted but even otherwise has not being achieved. On the aforesaid analyzations, we are of the considered view that even otherwise for the sake of argument though submitted but not admitted by the Assessee, still the Assessee has not achieved the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed, as it appears from the definition and therefore in compliance to the terms of GST Act, the Assessee has shown the amount received or receivable and paid the relevant taxes as per CGST Act accordingly. Whereas for the income tax purposes, as the Assessee has been consistently following the project completion method and therefore treated the consideration received on account of flats sold, as advances as current liabilities, but not as sales/turnover. Hence, in our considered view, the difference between the turnover shown in GST Return and ITR has been properly reconciled by the Assessee before the authorities below, as well as before us and therefore addition made by the AO on this aspect, at all is not sustainable and therefore has rightly been deleted by the ld. Commissioner. Consequently, on the analyzations made above, the decision of the Ld. Commissioner in deleting the addition under consideration is sustained and the appea filed by the Revenue Department is dismissed. Disallowance of architect and professional fee - Assessee has not furnished copies of bills/vouchers of payment and ledger accounts of the parties, details of the genuineness of the transactions as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51/M/2023, whereas the Assessee has preferred ITA no. 4205/M/2023 and CO no. 42/M/2024, being aggrieved against the same impugned order dated 31.08.2023 passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short the Act ) for the Assessment Year (in short AY ) 2018-19. 2. For the sake of brevity, first we are inclined to decide the Revenue s Appeal i.e. ITA No.3751/M/2023. Relevant facts in brief are that the Assessee, is a partnership firm being engaged in the business of real estate since 2004 and during the AY under consideration had declared its income at a loss of Rs. 16,15,58,455/- by filing its return of income on 31.10.2018, which was selected for scrutiny under CASS for certain issues vis-a-vis: (1) Verification of genuineness of expenses (2) Income from real estate business (3) Default in TDS and disallowance for such default (4) Investments/advances/loans (5) Sales turnover/receipts (6) Business expenses 2.1 Therefore, statutory notices were issued to the Assessee, in response to which the Assessee uploaded its replies with supporting documents, on cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs as Advance against sales in current liabilities. Though the advance received from the prospective buyers has been taken as current liabilities, the same is not repayable to the respective creditors and it is shown as Advance Receipt. As per Sales as per GST Laws any amount received or receivable as per construction schedule will be liable to GST Tax. The Sales comparison of Sales as per ITR with GSTR Return is not tenable. Therefore, We request you not to make any addition relating to undisclosed income/sales and is added to the total income of the assessee and not to initiate penalty proceedings u/s270A of the Income Tax Act, 1961. 3. The AO though considered the aforesaid reply of the Assessee but found the same as not acceptable and ultimately made the addition of Rs. 35,25,19,560/- being difference between sales as per ITR and GST returns by holding as under: 3.2 The reply of the assessee has been considered. The assessee has furnished information of sale of properties in annexure K of reply dated 06/03/2021. As per this annexure, details of properties sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed for transfer of properties and registered with the Sub Registrar, Borivali., therefore, the properties stand transferred and sale of properties amounting to Rs. 39,01,93,560/- stand finalized. Accordingly, the difference of Rs. 35,25,19,560/- in sales as per as per ITR sales as per GST return was treated as undisclosed sales of the assessee and is added to the total income of the assessee. 6.3. The appellant vide submission dated April, 12, 2021 explained that during the year, there were sales agreements registered with the Sub Registrar, Borivali 5. The construction activity was carried out in this year and completed 1st Slab of said building. The said project is 23 Storeyed Residential Building. Few Clients had made the sales agreement and the same is wrongly considered as sales by the NeAC but the said project is still under construction. Only around 10 percent of the project is completed by the assessee. 6.4. Further, in GST Returns, the assessee shown the turnover towards advances received from the buyers as sales. The assessee has adopted project completion method, hence the assessee has shown amount invested in the project as work in progress and advances received o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference/mismatch in the sales/turnover as per the ITR and GST returns and therefore the AO has correctly made the addition. The difference between ITR GST returns is more than 40%, which needs to be verified. Further, the Assessee has also paid brokerage expenses on account of sales, which strengthen the case of the Revenue. Further, may be the Assessee is following the project completion method, however, the Assessee has incurred more than 25% of the project cost and therefore the benefit of project completion method cannot be given to the Assessee. As per the project details submitted by the assessee before the A.O, the estimated project cost was Rs 227 crores and as per its P L account for the year, its work in progress stood at Rs 87,87,68,238/-. Thus, based on the Assessee s own financials, it had completed 38.71% of its project. Therefore, the Ld. Commissioner has erred in concluding that only 10% of the project was completed. 5.1 The Ld. DR further submitted that sales of certain units of the project were finalized, as in the Assessee s own submission it had submitted that the receipts against such sales were not repayable to the customers. Hence, the Assessee ought to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the Assessee is following project completion method consistently and therefore in view of the various judgments passed by the Hon ble Higher Courts including by Jurisdictional High Court in the case of Commissioner of Income Tax vs. Aditya Builders 378 ITR 65 (Bombay), it is not open to the Revenue to reject the method followed by the Assessee consistently. 6.1 The Ld. Sr. Counsel further submitted that even assuming a percentage completion method is to be applied, even then also the Assessee does not reach the minimum threshold for revenue recognition as per INDAS-11 read with Guidance note on accounting for real estate transactions, which prescribes that at least 25% of the saleable project area is secured by contracts or agreements with buyers and at least 10% of the contract consideration as per the agreements of sale or any other legal enforceable documents, are realized at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms, as defined in the payment contracts. 6.2 The Ld. Counsel further submitted the Assessee was/is supposed to construct total three wings i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prospective buyers have been taken as current liability, however, the same were not repayable to the respective creditors and therefore the advances received were shown as advance receipt. 6.5 Further, the figure of Rs. 35,25,19,560/- is the difference between the total Agreement value and ITR turnover, whereas total value of the agreements during the assessment year under consideration was Rs. 39,01,93,560/-. ITR turnover is on account of the sale of TDR i.e. Rs. 3,76,74,000/- as per the audited financials and therefore the difference between the total agreement value and ITR turnover and shown in the GST returns, are not comparable, as the Assessee has not recognized any revenue from the sale of flats. 6.6 The Ld. Sr. Counsel further, by producing the sample agreements to sell, submitted that the Assessee with various buyers has executed agreements to sell but not the sale deeds and as per the agreements to sell, though the entire consideration has been fixed, however, most of the respective buyers were/are supposed to pay the consideration fixed, in installments and therefore consideration fixed cannot be considered, as sales in its P L account. 7. We have heard the parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress and advances received on account of Flat Booking from the prospective buyers as Advance against sales in current liabilities. Though the advance received from the prospective buyers has been taken as current liabilities, the same is not repayable to the respective creditors and it is shown as Advance Receipt. As per Sales as per GST Laws any amount received or receivable as per construction schedule will be liable to GST Tax. The Sales comparison of Sales as per ITR with GSTR Return is not tenable. Therefore, we request you not to make any addition relating to undisclosed income/sales . 7.4 The AO though considered the reply of the Assessee, however, found the same as not acceptable, and ultimately made the addition of Rs. 35,25,19,560/- and added the same in the income of the Assessee, by holding as under: That as per Annexure-A of reply dated 06.03.2021, the details of property sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and registered with the Sub Registrar, Borivali. Thus, the properties stand transferred and sale of properties amounting to Rs. 39,01,93,560/- stands finalized. Further, the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the sales after completion of the project but not earlier. Accordingly, the Assessee has shown the amount invested in the project as work in progress and advances received on account of booking of flats from the prospective buyers, as advance against sales in current liabilities . As the Assessee has consistently been following the project completion method, hence such method as approved by the Ld. Commissioner may be upheld. 7.6 On the contrary, the Ld. D.R. has raised the issue, as the Assessee has estimated the project cost at Rs. 227 crores, however, as per its P L Account for the year, its work in progress stood at Rs. 87,87,68,238/- thus based on the Assessee s own financials, it has completed 38.7% of the project. Therefore, the contention of the Assessee and the conclusion drawn by the Ld. CIT(A) that only 10% of the project has been completed is devoid of merits. Further, the Ld. D.R. also raised the issue that reading of INDAS-11 by the Ld. Commissioner is also erroneous, as nowhere the said accounting standard laid down that Revenue ought to be recognized in construction contracts only, when a stage of 25% is completed. Further, the said AS laid down that stage of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to objective assessment of the result of the contract. 8.2 The Hon ble Kolkata High Court in the case of Principal Commissioner of Income Tax vs. Salarpuria Simplex Dwelling LLP. (Cal) (2003) 455 ITR 712 has also considered the method of accounting i.e. completion method as followed by the Assessee in the present case and by taking into account that as per section 145 of the Act, it is not open to an AO to reject the accounts of an Assessee, unless he comes to a determination that notified accounting standards have not been regularly followed by the Assessee. The Hon ble High Court further affirmed the finding of the tribunal that as per Accounting Standard-7 (AS-7) issued by the Institute of Chartered Accountants of India, the Assessee can follow either the project completion method or the percentage completion method and therefore the AO is not empowered to adopt the percentage completion method for one year on selective basis as it will distort the computation of the true profits and gains of the business. 8.3 The Hon ble Apex Court in the case of CIT vs. Bilahari Investment Pvt. Ltd. (2008) 168 taxman 95/299 ITR 1 (SC) as well, also elaborated the completed contract method by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: The Assessee is at liberty to follow a particular accounting method for project as per its choice and if the Assessee is following the particular project method, which is otherwise not in derogation of any provisions or restrictions provided under the provisions of the Act, then the AO is not empowered to reject the project method, which has consistently been followed by the Assessee and to adopt a different method, as done by the AO in this case . 8.7 Coming to the instant case, admittedly, as the Assessee is consistently following the project completion method, and therefore there was no logic or plausible reason to discard the accounting method being continuously followed by the Assessee, hence the action of AO in rejecting the project completion method followed by the Assessee and applying percentage completion method is un- sustainable and contentions raised by the Ld. DR in support of decision of AO qua this aspect, are untenable and hence the same are rejected and project completion method approved by the Ld. Commissioner is sustained. 9. Coming to other contentions raised by the Ld. DR, to the effects that as per project details submitted by the Assessee before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same economic substance as construction contracts. For this purpose, the Guidance Note draws upon the principles enunciated in Ind AS 11, Construction Contracts. In respect of transactions of real estate which are in substance similar to delivery of goods principles enunciated in Ind AS 18, Revenue, are applied. . 2 . 3 . 4 . ... 5 . Application of Percentage Completion Method 5.1 The percentage completion method should be applied in the accounting of all real estate transactions/activities in the situations described in paragraph 3.3 above, i.e., where the economic substance is similar to construction contracts. Some further indicators of such transactions/activities are: (a) The duration of such projects is beyond 12 months and the project commencement date and project completion date fall into different accounting periods. (b) Most features of the project are common to construction contracts, viz., land development, structural engineering, architectural design, construction, etc. (c) While individual units of the project are contracted to be delivered to different buyers these are interdependent upon or interrelated to completion of a number of common activities and/or prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross amount is realised in case of 8 agreements, revenue can be recognised with respect to these 8 agreements only. 5.4 When the outcome of a real estate project can be estimated reliably and the conditions stipulated in paragraphs 5.2 and 5.3 are satisfied, project revenue and project costs associated with the real estate project should be recognized as revenue and expenses by reference to the stage of completion of the project activity at the reporting date. For computation of revenue the stage of completion is arrived at with reference to the entire project costs incurred including land costs, borrowing costs and construction and development costs as defined in paragraph 2.2. Whilst the method of determination of stage of completion with reference to project costs incurred is the preferred method, this Guidance Note does not prohibit other methods of determination of stage of completion, e.g., surveys of work done, technical estimation, etc. However, computation of revenue with reference to other methods of determination of stage of completion should not, in any case, exceed the revenue computed with reference to the 'project costs incurred method. Illustration appended to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses. The Ld. DR claimed that because the Assessee has paid the brokerage commissions and therefore, it should have recognized the revenue received. We observe the AO vide notice dated 09-04-2021 also proposed the addition of Rs. 22,65,69,249/- on this count and in response to that, the Assessee by filing its reply dated 12th April 2021 has claimed that it had appointed Indiabulls Distribution Services Limited (IDSL) as a Marketing Agent on Commission Basis during the AY under consideration, to act on behalf of the Assessee. The IDSL had a monopoly to sell flats to the various customers, as it appears from the copy of Agreement with IDSL. Whatever the commission paid to IDSL was, as per the Agreement and not on the basis of sales of TDR during the year. The Assessee also provided the copy of Ledger Account and details/invoices of commission paid through NEFT/Cheque/RTGS. We observe that the aforesaid reply/claim of the Assessee has duly been considered by the AO and accepting the same as correct, admittedly no addition on this count was made by the AO. Even otherwise in view of judgment in the case of Commissioner of Income Tax, Delhi Vs. DLF Universal Ltd. {378 ITR 197 (Delhi)} by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is dismissed. 13. Coming to the CO No.42/M/2024 filed by the Assessee, we observe that the Assessee is aggrieved with the following disallowances: First disallowance of architect and professional fee to the tune of Rs. 1,25,67,743/-; Second disallowance u/s 14(a)(ia) of the Act to the tune of Rs. 5,27,107/-. 14. We are inclined to adjudicate the CO of the Assessee issue-wise. Coming to the first disallowance/issue No.1, which pertains to disallowance of architect and professional fee to the tune of Rs. 1,25,67,743/-, we observe that the Assessee had claimed an amount of Rs. 1,25,67,743/- in its profit loss account on account of architect professional fee, but during the assessment proceedings, in spite of sending notice dated 15.12.2020, the Assessee did not furnish any information. However thereafter in compliance to various notices/reminders, the Assessee uploaded its reply on 05.03.2021 and furnished the copy of the ledger account of the architect and professional fee only, but not the complete information qua accounts on this issue. Therefore the AO by considering the reply of the Assessee has observed that the Assessee has not furnished copies of bills/vouchers of payment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee failed to submit the requisite documents. Further, even during the appellate proceedings, the Assessee failed to submit the necessary evidences in support of its grounds of appeal. Even otherwise, no reasonable cause has been established by the Assessee to explain as to why the said evidences could not be submitted before the lower authorities. Hence, the admission of additional evidences is vehemently objected. Furthermore, even on merits of the evidence submitted, it is seen that the Assessee has only produced sample bills of the work done by the architects and other professionals for the Assessee. Thus, the additional evidence fails to fulfill the conditions laid down u/s 37(1) of the Act, for allowing deduction of the expenses. 15. Having heard the parties and perused the material available on record qua issue in hand and given thoughtful consideration to the rival claims of the parties, we observe as it appears from record that the Assessee before the AO admitted its mistakes with regard to PAN which was given by its new staff member, who was under the impression that the Assessee s PAN was to be mentioned. However, correct statement showing correct PAN, Address and amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved, though challenged this addition before the Ld. Commissioner and claimed that the Assessee has not deducted the TDS on the payment made to the transporter as the transporters are assessed u/s 43AE of the Act, however has not filed any documentary evidence with regard to filing of ITRs u/s 43AE of the Act by the transporters and their PANs and thus the identity of the transporters have not been confirmed as alleged, which resulted into affirmation of aforesaid addition by the Ld. Commissioner. 16.2 The Assessee being aggrieved also challenged this addition under consideration before us and by filing additional evidence, which pertains to 4 transporters, such as acknowledgments by the transporters qua receipt of payments made by the Assessee, has submitted that the amounts paid by the Assessee have already been offered for taxation purpose by the Transporters. Further, the additional evidence is having direct bearing on the issue involved; therefore, the same may be admitted. Even otherwise, rests of the contractors have also already shown the amount received from the Assessee, in their returns of income and therefore for just decision of the case and substantial justice, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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