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2014 (10) TMI 533 - HC - Income TaxAccrual of income – taxable assessment year 2000-2001 or 2003-04 - business of building construction and real estate - By virtue of the sale agreement the assessee became entitled to receive nomination fees - Project completion method - Held that:- Accounting Standard (AS) 7 applies to Complete Project Method. The said system deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts i.e., by the contractors. It also applies to enterprises undertaking construction activities of the type dealt within this statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered into agreements for sale. As per the agreement, though the assessee is carrying on the business of builder and may be contractor, his role was only to identify the purchaser - the amounts due and the constructed area due to the assessee was crystallized under the agreement dated 25.6.1998. Annexure-'1' to the agreement shows, payments received prior to the agreement and balance of payments which is to be made - But under the Mercantile System of accounting, when once the said amount accrues, it has to be offered to tax in the year of accrual - when the amount is due to the assessee, a portion of which was already paid and a portion of it is payable in the near future as per the dates prescribed, the amount mentioned in the said agreement accrued on 25.6.1998 and therefore, the amount should have been offered to tax for the AY 1999-2000. Though the parties entered into agreement in 1995, there were modifications, alterations and supplementary agreements also came to be executed - Finally, the terms between the parties were crystallized under the agreement dated 25.6.1998 - when the assessee was following Mercantile System of Accounting, he should have offered to tax the amounts accrued to him under the agreement for the assessment year 1999-2000 - the order passed by the Tribunal holding that the amount to be offered to tax for the year 2003-04 applying Accounting Standard (AS) 7 and treating the transaction as Complete Project Method is opposed to the admitted facts of the case – thus, the order of the Tribunal is set aside – Decided in favour of revenue.
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