TMI Blog2012 (9) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Addition confirmed by the CIT(A) stands deleted - Decided in favor of assessee - ITA No.3539/Mum/2011 - - - Dated:- 6-7-2012 - SHRI R.S.SYAL SHRI AMIT SHUKLA, JJ. Appellant by : Mr. Suresh Subramanian Respondent by : Mr. M. Murali ORDER PER AMIT SHUKLA (J.M.) : This appeal has been filed by the assessee against order dated 21-8-2008, passed by the CIT(A)-28, Mumbai for the quantum of assessment passed under Section 143(3) for the assessment year 2006-2007. 2. In the grounds of appeal the assessee has taken five grounds with various sub grounds. At the outset, ground No.2 along with its sub grounds has not been pressed by the Ld. AR and also grounds No.3 to 5 being general in nature, hence, they were also not pressed. 3. In grounds No.1, two issues which have been raised are, disallowance of interest of Rs..5,27,550/- paid on unsecured loans and claim of such an expenditure against the interest received from the bank and second issue is with regard to estimate of business income at the rate of 8% on presumptive basis by the Assessing Officer on booking advance collected by the assessee during the year on the basis of Revised Accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs..38,74,000/- is to be taxed under the head business income in this year. 6. Before the CIT(A), the assessee reiterated the same submission, firstly that the substantial construction was not completed during the year and, therefore, no profit has disclosed in this assessment year and secondly, the assessee has been following the project completion method which is a well recognised method of accounting. Learned CIT(A) after calling for the remand report from the Assessing Officer on asssessee s submission, rejected the contention of the assessee and held that the view taken by the Assessing Officer is justified and accordingly he confirmed the addition made at Rs..38,74,000/-. 7. Before us, the learned AR submitted that the point in issue is covered by the decision of the ITAT Mumbai Bench in the case of M/s Unique Enterprises Vs. ITO, passed in ITA No.5109/Mum/2008, vide order dated 20-8-2010. He submitted that in this case the ITAT after discussing the relevant accounting standards even Revised Accounting Standard-7 and the project completion method , have come to the conclusion that the assessees, who are following project completion method and have offered inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. This finding in our opinion is erroneous. AS-7 prior to its revision in the year 2002 dealt with the Accounting for Construction Contracts, in the financial statements of enterprises. We extract a part of this statement for ready reference: This statement deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts thereafter referred to as contractors ). The statement also applies to enterprises undertaking construction activities of the type dealt with in 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. [Emphasis own] 14. A perusal of the above makes it clear that the statement applied to builder and real estate developers. In AS-7, as revised in the year2002, the scope of the statement is given as follows: Scope (1) This statement should be applied in accounting for construction contracts in the financial statements of contractors . A Construction contract is defined as follows: A construction contract is a contract specifically negotiated for the construction of an asset or a combination of asset that are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-revised AS-7. On the other hand, paragraph 1 of revised AS-7, clearly states that, This Statement should be applied in accounting for construction contracts in the financial statements of contractors . Therefore, the Committee is of the view that the revised AS 7 is not applicable to such enterprises. [Emphasis own] Thus, the revised AS-7 cannot be applied to enterprises which is in the business of real estate developers. 15. The Bangalore Bench of the Tribunal in the case of Prestige Estate Projects (P) Ltd.(supra) has held as follows: Accounts Accounting system Project completion method consistently followed Assessee developer had been regularly employing project completion method which is an accepted method of accounting Accounting Standard -7 has not been specified by the Central Government under s.145(2) Hence, AO could not reject the accounts under s.145(3) on the ground that the assessee had not followed the prescribed method of accounting Moreover, assessee was under bona fide belief that it was adopting a method of accounting which was applicable to it as per the report of the Expert Committee of the ICAI Therefore, revised AS-7 cannot be applied i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated from the venture for the assessment year 1977-78. the assessment for this year is, therefore, cancelled even on this score. 18. In this year the assessee has admittedly completed only 53.95% of the construction and hence, it cannot be said that the assessee has substantially completed the project, so as to recognize income under the project completion method of accounting. 19. At para 19, the Hon ble Tribunal in the case of Champion Construction Co. (supra) held as follows: However, the position as regards the assessment year 1978-79 is materially different. The construction of the building is completed in that year. Total area earmarked for sale is 61,396/- sq.ft. out of which upto the end of that year the assessee had sold 49,965 sq. ft. i.e. about 80 per cent of the area. The net receipts have far exceeded the total cost or expenditure to the assessee. Assuming there is any possibility of the assessee s incurring some liability in future in connection with the completion of the project or otherwise, the unsold portion comprising of 12,331/- sq.ft. and the difference between the net receipts and the total expenditure and the amount actually treated as the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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