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TMI Blog2020 (5) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... lued as per revised AS-7. In fact, the revenue had accepted the method of accounting adopted by the assessee for the previous years and in the light of guidance note provided that AS-7 is applicable to real estate developers, assessee itself has changed the method of accounting and for the subsequent years, it has changed from Project Completion Method to Percentage Completion Method in the subsequent year and as such, there is revenue neutral in the assessment year in question. Hence, for the reasons aforestated, we answer the substantial question of law No.1 in the affirmative i.e., in favour of the assessee and against the revenue. Characterisation of income - Rental income received from Forum Mall - Income from business OR Income from house property - HELD THAT:- As said issue involved is no longer res integra in view of law laid down by this Court in the matter of COMMISSIONER OF INCOME TAX-III VS. VELANKANI INFORMATION SYSTEMS (P) LTD. [ 2013 (8) TMI 113 - KARNATAKA HIGH COURT ] whereunder it has been held if assessee is in the business of taking land, putting up commercial building thereon, letting out such building with all furniture as his profession or his bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AS 7, assessee was required to mandatorily follow Percentage Completion Method and as such, a sum of ₹ 7,33,13,640/- was added to the income. Assessing Officer has also recorded a finding that rental income received from Forum Mall and rental income received from fit outs were income from business and income from other sources and not as income from house property. Accordingly, assessment order came to be passed on 31.12.2007 (Annexure-A). 3. Being aggrieved by the same, assessee preferred an appeal before Commissioner of Income Tax (Appeals)-VI, Bangalore in ITA No.397/DCIT Central Circle.1(1)/BLR/CIT(A)-VI/2007-08 and appellate authority, by order dated 07.01.2009 dismissed said appeal filed by the assessee. Hence, assessee filed an appeal before Income Tax Appellate Tribunal, Bangalore Bench B in ITA No.218/Bang/09. Tribunal, by order dated 11.09.2009 partly allowed the appeal and held that assessing officer ought to have followed Complete Contract Method as claimed by the assessee and rental income received from Forum Mall should be brought to tax under the head profits and gains from business and income from fit outs should be brought to tax under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted Contract Method for all its real estate projects. The revenue did not accept the same on the ground that provisions of Accounting Standard AS-7 issued by Institute of Chartered Accountants of India was to be followed and thereby Percentage Completion Method was held to be the recognized procedure to be adopted. Hence, the assessing officer added back to the total income of the assessee a sum of ₹ 7,33,13,640/- by adopting Percentage Completion Method of accounting. 8. The appellate authority held that assessee is to be treated as a contractor because it enters into an agreement to construct the Mall in stages with others fund only. Hence, it came to be held that assessee cannot adopt Percentage Completion Method of accounting to arrive at its taxable income. 9. Section 145 of the Act would indicate as to how income is to be computed in accordance with either Cash or Mercantile system of accounting regularly employed by the assessee. Sub-section (2) of Section 145 empowers the Central Government to notify the Accounting Standards to be followed by any class of assessee or in respect of any class of income . In exercise of the said power conferred, Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria. Thus, assessee company which is required to follow Standard as prescribed by ICAI will have to necessarily take into account the reply furnished by the Institute for the Expert Committee, which reads as under: (i) the seller of the goods has transferred to the buyer the property in the goods for a specific price or on significant risks and rewards of ownership has been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; (ii) no significant uncertainty exists regarding amount of consideration that has been derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting and for the subsequent years, it has changed from Project Completion Method to Percentage Completion Method in the subsequent year and as such, there is revenue neutral in the assessment year in question. Hence, for the reasons aforestated, we answer the substantial question of law No.1 in the affirmative i.e., in favour of the assessee and against the revenue. RE: SUBSTANTIAL QUESTION OF LAW Nos.(2) and (3): 13. As said issue involved is no longer res integra in view of law laid down by this Court in the matter of COMMISSIONER OF INCOME TAX-III VS. VELANKANI INFORMATION SYSTEMS (P) LTD., reported in (2014) 265 CTR 250 (Karnataka), whereunder it has been held if assessee is in the business of taking land, putting up commercial building thereon, letting out such building with all furniture as his profession or his business then notwithstanding the fact that he has constructed building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the income from house property and as such, question Nos.2 and 3 are answered against revenue and in favour of the assessee. For the reasons aforestated, we pro ..... 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