TMI Blog2024 (2) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... r and it is only the duly completed apartment there in the property that shall be transferred on registration of the Apartment in his name. AR s contention is that the assessee has neither conflicted Guidance note on Accounting for Real Estate Transactions (Revised 2012) while following Project Completion Method for revenue recognition nor ICDS-III is applicable to the assessee. These contentions of the assessee could not be refuted by the Revenue. CIT(A) has followed the decisions of Paras Buildtech India Private Limited [ 2015 (11) TMI 1217 - DELHI HIGH COURT ] and Sabh Infrastructure Ltd. [ 2012 (4) TMI 621 - ITAT DELHI ] We do not find any reason to interfere with the decision of the Ld. CIT(A). Appeal of the Revenue is dismissed. - Shri M Balaganesh, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Gautam Jain, Advocate, Shri Lalit Mohan, CA For the Department : Shri P.N. Barnwal, CIT DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the Revenue is directed against the order dated 20.03.2019 of the Ld. Commissioner of Income Tax (Appeals) -3, Gurgaon ( CIT(A) ), pertaining to Assessment year ( AY ) 2014-15. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to sell. The Ld. AO arrived at the conclusion that Percentage of Completion Method is applicable to the assessee and calculated the income of the assessee at Rs. 24.32 crores and added the same to its income. Accordingly, the assessment was completed at Rs. 24,14,92,070/- on 30.03.2016 under section 143(3) r.w. 153A(1)(b) of the Act. 5. Aggrieved, the assessee appealed. The Ld. CIT(A) deleted the impugned addition by observing and recording the following findings:- 5.1.1 The facts of the case as drawn out are as follows:- (a) The appellant company is engaged in real estate development and derives its income from actual sale and transfer of property. (b) In all previous years, the appellant company has adopted AS-9 ie. the Project Completion Method, recognition of revenue and whatever expenses were incurred were debited to workin- progress account. (c) The appellant has been filing return of income since AY 2008-09 following the Project Completion Method. (d) The appellant obtained the license from DTCP-Haryana and on that basis the construction work was started. (e) It has been stated that the cost of construction has been capitalized as regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred by the Assessee to buyers when the agreements to sell were entered into with them. The books of account of the Assessee were rejected under Section 145 of the Act and its profits were computed by applying the AS-7. The AO added a sum of Rs. 1,56,88,100 to the Assessee's declared income by applying the percentage completion method. Apart from this the AO disallowed certain other sums including the sums on account of depreciation and under Section 14A of the Act. The income of the Assessee was determined at Rs. 2,28,68,559/- as against the declared income of Rs. 57,75,159/-. .... 16. At the outset, it is required to be noticed that the ITAT has in the impugned order dated 17th February, 2015 in ITA No. 4316/Del/2010 upheld the finding rendered by the CIT (A) that the Assessee was only a developer and not a contractor. This finding is significant because, as noticed hereinbefore, the agreements entered into by the Assessee are only on the basis that it is a developer. The Assessee has throughout been contending that it is not a contractor. This finding has been accepted by the Revenue inasmuch as it has not filed any appeal against the impugned order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination that notified accounting standards have not been regularly followed by the Assessee. As pointed out by the CIT (A) in the order dated 2nd July, 2010, the AS of the ICAI did not have any statutory recognition under the Act although it was binding under the Companies Act, 1956. The method of accounting followed by the Assessee in the present case ie. project completion method was certainly one of the recognized methods and has been consistently followed by it. 20. In Commissioner of Income Tax v. Bilahari Investment P Ltd. (2008) 299 ITR 1 (SC) it was observed as under: Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me on transfer of the property. Till then the advance booking amounts could not be treated as his trading receipt. The High Court recognized that the Assessee in that case was entitled to apply the project completion method in terms of the applicable AS. 23. This Court too has by order dated 7 th January 2015 in ITA 111/2014 (CIT v. SABH Infrastructure Ltd.) held likewise, after noticing the decisions of the Supreme Court in CIT v. Bilahari Investment P. Ltd. (supra) and the order dated 15th November 2011 in ITA No. 928 of 2011 (CIT v. Manish Buildwell Pvt. Ltd.). 24. For the aforementioned reasons this Court answers question (a) as far as AY 2005-06 is concerned in the negative, Le. favour of the Assessee and against the Revenue. (ii) Furthermore, the Delhi Bench of Tribunal in the case of DCIT vs. M/s Sabh Infrastructure Ltd. in ITA 4572/Del/2009 and 2813/Del/2010 dated 20.4.2012 held as under: 9. We have carefully consider the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that assessee company falls under the category of real estate developer and not a construction contractor. In that view of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under the method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method. (underlining ours) 9. After the above judgements of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. (iii) It is stated that aforesaid order of the Tribunal was accepted by the revenue, as no appeal was preferred by the revenue. Again for the subsequent assessment years, learned Assessing Officer adopted the same approach, and learned CIT(A) and Hon'ble Tribunal (ITA No. 478/Del/2013 and 480/Del/2013 dated 31.7.2013) following the aforesaid order of Tribunal, rejected the application of AS-7 for recognition of revenue and upheld the application of project completion method for recognition of revenue. Against the aforesaid order of the Tribunal dated 31.7.2013, revenue preferred an appeal before the Hon'ble High Court of Delhi and Hon'ble High Court dismissed the appeal of the revenue vide its judgment dated 07.01.2015 in ITA No. 111/2014 and 113/2014 by holding as under: The brief facts are that the assessee is engaged in real estate development and derives its income from actual sale and transfer of property. For this purpose, it purchases land including built up property which it subsequently demolishes and develops in the layout township and after which the residential units are sold. In all previous years, the assessee had adopted AS-9, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e result appeal of the revenue is dismissed. (v) The aforesaid judgment of High Court has further been followed by the Hon'ble Tribunal in the case of ITO vs. K. Sahni Bros. Pvt. Ltd. in ITA No. 782/Del/2011 dated 31.3.2015, wherein Hon'ble Tribunal has held as under: 8. After considering the arguments of both the sides and the facts of the case in relation to the addition of Rs. 7,10,94,646/-, we do not find any infirmity in the order of the learned CIT(Appeals). The fact that the assessee has consistently followed the same method of accounting of income in all the earlier years as well as the succeeding years, has not been disputed by the Revenue. Thus the facts remains that the assessee has always been accounting for the sale proceeds of the portions sold by it as income in the year when oner of income the possession is given and the registered sale deeds are executed. This method of accounting of income stands accepted in the hands of the assessee u/s 143(3) in the earlier as well as succeeding years. On these facts the A.O. is not justified in adopting the percentage completion method for one year (the year under appeal) only on selective basis. Infact this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elahari Investments Private Ltd. (299 ITR 1) were relied on to hold that it cannot be said that project completion method would result in deferment of taxes which are to be assessed annually and that the same was an established method of accounting. Thus the orders of the ITAT in the case of Sabh Infrastructure Private Ld have been upheld by the Hon'ble jurisdictional Delhi High Court also. On these facts and circumstances, even in the case of this assessee no infirmity is found in the order of the learned CIT (Appeals) deleting the addition of Rs. 7,10,94,646/- as there was no justification for the Assessing Office to discard the consistently followed method of accounting selectively only for one year to make the impugned addition. This has infact resulted in assessment of same income in the hands of the assessee twice, which is not tenable in law. Therefore the order of the learned CIT (Appeals) on this issue is upheld and the ground of appeal raised by the Revenue is dismissed. (vi) From the aforesaid, what is apparent is that Completed Contract Method is a well recognized method and has been judicially accepted in the context of developer to recognize income even on co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dards, no other accounting standard has been notified by the Central Government for the purpose of section 145(2) of the Act. Reliance is placed on the order of the Tribunal in the case of Prestige Estate Projects (P.) Ltd. vs. DCIT reported in 129 TTJ 680 (Bang) wherein the assessee-company was a real estate developers. It maintained its account by adopting completed contract method of accounting. According to the Assessing Officer, it was mandatory for the assessee to follow percentage completion method for recognition of revenue as per the provisions of AS-7. He, accordingly, calculated the profit of the assessee by following percentage completion method of accounting, on the aforesaid facts, Hon'ble Tribunal held as under: 3.17. As per section 211(3A) of the Companies Act, P L a/c and balance sheet of the company is to comply with the Accounting Standard, As per proviso to section 211(3C), standards of accounting specified by the ICAI are to be deemed to be the Accounting Standards until the Accounting Standards are prescribed by the Central Government under section 2.1.1 (3C) of the Companies Act. Thus, the companies are required to follow the Accounting Standards as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te is not binding for the purpose of section 145 of the Act. Apart from the aforesaid, Assessing Officer has not pointed out any fault to the method of accounting regularly followed by the appellant but stated that method adopted by the appellant does not reflect the true state of affairs and is not in accordance with the prevailing Accounting Standards, as such, rejection of method of accounting regularly followed by the assessee is wholly erroneous and unsustainable in law. Considering the facts of the case, it is clear that the appellant is a builder and not a contractor. It has been pointed out that in view of the stipulations of the agreement in the case, it cannot be said that significant risks and rewards on ownership had been transferred to buyers prior to execution of the sale deed. The appellant stated that it has consistently followed the Project Completion Method and it has been accepted by the Department in the earlier years. The Principle of Resjudicata' is applicable to the case of the appellant as enunciated by the Hon'ble Supreme Court in the case of the Excel Industries (358 ITR 295). Hon'ble Delhi High Court while examining the applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple of Resjudicata applies to the case of the assessee. The project is still going on. He pointed out that no incriminating material was found during search so as to disturb the method of accounting consistently followed by the assessee. The Ld. AR stated that the Ld. CIT(A) followed the decisions of Hon ble Delhi High Court in Paras Buildtech India Private Limited vs. CIT 382 ITR 630 (Del) and in CIT vs. Sabh Infrastructure Ltd. in ITA No. 111/2014 and 113/2014 (Del) dated 07.01.2015. The Ld. AR placed the following propositions for our consideration:- i) No real income much less Accrual of Income - regard must be had to the substance of the transaction rather than to its mere form ii) That the completed contract method is a recognized method and is in accordance with Accounting Standard-9 issued by ICAL iii) That a method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping of accounts or of valuation iv) That method employed by assessee is 'Revenue Neutral'- It cannot be said that the project completion method foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h no incriminating material has been found so as to disturb the method of accounting consistently followed by the assessee. Nothing convinced the Ld. AO as he was prompted to taka a different view based on the Guidance Note issued by ICAI regarding Accounting of real estate transactions, 2012 (read with AS-9). The Ld. AO has referred the said Note in para 3.7 of assessment order. We have looked into it. Para 5.1 thereof says that the Percentage Completion Method should be applied where the economic substance is similar to construction contracts and para 5.2 says that this method is applied when the outcome of the project can be estimated reliably. None of these features is attributable to the facts of the assessee s case. 10. The Ld. CIT(A) has recorded the finding that the assessee is a builder and not a contractor and that in view of the stipulations of the agreement it cannot be said that significant risks and rewards on ownership had been transferred to buyer prior to execution of the sale deed. It is stipulated in the agreement to sell that no property during construction shall stand transferred or deemed to be transferred to the allottee(s) and the apartments under const ..... X X X X Extracts X X X X X X X X Extracts X X X X
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