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2015 (3) TMI 143 - AT - Income TaxIncome recognition - timing of the accrual of income - assessee claimed that the income is chargeable to tax at the time of registration of sale deeds to the buyers, the AO held such income to be taxable during the progress of contract itself, that is, on the basis of Percentage completion method - Held that:- Assessee categorically stated before the AO during the course of assessment proceeding for the A.Y. 2005-06 that the construction stood completed in the year in question and the AO has recorded the same on page 3 of the assessment order. Similar position about the completion of the construction during the year can be seen from para 2.1 of the impugned order for this year, which has not been controverted by the ld. AR. Further, it is apparent from the agreements to sell between the assessee and buyers that risks and rewards of ownership were initially transferred, which is manifest from the terms and get corroboration from the fact that some of the buyers actually transferred their rights in construction to the third parties during the currency of construction. In such a situation and going by the afore-discussed jurisprudence, the assessee has an option to choose between the Percentage completion and the Project completion method. Since the assessee did not offer income under the Percentage completion method, and giving the benefit of choice to the assessee, we hold that the assessee ought to have shown income from the project ‘Paras Down Town Centre’ in its return for the A.Y. 2005-06. As the AO has bifurcated the income from this project in two years, namely, the A.Y.s 2005-06 and 2004-05, we hold that the addition made by the AO in respect of income from this project for the A.Y. 2004-05 be deleted. It appears that the ld. CIT(A), while disposing of the appeal for the A.Y. 2004-05, lost sight of the fact that the AO determined total income for such year at ₹ 5.23 crore. The deletion of addition of ₹ 5.23 crore has resulted into the obliteration of even the returned income at ₹ 3,13,414, which is not correct and cannot be sustained. The components of the returned income need verification. If it is unrelated with the project, then it should be charged to tax. Further, the direction given by the ld. CIT(A) for including income from this project in the later years, at the time of execution of registered sale deeds, is also vacated because once income has been directed to be chargeable to tax in one year, then it cannot be charged to tax in a later or earlier years as well. The AO should also ensure that no income from this project, whether included by the assessee voluntarily or added by him, should form subject matter of assessment for any year other than the A.Y. 2005-06. If it is so included, then the same should be eliminated. The end result is that the income of the assessee from this project is chargeable to tax in entirety in the assessment year 2005-06. Appeal of the Revenue for the A.Y. 2006-07 is also tagged with the present set of appeals, which, we are disposing by a separate order. Ex consequenti, the impugned orders are set aside and the matter is sent back to the AO for framing the assessments afresh in conformity with our above directions. - Decided in favour of assessee for statistical purposes.
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