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2019 (10) TMI 977 - AT - Income TaxRevenue recognition - sale of under construction flats - date of execution of registered document or date of delivery of possession or registration of agreements, which is relevant? - application of principles of AS-7 and AS-9 - AO observed from the details that in many cases, the assessee had received almost 90% of the agreement, still it had not offered the income for taxation on the pretext that no agreement has been made with the prospective buyer. - Assessee contended that, The Ld.CIT(A) completely misapplied himself and erred in confirming the stand taken by the assessing officer in invoking the provisions of sec. 2(47) which apply to capital asset and not to stock-in-trade. HELD THAT:- In the instant case as recorded by the AO when a prospective buyer approaches the assessee for booking the flat, allotment letter is issued to the buyer on receipt of the advance money. The appellant filed a written submission dated 26.03.2015 before the AO stating that the degree of work completed and certified by architect till 31.03.2009 is 73% and the assessee-company has recognized the revenue by applying 73% to the value of agreements executed till 31.03.2009. It was further stated before the AO that the revenue in respect of balance advances could not be recognized as passing of risks and rewards by virtue of ownership is an essential condition for revenue recognition as per AS-9, which has not been fulfilled in the instant case, as no agreement is executed and no possession have been given to the buyer. The case laws relied on by the Ld. counsel and Ld. DR have been narrated at length hereinbefore. One principle which emerges from the above case laws is the role of agreement executed. Immovable property is not conveyed by delivery of possession, but by a duly registered deed. Further, it is the date of execution of registered document, not the date of delivery of possession or the date of registration of document which is relevant. Once the executed documents are registered, the transfer will take place on the date of execution of documents and not on the date of registration of documents as held in Alapati Venkataramiah v. CIT [1965 (3) TMI 21 - SUPREME COURT] As per the ingredients of AS-7 and AS-9, ‘revenue’ be recognized even though legal title of the property is not transferred and possession is not given. Once seller transfers significant risks and rewards of ownership to buyer, seller thereafter acts like a contractor. Accordingly revenue recognition will have to be as in ‘Percentage Completion Method’ (AS–7). We are concerned here with the execution of agreements and not with the registration of agreements. Having considered the application of principles of AS-9 in respect of sale of goods to a real estate project and the case laws relied on by both sides in the back drop of the facts of the case, we set aside the order of the Ld.CIT(A) and restore the matter to the file of the AO to make an addition, bringing to tax by percentage completion method, the revenue out of the remaining executed agreements, if any, during the impugned assessment year. The assessee is directed to file the documents/evidence in respect of agreements executed during the impugned assessment year. Needless to say, the AO would provide reasonable opportunity of being heard to the assessee before finalizing the order. Appeals are allowed for statistical purposes.
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