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2015 (2) TMI 439 - AT - Income TaxMethod of accounting - While the assessee admittedly follows project completion method, which it claims to do so consistently, the Revenue’s stand is that the percentage completion method is to be adopted - Held that:- The first is the transfer of all significant risks and rewards of ownership. Income arises on exchange. Risk and reward are incidents of ownership. Income, thus, can be said to have accrued when there has been, i.e., given the binding legal contract, transfer of these incidents, wholly or substantially so. It is only then that the consideration received in exchange, i.e., the compensation for the release/transfer of ownership, can be said to have been so in one’s own right, and the income embedded therein, accrued to the recipient. In fact, it matters little even if the consideration stands not actually received inasmuch as a debt has inured in favour of the transferor. Then, again, income cannot be said to have arisen if uncertainty to any significant extent exists as to the ultimate realization of income, so that the existence of a legal debt or a civil liability is itself not sufficient to hold of accrual of income. The Standard is thus set in terms broader than the legal concept of accrual, though is principally in agreement therewith. ICAI has also issued a Guidance Note on recognition of income for real estate developers. The matter would thus stand to be decided on the basis of the entirety of the terms and the conditions of the contract/s, to determine the question if there has been transfer of all significant risks and rewards of ownership, coupled with the absence of the uncertainty associated with the realization of the revenue, so that sale can be said to have taken place. The exercise having not been undertaken at any stage, we only consider it fit and proper under the circumstances to restore the matter back to the file of the A.O. for the purpose to adjudicate the same per a speaking order qua each project after allowing proper opportunity to the assessee to state its case. We may clarify that in doing so we have in effect only sought to determine if the conditions of accrual of income, as legally defined, stand satisfied. AS-9 only articulates the antecedent conditions thereof, and is in conformity with the legal concept of accrual of income. - Decided in favour of revenue allowed for statistical purposes.
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