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2017 (9) TMI 803 - ITAT MUMBAIAddition towards advance received for sale of flats - accrual of income - revenue recognized from sale of goods or rendering services - AO made additions only on the ground that the assessee is following mercantile system of accounting and project completion method for recognition of revenue - According to the AO, revenue from the project should be recognized when the project is complete - Held that:- We do not find any merit in the findings of the AO for the reason that unless a written sale agreement is entered into specifying the terms and conditions for sale, it cannot be construed that the parties have agreed for transfer of property. Since the assessee has entered into agreement for sale in the financial year relevant to AY 2008-09 and also executed the sale deeds in the same financial year, the revenue therefrom towards sale of flats needs to be recognized as and when the sale is complete. We further observe that the assessee has recognized revenue from sale of these flats in the financial year relevant to AY 2008-09 and this fact was not disputed by the AO as well as the CIT(A). Therefore, we are of the view that the assessee has rightly recognized revenue from sale of flats as per the method of accounting regularly followed in its business and also as per the Accounting Standard-9 issued by the ICAI. Hon’ble Gujarat High Court in the case of CIT vs Motilal C Patel & Co (1988 (4) TMI 36 - GUJARAT High Court) under similar facts has observed that income accrues to a builder or developer only when transaction of sale is complete and any advance received under the agreement for sale or mere earnest money cannot be taxed as income before the transaction of sale is complete. Thus assessee has rightly recognized revenue from sale of flats when the sale of flat was completed by way of instrument of sale which has happened in the financial year relevant to AY 2008-09. - Decided in favour of assessee.
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