9911796707
TMI Blog2009 (12) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of residential project known as Sanskruti Apartment on plot at CTS Nos. 1361/A, 1362/A, 1325 of Village Dahisar, Mumbai consisting of 56 flats and 8 shops. The commencement certificate for the project had been issued by MCGB on 25-10-2002. The assessee was following project completion method for accounting of income. Since the project was not complete, the assessee was capitalizing the work done as work-in-progress. The assessee declared nil income from assessment year 2003-04 to assessment year 2006-07 the details of advances received against booking, the closing balance of work-in-progress and commencement certificate were as under : A.Y. Income returned Work-in- progress Advance received against booking Commencement certificate 2003-04 Nil 39,64,359 63,67,176 Up to 2nd floor, dated 12-2-2003 2004-05 Nil 1,81,69,769 1,82,29,167 Up to 5th floor, dated 23-1-2004 2005-06 Nil 3,09,07,507 3,18,87,936 - 2006-07 Nil 3,48,54,441 3,60,41,488 Up to 7th floor, dated 11-11-2005 2.2 The Assessing Officer during the assessment proceedings noted, after hearing the representative of the assessee, that 50 per cent of total work of the project had been completed by 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give rise to any profit and that profit arises only when the flats are sold and given possession to the buyers. The assessee placed reliance on several judgments as mentioned in para 3.1 of the order of CIT(A). CIT(A), however, did not accept the explanation of the assessee. It was observed by him that, under the Income-tax Act, income is required to be computed on annual basis. The construction was ongoing process and the profit element was embedded into the construction. Therefore, there was a profit element embedded into the work-in-progress and the profit could be computed on the basis of work-in-progress. In this case, more than 50 per cent of the project had been completed by 31-5-2005 and 50 per cent of the investment had been received as advance. It was also observed by him that the present case was comparable to the case of Champion Construction Co. (supra) in which case the construction was complete and 80 per cent of the area was sold. In the present case also the majority of the flats had been sold. The income had, therefore, to be legally recognized on substantial completion of the project on the basis of percentage completion method. In his view, there was no basic di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as mentioned below : (i) Bakshi Vikram Vikas Construction Co. (P.) Ltd. v. Dy. CIT [2007] 158 Taxman 61 (Delhi) (Mag.). (ii) IRB Infrastructure Ltd. v. ITO [2008] 115 ITD 374 (Mum.). (iii) CIT v. Bilahari Investments (P.) Ltd. [2008] 299 ITR 1 (SC). (iv) CIT v. Realest Builder & Services Ltd. [2008] 307 ITR 202 (SC). 2.5 The learned DR, on the other hand, supported the orders of authorities below. It was pointed out that earlier assessments in which the assessee had employed project completion method had been completed summarily under section 143(1) and, therefore, it could not be said that the said method had been accepted by the department. It was also argued that the assessee executed agreement for sale with the parties which had been registered and, therefore, the same amounted to sale. The income, thus, had to be computed on the basis of agreement for sale in terms of which the assessee had received substantial advances. He also placed reliance on the findings given in the orders of authorities below. 2.6 We have perused the records and considered the rival contentions carefully. The assessee is a builder and real estate developer. The dispute is reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Champion Construction Co. (supra) is also distinguishable as in that case construction was complete and 80 per cent of the flats had been sold. 2.8 It is established legal position that an assessee can follow any recognised method of accounting and condition is that the same method has to be followed consistently. In case of a building project, the Institute of Chartered Accountants of India which is an authority on prescribing accounting standards had prescribed accounting standard AS-7 in 1983 for accounting of income in respect of real estate projects and in terms of AS-7 which was applicable to both contractor and real estate developer, a person is free to follow either of project completion method or percentage completion method depending upon the nature of project. The assessee, in this case, has followed project completion method which is one of the prescribed methods by the Institute of Chartered Accountants of India. The accounting standard AS-7 was subsequently revised and revised statements were made applicable to housing projects undertaken on or after 1-4-2003 and as per the revised standards, revised AS-7 was applicable only to a contractor and in case of real e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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