TMI Blog2009 (5) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... ary satisfaction of the AO about the year of completion of the project - The issue is decided in favour of the assessee - - - - - Dated:- 29-5-2009 - Member(s) : PRAMOD KUMAR., MUKUL SHRAWAT. ORDER-MUKUL SHRAWAT, J.M.: This is an appeal at the behest of the assessee emanates from the order of CIT(A)-I, Pune, dt. 27th July, 2007. There is only one issue in this appeal in respect of disallowance of deduction under s. 80-IB(10) of Rs. 17,69,025 pertaining to a project viz., "Pate Sanskriti". Though in the grounds of appeal few more grounds are raised however they are argumentative in nature and in support of the main ground to be dealt within the following paras of this order. However at the incipience we may like to draw the main issue that whether for the purpose of claim of deduction under s. 80-IB(10) the law permits a claimant assessee to maintain the books of accounts on "percentage completion method". In other words whether the s. 80-IB(10) entitles the deduction only to those claimant asses sees who maintain their books of accounts on "project completion method" basis. 2. Facts in brief related to the main ground as emerged from the corresponding assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was unable to furnish the details of the buyers or the advance received etc. so AO has raised an apprehension that in the years under consideration it could not be presumed that the project would be completed within the prescribed time hence resulted into the denial of exemption. This was challenged. 3. Before the first appellate authority basic arguments were reiterated and reliance was placed on the following three decisions: (a) Mahindra Sintered Products Ltd. vs. CIT (1989) 75 CTR (Bom) 83 (1989) 177 ITR 111 (Bom); (b) CIT vs. Mazagaon Dock Ltd. (1991) 191 ITR 460 (Bom); (c) CIT vs. Abhirami Cotton Mills (P) Ltd. (1996) 134 CTR (AP) 123 : (1996) 220 ITR 84 (AP). 3.1 Learned CIT(A) has held that s. 80-IB(10) lays down that the deduction is available in respect of a housing project whose development and construction is commenced on or after 1st Oct., 1998 and to be completed by the specified date as contained under s. 80-IB(10)(a)(ii). Learned CIT(A) has drawn a conclusion that the deduction is not available in respect of incomplete project. The action of the AO was affirmed. 4. Heard the submissions of both the sides. As marked at the very off-set of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of profit as "profit percentage completion method" cannot be ruled out or in any manner to be discouraged. 5. Therefore, to resolve this legal problem it is obvious to first examine both the methods though cursorily but to get a fair idea about these two methods. For the purpose of recognition of income in the case of a businessman doing construction work as a builder the guidelines are issued by the ICAI under the head "Accounting for Construction Contracts", Accounting Standard-7. As per cl. 7.1 of AS-7 two methods of accounting for construction, commonly followed by the contractors are prescribed: (i) percentage of completion method; (ii) completed contract method. In common language percentage of completion method is also termed as "work-in-progress" method or "project completion method". Under the cl. 7.2 of AS-7 the method in respect of "percentage of completion method" is prescribed to determine the profits. 5.1 Though we are concerned with this method, nevertheless for the sake of completeness we also discuss in short keeping brevity in mind the determination of profit under "project completion method". 5.2 From the above discussions, it is evident that both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion of the project. If we accept the stand of the Revenue and pass a dictum that the deduction should be available only on completion of a project then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of project, as was applied by AO in the present case. Rather the broadly accepted principle is that the year of assessment of income and connected deduction should fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "project percentage method" as happened in this case, then the natural corollary should be that the connected deduction ought to be granted simultaneously in this very year or the other method of computation of income is that the Revenue must not tax the profit of the project yearly on the basis of "project percentage method"; but tax the entire profit at the completion of the project by applying "project completion method". 6.1 An apprehension was expressed by learned CIT-Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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