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2015 (3) TMI 847 - DELHI HIGH COURT

2015 (3) TMI 847 - DELHI HIGH COURT - TMI - Income recognition - accountancy practices of the assessee for the relevant year - AO recomputed the income by treating advances against properties which had NIL outstanding balances, as sales and consequently the income of the assessee as felt that the appropriate method of accounting for revenue recognition was AS-7 supported by the Institute of Chartered Accountant - Held that:- As in CIT vs. Manish Build Well Pvt. Ltd. [2011 (11) TMI 35 - DELHI HIG .....

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hree tests to deduce whether income accrued to the assessee is real or hypothetical i.e. if there is a corresponding liability of the other party to pass on the benefits even without the transaction; probability or improbability of realization of benefits by the assessee etc. In these circumstances, the AOs decision was based on hypothetical income given that for the previous years AS-7 had been permitted. Furthermore, applying the decision in M/s. Excel Industries Ltd. (supra), we are of the o .....

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60A of the Income Tax Act, 1961 (hereafter referred to as the Act ) is with respect to the correctness of the ITAT s order dated 13th December, 2013 in ITA No.2278/Del/2011. The Revenue urges that the ITAT fell into error in permitting the accountancy practices of the assessee for the relevant year. 3. The facts briefly are that assessee carries on business as a colonizer and real estate developer. It developed a colony known as Malibu Town in Gurgaon. Its return for the Assessment Year 2007-200 .....

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s against properties which had NIL outstanding balances, as sales and consequently the income of the assessee. 4. The CIT(A) held that identical practice had been followed by the assessee for the previous year, Assessment Year 2006-07 and that AO s addition had been set aside. The CIT(A) s order then noted the relevant extracts of his order for the previous year. The ITAT in the present case refused to accept the Revenue s contentions, and held as follows:- 8. We have carefully considered the su .....

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t from the accepted method of accounting of the assessee without putting forth the cogent reasoning. Furthermore, it is also undisputed that in respect of properties for which the addition has been made in this year, the sales has been recognised in the subsequent years. Moreover, in the preceding assessment year Ld. CIT(A) has deleted the similar addition. The deletion by the Ld. CIT (A) was affirmed by the Tribunal in ITA No. 4085/Del/2009 vide order dated 20.4.2012. 9. In this regard, we refe .....

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ther expounded that in the subsequent accounting year, assessee has disclosed the income and paid tax thereon and if the rate of tax remained the same in the present asstt. year as well as in the subsequent asstt. year, the dispute raised by the Revenue was entirely academic or at best may have a minor tax effect . 5. Counsel for the Revenue urges that the same question in respect of Assessment Year 2006-07 has been entertained and the appeal is pending in ITA 252/2013. It is urged that conseque .....

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Supreme Court had relied upon CIT vs. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC) to highlight that income tax cannot be levied on hypothetical income. Likewise, the Court relied upon Godhra Electricity Co. Ltd. vs. CIT (1997) 225 ITR 746 (SC). The counsel stated that the three tests indicated in M/s. Excel Industries Limited (supra) would apply to the circumstances of this case given that the accountancy practices adopted by the assessee had been accepted earlier and that it was deemed t .....

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s:- 9 After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Charted Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. .....

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