TMI Blog2017 (9) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income from the assessee. Thereafter the case was converted into scrutiny assessment and notices u/s 143(2) and 142(1) were issued calling for certain specific details. In response to show cause notices, the assessee s authorized representative appeared from time to time and furnished relevant details, as called for. The AO completed assessment u/s 143(3) r.w.s. 147 of the Act on 26-03-2015 determining total income at ₹ 8,78,02,640 interalia making additions on account of advance received towards sale of flats amounting to ₹ 34,21,000. 3. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before CIT(A), the assessee challenged the validity of reopening of assessment. The assessee also agit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext financial year, the challenge of the AO that the project was complete in the impugned financial year was not controverted by the assessee. Once the aspect of completion of project in the impugned financial year coupled with the fact that assessee follows mercantile system of accounting, it is natural and logical conclusion that amount should have been offered to tax in accordance with the accounting standard professed to be followed by the assessee. If the reasoning of the assessee is taken literally, then it would mean that the recognition of revenue can be delayed indeterminably in spite of the fact that mercantile system of accounting is followed. The CIT(A) further observed that the recognition of revenue principle in AS-9 is recomm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration is addition made by the AO towards advance received for sale of flat. 6. The Ld.AR for the assessee submitted that the assessee follows mercantile system of accounting and project completion method for revenue recognition as per AS-9 issued by ICAI which is mandatory in nature. The revenue is recognized from sale of goods or rendering services only when the seller has transferred the property in the goods to the buyer for a consideration alongwith risk and rewards involved in the said property. Though the project was complete during the relevant financial year, these two flats have been shown as stock-in-trade in the books of account. It is further submitted that it has entered into an agreement to sell for sale of flats i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The AO further observed that when the project has been declared as complete during the year under consideration any advance received against sale of flat construes sale and the same has to be offered for tax irrespective of the fact whether entire amount of sale is received or not. The assessee contends that it has recognized revenue as per AS-9 issued by ICAI as per which, the revenue from sale of goods and rendering services needs to be recognized when the seller has transferred to the buyer the significant risk and rewards of ownership and the seller retains no eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed in the subsequent financial year. The assessee also recognized the revenue from sale of flats in the assessment year 2008-09. These facts were not disputed by the AO as well as the CIT(A). The AO made additions only on the ground that the assessee is following mercantile system of accounting and project completion method for recognition of revenue and accordingly needs to recognize revenue in respect of advances received for sale of property even though the sale agreement or sale deed was not executed for transfer of property. 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
