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M/s Neha Enterprises Versus ACIT-17 (2) , Mumbai

Addition 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 ag .....

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e 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 t .....

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t Dey (JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER) For The Appellant : Shri Darshan B Gandhi For The Respondent : Ms Arju Garodiya ORDER Per G Manjunatha, AM : This appeal filed by the assessee is directed against the order of the CIT(A)-28, Mumbai dated 21-01-2017 and it pertains to assessment year 2007- 08. 2. The brief facts of the case are that the assessee has filed return of income for the assessment year 2007-08 on 24-10-2007 declaring total income of ₹ 8,07,46,810. T .....

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) 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 ap .....

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red into with the parties in the financial year relevant to AY 2008-09 and the sale deeds for transfer of the properties have been executed in the same financial year and also the resultant consideration has been offered to tax in the assessment year 2008-09. Since the sale agreement and sale deed are entered in the financial year relevant to assessment year 2008-09, it has recognized the revenue as per the provisions of Accounting Standard-9 (AS-9) issued by Institute of Chartered Accountants o .....

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er considering the relevant submissions of the assessee observed that although the sale agreement was entered into in the next 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 a .....

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ndard merely mentions that transfer of property as a key criterion for recognition of revenue, but the aspect of transfer has to be seen in terms of provisions of the tax laws and as per the definition of transfer given in section 2(47) of the Act, transfer deems to include disposing of or parting with any asset or any interest therein. With these observations, the CIT(A) held that the amount was rightly brought to tax in the impugned assessment year. However, he directed the AO to ensure that i .....

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owards advance received for sale of flats. During the course of hearing, the Ld. AR for the assessee submitted that he did not press grounds 1 & 2 challenging the validity of reopening of assessment. Therefore, the grounds raised by the assessee challenging reopening of assessment have been dismissed, as not pressed. Thus, the effective ground that remains for our consideration is addition made by the AO towards advance received for sale of flat. 6. The Ld.AR for the assessee submitted that .....

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de in the books of account. It is further submitted that it has entered into an agreement to sell for sale of flats in the financial year relevant to AY 2008-09 and the resultant revenue has been recognized in the books of account for the assessment year 2008-09. The sale is complete only when the seller sold the property under agreement for sale and also handed over the possession to the buyer. In this case, the agreements for sale of property is entered into in the financial year relevant to A .....

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venue and it was accepted by the revenue, the same cannot be disturbed in one particular assessment year without any change in facts. The CIT(A), without appreciating the facts that the assessee has recognized the revenue in the subsequent financial year has upheld the addition made by the AO, which is incorrect. 7. On the other hand, the Ld.DR strongly supported the order of the lower authorities. 8. We have heard both the parties and considered the materials available on record. The AO made ad .....

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pective 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 effective control over the property associated with ownership. The assessee further contended that the agreements for sale of the two flats ha .....

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uted the method of accounting followed by the assessee for recognition of revenue during the financial year and in the immediately preceding financial years. The assessee is following project completion method for recognition of revenue and also followed AS-9 issued by ICAI. As per AS-9, the revenue from sale of services and rendering of services shall be recognized when the seller has transferred to the buyer all significant risk and rewards of ownership in the property and the seller retains n .....

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ese 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 ag .....

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