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TMI Blog2017 (11) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... 07,172/- (i.e. Rs. 17,94,767/- in Pitampura Project and Rs. 8,12,405/- in Agra Project) made by the learned Assessing Officer applying 'percentage completion method' for revenue recognition and rejecting the 'project completion method' adopted by the assessee which is a recognized method of revenue recognition." 2. From the above grounds of appeal, it reveals that the only question which requires adjudication at this stage is whether the ld. Authorities below were justified in applying the percentage completion method instead of project completion method adopted by the assessee for revenue recognition. The appellant is engaged in the business of construction and real estate development. The assessee filed its return of income on 30.10.2005 declaring the loss of Rs. 3,09,215/-. In the assessment order, the AO observed that during the year, two projects were under construction, one at Pitampura, Delhi known as Pacific North and second at Agra known as pacific Taj. In response to the query by the AO, the assessee stated that the assessee received a sum of Rs. 04,06,24,640/- against booking of 34095.65 sq. ft. area in Pitampura Project and a sum of Rs. 2,70,02,097/- against booking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s contention and adopted the proportionate completion method as per AS:9 and computed the profits separately for both the projects amounting to Rs. 17,94,767/- and Rs. 8,12,4057- respectively. Thus, the addition of Rs. 26,07,172/- was made in appellant's income. During the appellate proceedings, the appellant has vehemently argued that AS:9 was not applicable in this case as the same is followed in the activities of enterprise from sale of goods, rendering all services and used by others of enterprise resources yielding interest, royalties and dividends. Since the appellant is a builder, constructing its own properties on its own lands and selling it to prospective buyers, Accounting Standard:9 was not applicable. Alternatively, it was argued that to recognize revenue, the property should be transferred to the buyer. Further it was also argued that Notification No. 9949 dt. 25-01-1996 issued by the CBDT does not figure AS:7 and AS:9 in it as the same are not mandatory under the I.T. Act. On considering the facts of the case as well as arguments of the appellant it is observed that the appellant has been continuously taking advances from its prospective buyers of the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no claim of department regarding interest or royalty; that therefore, AS-9 is not applicable; and that AS-9, if at all, could be applied in the years of completion of project whereas the department has already accepted the returned loss for the A.Y. 2007-08 when both the projects were completed. Reliance is placed mainly on the decision of Hon'ble Delhi High Court in CIT vs. Manish Build Well (P) Ltd. (2011) 245 CTR 397. 4. On the other hand, the ld. DR relied on the orders of the authorities below and submitted that the appellant has taken advances from the customers against the booking of the units and, therefore, the assessee has booked the profit when he received the amount of booking for sale, particularly when the assessee has been adopting the mercantile system of accounting and when there was no uncertainty regarding the consideration received during the year as per agreement with the prospective buyers and therefore, such receipts should be treated as trading receipts for accrual of income of the assessee. The ld. DR reiterated the contents of the assessment order and the impugned order. 5. We have heard the submissions of both the sides and have perused the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements are recognized on accrual basis except the Propertytax, Electricity and Ground rent etc. have been recorded on payment basis." 6. It is clear from the above that the revenue recognition is done by the assessee on accrual basis barring some items of income, the quantum of which is not ascertainable. In the instant case, the assessee has adopted the mercantile system of accounting and has adopted the project completion method for revenue recognition. From the sample copy of one of the prospective buyers submitted before us at page 22 of the paper book, it is clear that the total value of the flat/shop was quite an ascertained value and nothing sort of it is depicted there from as to which part of the receipt was not ascertainable. The assessee was also in receipt of the amounts as stipulated in the said agreement. The assessee has also incurred expenditure towards construction works and the auditor's report categorically speaks of revenue recognition on accrual basis. However, the loss claimed by the assessee is based on application of Project completion method. In such peculiar facts, it has to be decided whether the profit earned on a particular receipt would be taxable or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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