9911796707
TMI Blog2012 (12) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... 008. During the course of this search, incriminating documents /evidence in the form of cash alongwith loose papers, diaries showing the receipts/expenditure relating to the projects were found. The project is at Ram Singh Ji Bari, Sector No. 11, Udaipur in the name of Surya Estate. The work was started to develop 92 Plots & Bungalows but later the assessee had to leave more area for facilities and the plan of 88 bungalows was finally approved by the authorities. The assessee got booking for all these bungalows which remained at different stages of construction during the various years. The construction work was carried out by giving a contract to the civil contractors M/s Sharma Foundation Architects & Builders, which is a proprietorship concern of Shri Lalit Sharma, who also happens to be one of the partners of the assessee firm M/s Surya Estate. Simultaneously, a survey u/s 133A was also conducted at the business premises on 23.4.2008 and in this survey, cash, stock and incriminating documents/books of account were found and impounded as per their respective Annexures. Consequently, notice u/s 153A was issued on 22.8.2008 demanding from the assessee to prepare a true and correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the assessee had actually entered into sale agreement with various buyers and sale price of all projects with the name 'M/s Surya Estate' was ascertainable with reasonable certainty. Accordingly, the A.O. concluded that the assessee must have followed "Percentage of Completion Method" [POCM] and should have paid taxes accordingly over a period of project execution. As a result, show-cause notice was issued to the assessee seeking explanation as to why it had not followed POCM for revenue recognition. The authorized representative of the assessee filed a written submission on 10.12.2010 which was considered by the A.O. In this submission, it was mentioned that the assessee was following Mercantile System of Accounting and revenue is recognized on sale of goods when all significant risks and rewards of ownership have been transferred to the buyers, and that the firm did not retain any effective control of the goods transferred. It was explained that in assessee's case, sales are only effected when bungalow is transferred by way of registered sale deed and handing over of possession takes place. It was further stated that profit/loss is arrived at after valuing construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Pankaj Nevatia, CA, whose office is situated adjacent to the office of the firm in Indraprasth Complex. Consequently, statement of Shri Pankaj Nevetia was also recorded u/s 131 of the Act who stated that no books of account of the assesseefirm were maintained in his office. Finally, Shri Lalit Sharma admitted that, in fact, no books of account of the firm for the current F.Y. had been prepared till the date of survey. List of registers, receipt books, documents, loose papers found at the business premises of the firm were inventorised as per Annexure A. During survey, cash amount of ₹ 833000/- was physically found at the business/office premises which was inventorised. As books of account were not maintained, this cash could not be verified. Later, the assessee offered this amount for taxation as its unexplained income. Shri Lalit Sharma also stated that house constructed on the plots of 30 the sizes '30 x 60 and 25' x 60 were sold at the price of 13.13.5 lakhs and 13.15 lakhs, respectively. The assessee offered an amount of ₹ 53.13 lakhs as profit on sale of houses for he current year on the ground that profit of ₹ 1.25 lakhs per bungalow was arrived at on est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aipur. You were developed the lands/plots and constructions of 92 bungalows were in progress. The total 92 Bungalows have been sold out, which were at different stages of construction. However, since the plots/land on which these bungalows were constructed, was not converted for residential purposes by the UIT, Udaipur, the lands/plots have been registered in bungalows have been booked in the names of various persons and some amounts have been received on this account by M/s Surya Estate & M/s Sharma Foundation, which was handling the construction work of this project. In this connection, you are requested to explain/furnish the followings: Please explain as to how the lands have been acquired by you for this project. Furnish supporting evidences. Please explain the source of investment in these lands supported by documentary evidence failing which unexplained investment in these assets will be brought to tax in your hand in the relevant assessment year as income from undisclosed sources. Please give the mode of payment of consideration amount and details of other relating expenses in respect of above mentioned properties be furnished. After purchasing the lands for thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved. 11. In all appeals issues are almost identical and the decision of A.Y. 2004-05 will also apply to other A.Ys. 12. Grounds for A.Y. 2004-05 raised by the assessee are as under: "1 Whether on the facts and circumstances of the case the CIT(A)Central), Jaipur has erred in law as well as on facts in deleting the addition of ₹ 21,10,208/- even though the AO's action of determining income based on percentage completion method as per Accounting Standard (AS) 7 has been approved. 2. Whether on the facts and circumstances of the case the CIT(A)(Central), Jaipur has erred in law as well as on facts in taking support of Guidance Note on Recognition of Revenue by Real Estate Developers issued by the ICAI, New Delhi in Nov. 2011 which will be applicable on or after 01.04.2012 and also on Discussion Paper on Tax Accounting Standards published by the CBDT in Oct.2011 which has not yet made applicable and holding that less than 25% of the stage of completion is treated as early stage of completion when revenue could not be reliably estimated and profit is to be taken as NIL despite the fact that there is no such provision in AS-7. 3. Whether on the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same have to be accepted. It was also argued that there is no dispute in respect of method of allocation of profits in various years while preparing Annual Financial Statement. He even suggested that in both situations, when profit is determined for various years on proportionate basis at various stages of project or in one go in a year when various units are handed over to buyers after their completion are sum and equal in all respects. It will not affect the profitability and will not be a distorted picture of income of that particular year[s]. He further argued that basic principle involved in application of POCM for determining income of any assessee is based on significant risk and reward of asset which are subject matter of construction and sale. When risk and reward are transferred, the assessee continues to work on their behalf. In nut-shell, the contention of the ld. A.R. is three-fronged - (i) that POCM is not mandatory method to be followed by real estate developers in terms of various guidelines issued by ICAI which are always recommendatory in nature; (ii) the principles propounded under POCM are not mandatory to be followed under the I.T. Act, 1961, and (iii) Principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during construction period?; (ii) if the buyer would be responsible for major costs escalation during construction period?, and (iii) if the land is legally transferred in the name of buyer or only this construction activity is taken up. Admittedly, there is no written agreement in respect of the transactions of sale of bungalows which were under construction. It is found for a fact that responsibility of the conversion of land is that of the assessee and conversion took place in the month of October 2008. Obviously, risk and reward of transaction was transferred in favour of the customer only after the conversion of land title. Till then, entire risks relating to non-conversion, damages and risk of Government acquisition, till its possession is handed over to the buyer and registration in their favour are of the assessee. Any advance money received or shown in the financial statement has to be given back if the assessee fails to give possession of the property and transfer the legal title. Thus, it is amply clear that all risks and rewards in this property gets transferred on transfer of possession or when possession is handed over to buyer and not before that. Thus, revenue recog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no defect, much less any material defect, which is pointed by the A.O. in the books and entries which were prepared on the basis of documents found during search. Recognition of revenue and its break-up is in controversy. In the background of these facts and circumstances of the case, it has been established that rejection of books of account and rejection of method of accounting applied by the assessee to draw annual financial statement and total income for all these years is not justified at all. When once rejection of books is found to be not proper and book results is applied, the book results has to be accepted by the A.O. The A.O. has to compute income of the assessee relying on the books of account and taking income on the basis of POCM. Accordingly, no addition on the impugned basis can be made or sustained in all these years. We order accordingly. Our above conclusion takes care of other grounds of appeal, even raised by the revenue. When the correctness of books of account is upheld, any further addition made after rejection of books of account, would not survive. All five appeals of the revenue will become academic now. 18. In the result, all the appeals of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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