9911796707
TMI Blog2018 (8) TMI 2076X X X X Extracts X X X X X X X X Extracts X X X X ..... culiar completed project method to recognize income from construction projects. As per the method followed by the assessee every flat is considered as a project since completion time of each flat is different, and as soon as a flat is sold or if there is sizeable completion of the flat, the income is taken into consideration. Before the Assessing Officer, the assessee explained that it follows PCM with certain degree of completion. The Assessing Officer was of the view that as per income computation and disclosure standards (ICDS)-III, the assessee was bound to follow PCM strictly. The Assessing Officer in this regard rejected the contention of the assessee that ICDS-III could not be applied to assessment year 2013-14 since the same was applicable only from assessment year 2016-17. The Assessing Officer referred to the guidance note on accounting for real estate transaction (revised 2012 issued by ICIA) laying down that PCM is mandatory under certain conditions and thereafter proceeded to calculate the receipts which the assessee should have shown applying PCM. Thus, he arrived at the figure of Rs. 16,87,48,276/- being receipts which the assessee should have taken into consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept in three projects (as narrated below) out of seventeen running projects construction cost is less than 25%of the project cost. Secondly in every year there is some sale which has been taken to income. Under PCM, the income of a project is distributed over the tenure of the project. In this case revenue is recognized even when a project is partly completed (which has been accepted by learned A.O), as a result learned A.O contradicts himself by launching his view that full income is recognized after the entire project is completed leading to application of PCM. This view of the appellant is amply clear as turnover from some of the running projects have been taken to income in respective years. In PCM a project is likely to be completed in more than one year time and revenue recognition flows at the end of the project. There is a marked departure in this case. Revenue is recognized in every year as sale deed is executed although the project may run for 4 years. When the revenue as such is recognized every year what is the need to recognize revenue on the basis of cost incurred and element of profit attached to it. The purpose of embarking PCM, in this case becomes redundant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M the then loss cannot be adjusted as it is assumptive method. Also guidance note of ICAI entails that probable loss under PCM is to be written off first. 2.5 It is pertinent to mention that the assessee followed the method of evaluation of work in progress and income recognition consistently over the past so many years. It is settled position of law that if method oi of work in progress and income recognition are consistently followed it is not desirable to shake the figures. Further, over the years income is being, by the assessee till the last product is sold, thereby there is no revenue to the department if entire project period is taken as a whole. According to the Accounting Standard 7, two methods of accounting contracts commonly followed by the contractors are the "percentage completion method" and the "completed contract method". The cc incurred on year to year basis are taken into consideration for determine the profit of the contract as a whole on year to year basis or at the end the project depending upon the method of contract accounting followed b; the assessee. The difference between the project completion and percentage of completion methods is that where as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to call for interference by this court. No substantial question of law rose. Commissioner of Income-Tax v. Principal Officer, Hill view Infrastructure (P.) Ltd.[2016] 384 ITR 451 (P&H). Keeping the above explanations in view it is not a rational and lawful approach to apply PCM in this year as income is shown in every year out of the running projects and the project completion method has been applied consistently following over earlier years. Further there is no loss of revenue to the department if full project period is taken as a whole. So, there is no justification of addition of income in adoption of PCM. The figure of Rs. 9 crores is neither correct on facts nor sustainable at all in law." 5. After considering the submission of the assessee, the CIT(A) sustained the disallowance of Rs. 6,16,258/- and deleted the balance addition of Rs. 8,93,83,742/- by observing as under: "I have considered the matter in detail. It is quite clear that the AO's calculation of the profit following PCM is not based on correct figures. It appears that the AO has not properly understood the actual facts and figures. The AO has wrongly taken a sum of Rs. 5,83,68,452/- as construction expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounting for real estate transactions (Revised 2012) issued by the ICAI, percentage completion method can be applied when the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure incurred on construction and development cost is less than 25% of the construction cost. In the instant case, except in three project out of seventeen running projects, construction cost is less than 25%of the project cost. Out of the closing work in progress of Rs. 2,73,68,844/-, Rs. 2,40,98,078/- belongs to 14 projects which have incurred marginal expenditure and even less than 25% of the projected cost of the concerned project. So, percentage completion method are not applicable to these projects. Out of rest amount of Rs. 32,70,766/- in three projects, it is noticed from the WIP-sheet already submitted, some flats are pending to be completed. If at all percentage completion method is applied on Rs. 32,70,766/- for three projects, namely, Jagannath Estate, Jagannath Prava and Jagannath Park Enclave, element of estimated profit in the project works out to Rs. 6,16,257/-. We find that the CIT(A) after conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,99,81,069 20,99,81,069 Purchase of land 4,82,41,928 4,82,41,928 Development expenses 5,83,68,452 Nil (as already taken as cost of flats but not of plots) TOTAL 31,65,91,449 25,82,22,997 Less:- Closing stock of land 15,82,06,068 15,82,06,068 Cost of land sold 15,83,85,381 10,00,16,929 Total Sales 11,66,56,562 10,62,94,059 Porift/f(Loss) (4,17,28,819) 62,77,130 Rs. 5,83,68,452/- is the construction cost incurred during F.Y 2012-13 and has been correctly taken to WlP-sheet(enclosed). So this sum is related to construction of apartment/flats, but not plots. As found from profit & loss accounts figures of plots & flats have been shown separately. Ld A.O has wrongly included it in cost of plots. The appellant has removed it from plotting scheme in the above table as it is already included in apartment scheme. These figures of the assessee have been derived from the books of account, WJP statement and other documents submitted before ld-A.0 by the assessee. Prima facie, it is noticed that there is substantial profit on sale of plots. So, the addition of Rs. 5,43,99,650/- is not justified. Most respectfully it is submitted that even if 8% profit is taken (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the Assessing Officer may make an assessment in the manner as provided in section 144 of the Act. Thus, according to the statutory provisions of section 145(3), the Assessing Officer has to record his dissatisfaction about the correctness and completeness of the accounts of the assessee before rejecting books of account. In this case Id A.O has rejected the computation of the assessee. Even if he could have resorted to rejection of books of accounts his grounds like incurrence of loss is not sustainable on facts as there is no loss. Further in this case there is profit of Rs. 62,77,130/-. With his result and the settled position of law that low profit cannot be a reason for rejection of books of accounts and book result. So discarding the book result in this case is against settled position of law Some of the case laws are cited below. That the Department failed to point out the defects in the accounts of the Mumbai office. Rejection of the accounts of the Mumbai office without any defects having been pointed out therein was wrong. Therefore, the Commissioner (Appeals) had rightly accepted the audited accounts in respect of the Mumbai head office of the assessee. Depu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment having not been framed under section 144 of Income Tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them v/as not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of accounts of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in Section 145(3) of the Act are satisfied for rejection of the books of accounts. Thus, when the books of accounts are maintained by the assessee in accordance with the system of accounting, in the regular course of his business, same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor CIT(Appeals) have rejected the books of accounts maintained by the assessee in the course of the business. As such tribunal has rightly rejected or set aside the partial addition made by Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1% which appears to be reasonable". "Moreover, the only reason given by the AO in the assessment order to reject the book result in respect of land sales is disclosure of loss from such transactions. Now since the assessee has not disclosed any loss from land sales, the very rea- given by the AO to reject the book result does not exist. Hence, the profit disclosed by the assessee has to be accepted. In view the above discussion, the addition of Rs. 5,43,99,650/- made by the AO is deleted." 12. Before us, ld D.R. supported the order of the Assessing Officer whereas ld A.R. of the assessee supported the order of the CIT(A). 13. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. Before us, ld D.R. could not point out any specific error in the order of the CIT(A). Ld D.R. could not bring any material on record to controvert the findings of the CIT(A) that the Assessing Officer presumed that the development expenses of Rs. 5,83,68,452/- related to land development though the expenses actually related to construction projects. Further, the total sales of plot taken at Rs. 11,66,56,562/- by the Assessing Officer was not correc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
