TMI Blog2018 (8) TMI 2076X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned project. So, percentage completion method are not applicable to these projects. Out of rest amount of ₹ 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 ₹ 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 ₹ 6,16,257/-. We find that the CIT(A) after considering the entire facts of the case, has allowed relief of ₹ 8,93,83,742/- and sustained the disallowance of ₹ 6,16,258/-. Therefore, we find no infirmity in the order of the CIT(A), which is hereby confirmed and ground of appeal of the revenue is dismissed. Suppression of sale receipts on sale of land/plot, when the assessed has booked loss on it - HELD THAT:- The profit disclosed by the assessee on land sales comes to around 5.91% which appears to be reasonable. Further, the only reason given by the Assessing Officer in the assessment order to reject book results in respect of land sales was disclosure of loss from such transaction. Since the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vised 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 ₹ 16,87,48,276/- being receipts which the assessee should have taken into consideration for calculation of profit. Since the assessee had disclosed receipts of ₹ 7,03,53,078/-, he took the balance revenue for determination of profit as ₹ 9,83,95,198/-. From this gross revenue, he allowed deduction on estimate to the extent of ₹ 83,95,198/- towards administrative, financial and other overhead expenses and determined the profit to be taxed at ₹ 9 crores and added the same to the total income of the assessee. The details of computation of income under percentage completion method is as under: @ Total cost of the project ₹ 22,98,45308/- # Expected sales receipts-for the projects. ₹ 27,21,74,638/- % Total cost incurred - till 31.03.2013 (which is 62% of the total cost of the project) ₹ 14,32,75,344/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning 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. 2.3. Ld A.O has taken cost of the project as ₹ 22,98,45,308/-, total cost incurred as ₹ 14,32,75,344/- which are erroneous and not in tune with the records and statements submitted. Further, the revenue of ₹ 7,03,53,078/-till date is wrong as the gross receipt for F.Y 2011-12 is ₹ 2,83,65,384/-and For F.Y 2012-13 is ₹ 7,03,53,078/-, F.Y 2010-11 is ₹ 2,47,76,200/-giving cumulative figure of ₹ 12,34,94,662/- from the running projects Hence, all the figures taken to calculate income under PCM are blatantly wrong and baseless.' Ld A.O has taken all projects in one basket. Further each project i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by 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 the latter case the revenue is recognised on annual basis as the contract activity progresses based on the completion reached, subject to determination of the ultimate profit or loss from the project on its completion, in the former case, no revenue is recognized till the project is fully or substantially completed. Thus it is evident that under both the above referred methods, the costs incurred in the project, are accumulated on year to year basis till the project is finally completed. In other words the costs incurred in the first year are carried forward to as work- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of addition of income in adoption of PCM. The figure of ₹ 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 ₹ 6,16,258/- and deleted the balance addition of ₹ 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 ₹ 5,83,68,452/- as construction expenses which is in fact represents development expenses relating to sale of land. The AO has also not taken into consideration the individual construction projects while applying PCM. Even as per the guidance note of the ICIA, PCM cannot be applied to a project unless it reaches a reasonable level of development and a reasonable level of development is not achieved unless the expenditure incurred on construction and development is at least 25% of the total estimated construction cost. The AO has ignored all these postulates and applied PCM to all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress of ₹ 2,73,68,844/-, ₹ 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 ₹ 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 ₹ 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 ₹ 6,16,257/-. We find that the CIT(A) after considering the entire facts of the case, has allowed relief of ₹ 8,93,83,742/- and sustained the disallowance of ₹ 6,16,258/-. Therefore, we find no infirmity in the order of the CIT(A), which is hereby confirmed and ground of appeal of the revenue is dismissed. 8. Ground No.2 of appeal reads as under: On the facts and in the circumstances of the case, the CIT(A) is not justified in law as well as on facts in deleting the addition of ₹ 5,43,99,650/- made by the AO on account of suppressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 figu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar) 3.3. As per section 145(3) of the Act where the Assessing Officer is not satisfied about the correctness or completeness of the account of the assessee, or where the method of accounting provided in sub-section (1) of section 145 of the Act or accounting standard as notified in sub-section (2) of section 145 of the Act have not been regularly followed by the 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 ₹ 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts was incorrect or incomplete or correct profits could not be deduced - Samwon Precision Mould Mgf (India)P.ltd v .Income Tax Officer [2016] 48 ITR (Trib)630(Delhi). In so far as the estimation of gross profit made by the Assessing Officer modified by the CIT(Appeals), tribunal has rightly held that when the books of accounts of the assessee had not been rejected and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,503/- which the AO wrongly included in the receipts from land sale. This is evident from the table at para 3.1 of assessee's written submission reproduced above. The assessee has, in fact disclosed profit of ₹ 62,77,130/- from land sale which the AO has calculated at a loss of ₹ 4,17,28,819/- by adopting wrong figures. The profit disclosed by the assessee on land sales comes to around 5.91% 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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