TMI Blog2022 (11) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) upholding the claim of the assessee that no revenue was to be recognized in the impugned year from the construction projects undertaken by it. Ground no.1 raised by the Revenue is accordingly dismissed. Disallowance u/s.36(1)(iii) - HELD THAT:- Since we have held in ground no.1 above that no income is assessable in the impugned year, there arises no question of claim of any expense whatsoever by the assessee and therefore the addition made on account of disallowance of interest is not tenable. Ground no.2 is therefore become infructous, and is thus dismissed. - ITA No. 2469/Ahd/2018 - - - Dated:- 19-10-2022 - SMT. ANNAPURNA GUPTA , ACCOUNTANT MEMBER AND SHRI T. R. SENTHIL KUMAR , JUDICIAL MEMBER Assessee by : Shri Aseem L. Thakkar , AR Revenue by : Shri A. P. Singh , CIT - DR ORDER PER ANNAPURNA GUPTA , ACCOUNTANT MEMBER The present appeal has been filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals)-8 , Ahmedabad (in short referred to as CIT(A)), dated 26-10-2018 passed under section 250(6) of the Income Tax Act, 1961 ( the Act for short) pertaining to Assessment Year 2014-15. 2. Ground No.1 of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pense as per Accounting Standard 7 should be as below: Recognition of Contract Revenue and Expenses 21. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately in accordance with paragraph 35. 22. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: (a) total contract revenue can be measured reliably; (b) it is probable that the economic benefits associated with the contract will flow to the enterprise; (c) both the contract costs to complete the contract and the stage of contract completion at the reporting date can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form a significant proportion of the project activity. 5.2 This method is applied when the outcome of a real estate project can be estimated reliably and when all the following conditions are satisfied: (a) total project revenues can be estimated reliably; (b) it is probable that the economic benefits associated with the project will flow to the enterprise; (c) the project costs to complete the project and the stage of project completion at the reporting date can be measured reliably; and (d) the project costs attributable to the project can be clearly identified and measured reliably so that actual project costs incurred can be compared with prior estimates. When the outcome of a project can be estimated reliably, project revenues and project costs associated with the project should be recognised as revenue and expenses respectively applying the percentage of completion method in the manner detailed in paragraphs 5.3 to 5.8 below. 5.3 Further to the conditions in paragraph 5.2 there is a rebuttable presumption that the outcome of a real estate project can be estimated reliably and that revenue should be recognised under the percentage completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions; (b) site labour costs, including site supervision; (c) costs of materials used in construction or development of property; (d) depreciation of plant and equipment used for the project; (e) costs of moving plant, equipment and materials to and from the project site; (f) costs of hiring plant and equipment; (g) costs of design and technical assistance that is directly related to the project; (h) estimated costs of rectification and guarantee work, including expected warranty costs; and (i) claims from third parties. 2.4 The following costs should not be considered part of construction costs and development costs if they are material: (a) General administration costs; (b) selling costs; (c) research and development costs; (d) depreciation of idle plant and equipment; (e) cost of unconsumed or uninstalled material delivered at site; and (f) payments made to sub-contractors in advance of work performed. 2.5 Costs that may be attributable to project activity in general and can be allocated to specific projects include: (a) insurance; (b) costs of design and technical assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s worked out as Rs.57.67 crores on page No.9 of the assessment order is also wrong. The correct figure should be Rs.120.30 crores minus the land and development right cost of Rs.62.85 crores which comes to Rs.57.45 crores. The working of the appellant as submitted in the appellate proceedings is as below: The AO has a/so made a calculation of project costs excluding land cost on pg.9 of the assessment order. It has been worked out at Rs.204,14,00,000/-. However, the same suffers from errors. The estimated projected cost without land would be Rs. 240,59,00,000 (3180400000-774500000). Refer pg.682 of the PB and table 4 of the assessment order. The cost incurred till the reporting period would be Rs.54,45,04,551 (1203050010-628545459). The data is available on pg.681 of the PB. The AO has from the estimated cost deducted actual land costs when he should have deducted estimated land costs. The AO has for inexplicable reasons mixed up the actual figures and estimates and arrived at a erroneous conclusion. The actual costs without actual land costs have also been inflated to reach a work completion of 28.24% which infact would be as under: 57,45,04,551 x 100 2405900000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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