TMI Blog2023 (2) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... .271(1)(c) of the Act. The Revenue could further not dispute the clinching fact taken note of both in the assessment order as well as the CIT(A)'s order before us the assessee had already filed his revised return declaring the very income of Rs.1,83,86,690/- which stood duly accepted and processed. Revenue s reliance on hon'ble apex court s decision Mak Data Pvt. Ltd.[ 2013 (11) TMI 14 - SUPREME COURT] we note that the said assessee was found in possession of bogus share application form and other documents as against facts of the instant case wherein this taxpayer had only followed project completion method. We make it clear that Revenue s instant arguments deserve to be rejected only in light of the foregoing factual matrix i.e., non-application of Explanation 5A to sec.271(1)(c) of the Act and filing of revised return at the assessee s behest indicated hereinabove. Decided against revenue. - ITA.No.836/PUN./2022 - - - Dated:- 6-2-2023 - Shri Satbeer Singh Godara, Judicial Member And Dr. Dipak P. Ripote, Accountant Member For the Revenue : Shri M.G. Jasnani For the Assessee : Shri Neelesh Khandelwal ORDER PER SATBEER SINGH GODARA, J.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under : Q.24 : You are requested to go through page nos. 110 111 of the Loose Bundle 11 which is seized during the course of search. Please identify the contents. Ans: Sir there are currently two projects that are going on. One is Project Crossroads at Wakad and other is Project Aurete at Pimple Saudagar. To get an idea of the overall progress of the projects, we had hired Shri Vikas Achalkar, Architect to inspect the above said projects and submit his certificate. Accordingly, he had submitted the report April 2016 which is seized by you as page nos. 110 111 of the loose Bundle No. 11. Q.25. As per aforesaid certificates, the Architect has certified that approximately 45% and 37% work is completed in Projects Crossroads and Project Aurete respectively. In view of these facts, please state whether corresponding revenue has been recognized. Ans: Sir, the Project Crossroads is being constructed by the firm Shri Raviraj Pashankar Developers and Project Aurete is being constructed by Raviraj Ventures. We do maintain the books of accounts of both the firms on dayto- day basis. Ongoing through the tentative Profit and Loss Account of the above sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and doesn t pertain to any material found as specified in explanation to section 5A of section 271(1)(c). The search party informed the assesses that as per the guidelines of ICAI percentage completion method could also he followed for recognizing the income. Since this was the 1st year in which the basic conditions of percentage completion method were fulfilled, the assessee without taking into consideration the legal position that percentage completion method is not mandatory and project completion is also an acceptable method of recognition, agreed to recognize the revenue under percentage of completion method. Thus it is evident that the revenue recognized is only due to change in method of revenue recognizing wherein the method followed by the assessee is not found to be an invalid wrong method. No penalty u/s 271(1)(c) of the Act is warranted when the revenue is reconginzed or addition is made on account of change in the method of revenue recognition as it doesn t tantamount to furnishing of Inaccurate particulars of Income or concealment of Income. With prejudice to point above, change in method from project completion to percentage completion amounts only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nception of the project which is valid and acceptable method of accounting, income was offered only to buy peace of mind and avoid litigation. It is a well settled law that the suitability of the method of accounting has been discussed by various courts at various points of time and the issue regarding the most suitable method of accounting with respect to real estate transactions is a debatable issue and no penalty u/s 271 (1)(c) of the Act can be levied on such debatable issues. In this regard, the appellant has relied on the decision of Mumbai ITAT in the case of Parinee Developers (P) Ltd v ACIT 88 taxmann.com 42 (Mumbai Trib.) vi) Change in method of accounting doesn t attract penalty provisions. It is a well settled legal position that, if the language of a taxing provision is ambiguous or capable of more meaning than one, then the interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty, should be taken (CIT vs Vegetable Products (Supreme Court). 8. I have considered the facts of the case and the submissions made by the appellant. In brief, the appellant filed its original return of income at Rs. Nil b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete method both were recognized method of accounting for computation of gains from construction contract Section 43CB was instituted by the Finance Act 2018 w.e.f. 1-4-2017 which provides that profits and gains arising from Construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards. However, this section was not in existence and applicable in the assessment year 2014-15 which we are concerned with. Thus, it is amply clear that percentage complete method and completed contract method were both acceptable method and accounting of construction contract in the impugned period. We note that the assesses has all along treated the said project as capitalised item and debited all the expenses to the capital account. This method has been accepted by the Revenue in the past. It is also undisputed that in the current year project is not at all complete. Redevelopment is still in progress. The assessee has also to recoup expenditure from other co-owners. Agreement to sale has not been registered, possession of the property has not been handed over. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains. . 43. From the perusal of above section it is crystal clear that before the insertion of this section there was no legal obligation on the part of the assessee to follow percentage completion method only. Before insertion of this section person engaged in construction and service contracts were free to follow either the project completion / Completed project method or percentage completion method in accordance with the provisions of section 145 of Act. 9.3. Similar view have been expressed by Hon ble ITAT Cuttack Bench in the case of Hi-tech Estates Promoters Pvt Ltd vs PCIT ITA No.391/CTK/2018 (Cuttack Tribunal) wherein the hon ble bench has observed as under : 29. At the same time we cannot ignore that the legislature, by Finance Act, 2018 has inserted Section 43CB to the Act w.e.f. 1.4.2017, which provides the profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage completion method (PCM) in accordance with the income computation and disclosure standards notified under sub-section (2) of Section 145 of the Act. Thus, this provision is applicable from assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly paid tax on it, no penalty could be levied. 10.4. In the case of Parinee Developers (P) Ltd vs ACIT 88 taxmann.com 42 (Mumbai Trib), the Hon ble Tribunal observed that the assessee-company, engaged in real estate business, did not show sale of certain commercial area in assessment year 2009-10 based on percentage completion method. However, said amount was reflected in next assessment year. The Assessing Officer however taxed said income in 2009-10 and also imposed penalty for concealment of income. Hon ble Tribunal held that The assessee offered the said income in the later assessment year basing on the principle 'pay as you earn'. This principle is upheld by the Supreme Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295 / 38 taxmann.com 100/219 Taxman 379 wherein it is held that the income-tax cannot be levied on hypothetical income. In the instant case, the liability to pay by the other parties crystallized in the assessment year 2010-11 not in the assessment year 2009-10. But the Commissioner (Appeals) insists the same would be taxable in the year under consideration. Such additions, in principle, are unsustainable in law consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5A and the fact that the return was revised after the search. However as per the penalty order, the material found during the search was the certificate issued by the Architect regarding the progress of the project. There is no finding in the penalty order that the seized documents indicate that the appellant had claimed any inadmissible expenses or received any unaccounted sale receipts, etc. As per the statement recorded ids 132(4) of the Act, the architect s certificate only indicates that the project was complete beyond the threshold limit, prescribed in the guidelines for applying the percentage completion method of accounting. Thus, the seized document only suggests that the conditions for applying, the percentage completion method are being fulfilled. However, as discussed above, whether the appellant was mandatorily required to follow, percentage completion method for the year under consideration, remains a debatable issue. 11.3. Considering the totality of facts of the case and the judicial position, l am of the considered view that if the appellant agreed to recognise revenue by following the 'percentage completion method and revised its Return of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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