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TMI Blog2023 (10) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... est of the revenue. 3. That on the facts and in the circumstances of the case and in law, the Ld. PCIT erred in setting aside the order passed u/s. 143(3) by the assessing officer by invoking the provision of section 263 of the Act. 4. That on the facts and circumstances of the case order passed by the PCIT is illegal, bad in law and without jurisdiction. 5. The appellant craves leave to add, amend, alter vary and or withdraw any or all the above grounds of appeal." 4. The assessee is a partnership firm carrying business of Real Estate Developer. The assessee has filed its return of income on 01.10.2015 declaring total income of Rs. 1,52,430/-. The case was selected for limited scrutiny through CASS. The assessment was completed u/s 143(3) on 27.12.2017 whereby the AO assessed the total income of assessee at Rs. 39,85,295/-. Subsequently, ongoing through assessment record the Pr. CIT found that the certain points were not taken into consideration by the AO while completing assessment order u/s 143(3) dated 27.12.2017. The Pr. CIT noted that the AO passed assessment order without making required examination/investigation which has resulted assessment order being erroneous so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the same is erroneous for want of inquiry on the point of applicability of the Project Completion Method. The Ld. AR has submitted that before the introduced section 43CB vide Finance Act 2018 with retrospective effect 01.04.2017 the Percentage Completion Method was not mandatory for the Real Estate business. He has submitted that section 43CB is not applicable for the year under consideration and therefore, question of applicability of the Percentage Completion Method does not arise. He has further submitted that when the assessee has recognized the revenue from the sale of plots in the subsequent year and offered income to tax then this issue is revenue neutral. He has relied upon the decision of Coordinate Bench of Tribunal in the case of Ashoka Hi-tech Builders (P.) Ltd. vs. DCIT 96 taxmann.com 547 (ITAT, Indore) and Trident Estate P. Ltd. vs. ITO 127 taxmann.com 360 (ITAT, Bom). Ld. AR has further submitted that the deferment of tax as result of method is regularly and consistently employed by the assesse is not viewed adversely by Hon'ble Bombay High Court as well as Hon'ble Supreme court in case of CIT vs. Aditya Builders 378 ITR 75 (Bom) and in case of Excel In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting. He has further submitted that the assessee has shown advance against booking of Rs. 5.88 cr whereas the assessee has declared turnover of Rs. 56 lac which is less than 10% of the advance booking. Therefore, the issues of sales turnover mismatch were also taken up for limited scrutiny. He has relied upon the impugned order of Pr. CIT. 9. We have considered the rival submissions as well as relevant material on record. The case of the assessee was selected for scrutiny under CASS for the issues as under: 1. Income from Real Estate Business 2. Sundry creditor 3. Sales Turn over mismatch 10. The AO issue notice u/s 142(1) on 22nd May 2017 and again on 8th August 2017 raising following queries as under: 11. The assessee vide reply dated 14.09.2017 furnishing the relevant details including purchase and sale of the plots during the year, bank account details & list of sundry creditors. The assessee also furnished vide reply dated 22.12.2017 the copy of ledger account confirmation from the sundry creditors and details of cost of construction (project wise). The details of sundry creditor and advance against booking of the plot are also part of the balance sheet as given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be presumed that you have nothing to say in the matter and order u/s 263 shall be passed on merit and on the basis of facts available on record." 12. It is manifest from the show cause notice that the commissioner has invoked provisions of section 263 of the Act on the issue of applicability of the Percentage Completion Method as against Project Completion Method adopted by the assessee. The Pr. CIT has finally opined as under: "3. I have carefully considered the facts of the case and the earlier written submission of the assessee available on assessment records. It is observed from the submission that the case was selected for verification whether assessee has adopted percentage completion method in view of real estate business with high closing stock. It is also observed that the assessee is a real estate builder and developer engaged in the business of real estate and colony development and sale of plots. AS-7 deals accounting of construction contracts, whereas AS-9 deals with revenue notes on accounting of real estate transaction in year 2012. This guidance note is based on the principles laid down in AS-7 and that of revenue recognition in AS-9. This guidance note la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under subsection (2) of section 145: Provided that profits and gains arising from a contract for providing services:- (i) with duration of not more than ninety days shall be determined on the basis of project completion method; (ii) involving indeterminate number of acts over a specific period of time shall be determined on the basis of straight line method. (2) For the purposes of percentage of completion method, project completion method or straight line method referred to in sub-section (1):- (i) the contract revenue shall include retention money; (ii) the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d scrutiny cases. The CBDT again expressed its concern on the point of exceeding the jurisdiction and scopes of limited scrutiny by AO's vide instruction dated 30.11.2017 in para 3 & 4 as under: "3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. 4. In view of discussion in the preceding parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant appeal both the lower authorities have rejected the books of account of assessee and applied the percentage completion method adopted by the developer JSM DPL and computed the income accordingly. Whether such action of the revenue authorities is justified or not needs to be examined in light of the jurisdictional pronouncements. 29. We find that Hon'ble Supreme Court in case of Investment Ltd. (supra), where their Lordships have held that "assessee is free to employ for the purpose of his trade, his own method of keeping accounts, and for they purpose to value his stock-in-trade either at cost or at market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. The method of accounting regularly employed may be discarded only, if, in the opinion of taxing authorities, income of the trade cannot be property deduced there from (as per provisions of 1922 Act in force at that time, presently only if case falls in sub section (3) of section 145). 30. Further in another judgment of Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordships have reiterated position that choice of accounting method lies with that of assesses, the only caveat being that it has to show that the chosen method has been regularly followed. The section is couched in mandatory terms and the department is bound to accept the assessee's choice of method regularly employed except for the situation wherein the AO is permitted to intervene, in case it is found that true income profits and gains cannot be arrived at by the method employed by assessee. Their Lordship's further held that the position of law is further well settled that regular method adopted by assessee cannot be rejected merely because it gives benefit to assessee in certain years. 32. Examining the facts of instant appeal we in light of above judgments we find that the method of accounting along with following project completion method for treatment of advances received from proposed buyers the assessee has been consistently followed this method and appellant's assessment has been completed by the Ld AO for first two years Viz, AYS, 2010-11 & 2011-12, In both these years also the appellant has credited the advance received against proposed sales of flats to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 28 (Mag.) (Guj) and therefore this court is are of the opinion that the view taken by the Tribunal and the Commissioner of Income Tax is not correct. Issue decided in favour of assessee. 34. Further the Hon'ble High Court of Gujarat in the case of CIT v Shivalik Buildwell P Ltd (2013) 40 taxmann.com 219 (Guj.) dealing with the similar issue observed as follows; "On the Revenue's appeal, the Tribunal confirmed the view of the Commissioner of Income Tax (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration. The Tribunal further noted that such method of accounting followed by the assessee had been accepted by the Revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer's decision to reject the book results during the year under consideration was not justified. We are of the opinion that the Tribunal committed no error. If as per the accounting standard available, the assessee was entitled to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration, particularly when such profits have already been offered to tax by the appellant in the assessment year 2007-08. The addition of Rs. 1,66,70,811 are directed to be deleted". 36. Further the co-ordinate Bench of Ahmedabad Tribunal in the case of Vraj Developers passed in ITA No. 19/AHD/2008 which attained finality as it is not challenged by the department before the high forum observed as follows; "The learned Departmental representative supported the order of the learned Assessing Officer and the learned authorized representative of the assessee supported the order of the learned Commissioner of Income-tax (Appeals) and also placed reliance on the Bangalore Bench of the Tribunal in the case of Nandi Housing P. Ltd v. Deputy CIT (2003) 80 TTJ (Bang) 750, wherein the Tribunal followed the decision of the Karnataka High Curt in the case of Khoday Distillers Ltd, in ITRC Nos. 19 to 21 of 1993. This, it is observed that the issue which requires our adjudication is that the income in the instant case is to be computed as per system of accounting followed by the assessee or as per accounting followed by the assessee or as per accounting standard AS7 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the accounting system of percentage completion method, which is permissible and accepted by ICAI and the Central Board of Direct Taxes with respect to construction work, it cannot be said that the learned Appellate Tribunal has committed any error/ or illegality, which call for the interference of this court. We see no reason to see to interfere with the impugned judgment and order passed by the learned Commissioner of Income tax (Appeals) deleting the addition of Rs. 1,66,70,881 which was made by the Assessing Officer on rejecting the accounting system on percentage completion method followed by the assessee. No question of law much less any substantial question of law arise in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed." 37. We further find the co-ordinate bench of Mumbai in the case of Prem Enterprises V Income Tax Officer (2012) 25 taxmann.com 179 (Mum.) deal with the similar issue wherein the assessee was constructing a project and was consistently following project completion method and the assessing officer rejected the method of project completion adopted by the assessee on observing that 8% of the total project h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court held that the completion contract method adopted by the assessee for chit discount consistently over the years, is not required to be substituted by percentage completion method. In CIT v Manish Buildwell (P) Ltd (2011) 245 CTR 397 (Del), it was enunciated that project completion method is one of the recognized methods of accounting. That it cannot be said that the project completion method followed by the assessee would result in deferment of payment of taxes. Therefore, considering the discussion above, I do not find any merit on the part of the AO to have worked out the income by applying the percentage completion method". The Tribunal affirmed the order of the CIT(A). It was concluded that project completion method and percentage completion method are accepted standards of accounting and the assessee has option to adopt any one of them. The relevant findings recorded by the Tribunal read thus:- "We have heard the rival contentions and perused the record. The issue arising in the present appeal before us is in relation to the method to be applied for recognizing the revenue generated by the assessee in the course of carrying on the business of real estate developers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed methods of accounting. It cannot be said that the projection completion method followed y the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act. AS-7 issued by the ICAI also recognizes the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method." Where the assessee was following a particular method of accounting consistently, which has been accepted by the department from year to year and in the absence of any defect being pointed out by the Assessing Officer that by following such method, income had escaped assessment, we find no merit in the order of the Assessing Officer in holding that percentage completion method should be applied to the assessee for the year under consideration. It is the prerogative of the assessee to arrange its affairs in such a manner and follow any recognized method of accounting to compute its profits. In view thereof, we find no merit in the order of the Assessing Officer in recomputing the income in the hands of the assessee. Upholding the order of Commissioner of Income Tax (Appeals), we d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. The On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours) 40. After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect completion method with the only rider that it should be consistently adopted and in case of any deviation the effect of profit or loss should be offered to tax as the case may be. Revenue has not disputed this fact that assessee has offered the impugned advances to tax in the subsequent years i.e. from financial year 2014-15 based on sale deed registered which proves that there has been no loss to the revenue. Mere postponement of tax as a result of method employed by assessee has not been viewed adversely by courts so long as the method is regularly and consistently employed as held by Hon'ble Apex Court in the case of Excel Industries Ltd (2013) 358 ITR 295." 18. Therefore, when the assessee is consistently following the Project Completion Method which is not prohibited by law the acceptance of the same by the AO cannot be held as erroneous decision on the part of the AO and consequently the Pr. CIT cannot invoke the provisions of section 263 of the Act on a claim which is bona fide and a possible view not prohibited by law. Accordingly, in the facts and circumstances of the case and following the decision of Coordinate Bench in the case of Ashoka Hitech Builders (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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