TMI Blog2023 (12) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) that the Project Completion Method which the assessee has adopted for recognition of revenue and the profit elements distorts the profits for the year under consideration. In absence of any such finding either by the AO or by the ld. CIT(A), the Department therefore cannot insist the assessee to substitute the Percentage Completion Method in place of Project Completion Method which the assessee has adopted for the year under consideration. There is another decision in M/s. Prestige Estate Projects Pvt. Ltd. [ 2020 (5) TMI 239 - KARNATAKA HIGH COURT] where their Lordships have observed when the Department has accepted in the previous years, in the light of guidance note applicable to developers a certain method of accounting and the profit arrived at is revenue neutral, then in such scenario, the substantive question of law has to be answered in favour of the assessee and against the Revenue. Therefore, in the case of the assessee for A.Y. 2015-16 when the Department has not pointed out any distortion in the profit arrived at for the year under consideration by adopting Project Completion Method, then the Revenue arrived at has to be revenue neutral and the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO were supplied by the appellant during assessment proceedings and the appellant had not raised any dispute or that computation disregarding the submissions given by the by the appellant. 4. The ld CIT(A) on confirming the action of the AO failed to appreciate the following that: a. The advances received from the flat owners cannot be treated as taxable business income unless and until the transaction is complete in all respect. b. The addition made to the total income of the appellant is incorrect as the AO has not considered the fact that the final completion certificate is not received and possession of the flat was not handed over to the flat holder and thus the income is not taxable. c. In the Return of Income for A.Y.2016-17, the appellant had offered these receipts as business income for the project. 5. The ld CIT(A) further erred: a. In rejecting the contention of the appellant that income accrues to the appellant on the date of possession of flat given to the buyer. b. In treating the share in booking amount received on sale of flat by the appellant as business receipt, disregarding the fact that such receipts are continge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filing the return of income, since due date of filing the return was still there, and then he promised that he would include the said amount over and above the other income for F.Y. 2015-16 relevant to A.Y. 2016-17 following Percentage Completion Method. However, the AO, at para 10 of his order, observed that Shri Rajesh Sakla Managing Partner of the assessee group had admitted, in his statement recorded u/sec. 132(4), to recognize the revenue as per Percentage Completion Method, but, the assessee had failed to offer the income and recognize revenue on sale of flats following Percentage Completion Method for the year under consideration. We have already seen in answer to question No.10, the Managing Partner Shri Rajesh Sakla had admitted that they would adopt the said Percentage Completion Method from F.Y. 2015-16 relevant to A.Y. 2016-17, but not for the year under consideration i.e. A.Y. 2015-16 for which already Project Completion Method has been adopted. Therefore, there is an apparent discrepancy in the finding of the AO, where as per answer to question No.10, the said Managing Partner of the assessee group had admitted to adopt Percentage Completion Method from A.Y. 2016-17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same i.e. they were passed on the same date and by the same AO. That, again assessment for the present year i.e. A.Y. 2015-16 also has been passed by the same AO, when he has accepted Project Completion Method for A.Ys. 2013-14 and 2014-15 then he should have brought out distinctly any mistake or fallacy or distortion caused to the profits by adopting Project Completion Method and therefore insisting to apply the Percentage Completion Method. But the AO has not given any such findings. Shri Rajesh Sakla, Managing Partner of the assessee group in answer to question No.10, in the statement recorded u/sec. 132(4) of the Act, has declared to follow Percentage Completion Method from A.Y. 2016-17. Even the ld.AR submitted that they have shown their profit in the return of income filed for A.Y. 2016-17 by adopting the Percentage Completion Method and have paid due taxes thereon. We do not find that the Revenue has brought out any case to make such addition in the hands of the assessee for A.Y.2015-16 for recognizing the profit adopting Percentage Completion Method. At least, there has to be some kind of ambiguity or distorment of arriving at the profit element through Project Completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounting based on the concept of accrual, the method of accounting followed by the assessee s is relevant. In the present case, there is no finding recorded by the AO that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the Chit Scheme is one integrated scheme spread over a period of time, sometimes exceeding 12 months. We have examined computation of tax effect in these cases and we find that the entire exercise is revenue neutral, particularly when the scheme is read as one integrated scheme spread over a period of time. 20. As stated above, we are concerned with assessment years 1991-1992 to 1997-1998. In the past, the Department had accepted the completed contract method and because of such acceptance, the assessees, in these cases, have followed the same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age Completion Method in the subsequent year and as such, there is revenue neutral in the assessment year in question. Hence, for the reasons aforestated, we answer the substantial question of law No. 1 in the affirmative i.e., in favour of the assessee and against the revenue. Therefore, in the case of the assessee for A.Y. 2015-16 when the Department has not pointed out any distortion in the profit arrived at for the year under consideration by adopting Project Completion Method, then the Revenue arrived at has to be revenue neutral and the Department cannot insist on the assessee to adopt Percentage Completion Method. More so, because the Revenue has already accepted Project Completion Method for the assessee for the previous consecutive A.Ys. 2013-14 2014-15. We are of the considered view, therefore, on examination of the facts and circumstances and as per the judicial pronouncements placed on record that the addition made in the case of the assessee is unjustified unwarranted and invalid in the eyes of law. We set aside the order of the ld. CIT(A) and direct the AO to delete the addition from the hands of the assessee. Ground Nos. 2 to 5 are, therefore, answered in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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