9911796707
TMI Blog2024 (11) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... No.3751/M/2023. Relevant facts in brief are that the Assessee, is a partnership firm being engaged in the business of real estate since 2004 and during the AY under consideration had declared its income at a loss of Rs. 16,15,58,455/- by filing its return of income on 31.10.2018, which was selected for scrutiny under CASS for certain issues vis-a-vis: (1) Verification of genuineness of expenses (2) Income from real estate business (3) Default in TDS and disallowance for such default (4) Investments/advances/loans (5) Sales turnover/receipts & (6) Business expenses 2.1 Therefore, statutory notices were issued to the Assessee, in response to which the Assessee uploaded its replies with supporting documents, on considering the same, the AO found that the Assessee during the A.Y. 2018-19 has shown sales/turnover of Rs. 39,01,93,560/- as per the details of sales furnished in annexure 'K' but in the ITR has shown sales of Rs. 3,76,74,000/- and therefore there is variation/difference between sales/turnover as per the ITR and GST returns and therefore vide notice dated 10.03.2021 u/s 142(1) of the Act, asked the Assessee to reconcile the difference in sales and also furnish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st you not to make any addition relating to undisclosed income/sales and is added to the total income of the assessee and not to initiate penalty proceedings u/s270A of the Income Tax Act, 1961." 3. The AO though considered the aforesaid reply of the Assessee but found the same as not acceptable and ultimately made the addition of Rs. 35,25,19,560/- being difference between sales as per ITR and GST returns by holding as under: "3.2 The reply of the assessee has been considered. The assessee has furnished information of sale of properties in annexure "K" of reply dated 06/03/2021. As per this annexure, details of properties sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and registered with the Sub Registrar, Borivali. Thus the properties stand transferred and sale of properties amounting to Rs. 39,01,93,560/- stand finalized. Further, the assessee has shown TDR (transfer of development rights) sales of Rs. Rs. 3,76,74,000/- only in the P & L account. Transfer of Development Rights (TDR) means making available certain amount of additional built up area in lieu of the area relinquished, so that purchaser can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission dated April, 12, 2021 explained that during the year, there were sales agreements registered with the Sub Registrar, Borivali 5. The construction activity was carried out in this year and completed 1st Slab of said building. The said project is 23 Storeyed Residential Building. Few Clients had made the sales agreement and the same is wrongly considered as "sales" by the NeAC but the said project is still under construction. Only around 10 percent of the project is completed by the assessee. 6.4. Further, in GST Returns, the assessee shown the turnover towards advances received from the buyers as sales. The assessee has adopted project completion method, hence the assessee has shown amount invested in the project as work in progress and advances received on account of Flat Booking from the prospective buyers as Advance against sales in current liabilities. Though the advance received from the prospective buyers has been taken as current liabilities, the same is not repayable to the respective creditors and it is shown as Advance Receipt. As per Section 2 (31) of CGST Act, 2017 "consideration" in relation to the supply of goods includes any amount received or receivable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Assessee has incurred more than 25% of the project cost and therefore the benefit of project completion method cannot be given to the Assessee. As per the project details submitted by the assessee before the A.O, the estimated project cost was Rs 227 crores and as per its P & L account for the year, its work in progress stood at Rs 87,87,68,238/-. Thus, based on the Assessee's own financials, it had completed 38.71% of its project. Therefore, the Ld. Commissioner has erred in concluding that only 10% of the project was completed. 5.1 The Ld. DR further submitted that sales of certain units of the project were finalized, as in the Assessee's own submission it had submitted that the receipts against such sales were not repayable to the customers. Hence, the Assessee ought to have offered the same as sales executed during the year in the P & L account. Further there are inconsistencies in the method of accounting followed by the Assessee, which claimed to be adopting the project completion method, but in fact had debited commission expenses of Rs 22,65,69,249/- against the sale of flats as revenue expenses. Thus, by not offering the sales as revenue income and yet debiting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel further submitted that even assuming a percentage completion method is to be applied, even then also the Assessee does not reach the minimum threshold for revenue recognition as per INDAS-11 read with Guidance note on accounting for real estate transactions, which prescribes that at least 25% of the saleable project area is secured by contracts or agreements with buyers and at least 10% of the contract consideration as per the agreements of sale or any other legal enforceable documents, are realized at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms, as defined in the payment contracts. 6.2 The Ld. Counsel further submitted the Assessee was/is supposed to construct total three wings i.e. A, B & C each consisting four podiums and 19 upper floors and each floor of each wing has four flats. Therefore, the Assessee was/is supposed to construct saleable building consisting of 228 flats. The Assessee during the assessment year under consideration completed "1st" Slab of said building and has entered into with agreements to sell of 24 flats only, which goes to show that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration was Rs. 39,01,93,560/-. ITR turnover is on account of the sale of TDR i.e. Rs. 3,76,74,000/- as per the audited financials and therefore the difference between the total agreement value and ITR turnover and shown in the GST returns, are not comparable, as the Assessee has not recognized any revenue from the sale of flats. 6.6 The Ld. Sr. Counsel further, by producing the sample agreements to sell, submitted that the Assessee with various buyers has executed agreements to sell but not the sale deeds and as per the agreements to sell, though the entire consideration has been fixed, however, most of the respective buyers were/are supposed to pay the consideration fixed, in installments and therefore consideration fixed cannot be considered, as sales in its P & L account. 7. We have heard the parties and perused the material available on record including the sample agreements to sell, Guidance notes on accounting for real estate transaction, relevant section of Central Goods and Services Tax 2017 (in short "CGST Act"), copy of GST returns, relevant judgments etc. 7.1 The Ld. D.R. mainly raised the issue which relates to the differences between the sales turnover shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt received or receivable as per construction schedule will be liable to GST Tax. The Sales comparison of Sales as per ITR with GSTR Return is not tenable. Therefore, we request you not to make any addition relating to undisclosed income/sales". 7.4 The AO though considered the reply of the Assessee, however, found the same as not acceptable, and ultimately made the addition of Rs. 35,25,19,560/- and added the same in the income of the Assessee, by holding as under: "That as per Annexure-A of reply dated 06.03.2021, the details of property sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and registered with the Sub Registrar, Borivali. Thus, the properties stand transferred and sale of properties amounting to Rs. 39,01,93,560/- stands finalized. Further, the Assessee has shown TDR (Transfer of Development Rights) sales of Rs. 3,76,74,000/- only in the P & L Account. TDR means making available certain amount of additional built-up area in lieu of area relinquished so that purchaser can use extra built-up area either himself or transfer to another in need of the extra built-up area for an agreed sum of money. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject completion method, hence such method as approved by the Ld. Commissioner may be upheld. 7.6 On the contrary, the Ld. D.R. has raised the issue, as the Assessee has estimated the project cost at Rs. 227 crores, however, as per its P&L Account for the year, its work in progress stood at Rs. 87,87,68,238/- thus based on the Assessee's own financials, it has completed 38.7% of the project. Therefore, the contention of the Assessee and the conclusion drawn by the Ld. CIT(A) that only 10% of the project has been completed is devoid of merits. Further, the Ld. D.R. also raised the issue that reading of INDAS-11 by the Ld. Commissioner is also erroneous, as nowhere the said accounting standard laid down that Revenue ought to be recognized in construction contracts only, when a stage of 25% is completed. Further, the said AS laid down that stage of completion may be determined by the proportion that contract's cost incurred for work performed to the date, bearing to the estimated total construction cost which remains at 38.71%, hence the AO has rightly applied the percentage completion method, which requires to be uphold and restored. 7.7 On being asked specifically qua alleged est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case and by taking into account that as per section 145 of the Act, it is not open to an AO to reject the accounts of an Assessee, unless he comes to a determination that notified accounting standards have not been regularly followed by the Assessee. The Hon'ble High Court further affirmed the finding of the tribunal that as per Accounting Standard-7 (AS-7) issued by the Institute of Chartered Accountants of India, the Assessee can follow either the project completion method or the percentage completion method and therefore the AO is not empowered to adopt the percentage completion method for one year on selective basis as it will distort the computation of the true profits and gains of the business. 8.3 The Hon'ble Apex Court in the case of CIT vs. Bilahari Investment Pvt. Ltd. (2008) 168 taxman 95/299 ITR 1 (SC) as well, also elaborated the completed contract method by observing as under: "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO is not empowered to reject the project method, which has consistently been followed by the Assessee and to adopt a different method, as done by the AO in this case". 8.7 Coming to the instant case, admittedly, as the Assessee is consistently following the project completion method, and therefore there was no logic or plausible reason to discard the accounting method being continuously followed by the Assessee, hence the action of AO in rejecting the project completion method followed by the Assessee and applying "percentage completion method" is un- sustainable and contentions raised by the Ld. DR in support of decision of AO qua this aspect, are untenable and hence the same are rejected and 'project completion method' approved by the Ld. Commissioner is sustained. 9. Coming to other contentions raised by the Ld. DR, to the effects that as per project details submitted by the Assessee before the AO, the estimated project cost was Rs. 227 crores, however, in its P & L Account for the year under consideration, the work in progress stood at Rs. 87,87,68,238/-, therefore on the basis of the Assessee's own financials, the Assessee has completed 38.71% of its project and thus the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AS 11, Construction Contracts. In respect of transactions of real estate which are in substance similar to delivery of goods principles enunciated in Ind AS 18, Revenue, are applied. ........................................................................... ................................................................... 2. ........................................................................ 3. ........................................................................... 4. ........................................................................... ................................. 5. Application of Percentage Completion Method 5.1 The percentage completion method should be applied in the accounting of all real estate transactions/activities in the situations described in paragraph 3.3 above, i.e., where the economic substance is similar to construction contracts. Some further indicators of such transactions/activities are: (a) The duration of such projects is beyond 12 months and the project commencement date and project completion date fall into different accounting periods. (b) Most features of the project are common to construction contracts, viz., la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sale or any other legally enforceable documents are realised at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms as defined in the contracts. To illustrate If there are 10 Agreements of sale and 10% of gross amount is realised in case of 8 agreements, revenue can be recognised with respect to these 8 agreements only. 5.4 When the outcome of a real estate project can be estimated reliably and the conditions stipulated in paragraphs 5.2 and 5.3 are satisfied, project revenue and project costs associated with the real estate project should be recognized as revenue and expenses by reference to the stage of completion of the project activity at the reporting date. For computation of revenue the stage of completion is arrived at with reference to the entire project costs incurred including land costs, borrowing costs and construction and development costs as defined in paragraph 2.2. Whilst the method of determination of stage of completion with reference to project costs incurred is the preferred method, this Guidance Note does not prohibit other methods of determination of sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenues received and therefore contentions raised by the Ld. DR that the Assessee has completed 38.71% of its project and therefore the Assessee would have recognized the revenue under the percentage completion method and/or thus the Ld. Commissioner had erred in concluding that only 10% of the project has been completed, are also untenable, hence rejected. 11. Coming to next issue raised by the Ld. DR, which pertains to making payments qua Commission/Brokerage Expenses. The Ld. DR claimed that because the Assessee has paid the brokerage commissions and therefore, it should have recognized the revenue received. We observe the AO vide notice dated 09-04-2021 also proposed the addition of Rs. 22,65,69,249/- on this count and in response to that, the Assessee by filing its reply dated 12th April 2021 has claimed that it had appointed Indiabulls Distribution Services Limited (IDSL) as a "Marketing Agent on Commission Basis" during the AY under consideration, to act on behalf of the Assessee. The IDSL had a monopoly to sell flats to the various customers, as it appears from the copy of Agreement with IDSL. Whatever the commission paid to IDSL was, as per the Agreement and not on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in GST Return and ITR has been properly reconciled by the Assessee before the authorities below, as well as before us and therefore addition made by the AO on this aspect, at all is not sustainable and therefore has rightly been deleted by the ld. Commissioner. 12.1 Consequently, on the analyzations made above, the decision of the Ld. Commissioner in deleting the addition under consideration is sustained and the appeal i.e. ITA No.3751/M/2023 filed by the Revenue Department is dismissed. 13. Coming to the CO No.42/M/2024 filed by the Assessee, we observe that the Assessee is aggrieved with the following disallowances: First disallowance of architect and professional fee to the tune of Rs. 1,25,67,743/-; Second disallowance u/s 14(a)(ia) of the Act to the tune of Rs. 5,27,107/-. 14. We are inclined to adjudicate the CO of the Assessee issue-wise. Coming to the first disallowance/issue No.1, which pertains to disallowance of architect and professional fee to the tune of Rs. 1,25,67,743/-, we observe that the Assessee had claimed an amount of Rs. 1,25,67,743/- in its profit & loss account on account of architect professional fee, but during the assessment proceedings, in spite of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... architect and professional fees were paid, hence the same may be considered. 14.3 On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting that the Assessee has submitted additional evidences vide letter dated June 6, 2024 and pleaded for its admission. In this context, it is stated that ample opportunities had been provided by the A.O during the assessment proceedings to submit supporting evidences for proving the genuineness of the said expenses. However, the Assessee failed to submit the requisite documents. Further, even during the appellate proceedings, the Assessee failed to submit the necessary evidences in support of its grounds of appeal. Even otherwise, no reasonable cause has been established by the Assessee to explain as to why the said evidences could not be submitted before the lower authorities. Hence, the admission of additional evidences is vehemently objected. Furthermore, even on merits of the evidence submitted, it is seen that the Assessee has only produced sample bills of the work done by the architects and other professionals for the Assessee. Thus, the additional evidence fails to fulfill the conditions laid down u/s 37(1) of the Act, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the claim of the Assessee, however, on the ground "that the Assessee had not deducted TDS on the payment made to the transporters but claimed that the transporters are assessed u/s 43AE of the Act but has not filed any documentary evidence to show that transporters are filing ITRs u/s 43AE of the Act or not", ultimately made the addition of Rs. 5,27,107/- being 30% of Rs. 17,57,023/-, on account of payment made exceeding Rs. 30,000/- to 8 transporters. 16.1 The Assessee, being aggrieved, though challenged this addition before the Ld. Commissioner and claimed that the Assessee has not deducted the TDS on the payment made to the transporter as the transporters are assessed u/s 43AE of the Act, however has not filed any documentary evidence with regard to filing of ITRs u/s 43AE of the Act by the transporters and their PANs and thus the identity of the transporters have not been confirmed as alleged, which resulted into affirmation of aforesaid addition by the Ld. Commissioner. 16.2 The Assessee being aggrieved also challenged this addition under consideration before us and by filing additional evidence, which pertains to 4 transporters, such as acknowledgments by the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orters if requires, for proper and just adjudication of the issue involved. Thus, the AO in the terms stated above, is directed to decide the instant issue afresh, accordingly. 18. Consequently, the CO No.42/M/2024 filed by the Assessee, stands allowed for statistical purposes. 19. Coming to the appeal i.e. ITA No. 4205/M/2023 filed by the Assessee, we observe that the Assessee may be inadvertently annexed the grounds of appeal raised in other appeal, which are at all not connected with this case and therefore does not require any adjudication. Even otherwise grievances raised by the Assessee in the grounds raised in CO, have already been addressed by us by allowing the CO filed by the Assessee for statistical purposes and therefore on this aspect, the appeal filed by the Assessee is also liable to be dismissed being infructuous. Consequently, the appeal filed by the Assessee is dismissed in limine and being infructuous as well. 20. In the result, the appeal ITA No.3751/M/2023 filed by the Revenue Department is dismissed, whereas CO no. 42/M/2024 filed by the Assessee is allowed for statistical purposes and ITA No.4205/M/2023 filed by the Assessee is dismissed in limine and also ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
