DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR vs. M/S TIRUPATI BUILDINERS AND DEVLOPERS, JAIPUR

2. Whether in the facts and circumstances of the case and in law, the ld. CIT(A) is justified in rejecting the findings of the 2 ITA 920/JP/2019_ DCIT Vs M/s Tirupati Builders & Developers AO that percentage completion method is the correct method for revenue recognition by the assessee.

The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. Rival contentions have been heard and record perused. The facts in brief are that the assessee is in the business of Real Estate/Developer. It follow AS-9 in so far as recognition of revenue is concerned and follow AS-7 i.e. percentage completion method to work out the profits at the end of each financial year as the project spreads in series of financial years. During the course of assessment, the AO concluded that the assessee had failed to maintain its accounts in a manner which could present 'true and fair picture' of its accounts and financial transactions, thereby contravening the provisions of Sec. 145(2) of the Act. Further, the AO held that the assessee by following project completion method had not declared complete and correct profits and at the same time by not following AS-9 & AS-7, which tantamount to not following AS-1 as per Section 145(2) of the Act, therefore, the books did not represent true and fair picture and 3 ITA 920/JP/2019_ DCIT Vs M/s Tirupati Builders & Developers thus, the AO rejected the books of accounts u/s 145(3) of the Act and percentage completion method was applied for the year under consideration. Accordingly, the AO made addition of Rs. 1,74,70,288/- and added to the total income of the assessee for the year under consideration.

By the impugned order, the ld CIT(A) allowed the appeal of the assessee by holding that "assessee is regularly following project completion method, Assessing Officer estimating income on percentage completion method is incorrect. It is further seen that the Assessing Officer in fact even not applied the percentage completion method correctly. He treated entire advances received as income which is incorrect. Considering all these facts, the addition made is deleted." Against which, the revenue is in further appeal before the ITAT

We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that during the course of assessment proceedings, it was submitted before the AO that the assessee firm, being a Real Estate Developer, recognized its revenue consistently, on a year-on-year basis, by following the accounting policy as stated hereinbefore. However, in his opinion, Percentage Completion Method was to be preferred over Project

We found that the assessee firm was engaged in the business as a Real Estate Developer. Thus, Accounting Standard – 7, on Construction Contracts, issued by Institute of Chartered Accountants of India, was not applicable on the assessee firm. AS-7 is only applicable to Construction Contractors and not to Real Estate Developers. Similar to the year under appeal, assessee firm in the preceding years, as well as in the subsequent years, recognized its revenue, on a consistent basis, at the point of time when the sale deed was registered or final payment received and possession of the property was handed over to the buyer, whichever was earlier. These facts have not been disputed by the AO, during the assessment proceedings.

We also found that irrespective of the stage of completion of the project, revenue from the project was recognized by the assessee firm, during FY 2012-13, of Rs. 59,55,000, by following the aforementioned

Since the assessee firm has been consistently following the same accounting policy for recognition of revenue, which has even been accepted in the past, therefore, there is no justification, on the part of the ld. AO to disturb the accounting policy adopted and thereby apply Percentage Completion Method for the relevant previous year. Hon’ble Supreme Court in the case of Bilahari Investment (P.) Ltd.[2008] 168 TAXMAN 95 (SC) (CLC – Page 6) held that, “…..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

In view of the above discussion, we do not find any infirmity in the order of the ld. CIT(A) in holding that the assessee was consistently following the project completion method and income has been properly estimated accordingly. Accordingly, we uphold the order of the ld. CIT(A).

In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 14th September, 2020.