DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR vs. M/S TIRUPATI BUILDINERS AND DEVLOPERS, JAIPUR
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that AS-7 is not applicable to real estate developers and that the assessee had consistently followed the project completion method, which was accepted in prior years. The AO's rejection of the books and application of the percentage completion method was therefore incorrect.
What were the facts?
The Assessing Officer (AO) rejected the assessee's books of accounts and applied the percentage completion method for revenue recognition, making an addition of Rs. 1,74,70,288/-. The assessee, a real estate developer, followed the project completion method and AS-9 for revenue recognition.
What were the issues?
Whether the AO was justified in rejecting the assessee's accounting method and applying the percentage completion method for revenue recognition in the case of a real estate developer.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
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- CIT v. Bilahari Investment (P) Ltd.206 citing168 Taxmann 95 · 2008 · SC · Read judgment
Income Tax Appellate Tribunal, JAIPUR BENCHES “A”, JAIPUR
Before: SHRI RAMESH C SHARMA, AM & SHRI SANDEEP GOSAIN, JM vk;dj vihy la-@ITA No. 920/JP/2019
ORDER PER: R.C. SHARMA, A.M. This is an appeal filed by the revenue against the order of ld.CIT(A)-2, Jaipur dated 25/04/2019 for the A.Y. 2015-16 in the matter of order passed U/s. 143(3) of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the revenue: “1. Whether in the facts and circumstances of the case and in law, the ld. CIT(A) is justified in deleting the addition of Rs. 1,74,70,288/-.
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.
3. Whether in the facts and circumstances of the case and in law, the ld. CIT(A) is justified in rejecting the findings of the AO that the assessee has not complied with the provisions of AS-7 and AS-9.
4. The appellant craves its rights to add, amend or alter any of the grounds on or before the hearing.”
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
4 ITA 920/JP/2019_ DCIT Vs M/s Tirupati Builders & Developers Completion Method. Thus, the AO held the entire amount of advance, of Rs. 2,36,70,288, received by the assessee firm, from its customers, to be considered as part of the revenue for the relevant previous year. The AO noted the fact that out of the total such advance, received by the assessee firm, Rs. 62,00,000 was refunded to the customer in subsequent period.
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
5 ITA 920/JP/2019_ DCIT Vs M/s Tirupati Builders & Developers accounting policy. Such method, for recognition of revenue, was even accepted by the AO, while passing order under Section 143(3) of the Act in the case of the assessee firm for A.Y. 2013-14 (F.Y. 2012-13). Moreover, Percentage Completion Method for recognition of revenue, till the F.Y. 2015-16 (A.Y. 2016-17), was not mandatory/compulsory to be followed by the assessee. It is only with effect from F.Y. 2016-17 (A.Y. 2017-18), that Percentage Completion Method has been made compulsory for the Real Estate Developers, that too for projects commencing on or after 01.04.2016, by way of introduction of Income Computation and Disclosure Standards (ICDS - III), relating to Construction Contracts.
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
6 ITA 920/JP/2019_ DCIT Vs M/s Tirupati Builders & Developers assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted…”
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.
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सहायक पंजीकार@Aेेज. त्महपेजतंत
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