SIDDHIVINAYAK GOVIND VENTURES,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE -1(3), PUNE

PDF · subscribers
ITSSA 110/PUN/2022Status: DisposedITAT Pune08 January 2024AY 2016-179 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal allowed Ground No. 4, holding that the assessee was not required to recognize revenue as per the Percentage Completion Method for AY 2016-17. The Tribunal noted that a crucial condition of the ICAI Guidance Note is that at least 25% of the saleable project area must be secured by contracts or agreements with buyers. The AO's calculation of total area sold as 1913.44 sq.mtrs (28% of 6822 sq.mtrs) was based on figures that were contested. The assessee had submitted that the total saleable area was 1,24,162 sq.ft and total area sold up to 31.03.2016 was 30,781 sq.ft, which is less than 25%. The Tribunal found that even if the revised guidance note was considered, the assessee had not crossed the 25% sale threshold. Therefore, the assessee was not obligated to recognize revenue under the Percentage Completion Method. The Tribunal also allowed grounds 2 and 3, stating that the assessee had followed a recognized method (Project Completion Method) and no defect was pointed out by the AO in the books of accounts. The Department could not insist on the Percentage Completion Method when the assessee had not crossed the threshold. The Tribunal respectfully followed the decision of the coordinate bench in S.S.Group Vs. ACIT and directed the AO to delete the addition. Grounds 5, 6, and 7 were dismissed as academic.

What were the facts?

The assessee, Siddhivinayak Govind Ventures, filed an appeal before the ITAT Pune against the order of the CIT(A) dated 24.08.2022 for Assessment Year 2016-17. The original assessment order was passed under section 143(3) r.w.s 153A of the Income Tax Act, 1961 on 02.05.2018. The Assessing Officer (AO) made an addition of Rs. 22,01,799/-. The AO was of the view that the assessee, which followed the Project Completion Method for recognizing revenue, should have adopted the Percentage Completion Method, referencing the ICAI guidance note. The assessee contended that units were not completed and possession was not handed over. The CIT(A) confirmed the addition, noting that for AY 2017-18, the assessee had followed the Percentage Completion Method.

What were the issues?

1. Whether the assessee was required to follow the Percentage Completion Method for recognizing revenue for AY 2016-17, despite consistently following the Project Completion Method in prior years, which was accepted by the AO, and in light of the fact that less than 25% of the saleable area was secured by contracts or agreements with buyers (Question of law and fact, concerning Section 145 of the Income Tax Act, 1961 and the ICAI Guidance Note). Assessee's contention: The assessee argued that it had consistently followed the Project Completion Method, which was accepted by the AO in earlier years, as evidenced by assessment orders for AY 2014-15. They also submitted Form 3CD and Return of Income copies. Furthermore, they contended that the condition of at least 25% of the saleable project area being secured by contracts was not met, making the Percentage Completion Method inapplicable. They relied on various ITAT and High Court decisions including S.S.Group Vs ACIT, CIT vs. M/s. Bilahari Investment (P) Ltd., and Paras Buildtech India Pvt. Ltd. vs CIT. Revenue's contention: The Revenue relied on the orders of the Assessing Officer and the CIT(A). The CIT(A) had confirmed the addition primarily because the assessee had followed the Percentage Completion Method for AY 2017-18, arguing that the assessee could not follow two different methods for the same project in consecutive years.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 153A,Section 250,Section 145

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE

Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE

For Appellant: Shri Suhas Bora – AR
For Respondent: Shri Ajay Kumar Kesari – DR
Hearing: 11/10/2023Pronounced: 08/01/2024

आयकर अपीलीय अिधकरण ”बी” �ायपीठ पुणेम�। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / IT(SS)A No.110/PUN/2022 िनधा�रण वष� / Assessment Year : 2016-17 Siddhivinayak Govind The Assistant Ventures, V Commissioner of Income 9, Siddhivinayak, M.G.Road, s Tax, Central Circle-1(2), Near Golibar Maidan, Pune. Pune – 411001. PAN: ACNFS 4419 G Appellant/ Assessee Respondent /Revenue Assessee by Shri Suhas Bora – AR Revenue by Shri Ajay Kumar Kesari – DR Date of hearing 11/10/2023 Date of pronouncement 08/01/2024 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This an appeal filed by the assessee against the order under section 250 of the Income Tax Act, 1961 dated 24.08.2022 for A.Y.2016-17. In this case, assessment order was passed under section 143(3) r.w.s 153A of the Income Tax Act, 1961 for A.Y.2016-17 on 02.05.2018.

2.

The Assessing Officer(AO) made only one addition of Rs.22,01,799/-. The AO stated that assessee has been following Project Completion Method and shown closing work-in-progress at Rs.24,31,54,841/-. According to the AO, assessee should have followed Percentage Completion Method. The AO referred to the guidance note issued by ICAI. Assessee submitted before the AO that units were not completed and no possession was handed to the customers. Assessing Officer calculated revenue based on percentage completion method and made addition of Rs.22,01,799/-. Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). The ld.CIT(A) confirmed the addition.

Submission of ld.AR : 3. The ld.Authorised Representative(ld.AR) of the assessee submitted that assessee has been following Project Completion Method. The same was accepted by the AO for earlier assessment. The ld.AR filed copy of assessment order passed for A.Y. 2014-15 to demonstrate that no addition has been made and assessee has been filing Project Completion Method for that year also. The ld.AR also filed copies of the Form 3CD and copy of the Return of Income.

3.1 The ld.AR also relied on the following case laws :

 ITA No.599/PUN/2022; S.S.Group Vs ACIT.  CIT vs. M/s. Bilahari Investment (P) Ltd. (2008) 299 ITR 1 (SC)  Corporate Leisure & Property Development Pvt. Ltd, ITA no. 1006/Bang/2022, order dated 27.01.2023.(Bangalore -Trib)  Trident Estate (P) Ltd vs. ITO (2021) 127 taxmann.com 360(Mumbai - Trib)  Prestige Estate Projects (P) Ltd. vs DCIT (2010) 129 TTJ 680 (Bangalore - Trib).  Aditya Builders vs. CIT in ITA no.2220/M/2012, order dated 06.02.2013 (Mumbai - Trib)  Paras Buildtech India Pvt. Ltd. vs CIT in ITA 602/2015 dated 18.11.2015 (Delhi-HC)  CIT vs. M/s. Prestige Estate Projects Pvt. Ltd. (2020 274 Taxman 6 (Karnataka- HC).  DCIT vs M s Ganga Developers in ITA No. 949/Mum 2004-05 order dated 17.09.2013 4. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A).

Findings & Analysis : 5. Ground No.1 was not pressed by the assessee, hence, the same is dismissed as not pressed.

6.

We have heard both the parties and perused the records. Before discussing the issue, we would like to reproduce findings of ld.CIT(A) which at Paragraph 12 of the said order : “12. I have carefully considered the facts of the case and the submissions made by the appellant. In the present case following the 3 search, notices u/s 153A were issued to the appellant. For A.Y 2016- 17 return was filed on 15/05/2017 and no revenue was recognised. However, forA.Y 2017-18 return was filed on 08/03/2018 by following the percentage of completion method’. The Assessing Officer was completing assessment for both the years simultaneously and he cannot follow two different methods of accounting for recognizing the revenue for A.Y 2016-17 and A.Y 2017-18, in respect of same project, for obvious reasons. Accordingly, the action of the Assessing Officer in applying the 'percentage completion method’ for A.Y 2016-17 cannot be faulted with, especially when the appellant itself has filed its return of income for A.Y 2017-18 by following the percentage of completion of method’. As far as the figures adopted by the Assessing Officer are concerned, it is seen from the assessment order that all the figures adopted by the Assessing Officer were provided by the appellant itself and the figures provided during the appellate proceedings are in variance to the figures provided to the Assessing Officer. Reasons for such variance have not been given by the appellant. In fact, the figures now provided are not as per the certificate issued by PCMC. For example, the total built up area as per the certificate issued by PCMC on 28/03/2018 is 7756 Sq. Mt. Against this the appellant is claiming a total saleable area of 1,24,162 Sq. Ft. which cannot be the case because saleable area can never by more than the built-up area approved by the Municipal Corporation. Against this figure, the Assessing Officer had taken the total saleable area of 6822 Sq. Mt. which is provided by the assessee to the Assessing Officer as reproduced in para 6 of the assessment order. These facts suggest that the appellant is trying the raise unnecessary disputes. Considering the totality of facts of the case, the ground No. 3 raised by the appellant is DISMISSED.”

6.1 Thus, it can be observed that ld.CIT(A) has confirmed the addition only because for A.Y.2017-18 assessee had shown Percentage Completion Method. Ground No.4 : 7. One of the most important conditions as per Guidance Note on Accounting for Real Estate Transaction issued by “The Institute of Chartered Accountant of India” is as under : “5.3 Further to the conditions in paragraph 5.2 there is a rebuttable presumption that the outcome of a real estate project can be estimated reliably and that revenue should be recognised under the percentage completion method only when the events in (a) to (d) below are completed. ………………… (c) Atleast 25% of the saleable project area is secured by contracts or agreements with buyers. …………………………….” 7.1 In the assessment order, for calculation of Percentage Completion Method, the Assessing Officer(AO) considered the Total Saleable Area, as 6822 sq.mtrs and Total Area Sold as 1913.44 sq.mtrs. Therefore, AO observed that the Total Area Sold up to 31.03.2016 was 1913.44 sq.mtrs which was 28% of the Total Saleable Area. However, the assessee had submitted before the AO during the assessment proceedings that Total Saleable Area was 1,24,162 sq.ft and Total Area Sold up to 31.03.2016 was 30,781 sq.ft; thus, Total Area Sold was less than 25%. Therefore, 5 the assessee claimed during the assessment proceedings that assessee did not fulfil the criteria’s prescribed under revised guidance note on accounting for real estate transactions. We had specifically asked ld.Departmental Representative(ld.DR) of the Revenue to explain how the Assessing Officer had taken the figures of Total Area Sold and Total Saleable Area in the assessment order. The ld.DR filed copy of letter dated 19.06.2023 of Assistant Commissioner of Income Tax, Central Circle-1(3), Pune. As per the said letter of the AO, it is observed that assessee during the assessment proceedings had submitted vide letter dated 15.02.2018 that total saleable area was 1,24,163 sq.fts and actual area sold as on 31.03.2016 was 30,781 sq.fts. According to the AO, AO has adopted Saleable Area as per Real Estate Regulatory Authority(RERA). However, the Annexure enclosed with the letter does not specify the area sold up to 31.03.2016.

7.2 On the contrary, Annexure-II of the said letter of the ACIT, is Engineer’s Certificate dated 16.04.2018 which states Saleable Area of the Project at 1,24,165 sq.fts. Therefore, the AO himself has forwarded Copy of the Letter of the Engineer which has stated the Saleable Area of the Project as 1,24,165 sq.fts and the AO has not given any valid reason for not adopting Total Saleable Area at 1,24,165 sq.fts.

7.3 Thus, even if assessee decides to follow revised guidance note, the assessee has not crossed the threshold of 25% sale to become eligible for recognising revenue as per Percentage Completion Method. Therefore, we agree with the assessee that during the year, since assessee had not crossed the threshold of 25% sale, the assessee was not required to recognise the revenue as per Percentage Completion Method. Accordingly, Ground No.4 raised by the assessee is allowed.

8.

By following the Project Completion Method, assessee has followed one of the recognised methods. No defect has been pointed out by the AO in the books of accounts to claim that the method of accounting followed by the assessee is defective or incorrect. For A.Y. 2016-17, there was no compulsion for the assessee to follow the Percentage Completion Method, therefore, Department cannot insist that assessee had to follow Percentage Completion Method and not Project Completions Method. It is observed that the Ld. coordinate Bench of ITAT Pune in the case of S.S.Group Vs. ACIT in ITA No.599/PUN/2022 on identical facts held allowed the appeal of the assessee and observed that department cannot insist assessee to adopt percentage completion method.

8.1 Respectfully following the ITAT Pune Bench’s decision(supra), in the absence of any specific defect brought on record by Assessing Officer, we direct the AO to delete the addition made following Project Completion Method. Accordingly, ground no.2 and 3 of the assessee are allowed.

9.

Ground No.5, 6 and 7 become academic as we have already allowed the assessee’s Ground No. 2, 3 & 4. Accordingly, Ground No.5, 6 & 7 are dismissed as academic.

10.

In the result, appeal of the assessee is Partly Allowed. Order pronounced in the open Court on 8th January, 2024.

Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 8th Jan, 2024/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब�च, 5.

पुणे / DR, ITAT, “B” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.

More judgments on Section 153A

All 18,957 judgments and leading authorities on Section 153A →

Recent GST High Court judgments

Search GST case law →