M/S. TRISHUL BUILDTECH & INFRASTRUCTURES PVT. LTD.,,BENGALURU vs. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(2), BENGALURU

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

These three appeals filed by the assessee are directed against order of CIT(A)-11, Bangalore dated 7.1.2022 for the A.Ys 2016-17 to 2018-19. The assessee has raised common grounds in all these appeals and there is only changes in figures. Hence, we reproduce grounds in AY 2016-17 as follows:- 1. The impugned order of the learned Commissioner of Income-tax (Appeals) - 11, Bengaluru, passed under Section 250 of the Income Tax Act, 1961 is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.

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Page 2 of 115 2. The Appellant denies himself liable to be assessed on a total income of Rs. Rs. 39,83,94,525/- as against the returned income of a sum of Rs. Nil under the facts and circumstance of the case. 3. Grounds on whether the learned Commissioner of Income Tax (Appeals) is justified in holding that the Appellant ought to have followed the percentage completion method of recognizing revenue.

a) The learned Commissioner of Income Tax (Appeals) is not justified in upholding the addition made by the learned Assessing Officer of Rs.39,83,94,525/- by following the percentage completion method of recognition of revenue on the facts and circumstances of the case.

b) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the percentage completion method is not an appropriate method of determining the income on the facts and circumstances of the case. c) The learned Commissioner of Income Tax (Appeals) is not justified in holding that the Appellant ought to have followed the percentage completion method merely because the developer has followed the percentage completion method on the facts and circumstances of the case. d) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the Appellant is only a land owner and consequently the-percentage completion method of recognition of profits is not applicable to it. e) The learned Commissioner of Income Tax (Appeals) failed to appreciate that in the case of the Appellant, a land owner, the significant risks and rewards of ownership are transferred only on the date of registration of the property in favour of the buyer. f) The learned Commissioner of Income Tax (Appeals) failed to follow the binding precedents of the jurisdictional High Courts in violation of the doctrine of stare decisis and erroneously held that the Appellant ought to have followed the percentage completion method of recognizing revenue on the facts and circumstances of the case. g) The learned Commissioner of Income Tax (Appeals) is not justified in holding the Appellant ought to have followed the percentage completion method of recognition of revenue when the Expert Advisory Committee of the Institute of Chartered Accountants of

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Page 3 of 115 India has categorically opined that the provisions of Accounting Standard - 7 are not applicable to real estate developers on the facts and circumstances of the case. h) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that no risk and reward in the land has been transferred to the prospective purchasers of units in the project in the financial year relevant to the assessment year in question and consequently no addition can be made on the facts and circumstances of the case.

i) The learned Commissioner of Income Tax (Appeals) is not justified in holding that the Appellant ought to have followed the percentage completion method when the Appellant has consistently followed the method of accounting its revenue from the Prestige Lakeside Habitat as and when the risks and rewards in the land was transferred to the prospective purchasers in the project which is akin to the project completion method and the same has been accepted by the department in the earlier years on the facts and circumstances of the case. j) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate the contention that the policy of revenue recognition followed by the Appellant, for its share of revenue from the "Project Lakeside Habitat" which in essence arises out of transfer of the right, title and interest in land in favour of prospective purchasers of units in the project has been followed consistently by the Appellant and accepted by the income tax authority in the scrutiny assessment proceedings of earlier assessment years.

k) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that the Appellant as a land owner is not responsible for the obligations connected to the development of the common areas and the construction of the units in the project which is the sole responsibility of the Developer and that being the case, the revenue recognition policy of the Developer which is based on a completely different set of risks, rewards and obligations, cannot be thrust on the Appellant who is a land owner on the facts and circumstances of the case.

l) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that Accounting Standard - 7 is not applicable to a land owner and the question of applying percentage

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Page 4 of 115 completion method does not arise on the facts and circumstances of the case. m) The learned Commissioner of Income Tax (Appeals) erroneously held that risk and reward have been transferred during the impugned assessment year without any basis and consequently passed a perverse order on the facts and circumstances of the case.

n) Without prejudice, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the entire exercise if revenue neutral on the facts and circumstances of the case, 4) Grounds on adopting the percentage completion method of recognition of income for the impugned assessment year has resulted in double taxation which is impermissible in law. a) The learned Commissioner of Income Tax (Appeals) failed to appreciate that bringing to tax the income by adopting the percentage completion method has resulted in double taxation which is impermissible in law. b) Without prejudice, the learned Commissioner of Income Tax (Appeals) ought to have given credit for the taxes paid on the same income in the subsequent years on the facts and circumstances of the case. 5) Grounds on the Commissioner of Income Tax (Appeals) is not justified in placing reliance on the statement recorded when the same has been retracted. a) The learned Commissioner of Income Tax (Appeals) erred in holding that reliance placed by the learned Assessing Officer on the statement of the Managing Director is validly made when the statement of admission was retracted by way of an affidavit which was submitted on the learned Assessing Officer vide letter dated 30.05.2019 on the facts and circumstances of the case. b) The learned Commissioner of Income Tax (Appeals) failed to appreciation that it is a settled position of law that consent does not confer jurisdiction and consequently erred in placing reliance on the statement recorded when the same was retraced by way of an affidavit on the facts and circumstances of the case. 6) The learned Commissioner of Income Tax (Appeals) is not justified in passing the appellate order without granting an opportunity of hearing to the Appellant and consequently the order passed under section 250 of the Act is in violation of the provisions of section 250 of the Act and principles of natural justice on the facts and circumstances of the case.

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Page 5 of 115 7) Without prejudice, the learned Assessing Officer is not justified in not setting off the brought forward losses of earlier years on the facts and circumstances of the case. 8) The Appellant submits that the calculation of interest by the Assessing Officer under Section 234A, 2348 and 234C of the Act is incorrect, inter alia, on the quantum, period, rate and method in which it has been calculated. 9) The Appellant denies himself liable to be charged interest under Section 234A, 234B and 234C of the Act on the facts and circumstances of the case. 10) The Appellant craves for leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary, at the time of hearing. 11) For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.

Additional grounds:-

“Grounds on the learned Assessing Officer has not assumed proper jurisdiction under section 153A of the Act in the absence of incriminating material found during the course of search.

The learned Assessing Officer failed appreciate that the a) mandatory requirements for assuming jurisdiction under section 153A of the Act have not been complied with on the facts and circumstances of the case.

The learned Assessing Officer failed to record the reasons for b) invoking the provisions of section 153A of and consequently the entire assessment is liable to be cancelled.

The learned Assessing Officer erred in issuing notice under c) section 153A of the Act without assumption of proper and valid jurisdiction.

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Page 6 of 115 d) The learned Assessing Officer is not justified in assuming jurisdiction under section 153A of the Act in the absence of any incriminating material found during the course of search on the facts and circumstances of the case.

e) The learned Assessing Officer is not justified in issuing notice under section 153A of the Act and completing the assessment vide order under section 143(3) r.w.s 153A of the Act when no incriminating material was found during the course of search.

The learned Assessing Officer is not justified in issuing a f) notice under section 153A of the Act without recording satisfaction as to inference of liability based on search material unearthed during the course of search on the facts and circumstances of the case.

The learned Assessing Officer is not justified in making addition g) based on the joint development agreement which is not an incriminating material as the same was already available with the department during the course of earlier years assessment proceedings and during the course of proceedings before the Deputy Director of Income Tax (Investigation) on the facts and circumstances of the case.

The learned Assessing Officer is not justified in assuming h) jurisdiction under section 153A of the Act when the only addition made by the learned Assessing Officer in the assessment order was pertaining to the method of revenue recognition to be adopted by the appellant for the Prestige Lakeside Habitat project which is just the view of the learned Assessing Officer and not based on any incriminating material found during the course of search on the facts and circumstances of the case.

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Page 7 of 115 b) The learned Assessing Officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153A of the Act.

The learned Assessing Officer failed to verify various c) aspects before issuing the notice under section 153A of the Act as the valid search under section 132 of the Act is sine qua non for a valid issue of notice under section 132 of the Act.

The appellant denies himself liable to be assessed under d) section 153A of the Act under the impugned order on the ground that:- i) The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act;

ii) That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is null and void-ab-inito on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80.

iii) The learned assessing officer has not discharged the burden of proving that there is a valid search under section 132 (1) (a), (b) & (c) of the Act, and consequently the assumption of jurisdiction to make an assessment under section 153A of the Act is untenable in law.

iv) The learned assessing officer failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.

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Page 8 of 115 4. The appellant craves leave of this Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be 'necessary at the time of hearing.

For these° and other grounds that may be urged 5. at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.”

2.1 We have heard the rival submissions and perused the materials available on record. With regard to admission of additional grounds, in our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above grounds. In our opinion, there is a good and sufficient reason in not raising these additional grounds on earlier occasion as seen from the petitions for admission of additional grounds. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional grounds in all these appeals for the purpose of adjudication as there was reasonable cause not raising these additional grounds on earlier occasion and also there is no necessity of investigation of any fresh facts otherwise on record. Accordingly, these additional grounds are admitted for consideration.

3.1 The Assessee is a domestic company engaged in the business of real estate. The assessee filed return of income for the assessment year 2016-17 under section 139(1) of the Act on 13.10.2016 declaring Nil income and for the assessment year 2017-18 under section 139(1) of the Act on 04.10.2017 declaring

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Page 9 of 115 loss of Rs. 12,59,36,710/-. There is no assessment u/s 143(3) of the Act. For the assessment year 2017-18, assessee filed return of income on 4.10.2017. No assessment has been framed till the date of search i.e. on 10.1.2018. For the assessment year 2018-19, it was a regular assessment u/s 143(3) of the Act, which is after the date of search.

3.2 The Assessee, being a constituent of the MRG Group, was subject to a search action under section 132 of the Act on 10.01.2018. The learned Assessing Officer issued statutory notices and the Assessee, in response thereto, furnished the details sought by the learned Assessing Officer.

3.3 The assessee filed return of income for the assessment year 2018-19, being the year of search, on 30.10.2018 declaring loss of Rs. 55,90,47,243/-

3.4 The learned Assessing Officer (AO) issued notice under section 153A of the Act dated 19.12.2018 for the assessment year 2016-17 and 2017-18. In pursuance to the notices issued under section 153A of the Act, the Assessee filed returns of income on 17.01.2019 declaring income as declared in the original returns of income.

3.5 The AO issued statutory notices and called upon the assessee to file the details and documents which were furnished by the assessee.

3.6 The AO without appreciating the submissions of the assessee concluded the assessment vide orders dated 31.12.2019 passed under section 153A r.w.s 143(3) of the Act for the assessment year 2016-17 and 2017-18 and under

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Page 10 of 115 section 143(3) r.w.s 154 of the Act for the assessment year 2018-19. The income of the assessee was assessed as under -

Particulars AY 2016-17 AY 2017-18 AY 2018-19 Returned income Nil (55,90,47,243) (12,59,36,710) Add: Addition made 39,83,94,525 201,74,10,242 108,59,10,257 under the head income from business by adopting percentage completion method Add: Expenditure of - 2,01,556 personal nature Assessed income 39,83,94,525 145,85,64,555 95,99,73,547 3.7 The assessee being aggrieved by the assessment orders filed appear before the Commissioner of Income Tax (Appeals) (hereinafter referred to as the CIT(A))

3.8 The CIT(A) without appreciating the submissions of the assessee dismissed all the appeals vide different orders dated 07.01.2022.

3.9 The assessee being aggrieved by the orders of the CIT(A), has filed these appeals before this Tribunal by way of several grounds of appeals.

3.10. The common addition for the impugned assessment years made was on account of the method of revenue recognition adopted by the Assessing Officer for the recognition of revenue in respect of the development of the Prestige Lakeside Habitat Project by said developer. The assessee being the land owner had followed the method of recognizing its share of revenue from the project as and when the risks and rewards of ownership in land has been transferred to the purchasers of units in the project which is

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Page 11 of 115 the project completion method of revenue recognition for accounting its share of revenue from the Prestige Lakeside Habitat Project. However, the AO adopted the percentage completion method of revenue recognition and accordingly made an addition of Rs. 39,83,94,525/-, Rs. 201,74,10,242/- and Rs. 108,59,10,257/- for the assessment years 2016-17, 2017-18 and 2018-19 respectively. Apart from the same there is an addition of Rs. 2,01,556/- in the assessment year 2017-- 18 being expenditure of personal nature.

3.11 The various issues that arise in these appeals are as under -

a) The assumption of jurisdiction under section 153A of the Act is bad in law in the absence of any incriminating material unearthed during the course of search and consequently the order passed under section 143(3) r.w.s. 153A of the Act is bad in law.

b) Whether was there a valid search under the provisions of section 132 of the Act on the assessee and further whether the mandatory requirements for assuming jurisdiction under section 153A of the Act have been complied with on the facts and circumstances of the case.

c) The notices issued under section 153A of the Act are bad in law.

d) Additions made under the income from business by computing the income based on percentage

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Page 12 of 115 completion method with respect to the Prestige Lakeside Habitat project is unsustainable in law.

e) Additions made under the income from business by computing the income based on percentage completion method with respect to the Prestige Lakeside Habitat project has resulted in double taxation which is impermissible in law.

f) Reliance placed on the statement of the Managing Director when the statement recorded has been retracted by way of an affidavit is bad in law.

g) The appellate order passed under section 250 of the Act is without following the mandatory statutory provisions of section 250(1) and 250(2)(a) of the Act in as much as without granting an opportunity of personal hearing to the Assessee is in violation of the principles of natural justice and consequently the appellate order passed under section 250 of the Act is bad in law and required to be quashed on the facts and circumstances of the case. h) The addition of Rs. 2,01,556/- made in the assessment year 2018-19 being the alleged personal expenditure is unsustainable on the facts and circumstances of the case.

3.12. The Ld. A.R. submitted that the assumption of jurisdiction under section 153A of the Act is bad in law in the absence of any incriminating material unearthed during the

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Page 13 of 115 course of search and consequently the order passed under section 143(3) r.w.s. 153A of the Act is bad in law.

The assessee filed original return of income for the a) assessment year 2016-17 on 13.10.2016 which was subsequently revised on 02.08.2017 and for the assessment year 2017-18 on 04.10.2017.

b) The assessee entered into a joint development agreement dated 22.06.2013 with M/s. Prestige Habitat Ventures (developer) for development of its land measuring around 93 acres situated at Varthur Hobli, Bangalore East Taluk into mixed use of township. The agreement between the parties which culminated after a series of negotiations provides for sharing of revenue between the parties in the ratio of 30:70 i.e., 30% to the assessee company and 70% to the developer. c) The assessee had received advances from customers towards its shares of the revenue during the course of the said project. The financial statements of the assessee were audited d) by a Chartered Accountant as per the provisions of the Companies Act, 2013. The advances received from the customers with respect to the Prestige Lakeside Habitat project were reflected in the balance sheet under the head 'other long term liabilities’ as under;-

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Page 14 of 115 Particulars 31.03.2015 31.03.2016 31.03.2017 Advances 1,28,41,50,822 3,01,95,11,031 475,17,21,292 received from customers Page Ref. to Page 26 Pages 26 & 61 Page 61 Paper book

e) The assessee company has further in the notes forming part of the financial statements stated as under - "The Company has entered into a Joint Development Agreement with M/s. Prestige Estates Pvt. Ltd. and the project is titled as "Prestige Habitat Ventures" at Varthur/ Gunjur property for a land area of 93 acres and is in receipt of its share of advances received from the customers towards the sale of undivided share of land. As the company is only a land owner and is not involved in any developmental or construction activity in any manner, the revenue from transfer of right, title and interest in land will be offered as income in the year in which the risks and rewards of the ownership is transferred in favour of the purchasers in accordance with the revenue recognition as per AS 9 of Institute of Chartered Accountants of India”.

f) The fact that the method of accounting is clearly mentioned in the financial statements which is much before the date of search indicates that - it is not incriminating material as it is merely a change of perception and consequently outside the scope of section 153A of the Act.

g) The revenue recognition policy being followed by the assessee with respect to the Prestige Lakeside Habitat Project was further clarified by the Assessee during the course of assessment proceedings for the assessment year 2014-15 and 2015-16 and during the course of

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Page 15 of 115 proceedings before the Deputy Director of Income Tax (Investigation). The details of the same are as under:

3.13 During the course of assessment proceedings for the assessment year 2014-15, the Assessee vide letter dated 02.12.2016 submitted before the learned Assessing Officer that it would be declaring revenues from the Prestige Lakeside Habitat project relating to its share arising from transfer of right, title and interest in the land to the ultimate purchasers when the risk rewards of ownership of land are transferred to them. The AO passed assessment order under section i) 143(3) of the Act dated 14.12.2016 without making any addition on this account. During the course of assessment proceedings for ii) the assessment year 2015-16, the Assessee reiterated its revenue recognition policy vide letter dated 13.12.2017. The submission was accepted and the AO completed the assessment without making any addition on this count.

The Assessee also made similar submissions before iii) the Deputy Director of Income Tax (Investigation) in response to a summons under section 131 of the Act vide letters dated 06.02.2015

3.14. The assessee made argument before the lower authorities that Joint Development agreement and the method of revenue recognition of the assessee are details/ information which were already available with the department during the course earlier assessment proceedings and other proceedings. Consequently, by

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Page 16 of 115 no stretch of imagination can it be held that the joint development agreement is incriminating material found during the course of search.

3.15. It was also the submission of assessee before lower authorities that for making an assessment under section 153A of the Act, the sine qua non is incriminating materials ought to have been found during the course of search. The assessee has made submissions with respect to the joint development agreement and its method of revenue recognition several times as enumerated above and consequently the same cannot be said to be incriminating material.

3.16. In the instant case as could be seen from the order of assessment passed under section 153A r.w.s 143(3) of the Act, the learned Assessing Officer has made addition under the head income from business by adopting percentage completion method of revenue recognition. The ld AR submitted that the addition is made based on the opinion of the learned Assessing Officer that the significant risk and rewards of ownership have been transferred and consequently the percentage completion method of revenue recognition ought to have been followed. The same is not based on any incriminating material found during the course of search.

3.17. In view of the above, the ld AR submitted that the learned Assessing Officer did not assume proper jurisdiction to issue notice under section 153A of the Act and consequently the notice issued under section 153A of the Act and the assessment order passed under section 153A r.w.s 143(3) of the Act for the assessment year 2016-17 and 2017-18 are bad in law.

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Page 17 of 115 Adjudication of Additional grounds:- 1st Additional Ground:- 4. Whether was there a valid search under the provisions of section 132 of the Act on the appellant and further whether the mandatory requirements for assuming jurisdiction under section 153A of the Act have been complied with on the facts and circumstances of the case.

a) The Ld. A.R. submitted that as could be seen from the assessment order no additions have been made on account of discovering any incriminating material found during the course of search and the very fact that no unaccounted money or investments were found during the course of search and no additions have been made based on the search materials the assessee has an apprehension and strong belief that the mandatory requirements for assuming jurisdiction under section 153A of the Act have not been complied with and further the reasons for invoking the provisions of section 153A of the Act and issuance of a notice under section 153A of the Act have not been recorded by the learned assessing officer and consequently the entire assessment is unstainable in law. The learned assessing officer has to demonstrate b) that the search made on the assessee and further proceedings initiated by the learned assessing officer was a valid one and conditions as contemplated under the provisions of section 132 of the Act are existing. The reasons recorded have to be furnished

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Page 18 of 115 to the assessee to file the objections and only after which an assessment can be proceeded with.

c) The question whether the validity of search can be questioned in an appeal before the appellate authorities has been answered in favour of the Assessee and against the revenue in the decision of the Karnataka High Court in the case of C Ramaiah Reddy Vs. ACIT (2011) 339 ITR 210 (Kar.) (Paper book Pages 96 — 128 of the case law compilation no.1) wherein the Hon'ble Court has held that a valid search is sine qua non for initiating proceedings under special chapters of assessment.

d) The notice issued by the learned Assessing officer under section 153A of the Act is not valid in law and without assumption of proper and valid jurisdiction. The said notice was issued pursuant to search action conducted which is ultra vires the provisions of section 132(1)(a), (b) and (c) of the Act and consequently the notice issued under section 153A of the Act pursuant to such illegal search action are bad in law and void ab-initio.

e) It is further contended that the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132 of the Act is bad in law and consequent assessment order passed under section 143(3) r.w.s. 153A of the Act is null and void-ab-initio on the parity of the ratio

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Page 19 of 115 of the decision of the Hon'ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80

It is further contended that the learned assessing f) officer has to discharge the burden of proving that there is a valid initiation of search under section 132(1)(a), (b) & (c) of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment under section 153A of the Act. It is submitted that a valid search is a sine qua non for making a valid assessment under section 143(3) r.w.s. 153 A of the Act on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.

g) The object of the provisions of section 153A of the Act is to bring to tax the undisclosed income. In the instant case instant, no incriminating documents belonging to the impugned assessment year were found during the search proceedings and consequently, no additions could have been made based on the alleged incriminating documents belonging to the assessee which is demonstrated by the fact that additions made in the impugned assessment orders was not based on any incriminating documents. In the absence of any incriminating materials, the assumption of jurisdiction under section 153A of the Act is patently wrong and opposed to all known canons of law.

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Page 20 of 115 h) The reason to believe is sine qua non for conducting search and valid search only can lead to assessment under section 153A of the Act. Reliance is placed on the of the decision of Hon'ble Jurisdictional Karnataka High Court in the case of CIT Vs. IBC Knowledge Park (P) Ltd. (385 ITR 346)(Karn.).

Reliance is also placed on the decision of the i) Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla, reported in 380 ITR 573 wherein held that unless incriminating material leading to an inference of undisclosed income is found, invocation of provisions of section 153A of the Act is not possible.

j) The ld. AR further contended that he has an apprehension that satisfaction has not been recorded and thus the notice issued under section 153A of the Act is bad in law. The ld. AR relied on the parity of reasoning of the following decisions in support of his contention: -

i) Union of India Vs. Ajit Jain & Another 260 ITR 80 (SC);

ii) Manish Maheshwari Vs. ACIT & Another 289 ITR 341(SC); k) It is submitted that, de-hors the explanation to Section 132, assessee is entitled to ask for copy of the Warrant of Authorization, copy of the satisfaction note and copy of the material including belief for issuance of the warrant of authorization to contend that the search conducted on the assessee was illegal and consequently notices issued under section 153 A of the Act are not valid in law. In respect of the fact that the assessee is entitled to challenge the

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Page 21 of 115 conduct of search the assessee relies on the following decisions:-

i) DGIT Vs. Space Wood Furnishers Pvt Ltd, 374 ITR 595(SC) ii) Sri. C. Ramaiah Reddy Vs. DCIT, reported in 339 ITR 210 (Kar) iii) ITO Vs. Seth Brothers reported in (74 ITR 836) (SC) iv) Agarwal Iron Industries reported in (370 ITR 180) (SC)

v) Southern Herbals Ltd vs DIT reported in (207 ITR 55) (Kar.)

l) The ld. AR submitted that the learned Assessing Officer ought to have verified the following aspects before issuing the notice under section 153A of the Act as the same as sine qua non for a valid search under section 132 of the Act - i) Whether sanction of warrant has been properly issued by competent authority or not;

Whether the warrant has been properly executed; ii) Whether warrant has been obtained by the officer iii) for each occasion the officer visits the premises of place of search; Whether the right person has signed the iv) warrant; Whether the witness as contemplated in law v) are there or not; vi) Whether the procedure contemplated under Rule 112 have been complied with or not; Whether the name of the officer in the Panchanama & vii) Warrant are one and the same; viii) Whether all the officers whose names are there in the panchanama are authorized or not.

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Page 22 of 115 It was further contended that the learned assessing m) officer has to discharge the burden of proving that there is a valid initiation of search under section 132(1)(a), (b) & (c) of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment under section 153 A of the Act. It was submitted that a valid search is a sine qua non for making a valid assessment under section 143 (3) r.w.s. 153 A of the Act on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajit Jain, reported in (260 ITR 80) (SC).

The very fact that no incriminating material has been n) found or even referred to or whispered in the assessment order and the only issue was the application of either percentage completion method or project completed which information was available with the department on several occasions before the search is a very clear categorical, positive inference can be made that the search was invalid and there was no material to conclude that there was reason to believe to conduct a search. In the present facts of the case, the conduct of the department in searching for a mere change in method of computing when all information are available cannot constitute reason to believe for conduct of search. Thus, the search should held to be invalid in law.

o) Wherefore, the ld AR pleaded that the Tribunal may call for records and examine the veracity of the conduct of search to the extent permissible in law in the interest of justice and equity.

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Page 23 of 115 4.1. It ws further submitted that for issuance of a notice under section 153A of the Act by the learned assessing officer there should be a satisfaction as regard to an inference of liability be recorded and upon such satisfaction the learned assessing officer can proceed to issue notice under section 153A of the Act. The ld. AR placed reliance on the decision of the Hon'ble High Court of Karnataka, in the case of CIT Vs. IBC Knowledge Park (P) Ltd (2016) 385 ITR 346 (Kar.)

4.2. The A.R. placed reliance on the following decisions also:

PCIT v. Delhi International Airport Pvt. Ltd. in ITA i) No. 322 of 2018 dated 29.09.2021 (Kar.)

ii) Smt. Jami Nirmala v. PCIT (2021) 437 FR 573 (Orissa) iii) S.M. Kamal Pasha v. DCIT in ITA No. 155 of 2017 dated 02.08.2022 (Kar.)

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Page 24 of 115 Findings on 1st Additional ground:-

6.1 Further the Hon'ble Supreme Court in the case of N.K. Jewellers Vs. CIT, New Delhi (2017) 85 taxmann.com 361(SC) held that in view of insertion to section 132(1A) by way of explanation 1 to by Finance Act, 2017 with retrospective effect from 1.10.1975 the reason to believe or reason to suspect as the case may be, shall not be disclosed to any person or any Authority or Appellate Tribunal as recorded by income Tax Authority u/s.132 or section 132A. We, therefore, cannot go into that question at all.

6.2 The Hon'ble Jurisdictional High Court in the case of Prathibha Jewellery House Vs. CIT (2017) 88 taxmann.com 94 (Karnataka) dismissed the writ petitions and held that:

“10. Having heard the learned counsels for the parties, this Court is satisfied that the present writ Date of Order 07.11.2017 WP. Nos 24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income Tax (Appeals) & Ors. Petitions de4serve to be dismissed for the following reasons:- (i) That the decision of this Court in the case of C. Ramaiah Reddy, which allowed the Appellate Authority to go into the question of validity of Search is a subject-matter of pending appeal before the Hon’ble Supreme Court and therefore, not only the Authorities of the Department, but even this Court should await the decision of Hon’ble Supreme Court on the

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Page 25 of 115 said issue and cannot direct the Appellate Authorities like (CTC Appeal) below by way of a writ of mandamus to go into the question of validity of search under section 132 of the Act and it would be incongruous and not in deference to the pendency of aforesaid Civil Appeal No.2734/2013 before the Hon’ble Supreme Court. (ii) That even the law has been amended by insertion of the aforesaid Explanation by Parliament in Section 132 of the Act by the Finance Act, 2017 with retrospective effect from 1.4.1962. That Explanation also prohibits the Appellate Authorities to go into the reasons recorded by the concerned Income Tax Authority for directing Search against the assessee or tax payer.

(iii) That this Amendment came after both, ITAT passed the order in the present case on 21.11.2014 as also the learned CIT(A) passed the impugned order on 11.2.2015. Nonetheless, retrospective effect of the said Amendment, will have its effect on the present case as well so long that the said Amendment holds the field. Therefore, the Appellate Authorities of the Department cannot be expected to go into the said question. It is only for the Constitutional Courts to examine the vires and validity of such Amendment and for that, a separate writ petition is already said to be pending. However, no such challenge to the Amendment has been made in the present case."

6.3 Being so, the assessee cannot question the validity of search before this Tribunal. Accordingly, this ground of appeal of assessee is dismissed.

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Page 26 of 115 2nd Additional ground:-

a) The ld. AR submitted that the learned Assessing Officer issued notice under section 153A of the Act dated 19.12.2018 under Section 153A of the Act without satisfying the conditions of the provisions of the Act and hence the notice issued under section 153A on the Appella.n1 is illegal and without jurisdiction.

b) The ld. AR submitted that the notice under section 153A of the Act does not indicate whether to assess/reassess which is mandatory as per provisions of section 153A of the Act and the said notice is incomplete and not in accordance with the provisions of the Act and consequently the notice issued under section 153A of the Act is bad in law. It is not clear from the notice that the Assessing officer proposes to assess or reassess. It is not put to notice of the Assessee and consequently the principle of natural justice is offended and notice issued is bad in law.

The ld. AR placed reliance on the parity of reasoning of the c) following decisions - i) Standard Chartered Finance Limited Vs. CIT, 381 ITR 453 (SC)

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Page 27 of 115 ii) CIT Vs. Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 (Kar) iii) Mohd Farhan A. Shaikh v. DCIT (2021) 125 taxmann.com 253 (Bombay) CIT Vs. B.N.Keshav (ITA No.21/2003 dated: 3rd April, iv) 2008)

CIT Vs. Kurban Ibrahimji Mithiborwala (1971) 82 ITR v) 821 (SC) The ld. AR submitted that once the notice is bad in law and d) all the proceedings consequent to the same are also not sustainable in law and the assessment framed under section 153A r.w.s 143(3) of the Act is unsustainable in law.

a) The Commissioner of Income Tax (Appeals) failed to appreciate that there are no estoppels against law and consequently, the retraction made is in order and without prejudice even without retraction the Assessee is entitled to agitate the legal issue as no person can be compelled to continue by an admission which is contrary to law and more so contrary to the jurisdictional High Court decisions. Thus, the reasoning of the Commissioner of Income Tax (Appeals) on this issue does not stand the legal interpretation of the provisions and consequently unsustainable in law The retraction filed by way of letter

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Page 28 of 115 dated 30.05.2019 enclosing an affidavit cannot be brushed aside without reasoning.

Without prejudice, the amount added by the AO and b) declaration has no co-relation and further there is no rational basis of adopting the developer's statements without even cross verifying the same. Further, there is no prohibition in law for the assessee to retract statements made on the legal aspects and in fact the 153A notice was issued on 19.12.2018 and retraction was filed on 22.5.2019 before AO. According to ld. AR this retraction is made within a reasonable time especially when the entire issue was completely legal. Thus, the retraction is in order and the case laws relied by lower authorities upon have no bearing on the facts of the present case.

Without prejudice, the Assessee submitted that it is c) settled position of law that mere consent does not confer jurisdiction. The Assessee places reliance on the following decisions -

Bhandari Metals v. State of Karnataka ILR 2004 i) Kar 2025

CIT v. V. Mr. P. Firm, Muar [1965] 56 ITR 67 (SC) ii) iii) Pullangode Rubber Produce Co. Ltd v. State of Kerala (1973) 91 ITR 18 (SC) iv) Nirmala L. Mehta v. A. Balasubrimaniam CIT (2004) 269 ITR 1 (Bom.)

S.R. Koshti v. CIT (2005) 276 ITR 165 (Guj.) v)

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Page 29 of 115

Findings on 2nd Additional ground:-

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Page 30 of 115 assessment has a vital link with the initiation and conduct of the search. In our opinion, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, one proceeds to literally interpret to provision in section 153A as it exists and read it alongside the provision contained in section 132(1) of the Act. The provision comes into operation if a search or requisition is initiated after 31.05.2003. On satisfaction of this condition, the Assessing Officer is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is 'shall' and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is 'shall' and, therefore, the Assessing Officer has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words, pending proceedings will not be proceeded with thereafter. The assessment has now to be made under section 153(1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B. When the original assessment for the assessment years 2016-17 & 2017-18 has not been completed or time limit to complete the

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Page 31 of 115 assessment has not been lapsed and though there was no incriminating material found during search operation, the assessment u/s.153A to be made only as per the original assessment which was made u/s.143(1) or u/s.143(3) of the Act. If there is incriminating material, the assessment to be made on the basis of incriminating material found during the course of search. It is an argument of the assessee’s counsel that in these assessment years there was no incriminating material discovered in the course of search action. We have gone through the seized material marked A/TBIPL/CO/08. The ld. AR alleged that the assessment framed is not based on the said seized material and no addition made on the basis of seized material showing the amount received by assessee from M/s. Prestige Habitat Ventures till November, 2017. The amount shown in the seized material has been duly recorded in books of accounts and disclosed to the department before the search action took place on 10.11.2018. There was no whisper in the assessment order with regard to any additions made on the basis of the said seized material. The only issue considered by AO while framing assessment was the application of percentage completion method instead of project completion method applied by the assessee. These informations were already on record with the department before search action and the seized material found during the course of search is not the basis to draw such inference that by following contract completion method, the assessee has undisclosed any income of the assessee. More so, the assessee has offered the income from the projects with Prestige Habitat Ventures with regard to sharing of revenue from the said project. The seized material does not throw any light on the method of accounting of project income either under project completion method or percentage completion method.

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Page 32 of 115

10.1 At this time it is appropriate to mention the ratio laid down by Karnataka High Court in the case of Delhi International Airport Pvt. Ltd. in ITA No.322 of 2018 dated 29.9.2021, wherein held as follows:- “8. We have carefully considered the rival submissions of the learned counsel for the parties and perused the material on record. 9. Section 153A of the Act reads thus: “Assessment in case of search or requisition.

153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 9 but on or before the 31st day of March, 2021, the Assessing Officer shall—

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years :

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate:

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Page 33 of 115 Provided also that………… Provided also that……….

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Page 34 of 115 is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the “total income” of the six assessment years in question in separate assessment orders. The Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. He has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the “total income” of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue. Once the order passed by the Assessing officer gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the interest of the revenue which confers jurisdiction on the Commissioner to exercise the power of the jurisdiction. 11. ……………………. On the contrary, it is expressly provided under Section 153A of the Act the Assessing Officer shall assess or reassess the “total income” of six assessment years which means the said total income includes income which was returned in the earlier return, the income which was unearthed during search and income which is not the subject matter of aforesaid two income….”

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Page 35 of 115 11. In M/s Lancy Constructions supra, the Coordinate Bench of this Court where one of us (Hon’ble SSJ) was a member, has observed thus:

“5. We agree with the opinion of the Tribunal that additions could not have been made by the Assessing Officer without rejecting the books of account of the assessee, and also without there being any adverse comment made by the Assessing Officer with regard to the books of account that were maintained by the assessee, which were duly audited.

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Page 36 of 115 stage during the course of reassessment; (iii) where reassessment is altered by a different assessment in respect of the searched person or in respect of a third party.

“14. Essentially, therefore, both the provisions contemplate search and requisition where the assessee is not likely to disclose his income. It appears that the object of both the provisions is to unearth the income which the assessee has not or is not likely to disclose. 15. On a plain reading of Sectioin153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under Section 132 or a requisition under Section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the assessing officer to issue notice under Section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under Section 153A of the Act is linked with search and requisition under

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Page 37 of 115 Sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, Section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the assessing officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under Section 132 or requisition under section 132A, as the case may be, shall abate. Sub-Section (2) of Section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-Section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under Section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under Section 153A of the Act is annulled in appeal or any other proceeding.”

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Page 38 of 115 17. The Hon’ble High Court of Allahabad in the case of Commissioner of Income Tax, Central, Kanpur .v. Raj Kumar Arora [(2014) 52 Taxmann.com 172 (Allahabad)], has held thus:

“8. Section 153A of the Act along with Section 153B and 153C replaced the “Post Search Block Assessment Scheme” in respect of any search under Section 132A or requisition under Section 132A made after 31.05.2003. CBDT explained these provisions through circular dated 5.9.2003, which is reported in (2003) 263 ITR (St) 62. The said circular is as under: …………. 10. Under the block assessment proceeding under Chapter XIV-B only the undisclosed income found during the search and seizure operation were required to be assessed and the regular assessment proceedings were preserved. The introduction of Section 153A of the Act provides a departure from this proceeding. Under Section 153A of the Act, the Assessing Officer has been given the power to assess or reassess the total income of the assessment years in question in separate assessment orders. Consequently, there would be only one assessment order in respect of six assessment years in which total disclosed or undisclosed income would be brought to tax. Consequently, even though an assessment order has been passed under Section 143(1) (a) or under Section 143(3) of the Act, the Assessing Officer would be required to reopen these proceedings and reassess the total income taking notice of undisclosed income even found during the search and seizure operation. The fetter imposed upon the Assessing Officer under Sections 147 and 148 of the Act have been removed by the non obstante clause under Section 153A of the Act.

Consequently, we are of the opinion that in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed, which were subsisting when the search was made, the Assessing Officer would be competent to reopen the assessment proceeding already made and determine the total income of the assessee. The Assessing Officer, while exercising the power under Section 153A of the Act, would make assessment and compute the total income of the assessee including the undisclosed income, notwithstanding the assessee had filed the return before the date of search which stood processed under Section 143(1)(a) of the Act. 11. In the light of the aforesaid, the reasons given by the Tribunal that no material was found during the search cannot be sustained, since we have held that the Assessing Officer has the power to reassess the returns of the assessee not only for the undisclosed

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Page 39 of 115 income, which was found during the search operation but also with regard to the material that was available at the time of the original assessment. We find that the Tribunal dismissed the appeal while relying upon the decision of a Coordinate Bench of the Tribunal in the case of Anil Kumar Bhatia Vs. ACIT (2010) 1 ITR (Trib.) 484 (Delhi). We find that the said decision of the Coordinate Bench of the Tribunal was set aside by the Delhi High Court in Commissioner of Income Tax Vs. Anil Kumar Bhatia (2012) 24 taxmann.com 98 (Delhi). We find that the Tribunal only dismissed the appeal on this legal issue and had not considered the matter on merits.”

“26. In the High Court the question was whether the CIT could invoke the power under Section 263 of the Act once the proceedings under Section 153A was initiated. The High Court in Canara Housing (supra) answered the question in the negative. It referred to the decision of this Court in CIT v. Anil Kumar Bhatia (supra) and came to the conclusion that once proceedings are initiated under Section 153A of the Act the legal effect was that even where an assessment order is passed, it would stand reopened. In the eye of law there was no order of assessment. It meant that the AO “shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the “total income” of each year and then pass the assessment order.”

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Page 40 of 115 proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search.” It was further observed that in the facts of that case if the CIT had come across any income that the AO had not taken note of while passing the earlier order, “the said material can be furnished to the assessing authority” who will take note of it while determining total income.” 20. In Principal Commissioner of Income Tax and Others V/s. Meeta Gutgutia Prop. Ferns ‘N’ Patels and Others [(2017) 295 CTR 0466 (Del)], Hon’ble High Court of Delhi while considering the substantial question of law relating to invoking of Section 153A of the Act has analyzed the catena of judgments more particularly, Smt. Dayawanti Gupta V/s. CIT [(1954) 26 ITR 736 (SC)J and Kabul Chawla supra and held that there was a clear admission by the assessee in Dayawanti Gupta supra of a failure in maintaining regular books of accounts, on the basis of material recovered during search, the additions were made for all the years. The Hon’ble Court held that what weighed with the Court in the said decision was the “habitual concealing of income and indulging in clandestine operations”. Thus, it has been held that the distinguishing factors of Dayawanti Gupta supra, do not detract from the settled legal position in Kabul Chawla supra which has been followed by several High Courts and thereby recorded a finding that the Tribunal was justified in holding that invoking of Section 153A by the Revenue for the assessment years concerned therein was without any legal basis as there was no incriminating material qua each of those assessment years. In the judgment of Kabul Chawla supra, the Hon’ble High Court of Delhi has referred to the decision of the Rajasthan High Court in Jai Steel (India), Jodhpur V/s. ACIT [(2013) 36 Taxman 523 (Raj)] and also took note of the decision of the Bombay High Court in Commissioner of Income Tax V/s. Continental Warehousing Corporation (Nhava Sheva) Ltd. [(2015) 58 taxmann.com 78 (Bom)] which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment Section 153A and 153C of the Act. The legal position has been summarized in Kabul Chawla supra as under:

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

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Page 41 of 115 ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the. aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”. iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

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Page 42 of 115 22. The Hon’ble High Court of Judicature at Bombay, Nagpur Bench in the case of Commissioner of Income Tax V/s. Murli Agro Products Ltd., [ITA No.36/2009, D.D. 29.10.2010] has held thus:

“9. What Section 153A contemplates is that, notwithstanding the regular provisions for assessment/reassessment contained in the IT Act, where search is conducted under Section 132 or requisition is made under Section 132A on or after 31/5/2003 in the case of any person, the Assessing Officer shall issue notice to such person requiring him to furnish return of income within the time stipulated therein, in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made and thereafter assess or reassess the total income for those assessment years. The second proviso to Section 153A provides for abatement of assessment/reassessment proceedings which are pending on the date of search/requisition. Section 153A(2) provides that when the assessment made under Section 153(A)(1) is annulled, the assessment or reassessment that stood abated shall stand revived.

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Page 43 of 115 Products Ltd., and the same requires re-consideration was negated and the law laid down in Murli Agro Products Ltd., supra, was followed.

“12. Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section 80 HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-122000 would attain finality. In such a case, the A.O. while passing the independent assessment order under Section 153A read with Section 143(3) of the IT. Act could not have disturbed the assessment/ reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under Section 153A of the Income-tax Act establish that the reliefs granted under the finalised assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings.”

“6. Thus, having regard to the materials on record, the Tribunal is right in holding that once it is held that the assessment has attained finality, then, the Assessing Officer, while passing independent assessment order under Section 153A read with Section 143(3) of the Act cannot disturb the assessment/reassessment, which has attained finality unless the materials gathered in the course of the proceedings under Section 153A of the Act establish that the reliefs granted in the final assessment/reassessment were contrary to the facts coming during the course of Section 153A proceedings. 26. In the light of these judgments, we have analyzed Section 153A of the Act vis- à-vis the material on record. Strong reliance was placed by the Revenue on the Canara Housing Development Company supra, in support of the contention that search under Section 132 of the Act is sine qua non for initiation of proceedings under Section 153A of the Act but it is not dependent on any undisclosed income being unearthed during search. There is no cavil on this proposition that search under Section 132 or requisition under 132A is a condition precedent for invoking Section 153A of the Act, the assessing officer can assess or re-assess the total income with respect to six assessment years separately immediately preceding the assessment year relevant to the previous years in which the search was conducted or requisition was made but the controversy rests on whether the incriminating material is a condition precedent for invoking Section 153A?.

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Page 44 of 115 27. It is discernable from the memorandum explaining the provisions in the Finance Bill 2003 [260 ITR [ST] 14 at page 219] that it is to overcome the difficulty leading to prolonged litigation inasmuch as “undisclosed income”, the legislature by Finance Act, 2003, decided to discard Chapter XIV-B provisions and introduced Sections 153A, 153B and 153C in the Act. Section 153A would contemplate that on initiation of proceedings under said Section 153A, the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessment/reassessment already finalized. The CBDT Circular No.8/2003 dated 18.09.2003 clarifies that on initiation of proceedings under Section 153A of the Act, the proceedings pending in appeal, revision/application against finalized assessment shall not abate. It is clarified in the said CBDT Circular that the then existing provisions of Chapter XIV-B provided for a single assessment of the undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and laid down the manner in which such income is to be computed. The new Section 153A provides the procedure for completion of assessment where a search is initiated under Section 132 or books of account or other documents or any assets are requisitioned under Section 132A, after May 31st 2003. In such cases, the assessing officer shall issue notice to such person requiring him to furnish within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A. Thus, it is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under Section 132 shall not abate.

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Page 45 of 115 10.2. Thus, the scope of provisions of section 153A of the Act could be summarized as follows:

Scenario Scope of Section 153A 1. No return of income is filed by Since no return has been filed, the the assessee (whether or not time entire income shall be regarded as limit to file return of income has undisclosed income. expired. Consequently, AO would have the authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3).

No requirement to restrict to documents found during the course of search. 2. Return of Income just filed by Since return filed is even pending to the assessee – return yet to be be processed, the return would be processed u/s 143(1) – Time limit treated as pending before the AO. for issue of notice u/s 143(2) not expired. Consequently, AO would have authority/jurisdiction to assessee the entire income, similar to jurisdiction in regular assessment u/s 143(3). 3. Return of Income filed by the Since intimation is not akin to assessee – return processed and assessment and time limit for notice intimation issued u/s 143(1) – u/s 143(2) hs not expired, even Time limit for issue of notice u/s though return has been processed, 143(2) not expired. it will be case where return has not attained finality.

Consequently, AO would have authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3). 4. Return of income filed by the Return of income of the assessee assessee. Intimation passed or not shall be treated as having being u/s 143(1) and time limit for issue accepted and attained finality. AO of notice u/s 143(2) has expired. loses jurisdiction to verify the return of income

Since, no assessment would be pending there would be no abatement of any proceedings.

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Page 46 of 115 Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search.

Accordingly the scope of assessment under section 153A would cover the pending return filed as well and would not be restricted to incriminating material found during the course of search. 6. Assessment u/s 143(3) Since regular assessment completed. proceedings have been completed & are not pending, there would be no abatement of proceedings.

AO loses jurisdiction to review the completed assessment. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search. 7. Proceedings u/s 147 pending Pending assessment/reassessment where: proceedings u/s 147 would abate (a) Assessment originally and would converge/merge in completed u/s 143(3) proceedings u/s 153A. OR (b) No assessment earlier Accordingly, the powers of the AO, completed u/s 143(3) in both the cases, shall extent to: (a) Assess income that would validly be assessed in the pending proceedings u/s 147, and

10.3 In the light of above, we will examine the facts of present case for AY 2016-17:

10.3.1 In this case, the assessee filed return for AY 2016- 17 u/s 139(1) of the Act on 13.10.2016 declaring Nil income and processed u/s 143(1) of the Act on 24.8.2017. The search took

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Page 47 of 115 place on 10.1.2018. The time limit to issue notice u/s 143(2) of the Act was on or before the expiry 6 months from the end of the financial year in which the return is furnished. Thus, the time limit to issue a notice u/s 143(2) of the Act for the AY 2016-17 is on or before 30.09.2017. No notice u/s 143(2) of the Act has been issued to the assessee before this date or any assessment framed u/s 143(3) of the Act. No assessment is pending for the AY 2016-17. Hence, to issue notice u/s 153A of the Act the incriminating material very much necessary and as seen from the case records, there is no incriminating material relevant to this assessment year found during the course of search action to show any undisclosed income. The addition made in this AY 2016-17 is not based on any seized material found during the course of search. In other words, addition could be made in case of already completed assessment only on the basis of incriminating material or books of accounts, other documents, found in the course of search but not produced in the course of original assessment and undisclosed income or property discovered in the course of search. The argument of the ld. counsel is that in this assessment year 2016-17, notice to issue u/s 143(2) of the Act was already lapsed as on the date of search, no assessment could be made without basis of incriminating material found during the course of search. We find force in the argument of the Ld. Counsel for the AY 2016-17, the addition is not based on any seized material and the AO made addition only on the basis of change in method of recognition of income i.e. percentage completion method versus contract completion method. In our opinion, completed assessment cannot be tinkered without the support of any incriminating material found during the course of search, therefore, framing assessment for AY 2016-17 without any incriminating material found during the

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Page 48 of 115 course of search is bad in law. The contention of ld. DR is that there is a seized material coupled with sworn statement recorded from the Managing Director of Assessee company. The sworn statement recorded u/s 132(4) of the Act on 12.1.2018 from the Managing Director of assessee company Shri K. Prakash Shetty. In our opinion, there should be a valid seized material and sworn statement of Managing Director cannot substitute the seized material found during the course of search, though sworn statement is a piece of evidence to frame the assessment but it is not conclusive evidence to sustain the addition. It was to be noted that the assessee in this case maintained regular books of accounts duly audited by qualified Chartered Accountant under Company Act and also under the Income Tax Act would show that admission made by Managing Director is incorrect.

10.4 It is the submission of the ld. DR that Managing Director Shri Prakash Shetty voluntarily stated in his statement to declare profit arising out of value added to the property by way of construction, to the tune of Rs.131 Crores as on 31.3.2018 out of total construction revenue of Rs.187 crores according to percentage of work completion and given a bifurcation as follows and it was retracted only during the course of assessment:

31.3.2016 - 25% - Rs.47 Crores

31.3.2017 - 55% - Rs.56 Crores

31.3.2018 - 70% - Rs.28 Crores

10.5 The question that needs to be addressed is whether the addition could be made merely on the basis of admission made by the assessee in the statement recorded u/s 132(4) of the Act?

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Page 49 of 115 10.6 We place reliance on the decision rendered by Hon'ble Supreme Courtin the case of Pullangode Rubber Product Co. Vs. State of Kerala (91 ITR 18) (SC), wherein it was held that the admission may be an important piece of evidence, but the same is not conclusive. It is open to the person who made the admission to show that it was incorrect. We may also refer to the decision rendered by Hon'ble Supreme Court in the case of CIT vs. V. MR.P Firm (1965) 56 ITR 67, wherein it was held that the principle of estoppels will not against the Income tax Act. The relevant observations are extracted below:

"The contention is that the assessees having opted to accept the scheme, derived benefit there-under, and agreed to have their discharged debts excluded from the assets side in the balance-sheet subject to the condition that subsequent recoveries by them would be taxable income, they are now precluded, on the principle of "approbate and reprobate", from pleading that the income they derived subsequently by realization of the revived debts is not taxable income. The doctrine of "approbate and reprobate" is only a species of estoppel; it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either eligible to tax ITA Nos.709 to 712 /Bang/2018 ITA Nos.1142 to 1148 /Bang/2018 CO Nos.88 to 89 /Bang/2018 under the taxing statute or it is not. If it is not, the Income- tax Officer has no power to impose tax on the said income."

Hence, mere admission of additional income would not automatically entitle the assessing officer to assess the same, if the assessee disputes the same subsequently with corroborative evidences.

10.7. The Hon'ble Bombay High Court has dealt with this issue in case of Balmukund Acharya (310 ITR 310), wherein it was held as under:-

"31. Having said so, we must observe that the Apex Court and the various High Courts have ruled that the authorities under the Act

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Page 50 of 115 are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected (see S.R. Kosti v. CIT [2005] 276 ITR 165 (Guj.), CPA Yoosuf v. ITO[1970] 77 ITR 237 (Ker.), CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303 (Delhi), CIT v. Archana R. Dhanwatey [1982] 136 ITR 355 (Bom.).

10.8. The Hon'ble Calcutta High court in case of CIT V. Bhaskar Mitter (73 Taxmann 437) has held as under:

"8. The controversy raised in the second question is as to whether the annual letting value of the property determined by the Tribunal could be a figure lower than that returned by the assessee. The principles for determining the annual letting value under section 23 are now well-settled and if the value returned is not in accordance with such principles, it is open to the assessee to contend that the value as may be determined upon correct application of the law should form the basis of assessment. The revenue authorities, in our view, cannot be heard to say that merely because the assessee has returned a figure which is higher than the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can be lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee ITA Nos.709 to 712 /Bang/2018 ITA Nos.1142 to 1148 /Bang/2018 CO Nos.88 to 89

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Page 51 of 115 /Bang/2018 according to law and determine the tax payable thereon. In doing so he cannot assess an assessee on an amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. The Tribunal, therefore, in our view did not commit any error in directing to fix the correct annual letting value of the premises in question, in accordance with the provisions of section 23 of the said Act with reference to the municipal valuation, although such sum was lower than the figure shown by the assessee in his returns of total income."

10.9. In the instant cases, the Managing Director has stated that an amount of Rs.131 Crores be offered as income from the construction revenue as discussed above. The reason cited for his admission is that till date the revenue is not recognized for the advance received as the assessee was of the opinion that the percentage completion method is not applicable to assessee company as their revenue share was derived from transfer of right, title and interest in land. The contention of ld AR is that this admission cannot be base for issue of notice u/s 153A of the Act as the seized material does not throw any light on the undisclosed income of the assessee in this assessment year under consideration as the assessment for AY 2016-17 has already been concluded by operation of law as the time limit to issue notice u/s 143(2) of the Act is already lapsed, issue of notice u/s 153A of the Act for the AY 2016-17 is bad in law.

10.10. In the case in hand, there was seized material found during the course of search action which were marked as A/TBIPL/CO/08 which reads as follows which was reproduced by AO in page No.4 of the assessment order in AY 2016-17:

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Page 52 of 115

10.11 This seized material provoked the department to issue a notice u/s 153A of the Act to the assessee. This statement contains information with regard to total units, booked units and unsold units upto November, 2017. It also includes booked sale value, booked stagewise received value and booked balance receivable. It also includes percentage of shares of Prestige Habitat Ventures and assessee’s share. The table also contains IBRD recovered and

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Page 53 of 115 interest on IBRD. Further it contains the details of management fee, TDS, and total deductions, balance receivable. Finally, it is an indication of total apartments constructed and assessee’s share therein and total amount receivables and received upto November, 2017. It was also noted that the assessee has included all these details in its financial statements especially in the balance sheet under the head “Other Long term liabilities” as below:

Particulars 31.03.2015 31.03.2016 31.03.2017 Advances 1,28,41,50,822 3,01,95,11,031 475,17,21,292 received from customers Page Ref. to Page 26 Pages 26 & 61 Page 61 Paper book

10.12 The assessee company has further in the notes forming part of the financial statements stated as under - "The Company has entered into a Joint Development Agreement with M/s. Prestige Estates Pvt. Ltd. and the project is titled as "Prestige Habitat Ventures" at Varthur/ Gunjur property for a land area of 93 acres and is in receipt of its share of advances received from the customers towards the sale of undivided share of land. As the company is only a land owner and is not involved in any developmental or construction activity in any manner, the revenue from transfer of right, title and interest in land will be offered as income in the year in which the risks and rewards of the ownership is transferred in favour of the purchasers in accordance with the revenue recognition as per AS 9 of Institute of Chartered Accountants of India”.

10.13 The fact that the method of accounting is clearly mentioned in the financial statements which is much before the date of search indicates that - it is not incriminating material as it is merely a change of perception and consequently outside the scope of section 153A of the Act.

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Page 54 of 115 10.14. There is no dispute that the revenue recognition policy being followed by the assessee with respect to the Prestige Lakeside Habitat Project was further clarified by the Assessee during the course of assessment proceedings for the assessment year 2014-15 and 2015-16 and during the course of proceedings before the Deputy Director of Income Tax (Investigation).

10.15 It is also admitted fact that the Assessee submitted during the course of assessment proceedings for the assessment year 2014-15, vide letter dated 02.12.2016 filed before the learned Assessing Officer that it would be declaring revenues from the Prestige Lakeside Habitat project relating to its share arising from transfer of right, title and interest in the land to the ultimate purchasers when the risk rewards of ownership of land are transferred to them. The AO passed assessment order under section i) 143(3) of the Act dated 14.12.2016 without making any addition on this account. During the course of assessment proceedings for ii) the assessment year 2015-16, the Assessee reiterated its revenue recognition policy vide letter dated 13.12.2017. The submission was accepted and the AO completed the assessment without making any addition on this count.

The Assessee also made similar submissions before iii) the Deputy Director of Income Tax (Investigation) in response to a summons under section 131 of the Act vide letters dated 06.02.2015

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Page 55 of 115 10.16. The assessee made argument before the lower authorities that Joint Development agreement and the method of revenue recognition of the assessee are details/ information which were already available with the department during the course earlier assessment proceedings and other proceedings. Consequently, by no stretch of imagination can it be held that the joint development agreement is incriminating material found during the course of search.

10.17. In our opinion, for making an assessment under section 153A of the Act, the sine qua non is incriminating materials ought to have been found during the course of search. The assessee has made submissions with respect to the joint development agreement and its method of revenue recognition several times as enumerated above and consequently the same cannot be said to be incriminating material.

10.18. In the instant case as could be seen from the order of assessment passed under section 153A r.w.s 143(3) of the Act, the learned Assessing Officer has made addition under the head income from business by adopting percentage completion method of revenue recognition. It is observed that the addition is made based on the opinion of the learned Assessing Officer that the significant risk and rewards of ownership have been transferred and consequently the percentage completion method of revenue recognition ought to have been followed. The same is not based on any incriminating material found during the course of search.

10.19. In view of the above, in our opinion, learned Assessing Officer did not assume proper jurisdiction to issue notice under section 153A of the Act and consequently the

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Page 56 of 115 notice issued under section 153A of the Act and the assessment order passed under section 153A r.w.s 143(3) of the Act for the assessment year 2016-17 is bad in law. Accordingly, the assessment for the AY 2016-17 is quashed.

AY 2017-18:-

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Page 57 of 115 AY 2018-19:-

Main Grounds:- (A.Y. 2016-17, 2017-18 & 2018-19)

a) At the outset, the ld. AR submitted that the said issue has been decided in favour of the Assessee by several decisions of the jurisdictional Hon'ble High Court of Karnataka wherein it has been held that the method of accounting followed by the Assessee which is the project completion method of recognizing revenue is permitted in law and can be followed. The decisions of the Hon'ble Court High Court of Karnataka on this issue are as under -

CIT v. Banjara Developers & Constructions P. i) Ltd. (2020) 425 ITR 673 (Kar.) ii) CIT v. Prestige Estate Projects P. Ltd. (2020) 116 taxmann.com 554 (Kar.)

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Page 58 of 115 iii) CIT v. S.N.Builders & Developers (2021) 431 ITR 241 (Kar.) iv) ACIT v. S.N. Builders & Developers in ITA No.739 of 2018 dt. 20.01.2021 (Kar.) v) DCIT v. Varun Developers in ITA No.198 of 2014 dt. 08.02.2021 (Kar.) DCIT v. Esteem Classic in ITA No.842 of 2018 vi) dt. 22.03.2021 (Kar.) It was submitted that the decision of the higher authority is b) required to be followed and further the decision of the Hon'ble Jurisdictional High Court of Karnataka is to be followed' as a judicial proprietary demand which the ld. CIT(A) has failed to do.

c) The learned Assessing Officer has come to the conclusion that the Assessee ought to have recognized income by way of percentage completion method on the basis of the revenue recognition policy adopted by the developer. The ld. AR submitted that the land owner i.e, the Assessee and the developer are two independent assesses in the scheme of the Act. Merely because the developer has followed the percentage completion method the land owner need not follow the same as each of them are independent assessable entities under the scheme of Act and are entitled to choose the method that is preferred by them.

d) The Assessee submitted that the opinion of the expert advisory committee of the Institute of Chartered Accountants of India have opined that the provisions of the Accounting Standard - 7 - Construction Contracts are not applicable developers and that the provisions of Accounting Standard - 9 - Revenue Recognition would apply to them

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Page 59 of 115 e) It is relevant point out to Page 186 of the paper book which deals with possession of the property which clearly indicates that no possession has been granted. Further in Page 184 of the paper book, the purchasers do not have a right to obstruct the development. Page 181 of the paper book deals with execution of sale deed and most importantly at Page 176 of the paper book it is stated that if the prospective purchases do not make the payments, the agreement can be terminated. Consequently to hold that the purchasers are in control of the property is absolutely not correct. Reference is also made to Para 1.3 of the development agreement at Page 115 of the paper book which clearly states that the parties confirm that the owner shall retain legal possession, domain and control over the property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in the agreement.

f) The argument of the Ld. A.R. is that as per clause 1.3 of the development agreement at page no.6 para 1.3 of JDA dated 22.6.2013 which clearly states as follows:- “1.3 The owner shall not revoke the permission, so granted during the subsistence of this agreement till completion of the entire Project as the Developer will be incurring substantial expenditure plan approvals and for construction of the said Project in the Schedule Property. It is specifically understood between the Parties that the permission given to the Developer to enter the Schedule Property for the purpose of development is a license granted to the Developer as understood u/s 52 of the Indian Easements Act, 1882 and cannot be construed as a possession given by the Owner to the Developer in part performance of this agreement of the nature referred to under section 53A of the Transfer of Property Act, 1882 and this Agreement is not a agreement to sell. The Parties further confirm that the Owner shall retain legal possession, domain and control the schedule Property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in this Agreement.”

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Page 60 of 115 13.1 Thus, it was clear that parties confirm that the owner shall retain legal possession, domain and control over the property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in the said agreement. It is also argued that from the commercial arrangements and the risk & rewards attributable to land owners and developers, it is clear that the essence of share of revenue derived for the land owner is from transfer of the undivided share of right, title and interest in the entire land and the developer share of revenue is from construction and transfer of the super built and development of common area in the project. The Ld. A.R. relied on the Guidance note on accounting for real estate transaction (Revised) 2012 to hold that percentage completion method has to be followed is incorrect proposition as even the Guidance note states that revenue should not be recognized till such time legal title is validly transferred to the buyer.

13.2 Further, he submitted that assessee has been following project completion method of recognition of revenue and this system of accounting has been followed by from year to year which can be seen from the assessment order in assessment years from 2014-15 and 2015-16. Thus, it was the submission ld. AR that it is not open to the department to change the method of accounting in the middle of the period of completion of the project even percentage competition method is applicable. He submitted that rule of consistency has to be followed. For this purpose, he relied on various judgements.

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Page 61 of 115 a) The ld. AR submitted that adopting percentage completion method of recognizing revenue has resulted in double taxation which is impermissible in law.

The assessee has recognized revenue and paid taxes b) for the various assessment years with respect to the revenue and income arising thereon from Prestige Lakeside Habitat as under -

c) The Assessee has recognized revenue from the Prestige Lakeside Habitat Project to the tune of Rs. 348 crores (approx) for the year ended 31.03.2019 relevant to the assessment year 2019-20 and has also paid tax of Rs. 36.83 crores (approx) on the net taxable income returned of Rs. 113 crores (approx) for the assessment year 2019-20

d) Similarly for the assessment year 2020-21, the Assessee has recognized revenue to the tune of Rs.431 crores (approx) has paid tax of Rs. 72.45 crores (approx) on net taxable income returned of Rs. 287.85 crores (approx).

e) Similarly for the assessment year 2021-22, the Assessee has recognized revenue to the tune of Rs.238.27 crores (approx), has paid tax of Rs. 37.80 crores (approx) on net taxable income of Rs. 150.19 crores (approx)

g) The Assessee has paid advance tax of Rs.21 crores (approx) for the assessment year 2022-23.

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Page 62 of 115 14.1 In view of the above, the ld. AR submitted that the presumption of the learned Assessing Officer that the income offered in the subsequent years is income of the impugned assessment year will result in double taxation which is impermissible in law.

14.2 The ld. AR submitted that if the lower authorities sought to tax the same income in the assessment year 2016-17, as a corollary, they ought to have given credit to the taxes paid on the same transaction for the assessment year 2019- 20 and 2020-21. The ld. AR placed reliance on the decision of the Hon'ble Supreme Court in ITO v. Bachu Lal Kapoor (1966) (60 ITR 74) (SC), wherein held that:

“A HUF is a separate unit of assessment. It is a distinct assessable entity. It is a “person” within its definition in the Act. It is liable to be assessed to income-tax in respect of its income. A member of that HUF is not liable to pay any tax in respect of any sum which he receives as a member of that family out f the income of that family. If the said HUF has escaped assessment for any year, the ITO, subject to the conditions laid down in section 34(1) of the 1922 Act, may issue a notice thereunder calling upon the said HUF to submit a return of its income for that year and proceed to assess it in terms thereof. It is manifest from a combined reading of the said provisions of sections 3, 14, 2, 22 and 34 of the 1922 Act that the ITO can issue a notice to a HUF under section 34 of the 1922 Act on the ground that it has escaped assessment.

In the counter-affidavit filed by the ITO in the High Court, it was stated that he had reason to believe, in consequence of information in his possession, that income, profits or gains chargeable to income-tax had escaped assessment. His information was that, notwithstanding the compromise decree, the members of the family were living together had joint mess and the business was run by the assessee. In short, the case of the revenue was that the compromise was a make-believe one and the family in fact continued to be a joint Hindu family.

The exercise of the option to do one or other of the two alternatives open to an officer assumes knowledge on his part of the existence of two alternatives. If the case of the revenue be true, the ITO at the time he assessed the individual members of the family had no knowledge that a united joint family existed, he presumably proceeded on the basis that the said family had really ceased to

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Page 63 of 115 exist under the terms of the compromise decree. This was, therefore, not a case of election between two alternative units of assessment, but an attempt to bring to tax the income of an assessable entity which had escaped assessment. That apart, under section 3 of the 1922 Act, in the matter of assessment, there is no question of any election apart, under section 3 of the 1922 Act, in the matter of assessment, there is no question of any election between a HUF and a member thereof in respect of the income of the family. If a HUF exists, under section 3 of the 1922 Act, the ITO has to assess it in respect of its income. Indeed, under section 14(1) of the 1922 Act, any part of the income reeived by its members cannot be assessed over again. While section 3 of the 1922 Act confers an option on the ITO to assess either the association of persons or the members of the association individually, no such option is conferred on him thereunder in the case of a HUF, as its existence excludes the liability of its members in respect of the income of the former received by the latter.

It was true that the Act does not envisage taxation of the same income twice over “one passage of money in the form of one sort of income”. It is equally true that section 14(1) of the 1922 Act expressly debars the imposition of tax on any part of the income of a HUF received by its members. The fact that there is no provision in the Act dealing with a converse position does not affect the question, for the existence of such a converse position is legally impossible under the Act. So long as the HUF exists, the individuals thereof cannot separately be assessed in respect of its income. None the less, if, under some mistake, such income was assessed to tax in the hands of the individual members, which should not have been done, when a proper assessment was made on the HUF in respect of that income, the revenue had to make appropriate adjustments; otherwise, the assessment made in respect of that income on the HUF would be contrary to the provisions of the Act, particularly section 14(1) of the 1922 Act. Therefore, if the assessment proceedings initiated under section 34 of the 1922 Act culminates in the assessment of the HUF, appropriate adjustments have to be made by the ITO in respect of the tax realised by the revenue in respect of that part of the income of the family assessed on the individuals of the said family. To do so was not to reopen the final orders of assessment, but in reality to arrive at the correct figure of tax payable by the HUF. The only question that arises at the time the ITO proposes to take proceedings under section 34 of the 1922 Act is, whether the income has escaped assessment or has been under assessed in the hands of the person against whom the said proceedings are initiated. At this stage, the question of resolving the conflict between the proposed assessment and an earlier assessment made on a wrong person does not arise. Therefore, the High Court went wrong in holding that the ITO had no jurisdiction to initiate proceedings under section 34 against the assessee as the karta of a HUF. Further, the High Court had not expressed its opinion on the question based upon section 25 of the 1992 Act. In the result, the order of the High Court was set aside and the appeal was remanded to the High Court for disposal in accordance with law.”

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Page 64 of 115 14.3 The ld. AR submitted that the entire issued is revenue neutral and consequently no addition could have been in the impugned assessment year. The ld. AR placed reliance on the following decisions –

CIT v. Excel Industries Ltd. (2013) 358 ITR 295 (SC) i) CIT v. Bilhari Investment (P.) Ltd. (2008) 299 ITR ii) 1(SC)

14.4 The statement of the CIT(A) that the assessee has not been directed to offer income in the subsequent year is totally unacceptable as the method for offering income has not only been accepted in the two prior years by way of scrutiny assessment order under section 143(3) of the Act but also in a subsequently assessment year i.e., AY 2019-20 by way of a scrutiny assessment order under section 143(3) of the Act.

14.5 The ld. AR has explained on various occasions regarding its revenue recognition policy and in all the various occasions the department has not proceeded further in the matters and has accepted the explanation and closed the issue. Thus, the findings and observations of the CIT(A) are devoid of factual foundation, contrary to the material on record and requires to be deleted.

14.6 It is well settled proposition that assessees file return based on legal advice and sometimes the department takes certain contrary stands based on its view on the transaction but consistency is expected of the revenue and these observations of the CIT(A) are contrary to the doctrine of

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Page 65 of 115 undue enrichment and consequently the CIT(A) ought not to have adjudicated the said issue on such lines.

14.7 It is a settled position of law that department cannot collect tax twice on the very same income and observation of the CIT(A) is absolutely contrary to the scheme of the Act that income can only' be taxed once more so when the revenue has accepted the income determined using the same method in two earlier assessment years and once subsequent assessment year. Further the information has been given to the Investigation Officer during the course of investigation. Therefore, it is more than reasonably correct to follow the same method of revenue recognition as there is an implied formidable fortified concurrence of the revenue on the method adopted by the assessee. The observation of the CIT(A) is further not under the spirit and the scheme of the Act.

14.8 It is submitted by ld. A.R. that needless to add that the department is excepted to assist the assesses in computing taxable income as per the provisions of the Act as enunciated by the CBDT in Circular No. No. 14 (XL-35) of 1955, dated 11.04.1995 and amplified by the decision of the Hon'ble Karnataka High Court in the case of Rajeshwari Cotton Ginning & Pressing Industries v. ALIT (2017) 88 taxmann.com 463 (Kar.). Therefore, the officers of the department ought to have atleast guided the assessee in offering income correctly. Failure to even suggest the same during the course of enquiry and therefore, the statement of the CIT(A) that the assessee was not directed to offer income in subsequent years is absolutely not within the spirit and intent of the Act and also unsustainable

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Page 66 of 115 in law. Thus, the observation of the CIT(A) is neither fair on facts nor legally permissible.

Ld. D.R’s submissions:-

15.1 Further, he submitted that the intent of the assessee i.e. as a part of its business activities, it wanted to sell its undeveloped land after getting it developed and such development was got carried out through a developer. The business motive being to earn maximum profits by selling developed land rather than undeveloped land. This also shows that the assessee would receive the consideration for its land as well as for the profits earned on account of the land being developed before being sold. That was why during search Sri. K Prakash Shetty, the Managing Director of the assessee company had stated under oath that "we are estimating about 30% as attributable towards construction and the balance 70% towards transfer of land". Thus, this was admitted that the revenue received by the assessee included profit element on account of development of its land, which it would not have got if the undeveloped land was

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Page 67 of 115 sold. The arrangement helped the Developer as it was not required to make investment for acquiring land at the initial stage and it could utilize its expertise of project development with limited resources in a much efficient manner. The arrangement equally helped the land owner i.e. the assessee, who might not be having requisite experience and expertise for developing the project, but it got better price for its land in comparison to what it would have got in the case of outright sale of undeveloped land. The assessee chose to get consideration for its contribution in the form of a fixed percentage of total sales revenue i.e. in ratio 30:70. Thus, this type of joint development arrangement is a commercial arrangement of convenience where in both the parties tried to exploit their respective resources in the best possible manner and without much financial investment. The land owner contributed its land which it was already holding and the developer utilized its experience and expertise of development and marketing of real estate project.

15.2 He also drew our attention to the relevant clauses of JDA and submitted that as per JDA, the assessee would retain legal possession, domain and control over the Schedule Property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in the Agreement. So even if 'a part of the developed property is sold to prospective purchaser the control of the assessee no longer exists on such part of the scheduled property. That is why the power of attorney given by the assessee to the developer allows it to carry out all such activities which a land owner will normally do to sell its land. In fact, even the custody of the original title deeds of the land is given to the developer. In case of dispute, the assessee can seek only part of

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Page 68 of 115 the total available/unsold area in each phase as Owner's share of built-up area and it has no control on the remaining area. The registration of the land in the name of the buyer is a mere formality and thus the accrual of income was there in the hands of the assessee as soon as the developer had entered into an agreement with the buyer for sale of undivided share of land and the construction of apartment/villas and a reasonable development had taken place by way of expenditure being incurred by the.41eveloper to develop the land and carry out construction. This is for the reason that significant risks and rewards got transferred to the buyer and the assessee was not having any effective control over the land to a degree which a landowner usually would have as an owner. No significant uncertainty regarding amount of consideration to be received from the sale existed at this stage. Registering the land in the name of the buyer became a mere formality. Completion of the entire project or the registration of the land in the name of the buyer thus did not impact the accrual of income in the hands of the assessee.

15.3 The ld. D.R. further stated that it is also relevant here to look into the significant accounting issues involved and the applicability of Accounting Standard 9 (AS 9) read with the Guidance Note for Real Estate Transactions (Revised 2012) and Accounting Standard 7 (AS 7) issued by ICAI in the case of owner as well as developer. Application of the principle of prudence and matching concept in the case of accounting for real estate developers always needs to be there.

15.4 Further, Ld. D.R. submitted that the Guidance Note issued by ICAI thus recommend that Revenue in case of real estate sales should be recognized when all the following conditions are satisfied:

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Page 69 of 115 • The seller has transferred to the buyer all significant risks and rewards and the seller retains no effective control of the real estate to a degree usually associated with ownership; • No significant uncertainty exists regarding the amount of the consideration that will be derived from the real estate sales; and • It is not unreasonable to expect ultimate collection. Further, as per the Guidance Note, 'significant risk and reward of ownership' is transferred, even when the seller has entered into a legally enforceable agreement (and not necessarily registration for transfer of title or possession) for sale with the buyer, subject to: • The significant risks related to real estate have been transferred to the buyer. In case of real estate, price risk is generally considered to be one of the most significant risks. • The buyer has a legal right to sell or transfer his interest in the property, without any condition or subject to only such conditions which do not materially affect his right to benefits in the property.

15.5 Thus, going by the Guidance note, even an allotment letter or unregistered agreement for sale may also be considered as transfer of significant risk and reward of ownership for real estate developers. Further, as in the case of the assessee, where revenue generation is akin to revenue on account of sale of the developed plots, here again the percentage completion method was required to be followed as conditions laid down in paras 3.3. and 5.1 of the guidance notes are duly met. Thus, although the assessee is not bound to follow the same method of accounting as followed by the

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Page 70 of 115 developer, however looking into the facts of the case, as discussed supra, the appropriate method of accounting for determining true income of the assessee for the year under consideration is the same as adopted by the AO, as recognition of the income which has already accrued cannot await registration of the sale deeds.

15.6 The ld. D.R. submitted that there is no merit in the argument of assessee’s counsel as the income has been subjected to tax in later years and it cannot be taxed in this assessment year which amounts to double taxation. He submitted that the income needs to be taxed in a year to which it belongs on the basis of the provisions of the Act. This is a settled law that income needs to be taxed in a year to which it belongs on the basis of the provisions of the Act. It does not depend on the whims of the assessee to choose the year in which it wants to disclose its income. If allowed to do so, the postponement of the income and thus tax liability would continue indefinitely. The payment of correct taxes in the relevant year by the assessees enables the Government to timely get its share of revenue and thus avoids the burden of interest which it would otherwise be required to bear on account of borrowings if there is shortfall in tax collection. Further, even an AO too does not have an option in this matter and the income is required to be assessed as per law in the relevant assessment year only.

15.7. The ld. D.R. further submitted that as regards the decisions relied upon by the assessee, the same are found to be rendered on different facts and the ratio of the same do not apply to the case under consideration. In Bhawani Cotton Mills Ltd Vs. State of Punjab, AIR 1967 SC 1616, as relied upon by the assessee, no such ratio had been laid down by the SC that an assessee was free to offer its income in subsequent years or that if income was offered

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Page 71 of 115 in a wrong assessment year it could not be taxed in the year to which it actually belonged. Similarly no such ratio was laid down in the case of Bachu Lal Kapoor (Supra), as relied upon by the assessee. In this case the issue was reopening of the case of HUF when the income had already been assessed in the hands of Karta in individual capacity. The Hon'ble SC upheld such an action of the AO by noting that the if income gets assessed in hands of the HUF then AO can make appropriate adjustment in the hands of karta in individual capacity where it was earlier wrongly assessed. No such ratio, as contended by the assessee, was laid down in the case of Laxmipat Singhania(Supra) either. In the said case the AO had taxed the dividend in the year of actual distribution. The SC had held that by virtue of Section 16(2) read with Section 4(1)(b) the deemed dividend income was liable to be included in the total income of the shareholders on the date of the general meeting of the company and that the Act left no option to the ITO. So this decision does not help the assessee. As regards the decision in the case of Ram Shankar Prasad(Supra), the High Court held that the ITAT could not have deleted the addition made by the AO by just holding that the addition was made in two different years. The HC held that the ITAT should have either decided the correct year of taxability or asked the AO to do it afresh. So the above decision nowhere lays down the ratio as contended by the assessee. The argument of the assessee that its income is getting taxed twice is also misplaced. The AO has taxed the income of the assessee in the year under consideration and not in any other year. The assessee has neither been directed by the AO to offer this income in any subsequent year nor it is required to do so. So the issue of taxing the same income twice does not arise. In fact, in the case under consideration the AO has brought to tax the income in the correct year and as such the same is required to be upheld.

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Page 72 of 115

Findings on 1st & 2nd main grounds:-

Assessment Year Date of filing return 2016-17 13.10.2016 2017-18 04.10.2017 2018-19 30.10.2018 (After the date of search)

16.1 The assessee clearly disclosed in the notes forming part of the financial statement stated as under:

ITA Nos.107 to 109/Bang/2022 M/s. Trishul Buildtech & Infrastructures Pvt. Ltd., Bangalore

Page 73 of 115 "The Company has entered into a Joint Development Agreement with M/s. Prestige Estates Pvt. Ltd. and the project is titled as "Prestige Habitat Ventures" at Varthur/ Gunjur property for a land area of 93 acres and is in receipt of its share of advances received from the customers towards the sale of undivided share of land. As the company is only a land owner and is not involved in any developmental or construction activity in any manner, the revenue from transfer of right, title and interest in land will be offered as income in the year in which the risks and rewards of the ownership is transferred in favour of the purchasers in accordance with the revenue recognition as per AS 9 of Institute of Chartered Accountants of India”.

16.2. The fact that the method of accounting is clearly mentioned in the financial statements which is much before the date of search.

16.3. The revenue recognition policy being followed by the assessee with respect to the Prestige Lakeside Habitat Project was further clarified by the Assessee during the course of assessment proceedings for the assessment year 2014-15 and 2015-16 and during the course of proceedings before the Deputy Director of Income Tax (Investigation). The details of the same are as under:

16.4 During the course of assessment proceedings for the assessment year 2014-15, the Assessee vide letter dated 02.12.2016 submitted before the learned Assessing Officer that it would be declaring revenues from the Prestige Lakeside Habitat project relating to its share arising from transfer of right, title and interest in the land to the ultimate purchasers when the risk rewards of ownership of land are transferred to them.

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Page 74 of 115 The AO passed assessment order under section i) 143(3) of the Act dated 14.12.2016 without making any addition on this account. During the course of assessment proceedings for ii) the assessment year 2015-16, the Assessee reiterated its revenue recognition policy vide letter dated 13.12.2017. The submission was accepted and the AO completed the assessment without making any addition on this count.

The Assessee also made similar submissions before iii) the Deputy Director of Income Tax (Investigation) in response to a summons under section 131 of the Act vide letters dated 06.02.2015

16.5. It was noted that Joint Development agreement and the method of revenue recognition of the assessee are details/ information which were already available with the department during the course earlier assessment proceedings and other proceedings. From the above, it is clear that in earlier assessment year 2015-16, department has accepted the method of computation of income from the Habitat project as declared by the assessee i.e. completion contract method. On same set of facts, from the AY 2016-17 onwards, the department wanted to change the method of computation of income by following percentage contract completion method instead of project completion method. As regards the argument of ld DR that advance received from the prospective buyers vide sale agreement represent the receipts in respect of the contracts undertaken, it was found that this was not supported by facts and figures. The assessee is not a contractor who has undertaken the construction activity. On the other hand, is a land

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Page 75 of 115 owner who has given the land for construction to Prestige Lakeside Habitat Project. He is getting his share of constructed area and against which assessee entered into sale agreement with various parties. The sale agreement is different from sale deed. In case of sale deed, the right in property transferred from seller to buyer immediately. However, it does not transfer in case of sale agreement. Sale deed is an executed contract. On the other hand, sale agreement is executory contract. In case of sale deed, seller can sue the buyer for breach of the contract. However, in the case of sale agreement, seller can sue the buyer only for damages but not for the price. In case of sale, if the property is destroyed, loss is borne by the buyer himself as he is the owner of the property. In case of agreement to sell, loss falls on the seller even though possession in the hands of buyer. Therefore, the contention that the amounts received from the prospective buyer through agreement to sell should be treated as “sale” was fallacious. The facts in the instant case, showed that there was no construction work done by assessee itself and it was the developer i.e. Prestige Lakeside Habitat Project and there was no handing over of the constructed area by present assessee to prospective purchasers. What was received from the prospective buyers was in the nature of advance, therefore, it cannot be considered as amount received towards absolute transfer of price of flats intended to be sold. The system of accounting of working out profits on completed contract basis was an accepted system of accounting and such system had been followed consistently in the past by the assessee, which had been accepted by the department in earlier years, therefore, there was no justification, whatsoever to reject this system by invoking the provisions of section 145 of the Act and making estimate of profit by AO.

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Page 76 of 115

16.6 At this stage, it is appropriate mention the Third member decision in the case of JCIT Vs. Magnum International Trading Company Ltd. (84 ITD 113) (Third Member) (Del.) wherein held that: “Assessee following project completion method, AO not justified in rejecting the method midway and estimated profit more so on when it was not permissible for the assessee or for the revenue to correctly work out the profit by changing the method of accounting in midway and make estimate of the income from ongoing contract for which there is no specific allocation of expenditure.”

16.7 In the case of Haware Constructions (P) Ltd. Vs. ITO 30 CCH 425 (Mum. Trib) wherein held that:

“Assessee builder having regularly employed project completion method which is an accepted method of accounting and the AO having accepted the same in the preceding assessment year, there is no justification to reject the said method to apply the percentage completion method when the assessee has offered the income in the year of completion of the project.”

16.8 In the case of ACIT Vs. National Builders 137 ITD 227 (Ahd Trib) wherein held that:

“AS-7 has also made a provision that advances received from customers may not necessarily reflect work performed. Outcome of a contract cannot be estimated reliably, therefore, no profit can be recognized. Clauses of agreement dated 1st March- 2002 prescribe that lease of units agreed to be allotted by assessee to intending allottees become legally en forcible only upon GSRTC approving allotment and uptill that time, there would be no legally tenable transaction by appellant in favour of intending lessee. Such approvals have in fact been granted by GSRTC in F.Y. 2004-05 relevant for A.Y. 2005-06 onwards. Vide order dated 18/5/2004 District Collector has restrained assessee from leasing in any manner whatsoever any of shop in GSRTC project. Therefore, AO has incorrectly applied AS-7 on assessee. Since the assessee can be termed as a contractor as also a developer, therefore Revenue can be recognized in terms of AS-9 guidelines. As per statement made by assessee, completion certificates of respective projects were obtained on 15.3.2005, 10.8.2004 and 31.12.2004. AO is empowered to examine this aspect and in view of guidelines and position of law narrated hereinabove, can take appropriate action prescribed under law. It was wrong on part of AO to assess income irrespective of year of completion of project when amount received in advance has not reached

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Page 77 of 115 certainty and that too AO has merely estimated 10% as recognition of Revenue of construction contract, without assigning any specific basis of such an estimation, such an estimation is not approved. Order of CIT(A) is upheld - Appeals dismissed.”

16.9 In the case of DCIT Vs. Maxworth Infrastructure P. Ltd. 63 CCH 151 (Del.) that: “Accounting Standard AS-7 relied upon by the Assessing Officer is applicable strictly in the case of construction contracts only. Further, the assessee is following consistently this method of revenue recognition in prior years as well as in subsequent years and which has been accepted by the revenue and thus rule of consistency also demand that in the year under consideration the assessing officer is not justified in deviating the consistent approach of the Department. In view of above, there is no error in the order of the CIT(A) on the issue in dispute. Revenue’s appeal dismissed.”

16.10 In the case of DCIT Vs. Ankit Chirag Developers Pvt Ltd. 40 CCH 18 (Jodh) (Trib). held that

“On perusal of clause 10 & 11 of AS-9 it is noted that in the appellant’s case the retractions involving of sale of good, the performance can be regarded as achieved when conditions laid down in clause 11 are fulfilled. In this connection it may be noted that the appellant has not transferred to the buyers the property i.e. flats in as much as significant risk and rewards of ownership have not been transferred. No sale deeds of sale of flats or any legally enforceable documents have been executed by the appellant. Though the AO has mentioned in the assessment order that sale agreements were executed but such findings appear to be factually incorrect in as much as in assessment order or in subsequent remand report there is no reference of any sales agreement. The appellant has also denied to have executed any sale agreement for sale of flat. It may also be noted that the appellant during assessment proceedings, vide written submission dated 8.1.2011 (para 2) also brought to the notice of the AO that no sales was made during the A.Y. under consideration as alscs that even during search proceedings, no sale agreement were found which may be-said to be of legally enforceable. Therefore in the absence of any sale agreement or execution of any sale deed it cannot said that accounting standard AS-9 for revenue recognition was applicable in the appellant's case. It may further be stated that the appellant company in earlier A.Y. followed project completion method and in the background of above discussion when AS-7 and AS-9 are prima facie not found to be applicable therefore there was no basis of determination of income by percentage completion method. (Paras 8) Conclusion: In the absence of any sale agreement or execution of any sale deed it cannot said that accounting standard AS-9 for revenue recognition was applicable in the appellant’s case.

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Page 78 of 115 Conclusion: Rejection of books of accounts by application of provisions of sec. 145(3) was not justified when there was nothing on record which may indicate that any item of income was suppressed or any item of expenditure was suppressed or inflated.”

16.11 In the case of S.K. Properties Vs. ITO 162 ITD 419 (Bang.) (Trib) wherein held that:

“Appellant firm had recognized the income in respect of sale of plots by adopting Completed Contract Method, whereas, the Assessing Officer is of the view that income should be offered to tax received on year to year basis based on the stage of receipt of consideration, irrespective of the fact that the title in the plots have been passed on the buyer or not. It is an undisputed fact that the plots forms a part of stock-in-trade in the business of appellant firm and are immovable properties. The title in the immovable property can be passed on only in terms of the provisions of Transfer of Properties Act. (Para 6) Provisions of section 2(47) of the Act have no application to the transactions of stock-in-trade. In this case, the stock-in-trade in immovable property and the title in immovable property can be transferred or alienated in accordance with the provisions of the Transfer of PropertiesAct. The right, title or interest in the immovable property can be transferred only by way of registering the conveyance deed executed in this behalf. Even the accounting standard 9 dealing with the recognition of income also lays down that the income in respect of transfer of immovable property can be recognized only when the risks, rewards and ownership of the property is transferred to the buyer. Therefore the matter requires fresh examination by the Assessing Officer in the light of the above position of law. Therefore, court remand this matter back to the file of the Assessing Officer with a direction that the income in respect of sale of plots can be recognized only in the year in which conveyance deed executed is registered in favour of the buyers and to allow the development expenditure incurred as expenditure or the expenditure likely to be incurred on the plots sold as expenditure. And this direction also goes in line in consonance with the provisions of accounting standard 9 which clearly lays down that matching is required to be done on accrual basis in respect of the income offered to tax and upheld by Honble Supreme Court in the case of CIT Vs. Taparia Tools Ltd.”

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Page 79 of 115 16.12 In the case of Prestige Estate Projects (P) Ltd. Vs. DCIT 129 TTJ 680 (Bang) (Trib) wherein held that:

“The appellant undertakes construction activity for those persons to whom it intends to sell the super-built area along with undivided share of land in a project which it is developing as a developer. Hence, the assessee is not a construction contractor and revised AS-7 was considered as not applicable. Accounting Standard-7 has not been specified by the Central Government under s. 145(2). Hence, the AD could not have rejected the accounts under s. 145(3) on the ground that the assessee has not followed the prescribed method of accounting. As per s. 145(1), income is to be computed in accordance with system of accounting regularly employed by the assessee. The assessee was employing regularly the project completion method and the project completion method is an accepted method of accounting. The assessee has changed the method of accounting from project completion method to percentage completion method in the subsequent year. Hence, the change in this year will be revenue neutral. Moreover, the assessee was under the bona fide belief that it was adopting a method of accounting, which was applicable to it as per the expert committee report of the ICAI. This bona fide belief is evident from the fact contained in letter dt. 3rd Sept., 2007 addressed to AO. In view of this, revised AS-7 cannot be applied in the case of the assessee. —CIT vs. Khoday Distilleries Ltd. (ITRC Nos. 19, 20 & 21 of 1993) and H.M. Constructions vs. Jt. CIT (2004) 90 TTJ (Bang) 510 : (2003) 84 ITD 429 (Bang) followed; CIT vs. Bilahari Investment (P) Ltd. (2008) 215 CTR (SC) 201 : (2008) 3 DTR (SC) 329 : (2008) 299 ITR 1 (SC) relied on.

(Paras 3.17 to 3.21)

In case the revised AS-7 is to be applied then the opening inventories are also to be valued as per revised AS-7 though revised AS-7 is not applicable in the case of the assessee. Also on the principle of consistency, the Revenue should have accepted the method of accounting adopted by the assessee as the same was being followed for the last so many years. When the guidance note provided that revised AS-7 is applicable to real estate developers, the assessee has itself changed the method of accounting. Hence the AO is directed to accept the project completion method of accounting for the year under reference.—Motor Industries Company Ltd. vs. Asstt. CIT (ITA Nos. 335 & 336/Bang/2005, dt. 12th June, 2008) followed.

(Para 3.25)

Conclusion:

Assessee developer having regularly employed project completion method which is an accepted method of accounting, and the Central Government having not notified

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Page 80 of 115 AS-7 under s. 145(2), AO could not reject the accounts under s. 145(3) on the ground that the assessee had not followed the percentage completion method.”

16.13 In the case of CIT Vs. Banjara Developers & Constructions P. Ltd. 425 ITR 673 (Karn.) wherein held that: “7. We have considered the submissions made on both the sides and have perused the record. Section 145 of the Act deals with method of accounting. Section 145(1) provides that income chargeable under the head 'profits and gains of business or profession' or 'income from other sources' shall subject to provisions of sub-section (2) be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. It is noteworthy that section 145 came to be amended w.e.f. 1-4-1987 and has not been given retrospective operation. The supreme court in the case of Bilahari Investments (P.) Ltd. supra has held as under: "Every assessee is entitled to arrange its affairs and follows 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 a profits that the department can in substitution of the existing method." 8. In the instant case, admittedly the assessee is following mercantile system of accounting and as per notes to the accounts, the assessee is following completed contract method of accounting for contracts. The aforesaid method of assessment has been accepted by the department in the past and therefore, in view of law laid down by the Supreme Court in Bilahari Investments Pvt. Ltd., the Commissioner of Income-tax (Appeals) as well as the tribunal has rightly held that there was no justification on the part of the assessing officer to change the earlier method adopted by the assessee and to determine the income on estimate basis. 9. The submission made on behalf of the revenue that the directions issued by a bench of this court vide order dated 23-9-2010jn I.T.A.No.36/2006 appears to be attractive at the first blush but on careful scrutiny of the order it is evident that the tribunal has referred to the decision of this court in the case of Skytop Builders (P.) Ltd. (supra) as well as the decision of the supreme court in Bilahari Investments (P.) Ltd. supra and has held that the assessee was following completed contract method which was accepted by the department in .-the past as well and therefore, there is no justification for the assessing officer to change the same. For the aforementioned reasons the submission made on behalf of the revenue cannot be accepted. Similarly, the contention that the controversy involved in this case is covered by decision of this court dated 9-9-2014 rendered in I.T.A.No.835-837/2008 is concerned, suffice it to say that substantial questions of law involved in the aforesaid appeals were entirely different. By reading the order of the tribunal as a whole, it is evident that the tribunal has

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Page 81 of 115 taken note of the effect of Section 145 of the Act. Therefore, the aforesaid submission made on behalf of the revenue also does not deserve acceptance. 10. In view of preceding analysis, the substantial question of law framed by this court is answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed.”

16.14 In the case of CIT Vs. Prestige Estate Projects P. Ltd. 440 ITR 343 (Karn.) wherein held that “10. In the instant case, assessee entered into a Development Agreement with M/s. Karnataka Realtors Private Limited, under which agreement the assessee was to develop the property and after development of the property, the owner and the developer were entitled to a specified percentage of super built area and both were free to sell the super built area allotted to their respective shares before construction of the built up area fallen to the share of the assessee, it (assessee) entered into agreement with the proposed buyer to construct the portion as per their specification. In other words, construction is undertaken by the assessee on behalf of the proposed buyer. However, for the purposes of stamp duty payable on the sale of undivided share of land sold to the buyer, only value of the land is taken and assessee had followed consistently this method of accounting to declare the profit namely, on project completion method as per the provisions of the Companies namely, section 211(3A) the Profit and Loss Account and balance sheet of the company has to comply with the Accounting Standard. As per proviso to section 211(3C), Standards of accounting specified by the ICAI are deemed to be Accounting Standard until the Accounting Standards are prescribed by the Central Government. In other words, the companies are required to adopt and follow the Accounting Standards as prescribed by ICAI. In the event of such prescribed Accounting Standards are not being followed, then, such companies are required to disclose in its Profit and Loss Account and Balance sheet the reasons as prescribed under section 211(3B) of the Companies Act. To put it differently, the Companies Act also provided for deviation from the Accounting Standards also. There is no dispute to the fact that AS-7 effective from 01.04.2003 is applicable to all construction contractors. The objective of AS-7 reads: "The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the

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Page 82 of 115 recognition -criteria established in the Framework for the- -and -Presentation of Financia- Statements-to Preparation determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria." Thus, assessee-company which is required to follow Standard as prescribed by ICA' will have to necessarily take into account the reply furnished by the Institute for the Expert Committee, which reads as under: --* (i) the seller of the goods has transferred to the buyer the property in the goods for a specific price or on significant risks and rewards of ownership has been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; (ii) no significant uncertainty exists regarding amount of consideration that has been derived from the sale of the goods. In the instant case, it has been noticed by the appellate Tribunal that assessee was in the activity of projects and was not a construction contractor. Thus, the revised AS-7 would be applicable to an enterprise undertaking construction activities on their own account as a venture of commercial nature. Whereas, the assessee undertakes construction activities for those persons to whom it intends to sell super built area along with undivided share of land in a project which it is developing as a developer. 11. There cannot be any dispute to the fact that every assessee being entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. Under similar circumstances as obtained from the facts on hand, Hon'ble Apex Court in the case of CIT v. Bilahari Investment (P) Ltd. [2008] 168 Taxman 95/299 ITR 1 has held: "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 method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of

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Page 83 of 115 revenue recognized under this method is determined by reference to the stage of completion of the contract."

16.15 In the case of SN Builders & Developers 431 ITR 241 (Karn) “7. Now we may deal with the second substantial question of law. The Tribunal relied upon the decision in the case of Prestige Estate Projects (P.) Ltd. (supra), rendered by it and held that for the Assessment Year 2005-06 the Accounting Standard 7 was not applicable to the real estate developers. Therefore, percentage completion method cannot be thrust upon the assessee and the assessee was right following the project completion method of accounting as per Accounting Standard 9. The aforesaid decision has been upheld by this Court in Prestige Estate Projects (P.) Ltd. (supra). Besides it, once the first substantial question of law is answered in favour of the assessee, the second substantial question of law is otherwise even rendered academic. The Institute of Chartered Accountants has issued a clarification wherein it has been clarified that revised Accounting Standard 7 is not applicable to the enterprises undertaking construction activities. Therefore, the second substantial question of law is also answered against the revenue and in favour of the assessee.”

16.16 In the case of SN Builders & Developers 739 of 2018 dated 20.1.2018 (Karn) wherein followed the earlier judgement in 431 ITR 241 cited (supra).

16.17 In the case of DCIT Vs. Varun Developers (440 ITR 354) (Karn.) 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The first three substantial questions of law are answered in favour of the assessee for the reasons assigned by learned Senior counsel for the assessee in the judgments referred to supra. So far as fourth substantial question of law is concerned, it is pertinent to note that under section 145(1) of the Act, the income chargeable under the head Profits and Gains of Business shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The general provision is subject to accounting standards that the Central Government may notify. The assessee is a builder and developer and not a construction contractor simplicitor. Accounting Standard 7, titled construction contracts is applicable only in case of contractors and does not apply to the case of developers and builders which is evident from opinion rendered by expert advisory committee of ICAI. It is pertinent to note that the assessee had offered the income for. Assessment Year 2007-08 and no income from the project was offered

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Page 84 of 115 for the Assessment Year 2007-08 on the basis of project completion method and that either method of accounting finally lead to the same results in terms of profits and therefore, revenue neutral. In view of preceding analysis, the fourth substantial question of law is also answered against the revenue and in favour of the assessee. In the result, the appeal fails and is hereby dismissed.”

16.18 In the case of DCIT Vs. Esteem Classic in ITA No.842 of 2018 dated 22.3.2021 (Karn) “8. We have considered the submissions made on both sides and have perused the afore-mentioned decisions carefully. On perusal of the afore-mentioned decisions referred to supra rendered by this Court in the case of PRESTIGE ESTATE PROJECTS, BANJARA DEVELOPERS & CONSTRUCTIONS (P) LTD., VARUN DEVELOPERS, S.N. BUILDERS & DEVELOPERS IN ITA 393/2014 AND ITA 739/2018 as well as the decisions of the Hon’ble Supreme Court in EXCEL INDUSTRIES and in BILAHARI INVESTMENTS supra and taking into account the fact that the Revenue itself has recognized the completed contract method for computation of the subsequent Assessment years, that is 2013-2014 and 2014-2015, we answer the substantial questions of law against the Revenue and in favour of the assessee.

In the result, the appeals preferred by the Revenue fail and are hereby dismissed.”

16.18.1 In the case of Investment Ltd. Vs. CIT reported in e (1970) 77 ITR 533 (SC), Hon’ble Supreme Court held as under:- "assessee is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or at market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. The method of accounting regularly employed may be discarded only, if, in the opinion of taxing authorities, income of the trade cannot be properly deduced there from (as per provisions of 1922 Act in force at that time, presently only if case falls in sub section (3) of section 145)". 30. Further in another judgment of Hon'ble Supreme Court in the case of CIT V/s Krishna Swamy Mudiliar reported in (1964) 53 ITR 122 (SC), their Lordship's of Apex court while dealing provisions of section 13 of 1922 Act (the provisions of which are

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Page 85 of 115 in pari-materia of section 145 of 1961 Act) have held as under: "Section 13 of 1922 Act merely prescribes that the computation of taxable profits shall be made according to the method of accounting regularly employed. Where in the opinion of the ITO the income, profits and gains cannot be properly deduced from the method of accounting, it is open to ITO to compute the income upon such basis and in such manner as he may determine". Comparing the provisions with the English provisions, it is held, "the only departure made by section 13 of 1922 Act from tax legislation in England is that whereas under English legislation the commissioner is not obliged to determine profits of a business venture according to method of accounting adopted by the assessee, under the Indian Income Tax Act, prima-facie, the ITO has for purposes of section 10 & 12 of 1922 act to compute income, profits and gains in accordance with method of accounting regularly employed. If, therefore, there is a system of accounting regularly employed and by appropriate adjustments from the accounts maintained taxable profits may be properly deduced, the ITO is bound to compute profits in accordance with method of accounting. but where in the opinion of ITO, the profits cannot be properly deduced from eth system of accounting adopted by assessee it is open to him to adopt a more suitable basis for computation of true profits. Their Lordships then also dealt with method of accounting and observed as under- "among Indian businessmen as elsewhere, there are current two principle systems of book keeping, there is, firstly, the cash system in which record is maintained of actual receipts and actual disbursements, entries being posted when money or money's worth is actually received, collected or disbursed. There is secondly, mercantile system in which entries are posted in eth books of account on the date of transaction i.e. on the date on which rights accrue or liabilities are incurred irrespective of the date ofpayment. 31. Further in the decision of the coordinate Bench, ITAT Allahabad Bench in the case of Mahabir Jute Mills V/s JCIT reported in (2013) 36 Taxmann.com 587 as also on the decision in the case of CIT V/s Advance Construction Company P. Ltd reported in (2005) 275 ITR 30 (Guj), where their Lordships have reiterated position that choice of accounting method lies with that of assesse, the only caveat being that it has to show that the chosen method has been regularly followed. The section is couched in mandatory terms and the department is bound to accept the assessee's choice of method regularly employed except for the situation wherein the AO is permitted to intervene, in case it is found that true income profits and gains cannot be arrived at

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Page 86 of 115 by the method employed by assessee. Their Lordship's further held that the position of law is further well settled that regular method adopted by assessee cannot be rejected merely because it gives benefit to assessee in

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Page 87 of 115 the view taken by the Tribunal and the Commissioner of Income Tax is not correct. Issue decided in favour of assesssee. 34. Further the Hon,ble High Court of Gujarat in the case of CIT v Shivalik Buildwell P Ltd (2013) 40 taxmann.com 219 (Guj.) dealing with the similar issue observed as follows; "On the Revenue's appeal, the Tribunal confirmed the view of the Commissioner of Income Tax (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration. The Tribunal further noted that such method of accounting followed by the assessee had been accepted by the Revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer's decision to reject the book results during the year under consideration was not justified. We are of the opinion that the Tribunal committed no error. If as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the Revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different sand and that too, without hearing the assessee". 35. Further in another judgment by CIT Vs. Umang Hiralal Thakur (2014) 42 taxmann.com 194 (Guj) is placed on the following paragraphs of its judgment. "In the present case, it is not the Assessing Officer's case that the appellant is not reporting or under reporting its income. In fact, I find in the subsequent assessment year, i.e. the assessment year 2007-08, the appellant has disclosed substantial income from the projects undertaken in the business proprietary concerns, viz, M/s. Neelkanth Enterprises, M/s. Ghanshyam Enterprises and M/s. Swaminarayan Enterprises. In the subsequent year, i.e. the assessment sear 2007-08 the profit declared from the projects run by these three proprietary concerns ranges from 43 per cent to 46 per cent. The Supreme Court in the case of Sanjeev Woolden Mills v. CIT (supra), has clearly held that to attract the proviso to section 145(1) of the Act, the Assessing Officer should be of the view that the accounts are correct and complete but the method employed is such that the income cannot be property deduced there from. The choice of method of accounting regularly employed by the assessee lies with the assessee but the assessee would be required to show that he assessee's regular method would not be rejected as improper merely because it gives the assessee the benefit in certain years or that as per the Assessing Officer, the other method would have been more preferable. If the method adopted does not afford true picture of profit, it would be rejected, but then such rejection should be based on cogent evidence and should be done with caution. In the present case, the appellant has declared substantial profits on the basis of project completion method in the

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Page 88 of 115 subsequent years. In construction, the project completion method and percentage completion methods, both have also been recognized by the Central Board of Direct Taxes in the instruction No.4 of 2009 dated June 30, 2009. Therefore, the Assessing Officer is not considered justified in bringing to tax the profit of Rs.1,66,70,811 in the year under consideration, particularly when such profits have already been offered to tax by the appellant in the assessment year 2007-08. The addition of Rs.1,66,70,811 are directed to be deleted".

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Page 89 of 115 Commissioner of Income-tax (Appeals) and therefore, the same is upheld and the appeal of the Revenue is dismissed. It is reported that the decision of Appellate Tribunal in the case of Vraj Developers (supra) has attained the finality as the said decision is not challenged by the Department before higher forum. In view of the above and more particularly, when it has been found that the assessee is consistently following the accounting system of percentage completion method, which is permissible and accepted by ICAI and the Central Board of Direct Taxes with respect to construction work, it cannot be said that the learned Appellate Tribunal has committed any error/or illegality, which call for the interference of this court. We see no reason to see to interfere with the impugned judgment and order passed by the learned Commissioner of Income tax (Appeals) deleting the addition of Rs.1,66,70,881 which was made by the Assessing Officer on rejecting the accounting system on percentage completion method followed by the assessee. No question of law much less any substantial question of law arise in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed."

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Page 90 of 115 the assessee, but the CIT(A) while accepting the appeal of the assessee made the following observations:- "It is however not the AO's case that the profits have been distorted by following the project completion method. The impugned order is also silent as regards the position of the books of account. In other words the books have not been rejected, nor any defects pointed out. In the case of CIT vs. Bilahari Investment (P) Ltd (2008) 299 ITR 1 SC, the Apex Court held that the completion contract method adopted by the assessee for chit discount consistently over the years, is not required to be substituted by percentage completion method. In CIT v Manish Buildwell (P) Ltd (2011) 245 CTR 397 (Del), it was enunciated that project completion method is one of the recognized methods of accounting. That it cannot be said that the project completion method followed by the assessee would result in deferment of payment of taxes. Therefore, considering the discussion above, I do not find any merit on the part of the AO to have worked out the income by applying the percentage completion method". The Tribunal affirmed the order of the CIT(A). It was concluded that project completion method and percentage completion method are accepted standards of accounting and the assessee has option to adopt any one of them. The relevant findings recorded by the Tribunal read thus:- "We have heard the rival contentions and perused the record. The issue arising in the present appeal before us is in relation to the method to be applied for recognizing the revenue generated by the assessee in the course of carrying on the business of real estate developers. The case of the assessee is that it is following one of the accepted accounting standards approved by ICAI for recognizing the revenue generated by it. The assessee had followed project completion method which had been consistently followed by the assessee for the preceding years also. The Assessing Officer on the other hand, had applied percentage completion method to compute the income in the hands of the assessee. The Commissioner of Income Tax (Appeals) had allowed the claim of the assessee. Both the methods of accounting are i.e. project completion method and percentage completion method is accepted standards of accounting and either of the methods can be applied by the assessee. In the facts of the present case before us, the assessee had chosen to compute its income on the basis of project completion method i.e. recognizing the income on -the completion of the project and not from year to year whereas the case of the revenue was that it should account for the income as it is generated in the hands of the assessee i.e. from year to year on the basis of the work completed being relatable to the revenue generated from year to year. The Hon`ble Supreme Court in CIT Vs. Bilahari Investment (P) Ltd (supra) had held that "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. Completed contract method is one such method. "It was further held that "Every assessee is entitled to arrange its affairs and follow the method of accounting which the Department has earlier accepted. It is only on those cases where the department records a finding that the method adopted by the assessee results in distortion of profits, the

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Page 91 of 115 Department can insist on substitution of the existing method". Applying the above said principles to the facts of the present case we find that the assessee before us has been following the systematic method of accounting from year to year which has been accepted by the department and no defects have been pointed out by the department in the method of accounting adopted by the assessee and thus, there is no reason to reject the same. The Hon'ble Delhi High Court in CIT v Manish Buildwell (P) Ltd (supra) had held that "It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the projection completion method followed y the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act. AS-7 issued by the ICAI also recognizes the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. " Where the assessee was following a particular method of accounting consistently, which has been accepted by the department from year to year and in the absence of any defect being pointed out by the Assessing Officer that t4 following such method, income had escaped assessment, we find no merit in the order of the Assessing Officer in holding that percentage completion method should be applied to the assessee for the year under consideration. It is the prerogative of the assessee to arrange its affairs in such a manner and follow any recognized method of accounting to compute its profits. In view thereof, we find no merit in the order of the Assessing Officer in recomputing the income in the hands of the assessee. Upholding the order of Commissioner of Income Tax (Appeals), we dismiss ground of appeal raised by the revenue.” The Delhi High Court in CIT V. Manish Build Well (P) Ltd. (2011) 16 taxmann.com 27(2002) 204 Taxman 106 noted that project completion method is one of the recognized methods of accounting. It was held as under:- "It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act" The assessee respondent had been consistently following one of the recognized methods of accountancy, i.e project completion method, for computation of its income. In the absence of any prohibition or restriction under the Act for doing so, it cannot be held that the approach of the CIT (A) and the Tribunal was erroneous or illegal in any manner so as to call for interference by this Court. No substantial question of law arises. Consequently, finding no merit in these appeals, the same are dismissed." 38. It is well settled that the project completion method is one of the recognized methods of accounting. In CIT v Hyundai Heavy Industries Co. Ltd (2007) 291 ITR 482/161 Taxman 191 (SC) the Supreme Court held as follows:- "Lastly, there is a concept in accounts which is called the concept of contract accounts.

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Page 92 of 115 Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method". 39. This view was reiterated by the Supreme Court in CIT v. Bilahari Investment (P) Ltd. (2008) 299 ITR 1/168 Taxman 95 with the following observations: "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 proceedings of completion method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. The On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of tht contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours)

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Page 93 of 115 the percentage completion method for one year(the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we axe of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3." 41. From perusal of all the judgments it has been consistently held rather a settled law that the action of revenue authorities cannot be held justified if they substitute another method of accounting on the assessee which in the instant case was imposing of percentage completion method on the assessee even when it has been consistently maintaining the regular books of accounts on mercantile basis u/s 145 of the Act adopting project completion method to account for the revenue and the revenue authorities have failed to bring forth any inconsistency in the books of accounts. The Assgessing Officer in the instant case has merely applied the method of percentage completion adopted by the Developer JSM DPL and calculated the income of the assessee completely ignoring the fact that the assessee was merely the owner of land and he was entitled to 32% of saleable area only on completion of construction and the deadline of which was 60 months from the date of agreement i.e. from 1.4.2009. The Ld.A.0 also ignored the fact that right to sale its share of constructed area with the assessee was only from April, 2014 onwards and the assessee has offered the revenue for taxation from F.Y 2014-15 onwards as and when the sale deed has been registered. As held by various courts as discussed above that the method of adopting project completion method is not ultra virus and the assessee is free to adopt either the percentage completion method or project completion method with the only rider that it should be consistently adopted and in case of any deviation the effect of profit or loss should be offered to tax as the case may be. Revenue has not disputed this fact that assessee has offered the impugned advances to tax in the subsequent years i.e. from financial year 2014-15 based on sale deed registered which proves that there has been no loss to the revenue. Mere postponement of tax as a result of method employed by assessee has not been viewed adversely by courts so long as the method is regularly and consistently employed as held by Hon'ble Apex Court in the case of Excel Industries Ltd (2013) 358 ITR 295.”

16.18.2 In the case of ACIT Vs. Satyam Developers Ltd. 56 CCH 370 (Ahd) (Trib) wherein it was held as under:-

“The taxability on estimated income from the development and construction project of building is in controversy. As noticed by the CIT(A) as well as pointed out on behalf of the assessee, assessee is engaged as a developer and constructor of the building project and is not a mere Civil Contractor. Thus, the AO could not challenge the project completion method adopted by the assessee to the percentage completion method unless all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership. The assessee has referred to BU permission etc. and has

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Page 94 of 115 demonstrated on facts that the risks associated with the project continued with the developer in a significant way during the year under consideration. It is also not in dispute that the income has been ultimately offered in the later assessment year and duly assessed. Thus, the entire exercise of the AO is revenue neutral. The CIT(A) has correctly appreciated the facts and circumstances of the case and has taken note of the revenue recognition in the later year. The assessee has also demonstrated that the revenue recognized from project has been actually assessed and accepted in 143(3) r.w.s. 263 of the Act proceedings. (Para 8) Conclusion:

AO cannot challenge the project completion method adopted by the assessee, a developer and constructor of the building project, to the percentage completion method unless all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership.”

16.18.3 The following case laws also support the case of the assessee which are as follows:- • CIT V. Realest Builders & Services Ltd. 216 CTR (SC) 345 • Paras Buildtech India Pvt. Ltd. Vs CIT (2016) 382 ITR 0630 (Delhi) • CIT V. Manish Buildwell Pvt. Ltd. (2011) 245 CTR 0397 (Del) • CIT vs. Shivalik Buildwell (P.) Ltd. - 40 taxmann.com 219(Gujarat) • ITA No. 853 of 2015(Bom) CIT vs. Millennium Estates Private Ltd. • CIT vs. Aditya Builders - 378 ITR 75(Bom) • Bakshi Vikram Vikas Construction Co. P. Ltd. V. DCIT - 158 Taxman 61 (Del.) • CIT v. V. S. Dempo & Co. Pvt. Ltd. (131 CTR 203)(Bom) • ACIT v. Rajesh Builders (2004-TIOL-88-ITAT-MUM) • Maitri Developers v. ITO (2011-TIOL-472-ITAT-Mum)

16.19 As seen from the various judgements, jurisdictional High Court time and again held that method of accounting followed by the

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Page 95 of 115 assessee, which is the project completion method of recognizing revenue is permitted in law and could be followed by assessee. Thus, it is settled position of law that decision of the higher authority to be followed and judicial discipline requires consistency in its proceedings.

16.20 Further, contention of ld. DR is that assessee has to follow the percentage completion method for recognizing the income since the developer has followed the same. In our opinion, assessee being a land owner and the developer are two independent assessees under Income Tax Act. Since developer has followed the percentage completion method, it cannot be thrust upon the assessee to follow the same method and the assessee being independent assessee at liberty to chose the method of accounting as suitable to him. More so, Accounting Standard – 7 is applicable only to construction contracts undertaken by the developer and not to the landlord who has not participated in any way in construction of the project or developing of the project, he is getting only constructed area as a consideration towards sale of land through JDA.

16.21 It is relevant point out to Page 186 of the paper book which deals with possession of the property which clearly indicates that no possession has been granted. Further in Page 184 of the paper book, the purchasers do not have a right to obstruct the development. Page 181 of the paper book deals with execution of sale deed and most importantly at Page 176 of the paper book it is stated that if the prospective purchases do not make the payments, the agreement can be terminated. Consequently to hold that the purchasers are in control of the property is absolutely not correct. Reference is also made to Para 1.3 of the development agreement at Page 115 of the paper book

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Page 96 of 115 which clearly states that the parties confirm that the owner shall retain legal possession, domain and control over the property till the same is developed and sold either in whole or in parts to prospective purchasers as provided in the agreement.

16.22 The issue is whether project completion method or percentage completion method has to be followed and both being species of mercantile system of accounting, the Assessee has a right to choose one of the two methods. The Assessee having chosen the project completion method, it is impermissible for the revenue to modify it by invoking the decision of British Paints (supra) more so when the jurisdictional High Court has approved project completion method and consequently, the method adopted by the revenue is unsustainable in law.

16.23 The decision of CIT v. British Paints India Ltd. (1991) 188 ITR 44 (SC) referred to by the learned Commissioner of Income Tax (Appeals) is not relevant to the facts of the assessee's case. The CIT(A) has without any rational basis made an attempt to distinguish the cases at Para 4.15 of the order. In the case of British Paints is not at all applicable to the facts of our case and the facts of British Paints is totally different from the principles of consistency of the very same project. In fact, British Paints is a case of valuation of goods and whether it should include overhead expenditure or not and in that context the Hon'ble Supreme Court held that overhead expenditure has to be added. The Hon'ble Supreme Court has also reversed the decision based on the issue being a finding of fact. The Supreme Court also found fault with the High Court

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Page 97 of 115 as the Tribunal has dealt with the matter as matter of fact. Hence, the said decision stands distinguished.

16.24 The reliance placed in para 4.16 of the order under section 250 of the Act on the decision of the Hon'ble Supreme Court in Mysore Minerals Limited v. CIT (1999) 239 ITR 775 (SC) is not at all applicable on the facts and circumstances of the case in as much as there has been no handing over of possession to the purchaser. Without prejudice, the observation that the registration of the land is a mere formality is too farfetched in as much as even the entire consideration has not been received. Thus, to say that the registration is a mere formality is a perverse observation and any finding based on a perverse observation cannot stand the principle of rationality. Further, it is categorically stated in the agreement to sell that the purchaser shall not seek conveyance or possession until then and consequently the decision of the Hon'ble Supreme Court in Mysore Minerals Limited v. CIT (1999) 239 ITR 775 (SC) is not applicable on the facts and circumstances of the case.

16.25 In so far as some of the decisions at Page 37 of 44 of the CIT(A) order, there is a general statement that these cases are rendered on different facts. No thought process or application of mind is evident in this regard. The decision of the Hon'ble Supreme Court in the case of Mysore Minerals has been relied upon. It is absolutely not applicable as the CIT(A) himself held that a person in possession of the property in his own right would be the owner and the CIT(A) says that registration of land is a mere formality which is contradictory with the agreement with the purchasers.

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Page 98 of 115 16.26 Another decision referred to by the CIT(A) is the decision of the Mumbai Tribunal in DCIT v. Sudhir V. Shetty (2014) 50 taxmann.com 372 (Mum. - Trib.). In fact, the said decision is not against the assessee. The entire decision stems of out of right to seek specific performance. The assessee submits that as held by the Hon'ble Supreme Court in K.S. Vidyanadam v. Vairavan (1997) 3 SCC 1, grant of the relief of specific performance if discretionary and the Court is not bound to grant it. Consequently, the decision of the Tribunal is not applicable to the facts and circumstances of the case. And further, the decision of Sudhir Shetty is more on the construction aspect and not that of land as in the case of the assessee.

16.27 The decision of ACIT v. Alcon Developers (2015) 54 taxmann.com 54 (Panaji - Trib.) is also not applicable to the facts of the present case as in the said case, the work was 100% of the work was completed and money was received to the extent of 90% and further the assessee in the said case agreed to offer income on project completion method, however did not offer and a finding has been given that a method followed in neither percentage completion method nor project completion method and consequently not relevant to the fact of the case. The other decisions referred to are not applicable to the facts and circumstances of the case.

16.28 Further noted that the finding of the Commissioner of Income Tax (Appeals) in Para 4.16 at Page 37 of the order and first five lines at Page 40 of the order are contrary to each other. In the first instance at Page 37, the

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Page 99 of 115 Commissioner of Income Tax (Appeals) says that the registration of land is a mere formality, whereas in Page 41, he says that reasonable development has taken place. This clearly indicates that the project has not been completed. It is not comprehensible as to how a finding can be given that a registration is a mere formality when lot of balance consideration is to be received. The finding based on such erroneous facts requires to be vacated.

16.29 The Commissioner of Income Tax (Appeals) has referred to the decisions relied upon by the assessee which ought to have been followed and merely stating that these cases do not apply to the facts of the assessee's case does not lead to proper distinguishment of the case.

16.30 The lower authorities failed to appreciate that in the case of a developer it may not be possible to evolve a methodology wherein the income is ascertainable in a proper manner by adopting Accounting Standard -7. The methodology of business contemplates selling of certain flats for which no amount would have been incurred. For example, the 24th floor or 28th floor of the building may not be constructed in the initial years, however it may have been booked by a customer. Consequently, percentage completion method is not an appropriate method to determine the income. Thus, it is not at all correct to tax land when a particular flat has not even commenced when agreement of construction is co-terminus with that of the land and consequently the application of percentage completion method does not arise.

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Page 100 of 115 16.31 The authorities below have erred in as much as merely because the developer has followed the percentage completion method the land owner need not follow the same as each of them are independent assessable entities under the scheme of Act and are entitled to choose the method that is preferred by them. It is relevant to point out that the developer has entered into a construction contract with prospective purchasers which is at Pages 213 - 237 of the paper book and consequently AS-7 is applicable and he might have rightly applied percentage completion method. In so far as the assessee is concerned, it does not get into any construction activity, therefore the question of applicability of AS-7 does not arise and consequently percentage completion method is not applicable. Even as per ICDS - III that ICDS shall apply for determination of income for construction for construction act of a contractor.

16.32 It is observed that it is the land owner with respect to the said project and it entitled to 30% shares of the entire revenue which is attributable to the consideration to be received for the land owned by the Assessee.

16.33 The transaction of the Assessee is explained that, the Assessee enters into an agreement to sell with the prospective purchaser for sale of the undivided right, title and interest and ownership in the property. Independently, the developers/ builder enters into a construction agreement with the purchaser and it is relevant to note that the Assessee is not a party to the construction agreement. The obligation to construct as per the terms and conditions is not the

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Page 101 of 115 responsibility of the Assessee. The Assessee's risk and reward is restricted to the land owned by it which will be conveyed to the purchaser by way of executed of sale deed on completion of construction, subject to the purchaser complying with the terms of the agreement to sell and construction agreement. Further, it is categorically stated in the agreement to sell that the purchaser shall not seek conveyance or possession until then

16.34 At Page 67 of the appeal memo for AY 2016-17, a clause from the joint development agreement with respect to marketing fee has been extracted which has been paid by the assessee to the developers and the same has been claimed and allowed in the respective years when the income has been offered, namely, AY 2019-20 onwards.

16.35 The Assessee is also entitled to terminate the agreement to sell entered into with the purchaser in case of non-compliance with the terms and conditions of the agreement to sell, for example, payment of balance consideration. This goes to prove that till the entire consideration is received, which event is completed on the date of execution of sale deed, the significant risks and rewards of ownership cannot be considered to be transferred to the purchaser.

16.36 The reliance placed by the lower authorities on the Guidance Note on Accounting for Real Estate Transactions (Revised) 2012 to hold that percentage completion method has to be followed is incorrect as even the guidance states that revenue should not be recognized till such time legal title is

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Page 102 of 115 validly transferred to the buyer. The relevant extract of the guidance note is reproduced below -

4.3 Where transfer of legal title is a condition precedent to the buyer taking on the significant risks and rewards of ownership and accepting significant completion of the seller's obligation, revenue should not be recognised till such time legal title is validly transferred to the buyer.

16.37 It is clear from the Guidance Note that the application for a real estate project can happen when the four conditions precedents are cumulatively. In our opinion, the conditions have not been complied with and consequently it cannot be applied.

16.38 It is also noted that as per Accounting Standard - 9, for applicability of proportionate completion method there should more than one act and for applicability of completed contract method there should be only orra act. In the instant case, there is only one act involved which sale of the property and consequently completed contract method is applicable.

16.39 Further, section 145(2) of the Act has been amended w.e.f 01.04.2015 to substitute the word accounting standards to income computation and disclosure standards. To the best of our knowledge, ICDS-III deals with construction contracts which is not applicable to the assessee and there is no standard for a development project.

16.40 It is an admitted fact that assessee not engaged in construction contract and on the other hand, assessee is only land owner getting the consideration on account of entering into JDA with Prestige Lakeside Habitat at a prescribed percentage of constructed

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Page 103 of 115 area. In these circumstances, we have to examine whether revenue can thrust upon the assessee to adopt percentage completion method of accounting though the revenue had accepted the assessee’s method of accounting following completed contract method in earlier assessment years i.e. 2014-15, 2015-16 and in subsequent assessment years 2019-20 & 2020-21 and taxed the income on the basis of method followed by the assessee. Even for argument sake, completed contract method and percentage completion method were duly recognized methods of accounting for construction of project. As held by Hon’ble Supreme Court in the case of Bilahari Investments Pvt. Ltd. cited (supra), wherein held as under:-

"15. 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. Completed contract method is one such method. Similarly, percentage of completion method is another such method.

16.41 From the above, it is clear that percentage completion method and completed contract method are recognized methods of construction project only and not applicable to assessee who receives his consideration due to him on entering into JDA.

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Page 104 of 115 Further, the Hon’ble Supreme Court in the case of CIT Vs. Hyundai Heavy Industries Company Ltd. (291 ITR 482), wherein held as follows:-

“24. From the above it is clear that percentage completion method and compete contract method are both recognised method of construction project. Similar proposition was laid down by Hon'ble Supreme Court in the case of CIT v Hyundai Heavy Industries Co. Ltd (2007) 291 ITR 482 wherein Hon'ble. Apex Court held as follows:- "Lastly, there is a concept in accounts which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method."

16.42 Hence, in our opinion, the percentage completion method cannot be applied to the assessee’s case.

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Page 105 of 115

16.43 The ld. DR made one more argument that percentage completion method has been made compulsory by subsequent insertion of Section 43CB of the Act by Finance Act, 2017 w.e.f. 1.4.2017.

16.44 We have carefully gone through the relevant provisions of the Act. From the perusal of above section, it is clear that it is applicable to construction and service contracts and not to the land owner, who receives sales consideration in the form of constructed area by entering into JDA with the developer.

16.45 Furthermore, we find that the main issue before us is only revenue neutral as and when assessee sold the constructed area, the gain would be exigible to tax. Thus, the effect is only revenue neutral as revenue shall collect necessary taxation when the assessee sold its share of constructed area by way of Registered Deed. At this point of time, it is appropriate to place reliance on the judgement of Hon’ble Supreme Court in the case of UOI & Ors. Vs. Exide Industries & Anr. In Civil appeal No.3545/2009 dated 24.4.2020 wherein held that “Accordingly, we hold that on the facts and circumstances of the case, thrusting of percentage completion method upon by the revenue on assessee is not sustainable. Hence, computation of gains adopting the said percentage completion method is not sustainable.”

16.46 The Assessee has adopted the project completion method of recognition of revenue and has been consistently following it over the years. In fact, the, same was queried during the course of assessment proceedings for the AY 2014-15 and 2015-16 and assessment orders were passed without making any

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Page 106 of 115 addition on this count. It is observed that it is not open to the revenue to reject the method which has been consistently followed by the Assessee merely because the learned assessing officer is of the opinion that another method is preferable. The following judgements support the case of Assessee:

i ) CIT v. Aditya Builders (2015) 378 ITR 75 (Born.) wherein held that

“Assessee had chosen/adopted the Project completion method of accounting and had been consistently following it over the years. It was not open to the revenue to reject a method because, according to the Assessing Officer, another method was preferable. Moreover, the most appropriate method of accounting to correctly reflect the true financial statement is a matter of opinion and debate, Issues of debate are not amenable to the revisional jurisdiction under section 263.”

(ii) CIT v. Manish Build Well (P.) Ltd. (2011) 245 CTR 397 (Del.) wherein held that: “It is well settled that the project completion method is one of the recognized methods of accounting. In CIT v. Hyundai Heavy Industries Co. Ltd. [2007] 291 1TR 482 / 161 Taxman 191 (SC) the Supreme Court held as follows:- "Lastly, there is a concept in accounts which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, "completed contract method" and "percentage of completion method". To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are "completed contract method" and "percentage of completion method". This view was reiterated by the Supreme Court in CIT v. Bilahari Investment (P.) Ltd. [2008] 299 ITR 1/168 Taxman 95 with the following observations: "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted

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Page 107 of 115 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 method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at undies this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours) After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method. In view of the judgments of the Supreme Court (Supra), the finding of the CIT (A), upheld by the Tribunal, does not give rise to any substantial question of law. Further, the Tribunal has also found that there was no justification on the part of the assessing officer to adopt the percentage completion method for one year (the year under appeal) on selective basis. This will distort the computation of the true profits and gains of the business. For these reasons, we are of the view that no substantial question of law arises. We, therefore, decline to admit question Nos. 2 and 3.”

(iii) Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC)

“One of the contentions which the learned senior counsel for the assessee- appellant raised at the hearing was that in the absence of any change in the circumstances, the revenue should have felt bound by the previous decisions and no attempt should have been made to reopen the question. He relied upon some authorities in support of his stand. A Full Bench of the Madras

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Page 108 of 115 High Court considered this question in T.M.M. Sankaralinga Nadar & Bros. v. CIT 4 ITC 226. After dealing with the contention the Full Bench expressed the following opinion: "The principle to be deduced from these two cases is that where the question relating to assessment does not vary with the income every year but depends on the nature of the property or any other ques- tion on which the rights of the parties to be taxed are based, e.g., whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income; such questions if decided by a Court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated...." (p. 242) One of the decisions referred to by the Full Bench was the case of Hoystead v. Commissioner of Taxation 1926 AC 155. Speaking for the Judicial Committee, Lord Shaw stated : "Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle - namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light -or ingenuity might suggest some traverse which had not been taken." These observations were made in a case where taxation was in issue. 12. This Court in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 stated: ". . . At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity...." (p. 10) Assessments are certainly quasi-judicial and these observations equally apply. 13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a

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Page 109 of 115 unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assess ment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.

16.46.1 In view of the above, we are of the opinion that department is precluded from changing the method of accounting which has been consistently followed by the assessee from year to year in middle of the duration of the project. At the same time, we are aware of the fact that the concept of res judicata does not apply to income tax proceedings as each assessment year is being independent assessable unit, what is decided in one year may not apply in the following assessment year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in the subsequent year.

16.47 Further, there is no doubt that the land is held to be applicable to be stock in trade of the assessee and consequently 2(47) has no application. Thus, assessments have to be made under normal provisions of computing business income and the

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Page 110 of 115 same has to be computed only when the transaction is complete. A mere advance received, especially when there is a right to terminate on failure to pay the balance amount, cannot by any stretch of imagination held to be a completed transaction. It is well settled law that agreement does not confer absolute title and merely enables the parties to pursue remedies available in law as per the contract. Thus, the offering of income on the conclusion of the transaction regularly is the correct and only method for computing the income in respect of the assessee. The assessee also gives an example in normal business transaction for other than property will it be income answer is no. For example, if the product is a machinery and the purchaser pays an advance of 50% of the agreed value and no work has started and remains an advance. Can at the amount be treated as proportionate income? The answer is an emphatic no. Any number of such examples is possible to demonstrate that a transaction of this nature especially when the contractual obligation contemplates termination of contract on failure of pay the consideration is clear indication that the computation and accrual of income takes place only on the completion of the transaction. It is not the case of the department that that assessee has received 100% money of the land and the department itself even on the percentage completion method is only considering the income progressively. Thus, the question of applying the project completion method does not apply on these type of transactions.

16.48 In view of the above, the lower authorities have committed an error in adopting the percentage completion method of income recognition in computing the income from business.

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Page 111 of 115 16.49 It is also noted that adopting percentage completion method of recognizing revenue has resulted in double taxation which is impermissible in law and also brought on record by assessee that the same income has been offered for taxation in subsequent assessment years and paid tax thereon.

16.50 The assessee has recognized revenue and paid taxes for the various assessment years with respect to the revenue and income arising thereon from Prestige Lakeside Habitat as under -

16.51 The Assessee has recognized revenue from the Prestige Lakeside Habitat Project to the tune of Rs. 348 crores (approx) for the year ended 31.03.2019 relevant to the assessment year 2019-20 and has also paid tax of Rs. 36.83 crores (approx) on the net taxable income returned of Rs. 113 crores (approx) for the assessment year 2019-20

16.52 Similarly for the assessment year 2020-21, the Assessee has recognized revenue to the tune of Rs.431 crores (approx) has paid tax of Rs. 72.45 crores (approx) on net taxable income returned of Rs. 287.85 crores (approx).

16.53 Similarly for the assessment year 2021-22, the Assessee has recognized revenue to the tune of Rs.238.27 crores (approx), has paid tax of Rs. 37.80 crores (approx) on net taxable income of Rs. 150.19 crores (approx) 16.54 The Assessee has paid advance tax of Rs.21 crores (approx) for the assessment year 2022-23. Thus, there was no loss to revenue and revenue only wants to pre collect the taxes by way of this kind of assessments, which shall be avoided.

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Page 112 of 115 16.55 In view of the above, the income offered in the subsequent years is income of the impugned assessment year will result in double taxation which is impermissible in law.

16.56 The ld.AR submitted that if the lower authorities sought to tax the same income in the assessment year 2016-17, as a corollary, they ought to have given credit to the taxes paid on the same transaction for the assessment year 2019-20 and 2020-21, this argument is infructuous in view of our finding that the department has to accept the method of accounting followed by the assessee in these assessment years and as such there is no question of giving any credit of tax paid in subsequent assessment years in these assessment years.

3rd Main ground:-

a) The Commissioner of Income Tax (Appeals) issued notice under section 250 of the Act dated 30.11.2021 requiring the Assessee to file written submissions through online mode. This notice only requires the assessee to file written submission and does not give a date of hearing to the assessee. In response to the said notice, the Assessee filed written submissions

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Page 113 of 115 vide letter dated 04.12.2021 and further craved leave to make further written submission before the date of personal hearing.

b) The Commissioner of Income Tax (Appeals) issued one more notice dated 13.12.2021 which notice is also not in accordance with law and pursuant to this notice the assessee had replied vide letter dated 20.12.2021 wherein it had stated as under:-

"We will be appearing for the personal hearing along with our Authorized Representatives as and when scheduled." c) Thus, it is clear from the above that no notice was issued giving personal hearing and consequently the appellate order dated 07.01_:2022 passed by the Commissioner of Income Tax (Appeals) under section 250 of the Act is in violation of the principles of natural justice.

d) The Commissioner of Income Tax (Appeals) failed to put before the Assessee the decisions on which reliance was placed by him in the appellate order for the Assessee's rebuttal and consequently the appellate order is passed in violation of the principles of natural justice.

17.1 We have heard both the parties and perused the materials available on record. This ground requires no adjudication at this stage as we have upheld the argument of ld AR and directed the AO to accept the method of accounting followed by the assessee. Hence, this ground of appeal is only academic.

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Page 114 of 115 issued was cancelled and the expenditure was not booked and consequently, no addition is warranted on the facts and circumstances of the case.

Sd/- Sd/- (George George K.) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 14th Nov, 2022. VG/SPS

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Page 115 of 115 Copy to:

Asst. Registrar, ITAT, Bangalore.