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Income Tax Appellate Tribunal, DELHI “B” BENCH: NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI SANJAY GARG
ORDER Per Sanjay Garg, Judicial Member :
The present appeal has been preferred by the assessee against the order dated 03.01.2018 of the Ld. Commissioner of Income Tax (Appeals)-, Ghaziabad, (hereinafter referred to ‘CIT(A)’) for the Assessment Year 2014-15. The assessee has raised following grounds of appeal:-
That the order of learned Commissioner of Income Tax (Appeals) is against law and facts of the case.
That the Ld. CIT(A) has erred in not giving its findings that appellant’s income was to be computed by adopting the method employed by it and could not be computed by applying AS-7, ignoring the findings of Hon'ble jurisdictional High Court of Allahabad in appellant's own case in the immediately preceding year, i.e. A.Y. 2013-14. 3. That the CIT(A) has grossly erred in not appreciating that the appeal was against an order u/s 143(3) passed in compliance to directions u/s 144A, and order u/s 264 was simply to amend direction u/s 144A to the effect that estimated cost of project should be adopted at a figure of Rs.434,51,74,472/- [599185397 (+) 178380432 (+) 3567608643] while computing income as per AS-7. 4. That the Ld. CIT(A) has misdirected itself and erred in holding that the issue has already been considered by the Pr. CIT, Ghaziabad while passing order u/s 264, ignoring the fact that Pr. CIT in its order u/s 264 has strongly refrained to give any direction against the order of Addl. CIT, since the matter was being taken to Hon’ble High Court, stating “I refrained to give any direction in this regard against the order of Add. CIT.” 5. That in view of the above order of CIT(A) be quashed and it be held that AS-7 could not be applied to compute assessee’s income, as held by Hon’ble High Court in assessee’s own case in the immediately preceding year.” 2. A perusal of the above grounds of appeal reveals that the short issue to be decided in appeal is as to whether the assessee, who is a real estate developer, was justified in computing his income by adopting project completion method as against the action of the lower authorities in estimating the income of the assessee on the basis of percentage completion method of accounting. At the outset, Ld. Counsel for the assessee has submitted that the issue of the present appeal is squarely coved by the decision of the Tribunal in assessee’s own case in earlier assessment year in order dated 27.10.2016. He in this respect, the relevant part of the order of the Tribunal for the sake of completeness is reproduced as under:-
5.4 It is a matter of record and undisputed that the assessee is maintaining complete books of account and vouchers and no defects whatsoever of any omission or commission , have been found in the books of account or the method of accounting in any of the assessment proceedings. The assessments were made under section 143(3) of the Act for each of. the'assessment year. No adverse finding has been recorded in respect of assessments even made u/s .153A of the Act which assessments were completed after search conducted in October, 2008 and related to the assessment years 2003- 04 to 2008-09. Further, though a survey u/s 133A had been conducted on 11.09.2014, no incriminating evidence had been found or has been referred to in the impugned order of assessment for the AY 2013- 14. A copy of Panchanama prepared at the time of survey has been placed at pages 1264-1275 (volume-4 of the Paper Book). The assessee has computerised accounting system. It is also a matter of record and undisputed that at the time of survey on 11.09.2014: i. No difference in cash in hand was found; ii. No difference in stock in hand was found iii. No unrecorded transaction was found; iv. No voucher or bill was found which' had not been ledgerised or was not entered in the cash book. 5.5. It is also undisputed that the assessee had been furnishing its return of income regularly from the assessment year 2003-04 and recognizing revenue for the purpose of computing the income on the basis of sales made of the area/space booked. The aforesaid method of recognizing revenue was never disputed by the revenue in any of the preceding assessment years as on the basis of the returns of income filed, assessment's were also made u/s 153A/143(3) and the income recognized on the basis of the aforesaid method was accepted through out in the past. The assessee has been regularly following Project Completion Method of accounting and the revenue was recognized at the time of registration of the residential unit in the name of the customer: Till the time of registration of the residential units the amounts received from the customers were being treated as advances and were reflected in the Balance Sheet as Liabilities. The cost associated with the development and construction of the residential units was being shown under the head ‘work-in- progress’. In this regard it is seen that Project Completion Method followed by the assessee is a recognized method of accounting prescribed by the Institute of Chartered Accountant of India. Before its revision in 2002, > AS-7 was applicable in the case of both the Construction Contractors and Real Estates Builders and Developers. AS-7 prescribed both the Percentage Completion Method and the Project Completion Method and it was the choice, of the assessee to follow either one of the methods. The ICAI has clarified that the revised AS-7 is applicable only in the case of Construction Contractors and in the case of Real Estates
Builders and Developers AS-9 is applicable which prescribes Project Completion Method of accounting. It is established legal position that an assessee can follow any recognised method of accounting and the condition is that the same method has to be followed consistently. In case of a building project, the Institute of Chartered Accountants of India which is an authority on prescribing accounting standards had prescribed accounting standard AS-7 in 1983 for accounting of income in respect of real estate projects and in terms of AS-7 which was applicable to both contractor and real estate developer, a person is free to follow either of project completion method or percentage completion method depending -upon the nature of project. The assessee, in this case, has followed project completion method which is. one of the prescribed methods by the Institute of Chartered Accountants of India. Even in terms of the revised accounting standard which was applicable for most part of the work done by the assessee the income had been correctly declared as per project completion method in the year of completion. The assessee has followed project completion method ' which . was one of the prescribed methods and the same method has been accepted by the department in the earlier years. Department, therefore, cannot reject the method and apply percentage completion method in a subsequent year. 5.6. In view of the Method followed by the asssessee being a recognized method of accounting prescribed, discussion of the facts of the case and the legal position as above it is held that the Project Completion by the ICAI which has been regularly followed by the assessee. The assessee being a real estate developer and j not a construction contractor, Project Completion Method is the 'right method for determining the profits. The Project Completion Method being followed should not have been disturbed by the AO. 5.7. We also find that the judgment of the Hon’ble High Court of Delhi in the case of Paras Buildtech (supra) covers the issue in favour of the assessee wherein their lordships have held as under: “21. In the present case, there was therefore-no good reason for the ITAT to have reversed the finding of the CIT (A).
The only reason given in the impugned order of the ITAT is that ‘risks and rewards' of ownership were transfeired to the buyers who had paid the booking advance amounts and in some cases these rights were transferred to third parties. However, this does not in any manner affect the treatment of the said amounts in the books of the Assessee. As noted hereinbefore, the expenses of construction were not debited to the P & L account of the Assessee. It was shown as cost of construction or block of building. It is only as and when a. conveyance deed was executed or possession delivered that the receipt was shown as income. The explanation added by way of Notes to the Accounts was not taken note of by the ITAT when it came to the conclusion that the percentage completion method should apply to the Assessee.”
5.8. We set aside the order of the Ld. CIT(A) on the issue and direct the Assessing Officer to delete the entire additions on this account. Ground Nos.1 to 3 of the assessee’s are accordingly allowed.”
The Ld. AR has further invited our attention to the order dated 20.04.2017 of the Hon’ble Allahabad High Court, in against the order of the Tribunal dated 27.10.2016 (supra), has been dismissed by the Hon’ble High Court. The relevant part of the order of the Hon’ble High Court is reproduced hereunder:-
“The appeal is directed against the order of the Income Tax Appellate Tribunal dated 27.10.2016 in respect of the assessment year 2013-14. The respondent-assessee is a Real Estate Developer and maintains its accounts on the basis of project completion method i.e. AS-9. The Tribunal has accepted the AS-9 as one of the recognized methods of accounting and has reversed the order of the Assessing Authority rejecting the accounts books as they are not maintained according to percentage completion method i.e. AS-7 as confirmed by the Commissioner (Appeals). Sri Praveen Kumar has argued that no doubt the respondent- assessee is a Real Estate Developer but as soon as it entered into an agreement with the prospective purchaser for sale, its status was converted into that of a Contractor and it no longer remained to be a Real Estate Developer. Therefore, he was supposed to follow the percentage completion system i.e. AS-7 for accounting and as such, the Tribunal has went wrong in passing the impugned order. There is no dispute that the nature of business of the respondent- assessee from the inception is same and that it had been filing its returns as a Real Estate Developer since 2003 by adopting AS-9 system of accounting, which were all through accepted by the Department without any reservation. In view of the fact that the Department itself in the past had accepted the respondent-assessee as a Real Estate Developer, it cannot be permitted to shift the stand at this stage so as to contend that the respondent- assessee is actually not a Rea! Estate Developer but a Contractor. In view of the above position, the decision of the Apex Court in the case of M/s Larsen and Toubro Limited and another Vs. State of Karnataka and another, 2013 UPTC 1277 is of no assistance to the appellant rather in view of the decision of the Supreme Court in Commissioner of Income Tax Vs. Excel Industries Limited (2013) 38 Taxmann.com 100 (SC) it is not prudent for us to take a different view with regard to the nature and status of the business of the respondent- assessee inasmuch as a consistent view taken by the authorities regarding it in favour of the respondent- assessee is not liable to be disturbed in the absence of any convincing and compelling reasons. The second question, which falls for our consideration, is whether the respondent-assessee is obliged to maintain its accounts according to AS-7 or AS-9. In this connection, the Tribunal has recorded a finding that the respondent-assessee had been regularly following the project completion method of accounting (AS-9) and that no defects were ever found in its books of accounts or the method of accounting and the said method of accounting was accepted and recognized by the Department. The project completion method i.e. AS-9 followed by the respondent-assessee is also a recognized method of accounting, prescribed by the Institute of Charted Accountants of India and the revised AS-7 is applicable in the case of Contractor. A Division Bench of this Court in Commissioner of Income Tax Vs. Kishore Bandhu (P.) Ltd., 2008 (11) MTC 22 (Allahabad) relying upon a decision of the Madras High Court in Commissioner of Income Tax Vs. S.l. Property Development Limited, (2002) 256 ITR 601 opined that where the assessee had adopted and followed one of the recognized methods of accounting consistently and the Department had accepted it in the earlier years, it would not be fair to compel the assessee to change the method in the current year or to draw any adverse interference therefrom. In Commissioner of Income Tax 1/s. Principal Officer, Hill View Infrastructure (P.) Ltd., (2016) 384 ITR 451 (P&H), it has been held that the account books of the assessee are not liable to be rejected, when he had been consistently following the project completion method (AS-9), which is one of the accepted methods of the accounting. It was accepted that both the accounting standards AS-9 and AS-7 are accepted standards of accounting and the assessee is free to adopt any one of them. The aforesaid decision was rendered relying upon a decision of the Supreme Court in CIT Vs. Bilahari Investment (P.) Ltd., (2008) 299 ITR 1 (SC), which laid down that every assessee is entitle to arrange its affairs and follow the method of accounting, which the Department had earlier accepted. It is only in those cases, where the Department finds that the method adopted by the assessee results in distortion of profits that it can insist for following a different recognized method. In the case at hand, there is no finding or even an averment that the system of accounting followed by the assessee is unable to show the true and correct profits or that it results in distortion of the profits. At the same time, we do not find any statutory provision or a Rule, which may compel the respondent- assessee to follow the AS-7 system of accounting alone. In view of the above, as the respondent-assessee is a Real Estate Developer and not a Contractor simplicitor, the system of accounting followed by it for the last many years is in accordance with recognized procedure, the Department cannot reject the said system followed by it for the reason that it ought to have followed the other recognized system AS-7 system i.e. percentage completion system.
The Act or the Rules nowhere mandates for following a particular accounting system by the respondent-assessee, therefore, if any of the recognized mode of accounting has been followed, we find that no illegality has been committed by the respondent-assessee. In view of the aforesaid facts and circumstances as well as findings as returned by the Income Tax Appellate Tribunal, there is hardly any question of law, which arises for our consideration. This appeal lacks merit and is dismissed.”
3. The ld. DR has fairly agreed that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble High Court.
Respectfully following the decision of the Hon’ble High Court, it is held that the assessee was justified in adopting the recognized method of accounting i.e. project completion method.