MRS. INDRAPURAM HABITAT CENTRE PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

The assessee is a company and is engaged in the business of real estate, construction and development of commercial complex.

The sole issue that arises for our consideration in both the Assessment Years is whether the Assessing Officer (A.O.) was right in adopting percentage completion method for recognizing the income of the assessee instead of project completion method chosen by the assessee. The case of the Revenue is that Accounting Standard 7 (A.S. 7) is mandatory and hence the assessee should have adopted percentage completion method. The case of the assessee is that AS-7 does not apply to the assessee as it is builder and developer and not a contractor per se. The finding of the First Appellate Authority for the A.Y. 2009-10, that the assessee is a mere contractor is disputed on facts by the assessee.

After hearing rival contentions we find that the assessee is a real estate developer and not a contractor as held by the Ld.CIT(A). The Assessing Officer (A.O.) in both the Assessment Years (A.Y.) has accepted the claim of the assessee that it is in the real estate business. On these facts we respectfully follow the decision of the Mumbai Bench of the ITAT in the case of Haware Constructions P.Ltd. vs. ITO (2011) 64 DTR 251, wherein it is held as follows.

There is no dispute to the fact that the assessee company is engaged in the business of construction and builders and during the A.Y. 2004-05 the project completion method followed by the assessee has been accepted. The submission of the counsel for the assessee that the Revenue has not taken any remedial measure u/s 263 or 147 of the Income Tax Act, 1961 (the Act), for the A.Y. 2004-05 and 2006-07 even after the order of the AO and CIT(A) for A.Y. 2005-06 could not be controverted by the Departmental Representative. The AO, during the asst. yr. 2006- 07 has also accepted the project completion method followed by the assessee and has not disturbed the income by making any estimated income on the work-in-progress. There is also merit in the submission of the counsel for the assessee that the assessee has Declared huge income in the subsequent year after completion of the said project as against meagre income estimated by the AO. The project completion method is an accepted method of accounting for builders. The assessee is regularly following this method of accounting which has been accepted by the AO in the preceding as well as in the subsequent assessment year. Further the AS-7 as discussed by the AO and the CIT(A) is applicable only for contractors engaged in the civil construction business and the same does not apply to builders/developers. It is an established legal proposition that an assessee can follow any recognized method of accounting and the condition is that the same method has to be followed consistently. Since the assessee in the instant case was regularly following the project completion method and has offered the income in the year of completion of project, there is no sound reason as to why the same should be rejected and percentage completion method be followed. Awadesh Builders vs. ITO (2010) 37 SOT 122 (Mumbai) Prestige Estate Projects (P) Ltd. vs. Dy. CIT (2010) 129 TTJ (Bang) 680 : (2010) 33, DTR (Bang)(Trib) 514 followed.

Respectfully following the same we hold that A.S.-7 does not apply to the facts of the case. Hence the system of accounting followed by the assessee consistently over the years has to be upheld.

In the result the appeal of the Revenue for the A.Y. 2007- 08 is dismissed and the appeal of the assessee for the A.Y. 2009-10 is allowed.