MAYFAIR PROPERTIES,KOLKATA vs. DCIT, CIR. 32, KOLKATA

The assessee in this appeal is aggrieved by the action of the ld. CIT(A) in confirming the addition made by the Assessing Officer of Rs.16,47,19,380/- by making assessment of the income of the assessee applying percentage completion method as against the plea of the assessee that it has been regularly following project completion method.

The brief facts of the case are that the assessee is a partnership firm and is engaged in the business of builders and developers. During the year, the assessee company had undertaken two projects i.e. 1. Mayfair Greenwoods, 2. Mayfair Elite. The assessee has been following ‘project completion method’ of accounting, where the income is offered to tax on completion of the project. Further, the assessee firm had executed agreements for sale during the year, but no sale had been shown in Profit and Loss account. Also, the amount received against booking of flats was shown under advance against booking as ‘current liability’ in balance sheet till the sale was complete. The assessee also furnished before the Assessing Officer the sanction plans of two projects 1. Mayfair Greenwoods, 2. Mayfair Elite, which were under construction during the period under consideration. The Assessing Officer, however, observed that the assessee in the year under consideration had not recognised revenue on the plea that assessee had been maintaining accounts as per project completion method. However, the assessee incurred 84.28% & 67.34% of total cost of project of Mayfair Greenwood project & Mayfair Elite project respectively. Further, the assessee executed agreement for sale for 52870 unit area out of 77920 unit area i.e. 67% and 23270 unit area out of 59310 unit area i.e. 39% in respect of project Mayfair Greenwood project and Mayfair Elite project respectively. Also the assessee had received 96.90% & 81.13% of total sale consideration amount in respect of Mayfair Greenwood project & Mayfair Elite projects respectively. The Assessing Officer further observed that Institute of Chartered Accountants of India (ICAI) revised AS 7 w.e.f. 01.04.2003. In the revised AS 7, the ICAI recommended that the revenue from construction contracts should be recognized only on percentage completion method (‘POCM’) basis. In addition to this, the Central Government exercising power u/s 145(2) has notified Income Assessment Year: 2018-19 Mayfair Properties Computation and Disclosure Standards (‘ICDS’) III vide Notification No.S.O 3079(E) dated 29.09.2016 relating to construction contracts. The Assessing Officer observed that as per the said ICDS III notified by Central Government, the assessee was supposed to disclose its income as per percentage completion method. He observed that in this case, the assessee was nearby to completion of projects as the assessee incurred 84.28% & 67.34% of total cost of project of Mayfair Greenwood project & Mayfair Elite project respectively. Further, the assessee executed agreement for sale for 52870 unit area out of 77920 unit area i.e. 67% and 23270 unit area out of 59310 unit area i.e. 39% in respect of project Mayfair Greenwood project and Mayfair Elite project respectively. Also the assessee had received 96.90% & 81.13% of total sale agreement amount in respect of Mayfair Greenwood project & Mayfair Elite project respectively. He, therefore, held that the assessee had qualified following both conditions for disclosure of revenue recognised from both the projects of the assessee:

2. At least 10% of the contract consideration as per the agreement of sale are realised at the reporting date in respect of each of the contracts. 3.1 The Assessing Officer, thereafter, analysed various contracts executed by the assessee with proposed purchasers and also noted that the assessee had accepted instalments at certain stage of completion of the flats and accordingly calculated the income of the assessee by applying percentage completion method. So far as the contention of the assessee that it has been regularly following project completion method, the Assessing Officer, in this respect, observed that on perusal of Assessment Year: 2018-19 Mayfair Properties Income Tax Return for A.Ys 2012-13 and 2013-14, it revealed that the assessee during the said assessment years had declared gross receipts/sale from sale of flats and as well as had shown ‘work-in- progress’ also. From this, he observed that the assessee had recognized revenue as per percentage completion method from the construction of project during the period from 01.04.2011 to 31.03.2013. He, accordingly, assessed the income of the assessee as per percentage completion method and made the impugned addition.

Being aggrieved by the said order of the Assessing Officer, the assessee preferred appeal before the CIT(A), however, the same was dismissed by the CIT(A).

We have heard the rival contentions and gone through the record. At the outset, the ld. Counsel for the assessee has submitted that the assessee-firm since inception of its business from the year 1995 has been consistently and regularly following project completion method of accounting. The ld. Counsel has further demonstrated that so far as the observation of the Assessing Officer that for the financial years 2011-12 and 2012-13, the assessee had shown income from sale of projects and the assessee at the same time had also shown certain amount as ‘work- in-progress’ is concerned, the assessee during the financial year 2011- 12 relevant to assessment year 2012-13 had shown income from completion of three projects namely Mayfair Bliss, Mayfair Eternity and Mayfair Pearl and further during the financial year 2012-13 relevant to assessment year 2013-14, the assessee had shown income on completion of project i.e. Mayfair Venus, however, the work-in-progress was shown in relation to other two pending projects. The ld. Counsel has further referred to various submissions made before the Assessing Officer and ld. CIT(A) to submit that the assessee has been consistently Assessment Year: 2018-19 Mayfair Properties following project completion method, which has not been rebutted by the revenue authorities.

In the result, the appeal of the assessee stands allowed.