M/S. SHAKUNTALAM COLONISERS PVT. LTD., Jaipur V. INCOME TAX OFFICER, Jaipur

CO 09/JPR/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2050 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 16-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MAHLA JCIT S
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Competent authority; Set aside
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES B, JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM VK;DJ VIHY LA - @ ITA NO. 410/JP/2018 FU/KZKJ.K O'KZ @ ASSESSMENT YEAR : 2014-15 I.T.O., WARD 2(3), JAIPUR. CUKE VS. M/S VASTUKAR COLONIZERS PVT. LTD., G-3-4, GITANJALI TOWER, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AACCV 1576 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT IZR;K{KSI.K @ C.O. NO. 07/JP/2018 (ARISING OUT OF VK;DJ VIHY LA -@ ITA NO. 410/JP/2018) FU/KZKJ.K O'KZ @ ASSESSMENT YEAR: 2014-15 M/S VASTUKAR COLONIZERS PVT. LTD., G-3-4, GITANJALI TOWER, AJMER ROAD, JAIPUR. C UKE VS. I.T.O., WARD 2(3), JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA-@ PAN/GIR NO.: AACCV 1576 D IZR;K{KSID@ OBJECTOR IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA - @ ITA NO. 411/JP/2018 FU/KZKJ.K O'KZ @ ASSESSMENT YEAR : 2014-15 I.T.O., WARD 2(3), JAIPUR. CUKE VS. M/S VASTUKAR TOWNSHIP PVT. LTD., G-3-4, GITANJALI TOWER, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AACCV 1577 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT IZR;K{KSI.K @ C.O. NO. 08/JP/2018 (ARISING OUT OF VK;DJ VIHY LA -@ ITA NO. 411/JP/2018) FU/KZKJ.K O'KZ @ ASSESSMENT YEAR: 2014-15 M/S VASTUKAR TOWNSHIP PVT. LTD., G-3-4, GITANJALI TOWER, AJMER ROAD, JAIPUR. CUKE VS. I.T.O., WARD 2(3), JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA-@ PAN/GIR NO.: AACCV 1577 C IZR;K{KSID@ OBJECTOR IZR;FKHZ@ RESPONDENT 2 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. VK;DJ VIHY LA - @ ITA NO. 414/JP/2018 FU/KZKJ.K O'KZ @ ASSESSMENT YEAR : 2013-14 I.T.O., WARD 2(2), JAIPUR. CUKE VS. M/S SHAKUNTLAM COLONIZERS PVT. LTD., 103-104, GEETANJALI TOWER, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAKCS 2988 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT IZR;K{KSI.K @ C.O. NO. 09/JP/2018 (ARISING OUT OF VK;DJ VIHY LA -@ ITA NO. 414/JP/2018) FU/KZKJ.K O'KZ @ ASSESSMENT YEAR: 2013-14 M/S SHAKUNTLAM COLONIZERS PVT. LTD., G-3-4, GITANJALI TOWER, AJMER ROAD, JAIPUR. C UKE VS. I.T.O., WARD 2(2), JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA-@ PAN/GIR NO.: AAKCS 2988 N IZR;K{KSID@ OBJECTOR IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI A.K. MAHLA (JCIT) FU/KZKFJRH DH VKSJ LS S@ ASSESSEE BY : SHRI P.C. PARWAL (CA). LQUOKBZ DH RKJH[K @ DATE OF HEARING: 03/06/2019 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 18/06/2019 VKNS'K@ ORDER PER: BENCH THESE ARE THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEES AGAINST THE ORDER OF LD. CIT(A)-I JAIPUR DATED 24/01/2018 FOR THE A.YS. 2013-14 AND 2014-15 RESPECTIVELY IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). 2. COMMON GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN ITS APPEALS AND BY THE ASSESSEES IN THEIR CROSS OBJECTIONS IN ALL THE YEARS UNDER 3 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. CONSIDERATION, THEREFORE, FOR THE SAKE OF BREVITY, ALL THE APPEALS AND C.OS ARE HEARD TOGETHER AND DECIDED BY THIS CONSOLIDATED ORDER. 3. ITA NO. 410/JP/2018 & CO 07/JP/2018 FOR THE AY 2014-15 RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN DEVELOPMENT OF TOWNSHIP PROJECT IN COLLABORATION WITH M/S SHAKUNTALAM COLONIZERS PVT. LTD. AND M/S VASTUKAR TOWNSHIP PVT. LTD. IT FILED ITS RETURN OF INCOME ON 30.09.2014 DECLARING NIL INCOME. IN ASSESSMENT PROCEEDINGS ASSESSEE EXPLAINED THE BASIS OF REVENUE RECOGNIZED FOR THE YEAR UNDER CONSIDERATION. THE AO, HOWEVER, OBSERVED THAT ASSESSEE HAS NOT WORKED OUT THE REVENUE CORRECTLY. HE REFERRED TO THE DECISION OF LD. CIT(A) FOR AY 2012-13 AND AFTER DISCUSSING VARIOUS CASE LAWS AT PG 4-7 OF THE ORDER, REJECTED BOOKS OF ACCOUNTS U/S 145(3) AND THEREAFTER APPLYING PERCENTAGE OF COMPLETION METHOD BOTH IN RESPECT OF REGISTERED SALE DEED AND THE ADVANCE RECEIVED FROM THE CUSTOMERS, COMPUTED THE PROFIT AT RS.2,94,13,493/-. 4. IN APPEAL BEFORE THE LD. CIT(A), THE LD. CIT(A) HELD THAT THE SIMILAR ISSUE WAS DECIDED BY HIM IN AY 2012-13 WHERE HE HELD THAT PERCENTAGE COMPLETION METHOD IS TO BE APPLIED IN RESPECT OF PLOTS FOR WHICH SALE DEED HAS BEEN EXECUTED AND GROSS VALUE OF RECEIPT IN RESPECT OF THE PLOT WHERE ADVANCE WAS RECEIVED BE WORKED OUT AND ON SUCH GROSS RECEIPT PERCENTAGE 4 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. COMPLETION METHOD BE APPLIED TO WORK OUT THE PROFIT. HOWEVER, THE HON'BLE ITAT VIDE ITS ORDER DT. 22.12.2017 HAS HELD THAT PERCENTAGE COMPLETION METHOD BE APPLIED IN RESPECT OF PLOTS FOR WHICH REGISTRY WAS EXECUTED BUT IN. RESPECT OF ADVANCED FROM CUSTOMERS PERCENTAGE COMPLETION METHOD IS TO BE APPLIED WITH REFERENCE TO THE ADVANCE RECEIVED FROM THE CUSTOMERS AND NOT ON THE GROSS AMOUNT. ACCORDINGLY, THE AO WAS DIRECTED TO WORK OUT THE PROFIT AS DECIDED BY HON'BLE ITAT. 5. AGAINST THE ABOVE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE ITAT AND THE ASSESSEE HAS ALSO FILED A CROSS OBJECTION. THE GROUNDS TAKEN BY THE REVENUE IN ITS APPEAL AND THE GROUNDS TAKEN BY THE ASSESSEE IN ITS C.O. IN THE A.Y. 2014-15 ARE AS UNDER: GROUNDS OF REVENUES APPEAL: (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN HOLDING FOR APPLYING PERCENTAGE COMPLETION METHOD OR REGISTRIES OF SALES MADE? (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION MADE BY THE A.O. OF RS. 2,28,41,770/- TO RS. 17,76,960/-? GROUNDS OF ASSESSEES C.O.: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT DIRECTING THE A.O. TO APPLY PERCENTAGE COMPLETION METHOD ONLY TO THE INCREMENTAL AMOUNT OF ADVANCE RECEIVED FROM CUSTOMERS WHILE DIRECTING THE A.O. TO APPLY PERCENTAGE COMPLETION METHOD WITH REFERENCE TO ADVANCE RECEIVED FROM CUSTOMERS AS DECIDED BY HONBLE ITAT IN A.Y. 2012-13. 1.1 THE LD. CIT(A) HAS FURTHER ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THAT IN A.Y. 2012-13, ASSESSEE HAS ALREADY SUFFERED TAX 5 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. ON PERCENTAGE COMPLETION METHOD ON THE AMOUNT OF ADVANCE RECEIVED FROM CUSTOMERS AS ON 31/03/2012 AT RS. 1,90,83,166/- AND THEREFORE, WHEN SUCH ADVANCE RECEIVED FROM CUSTOMERS AS ON 31/03/2014 HAS REDUCED TO RS. 88,32,405/- AGAIN TAXING SUCH ADVANCE ON PERCENTAGE COMPLETION METHOD HAS RESULTED INTO DOUBLE TAXATION. 2. THE ASSESSEE CRAVES RIGHT TO ADD, ALTER, AMEND AND MODIFY ANY OF THE GROUND OF APPEAL. 3. NECESSARY COST BE ALLOWED TO THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT IN ASSESSEES OWN CASE, THE TRIBUNAL VIDE ITS ORDER DATED 22/12/2017 HAVE DECIDED THE SIMILAR ISSUE IN THE A.Y. 2012-13 AFTER OBSERVING AS UNDER: OUR FINDINGS 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN DISPUTE RELATES TO RECOGNITION OF REVENUE BY THE ASSESSEE, WHICH HAS BEEN CATEGORIZED INTO TWO BROAD CATEGORIES REVENUES WHERE THE ASSESSEE HAS ENTERED INTO REGISTERED SALE DEEDS WITH THE PLOT BUYERS AND SECONDLY, WHERE CERTAIN ADVANCES HAVE BEEN RECEIVED FROM THE PLOT BUYERS, WHERE THE ASSESSEE IS FOLLOWING PERCENTAGE COMPLETION METHOD OF ACCOUNTING. 26. THE ASSESSEE IS ENGAGED IN DEVELOPMENT OF RESIDENTIAL TOWNSHIP PROJECT SOUTH CITY LOCATED IN VILLAGE JAISINGHPURA/RAMPURA BUJURG, NEAR CHAKSU, TONK ROAD, JAIPUR IN COLLABORATION WITH M/S SHAKUNTALAM COLONISERS PVT LTD AND M/S VASTUKAR COLONIZERS PVT LTD. IN TERMS OF PLOT BUYERS AGREEMENT, THE BUYER AGREES TO PURCHASE A PLOT OF SPECIFIED SIZE AND LOCATION AND THE AGREED PRICE COVERS DEVELOPMENT OF INTERNAL SERVICES SUCH AS ROADS, ELECTRICITY, WATER AND DRAINAGE SYSTEM WITHIN THE PERIPHERAL LIMITS OF TOWNSHIP. THE NATURE OF TRANSACTION UNDER 6 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. CONSIDERATION IS THEREFORE SALE OF PLOTS OF LAND WITH DEVELOPMENT OF INTERNAL COMMON FACILITIES WITHIN THE TOWNSHIP. 27. THE ASSESSEE HAS CONTENDED THAT BY FOLLOWING CONSISTENT ACCOUNTING POLICY WHERE THE REVENUES ARE RECOGNIZED ON PERCENTAGE COMPLETION METHOD, DURING THE YEAR UNDER CONSIDERATION, REVENUES FOR THE YEAR ARE RECOGNISED AT RS.2,11,38,286/- AS PER REGISTERED SALE DEEDS AND NO REVENUES ARE RECOGNISED AGAINST THE ADVANCE/BOOKING AMOUNT OF RS.4,44,28,514/- RECEIVED FROM CUSTOMERS. THE SAID ACCOUNTING POLICY HAS BEEN DULY REFLECTED IN SCHEDULE 11 OF ITS AUDITED FINANCIAL STATEMENT AND THE SAME IS IN ACCORDANCE WITH PARAS 10 AND 11 OF AS-9 ISSUED BY THE ICAI AS WELL AS GUIDANCE NOTE ON RECOGNITION OF REVENUES BY THE REAL ESTATE DEVELOPERS ISSUED BY THE ICAI IN THE YEAR 2006. THE AO HAS ALSO REFERRED TO THE SAID GUIDANCE NOTE ISSUED BY ICAI WHILE ARRIVING AT HIS FINDINGS THAT THE WHOLE OF SALE PROCEEDS IN RESPECT OF REGISTERED SALE DEEDS SHOULD BE RECOGNIZED AS REVENUES AND SECONDLY, THE ADVANCE RECEIVED FROM THE CUSTOMERS SHOULD BE RECOGNIZED TO THE EXTENT OF PERCENTAGE OF WORK COMPLETED IN THE TOWNSHIP PROJECT. 28. IT WOULD THEREFORE BE RELEVANT TO REFER TO THE RECOMMENDATIONS AS CONTAINED IN THE SAID GUIDANCE NOTE ISSUED BY THE ICAI AND THE SAME ARE REPRODUCED AS UNDER: 6. REVENUE IN CASE OF REAL ESTATE SALES SHOULD BE RECOGNIZED WHEN ALL THE FOLLOWING CONDITIONS ARE SATISFIED: (I) THE SELLER HAS TRANSFERRED TO THE BUYER ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP AND THE SELLER RETAINS NO EFFECTIVE CONTROL OF THE REAL ESTATE TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP; (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE REAL ESTATE SALES; AND III) IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION. 7 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. 7. THE DETERMINATION OF POINT OF TIME WHEN ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP ARE TRANSFERRED DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE CONSIDERING THE TERMS AND CONDITIONS OF THE AGREEMENT. IN CASE OF REAL ESTATE SALES, ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP ARE NORMALLY CONSIDERED TO BE TRANSFERRED WHEN LEGAL TITLE PASSES TO THE BUYER (E.G., AT THE TIME OF THE REGISTRATION, WITH THE RELEVANT AUTHORITIES, OF THE REAL ESTATE IN THE NAME OF THE BUYER) OR WHEN THE SELLER ENTERS INTO AN AGREEMENT FOR SALE AND GIVES POSSESSION OF THE REAL ESTATE TO THE BUYER UNDER THE AGREEMENT. ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP ARE ALSO CONSIDERED TO BE TRANSFERRED, IF THE SELLER HAS ENTERED INTO A LEGALLY ENFORCEABLE AGREEMENT FOR SALE WITH THE BUYER AND ALL THE FOLLOWING CONDITIONS ARE SATISFIED EVEN THOUGH THE LEGAL TITLE IS NOT PASSED OR THE POSSESSION OF THE REAL ESTATE IS NOT GIVEN TO THE BUYER: (A) 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. (B) 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. 8. WHEN THE SELLER HAS TRANSFERRED TO THE BUYER ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP, IT WOULD BE APPROPRIATE TO RECOGNIZE REVENUE AT THAT STAGE SUBJECT TO FULFILLMENT OF OTHER CONDITIONS SPECIFIED IN PARAGRAPH 6 ABOVE, PROVIDED THE SELLER HAS NO FURTHER SUBSTANTIAL ACTS TO COMPLETE UNDER THE CONTRACT. HOWEVER, IN CASE THE SELLER IS OBLIGED TO PERFORM ANY SUBSTANTIAL ACTS AFTER THE TRANSFER OF ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP, REVENUE SHOULD BE RECOGNIZED ON PROPORTIONATE BASIS AS THE ACTS ARE PERFORMED, I.E. BY APPLYING THE PERCENTAGE OF COMPLETION METHOD 8 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. IN THE MANNER EXPLAINED IN ACCOUNTING STANDARD (AS) 7, CONSTRUCTION CONTRACTS. AN EXAMPLE IS A BUILDING OR OTHER FACILITY ON WHICH CONSTRUCTION HAS NOT BEEN COMPLETED THOUGH ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED PURSUANT TO THE FULFILMENT OF CONDITIONS STATED IN PARAGRAPH 7 ABOVE. ANOTHER EXAMPLE IS OF A LAND WHICH IS YET TO BE DEVELOPED THOUGH THE SELLER HAS TRANSFERRED ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP OF THE LAND TO THE BUYER THROUGH AN AGREEMENT FOR SALE AS PER PARAGRAPH 7 ABOVE. 9. WHETHER THE SELLER RETAINS NO EFFECTIVE CONTROL OF THE REAL ESTATE TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP ALSO DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE CONSIDERING THE TERMS AND CONDITIONS OF THE AGREEMENT. THE NATURE AND EXTENT OF CONTINUING INVOLVEMENT OF THE SELLER SHOULD BE ASSESSED TO DETERMINE WHETHER THE SELLER RETAINS EFFECTIVE CONTROL. IN SOME CASES, REAL ESTATE MAY BE SOLD WITH A DEGREE OF CONTINUING INVOLVEMENT BY THE SELLER SUCH THAT THE RISKS AND REWARDS OF OWNERSHIP ARE NOT TRANSFERRED. EXAMPLES ARE SALE AND REPURCHASE AGREEMENTS WHICH INCLUDE PUT AND CALL OPTIONS, AND AGREEMENTS WHEREBY THE SELLER GUARANTEES OCCUPANCY OF THE PROPERTY FOR A SPECIFIED PERIOD. 10. IN CASE OF REAL ESTATE SALES, SINCE NORMALLY THE AMOUNT OF CONSIDERATION IS SPECIFIED IN THE AGREEMENT, NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALES. 11. FOR DETERMINING WHETHER IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION, A SELLER SHOULD CONSIDER THE EVIDENCE OF THE BUYERS COMMITMENT TO MAKE THE COMPLETE PAYMENT. WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP ARE 9 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. TRANSFERRED TO THE BUYER, REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. FOR EXAMPLE, WHEN THE AGGREGATE OF THE PAYMENTS RECEIVED INCLUDING THE BUYERS INITIAL DOWN PAYMENT, OR CONTINUING PAYMENTS BY THE BUYER, PROVIDE INSUFFICIENT EVIDENCE OF THE BUYERS COMMITMENT TO MAKE THE COMPLETE PAYMENT, REVENUE IS RECOGNIZED ONLY TO THE EXTENT OF REALISATION OF THE CONSIDERATION PROVIDED OTHER CONDITIONS FOR RECOGNITION OF REVENUE ARE SATISFIED. 12. AN ENTERPRISE SHOULD DISCLOSE THE ACCOUNTING POLICY REGARDING RECOGNITION OF REVENUE ARISING FROM THE REAL ESTATE SALES, INCLUDING THE TIMING OF TRANSFER OF SIGNIFICANT RISKS AND REWARDS OF REAL ESTATE WHICH IS THE SUBJECT MATTER OF SALE. FURTHER, IT IS NOTED THAT AS PER AS 7, THE RECOGNITION OF REVENUE AND EXPENSES BY REFERENCE TO THE STAGE OF COMPLETION OF A CONTRACT IS OFTEN REFERRED TO AS THE PERCENTAGE COMPLETION METHOD. UNDER THIS METHOD, CONTRACT REVENUE IS MATCHED WITH THE CONTRACT COSTS INCURRED IN REACHING THE STAGE OF COMPLETION, RESULTING IN THE REPORTING OF REVENUE, EXPENSES AND PROFIT WHICH CAN BE ATTRIBUTED TO THE PROPORTION OF WORK COMPLETED. 29. IN THE INSTANT CASE, IN RESPECT OF TRANSACTIONS WHERE SALE DEEDS FOR PLOTS OF LAND HAVE BEEN DULY EXECUTED AND REGISTERED WITH THE RELEVANT AUTHORITIES, THERE IS NO DISPUTE THAT THE ASSESSEE HAS TRANSFERRED TO THE BUYER ALL SIGNIFICANT RISK AND REWARDS OF OWNERSHIP AND THE ASSESSEE RETAINS NO EFFECTIVE CONTROL OF THE REAL ESTATE TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP, AND NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION AND ITS COLLECTION AS THE SAME HAS BEEN FULLY RECOVERED PRIOR TO SIGNING OF THE SALE DEED. 30. AT THE SAME TIME, WHAT IS EQUALLY RELEVANT TO CONSIDER IS THE ECONOMIC SUBSTANCE OF THE TRANSACTION. AS WE HAVE NOTED ABOVE, IN TERMS OF PLOT BUYERS AGREEMENT, THE BUYER AGREES TO PURCHASE A PLOT OF SPECIFIED 10 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. SIZE AND LOCATION AND THE AGREED PRICE COVERS DEVELOPMENT OF INTERNAL SERVICES SUCH AS ROADS, ELECTRICITY, WATER AND DRAINAGE SYSTEM WITHIN THE PERIPHERAL LIMITS OF TOWNSHIP. THE ECONOMIC SUBSTANCE OF TRANSACTION UNDER CONSIDERATION IS THEREFORE SALE OF PLOTS OF LAND ALONGWITH DEVELOPMENT OF INTERNAL COMMON FACILITIES WITHIN THE TOWNSHIP. THE BUYER OF PLOT OF LAND IS NOT PAYING MERELY FOR PIECE OF LAND CUT INTO SPECIFIED SIZE AT A GIVEN LOCATION BUT ALSO FOR DEVELOPMENT OF VARIOUS COMMON FACILITIES. THERE IS NO SEPARATE IDENTIFIABLE CONSIDERATION FOR DEVELOPMENT ACTIVITIES WHICH IS AVAILABLE ON RECORD AND THEREFORE, ONE CAN ONLY SPECULATE AND DEBATE ABOUT WHETHER THESE ACTIVITIES ARE SUBSTANTIAL OR NOT, THE FACT REMAINS THAT UNLESS SUCH FACILITIES ARE MADE AVAILABLE AND FUNCTIONAL, THESE PLOTS OF LAND CANNOT BE PUT TO INTENDED USE. THE DEVELOPMENT ACTIVITIES ARE THEREFORE CLOSELY LINKED TO THE SALE OF PLOT OF LAND AND THE ECONOMIC SUBSTANCE OF THE TRANSACTION IS THEREFORE SALE AND PURCHASE OF DEVELOPED PLOTS OF LANDS. THE ASSESSEE IS THEREFORE OBLIGED TO PERFORM THE SPECIFIED DEVELOPMENT ACTIVITIES EVEN AFTER THE SALE DEEDS HAVE BEEN DULY EXECUTED IN FAVOUR OF BUYERS. THE REVENUES IN SUCH CASES SHOULD THEREFORE BE RECOGNIZED ON PROPORTIONATE BASIS AS THE ACTS ARE PERFORMED, I.E. BY APPLYING THE PERCENTAGE OF COMPLETION METHOD IN THE MANNER EXPLAINED IN ACCOUNTING STANDARD (AS) 7, CONSTRUCTION CONTRACTS WHICH PROVIDES THAT CONTRACT REVENUE ARE REQUIRED TO BE MATCHED WITH THE CONTRACT COSTS INCURRED IN REACHING THE STAGE OF COMPLETION, RESULTING IN THE REPORTING OF REVENUE, EXPENSES AND PROFIT WHICH CAN BE ATTRIBUTED TO THE PROPORTION OF WORK COMPLETED. WE FIND THAT THE AO HAS NOT DISPUTED THE FACT THAT THE ASSESSEE IS REQUIRED TO CARRY OUT THE SPECIFIED DEVELOPMENT ACTIVITIES AND ALSO THE APPLICATION OF PERCENTAGE OF COMPLETION METHOD OF RECOGNITION OF REVENUES BUT HAS MISSED THIS FINER NUISANCE OF INTERCONNECTION BETWEEN THE ECONOMIC SUBSTANCE OF THE TRANSACTION AND APPLICATION OF PERCENTAGE COMPLETION METHOD OF RECOGNITION OF REVENUES WHILE ANALYZING THE GUIDANCE NOTE ISSUED BY THE ICAI AND WHICH HAS BEEN RIGHTLY 11 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. APPRECIATED BY THE LD CIT(A). THE STAGE OF DEVELOPMENT OF THE TOWNSHIP PROJECT HAS BEEN DETERMINED BY THE ASSESSEE AT 45.73% WITH REFERENCE TO ENTIRE LAND AND DEVELOPMENT COST FOR THE WHOLE PROJECT AND IS NOT IN DISPUTE BEFORE US. THE TOTAL REVENUES IN RESPECT OF EXECUTED SALE DEEDS TILL 31.03.2012 COMES TO RS 5,44,46,105 AND 45.73% THEREOF COMES TO RS 2,48,98,204 AND AFTER ALLOWING CREDIT FOR REVENUES ALREADY RECOGNIZED IN THE PREVIOUS YEAR AMOUNTING TO RS 37,59,918, THE REVENUES FOR THE YEAR HAVE BEEN RIGHTLY DETERMINED BY THE LD CIT(A) AT RS 2,11,38,286 AND WE HEREBY AFFIRM HIS FINDINGS IN THIS REGARD. 31. NOW, WE REFER TO THE SECOND CATEGORY OF REVENUES WHICH ARE ADVANCES AND BOOKING AMOUNTS RECEIVED FROM THE CUSTOMERS IN TERMS OF PLOT BUYERS AGREEMENT AS AGAINST REVENUES IN RESPECT OF EXECUTED SALE DEEDS WHICH WE HAVE DISCUSSED ABOVE. THE AO HAS APPLIED PERCENTAGE OF COMPLETION METHOD AND TO THE EXTENT OF DEVELOPMENT OF THE TOWNSHIP PROJECT DETERMINED BY THE ASSESSEE AT 45.73%, HAS BROUGHT TO TAX REVENUES AMOUNTING TO RS 2,03,17,159 OUT OF TOTAL ADVANCES TO THE TUNE OF RS 4,44,28,514 RECEIVED AS ON 31.03.2012. THE LD CIT(A) HAS HOWEVER, CONSIDERED THE WHOLE OF SALE CONSIDERATION AMOUNTING TO RS 6,81,63,838 IN RESPECT OF WHICH THE PLOT BUYERS AGREEMENT HAVE BEEN EXECUTED AND SUCH ADVANCES HAVE BEEN RECEIVED, AND BROUGHT TO TAX, REVENUES AMOUNTING TO RS 3,11,71,323 TO THE EXTENT OF WORK COMPLETED I.E, 45.73% APPLYING THE PERCENTAGE COMPLETION METHOD. 32. IN THIS REGARD, WE REFER TO THE PLOT BUYERS AGREEMENT AND SEE WHETHER THE PARAMETERS SPECIFIED IN THE GUIDANCE NOTE ISSUED BY ICAI FOR RECOGNITION OF REVENUES, AS WE HAVE NOTED IN PARA 28 ABOVE, ARE SATISFIED IN THE INSTANT CASE OR NOT. THE SAMPLE PLOT BUYERS AGREEMENT PLACED ON RECORD AT APB PAGE 22-36 HAS BEEN ENTERED INTO BETWEEN ONE OF THE COLLABORATOR OF THE ASSESSEE, M/S SHAKUNTLAM COLONIZERS PRIVATE ILIMITED AND SHRI MUKESH KUMAR SAINI DATED 7TH OCT, 2009. THE SAID AGREEMENT PROVIDES THAT THE PROMOTER ALONG WITH ITS 12 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. ASSOCIATES HAVE UNDERTAKEN DEVELOPMENT & PROMOTION OF A RESIDENTIAL COLONY KNOWN AS SOUTH CITY, IN THE VILLAGE JAISINGHPURA/RAMPURA BUJURG, NEAR CHAKSU, TONK ROAD, JAIPUR AND THE SURROUNDING AREA OF SAID VILLAGES AND THE BUYER, WHO HAS EARLIER APPLIED AND GRANTED PROVISIONAL REGISTRATION OF RESIDENTIAL PLOT OF 200 SQ. YRDS AT A BASIC PRICE OF RS. 1700/- PER SQ. YARD UNDER THE INSTALLMENT PAYMENT PLAN AND THEREAFTER A REGISTRATION NO. SC/252 DATED 25.04.2007, AND NOW THIS AGREEMENT SHALL SUPERSEDE THE TERMS AND CONDITIONS AS SET OUT IN REGISTRATION FORM WHICH HAS BEEN SIGNED & DELIVERED BY THE BUYER WHEN HE BOOKED THE SAID PLOT. IN CLAUSE 1 OF THE AGREEMENT, IT HAS BEEN PROVIDED THAT THE PROMOTER AGREES TO SELL AND THE BUYER AGREES TO PURCHASE PLOT NO. 29 IN BLOCK G ADMEASURING SIZE OF 200 SQ. YARDS ALLOTTED ON THE BASIS OF LOTTERY DRAWN ON 21.05.2008 IN THE PRESENCE OF REGISTRATION HOLDERS @ RS. 1700/- PER SQ. YARD IN SOUTH CITY, JAIPUR. IT HAS BEEN FURTHER PROVIDED THAT THE SAID AGREED PRICE OF THE PLOT OF LAND COVERS DEVELOPMENT OF INTERNAL SERVICES SUCH AS ROADS, ELECTRICITY, WATER AND DRAINAGE SYSTEM WITHIN THE PERIPHERAL OF THE COLONY AND THE PAYMENT IS TO BE MADE IN INSTALLMENTS AS PRESCRIBED IN SCHEDULE 1 ANNEXED TO THIS AGREEMENT. IT HAS BEEN FURTHER PROVIDED THAT THE PREFERENTIAL LOCATION CHARGES @ 10% OF THE BASIC PRICE WILL BE CHARGED EXTRA IN ADDITION TO THE AFORESAID RATE DETERMINED. IT HAS BEEN FURTHER PROVIDED THAT IT WILL BE RESPONSIBILITY OF THE BUYER TO STRICTLY ADHERE TO THE PAYMENT SCHEDULE AS MENTIONED IN SCHEDULE 1 AND THE BUYER ALSO AGREES TO DEPOSIT THE POST DATED CHEQUES FOR BALANCE INSTALLMENTS OF THE SAID PLOT AS THE PER THE PAYMENT PLAN. 33. ON PERUSAL OF THE SCHEDULE 1 TO THE AGREEMENT, IT PROVIDES FOR THE TOTAL COST OF THE PLOT AT RS. 34,000,00/-, THE PLOT SIZE, THE RATE, LOCATION AND THE INSTALLMENTS WHICH ARE PAYABLE ON MONTHLY BASIS. IT PROVIDES FOR A REGISTRATION AMOUNT OF RS. 5,000/-, BOOKING ADVANCE OF 20% AMOUNTING TO RS. 68,000/- AND THE REMAINING AMOUNT IN 24 INSTALLMENTS WHICH VARIES FROM 2 TO 5% OF TOTAL PRICE AND THE FINAL 13 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. INSTALLMENT OF 21.52% PAYABLE AT THE TIME OF HANDING OVER OF THE POSSESSION TO THE BUYER. IN CLAUSE 2 OF THE AGREEMENT, IT HAS BEEN PROVIDED THAT ANY EXTERNAL OR PERIPHERAL SERVICES PROVIDED BY ANY GOVERNMENT OR LOCAL AUTHORITY AND ANY SERVICE CHARGES LEVIED THEREOF SHALL ALSO BE PAYABLE IN ADDITION TO THE AFORESAID PRICE OF THE PLOT. IN CLAUSE 7C, IT HAS BEEN PROVIDED THAT 20% OF THE TOTAL DEPOSITED AMOUNT EITHER AT THE TIME OF REGISTRATION/PLOT BUYER AGREEMENT OR THEREAFTER SHALL CONSTITUTE THE EARNEST MONEY FOR THE PURPOSE OF THIS AGREEMENT. 34. ON CUMULATIVE READING OF ALL THESE CLAUSES IN THE AGREEMENT WHICH HAVE BEEN MUTUALLY AGREED AND CONSENTED TO BY THE ASSESSEE AND THE PLOT BUYER, IT IS CRYSTAL CLEAR THAT THE PRICE RISK WHICH IS ONE OF THE SIGNIFICANT RISK IN RELATION TO REAL ESTATE HAS BEEN FULLY TRANSFERRED BY THE ASSESSEE TO THE BUYER. FURTHER, IT IS NOTED THAT REGARDING ANY EXTERNAL REGULATORY RISK BY WAY OF ANY DIRECTION OR ACTION OF THE STATE GOVERNMENT OR ANY LOCAL AUTHORITY, THE ENTIRE COST AND RISK HAS AGAIN BEEN PASSED ON BY THE ASSESSEE TO THE BUYER AND AT THE SAME TIME, THE ASSESSEE HAS SAFEGUARDED ITS OWN INTEREST AND RISK, AS IT CLEAR FROM CLAUSES 4 AND 5 OF THE AGREEMENT WHICH ARE REPRODUCED AS UNDER:- 4. THAT AT PRESENT THERE IS NO SUBSISTING NOTIFICATION, OR ORDER BY THE STATE GOVERNMENT OR ANY OTHER GOVERNMENT OR LOCAL AUTHORITY REGARDING ACQUISITION OR REQUISITION OR OTHERWISE FOR TAKING OVER OF THE AREA IN WHICH THE PLOT IS LOCATED. IN CASE ANY SUCH DEVELOPMENT HAPPENS OR TAKES PLACE HEREAFTER, THE SAME SHALL BE AT THE COST AND RISK OF THE BUYER WHO WILL BE BOUND TO CARRY OUT AND IMPLEMENT AL THE TERMS OF THE AGREEMENT, INCLUDING PAYMENT OF THE OUTSTANDING INSTALMENTS AND WILL ALSO THEREAFTER BE ENTITLED TO RECEIVE THE COMPENSATION PAID BY THE GOVERNMENT OR LOCAL AUTHORITY IN RESPECT OF THE PLOT. THE PROMOTER SHALL NOT BE RESPONSIBLE OR LIABLE IN ANY MANNER WHATSOEVER ON ACCOUNT OF ANY SUCH DEVELOPMENT. 14 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. 5. THAT THE BUYER AGREES THAT, IF AS A RESULT OF ANY LEGISLATION, ORDER, RULE OR REGULATION MADE OR ISSUED BY THE GOVERNMENT OR ANY OTHER COMPETENT AUTHORITY OR IF ANY MATTER, ISSUE RELATING TO SUCH APPROVALS, PERMISSION, NOTICES, NOTIFICATIONS BY THE COMPETENT AUTHORITY (IES) BECOME SUBJECT MATTER OF ANY SUIT/WRIT BEFORE A COMPETENT COURT OR FORCE MAJEURE CONDITIONS, THE PROMOTER AFTER ALLOTMENT, IS UNABLE TO DELIVER THE PLOT TO THE BUYER FOR HIS/HER OCCUPATION AND USE, THE BUYER AGREES THAT DECISION OF SAID COMPETENT AUTHORITY/COURT SHALL BE APPLICABLE AND BINDING ON ALL THE CONCERNED PARTIES THERETO. 35. IN LIGHT OF ABOVE, IT IS CLEAR THAT THE SIGNIFICANT RISK RELATING TO THE REAL ESTATE NAMELY PRICE RISK AS WELL AS ANY EXTERNAL REGULATORY RISK RELATING TO ACQUISITION, REQUISITION OR TAKING OVER AREA IN WHICH PLOT IS LOCATED BY THE STATE GOVERNMENT OR ANY OTHER LOCAL AUTHORITY HAS BEEN TRANSFERRED BY THE ASSESSEE TO THE BUYER. 36. REGARDING THE 2ND CONDITION AS TO WHETHER THE BUYER HAS A LEGAL RIGHT TO SELL OR TRANSFER HIS INTEREST IN THE PROPERTY, WE REFER TO CLAUSES 7, 8 AND 9 OF THE PLOT BUYERS AGREEMENT WHICH READS AS UNDER: 7. THAT IT SHALL BE INCUMBENT ON THE BUYER TO COMPLY WITH ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT AND/OR NON DEPOSIT OF INSTALMENT AND/OR DEFAULT IN DEPOSITING THE INSTALMENT AMOUNT MAXIMUM TWO TIMES, NOT MORE THAN THREE CONSECUTIVES INSTALMENTS SIMULTANEOUSLY. IN SUCH CIRCUMSTANCES THE PROMOTER SHALL HAVE RIGHT TO CANCEL AND/OR TERMINATE THIS AGREEMENT AFTER GIVING A REGISTERED NOTICE TO THE BUYER AND SHALL BE ENTITLED TO FORFEIT THE ENTIRE AMOUNT OF EARNEST MONEY, INTEREST ON DELAYED PAYMENT ETC. AND THE BUYER SHALL BE LEFT WITH NO LIEN, RIGHT, INTEREST, OR ANY CLAIM OF WHATSOEVER NATURE IN THE PLOT. THE PROMOTER SHALL THEREAFTER BE FREE TO RESELL AND/OR DEAL WITH THE SAID PLOT IN ANY MANNER WHATSOEVER CLAIM OF WHATSOEVER NATURE 15 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. IN THE PLOT AT ITS SOLE DISCRETION. THE AMOUNT IF ANY PAID OVER AND ABOVE THE EARNEST MONEY, PROCESSING FEES, INTEREST ON DELAYED PAYMENT ETC., WOULD BE REFUNDED TO THE BUYER BY THE PROMOTER ONLY AFTER REALIZING SUCH AMOUNT TO BE REFUNDED ON RESALE BUT WITHOUT ANY INTEREST OR COMPENSATION OF WHATSOEVER NATURE. THE PROMOTER SHALL HAVE THE FIRST LIEN AND CHARGE ON THE SAID PLOT FOR ALL ITS DUES PAYABLE BY THE BUYER TO THE PROMOTER. WITHOUT PREJUDICE TO THE COMPANYS AFORESAID RIGHTS, THE COMPANY AT ITS SOLE DISCRETION WAIVE THE BREACH IN NOT MAKING PAYMENTS AS PER THE PAYMENT PLAN, BUT ON THE CONDITION THAT THE BUYER SHALL PAY INTEREST TO THE COMPANY WHICH SHALL BE CHARGED @ 24% PER ANNUM FOR THE PERIOD OF DEFAULT ON THE DEFAULTED AMOUNT. (B) THAT IN ADDITION TO THE OTHER SPECIFIC CLAUSES RELATING TO CANCELLATION, THE PROMOTER SHALL BE FREE TO EXERCISE ITS RIGHT OF CANCELLATION OF ALLOTMENT IN THE CASE OF: I. PROVISIONAL ALLOTMENT OBTAINED THROUGH MISREPRESENTATION/SUPPRESSION OF MATERIAL FACTS/ILLEGAL PRACTICE BY A NATURAL PERSON OR JUDICIAL PERSON FORMED IN ANY CONSTITUTIONAL LAW OF INDIA FOR THE TIME BEING IN FORCE. II. VIOLATION OF ANY LAW, RULE OR REGULATION FRAMED BY THE CENTRAL GOVERNMENT OR STATE GOVERNMENT FOR THE TIME BEING IN FORCE. IN THE EVENT OF CANCELLATION, THE ENTIRE DEPOSITS TILL THE DATE OF CANCELLATION SHALL BE FORFEITED AND THE PROMOTER WILL RESUME POSSESSION OF THE PLOT WITH STRUCTURE THEREON, IF ANY, AND THE BUYER WILL HAVE NO RIGHT TO CLAIM ANY COMPENSATION THEREOF. THE BUYER SHALL INDEMNIFIED TO THE COMPANY FOR SUCH LOSS OF REPUTATION CAUSED BY THE ACTION/DEED OF BUYER AND SHALL BE 16 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. RESPONSIBLE FOR ALL THE CONSEQUENCE RESULTING THERE FROM AND THE COMPANY DOES NOT ACCEPT ANY RESPONSIBILITY IN THIS REGARD. (C) THAT THE PROMOTER AND THE BUYER HEREBY AGREE THAT 20% OF THE TOTAL DEPOSITED AMOUNT EITHER AT THE TIME OF REGISTRATION/PLOT BUYER AGREEMENT OR THEREAFTER PAID TO THE FORMER BY THE LATTER, SHALL CONSTITUTE THE EARNEST MONEY FOR THE PURPOSE OF THIS AGREEMENT. (D) THAT NO SEPARATE NOTICE SHALL BE GIVEN IN THIS REGARD. 8. THAT TRANSFER OF THE PLOT WILL BE AT THE SOLE DISCRETION OF THE PROMOTER AND WILL NEED HIS PRIOR WRITTEN APPROVAL. ADMINISTRATIVE CHARGES AS PRESCRIBED BY THE PROMOTER FROM TIME TO TIME WILL BE PAID BY THE TRANSFER AT THE TIME OF TRANSFER. ANY CHANGE IN THE NAME (INCLUDING ADDITION/DELETION) REGISTERED AS PLOT BUYER WITH THE PROMOTER WILL BE DEEMED AS TRANSFER FOR THIS PURPOSE. NO ADMINISTRATIVE CHARGES FOR THE TRANSFER OF THE PLOT AMONGST FAMILY MEMBER (HUSBAND/WIFE AND OWN CHILDREN/MOTHER/FATHER AND REAL BROTHER/SISTER) WILL BE CHARGED. CLAIMS IF ANY, BETWEEN TRANSFEROR AND TRANSFEREE AS A RESULT OF SUBSEQUENT REDUCTION/INCREASE IN THE AREA OR ITS LOCATION WILL BE SETTLED BETWEEN THEMSELVES I.E. TRANSFEROR AND TRANSFEREE AND THE PROMOTER WILL NOT BE PARTY TO THIS. 9. THAT THE BUYER SHALL PAY, AS AND WHEN DEMANDED BY THE PROMOTER, THE FINAL SALE CONSIDERATION OF THE PLOT AT THE TIME OF POSSESSION. BUYER UNDERTAKES TO TAKE THE POSSESSION WITHIN 30 (THIRTY) DAYS FROM THE DATE WHEN THE PROMOTER INTIMATE IN WRITING OF THE OFFER OF POSSESSION, FAILING WHICH THE BUYER AUTHORITIES THE PROMOTER TO CANCEL THE ALLOTMENT AND FORFEIT THE EARNEST MONEY, DELAYED PAYMENT INTEREST ETC. AND REFUND THE BALANCE PRICE PAID BY THE BUYER WITHOUT ANY INTEREST UPON 17 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. REALIZATION OF MONEY FROM RESALE/RE-ALLOTMENT TO ANY OTHER PARTY. WITHOUT PREJUDICE TO THE COMPANYS AFORESAID RIGHTS, THE COMPANY AT ITS SOLE DISCRETION WAIVE THE BREACH IN NOT MAKING PAYMENTS AS PER THE PAYMENT PLAN, BUT ON THE CONDITION THAT THE BUYER SHALL PAY INTEREST AND PANEL INTEREST TO THE COMPANY WHICH SHALL BE CHARGED @ 24% PER ANNUM FOR THE PERIOD OF DEFAULT ON THE DEFAULTED AMOUNT. 37. IN LIGHT OF ABOVE, WE ARE OF THE VIEW THAT PURSUANT TO THE PLOT BUYER AGREEMENT, THE BUYER HAS BEEN ALLOTTED A SPECIFIED PLOT OF LAND EVEN THOUGH THE POSSESSION HAS NOT BEEN HANDED OVER AT THAT STAGE AND THE SALE DEED SHALL BE EXECUTED IN FUTURE. THE BUYER CLEARLY HAS A RIGHT TO SELL OR TRANSFER HIS INTEREST IN THE PROPERTY AFTER TAKING PRIOR WRITTEN APPROVAL AS WELL AS PAYMENT OF SPECIFIED ADMINISTRATIVE CHARGES. THE APPROVAL OF THE ASSESSEE CANNOT BE READ TO MEAN IN ANY WAY RESTRICTING THE ASSESSEES RIGHT TO DEAL WITH THE PLOT OF LAND RATHER SUCH AN APPROVAL IS MORE OF A REGULATORY MECHANISM PUT IN PLACE BY THE ASSESSEE WHICH THE BUYER SHOULD ADHERE TO. THERE IS NO RESTRICTION WHICH HAS BEEN PROVIDED IN THE AGREEMENT WHICH SPECIFICALLY RESTRICT SUCH RIGHT OF THE BUYER IN TERMS OF HANDLING OR TRANSFERRING HIS INTEREST IN THE PROPERTY TO A THIRD PERSON TILL THE ENTIRE SALE CONSIDERATION HAS BEEN PAID. 38. REGARDING THE THIRD CONDITION, SINCE THE AMOUNT OF THE CONSIDERATION FOR THE SALE OF PLOT HAS BEEN CLEARLY SPECIFIED IN THE PLOT BUYERS AGREEMENT, WE DO NOT SEE ANY UNCERTAINTY WHICH EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SAID SALE OF PLOT OF LAND. 39. REGARDING THE LAST CONDITION AS TO WHETHER IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION, AS WE NOTED ABOVE, THE BUYER HAS AGREED TO DEPOSIT THE BOOKING ADVANCE OF 20% AND HAS ALSO AGREED TO DEPOSIT THE POST DATED CHEQUES FOR THE BALANCE INSTALLMENTS AS PER THE 18 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. PAYMENT PLAN SPECIFIED IN SCHEDULE 1. HOWEVER, IT IS FOR THE ASSESSEE TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IN EACH OF THE INDIVIDUAL CASES VIS-A-VIS THE ACTS AND COMMITMENTS AS WELL AS TAKING INTO ACCOUNT ANY DEFAULT IF SO COMMITTED BY THE RESPECTIVE BUYERS AND WHERE THE SELLER COMES TO A VIEW THAT THE ULTIMATE COLLECTION IS LACKING IN CERTAIN CASES, REVENUE RECOGNITION CAN BE POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. AT THE SAME TIME, IT HAS BEEN PROVIDED IN THE GUIDANCE NOTE ISSUED BY ICAI THAT WHERE THE AGGREGATE OF PAYMENTS OR CONTINUING PAYMENTS BY THE BUYER PROVIDE INSUFFICIENT EVIDENCE OF THE BUYERS COMMITMENT TO MAKE COMPLETE PAYMENT, REVENUE TO THE EXTENT OF ACTUAL REALISATION OF THE CONSIDERATION SHOULD BE RECOGNIZED PROVIDED OTHER CONDITIONS FOR RECOGNITION OF REVENUE ARE SATISFIED. THEREFORE, IN THE INSTANT CASE IN ABSENCE OF A SPECIFIC FINDING BY THE ASSESSING OFFICER TO THE CONTRARY AND THE FACT THAT ASSESSEE HAS NOT REALIZED THE FULL SALE CONSIDERATION AT THE TIME OF SIGNING OF THE BUYERS AGREEMENT, A REASONABLE PRESUMPTION CAN BE DRAWN THAT THE ULTIMATE COLLECTION OF THE FULL AMOUNT OF THE SALE CONSIDERATION WITH REASONABLE CERTAINTY IS LACKING. GIVEN THAT, THE REVENUE RECOGNITION IS TO BE POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED IN TERMS OF REALISATION OF SUBSEQUENT INSTALLMENTS AND THE AMOUNT WHICH HAS ACTUALLY BEEN REALIZED/RECEIVED DURING THE YEAR IN RESPECT OF THE ADVANCE RECEIVED FROM CUSTOMERS SHOULD ONLY BE RECOGNIZED IN THE FINANCIAL STATEMENT AS REVENUES ACCRUING FOR THE PERIOD, TO THE EXTENT OF PERCENTAGE OF WORK COMPLETED, FOLLOWING THE PERCENTAGE OF COMPLETION METHOD. IN THE INSTANT CASE, FOR EXAMPLE, WHERE THE BOOKING ADVANCE RECEIVED IS RS 68,000 AND THE WORK HAS BEEN COMPLETED TO AN EXTENT OF 45.73%, REVENUES TO THE EXTENT OF RS 31,096 SHALL BE RECOGNIZED IN THE FINANCIAL STATEMENTS AND THE BALANCE SHALL BE CARRIED FORWARD TO SUBSEQUENT FINANCIAL YEAR. 40. NOW, COMING TO ANOTHER CONTENTION OF THE LD AR THAT AS PER THE CONSISTENT ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE, IT IS NOT 19 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. RECOGNIZING THE REVENUE IN RESPECT OF THE ADVANCE RECEIVED FROM CUSTOMERS. IT WAS CONTENDED THAT ADVANCE RECEIVED IS SAID TO ACCRUE ONLY WHEN SALE DEED IS REGISTERED AND NOT ON THE BASIS OF THE PLOT BUYERS AGREEMENT AND RELIANCE WAS PLACED ON VARIOUS COORDINATE BENCH AND HIGH COURT DECISIONS REFERRED SUPRA. IN THIS REGARD, IT IS AN ADMITTED POSITION OF THE ASSESSEE THAT IT IS FOLLOWING PERCENTAGE COMPLETION METHOD OF ACCOUNTING OF RECOGNITION OF REVENUES. FURTHER, THE LITMUS TEST OF ACCRUAL OF INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IS THE PASSING OF RISKS AND REWARDS OF OWNERSHIP TO THE BUYERS. UNDER THE PERCENTAGE COMPLETION METHOD OF RECOGNITION OF REVENUES, THE INCOME IS COMPUTED BY DEDUCTING THE COST INCURRED IN REACHING THE STAGE OF COMPLETION FROM THE PROPORTIONATE SALE ATTRIBUTABLE TO THE WORK COMPLETED. THEREFORE, WHERE UNDER THE PLOT BUYERS AGREEMENT, WHERE SIGNIFICANT RISK AND REWARDS HAVE BEEN TRANSFERRED TO THE BUYERS, THE CONSIDERATION SO RECEIVED TO THE EXTENT OF STAGE OF COMPLETION OF THE PROJECT HAS ACCRUED AND WILL BE SUBJECT TO TAX. BY NOT OFFERING THE CONSIDERATION IN FORM OF ADVANCE SO RECEIVED FROM THE CUSTOMERS, THE ASSESSEE CANNOT BE SAID TO BE FOLLOWING THE PERCENTAGE COMPLETION METHOD, RATHER IT WOULD BE FOLLOWING PROJECT COMPLETION METHOD. THE HONBLE DELHI HIGH COURT IN CASE OF PARAS BUILTECH (SUPRA) WHEREIN DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF SHIVALIK BUILDWELL REPORTED IN 40 TAXMANN.COM 219 WAS ALSO RELIED UPON, HELD THAT WHERE THE ADVANCES HAVE BEEN RECEIVED DURING THE YEAR AND NOT OFFERED TO TAX FOLLOWING THE PROJECT COMPLETION METHOD, THE SAME WAS CERTAINLY ONE OF THE RECOGNIZED METHOD OF ACCOUNTING, BESIDES PERCENTAGE COMPLETION METHOD AND WHERE THE SAME IS CONSISTENTLY FOLLOWED BY THE ASSESSEE, IT SHOULD NOT BE DISTURBED. HOWEVER, IN THE PRESENT CASE, WHERE THE ASSESSEE HAS ADMITTEDLY CHOSEN TO FOLLOW THE PERCENTAGE COMPLETION METHOD, IT CANNOT BE ALLOWED TO BREACH THE VERY SAME METHOD BY NOT OFFERING THE ADVANCES SO RECEIVED DURING THE YEAR TO TAX AND FOLLOWING A PROJECT COMPLETION METHOD. THE ABOVE SAID DECISIONS THEREFORE DONT 20 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. SUPPORT THE CASE OF THE ASSESSEE. FURTHER, THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF ASHALAND CORPORATION (SUPRA) WAS RENDERED IN THE CONTEXT OF A DEALER OF LAND WHICH HAD ENTERED INTO AN AGREEMENT WITH A HOUSING SOCIETY TO SELL CERTAIN PLOTS OF LAND AND IS THUS DISTINGUISHABLE, AS IN THE INSTANT CASE, THE ASSESSEE IS NOT MERELY SELLING PLOTS OF LAND BUT HAS ALSO UNDERTAKEN CARRY OUT THE DEVELOPMENT ACTIVITIES AND IS A DEVELOPER. SIMILARLY, OTHER DECISIONS OF THE COORDINATE BENCH HAVE BEEN RENDERED IN THEIR PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND ARE DISTINGUISHABLE. 41. FURTHER, IT IS NOTED THAT IN RESPECT OF REVENUES FROM EXECUTED SALE DEEDS, THE REVENUES HAVE BEEN RECOGNIZED TO THE EXTENT OF WORK COMPLETED AND THE SAID PRINCIPLE WILL APPLY IN RESPECT OF ADVANCES SO RECEIVED FROM THE BUYERS. THE ASSESSEE HAS THEREFORE TO MAINTAIN THE CONSISTENCY IN ITS METHOD OF ACCOUNTING WHERE IT IS FOLLOWING PERCENTAGE COMPLETION OF METHOD AND WITHIN THE SAID METHOD, IT CANNOT BE ALLOWED TO MAKE VARIATION ON THE BASIS OF PLOT BUYERS AGREEMENT AND EXECUTED SALE DEEDS SO LONG AS THE BASIC PARAMETERS FOR RECOGNITION OF REVENUES, AS WE HAVE DISCUSSED ABOVE, HAVE BEEN FULFILLED. 42. IN LIGHT OF ABOVE DISCUSSIONS, IN RESPECT OF TOTAL ADVANCES ACTUALLY RECEIVED FROM THE CUSTOMERS AS ON 31.03.2012 AMOUNTING TO RS.4,44,28,514 ARISING OUT AND IN RESPECT OF WHICH PLOT BUYERS AGREEMENT HAS BEEN EXECUTED, REVENUES TO THE EXTENT OF PERCENTAGE OF WORK COMPLETED (45.73%) WHICH COMES TO RS 2,03,17,159, FOLLOWING THE PERCENTAGE COMPLETION METHOD HAS BEEN RIGHTLY BROUGHT TO TAX BY THE ASSESSING OFFICER AND THE ORDER OF THE LD CIT(A) IS SET ASIDE TO THIS EXTENT. 43. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, FOLLOWING THE PERCENTAGE COMPLETION METHOD, REVENUES, AS PER EXECUTED SALE DEEDS AMOUNTING TO RS 2,11,38,286 AND IN RESPECT OF ADVANCES RECEIVED FROM 21 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. THE CUSTOMERS AMOUNTING TO RS 2,03,17,159 ARISING OUT AND IN RESPECT OF WHICH PLOT BUYERS AGREEMENT HAS BEEN EXECUTED, SHALL BE RECOGNIZED FOR THE YEAR UNDER CONSIDERATION. THERE IS NO DISPUTE REGARDING THE COST INCURRED AND EXPECTED TO BE INCURRED IN FUTURE AND WHICH HAS BEEN DETERMINED AS A PERCENTAGE OF SALE @ 44.27% AT RS 1,83,52,325 AND AFTER SETTING OFF THE SAID COST, THE PROFIT CHARGEABLE TO TAX SHALL BE RS 2,31,03,120 AS AGAINST RS 3,43,13,700 DETERMINED BY THE AO. 44. THE RESPECTIVE GROUNDS OF APPEAL FILED BY THE ASSESSEE AND REVENUE ARE DISPOSED OFF ACCORDINGLY. 7. WE HAD CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER PASSED BY THE TRIBUNAL. FROM THE RECORD WE FOUND THAT IN RESPECT OF PLOTS FOR WHICH REGISTRY HAS BEEN EXECUTED, THE TOTAL AMOUNT IS RS.10,81,48,325/-. HOWEVER, SINCE THE PERCENTAGE OF WORK COMPLETED IS 44.47%, THE SALES WHICH COULD BE RECOGNIZED UNDER PERCENTAGE COMPLETION METHOD TILL 31.03.2014 IS RS.4,80,94,213/-. THE SALES ALREADY RECOGNIZED TILL 31.03.2013 IS RS.4,39,41,993/- AND THEREFORE, ASSESSEE HAS RECOGNIZED SALES OF RS.41,52,220/- IN THE YEAR UNDER CONSIDERATION. THE AO HAS HOWEVER, CONSIDERED THE ENTIRE AMOUNT OF RS. 10,81,48,325/- TILL DATE AS THE SALES TO BE RECOGNIZED WITHOUT CONSIDERING THAT THE PERCENTAGE OF WORK COMPLETED IS ONLY 44.47% AND THEREFORE, WHAT CAN BE RECOGNIZED AS SALE TILL DATE IS RS.4,80,90,213/- AND THEREFORE, AFTER CONSIDERING THE SALES ALREADY RECOGNIZED, ONLY THE BALANCE OF RS.41,52,220/- CAN BE RECOGNIZED AS SALES. THIS HAS BEEN ACCEPTED BOTH BY THE LD. CIT(A) AND ALSO BY THE HON'BLE ITAT. 22 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. 8. IN SO FAR AS THE GROUNDS TAKEN BY THE ASSESSEE IN ITS C.O. IS CONCERNED, WE FOUND THAT IN RESPECT OF ADVANCE RECEIVED FROM CUSTOMERS, THE ADVANCE FROM CUSTOMERS OUTSTANDING AS ON 31.03.2014 IS RS.88,32,405/- AS AGAINST RS. 1,36,60,306/- OUTSTANDING AS ON 31.03.2013 . THUS, THE ADVANCED HAS REDUCED AS COMPARED TO THE LAST YEAR. IN AY 2012- 13, THE ADVANCED RECEIVED FROM CUSTOMERS TILL 31.03.2011 WAS RS.1,90,83,166/-. IN THIS YEAR THE HON'BLE ITAT HAS HELD THAT ON THE ADVANCE ACTUALLY RECEIVED FOR WHICH PLOTS BUYER AGREEMENT HAS BEEN EXECUTED, REVENUE SHOULD BE RECOGNIZED TO THE EXTENT OF PERCENTAGE OF WORK COMPLETED. AS PER RECORDS, IT APPEARS THAT DURING THE YEAR UNDER CONSIDERATION, THE ADVANCE RECEIVED FROM THE CUSTOMER HAS REDUCED, THEREFORE, IN ABSENCE OF ANY INCREASE IN THE ADVANCE, NO REVENUE IS TO BE RECOGNIZED. 9. FROM THE RECORD WE OBSERVE THAT IN RESPECT OF ADVANCE RECEIVED PRIOR TO THE YEARS UNDER CONSIDERATION, THE DEPARTMENT HAVE ALREADY RECOGNIZED REVENUE THEREIN AND ALSO BROUGHT TO TAX THE SAME, THEREFORE, ONLY INCREMENTAL REVENUE SHOULD BE TAKEN INTO ACCOUNT FOR APPLYING THE PERCENTAGE COMPLETION METHOD FOR BRINGING TO TAX THE PROFITS THEREON. WE DIRECT ACCORDINGLY. 10. IN THE RESULT, REVENUES APPEAL IN ITA NO. 410/JP/2018 IS DISMISSED WHEREAS THE C.O. NO. 07/JP/2018 FILED BY THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. 23 ITA NO. 410/JP/2018 & CO 08/JP/2018 (2) ITO VS VASTUKAR COLONIZERS P LTD. 11. THE FACTS AND CIRCUMSTANCES IN THE CASE OF OTHER ASSESSEE FOR THE A.Y.2013-14 & 2014-15 ARE SAME, THEREFORE, FOLLOWING THE REASONING GIVEN HEREINABOVE, THE APPEALS OF THE REVENUE IN ITA NO. 411 & 414/JP/2018 ARE DISMISSED WHEREAS THE ASSESSEES C.O. NO. 08 & 09/JP/2018 ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE, 2019. SD/- SD/- FOT; IKY JKO JES'K LH 'KEKZ (VIJAY PAL RAO) (RAMESH C SHARMA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 18 TH JUNE, 2019 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE I.T.O., WARD 2(3)/WARD 2(2), JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- (I) M/S VASTUKAR COLONIZERS PVT. LTD., JAIPUR. (II) M/S VASTUKAR TOWNSHIP PVT. LTD., JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A ) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K]T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 410, 411 & 414/JP/2018 & C.O. 07 TO 09/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR