M/s. Corporate Leisure & Property Development Private Limited, Bengaluru V. Deputy Commissioner Of Income Tax, Central Circle-2(1)(1), Bengaluru

ITA 1006/BANG/2022

AI Insights

The case involves M/s Corporate Leisure & Property Development Private Limited, which appealed against the order of the Commissioner of Income-tax (Appeals)-11, Bangalore. The primary contention was the method of accounting for revenue recognition in real estate development. The assessee consistently followed the project completion method, whereas the Assessing Officer adopted the percentage of completion method for the assessment year 2014-15, leading to an addition of Rs.34,96,193 to the assessee's income. The Tribunal examined various judicial precedents and the principles of accounting standards applicable to real estate developers, ultimately siding with the assessee's method and rejecting the Revenue's approach.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115217 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-01-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 19-10-2022
• Other Referred Cases: CIT v. Banjara Developers & Constructions (P.) Ltd., CIT v. Prestige Estate Projects P.Ltd., DCIT v. Esteem Classic, CIT v. Varun Developers, CIT v. S.N.Builders & Developers, Trishul Buildtech & Infrastructures Pvt. Ltd. v. DCIT, CIT v. Hyundai Heavy Industries Company Ltd., CIT v. Bilahari Investments Pvt. Ltd., CIT v. Aditya Builders, CIT v. Manish Build Well (P.) Ltd., Radhasoami Satsang v. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset converted into stock in trade; Capital asset; Question of law
• Section: 11; 143(3); 234B; 191; 113

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B”, BANGALORE Before Shri George George K, JM & Shri Girish Agrawal, AM ITA No.1006/Bang/2022 : Asst.Year 2014-15 M/s Corporate Leisure & Property Development Private Limited No.112, 139 Oxford Towers Airport Road, Kodihalli Bangalore – 560 008. PAN : AACCC3744Q. v. The Deputy Commissioner of Income-tax Central Circle 2(1)(1) Bangalore. (Appellant) (Respondent) Appellant by : Sri.G.S.Prashanth, CA Respondent by : Sri.Gudimella VP Pavan Kumar, JCIT-DR Date of Hearing : 24.01.2023 Date of Pronouncement : 27 .01.2023 O R D E R Per Girish Agrawal, Accountant Member: This present appeal by the assessee is arising out of the order of Commissioner of Income-tax (Appeals)-11, Bangalore in appeal No.CIT(A)-11/BNG/Tr.10325/2016-17 dated 21.09.2022 against the assessment order passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to “the Act”), dated 21.12.2016, for assessment year 2014-15. 2. Grounds of appeal taken by the assessee are reproduced as under:- “1(a) The orders of the authorities below in so far as they are against the Appellant, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case. ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 2 (b) The appellant denies itself liable to be assessed on an income of Rs.1,69,22,940/- as against the returned income of Rs.1,34,26,747/- before set off of brought forward losses under the facts and circumstances of the case. 2.(a) The learned CIT(A) erred in confirming the addition made by the assessing officer of Rs.34,96,193/- by changing the accounting policy regularly followed by the appellant under the facts and circumstances of the case. (b) The learned CIT(A) grossly erred in upholding the `percentage completion method’ applied by the assessing officer as against the `project completion method’ of accounting consistently followed by the appellant for recognizing revenue under the facts and circumstances of the case. (c) The authorities below failed to appreciate that the Accounting Standard – 7 `Construction Contracts’ issued by the Institute of Chartered Accountants of India is not applicable to the appellant and consequently the addition made by applying said Accounting Standard needs to be deleted under the facts and circumstances of the case. (d) The learned CIT(A) failed to appreciate that as per the `Guidance Note on Accounting for Real Estate Transactions’ issued by the ICAI although risks and rewards might have been transferred on signing of a legally enforceable individual contract, the revenue in respect of such contracts which are part of a single project should not be recognised when the performance of remaining components of the project is pending under the facts & circumstances of the case. (e) The learned CIT(A) failed to appreciate that the project completion method is also one of the recognised methods of accounting as per which the profit is determined when the project is completed and the said method does not suffer from any infirmity / defect calling for rejection of the same under the facts & circumstances of the case. (f) The learned CIT(A) failed to appreciate that the postponement of recognition of income and payment of tax cannot be the ground for rejection of the method of accounting consistently followed by the appellant and consequently the addition confirmed by the CIT(A) needs to be deleted under the facts & circumstances of the case. ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 3 3. The learned CIT(A) erred in confirming the addition made by adopting `percentage completion method’ although the department has accepted the `project completion method’ in the subsequent assessment years under the facts & circumstances of the case. 4. The authorities below failed to appreciate that the effect of following either `project completion method’ or `percentage completion method’ for recognizing the revenue is revenue neutral and thus no addition is warranted under the facts and circumstances of the case. 5. The authorities below failed to appreciate that the addition made of Rs.34,96,193/- results in double taxation which is impermissible and unsustainable in the eyes of law and thus the addition needs to be deleted on the facts of the case. 6. The appellant denies itself liable to be levied interest under sections 234A, 234B & 234C of th eACt, as the computation of interest was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with the provisions of the Act. The appellant craves leave of your Honour to add, alter, modify or delete all or any of the above grounds urged above. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.” 3. From the perusal of above grounds, essentially, the issue involved in the present appeal relates to addition made for the income from business by computing it based on percentage of completion method of accounting for recognizing the revenue and that the said addition has resulted in double taxation, not permissible in the law. ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 44. Brief facts of the case as culled out from records are that assessee is a company engaged in the business of real estate development and construction of residential apartments. Assessee filed its original return on 12.11.2014, which was revised on 28.11.2014 reporting `Nil’ income after setting off brought forward losses. Case of the assessee was selected under CASS for scrutiny assessment. For the same, statutory notices were issued and served on the assessee which were duly complied with by furnishing relevant details and documents, placed on record. In the course of assessment proceedings, ld. AO observed that assessee is following project completion method as against percentage of completion method for recognizing the revenue from housing projects undertaken by it. Assessee explained its case to demonstrate that it has been following consistently, the method of accounting for recognizing its revenue by adopting the project completion method, which is one of the acceptable methods of accounting. It was also submitted that the provisions of Accounting Standards-7 are not applicable in its case, it being a developer and not a construction contractor. Assessee laid emphasis that it has been consistently following the project completion method since its inception which the Department has accepted in its earlier assessment years. It was submitted that Accounting Standard-9 has been complied by it for recognizing the revenue according to which the revenue is to be recognized when all the significant risk and rewards of ownership are transferred to the buyers. In the case of the ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 5assessee, all the significant risks and rewards of ownership in respect of the flats is transferred by it in favor of the buyers only up on execution of sale deed. Not being convinced by the submissions of the assessee, ld. AO completed the assessment by adopting the accounting method of percentage of completion method. Thus, by following the percentage of completion method, ld. AO worked out the net profit of Rs.34,96,193 for the impugned year and added it to the total income of the assessee as additional profit earned by the assessee. 5. Aggrieved, assessee went in appeal before the ld. CIT(A), who did not find favour with the assessee. 6. Aggrieved, assessee is in appeal before this Tribunal. Before us, Sri. G.S. Prashanth, Chartered Accountant represented the assessee and Sri. Gudimella VP Pavan Kumar, JCIT represented the Department. 7. Before us, ld. Counsel for the assessee, at the outset submitted that the issue in the present appeal is no longer res integra as it has been decided in favour of the assessee by several decisions of 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 for recognizing revenue, is permitted in law and can be followed. To buttress this contention, he placed reliance on the following decisions:- ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 6(i) CIT v. Banjara Developers & Constructions (P.) Ltd. (2020) 425 ITR 673 (Kar.) (ii) CIT v. Prestige Estate Projects P.Ltd. (2022) 440 ITR 343 (Kar.) (iii) DCIT v. Esteem Classic ITA No.842 of 2018 dated 22.03.2021 (Kar.) (iv) CIT v. Varun Developers (2022) 440 ITR 354 (Kar.) (v) CIT v. S.N.Builders & Developers (2021) 431 ITR 241 (Kar.) 7.1. Ld. Counsel also strongly relied on the decision of the Co-ordinate Bench of ITAT Bangalore Bench in the case of Trishul Buildtech & Infrastructures Pvt. Ltd. v. DCIT in ITA Nos.107 to 109/Bang/2022 dated 14.11.2022 and asserted that the present issue is squarely covered by the elaborate findings given by the Co-ordinate Bench. 7.2. Ld. Counsel further referred to the audited financial statements of the assessee placed in the paper book, both for the preceding years as well as the subsequent years to demonstrate that the method of accounting consistently followed by the assessee for revenue recognition has been based on completion of respective blocks and on their transfer of title through registration of sale deed. He referred to the summary of significant accounting policies forming part of the notes to the financial statements for the year ended 31.03.2014 for revenue recognition, wherein it is reported as – ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 7 “Revenue from sale of flats: Revenue is recognized from sale of flats based on completion of respective blocks and is ready for possession and on transfer of title through registration. The amounts received from customers shall be treated as advances received from customers till flats are ready for possession and on transfer of title the same shall be reduced from the respective advance received.” 7.3. Above stated revenue recognition policy is reported and followed in the preceding as well as subsequent assessment years for which the ld. Counsel referred to the respective audited financial statements placed in the paper book. Details of revenue recognized in the audited profit and loss account and net profit reported therein for preceding as well as subsequent assessment years is tabulated as under: S. No. AY Revenue from Operations (Rs.) Net Profit before taxes (Rs.) Method of accounting followed for recognizing revenue and income 1 2011-12 62,89,40,342 (2,60,57,702) Project completion method 2 2012-13 1,07,11,765 (7,14,79,876) Project completion method 3 2014-15 50,92,92,915 1,35,59,072 Project completion method 4 2015-16 87,16,02,363 4,60,39,660 Project completion method 5 2016-17 74,02,64,124 7,33,72,619 Project completion method 6 2017-18 59,59,49,067 4,82,24,864 Project completion method 7.4. He further referred to the details of flats sold by the assessee from AY 2013-14 to AY 2016-17 along with reconciliation to demonstrate that assessee has offered to tax, revenue from sale of flats duly reported in its audited profits ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 8and loss account in the subsequent assessment years for which the addition has been made by the learned AO by applying percentage of completion method. Ld. Counsel referred to Note No.15 on ‘revenue from operations’ to point out the proceeds from sale of flats at Rs.49,24,66,686 and proceeds from sale of land at Rs.1,68,26,229, totaling to Rs.50,92,92,915. For this, he referred to reconciliation also wherefrom it was cited that super built up area in sq.ft. sold during the impugned year towards flats for which sale deeds were registered was of 2,08,331 sq.ft. After considering the installments received by the assessee in respect of these flats covered by the said area sold, land cost and club fees, the total amount recognized by the ld. AO, it has resulted in double taxation, which is not permissible in the law. Assessee has recognized the revenue and paid taxes in various assessment years with respect to income arising from sale of flats in the respective years upon execution and registration of their sale deeds. He thus contended that presumption of ld. AO that income offered in the subsequent years is income of the impugned assessment year has resulted in double taxation. 7.5. It was further contended that project completion method applied by the assessee is the correct method for determining its income as the assessee is a builder and developer to which the revised Accounting Standard-9 applies and not the provisions of Accounting Stanards-7. The effect of following ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 9project completion method or percentage of completion method for recognizing revenue is of revenue neutral method and therefore no addition is called for. 7.6. Ld. Counsel also placed reliance on the assessment order passed u/s 143(3) of the Act dated 25.03.2014 for A.Y. 2011-12 and for A.Y. 2012-13 dated 23.03.2015 as well as for A.Y. 2017-18 dated 31.12.2019, all placed in the paper book, to demonstrate that no such presumption has been made by the ld. AO in these assessments for changing the method consistently followed by the assessee of project completion method to percentage of completion method in all the three assessment years, which are subjected to scrutiny assessment. Assessee had filed its return of income by adopting the income from business under the project completion method. 7.7. With all the above facts and documents on record, ld. Counsel strongly submitted that the case of assessee is squarely covered by the decision of Co-ordinate Bench of ITAT Bangalore in the case of Trishul Buildtech & Infrastructures Pvt. Ltd. v. DCIT (supra) and thus the addition made by the learned AO and upheld by the ld. CIT(A) ought to be deleted. 8. Per contra, ld. Senior DR placed reliance on the orders of the authorities below and urged to sustain the addition made in this respect. ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 109. We have heard the rival contentions and perused the material on record. During the year, assessee was carrying out development and construction of residential projects in the name of Gloria Project, which were started during A.Y. 2011-2012. Assessee had been recognizing its revenue from the said project as and when the risk and rewards of ownership in constructed area along with undivided interest in land has been transferred to the purchasers of the units in the said project, on the basis of project completion method adopted for the purpose of revenue recognition in its books of account. The books of account of assessee are subjected to audit under the Companies Act, 2013 and under the Act for which it has filed its return of income reporting its income under the head `income from business’. 9.1. We note that the assessee has been reporting its revenue from operations based on consistently following the method of project completion method, as against percentage of completion method presumed by the ld. AO, both of which are species of mercantile system of accounting. 9.2. It is also noted that assessee has been subjected to assessments u/s 143(3) for the preceding as well as subsequent assessment years as noted above wherein the Department has not countered on the method of project completion method adopted by the assesee while reporting income in its return for these years. These assessments have ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 11been completed without making any adjustment to the profits from sale proceeds of flats owing to change in the method of revenue recognition from project completion method to percentage of completion method. It is in this impugned assessment year, i.e., A.Y. 2014-2015 alone that the ld. AO has resorted to adoption of percentage of completion method which has been challenged by the assessee. 9.3. We also observe that ld. Counsel could demonstrate that revenue recognition by the ld. AO by adopting method of percentage of completion method in the impugned year on the flats / work in progress has in fact been offered to tax by duly reporting the revenue from sale of flats in subsequent years when they got completed and transferred to the respective buyers under registered sale deed. In this respect a detailed reconciliation is placed on record in the paper book to demonstrate that revenue from sale of flats is being recognized in the audited profits and loss account. 9.4. From the perusal of the decision of the Co-ordinate Bench of the Bangalore Tribunal in the case of Trishul Buildtech & Infrastructures Pvt. Ltd. (supra) relied upon by the ld. Counsel, we find that its elaborate findings covers the issue in hand before us under similar facts and circumstances. The operative part of the said decision is extracted below for ease of preference and better understanding:- ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 12 “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 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 ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 13possession 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. 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 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 ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 14contemplates 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. 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 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. ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 1516.35 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 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 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 ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 16project. 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. Under completed contract method, the revenue is not recognised 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 P & L account. The said method determines results only when contract is completed. This method leads to objective assessment of the results of the contract. 17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this method is determined by reference to the stage of completion of the 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." 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. 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." 25. Thus, we note that completed contract method and percentage complete method both were recognised method of accounting for computation of gains from construction contract. Section 43CB was inserted by the Finance Act, 2018 w.e.f. 1.4.2017 which provides that profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards. However, this section was not in existence and applicable in the assessment year 2014-15 which we are concerned with. Thus it is amply clear that percentage complete method and completed contract method were both acceptable ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 17method and accounting of construction contract in the impugned period. We note that the assessee has all along treated the said project as capitalised item and debited all the expenses to the capital account. This method has been accepted by the Revenue in the past. It is also undisputed that in the current year project is not at all complete. Redevelopment is still in progress. The assessee has also to recoup expenditure from other co-owners. Agreement to sale has not been registered, possession of the property has not been handed over. In these circumstances, assessee cannot be thrust upon percentage of completion method of accounting by the Assessing Officer. 16.42 Hence, in our opinion, the percentage completion method cannot be applied to the assessee’s case. 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 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 ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 18preferable. 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 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 ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 19Tribunal 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 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 question 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. ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 2013. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a 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. 12. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter—and if there was no change it was in support of the assessee—we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12.” 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 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 ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 21of 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. 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. 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.” 9.5. The findings in the above quoted decision have ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 22elaborately and extensively dealt with all the contentions raised by the learned Counsel before us, narrated above. We thus have no hesitation in adopting the same for the purpose of giving our finding in the present matter before us. 10. Further, Hon’ble jurisdictional High Court of Karnataka in the case of CIT v. Banjara Developers & Constructions P. Ltd. (supra) and other judgments listed above have dealt with similar issue, holding that “where assessee engaged in construction of flats so consistently follow completed contract method of accounting and said method had been accepted by the revenue authorities in past, there was no justification of part of the Assessing Officer to change the same and to determine the income of assessee on estimate basis in assessment year in question.” 10.1. Also, Hon’ble jurisdictional High Court of Karnataka in the case of DCIT v. Esteem Classic (supra) while holding in favour of the assessee held after taking into account the fact that the revenue itself has recognized the completed contract method for computation of subsequent assessment years based on which substantial question of law is answered against the Revenue and in favour of the assessee. 10.2. Also in the case of CIT v. Varun Developers (supra), the Hon’ble jurisdictional High Court of Karnataka noted that u/s 145(1) of the Act, income chargeable under the head profits ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 23and 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. The Hon’ble High Court also noted that assessee had offered the income for A.Y. 2007-08 and no income from project was offered for A.Y. 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. 10.2.1 In respect of the above decision, we note that section 145(2) of the Act has been amended with effect from 01.04.2015 to substitute the ‘Accounting Standards’ to ‘Income Computation and Disclosure Standards’ (ICDS). In the present case before us, the year under consideration is A.Y. 2014-15. In our understanding, ICDS-III deals with construction contract which is not applicable to the assessee and there is no standard for a development project. 11. Thus, considering the facts and circumstances of the present case along with the documentary evidences and ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 24details placed on record and the judicial precedents referred above, we find force in the contentions and submissions made by the ld. Counsel of the assessee before us to hold that assessee having chosen the project completion method which it has applied and followed consistently both in the preceding and subsequent years, accepted by the Department in its assessments, the change of method to percentage of completion method by the Revenue is not sustainable. In view of all these, we hold that the authorities below have committed an error in adopting the percentage of completion method for recognition of income in computing the income from business of the assessee in the impugned year. Hence, in our opinion, the percentage of completion method cannot be applied to the assessee’s case in the year under consideration. Accordingly, we direct the ld. AO to resume to the method of project completion method followed by the assessee and accept the net profits reported by it in its computation of income. Therefore, grounds raised by the assessee are allowed. 12. In the result, appeal filed by the assessee is allowed. Order pronounced on this 27th day of January, 2023. Sd/- (George George K) Sd/- (Girish Agrawal) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA No.1006/Bang/2022 Corporate Leisure & Property Development Pvt. Ltd. AY 2014-15 25Bangalore; Dated : 27th January, 2023. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-11, Bangalore 4. The Pr.CIT (Central), Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore