M/s. Corporate Leisure & Property Development Pvt. Ltd., Bengaluru V. DCIT, Central Circle-2(1)(1), Bengaluru

ITA 1053/BANG/2022

AI Insights

The case revolves around the dispute concerning the method of revenue recognition adopted by M/s. Corporate Leisure & Property Development Pvt. Ltd. for its project 'GLORIA'. The assessee consistently followed the 'project completion method' for revenue recognition, which was challenged by the assessing officer who applied the 'percentage completion method'. The Tribunal noted that the method of revenue recognition significantly impacts the taxable income reported by the assessee. The Tribunal observed that the issue had been subject to earlier assessments and appeals, and the method adopted by the assessee had been accepted in subsequent years. However, the Tribunal also acknowledged the need for a detailed examination of whether the assessee had consistently followed the same method across different assessment years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129219 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 20-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 09-11-2022
• Other Referred Cases: CIT vs. Bilahari Investment Pvt Ltd, CIT vs. Prestige Estate Projects Pvt Ltd, CIT vs. Varun Developers, CIT vs. S. N. Builders & Developers, DCIT vs. Esteem Classic
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE RECOGNITION WHICH IS ONE OF; REAL ESTATE
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Question of law
• Section: 132; 143(3); 153A; 234B; 250; 113; 13; 22

Judgement Text

ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA No.1053/Bang/2022 Assessment Year: 2013-14 M/s. Corporate Leisure & Property Development Pvt. Ltd. No108/114, Oxford Towers 139 Airport Road, Kodihalli Bangalore 560 008 PAN NO : AACCC3744Q Vs. Deputy Commissioner of Income-tax Central Circle-2(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri Prashanth G.S., A.R. Respondent by : Shri Sankarganesh K., D.R. Date of Hearing : 21.02.2023 Date of Pronouncement : 27.02.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of CIT(A) dated 21.9.2022 for the assessment year 2013-14. The assessee has raised following grounds of appeal: 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. b. The appellant denies itself liable to be assessed on an income of Rs.4,19,04,997/- as against the returned income of Rs.36,55,530/-before set off of brought forward losses under the facts and circumstances of the case. ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 2 of 32 2. a. The learned CIT(A) erred in confirming the addition made by the assessing officer of Rs.3,82,49,464/- 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 recognising 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. 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 recognising 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.3,82,49,464/- results in double taxation which is impermissible and ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 3 of 32 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 the Act, 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. 2. The crux of the above grounds is with regard to recognition of income from the project by name ‘GLORIA’, at Sarjapur Main Road, Doddakannelli, Bangalore, whether on Percentage completion method or Contract completion method. 3. The ld. A.R. submitted that the assessee is engaged in the business of real estate property development & construction of apartments. The assessee had started a project named 'GLORIA' at Sarjapur Main Road. Doddakannelli, Bangalore and has been consistently following the project completion method of accounting for revenue recognition for the past many years and adopted the same method of revenue recognition in respect of project "GLORIA". The Assessing Officer completed the assessment under section 143(3) of the Act vide order dated 28.03.2016 by making an addition of Rs. 3,82,49,464/- by suo moto change of accounting policy to 'percentage completion method' as against the 'project completion method' adopted by the assessee for revenue recognition and the learned Commissioner of Income Tax (Appeals) upheld the order of assessment vide order dated 22.09.2022. ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 4 of 32 5.1 The learned assessing officer has rejected the project completion method of accounting followed by the assessee and adopted the percentage completion method of accounting. The construction cost incurred in respect of the project 'GLORIA' till 31.03.2013 was Rs.l14,49,89,886/- and the estimated total construction cost was Rs.466,00,00,000/- & the percentage of completion works out to 24.57%. The estimated profit of the project has been arrived at in the following manner: Particulars Amount in Rs. Estimated Revenue -(A) 550,00,00,000 Less: Estimated Cost of Construction (B) 466,00,00,000 Less: Cost of Land -(C) 17,82,61,258/- Estimated Gross Profit - (D) = (A)-(B)-(C) 66,17,38.743/ Less: Estimated Indirect Cost - (E) 50,60,67.059/ Estimated Profit - (F) = (D) - (E) 15,56,71,684 5.2 The learned assessing officer has stated that the assessee had voluntarily agreed to the adoption of percentage completion method during assessment proceedings for the assessment years 2007-08 to 2011-12 and hence a sum of Rs.3,82,49,464/- being 24.57% of estimated profit of Rs. 15,56,71,684/- has been added by adopting percentage completion method for the year under consideration. 5.3 The ld. A.R. submitted that it is pertinent to mention that a search under section 132 of the Act was carried out in the business premises of the assessee on 26.08.2009. During the post search proceedings, the department had insisted the assessee to offer income under project completion method and the assessee on a mistaken notion of both law and fact had admitted to change the revenue recognition policy to percentage completion method. However, during the time of assessment the assessee did not agree to offer income as per percentage completion method and contended ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 5 of 32 that the project completion method should be adopted in accordance with law. The assessing officer completed the assessment for the assessment years 2007-08 to 2010-11 under section 143(3) r.w.s 153A of the Act vide orders dated 30.08.2011 by determining the income of the assessee as per the percentage completion method. Aggrieved by the additions made by the assessing officer the assessee had preferred appeals before the CIT(A). However, the ld. CIT(A) has dismissed the appeals without condoning the delay in filing the appeals, on further appeal to the Tribunal, the Tribunal vide order dated 29.04.2013 has directed the ld. CIT{A) to adjudicate the appeals on merits of the case. The appeals for the assessment years 2007-08 to 2010-11 are pending for disposal before the ld. CIT(A). Therefore, the statement that the assessee had voluntarily agreed for changing the method of revenue recognition to percentage completion method is contrary to the facts & circumstances of the case. 5.4 The ld. A.R. submitted that none of the flats were registered in the names of the customers till the end of the year under consideration and hence no income was offered to tax in respect of the said project. The flats in the project GLORIA are sold in subsequent years and the income from sale of flats is offered to tax in the said years. The details of the income from sale of flats offered to tax in subsequent assessment years is as follows: Assessment Year Amount in Rs. 20)4-15 49,24,66,686/- 2015-16 83,71,93,113/- 2016-17 44,30,66,951/- 2017-18 56,29,01.564/- 2018-19 69.65,99.123/- 2019-20 58.55.28.390/- 2020-21 22,02,64.027/- 2021-22 8,75.26,622/- 2022-23 3,35,79.472/- ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 6 of 32 5.5 The ld. A.R. further submitted that it is relevant to mention here that the assessments under section 143(3) of the Act were completed in the case of the assessee for the assessment years 2011- 12 and 2012-13 vide orders dated 25.03.2014 and 23.03.2015 wherein the assessments were concluded by accepting the returns filed by the assessee and the assessing officer did not raise any objection for adopting the project completion method. The copies of the assessment orders for the assessment years 2011-12 & 2012- 13 are made part of the Paper Book at Page No. 66-67 & 86-87 respectively. Since the assessee has adopted the same accounting policies even in the year under consideration, the authorities below are not justified in adopting the percentage completion method of accounting for the year under consideration and thus the addition made by the assessing officer of Rs.3,82,49,464/- needs to be deleted on the facts of the case. 5.6 The ld. A.R. submitted that the learned assessing officer failed to appreciate the fact that the Accounting Standard 7 'Construction Contracts' (AS-7) issued by the Institute of Chartered Accountants of India is applicable for the construction contracts in the financial statements of the contractors who undertake only construction works and it is not applicable in the case of real estate property developers who are developing the commercial projects for sale to prospective buyers on their own account. 5.7 The ld. A.R. further submitted that the AS-7 is applicable only to a contractor and in the case of the real estate developer revised Accounting Standard-9 has been prescribed and as per which the income had to be accounted only on completion of project when the flats were sold, i.e., when legal title passed to the buyer or when seller entered into an agreement with the buyer for the sale and ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 7 of 32 handed over the possession to the buyer under the agreement. Accounting Standard-9 'Revenue Recognition' is relevant in the case of the assessee which provides for two methods of revenue recognition i.e. percentage completion method and project completion method. The assessee had been consistently following the project completion method for revenue recognition which is one of the recognised methods and thus the learned assessing officer is not justified in changing the accounting policy consistently followed by the assessee. Therefore, the ld. A.R. stated that the addition made by the assessing officer requires to be deleted on the facts of the case. Reliance is placed on the decision of the Apex Court in the case of CIT vs. Bilahari Investment Pvt Ltd reported in 299 ITR 1. 5.8 The ld. A.R. further submitted that the project completion method is also one of the recognized 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 upon for rejection of the same. The said method cannot be rejected merely because there exists an alternate method of accounting as per which profit can be determined each year. Reliance is placed on the decision of the Jurisdictional High Court in the case of CIT v. Banjara Developers & Constructions P, Ltd. reported in 425 ITR 673. Reliance is further placed on the decisions of various courts in the following cases in support of the contention of the assessee: • CIT vs. Prestige Estate Projects Pvt Ltd, 440 ITR 343 (Kar) • CIT vs. Varun Developers, 440 ITR 354 (Kar) • CIT vs. S. N. Builders & Developers. 431 ITR 241 (Kar) • DCIT vs. Esteem Classic, ITA No.842 of 2018 dated 22.03.2021 (Kar) ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 8 of 32 5.9 The ld. A.R. submitted that the authorities below failed to appreciate that whether the income from sale of flats determined by following the 'project completion method" or 'percentage completion method' the ultimate effect of income offered to tax in the assessment year 2013-14 or any subsequent years is revenue neutral. Reliance is placed on the decisions of the Supreme Court in the case of CIT vs. Bilahari Investment Pvt Ltd reported in 299 ITR 1 & CIT vs. Excel Industries Ltd., reported in 93 DTK 457. 5.10 The ld. A.R. further submitted the assessee had sold flats in subsequent years as mentioned supra and the income from sale of flats has already been offered to tax in the respective assessment years and thus the addition made by the assessing officer by changing the accounting policy results in double taxation of the same income which is impermissible and unsustainable in the eyes of law. Reliance is placed on the parity of reasoning in the decision of the Supreme Court in the case of Hindustan Coca-Cola Beverages Pvt. Ltd. vs. CIT, reported in 293 ITR 226. Therefore, the addition made by changing the accounting policy consistently followed by the assessee is unwarranted and liable to be deleted on the facts of the case. 5.11 The ld. A.R. submitted that section 43CB of the Act has been inserted by the Finance Act, 2018, which provides that the profits & gains 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. The provisions of said section are applicable with effect from 01.04.2017 and thus the provisions of said section are not applicable for the year under consideration. ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 9 of 32 5.12 In view of the above, the addition made by the learned assessing officer by adopting the percentage completion method of accounting is not in accordance with law and thus the assessee pleaded that the appeal may be allowed for the advancement of substantial cause of justice. 6. The ld. D.R. submitted that the the argument of the assessee that its claim of PCMS had been accepted by the AO in earlier years is misleading. The assessment order for AY 2015-16 was under limited scrutiny. So this cannot be considered as acceptance of PCM in the case of the assessee as the powers of the AO were restricted to investigate only limited issues. As regards the AY 2011-12 and AY 2012-13, the orders under Section 143(3) were passed on 25.03.2014 and 25.03.2015 respectively and the orders do not contain any discussion on the accounting method followed by the assessee and correctness of the same. It is always possible that no income had accrued to the assessee from its projects during AY 2011-12 and AY 2012-13 either on the basis of PoCM or PCM. So the issue of accepting or rejecting the method followed by the assessee for these two earlier years would not have arisen before the AO and that is why there is no such discussion on this issue in the assessment orders for these two-years. So issue of relying upon these two assessment years for ensuring consistency of the accounting method does not arise. However, the records of AY 2007-08 to AY 2009-10 (where orders were passed under Section 143(3) r.w.s. 153A of the Act) and AY 2010-11 (where order was passed under Section 143(3) of the Act), clearly show that the assessee had accepted the PoCM for computation of its income when the issue was confronted to it by the AO. So the argument of the assessee that the AO had not rejected its method, which was being followed continuously by it, is not correct and as such the same was rejected by the ld. CIT(A). The case laws relied upon by the assessee on this issue thus become irrelevant. In this regard, the ld. D.R. relied on judgement of Hon’ble Supreme ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 10 of 32 Court in the case of Commissioner of Income-tax v. British Paints India Ltd [1991] 54 Taxman 499 (SQ/188 ITR 44 (SC). As such this argument of the assessee that its accounting method was earlier accepted by the AO and the same needed to be followed, itself is on a weak footing. 6.1 The ld. D.R. further submitted that the other argument of the assessee is with regard to the accounting method to be followed in its case. In this regard, it is important to note that ICAI had issued guidance note titled "Guidance Note on Recognition of Revenue by Real Estate Developers" in the year 2006. Said guidance note recommended that percentage completion method should be followed for recognition of revenue in case of real estate developers. However, detailed guidance was not provided as to how percentage completion method should be applied. Therefore, ICAI issued revised Guidance Note tilted "Guidance Note on Accounting for Real Estate Transactions" ("Guidance Note") in the year 2012. In this Guidance Note detailed mechanism along with illustrations was provided to guide the real estate developers in respect of application of percentage of completion method to recognize revenue in case of real estate business. This Guidance Note covers all forms of transactions in real estate and the same is indicated in clause 1.2 of the said note. 6.2 The ld. D.R. submitted that in the case under consideration, for the earlier projects, the assessee had already accepted the recognition of revenue as per PoCM till AY 2010-11. For these projects the income was required to be recognised in future years also as per PoCM so as to have consistency in the accounting policy. As regards the projects started in FY 2010-11, for which revenue had not been recognized by the assessee prior to April 1, 2012, the above referred guidance note is squarely applicable. ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 11 of 32 6.3 Thus, there is application of both AS-7 and AS-9 depending upon the nature of real estate activity. In the case assessee, during the year under consideration the revenue from sale of plots was of Rs 4,56,25,000/- and that from the sale of flats was Rs 4,54,94,913/-. Since in the case of the assessee, it is into construction of a residential project the percentage of completion method would be applicable to its case as the economic substance would be same as of construction contracts. For transfer of rights in the land, PoCM as per AS-9 would be applicable as the same would be akin to transfer of goods. 6.4 The ld. D.R. submitted that this Guidance Note substantially reiterates the prescription of 2006 Guidance note by providing that in case of real estate sales, the seller usually enters into an agreement for sale with the buyer at initial stages of construction. This agreement for sale is also considered to have the effect of transferring all significant risks and rewards of ownership to the buyer provided the agreement is legally enforceable and subject to the satisfaction of conditions which signify transferring of significant risks and rewards even though the legal title is not transferred or the possession of the real estate is not given to the buyer. Once the seller has transferred all the significant risks and rewards to the buyer, any acts on the real estate performed by the seller are, in substance, performed on behalf of the buyer in the manner similar to a contractor. Accordingly, revenue in such cases is recognized by applying the Percentage of completion method (PoCM). Thus, as per the applicable accounting standards and the guidance notes issued by the ICAI, the assessee was required to follow the percentage completion method in relation to sale of plots/sites/flats. This is also noted that during the year under consideration the assessee satisfied the conditions of revenue recognition as per percentage completion method. Although the assessee has tried to argue that its ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 12 of 32 percentage completion up to 31.03.2013 was only 24.57% and not 25%, however the same is without any basis. The assessee has not brought on record any documentary evidence to substantiate its claim of the estimated construction cost at Rs 466 crores and basis thereof. Since it is only an estimate and PoCM is also an estimate so it can safely be taken that the condition of 25% of construction and development cost already been incurred is duly met. Any minor plus or minus will get considered over the period of project. Without prejudice to above, even if for the sake of argument, the claim of the assessee is accepted, the effect will just be that of shifting the addition of Rs 3,82,49,464/- to the AY 2014-15 as while computing the addition for AY 2014-15 the AO has worked out the addition after reducing the addition made in AY 2013-14 i.e. only incremental addition has been made by the AO in AY 2014-15. 6.5 The ld. D.R. submitted that as regards accounting method, if the assessee had followed a wrong method of revenue recognition in some earlier year that does not debar the AO from applying the correct method of revenue recognition for the year under consideration. The assessee is a developer and builder who is constructing residential units which are being sold to different customers. In, addition, the assessee is selling plots of land. Under such circumstances, the revenue recognition method to be adopted in the case of the assessee will be as per the ICAI Guidelines issued in this regard. The claims being made by the assessee regarding recognition of revenue on registration of conveyance deed was discussed by the Bangalore Bench of ITAT in the case of Prestige Estate Projects Ltd. Vs. Deputy Commissioner of Income-tax Central Circle-1(1) Bangalore (2011) 129 ITD 342 (Bang.) wherein held as under: ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 13 of 32 "9.3 However, as rightly highlighted by the Assessing Officer in his impugned order which is in dispute, the assessee enters into two agreements with the prospective buyers of either an apartment or a commercial complex or an office space in a project under JDA, of course, one agreement for the purchase of undivided interest in land with the landlords and the another for the construction of superstructure which would be with the develop- er. The prospective buyer will have to pay for each agreement, i.e., one for the undivided interest in land and another for built- up space which is considered to be enforceable contracts. Simultaneously, the assessee would enter into JDA with the land- owners, according to the terms and conditions contained in such JDAs, the assessee would be entitled to deal and dispose of the superstructure (built-up areas) earmarked/agreed upon as its share together with the corresponding proportionate UDS in the land. This being a ground reality and when the assessee enters into an agreement with a prospective buyer for construction of a superstructure or build-up area as the case may be, the unit which would be constructed as per the specification, unambiguously implies that the assessee could transfer all significant risk and rewards to the prospective buyers of the pro- posed unit(s) even though the assessee does n 't hold any legal ownership of the land when it enters into such agreement. 9.4 As rightly uncovered by the Assessing Officer, the joint development project undertook by the assessee, it did not get its share of interest in land transferred and got registered in its name. When the assessee resorts to transfer interest in land to a prospective buyer, of course, the assessee would execute the registration deed as a GPA holder of the land owners, but, not in its own right as a legal owner of the said land. Being a prudent developer, the assessee doesn't register the deed as an owner of the land since it doesn't have legal ownership right over the said land. The fact remains that without having legal ownership in the land in question, it can be commercially exploited, of course, with the aid of GPH of the said land. When the prospective buyers of super build-up area giving consent to the terms of the two agreements [mentioned above], namely, agreement to sell undivided interest in land as well as the 'agreement for construction' which are enforceable legally by either party, the assessee can naturally also transfer all significant risks and rewards to the buyers when these above agreements are authenticated by the parties involved in the said transaction. A prospective buyer will definitely weigh the pros and cons of risks involved in such a transaction before venture to enter into such an agreement for the purchase an apartment or an office space or commercial space - yet to be built-up with a developer who is executing the project under the JDA. Such being the prevailing practice in a project under JDA, the assessee's assertion that if was transferring 'significant risk and rewards' only after completion of the project in spite of entering into agreements with the prospective buyers is hypothetical and there would be no takers of its theory. 9,5 Let us HOW have a glance of Application of revenue recognition Principles prescribed in AS-9 to real estate sales: "2. For recognition of revenue in case of real estate sales, it is necessary that all the conditions specified in paragraphs 10 and I! of Accounting Standard (AS) 9, revenue recognition, as reproduced below are satisfied: ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 14 of 32 10. Revenue from sales or service transactions should be recognized when the requirements as to performances set out in para- graphs II and 12 are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i)the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards or ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii)no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods." In the instant case, as narrated in the foregoing paragraphs that when a prospective buyer of super build-up area giving consent of the terms of two agreements referred supra, the assessee simultaneously transfer 'all significant risks' to the prospective buyers when the said agreements are inked by the parties involved the said transaction. For all practical purposes and for the recognition of revenue, all the conditions specified in paragraphs 10 and 11 of AS-9 have since been fulfilled. " 6.6 The ld. D.R. submitted that as regards the reliance of the assessee on various case laws, some of them are without proper citation. So the same are being ignored. The other case laws are found to be rendered on different facts and relate to the period prior to issue of the guidance note, as discussed supra. So the same are also not relevant. The reliance of the assessee on the decision in the case of Commissioner of Income Tax Vs. Bilahari Investment (P) Ltd. (2008) 299 ITR 1 (SC) is also misplaced. The decision was rendered by the Hon’ble Supreme Court on the basis of specific facts of the said case. This decision was rendered in favour of assessee but subject to observations made in para 21. The SC had appreciated the fact that the concept of timing difference was not there earlier and that the same was a new concept. The SC also noted that the new concept and the accounting standards had not been invoked by the department in the said appeals which were there before it but ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 15 of 32 it was open for the department to consider the same in future cases. So considering these facts, since the same have now been invoked by the AO, the same cannot be brushed aside. As such the ratio of the above decision would not help the assessee. Hon’ble Supreme Court decided the issue on similar lines in the case of J.K. Industries Ltd. v. Union of India [2008] 297 ITR 176 (SC), while dealing with a challenge to AS-22 (notification dated 7-12-2006). 6.7 The ld. D.R. further submitted that as discussed supra, the ratio of the decision of the Hon'ble Supreme Court in the case of British Paints India Ltd (Supra) squarely applies and there is no estoppel on the AO regarding method of accounting. Similar case was decided in the case of ACIT vs. Alcon Developers (2015) 54 Taxmann.com 54 (Panaji-Trib) by the ITAT. 6.8 The ld. D.R. submitted that as regards argument of the assessee that the recognition of revenue by PoCM or PCM would be revenue neutral as income would ultimately be declared in some later year, the same is totally misplaced. This is a settled law that income needs to be taxed in a year to which it belongs on the basis of the provisions of the Act. It does not depend on the whims of the assessee to choose the year in which it wants to disclose its income. If allowed to do so, the postponement of the income and thus tax liability would continue indefinitely. The payment of correct taxes in the relevant year by the assessees enables the Government to timely get its share of revenue and thus avoids the burden of interest which it would otherwise be required to bear on account of borrowings if there is shortfall in tax collection. Further, even the AO too does not have an option in this matter and the income is required to be assessed as per law in the relevant assessment year only. This is important to note that ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 16 of 32 under the Act each year is a self-contained unit and unless it is impossible to compute the profits or losses of each year reasonably, the profits need to be computed year wise and taxed. The ITAT decided a similar issue in the case of Deputy Commissioner of Income-tax- 22 (2), Mitmbai v. Sudhir K Shetty [2014] 50 taxmann.com 372 (Mumbai - Trib.). 6.9 The ld. D.R. concluded that in the case under consideration, when sale agreements have already been entered into, consideration also received and reasonable development has also taken place, so there is really no justification in not taxing the income accruing to the assessee. Therefore, the assessee cannot postpone recognition of revenue by adopting incorrect method of accounting with a view to postpone tax liability. 7. We have heard the rival submissions and perused the materials available on record. In this case, the assessee is engaged in the business of Real Estate property development and construction of apartments by name ‘GLORIA’, at Sarjapur Main Road, Doddakannelli, Bangalore. The assessee has been recognizing income of said project up to assessment year 2010-11 following Percentage completion method. However, from the assessment year 2011-12, the assessee has not recognized the income by following Contract completion method. The contention of the ld. A.R. is that assessee came in appeal before this Tribunal for assessment year 2014-15 in ITA No.1006/Bang/2022 in assessee’s own case vide order dated 27.1.2023 by placing reliance on the earlier order of the coordinate bench in the case of Trishul Buildtech & Infrastructure Pvt. Ltd. in ITA Nos.107 to 109/Bang/2022 dated 14.11.2022, wherein the Tribunal held as under: “ 9. 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 ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 17 of 32 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 assessee while reporting income in its return for these years. These assessments have been 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.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 18 of 32 “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 possession of the property in his own right would be the owner ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 19 of 32 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 appr eciate that in the cas e of a developer it may not be possible to evolve a methodology wherein the income is ascertainable in a proper manner by adopting Accounting Standar d -7. The methodology of business contemplates selling of certain flats for which no amount would have been incurred. For example, ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 20 of 32 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.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 21 of 32 16.35 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, 201516 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 ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 22 of 32 were duly recognized methods of accounting for construction of project. 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 m e t ho d a n d co m p l e t e d c o nt r a c t m e t h od a r e r e c o gn i z e d m e t ho d s o f c on s t r u c t io n pr o j e c t o n l y a nd n ot a p pl i c a bl e t o a s s e s s e e w h o r e ce i ve s hi s co n s i d e r a t i o n d ue t o h i m o n e n t e r i n g in t o J D A . F u r th e r , t he H o n ’b l e Su pr e m e C o u r t i n t he c as e of C I T V s . H y u n d a i H e a v y In d us t r i e s C o m p an y L t d . (2 9 1 I T R 4 8 2 ) , w h e r e i n h e l d a s f o l l ow s: - “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 ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 23 of 32 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 method 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 ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 24 of 32 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 preferable. 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) ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 25 of 32 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 Tribunal 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. ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 26 of 32 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. 13. 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 ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 27 of 32 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 of 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) ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 28 of 32 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 . T h e f i n d i n g s i n t h e a b o v e q u o t e d d e c i s i o n h a v e elaborately 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 and 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. ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 29 of 32 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 details 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.” 7.1 In view of the above, the ld. A.R. submitted that the assessee’s case in this assessment year is squarely covered by the above order of the Tribunal in assessee’s own case. 7.2 Contrary to this, the ld. D.R. submitted that the Tribunal on earlier occasion in assessment year 2014-15 has wrongly placed reliance on the order of the Tribunal in the case of Trishul Buildtech Infrastructure Pvt. Ltd. cited (supra), wherein Trishul Infrastructure Pvt. Ltd. is only landlord and not a developer engaged in the business of real estate property for construction of apartments. However, the present assessee was in the business of real estate property ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 30 of 32 development and construction of apartments, as such, the above order of the Tribunal cannot be applied as it is. Further, it was submitted by the ld. D.R. that the assessee had voluntarily agreed for adoption of Percentage completion method during the assessment proceedings u/s 143(3) r.w.s. 153A of the Income-tax Act,1961 ['the Act' for short] for the assessment year 2007-08 to 2011-12. This has been clearly recorded by the AO in the impugned assessment order in last para of page 2. As such, the assessee cannot challenge the adoption of Percentage completion method for recognizing the income of the assessee with regard to ‘GLORIA project cited (supra). In our opinion, this issue was subject matter of litigation before Hon’ble Karnataka High Court in the case of CIT Vs. Varun Developers (440 ITR 354), wherein Hon’ble Karnataka High Court has held as under: “6. We have considered the submissions made by learned counsel for the parties and have perused the record. The first three substantial questions of law are answered in favour of the assessee for the reasons assigned by learned Senior counsel for the assessee in the judgments referred to supra. So far as fourth substantial question of law is concerned, it is pertinent to note that under section 145(1} of the Act, the income chargeable under the head Profits and 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. It is pertinent to note that the assessee had offered the income for Assessment Year 2007-08 and no income from the project was offered for the Assessment Year 2007-08 on the basis of project completion method and that either method of accounting finally lead to the i-me results in terms of profits and therefore, revenue neutral. In view of preceding analysis, the fourth substantial question of law is also answered against the revenue and n favour of the assessee. In the result, the appeal fails and is hereby dismissed.” 7.3 In view of this judgement of Hon’ble Karnataka High Court, the assessee is not prevented from adoption of Percentage completion ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 31 of 32 method even though the assessee is engaged in real estate business as a builder and a developer in this assessment year under consideration. However, it has to ensure that the assessee has been consistently and regularly following same method of accounting from assessment year to assessment year in continuation. Before us, ld. A.R. submitted that the assessee’s case has been pending before the ld. CIT(A) on a similar issue for earlier assessment years. In view of this, in our opinion, it is appropriate to remit the issue to the file of ld. CIT(A) to examine whether assessee has been consistently and regularly following any one method of accounting i.e. either percentage completion method or contract completion method from year to year and decide the same afresh. Accordingly, the issue in dispute is remitted to the file of ld. CIT(A) for fresh decision. 8. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 27 th Feb, 2023 Sd/- (George George K. ) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 27 th Feb, 2023. VG/SPS ITA No.1053/Bang/2022 M/s. Corporate Leisure & Property Development Pvt. Ltd., Bangalore Page 32 of 32 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.