The DCIT, Circle-4(1)(1), Ahmedabad V. M/s. Sterling Enterprises Ltd., Ahmedabad

ITA 1090/AHD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3428 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-04-2020
• Assessment Year: 1997-1998
• Appeal Filed On: 04-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 143(3); 201; 22

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (THROUGH VIRTUAL COURT) BEFORESHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER SL. NO(S) ITA NO(S) ASSET. YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 1090/AHD/2017 1997-98 DCIT, CIRCLE-4(1)(1), AHMEDABAD M/S. STERLING ENTERPRISES LTD., SUNRISE CENTRE, OPP. DRIVE-IN-CINEMA, THALTEJ ROAD, AHMEDABAD-380054 PAN NO. AACCS6819A REVENUE BY : SHRI DILEEP KUMAR,SR. DR. ASSESSEE BY : SHRI ANIL KSHTARIYA, AR / DATE OF HEARING : 11.09.2020 / DATE OF PRONOUNCEMENT : 22.10.2020 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE APPEAL HAS BEEN FILED BY THE REVENUE FOR A.Y. 1997-98WHICH IS ARISING FROM THE ORDER OF THE CIT(A)-6,AHMEDABAD DA TED 23.02.2017, IN THE PROCEEDINGS UNDER SECTION 143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL AS UNDER: 1) WHETHER THE LD. CIT9A0 IS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,39,37,907/- MADE ON ACCOUNT OF DEVELOPMENT EXPENS ES. 2) WHETHER THE LD. CIT(A) IS RIGHT IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS. 78,97,322/- MADE ON ACCOUNT OF DEVELOPMENT FUNDS. 3. THE INTERCONNECTED ISSUE RAISED BY THE REVENUE I S THAT THE LD. CIT-A ERRED IN DELETING THE ADDITION MADE BY THE AO FOR R S. 1,39,37,907/- AND RS. 2 ITA NO. 1090/AHD/2017 AY: 1997-98 78,97,322/- ON ACCOUNT OF DEVELOPMENT EXPENSES AND DEVELOPMENT FUNDS RESPECTIVELY. 4. BRIEF FACTS OF THE CASE ON HAND ARE THAT THE ASS ESSEE IN THE PRESENT CASE IS A LISTED COMPANY AND ENGAGED IN THE BUSINESS OF DEV ELOPMENT OF REAL ESTATE AND OPERATION OF HOLIDAY RESORTS & CLUB. THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME DECLARING AN INCOME OF RS. 20,55,330/- ONLY. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELE CTED UNDER SCRUTINY AND INCOME FOR THE YEAR WAS ASSESSED UNDER SECTION 143( 3) OF THE ACT AT RS. 4,29,46,219/- AFTER MAKING THE ADDITIONS AS DETAIL ED UNDER: (I) SALES PROCEEDS DIRECTLY TAKEN TO BALANCE SHEET RS. 3,79,26,874/- (II) DEVELOPMENT FUND RS. 23,28,084/- (III) DISALLOWANCES OF INTEREST RS. 6,35,935/- 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARN ED CIT(A) WHO VIDE ORDER DATED 25 TH MARCH 2002GRANTED PARTLY RELIEF TO THE ASSESSEE. A GGRIEVED BY THE ORDER OF THE LEARNED CIT (A) BOTH THE ASSESSEE AND REVENUE FILED CROSS APPEALS BEFORE ITAT C BENCH AHMADABAD. THE TRIBUN AL VIDE ORDER DATED 26 TH FEBRUARY 2012 SET ASIDE THE ISSUE TO FILE OF THE A O FOR FRESH VERIFICATION AND ADJUDICATION. 6. THE ASSESSEE BEFORE THE AO IN THE SET ASIDE PROC EEDING SUBMITTED THAT IT HAD DEVELOPED THE PROJECTS NAMELY GARDEN CITY-I TO VI AND A BUNGALOW PROJECT IN THE YEAR UNDER CONSIDERATION SITUATED AT VILLAGE OF DANTALI, LILAPUR, LAPKAMAN NEAR VAISHNAVDEVI CIRCLE, S.G. HIGHWAY AHM ADABAD. DURING THE YEAR, THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 4, 76,96,199/- AGAINST THE GARDEN CITY PROJECTS AND RS. 1,85,94,701/- AGAINST THE BUNGALOW PROJECT AGGREGATING TO RS. 6,62,90,900/- ONLY WITH RESPECT TO THE DEVELOPMENT PROJECTS AS DISCUSSED ABOVE. 3 ITA NO. 1090/AHD/2017 AY: 1997-98 7. THE ASSESSEE ACCOUNTED THE RECEIPTS OF RS. 4,76, 96,199/-AGAINST THE LAND DEVELOPMENT PROJECTS OF GARDEN CITY III,IV AND V IN THE MANNER AS DETAILED BELOW: 1. CLUB FEE RS. 2,89,200/- ACCOUNTED IN P/L A/C 2. MAINTENANCE CONTRIBUTION RS. 30,82,585/- TREATED A S NON-REVENUE RECEIPT 3. ELECTRICITY CONTRIBUTION RS. 23,45,000/- TREATED A S NON-REVENUE RECEIPT 4. LAND CONTRIBUTION RS. 24,92,803/- TRANSFERRED TO LAND COST 5. DEVELOPMENT FUND RS. 78,97,122/- TRANSFERRED TO LI ABILITY 6. DEVELOPMENT EXPENSES RS. 2,36,91,967TRANSFERRED TO LIABILITY 7. PROFESSIONAL FEE RS. 78,97,122/- ACCOUNTED IN P/ L A/C 8. THE ASSESSEE FURTHER SUBMITTED THAT THE ABOVE ME NTIONED BOOKING AMOUNT WAS ALLOCATED AS REVENUE, NON-REVENUE AND LI ABILITY IN THE MANNER, AS ALSO ADOPTED IN THE AY 1995-96, AS DETAILED UNDER: 2. METHOD OF ALLOCATION OF RECEIPTS/BOOKING AMOUNT: THE BOOKING AMOUNT IS ALLOCATED AS UNDER IN THE UNIFORM MANNER FOR ALL RE AL ESTATE LAND SCHEME - LAND COST ON ACTUAL BASIS - CLUB FEES RS. 5200/- (ITS FIXED FOR ALL PLOT H OLDERS) - MAINTENANCE CONTRIBUTION RS. 15 PER SQ. YDS. - ELECTRICITY CONTRIBUTION RS. 5000/- ITS FIXED F OR ALL PLOT HOLDERS) - THE BOOKING RATES DEPEND ON THE LOCATION IN BELOW MENTIONED ILLUSTRATION IT IS RS. 260 PER SQ. YDS WHICH IS BIFURCATED AS UNDER: - DEVELOPMENT DEPOSIT FUND: 20% (ACCOUNT IN CURRENT LIABILITIES) - DEVELOPMENT EXPENSES 60% (ACCOUNT IN CURRENT LIA BILITIES) - PROFESSIONAL FEES 20% (ACCOUNT IN P & L A/C) THE COMPNAYS IMMEDIATE PROFIT WAS 20% OF THE LAND BOOKING VALUE WHICH IS IN ADDITION TO CLUB FEES. THE COMPANY COLLECTS TWO TYPES OF DEVELOPMENT DEPOS ITS AS STATED ABOVE I.E. DEVELOPMENT FUND AND DEVELOPMENT EXPENSES FROM THE POTHOLDERS. THERE IS PROFIT FROM THESE FUNDS ON THE 100% OF THE EXPENDITURE INCURRED FOR THE DEVELO PMENT I.E. IT CAN BE SAID THAT COMPANY HAVE A PROFIT MARGIN OF 40% IN THE DEVELOPMENT FUND S 50%OF (60%+20%) & %50% IS ACTUAL EXP. BUT AS PER POLICY AND METHOD OF ACCOUNT ING PROFIT TRANSFER TO THE P & L A/C IN THE YEAR OF ACTUAL EXPENDITURE INCURRED FOR THE DEV ELOPMENT. 9. THE ASSESSEE FURTHER CLAIMED THAT IT HAS EMPLOYE D THE ABOVE METHOD OF ACCOUNTING REGULARLY AND CONSISTENTLY. 4 ITA NO. 1090/AHD/2017 AY: 1997-98 10. HOWEVER, THE AO BEING DISSATISFIED WITH THE MET HOD OF ACCOUNTING FOR THE RECEIPT OF DEVELOPMENT EXPENSES FUND OF RS. 2,3 6,91,967/-, HELD THAT THE RECEIPT OF DEVELOPMENT EXPENSES FUND ARE TRADING RE CEIPT OF THE ASSESSEE. HENCE, THE SAME SHOULD HAVE BEEN RECORDED FULLY IN ITS PROFIT AND LOSS ACCOUNT. THE AO FURTHER FOUND THAT THE ASSESSEE OUT OF THE E NTIRE RECEIPT OF RS. 2,36,91,967/- HAS TRANSFERRED PART OF THE AMOUNT OF RS. 97,54,060/- TO THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, THE AO ADDED THE BALANCE AMOUNT OF RS. 1,39,37,907/-TO THE TOTAL INCOME OF THE ASSESSEE. 11. THE AO, SIMILARLY, FOR THE AMOUNT OF RS. 78,97, 322/- SHOWN BY THE ASSESSEE AS RECEIPT OF DEVELOPMENT FUND UNDER LIABI LITY FOUND THAT IT WAS RECEIVED FOR PROVIDING CERTAIN FACILITIES IN FUTURE AS DETAILED UNDER: (I) CONCESSION ON LIFE MEMBERSHIP OF STERLING CONT RY CLUB. (II) CONCESSION ON SCHOOL, PATRON MEMBERSHIP WITH P RIORITY OF ADMISSION OF CHILDREN. (III) TOWARDS CONCESSION OF BUS SERVICE WITH PRIORI TY IN SEASON TICKETS. (IV) CONCESSION ON DISPENSARY /MEDICAL CENTRE/SHOPP ING CENTRE WITH PRIORITY TREATMENT. TOWARDS ANY OTHER AMENITIES OR SERVICES WHICH DEVEL OPER MAY PLAN IN FUTURE AT HIS SOLE DISCRETION. 12. HOWEVER, THE AO WAS OF THE VIEW THAT THE ASSESS EE WAS NOT UNDER THE OBLIGATION FOR PROVIDING SUCH FACILITIES AS THE SAM E WAS COMPLETELY AT THE DISCRETION OF THE ASSESSEE. IN CASE, THE ASSESSEE D OES NOT PROVIDE SUCH FACILITIES, THE PURCHASER WOULD NOT COMPEL FOR THE SAME FROMASS ESSEE. FURTHERMORE, THERE WAS NO TIME FRAME FOR STARTING/PROVIDING SUCH FACIL ITIES TO THE CUSTOMERS. THE AO ALSO OBSERVED THAT DURING THE YEAR UNDER CONSIDE RATION NONE OF THE FACILITYWAS STARTED BY THE ASSESSEE. 13. IN VIEW OF THE ABOVE, THE AO HELD THE AFORESAID RECEIPTS REPRESENTS THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION UNDER MERCANTILE 5 ITA NO. 1090/AHD/2017 AY: 1997-98 SYSTEM OF ACCOUNTING. ACCORDINGLY, THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND MADE THE ADDITION OF RS. 78,97,322/- T O THE INCOME OF THE ASSESSEE. 14. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LEARNED CIT(A). 15. THE ASSESSEE BEFORE THE LEARNED CIT-A SUBMITTED THAT IT IS ENGAGED IN THE ACTIVITY OF DEVELOPING THE LAND IN A PHASED MAN NER. SIMILARLY, IT RECEIVES THE PROCEEDS IN INSTALLMENTS OVER A PERIOD OF TIME WHICH IS ALLOCATED AMONG THE LAND COST, DEVELOPMENT FUND, MAINTENANCE FUND, DEVELOPMENT CHARGES, CLUB MEMBERSHIP AND PROFESSIONAL CHARGES ETC. IT CONSIDE RS CERTAIN RECEIPTS AS DEFERRED REVENUE INCOME WHICH ARE ACTUALLY ACCOUNTE D AS INCOME IN THE YEAR IN WHICH THE CORRESPONDING EXPENSES ARE INCURRED. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS BEEN FOLLOWING SAME METHOD OF ACCOUNTIN G CONSISTENTLY SINCE THE INCORPORATION WHICH WAS ALSO ACCEPTED BY THE REVENU E EXCEPT IN THE ASSESSMENT YEARS 1995-96, 1997-98, 2001-02 AND 2002 -03. THE ASSESSEE IN SUPPORT OF HIS CONTENTION FILED THE COPY OF THE INC OME AND EXPENDITURE FOR THE LAST TEN YEARS. AS PER THE ASSESSEE THE METHOD ADOP TED FOR ACCOUNTING THE INCOME WAS INCONSONANCE WITH THE ACCOUNTING STANDAR D AND GUIDANCE NOTE ISSUED BY THE ICAI. 16. THE ASSESSEE ALSO CONTENDED THAT THE METHOD OF ACCOUNTING ADOPTED BY IT FOR RECOGNIZING THE REVENUE WAS ALSO ACCEPTED BY TH E AO IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT FOR THE ASSE SSMENT YEAR 2010-11 DATED 16 TH NOVEMBER 2012. 17. IN VIEW OF THE ABOVE, THE ASSESSEE PRAYED BEFOR E THE LEARNED CIT (A) THAT ITS CLAIM SHOULD BE ALLOWED WITHOUT ANY DISALL OWANCE AS MADE BY THE AO. 6 ITA NO. 1090/AHD/2017 AY: 1997-98 18. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMI SSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO VIDE COMBINED O RDER FOR A.Y. 1995-96, 1997-98, 2001-02 AND 2002-03 DATED 23 RD FEBRUARY 2017. THE RELEVANT EXTRACT OF THE ORDER FOR THE ASSESSMENT YEAR 1995-96 IS REP RODUCED AS UNDER: 5.8 AFTER CAREFULLY PERUSING THE ORDER OF THE AO, I FIND THAT THE AO ERRED IN LAW IN MAKING THIS ADDITION AS HE FAILED TO APPRECIATE THE NATURE OFDEVELOPMENT WORK INVOLVED. THE ASSESSEE HAS BEEN FOLLOWINGMERCANTILESYSTEM OF ACCOUNTING SINCE ITS INCEPTION. IT IS A MATTER OF RECORD THAT THE AO HAS NOT REJECTED THE M ETHOD OF ACCOUNTING WHICH IS CONSISTENTLY FOLLOWED BY AND ACCEPTED BY THE DEPARTMENT IN THE PAST COMPLETED IT IS ALSO A MATTER OF RECORD THAT THE ASSESSEE HAS BEEN FOLLOWI NG THE COMPLETED CONTRACT METHOD OF ACCOUNTING FOR RECOGNITION OF REVENUE AND RECOGNIZE D THE ALLOCATION OF RELATED COST TO THE PARTICULAR PHASE OF CONSTRUCTIONANDDEVELOPMENT PR OJECT I.E. RECEIPTS AND COST WERE RECOGNIZED WITH RESPECT TO ONLY PHASE OF CONSTRUCTI ON. THE AO WAS THEREFORE .WRONG IN DRAWING A CONCLUSION, THAT DEVELOPMENT EXPENSES TOTALING TO RS.44,98,587/- REPRESENTS ASSESSEE'S TRADING RECEIPTS WHICH OUGHT TO HAVEBEEN CREDITED TO P & L ACCOUNT. THE AO ON THE OTHER HAND ALSO TOOK ON RECORDTHAT OUT OF THE S UM OF RS. 44,98,587/-, THE ASSESSEE HAS ALREADY CREDITEDRS.34,11,050/- TO THE P & L ACCOUNT . THE APPELLANT CLARIFIED THAT THE AMOUNT OF RS.44,98,587/- IS BOOKING AMOUNT/RECEIPTS WHICH COLLECTION IS MADE FROM PERSONS BOOKING THE PREMISES, IN THE BOOKS OF ACCOUNT (P.B. P.10). OUT OF THE SAME THE ASSESSEE HAS TRANSFERRED RS.34,11,050/- ON ACCOUNT OF ACTUAL EXP ENDITURE THE BALANCE AMOUNT OF RS. 10,87,537/-, IS ON ACCOUNT OF LIABILITY YET TO BE H ONOURED BY THE ASSESSEE. IT IS SETTLED POSITION IN LAW THAT THE OUTSTANDING LIABILITY (NON - STATUTORY) CANNOT BE ADDED BACK TO THE INCOME OFTHE APPELLANT. 5.9 APART FROM THE FACT AS STATED SUPRA, THE FACT T HAT NEED DUE CONSIDERATION IS THAT ASSESSEE IS A PUBLIC LTD. COMPANY WHOSE BOOKS OF AC COUNTS ARE AUDITED UNDER THE COMPANIES ACT (BESIDES U/S 44 AB OF THE IT. ACT), A ND THEY ARE OPEN TO THE GENERAL PUBLIC. IT IS PERTINENT TO PLACE ON RECORD THAT IN THE A.Y.199 7-98, EXACTLY AN IDENTICAL ISSUE IN THE CASE OF THE APPELLANT, THE LD. CIT(A)-XIV WHILE DECIDING THE APPEAL HAS RECORDED CATEGORICAL FINDING IN ORDER DATED 26.03.2002 ON PAGE NO. 27 AN D 28 AS UNDER: HENCE IN MY OPINION, THE COLLECTION SO MADE IS THE LIABILITY OF THE APPELLANT. IN ANY CASE, THE COLLECTION SO MADE CANNOT BE CONSIDERED AS INCO ME FOR THE PURPOSE OF IT ACT. THE INCOME IS TO BE ARRIVED AT ONLY AFTER THE EXPENSES ARE DEDUCTED FROM THE SALES/RECEIPTS OF THE APPELLANT. IN THE PRESENT CASE THE EXPENDITURE IS N OT INCURRED OR NOT CLAIMED AT THE TIME OF COLLECTION. HOWEVER, THE APPELLANT HAS ADOPTED A ME THOD OF TRANSFER THE AMOUNT FROM THEEXPENSES TO THE PROFIT & LOSS ACCOUNT AS AND WHE N EXPENDITURE IS INCURRED AND SUCH AMOUNT CREDITED TO THE PROFIT AND LOSS ACCOUNT IS T WICE THE AMOUNT OF EXPENDITURE. FROM THE DETAIL SUBMITTED BY THE APPELLANT AS EXPLAINED IN P ARA 3.2 ABOVE, I FIND THAT IN FACT THE APPELLANT HAS CONSISTENTLY ADOPTED THE SOME METHOD OF CREDITING TWICE THE AMOUNT OF ACTUAL DEVELOPMENT EXPENDITURE FROM YEAR TO YEAR TO THE PR OFIT & LOSS ACCOUNT. THE ASSESSEE HAS INCURRED SUCH EXPENDITURE FOR VARIOUS WORKS LIKE DE VELOPMENT OF LAND, LEVELLING THE SAME, FENCING, ROAD WORK, TUBE-WELL, ELECTRIC SUPPLY CAB LE ETC. IN THE CIRCUMSTANCES, IN MY OPINION, THE ABOVE DIRECTIONS OF THE CIT(A) IN APPE LLATE ORDER FORA.Y.1995-96 DO NOT TAKE INTO CONSIDERATION THE INCOME ASPECT BUT IT CONSIDE RS ONLY RECEIPTS OF THE APPELLANT WHICH IS NOT CORRECT. TO THIS EXTENT I DIFFER FROM THE SAID APPELLATE ORDER. THE METHOD OF ACCOUNTING 7 ITA NO. 1090/AHD/2017 AY: 1997-98 FOR THIS ITEM OF RECEIPT AND INCOME THERE FROM ADOP TED BY THE APPELLANT IS FOUND TO BE REASONABLE AND THEREFORE IT IS THE CORRECT INCOME W HICH IS OFFERED BUT THE APPELLANT IN THE RELEVANT YEAR. HENCE, I DIRECT THE ASSESSING OFFICE R TO TAX ONLY THAT AMOUNT WHICH IS CREDITED TO THE P& L ACCOUNT IN THE YEAR UNDER CONSIDERATION AGAINST THE DEVELOPMENT EXPENDITURE INSTEAD OF THE FUNDS FOR WHICH COLLECTION IS MADEFR OM PERSONS BOOKING THE PREMISES. THE APPELLANT THEREFORE, GETS A RELIEF OF THE AMOUNT OF RS.2,36,91,967/- REFERRED TO ABOVE. 5.10 HAVING REGARD TO THE AFORESAID FINDI NGS GIVEN BY MY LD.PREDECESSOR, I DON'T FIND ANY REASONS TO DIFFER AS ASSESSING OFFIC ER HAS NEITHER NOTICED ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND VER IFIED IN THE COURSE OF SCRUTINY NOR HE HAS BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT EX PENDITURE CLAIMED WERE NOT INCURRED OR WERE BOGUS. THEREFORE,THERE IS NO JUSTIFICATION IN IGNORING BOOK RESULT AS GIVEN IN AUDITED ACCOUNTSAND MAKING ARBITRARY ADDITION. IT IS A SAD STATE OF AFFAIRS THAT DESPITE GETTING THE CASE PASSING THROUGH THIRD STAGE OF ASSESSMENT AND HAVING CLEAR CUT DIRECTION FROM THE ITAT, THE AO FAILED TO APPLY HIS MIND TO THE G IVENACCOUNTING STANDARD AND FOLLOW THE BERATED LINE OF ARGUMENT WITHOUT ANY APPLICATION OF MIND. IT IS EQUALLY IMPORTANT TO PLACE ON RECORD THAT AO HAS NOTUNDERTAKEN; ANY INVESTIGAT ION/INDEPENDENT INQUIRIESTOARRIVEATANY CONCLUSION WHEN THE WHOLE ASSESSMENT WAS TO BE FR AMED DE-NOVO IN CONSEQUENT TO THE ORDER OF THE HONBLE ITAT. 5.11 THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTINGIS A PROPER COURSE TO SHOW THE EXPENSES ON THE BASIS OF ACCRUAL AND ALSO SHOW THE INCOME ON THE BASIS OF ACCRUAL. IT IS SEEN FROM THE AGREEMENT WITH THE MEMBERS THAT THE APPELLANT RECOVERED FROM THE MEMBERS ON ACCOUNT OF LAND COST DEVELOPMEN T FUND DEPOSIT, DEVELOPMENT WORK, PROFESSIONAL FEES ETC. IT IS ALSO A MATTER OF RECOR D THAT THE DEVELOPMENT ISONGOING PROJECT AND THE LOT OF WORK IS YET TO BE UNDERTAKEN BY THE ASSESSEE. TO SAY THAT EVERY RECEIPT BY THE ASSESSEE CONSTITUTES A TRADING RECEIPT/SALE ONLY, I S A INCORRECT STATEMENT OF FACT. AS PER THE AGREEMENT THE TOTAL CONTRIBUTION IN THE YEAR UNDER CONSIDERATION AND LOTS OF WORKS AS PER PLAN HAS YET TO BE UNDERTAKEN BY THE ASSESSEE, CONT RIBUTION RECEIVED FROM THE PURCHASER/MEMBERS CONSTITUTES VARIOUS CONTRIBUTIONS FOR LIFE MEMBERS ANDSTERLING COUNTRY CLUB AND ALSO REPRESENTS LAND VALUE. 5.12. THE NEXT ADDITION OF RS. 22,96,764/- REPRESEN TS DEVELOPMENT FUND WHICH WAS DIRECTLY TAKEN INTO THE BALANCE SHEET. HOWEVER AS P ER THE AGREEMENT THE DEVELOPMENT FUND WAS SUPPOSE TO USE IN PROVIDING THE VARIOUS FACILIT IES RELATED TO CLUB MEMBERSHIP, SCHOOLING OF THE MEMBER'S CHILDREN, BUS SERVICE AND OTHER VAR IOUS SERVICE. AS PER THE AGREEMENT, THESE FACILITIES WERE THE PRIME RESPONSIBILITIES OF THE D EVELOPER AND AGREEMENT CLEARLY SHOWN THATTHEDEVELOPERTHE TERMS OFHAD SOLE DISCRETION TO PROVIDE THIS SERVICES AND THE BUYER HADNO RIGHT TO ENFORCE THIS FACILITIES. THE AO HAS NOT FULLY TAKEN INTO CONSIDERATION STANDARD AGREEMENT, IN PARA 7, 20% OF SALE PROCEEDS AFTEREXCLUDING AND COST, CONTRIBUTION FOR ELECTRICITY CONNECTION, ONE TIMEMAINTENANCE CON TRIBUTION AND CONTRIBUTION FOR LIFE MEMBERSHIP OF THE CLUB HAS BEEN ALLOCATED FOR DEVEL OPMENT FUND DEPOSIT AND THE DEVELOPMENT DEPOSIT IS SUPPOSED TO PROVIDE FOLLOWIN G SPECIFIC FACILITIES EXISTING OR IN FUTURE. IT IS NOT IN DISPUTE AS AGREED UPON BY THE AO THAT WORK HAD NOT STARTED THAT IN ITSELF ISPROOF THAT THE MONEY COLLECTED IS A LIABILITY AND NOT AN INCOME AS INCOME IS TOBE TAKEN INTO ACCOUNT AFTER EXPENSES LAID ARE ACCOUNTED FOR. THES E AMENITIESHAVE TO BE PROVIDED FOR WHICH LAND HAS BEEN PROVIDED BY THE PURCHASERS FREE OF COST (REFER TO CLAUSE-16 OF THE SALE AGREEMENT). SINCE THE ASSESSEE IS FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING AND THE SALE OF PLOT HAS TAKEN PLACE.' SIGNIFICANTLY, THE AO HIMSE LF HAS NOTED AT PARA 6 THAT ASSESSEE HAS INCURRED EXPENDITURE OF RS.34,11,050/- WHICH IS TRA NSFERRED TO P&L ACCOUNT,WHILE DISCUSSING THE ISSUE OF 'DEVELOPMENT EXPENSES'. T HE AVERMENT OF THEAO THAT THE ASSESSEE 8 ITA NO. 1090/AHD/2017 AY: 1997-98 HAS MADE NO EFFORTS WHATSOEVER TO DETERMINE ITS LIA BILITYIN RESPECT OF DEVELOPMENT FUND OR THE AMENITIES TO BE PROVIDED OUT OF THIS FUND, IS O UT CONTEXT AND CONTRADICTORY TO WHAT HE HAS NOTED IN THE ORDER. WHEREAS AT PARA 7 OF THE IMPUGN ED ASSESSMENT ORDER THE AO HAS CATEGORICALLY NOTED THE DETAILS OF FACILITIES SUPPO SED TO BE PROVIDED FROM THE DEVELOPMENT DEPOSIT. THUS, THE AMOUNT OF FUTURE LIABILITY ON AC COUNT OF DEVELOPMENT WORK HAD BEEN SPECIFIED IN THE AGREEMENT BETWEEN THE PARTIES,THEN THAT FUTURE OBLIGATION HAD TO BE TAKEN INTO CONSIDERATION. THEREFORE, THEENTIRE BOOKING RECEIPTS OF DEVELOPMENT FUND CANNOT BE TAKEN INTO P&L ACCOUNT, WHAT COULD BE TAKEN TO THE P&L ACCOUNT IS THE PROFIT ON THE SAIDTRANSACTION, WHICH HAS PRECISELY BEEN DONE BY T HE ASSESSEE. 29. THE VIEW TAKEN BY THE LEARNED CIT (A) FOR THE A SSESSMENT YEAR 1995-96 WAS ALSO TAKEN FOR THE YEAR UNDER CONSIDERATION. AC CORDINGLY, THE LEARNED CIT (A) DELETED THE ADDITION MADE BY THE AO. 30. BEING AGGRIEVED BY THE ORDER OF LEARNED CIT (A) , THE REVENUE IS IN APPEAL BEFORE US. 31. THE LEARNED DR BEFORE US VEHEMENTLY SUPPORTED T HE ORDER OF THE AO. ON THE CONTRARY THE LEARNED AR BEFORE US FILED A PA PER BOOK RUNNING FROM PAGES 1 TO 68 AND SUBMITTED THAT IT HAS BEEN FOLLOW ING ITS METHOD OF ACCOUNTING CONSISTENTLY WHICH HAS BEEN ACCEPTED BY THE REVENUE. THEREFORE, HE CONTENDED THAT THERE BEING NO CHANGE IN THE FACT S AND CIRCUMSTANCES, NO ADDITION IS WARRANTED IN THE YEAR UNDER CONSIDERATI ON. 32. THE LEARNED AR FURTHER SUBMITTED THAT THE RECEI PTS WHICH WERE TREATED AS DEFERRED INCOME WERE OFFERED TO TAX IN THE YEAR IN WHICH THE EXPENSES WERE INCURRED. THE LEARNED AR IN SUPPORT OF HIS CONTENTI ON DREW OUR ATTENTION ON PAGE 68 OF THE PAPER BOOK WHERE THE DETAILS OF THE RECEIPT OF THE DEVELOPMENT FUND AND THE AMOUNT TRANSFERRED TO INCOME WAS SHOWN . THE LEARNED AR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT ( A). 33. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE HAS SHOWN 9 ITA NO. 1090/AHD/2017 AY: 1997-98 CERTAIN RECEIPTS AS LIABILITY ON THE REASONING THAT SUCH A LIABILITY SHALL BE ACCOUNTED FOR AS INCOME AGAINST THE CORRESPONDING E XPENSES. HOWEVER, THE AO WAS OF THE VIEW THAT SUCH RECEIPTS, TREATED AS D EFERRED REVENUE INCOME, HAS BECOME THE INCOME OF THE ASSESSEE UNDER MERCANTILE SYSTEM OF ACCOUNTING. ACCORDINGLY, THE AO TREATED SUCH DEFERRED INCOME AS THE INCOME OF THE YEAR UNDER CONSIDERATION. THUS, THE AO MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE FOR AN AMOUNT OF RS. 2,18,35,222/- (1,39,3 7,907 + 78,97,322). HOWEVER THE LEARNED CIT (A) WAS PLEASED TO DELETE T HE ADDITION MADE BY THE AO. 34. BEFORE, WE TOUCH UPON THE ISSUE WHETHER A PARTI CULAR RECEIPT REPRESENTS THE INCOME OF THE ASSESSEE IN THE YEARS UNDER CONSI DERATION AS DISCUSSED ABOVE, WE FIND THAT THE ASSESSEE HAS BEEN FOLLOWING A UNIQ UE METHOD OF ACCOUNTING FOR RECOGNIZING THE CERTAIN RECEIPTS AS INCOME IN T HE FUTURE YEARS. THIS METHOD HAS BEEN ACCEPTED BY THE REVENUE IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT INCLUDING THE ASSESSMENT YEAR 201 0- 11 EXCEPT IN FEW OF THE ASSESSMENT YEARS NAMELY 1995-96, 1997-98, 2000-01 A ND 2002-03. IN OTHER WORDS, WE FIND THAT THE METHOD OF ACCOUNTING ADOPTE D BY THE ASSESSEE SINCE INCORPORATION 14-05-1992 WAS ACCEPTED BY THE REVENU E TILL THE ASSESSMENT YEAR 2010-11 WITHOUT POINTING OUT ANY FLAW IN SUCH METHOD OF ACCOUNTING. ACCORDINGLY, WE ARE OF THE VIEW THAT THE REVENUE HA S NO AUTHORITY TO CHANGE THE METHOD OF ACCOUNTING OF THE ASSESSEE UNTIL AND UNLESS IT CONTAINS THE DEFECTS OR THERE IS ANY SPECIFIC PROHIBITION UNDER THE PROVISIONS OF LAW. AS SUCH WE ARE OF THE VIEW THAT THE PRINCIPLES OF CONS ISTENCY SHOULD BE ADOPTED. IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT THE RE CEIPTS WHICH WAS TREATED BY THE ASSESSEE AS DEFERRED REVENUE INCOME HAS BEEN OFFERED TO TAX BY THE 10 ITA NO. 1090/AHD/2017 AY: 1997-98 ASSESSEE IN THE SUBSEQUENT ASSESSMENT YEARS. IN SUC H A SITUATION, WE ARE OF THE VIEW THAT THERE IS NO LOSS TO THE REVENUE FOR THE S IMPLE REASON THAT RECEIPT HAS FINALLY BEEN SUFFERED TO THE TAX BUT IN THE SUBSEQU ENT ASSESSMENT YEAR. ACCORDINGLY, WE NOTE THAT IF ANY ADDITION IS SUSTAI NED IN THE YEAR UNDER CONSIDERATION THEN THERE HAS TO BE DELETION OF THE CORRESPONDING AMOUNT OF THE INCOME SHOWN BY THE ASSESSEE IN THE SUBSEQUENT ASSE SSMENT YEARS OTHERWISE IT WOULD LEAD TO DOUBLE ADDITION TO THE TOTAL INCOME O F THE ASSESSEE WHICH IS NOT DESIRABLE UNDER THE PROVISIONS OF LAW. IN VIEW OF T HE ABOVE AND AFTER CONSIDERING THE FACTS IN TOTALITY, WE ARE OF THE VI EW THAT THE ORDER OF THE LEARNED CIT (A) DOES NOT SUFFER FROM ANY INFIRMITY. ACCORDINGLY WE DECLINE TO INTERFERE IN HIS ORDER. HENCE, THE GROUND OF APP EAL OF THE REVENUE IS DISMISSED. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 22 ND OCTOBER,2020 AT AHMEDABAD. SD/- SD/- (MAHAVIR PRASAD) JUDICIAL MEMBER ( WASEEM AHMED ) ACCOUNTANT MEMBER AHMEDABAD; DATED 22/10/2020 TANMAY, SR. PS TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. !! ' # / CONCERNED CIT 4. ' # ( ) / THE CIT(A)- 5. &'() **+ , , / DR, ITAT, AHMEDABAD. 6. ),- ./ / GUARD FILE. / BY ORDER, & * //TRUE COPY// / ! ( DY./ASSTT.REGISTRAR) ! '# $, &' / ITAT, AHMEDABAD