DCIT, Circle-16(2), New Delhi V. Maxworth Infrasqwtructrure P.Ltd, New Delhi

ITA 202/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3284 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 08-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Rule of consistency; Capital expenditure
• Section: 143(3); 201; 113; 13; 69; 145; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: E NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.202/DEL/2018 ASSESSMENT YEAR: 2012-13 DCIT, CIRCLE 16 (2) NEW DELHI VS. MAXWORTH INFRASTRUCTURE P. LTD. 303, TOWER -1, BAVERLY PARK, PLOT NO.2, THE JAYPEE CGHS LTD., SECTOR-22, DWARKA, NEW DELHI PAN NO. AAGCM7827C (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDE R DATED 21/09/2017 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX APPELLANT BY MS. PARAMITA M. BISWAS, CIT DR RESPONDENT BY SH. GAUTAM JAIN, ADVOCATE SH. LALIT MOHAN, CA DATE OF HEARING 07.10.2021 DATE OF PRONOUNCEMENT 21 .10.2021 (APPEALS)-33, NEW DELHI [IN SHORT THE LD. CIT(A)] F OR ASSESSMENT YEAR 2012-13, RAISING FOLLOWING GROUNDS: 1. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) IS LEGALLY JUSTIFIED IN DELETING THE ADDI TION OF RS. 10,00,65,850/- MADE BY THE ASSESSING OFFICER [THE A O) FOLLOWING THE PERCENTAGE OF COMPLETION METHOD (POCM ) BY IGNORING ACCOUNTING STANDARD -7 (AS-7) READ PERCENT AGE FOR RECOGNITION OF REVENUE? 2. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN ALLOWING RELIEF TO THE ASSESSEE DESPITE THE FACT THAT PRINCIPLE OF RES-JUD ICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS AS EACH ASSESSMENT YEAR IS A SEPARATE YEAR? 3. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE LD CIT(A) IS LEGALLY JUSTIFIED IN DELETING ADDITION BY IGNORING THE FINDINGS OF THE ASSESSING OFFICER (THE AO) IN ASSESSMENT ORDER THAT THE INSTALLMENTS RECEIVED BY THE ASSESSEE FROM ITS CUSTOMERS AND REINVESTED DURING T HE YEAR, INCLUDED AN ELEMENT OF PROFIT ALSO? 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, A LTER OR FORGO ANY GROUND/(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT IN THE PREVIOUS YEAR CORRESPONDING TO THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF BUI LDING AND DEVELOPING HOUSING/COMMERCIAL REAL ESTATE PROJECTS. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF I NCOME ON 30/09/2012 DECLARING LOSS OF RS.1,06,69,938/-. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUT INY ASSESSMENT AND STATUTORY NOTICES UNDER THE INCOME-TAX ACT, 196 1 (IN SHORT THE ACT) WERE ISSUED AND COMPLIED WITH. IN THE ASSESSME NT COMPLETED UNDER SECTION 143(3) OF THE ACT ON 26/02/2015, THE ASSESSING OFFICER REJECTED THE METHOD OF ACCOUNTING OF PROFIT ADOPTED BY THE ASSESSEE AND APPLIED PERCENTAGE OF COMPLETION METHO D (POCM) AND MADE ADDITION OF RS.10,00,65,850/-. ON FURTHER APPE AL BY THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION HOLDI NG THAT ASSESSEE HAS CONSISTENTLY RECOGNISED THE REVENUE AT THE TIME OF THE EXECUTION OF THE SALE DEEDS AND WHICH HAS BEEN ACCEPTED BY TH E DEPARTMENT NOT ONLY IN EARLIER YEARS, BUT IN SUBSEQUENT YEARS ALSO. AGGRIEVED WITH THE FINDING OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOV E. 3. BEFORE US THE PARTIES APPEARED THROUGH VIDEOCONF ERENCING FACILITY. THE ASSESSEE FILED A PAPERBOOK CONTAINING PAGES 1 TO 225. 4. ALL THE GROUNDS RAISED BY THE REVENUE ARE IN REL ATION TO THE ADDITION OF RS.10,00,65,850/-INVOKING PERCENTAGE OF COMPLETION METHOD BY THE ASSESSING OFFICER, WHICH HAS BEEN DEL ETED BY THE LD. CIT(A). 5. BRIEF FACTS QUA THE ISSUE IN DISPUTE ARE THAT TH E ASSESSEE RECEIVED REVENUE FROM SALE OF RESIDENTIAL/COMMERCIA L UNITS TO THE CUSTOMER AND ACCOUNTED THE SAME AS ADVANCES RECEIVE D FROM THE CUSTOMERS. THE EXPENDITURE RELATED TO UNITS DEBITED BY CUSTOMERS WAS ACCOUNTED AS CAPITAL WORK IN PROGRESS AND DEBIT ED IN THE PROFIT AND LOSS ACCOUNT AT THE TIME OF COMPLETION OF THE P ROJECT AND GIVING HAND OVER TO ITS CUSTOMERS. THE ENTIRE REVENUE FROM SALE OF SUCH UNITS HAS ALSO BEEN RECOGNISED AT THE TIME OF SALE AND HANDING OVER OF THE UNIT TO CUSTOMERS. ACCORDING TO THE ASSESSIN G OFFICER, IN VIEW OF GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTER ED ACCOUNTANT OF INDIA (ICAI), REVENUE FROM BOOKING OF UNITS BY THE CUSTOMERS SHOULD BE RECOGNISED FOLLOWING PERCENTAGE OF COMPLETION ME THOD (POCM) APPLICABLE TO CONSTRUCTION CONTRACT. THE LEARNED TH E ASSESSING OFFICER FOLLOWING THE POCM METHOD OF REVENUE RECOGN ITION, COMPUTED ADDITION OF RS.10,00,65,850/-AS UNDER: PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) ESTIMATED PROJECT COST 77,17,99,380* TOTAL SALE CONSIDERATION OF PROJECT 92,61,59,256 ESTIMATED GROSS PROFIT ON COMPLETION @20% 15,43,59,876 % OF WORK COMPLETED 65%* COST INCURRED UPTO 31.03.2012 AS PER AMOUNT CAPITAL IZED IN 'WIP' 24,83,40,366 ADVANCES/SALES RECOGNIZED 31.03.12 50,02,70,019 ESTIMATED RECOGNITION OF GROSS PROFIT TILL THE END OF CURRENT FINANCIAL I.E., 2011-12 [65% OF GROSS RECEIPTS] 10,00,65,850 LESS: ADMINISTRATIVE, DEPRECIATION & OTHER EXPENSES CLAIM ED AS PER ROI 36,96,923 ESTIMATED NET PROFIT PROFIT TILL THE END OF FINANCIAL YEAR UNDER CONSIDERATION 9,63,68,927 AS PER PCOM AS THE ASSESSEE COMPANY HAS NOT OFFERED ANY INCOME BEFORE. (GROSS ADVANCES RECEIVED FROM CUSTO MERS) ADD : INCOME FROM OTHER SOURCE NIL TOTAL INCOME 9,63,68,927 6. BEFORE THE LD. CIT(A), THE ASSESSEE FILED A DETA ILED SUBMISSION AND STATED THAT COMPLETED CONTRACT METHOD IS A RE COGNISED METHOD IN ACCORDANCE WITH ACCOUNTING STANDARDS-9 ISSUED BY THE ICIA. FURTHER SUBMITTED THAT ASSESSEE HAS BEEN CONSISTENT LY FOLLOWING THE METHOD OF COMPLETED CONTRACT AND WHICH HAS BEEN ACC EPTED BY THE REVENUE. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PARAS BUILDTECH INDIA PRIVATE LIMITED VERSUS CIT REPORTED IN 382 ITR 630, DCIT VS M/S SAB H INFRASTRUCTURE LTD DATED 07/01/2015 ( ITA NO. 111/ 2014 AND 113 /2014), CIT VS MANISH BUILDWELL PRIVATE LIMITE D REPORTED IN 245 CTR 397 AND OTHER DECISIONS. THE ASSESSEE FILED A CHART OF COMPLETED CONTRACT METHOD FOLLOWED CONSISTENTLY AND RECOGNISED BY THE INCOME TAX DEPARTMENT AS UNDER: A.Y. COMULATIVE ADVANCES (RS.) SALE(RS.) METHOD OF ACCOUNTING FOLLOWED ASSESSMENT U/S. 2011 - 12 14.79 NIL COMPLETED CONTRACT METHOD 143 (1) 2012 - 13 50.03 NIL COMPLETED CONTRACT METHOD UNDER APPEAL 2013 - 14 97.54 NIL COMPLETED CONTRACT METHOD 143 (1) 2014 - 15 111.77 NIL COMPLETED CONTRACT METHOD 143 (1) 2015 - 16 33.96 96.62 COMPLETED CONTRACT METHOD 7. THE ASSESSEE ALSO POINTED OUT THAT IT WAS NOT EN GAGED IN CONSTRUCTION, INSTEAD ENGAGED IN DEVELOPMENT OF RES IDENTIAL UNITS AND THEREFORE ACCOUNTING STANDARD AS-7 IS NOT APPLI CABLE IN THE CASE OF THE ASSESSEE. IN VIEW OF THE SUBMISSION OF THE ASSESSEE, THE LD. CIT(A) ACCEPTED COMPLETED CONTRACT METHOD OF THE ASSESSEE OBSERVING AS UNDER: 4.7 I HAVE PERUSED THE ORDER OF ASSESSMENT AND THE SUBMISSIONS MADE BY THE APPELLANT ALONGWITH THE MATERIAL PLACED ON R ECORD. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF BUILDING AND DEVELOPING HOUSING COMMERCIAL PROJECTS. IN THE ASSESSMENT ORDER, THE A O HAS HELD THAT THE APPELLANT SHOULD HAVE RECOGNIZED REVENUE BASED ON T HE PERCENTAGE COMPLETION METHOD, FOLLOWING ACCOUNTING STANDARD 7 FOR CONSTRUCTION CONTRACTS AND GUIDANCE NOTE ON RECOGNITION OF REVEN UE BY REAL ESTATE DEVELOPERS ISSUED IN JUNE, 2006 BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE AO HAS HELD THAT AS PER THE AG REEMENT TO SELL, THE APPELLANT WAS TO COMPLETE THE CONSTRUCTION WITHIN 1 5 MONTHS OF THE DATE OF MCD APPROVAL. THE AO HAS CONSIDERED THE DATE OF MCD APPROVAL AND WORKED OUT THE PROPORTIONATE COMPLETION OF CONSTRUC TION FROM THE DATE OF APPROVAL TO THE END OF THE PREVIOUS YEAR UNDER CONS IDERATION. IN THIS MANNER, THE AO HAS COMPUTED THE REVENUE THAT SHOULD HAVE BEEN RECOGNIZED AND ACCORDINGLY MADE ADDITION TO INCOME. THE APPELLANT HAS ARGUED THAT THE REVISED AS-7 IS APPLICABLE TO CONTR ACTORS AND NOT TO BUILDERS OR DEVELOPERS AND SINCE THE APPELLANT IS A DEVELOPER, THE REVISED AS-7 IS NOT APPLICABLE. THE APPELLANT STATED THAT I T HAS RECOGNIZED REVENUE AT THE TIME OF EXECUTION OF SALE DEED AND THIS IS A CONSISTENT ACCOUNTING METHOD FOLLOWED BY IT IN ALL YEARS. THE APPELLANT A LSO STATED THAT UNDER THE METHOD OF ACCOUNTING FOLLOWED BY IT, THERE IS NO LO SS TO THE REVENUE SINCE IT IS DECLARING REVENUE AFTER EXECUTION OF THE SALE DE ED AND AS SUCH, THE WHOLE EXERCISE IS REVENUE NEUTRAL. IN THIS REGARD, THE APPELLANT PLACED RELIANCE ON SEVERAL JUDICIAL DECISIONS INCLUDING TH E DECISION OF THE HONBLE SUPREME COURT IN EXCEL INDUSTRIES LTD. 358 ITR 295. THE APPELLANT STATED .THAT THE ACCOUNTING METHOD FOLLOWED BY IT WAS SUPP ORTED BY SEVERAL JUDICIAL DECISIONS, AND ALSO THE OPINION GIVEN BY T HE EXPERT ADVISORY COMMITTEE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND THE GUIDANCE NOTE ISSUED BY THE INSTITUTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS. 8. FURTHER, FOLLOWING THE DECISIONS CITED BY THE AS SESSEE, THE LD. CIT(A) DELETED THE ADDITION HOLDING AS UNDER: 4.10 CONSIDERING THE FACTS, IT IS CLEAR THAT THE APPELLANT IS A BUILDER AND NOT A CONTRACTOR. THE APPELLANT HAS POINTED OUT THA T IN VIEW OF THE STIPULATIONS IN THE AGREEMENT IN THIS CASE, IT CANN OT BE SAID THAT SIGNIFICANT RISKS AND REWARDS ON OWNERSHIP HAD BEEN TRANSFERRED TO BUYERS PRIOR TO EXECUTION OF THE SALE DEEDS. THE APPELLANT STATED T HAT IT HAS CONSISTENTLY RECOGNIZED REVENUE AT THE TIME OF EXECUTION OF THE SALE DEEDS AND THIS METHOD HAS BEEN ACCEPTED BY THE DEPARTMENT IN NOT O NLY THE EARLIER YEARS, BUT ALSO IN THE SUBSEQUENT YEARS AND THE AO HAS NOT GIVEN ANY JUSTIFICATION FOR DEVIATING FROM THE STAND CONSISTE NTLY TAKEN BY THE APPELLANT AND ACCEPTED BY THE REVENUE. ON THE CONT RARY, THE ASSESSING OFFICERS FINDING THAT PRINCIPLE OF RESJUDICATA HAS NO APPLICATION ON INCOME TAX PROCEEDINGS IS CONTRARY TO SETTLED POSITION OF LAW AS ENUNCIATED BY THE APEX COURT IN THE CASE OF EXCEL INDUSTRIES (SUPRA). THE APPELLANT STATED THAT THE DISPUTE ESSENTIALLY RELATED TO A TIMING DI FFERENCE AND INCOME FROM THESE PROPERTIES HAS ALREADY BEEN SHOWN IN A.Y. 201 5-16 WHEN THE SALE DEEDS WERE EXECUTED AND POSSESSION HANDED OVER. IN THE ASSESSMENT ORDER, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECOR D TO CONTROVERT THE CONTENTIONS OF THE APPELLANT. CONSIDERING THE FACTS AND JUDICIAL DECISIONS ON THIS SUBJECT, THE ADDITION MADE BY THE AO IS NOT SUSTAINABLE IN LAW AND IS DELETED. 9. BEFORE US, THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE LD. COUNSEL OF THE ASSESSEE RE LIED ON THE ORDER OF THE LD. CIT(A). 10. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE IN DISPUTE I N THE INSTANT CASE IS REGARDING METHOD OF REVENUE RECOGNITION FOLLOWED BY THE ASSESSEE AS AGAINST THE METHOD APPLIED BY THE ASSESSING OFFI CER. THE CONTENTION OF THE ASSESSEE IS THAT IT IS FOLLOWING CONSISTENTLY COMPLETED CONTRACT METHOD FOR RECOGNISING REVENUE FROM BOOKING OF RESIDENTIAL UNITS IN THE REAL ESTATE PROJECT, BU T IN VIEW OF THE ASSESSING OFFICER THE REVENUE SHOULD BE RECOGNISED FOLLOWING PERCENTAGE OF COMPLETION METHOD. THE ASSESSEES MET HOD OF ACCOUNTING HAS BEEN SUMMARIZED IN SUBMISSION BEFORE THE LD. CIT(A), RELEVANT PART OF IS REPRODUCED AS UNDER: 8.4 IT IS FURTHER SUBMITTED THAT SINCE THE APPELLAN T IS A DEVELOPER AND NOT A CONTRACTOR AS SUCH, IT RECOGNIZES INCOME ONLY WHEN POSSESSION IS HANDED OVER AND SALE DEED IS EXECUTED. SINCE THE IN CEPTION OF THE APPELLANT FIRM, ANY AMOUNTS RECEIVED AGAINST BOOKIN G ARE CREDITED TO ACCOUNT ADVANCES AGAINST BOOKING SIMILARLY ALL E XPENDITURE FOR PURCHASE OF LAND, SEEKING SANCTIONS FROM THE CONCERNED AUTHO RITIES, DEVELOPING THE LAND IN ACCORDANCE WITH THOSE SANCTIONS, ALL TYPES OF EXPENSES INCURRED ON CONSTRUCTION, I.E. CAPITAL EXPENDITURE INCURRED FOR GETTING PRELAUNCH OR POST LAUNCH BOOKINGS INCLUDING WERE DEBITED TO WORK IN P ROGRESS. THUS NEITHER, ADVANCES RECEIVED ON BOOKING OF FLATS WERE TREATED AS REVENUE NOR EXPENDITURE INCURRED WAS CLAIMED AS AN REVENUE EXPE NDITURE TILL THE SALE OF FLATS STARTED, I.E., TRANSFER OF APARTMENTS WAS MADE. IN FACT, THE APPELLANT HAD CAPITALIZED THE COST OF CONSTRUCTION AND REFLECTED THE COST OF CONSTRUCTION AS PROJECT IN PROGRESS AND AS SUCH, TH E ADVERSE INFERENCE DRAWN IS PATENTLY MISCONCEIVED, MISPLACED AND WHOLL Y UNTENABLE. 8.5 IN NUTSHELL, IT IS SUBMITTED THAT SINCE APPELLA NT IS A DEVELOPER AND NOT A CONTRACTOR AND IS RECOGNIZING REVENUE AS AND WHEN S ALE DEED IS EXECUTED AND POSSESSION IS HANDED OVER AND TILL THAT TIME AD VANCES RECEIVED AGAINST BOOKING ARE CREDITED TO ACCOUNT ADVANCES A GAINST BOOKING SIMILARLY ALL EXPENDITURE FOR PURCHASE OF LAND, SEE KING SANCTIONS FROM THE CONCERNED AUTHORITIES, DEVELOPING THE LAND IN ACCOR DANCE WITH THOSE SANCTIONS, ALL TYPES OF EXPENSES INCURRED ON CONSTR UCTION, I.E. CAPITAL EXPENDITURE INCURRED FOR GETTING PRELAUNCH OR POST LAUNCH BOOKINGS INCLUDING WERE DEBITED TO WORK IN PROGRESS, AS SUCH , AS-7 IS PER-SE IN APPLICABLE AND HENCE ADDITION MADE BY THE LEARNED A O DESERVES TO BE DELETED. 8.6 IT IS FURTHER SUBMITTED THAT IN THE INSTANT CAS E, LEARNED AO HAS PROCEEDED TO COMPUTE THE INCOME OF THE APPELLANT BY APPLYING ACCOUNTING STANDARD-7 WHICH WAS ORIGINALLY ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA IN THE YEAR 1983. THAT SECTION 145(2) OF THE ACT PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOW ED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. IT IS THEREFORE SUBMITTED THAT UNLESS AN ACCOUNTING STANDARD IS NOTIFIED BY T HE CENTRAL GOVERNMENT, SAME IS NOT BINDING ON AN ASSESSEE, AND HENCE SAME CANNOT BE GROUND FOR REJECTING THE METHOD OF ACCOUNTING ON THE GROUND TH AT ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE N OT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IT IS SUBMITTED WITH RESP ECT THAT UNDER SECTION 145(2) OF THE ACT, 1961, CENTRAL GOVERNMENT HAS NOT IFIED TWO ACCOUNTING STANDARDS I.E. AS-1 (RELATING TO DISCLOSURE OF ACCO UNTING POLICIES) AND AS-2 (RELATING TO DISCLOSURE OF PRIOR PERIOD AND EXTRAOR DINARY ITEMS AND CHANGES IN ACCOUNTING POLICIES) VIDE NOTIFICATION NO. SO 69 (E), DATED 25-1-1996. IT IS SUBMITTED THAT APART FROM THE AFORESAID ACCOUNTING STANDARDS, NO OTHER ACCOUNTING STANDARD HAS BEEN NOTIFIED BY THE CENTRA L GOVERNMENT FOR THE PURPOSE OF SECTION 145(2) OF THE ACT. IT IS THEREFO RE SUBMITTED THAT AND DESPITE THE FACT THAT AS-7 WAS IN EXISTENCE WHEN TH E AFORESAID NOTIFICATION WAS ISSUED, SAME WAS NOT NOTIFIED BY THE CENTRAL GO VERNMENT FOR THE PURPOSE OF SECTION 145(2) OF THE ACT, AS SUCH, SUCH AN ACCOUNTING STANDARD CANNOT BE HELD TO BE BINDING FOR THE PURPOSE OF SEC TION 145 OF THE ACT AND AS SUCH THE FINDING OF THE LEARNED AO THAT AS-7 IS MANDATORY FROM 01.04.2003 IS LEGALLY MISCONCEIVED. IN FACT IN THE CASE OF PARAS BUILDTECH INDIA PRIVATE LIMITED (SUPRA), HONBLE HI GH COURT HAS HELD THAT AS-7 OF THE ICAI DID NOT HAVE ANY STATUTORY RE COGNITION UNDER THE INCOME TAX ACT, 1961 ALTHOUGH IT WAS BINDING UNDER THE COMPANIES ACT, 1956. 8.7 IT IS MOST HUMBLY SUBMITTED THAT EVEN OTHERWISE IF PROVISIONS OF ASH IS READ HOLISTIC ALLY, IT WOULD BE SEEN THAT AS-7 CANN OT BE APPLIED IN CASE OF REAL ESTATE DEVELOPER AS ASH IS APPLICABLE ONLY IN THE CASE OF CONSTRUCTION CONTRACTOR IN WHOSE CASE THE ESTIMATED COST OF PROJ ECT IS ESTIMATED WITH REASONABLE CERTAINTY EVEN AT THE START OF CONSTRUCT ION AND. REVENUE OF THE CONSTRUCTION IS ALSO PREDETERMINED AT THE VERY STAR T OF THE CONSTRUCTION WHEREAS IN THE CASE OF REAL ESTATE DEVELOPER BOTH T HE COMPONENTS CANNOT BE DETERMINED TILL THE UNIT IS ULTIMATELY SOLD TO T HE ULTIMATE CUSTOMER. THAT AS-7 DEFINES THE CONTRACT REVENUE AS UNDER: 10.CONTRACT REVENUE SHOULD COMPRISE: (A) THE INITIAL AMOUNT OF REVENUE AGREED IN THE CON TRACT; AND (B) VARIATIONS IN CONTRACT WORK, CLAIMS AND INCENTI VE PAYMENTS: (I) TO THE EXTENT THAT IT IS PROBABLE THAT THEY WIL L RESULT IN REVENUE; AND (II) THEY ARE CAPABLE OF BEING RELIABLY MEASURED. 8.8 IT IS SUBMITTED THAT IN THE CASE OF REAL ESTATE DEVELOPER, CONTRACT REVENUE IS NOT DETERMINED AT THE START OF DEVELOPME NT OF REAL ESTATE PROJECT. AS SUCH, IN THE CASE OF REAL ESTATE DEVELOPER, NEIT HER THE OUTCOME OF A UNITS/SPACES CAN BE ESTIMATED RELIABLY NOR THE COST ASSOCIATED WITH THE SAME CAN BE ESTIMATED WITH REASONABLE CERTAINTY, HE NCE CONTRACT REVENUE AND CONTRACT COSTS ASSOCIATED WITH THE CONSTRUCTION CONTRACT CANNOT BE RECOGNIZED AS REVENUE AND EXPENSES RESPECTIVELY BY REFERENCE TO THE STAGE OF COMPLETION OF THE CONTRACT ACTIVITY AT THE REPOR TING DATE. IT IS SUBMITTED THAT ASSESSEE RECOGNIZES ITS INCOME ON THE BASIS OF CONSIDERATION RECEIVED IN RESPECT OF THE SALES MADE IN RESPECT OF AREA SOL D AND COMPUTES ITS INCOME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145(1) OF THE ACT. IT IS SUBMITTED THAT IN THE CASE OF THE APPELLANT SINCE I T IS SELLING THE FLATS DEVELOPED/CONSTRUCTED BY IT AS SUCH, IN THE CASE OF THE APPELLANT REVENUE CAN BE RECOGNIZED ONLY WHEN THE REGISTERED SALE DEE D IS EXECUTED AS IN THE CASE OF SALE OF FLATS ALL SIGNIFICANT RISKS AND REW ARDS OF OWNERSHIP ARE TRANSFERRED TO THE BUYER AND THE APPELLANT RETAINS NO EFFECTIVE CONTROL ON THE FLATS TRANSFERRED TO A DEGREE USUALLY ASSOCIATE D WITH OWNERSHIP, ONLY WHEN THE SALE DEED IS EXECUTED, AS SUCH, METHOD OF RECOGNIZING REVENUE BY THE APPELLANT IS PERFECTLY VALID AND SAME DOES N OT REQUIRE ANY INTERFERENCE, AND HENCE APPROACH OF THE LEARNED AO IN APPLYING AS-7 IS LIABLE TO BE REJECTED. 11. IN VIEW OF THE ABOVE, IT IS EVIDENT THAT ACCOUN TING STANDARD AS- 7 RELIED UPON BY THE ASSESSING OFFICER IS APPLICABL E STRICTLY IN THE CASE OF CONSTRUCTION CONTRACTS ONLY. 12. FURTHER , THE LD. CIT(A) HAS FOLLOWED BINDING P RECEDENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PARAS BUIL DTECH INDIA PRIVATE LIMITED (SUPRA);SABH INFRASTRUCTURE LTD (SU PRA) AND MANISH BUILDWELL P. LTD (SUPRA). FURTHER, THE ASSESSEE IS FOLLOWING CONSISTENTLY THIS METHOD OF REVENUE RECOGNITION IN PRIOR YEARS AS WELL AS IN SUBSEQUENT YEARS AND WHICH HAS BEEN ACCE PTED BY THE REVENUE AND THUS RULE OF CONSISTENCY ALSO DEMAND TH AT IN THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER IS NOT JU STIFIED IN DEVIATING THE CONSISTENT APPROACH OF THE DEPARTMENT. IN VIEW OF ABOVE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) O N THE ISSUE IN DISPUTE AND ACCORDINGLY WE UPHOLD THE SAME. THE GRO UNDS OF THE APPEAL OF THE REVENUE ARE ACCORDINGLY DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2021. SD/- SD/- (KUL BHARAT) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:21.10.2021 *NEHA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI SL. NO. PARTICULARS DATE 1. DATE OF DICTATION : 21.10.2021 2. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFOR E THE DICTATING MEMBER: 21.10.2021 3. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFOR E THE OTHER MEMBER: 21.10.2021 4. DATE ON WHICH THE APPROVED DRAFT OF ORDER COMES TO THE SR. PS/PS: 21.10.2021 5. DATE OF WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 21.10.2021 6. DATE ON WHICH THE FINAL ORDER RECEIVED AFTER HAV ING BEEN SINGED/PRONOUNCED BY THE MEMBERS: 21.10.2021 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON TH E WEBSITE OF ITAT: 21.10.2021 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 1.10.2021 9. DATE ON WHICH FILES GOES TO THE HEAD CLERK: 10. DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER: 11. DATE OF DISPATCH OF ORDER: