HAWARE INFRASTRUCTURE PVT. LTD., NAVI MUMBAI V. A.C.I.T.-10(3), MUMBAI

ITA 2642/MUM/2012

• Counselvise Citation: 264219914 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 25-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 19-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: J P BAIRAGRA
• Keywords: Reasonable cause
• Section: 145

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. . .. . ! ! ! ! , '#$% '#$% '#$% '#$% #&'() #&'() #&'() #&'() , '# '# '# '# *+ *+ *+ *+ BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ././ ./ ITA NO.2642/MUM/2012 , ! # ! # ! # ! # - - - -/ // / ASSESSMENT YEAR-2009-10 HAWARE INFRASTRUCTURE PVT. LTD. 413/416, VARDHAMAN MARKET, SECTOR-17, DCB, VASHI NAVI MUMBAI- 400705 VS. ASST. COMMISSIONER OF INCOME TAX- 8(1), AAYAKAR BHAVAN, M.K.ROAD. MUMBAI- 400 020 PAN: AABCH3852R ( #./ / // / APPELLANT ) ( 01./ / RESPONDENT ) #./ #./ #./ #./ 2 2 2 2 ' '' ' / APPELLANT BY : S HRI J.P.BAIRAGRA 01./ 3 2 ' / RESPONDENT BY : SHRI PITAMBAR DAS !# !# !# !# 3 33 3 4# 4# 4# 4# / DATE OF HEARING : 25/09/2013 5- # 3 4# / DATE OF PRONOUNCEMENT : 04/10/2013 ! ! ! ! , 1961 3 33 3 ## ## ## ## 254(1) ' '' ' (464 (464 (464 (464 *'7 *'7 *'7 *'7 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M: CHALLENGING THE ORDER DT.07-03-2012 OF THE CIT(A)-2 2, MUMBAI ASSESSEE-COMPANY HAS FILED FOLLOWING GROUNDS OF APPEAL: ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMM ISSIONER OF INCOME- TAX (APPEALS),(CIT (A)) HAS ERRED IN: 1.REJECTING THE PROJECT COMPLETION METHOD OF ACCOUNTING WHICH H AS BEEN REGULARLY FOLLOWED BY THE APPELLANT IN THE PAST. THE APPELLANT IS A BUILDERS AND DEVELOPE R, AS PER THE REVISED ACCOUNTING STANDARD - 9(AS-9)(WHICH IS MADE MANDATORY BY THE INSTITUTE OF CHARTER ED ACCOUNTANTS TO BUILDERS AND DEVELOPERS) THE APPELLANT HAD CORRECTLY DETERMINED ITS INCOME AT RS.79,04,2 22/-. 2.INCORRECTLY INTERPRETING THE REVISED ACCOUNTING STANDAR D-9.IN DOING SO THE CIT (A) HAS ERRED IN HOLDING THAT AN ONCE AN AGREEMENT FOR SALE IN RESPECT OF A FLAT OR UNIT IN A BUILDING HAS BEEN ENTERED INTO BY THE APPELLANT WITH THE BUYER, ALL THE SIGNIFICANT RISK OR REWARD OF OWNER SHIP OF A UNIT /FLAT STAND TRANSFERRED BY THE APPELLANT IN FAVOUR OF THE BUYER, WITHOUT WAITING FOR THE E VENT REGARDING COMPLETION OF THE BUILDING IN WHICH THE UNIT /FLAT IS LOCATED. 3.ESTIMATING THE BUSINESS PROFITS OF THE APPELLANT AT RS.1,4 3,08,100/- BY ADOPTING THE PERCENTAGE COMPLETION METHOD. IN DOING SO THE CIT (A) HAS ERRED IN APPLYI NG THE PROVISIONS OF THE REVISED ACCOUNTING STANDARD (AS)-7, WHICH IS APPLICABLE TO CONSTRUCTION CONTRACTORS AND NOT TO BUILDERS AND DEVELOPERS. THE APPELLANT RESERVES ITS RIGHT TO ADD TO, ALTER, AMEND, MODI FY OR DELETE ANY OF THE GROUNDS TAKEN IN THIS APPEAL. THE GROUNDS TAKEN IN THIS APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF BUILDER S,DEVELOPERS AND CIVIL CONSTRUCTION, FILED ITS RETURN OF INCOME ON 27.09.2009 DECLARING TOTAL INCOME AT RS. 79.04 LACS.ASSESSMENT WAS FINALISED BY THE ASSESSING OFFICER(AO),ON 31.12.201 1,DETERMINING THE INCOME OF THE ASSESSEE AT RS. 2.29 CRORES. 2. THOUGH THERE ARE THREE GROUNDS OF APPEAL,BUT THE EF FECTIVE GROUND OF APPEAL IS ABOUT ADOPTING OF PERCENTAGE OF COMPLETION METHOD(PCM)BY THE AO FO R DETERMINING THE TAX LIABILITY OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION.DURING TH E ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD SOLD A,B,C AND D WINGS OF PROJECT INDR APRASTHA AT GOREGAON AND HAD CARRIED FORWARD UNSOLD STOCK,THAT IT HAD CLAIMED THAT MULTI PLEX FANTASIA AT VASHI WAS UNDER CONSTRUCTION ,THAT IT HAD NOT OFFERED ANY INCOME UNDER THE HEAD WORK-IN-PROGRESS(WIP).AO NOTED THAT BOOKING ADVANCES SHOWN IN THE BALANCE-SHEET IN RESP ECT OF THESE PROJECTS WERE MORE THAN THE STOCK AND WIP,THAT IN THE PREVIOUS ASSESSMENT YEAR, I.E.2008-09,ASSESSEES CLAIM OF FOLLOWING 2 ITA NO. 2642/MUM/2012(AY-2008-09) HAWARE INFRASTRUC TURE PVT. LTD PCM WAS REJECTED BY THE AO.AO HELD THAT ASSESSEE HA D TAKEN RECOURSE TO AS-9 FOR RECOGNITION OF ITS PROJECT, THAT WHEN THE RISK OF OWNERSHIP WAS TRANSFERRED TO THE CUSTOMER ASSESSEE COULD NOT PRESENT ITS ACCOUNTS AS PER AS-9,THAT IT HAD DEFERR ED THE TAX LIABILITY OF RS. 2.89 CRORES, THAT IT HAD SHOWN BOOKING ADVANCES AMOUNTING TO RS. 2,89,28 ,599/- IN THE BALANCE-SHEET FOR THE YEAR UNDER CONSIDERATION.AFTER DISCUSSING THE PROVISIONS OF AS-7 AND RELYING UPON THE JUDGMENTS OF SUKHDEV JALAN(26ITR617),UTTAM SINGH DUGGAL & CO. P. LTD.(127ITR2),DURGA PRASAD MORE (82ITR540)SUMATI DAYAL(214ITR80),NANDRAM HUNTRAM (1 03 ITR 433),HE HELD THAT CLAIM MADE BY THE ASSESSEE COULD NOT BE ACCEPTED. 2.1 . ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY(FAA). FOLLOWING HIS OWN ORDER FOR THE AY 2008-09,HELD THAT AO RIGHTLY ESTIM ATED THE PROFIT OF RS. 1.43 CRORES. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT H BENCH OF MUMBAI ITA, WHILE DECIDING THE APPEAL FOR THE AY 2007-08 IN ASSESSEE S OWN (ITA NO. 8673/MUM/2010 AND 815/ MUM/2012-DATED12.04.2013),HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE.DEPARTMENTAL REPRESENTATIVE(DR)RELIED UPON THE ORDER OF THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. IT IS FOUND THAT WHILE DECIDING THE ISSUE OF PCM,FOR THE YEAR 2007-0 8,TRIBUNAL HAD OBSERVED AS UNDER: 13.WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. R EPRESENTATIVE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW.WE HAVE ALSO CAREFULLY CONSIDERED THE GUIDANCE NOTES ISSUED BY ICAI AS WELL AS ACCOUNTING STANDARDS VIZ AS-7&9 IN THE LIGHT OF PROVISION OF SECTION 145 OF IN COME TAX ACT. 14.THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE IS FOLLOWING PROJ ECT COMPLETION METHOD WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE PAST. FURTHER ASSESSEE IS A BUILDER AND DEVELOPER AND IN SUCH A CASE PROJECT COMPLETION METHOD IS ACCEPTED METHOD OF ACCOUNTING. AS-7 AS DISCUSSED BY THE ASSESSING OFFICER AND LD. CIT (A) IN THEIR RESPECTIVE ORDERS ARE APPLICABLE ONLY IN CASE OF CONTRACTORS WHO ARE ENGAGED IN THE CIVIL CONSTRUCTION BUSINESS AND IT DOES NOT APPLY TO BUILDER & DEVELOPER.WE AGREE WITH LD. DR THAT BOTH PROJECT COMPLETION METHOD AND PERCENTAGE COMPLETION METHOD ARE RECOGNIZED METHODS TO ASSESS CORRECT IN COME OF AN ASSESSEE UNDER THE INCOME TAX ACT 1961.HOWEVER,THE CHOICE OF METHOD OF ACCOUNTING, LIES WITH THE ASSES SEE. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE CAN FOLLOW ANY RECOGNIZED METHOD OF ACCOUNTING AND THE C ONDITION IS THAT THE SAME METHOD HAS TO BE FOLLOWED CONSISTENTLY.IT IS NOT OPEN TO THE ASSESSING OFFI CER TO CHANGE HIS OWN OPINION OR CHANGE THE METHOD OF ACCOUNTING ONLY BECAUSE HE FINDS ANOTHER METHOD OF ACCOUNTING BETTER THAN THE ONE ADOPTED REGULARLY BY THE ASSESSEE AND THEREAFTER SUBSTITUTE THE SAME WITH ANOTHER METH OD OF ACCOUNTING WITHOUT ANY JUST AND REASONABLE CAUSE.WE ARE OF THE CONSIDERED VIEW THAT THE REVENUE HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE METHOD OF ACCOUNTING PROVIDED UNDER SUB SECTION (1) OR ACCOUNTING STANDARD NOTI FIED UNDER SUBSECTION (2) OF SECTION 145 OF THE ACT HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. TH E REAL ESTATE DEVELOPER IS NOT A PURE CONTRACTOR BUT IS A SELLER OF FLATS/ GOODS. IT IS NOT MANDATORY FOR A REAL ESTATE DE VELOPER TO FOLLOW PERCENTAGE COMPLETION METHOD AS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA UN DER AS-7. THE HONBLE APEX COURT HAD AN OCCASION TO CONSIDER THE PERCENTAGE OF COMPLETION METHOD AND COMPLETED PROJECT METHOD IN THE CASE OF CIT VS BILAHARI PVT. LTD. 299 ITR (1) (SC). IN THIS JUDGMENT IT HAS TAKEN A VIEW T HAT 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 COMPLETION CONTRACT METHOD IS ONE OF SUCH METHODS.UNDER THE COMPLETED CONTRACT METHOD, THE REVENUE IS NOT RECOGNIZED UNTIL THE CONT RACT IS COMPLETED. UNDER THE SAID METHOD, COSTS ARE ACCUMULATED DURING THE COURSE OF THE CONTRACT.THE PROFIT AND L OSS IS ESTABLISHED IN THE LAST ACCOUNTING PERIOD AND TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT.THE SAID METHOD DETERMI NES RESULTS ONLY WHEN THE CONTRACT IS COMPLETED. THE METHOD LEADS TO OBJECTIVE ASSESSMENT OF THE RESULTS OF T HE 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 AS DETERMINED BY REF ERENCE TO THE STAGE OF COMPLETION AND CAN BE LOOKED AT LFLDER THIS METHOD BY TAKING INTO CONSIDERATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT. 15.THE HONBLE DELHI HIGH COURT WHILE DEALING WITH THE SIMILAR SITUA TION IN THE CASE OF CIT VS. MANISH BUILDWELL PVT. LTD. IN ITA NO. 928/2011 DATED 15.11,2011 HELD THAT AFTE R THE ABOVE JUDGMENT OF SUPREME COURT IN CIT VS. BILAHARI INVESTMENT PVT. LTD.,299 ITR 1 IT CANNOT BE SAID T HAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE WOULD RESULT IN DEFERMENT OF THE PAYMENT OF TAXES WHICH ARE TO BE ASSESSED ANNUALLY UNDER THE INCOME-TAX ACT. ACCOUNTING STANDARD AS-7 ISSUED BY THE INSTITUTE OF CHARTE RED ACCOUNTANTS OF INDIA ALSO RECOGNIZE THE POSITION THAT IN THE CASE OF CONSTRUCTION CONTRACTS, THE ASSESSEE C AN FOLLOW EITHER THE PROJECT COMPLETION METHOD OR THE PERCENTAGE COMPLETION METHOD. IN VIEW OF THE JUDGMENTS OF THE SUPRE ME COURT (SUPRA), THE FINDINGS OF CIT (A), UPHELD BY THE TRIBUNAL DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUE STION OF LAW, FURTHER, THE TRIBUNAL HAS ALSO FOUND THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE ASSESSING O FFICER TO ADOPT THE PERCENTAGE COMPLETION METHOD FOR ONE YEAR ON SELECTIVE BASIS. THIS WILL DISTORT THE TRUE PROFI TS AND GAINS OF BUSINESS. 16.WE ALSO OBSERVE THAT THE CO-ORDINATE BENCH ITAT MUMBAI IN THE CASE OF SISTER CONCERN OF THE ASSESSEE IN HAWARE CONSTRUCTION PVT. LTD. (SUPRA), AFTER CONSIDERING VARIOUS DEC ISIONS OF CO-ORDINATE BENCHES OF ITAT ON 3 ITA NO. 2642/MUM/2012(AY-2008-09) HAWARE INFRASTRUC TURE PVT. LTD SIMILAR FACTS HAS HELD THAT THE ASSESSEE HAS TO CONSTRUCT THE COMPLETE BUILDING AS PER SPECIFICATION OVER A PERIOD OF TIME AND RECEIVE THE PURCHASE CONSIDERATION FROM TIME TO TIM E FROM THE PURCHASERS AND HAND OVER THE POSSESSION OF THE BUILDING WHEN THE BUILDING IS FULLY COMPLETED, OCCUPANCY CERTIFICATE IS RECEIVED AND IT IS ONLY AT THAT TIME THE RISKS AND REWARDS ARE TRANSFERRED TO THE PURCHASER. THE TRI BUNAL HAS HELD THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE IS IN ORDER AND THE ACTION OF THE DEPARTMENT TO REJECT THE SAME AND TO ESTIMATE THE INCOM E BY APPLYING PROJECT PERCENTAGE COMPLETION METHOD IS NOT JUSTI FIED. 17.IN VIEW OF THE ABOVE AND CONSIDERING THE ENTIRE CONSPECTUS OF THE CASE, WE HOLD THAT THE ASSESSING AUTHORITY CANNOT CHANGE THE METHOD, REGULARLY ADOPTED BY THE ASSESSEE FORM PROJECT COMPLETION METHOD TO PERCENTAGE COMPLETION METHOD AND TO ESTIMATE THE PROFITS. HENCE WE DELETE THE ADDITIONS MADE BY THE ASSESSING OFFICER FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION BY ALLOWING THE GROUN DS OF APPEALS TAKEN BY THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME,WE HOLD THAT METHOD OF ACCOUNTING (PCM)FOLLOWED BY THE ASSESSEE FOR THE YEAR CONSIDERATION COULD NOT BE RE JECTED BY THE AO.THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE-COMPANY. AS A RESULT APPEAL FILED BY THE ASSESSEE IS STANDS ALLOWED. 8 #+9 ! #84 :## *#; +<4 3  =. ORDER PRONOUNCED IN THE O PEN COURT ON 4 TH OCTOBER, 2013 *'7 3 5- # ' (## > ?*!# 4, VDVQ 2013 3 6@ ( . ! ! ! ! / D. MANMOHAN ) ( #&'() #&'() #&'() #&'() / RAJENDRA) '#$% '#$% '#$% '#$% / VICE-PRESIDENT '# '# '# '# *+ *+ *+ *+ /ACCOUNTANT MEMBER / MUMBAI, ?*!# /DATE: 04.10 . 2013 SK *'7 *'7 *'7 *'7 3 33 3 04A 04A 04A 04A B'A-4 B'A-4 B'A-4 B'A-4 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #./ 2. RESPONDENT / 01./ 3. THE CONCERNED CIT(A)/ C D , 4. THE CONCERNED CIT / C D 5. DR H BENCH, ITAT, MUMBAI / AE#6 04! , . . (## . 6. GUARD FILE/ 6# F# 1#A4 04 //TRUE COPY// *'7#!# / BY ORDER, ' / # &# DY./ASST. REGISTRAR , /ITAT, MUMBAI