M/s. West Coast Landbase Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 4167/DEL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5277 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 19-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 28-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TEWARI
• Assessee Lawyers: ABHIMANYU JHAMBA
• Keywords: Cost of acquisition
• Section: 133(6); 145; 68

Judgement Text

ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI N.K. SAINI, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 4167/DEL/2016 ASSESSMENT YEAR: 2011-12 WEST COAST LANDBASE PVT. LTD., VS INCOME TAX OFFICER, A_68, SHIVALIK, WARD 18(3), MALVIYA NAGAR, NEW DELHI. NEW DELHI-110017 (PAN: AAACW6160C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ABHIMANYU JHAMBA, ADVO CATE RESPONDENT BY : SHRI K. TEWARI, SR. DR DATE OF HEARING: 25.07.2018 DATE OF PRONOUNCEMENT: 23.10.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER DATED 31.05.2016 PASSED BY THE LD. CIT (APPEALS)-22 , NEW DELHI FOR ASSESSMENT YEAR 2011-12. 2.0 BRIEF FACTS OF THE CASE ARE THAT DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF DEVELOPMENT AND SALES OF PLOTS IN RIVERDALE TOURISM VILLAGE IN THE SINDHUDURG DISTRICT OF MAHARASHTRA. THERE WERE TWO CONCERNS OF THE ASSESSEE GROUP: (A) WEST COAST LAND BASE PVT. LTD I.E. THE ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 2 ASSESEEE AND (B) WEST COST LAND BASE CONSTRUCTION P VT. LTD. BOTH THE CONCERNS WERE CONNECTED WITH DIFFERENT ASP ECTS OF THE PROJECT. THE ASSESSEE COMPANY WAS INCORPORATED OF 2 1.12.2005, WHILE M/S WEST COAST LAND BASE CONSTRUCTION PVT. LT D WAS INCORPORATED ON 21.06.2006. THE PROJECT INVOLVED CO NSTRUCTION AND DEVELOPMENT OF TOURISM VILLAGE POPULARLY KNOWN AS RIVERDANE KINLEY SPREAD ON APPROXIMATELY 300 ACRES OF LAND WITH INDIVIDUAL VILLAS, CLUB HOUSE, BOUTIQUE HALL, MOVIE THEATRE, JOGGING TRACK, SWIMMING POOL, LAKE ETC., SITUATED C LOSE TO THE BEACH . 2.1 THE ASSESSEE FOLLOWED A METHOD OF ACCOUNTING IN WHICH THE SALE PROCEEDS WERE CREDITED TO THE PROFIT & LOSS AC COUNT ONLY IN THE YEAR IN WHICH THE REGISTERED SALE DEED WAS EXEC UTED. AS A RESULT, IN MANY CASES, ALTHOUGH THE ASSESSEE HAD RE CEIVED FULL SALE CONSIDERATION, THE CORRESPONDING SALES WERE NO T CREDITED IN THE PROFIT & LOSS ACCOUNT AND THE AMOUNT WAS CARRIE D FORWARD AS LIABILITY TILL THE REGISTERED SALE DEED WAS EXECUTE D. IN THE YEAR OF EXECUTION OF REGISTERED SALE DEED, THE CORRESPONDIN G COST OF THE PLOT WAS REDUCED FROM THE CLOSING STOCK AND SALE PR OCEEDS WERE CREDITED. FOR THE PURPOSE OF COMPUTING THE COST OF PLOT, THE AVERAGE VALUE OF PLOTS WAS TAKEN AFTER DULY TAKING INTO ACCOUNT ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 3 THE DEVELOPMENT COST ALSO. THE AVERAGE STOCK VALUE WORKED OUT IN THIS MANNER WAS THEN MULTIPLIED BY THE AREA OF PLOT S FOR WHICH REGISTERED SALE DEEDS WERE EXECUTED DURING THE YEAR AND THE CORRESPONDING STOCK VALUE WAS REDUCED FROM THE CLOS ING STOCK WHILE THE CORRESPONDING SALE PROCEEDS WERE CREDITED IN THE PROFIT & LOSS ACCOUNT. 2.2 DURING THE YEAR UNDER CONSIDERATION, THE RETURN OF INCOME WAS FILED DECLARING AN INCOME OF RS. 4,79,332/-. TH E TOTAL SALE PROCEEDS CREDITED TO THE PROFIT & LOSS ACCOUNT WERE RS. 44,57,500/-. AFTER ADDING THE EXTRA RECEIPTS ON ACC OUNTS OF DEVELOPMENT CHARGES, MAINTENANCE CHARGES, POWER CON NECTION CHARGES AND WATER CHARGES , THE TOTAL RECEIPTS FROM OPERATIONS WERE SHOWN AT RS. 49,13,984/- BESIDES INTEREST RECE IPTS ON FDRS OF RS. 1,02,584/-. THE NET PROFIT AS PER PROFIT & L OSS ACCOUNT WAS BEEN SHOWN AT RS. 3,63,933/-. THE CLOSING STOCK WAS SHOWN AT RS. 2.8 CORES, WHILE THE PURCHASE COST OF LAND WAS SHOWN AT RS. 2.44 CRORES. THE ADVANCE/S FROM CUSTOMERS WAS SHOWN AT RS. 5.04 CRORES AS AGAINST THE OPENING BALANCE OF RS. 4 .43 CRORES. DURING THE RELEVANT YEAR, THE TOTAL AMOUNT RECEIVED FROM CUSTOMERS WAS RS. 75,50,180/-. THIS AMOUNT WAS RECE IVED FROM EIGHT PERSONS. THE AO ISSUED NOTICES U/S 133(6) TO ALL THE EIGHT ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 4 PERSONS. HOWEVER, IN TWO CASES THE LETTERS WERE REC EIVED BACK UN- SERVED OR NO REPLY WAS RECEIVED. THE AMOUNTS RECEIV ED FROM THESE TWO PERSONS TOTALED TO RS. 24,86,000/- AND THE AO A SKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THIS AMOUNT SHOULD NOT BE ADDED TO THE ASSESSEES INCOME. IN RESPONSE, THE AS SESSEE FILED CONFIRMATIONS FROM THESE TWO PERSONS. THE AO HELD T HAT MERE FILING OF CONFIRMATION WAS NOT SUFFICIENT. IN THIS BACKGROUND, THE AO MADE AN ADDITION OF RS. 24,86,000/- U/S 68 OF TH E ACT AND THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 29 ,82,033/-. 2.3 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE LEARNED FIRST APPELLATE AUTHORITY. HOWEVER, THE LD . CIT(A) WHILE ALLOWING THE ASSESSEES APPEAL BY DELETING THE ADDI TION MADE U/S 68 ENHANCED THE ASSESSEES APPEAL BY RS. 1,27,07,33 6/- BY INVOKING PROVISIONS OF SECTION 251(1)(A) OF THE ACT . THIS ENHANCEMENT WAS ARRIVED AT BY CALCULATING THE GROSS PROFIT WHICH WAS EARNED ON THE SALE PROCEEDS OF RS. 1,53,91,253 /- PERTAINING TO SALE OF EIGHT PLOTS THE SALE OF WHICH WERE CREDI TED TO THE PROFIT/LOSS ACCOUNT IN SUBSEQUENT ASSESSMENT YEARS. THIS ENHANCEMENT WAS MADE ON THE GROUND THAT ALTHOUGH 10 0% ADVANCE HAD BEEN RECEIVED FROM THESE EIGHT PERSONS DURING THE YEAR, THE SALES HAD NOT BEEN RECOGNIZED. THE LD. CI T (A) WAS OF ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 5 THE VIEW THAT THIS POSTPONED THE COLLECTION OF TAX LIABILITY AND ALSO INCREASED THE AVERAGE COST OF LAND PUSHING UP THE C OST OF CLOSING STOCK. 2.4 NOW, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) [HEREINAFTER REFERRED TO AS THE LD. CIT(A)] HAS G ROSSLY ERRED IN ARBITRARILY ENHANCING THE INCOME OF THE AP PELLANT BY WRONGLY INVOKING SECTION 251(1)(A) OF THE INCOME TAX ACT, 1961 BY RS 1,27,07,336. 1.1 THAT IN DOING SO, THE LD. CIT (A) HAS EXCEEDED HIS AUTHORITY BY TRAVELLING TO THE ASSESSMENT YEARS BEY OND THE ASSESSMENT YEAR IN QUESTION. 2 THAT THE LD. CIT (A) HAS ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN REJECTING T HE BOOKS OF ACCOUNTS OF THE APPELLANT U/S 145(3) OF TH E INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT'). 2.1 THAT IN DOING SO, THE LD. CIT (A) HAS FAILED T O APPRECIATE THAT IT IS NOT OPEN TO REJECT THE BOOKS OF ACCOUNTS UNLESS THE ADJUDICATORY AUTHORITY COMES TO A DETERMINATION THAT THE NOTIFIED ACCOUNTING STANDARD S HAVE NOT BEEN REGULARLY FOLLOWED. 2.2 THAT IN DOING SO, THE LD. CIT (A) HAS FAILED TO APPRECIATE THE LETTER AND INTENT OF SECTION 145(1) OF THE ACT AND HAS EMPLOYED THE SECTION IRREGULARLY. 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS FAILED TO APPRECIAT E THAT THE APPELLANT HAD BEEN CONSISTENTLY FOLLOWING THE M ETHOD OF ACCOUNTING OF RECOGNIZING THE REVENUES ON THE COMPLETION OF THE PROJECT I.E. ON REGISTRATION OF T HE SALE DEEDS EVER SINCE ITS INCORPORATION AND SUCH METHOD OF ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 6 ACCOUNTING WAS NOT CHALLENGED BY THE REVENUE IN ANY OF THE EARLIER YEARS. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) FAILED TO APPRECIATE THAT T HERE WAS NO TRANSFER IN AS MUCH AS NOT ONLY THE SALE DEED WA S EXECUTED BUT NOT EVEN PHYSICAL POSSESSION OF THE PR OPERTY WAS GIVEN. 3.3 THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THE BUSINESS MODEL OF THE APPELLANT THAT THE LANDS WERE PURCHASED BY THE APPELLANT IN ITS OWN NAME AND WERE HELD AS STOCK IN TRADE TILL THE REGISTRATION WAS EF FECTED. THE LD. CIT (A) HAS MISCONSTRUED THE TERMS OF THE DEVELOPER AGREEMENT WHILE PASSING THE IMPUGNED ORDE R. 4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN NOT APPRECIATING THAT THE APPELLANT REGULARLY FOLLOWED AND RECOGNIZED REVENUE S IN TERMS OF ACCOUNTING STANDARD 9 ISSUED BY THE INSTIT UTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH RECOGNIZES THE REVENUE AS AND WHEN SIGNIFICANT RISK AND REWARD OF OWNERSHIP/TITLE IS TRANSFERRED. 5 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN MAKING THE ADDITION OF RS. 1,27,07,336 WITHOUT APPRECIATING THAT THE ENTIRE EX ERCISE WAS REVENUE NEUTRAL AND THAT THE DISPUTE RAISED IS ACADEMIC. 6 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT THE SALE WOULD BE TREATED AS COMPLETED AND WOULD BE SUBJECT TO TAX WHEN THE ENTIRE SALE CONSIDERATION IS RECEIVED IRRE SPECTIVE OF THE FACT THAT THE SALE DEED IS NOT REGISTERED. T HIS HAS BEEN SO DONE WITHOUT ANY COGENT BASIS OR REASONING. 7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) DID NOT APPRECIATE THAT THE DELAY IS GETTIN G THE SALE DEED REGISTERED WAS ATTRIBUTABLE TO THE BUYERS AND WAS NOT ATTRIBUTABLE TO THE APPELLANT. ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 7 THE ABOVEMENTIONED GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 3.0 THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE SAME ACCOUNTING METHOD OVER THE YEARS SINCE THE YEAR 2005 WHEN THE COMPANY WAS INCORPORATED AND FURTHER THAT THE DEPARTMENT HAS BEEN ACCEPTING THE METHOD OF ACCOUNT ING FOLLOWED BY THE ASSESSEE AND HAD NOT DISTURBED THE FINANCIAL RESULTS IN EARLIER ASSESSMENT YEARS. IT WAS SUBMITTED THAT TH E LD. CIT (A) HAD ERRED IN ENHANCING THE ASSESSEES INCOME BY INC LUDING THE ADVANCES RECEIVED FROM CUSTOMERS WHILE DELETING ADD ITION MADE U/S 68 OF THE ACT BY THE ASSESSING OFFICER. THE LD . AR FURTHER SUBMITTED THAT THE METHOD OF ACCOUNTING BEING FOLLO WED BY THE ASSESSEE WAS CORRECT INASMUCH AS SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 WAS AMENDED WITH THE EFFECT THAT NOW THE TRANSFER OF IMMOVEABLE PROPERTY IS COMPLETE ONLY WH EN THE SALE DEED STANDS EXECUTED. IT WAS SUBMITTED THAT IN ALL THESE EIGHT CASES WHEN THE SALE DEEDS HAD BEEN EXECUTED, THE AS SESSEE HAD DULY TAKEN THE CORRESPONDING RECEIPTS/ADVANCES AS I NCOME IN THE PROFIT & LOSS ACCOUNT. THE LD. AR ALSO DREW ATTENT ION TO THE AMENDMENT MADE TO THE REGISTRATION ACT, 1908 WHEREI N CLAUSE 1(A) HAS BEEN INSERTED W.E.F. 2001 TO SECTION 17 AND WHE REIN IT HAS BEEN SPECIFIED THAT UNREGISTERED DOCUMENTS FOR THE PURPOSE OF SALE ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 8 AND PURCHASE OF IMMOVEABLE PROPERTY SHALL HAVE NO E FFECT FOR THE PURPOSE OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882. IT WAS SUBMITTED THAT THE REVENUE RECOGNITION BY THE A SSESSEE WAS, THEREFORE, IN LIGHT OF THE PROVISIONS OF TRANSFER O F PROPERTY ACT, AS WELL AS REGISTRATION ACT, AND FURTHER THAT THE ASSE SSEE HAD BEEN FOLLOWING THE PRACTICE OF SHOWING THE AMOUNTS RECEI VED FROM THE CUSTOMERS AS ADVANCES TILL THE EXECUTION OF SALE DE ED AND TREATING THEM AS INCOME IN THE YEAR IN WHICH THE SALE DEED W AS EXECUTED. HE ALSO DREW OUR ATTENTION PARA 26 OF THE DEVELOPER -BUYER AGREEMENT PLACED AT PAGES 22 AND 23 OF THE PAPER BO OK WHEREIN IT HAS BEEN MENTIONED THAT THE TITLE TO THE PROPERTY W AS TO PASS ONLY WHEN THE SALE DEED WAS REGISTERED. IT WAS ALSO SUB MITTED THAT IT IS NOT THE CASE OF THE DEPARTMENT THAT THE POSSESSION WAS GIVEN TO THE BUYERS BUT THE SALE DEED WAS NOT REGISTERED. R ELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. BALBIR SINGH MAINI IN CIVIL APPEAL NO. 1561 9 OF 2017 REPORTED IN WWW.ITATONLINE.ORG WHEREIN IT HAS BEEN HELD THAT THE EFFECT OF AMENDMENT TO SECTION 17 OF THE REGISTRATI ON ACT, 1908 WAS THAT AFTER THE COMMENCEMENT OF THE AMENDMENT AC T, 2001, IN ABSENCE OF ANY REGISTERED AGREEMENT, THERE WOULD BE NO TRANSFER IN TERMS OF SECTION 53A OF TRANSFER OF PROPERTY ACT, 1882. ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 9 4.0 IN RESPONSE, THE LD. SR. DR PLACED EXTENSIVE RE LIANCE ON THE ORDER OF THE LD. CIT (A) AND ALSO SUBMITTED THAT IN THE CASE OF THE ASSESSEE, IT WAS AN UNDISPUTED FACT THAT THE CUSTOM ERS HAD GIVEN 100% OF THE SALE CONSIDERATION AND NO AMOUNT WAS DU E FROM THEM BUT STILL THE ASSESSEE HAD TREATED THE AMOUNT RECEI VED AS ADVANCE RECEIVED INSTEAD OF TREATING THE SAME AS INCOME. IT WAS SUBMITTED THAT THE ENHANCEMENT DESERVED TO BE UPHELD. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ALTHOUGH THE METHOD OF ACCOUNTI NG BEING FOLLOWED BY THE ASSESSEE RESEMBLES COMPLETED CONTRA CT METHOD BUT IT CANNOT BE SAID TO BE PURELY COMPLETED CONTRA CT METHOD OF ACCOUNTING. HOWEVER, ON AN OVERALL PERUSAL OF THE A SSESSMENT ORDER AS WELL AS THE IMPUGNED ORDER, IT IS SEEN THA T NEITHER ANY DEFECT HAS BEEN POINTED OUT IN THE METHOD OF ACCOUN TING BEING FOLLOWED BY THE ASSESSEE NOR ANY CONCRETE FINDING H AS BEEN GIVEN THAT CORRECT PROFITS CANNOT BE COMPUTED FOLLOWING T HE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. THE MAIN THRUS T OF THE LD. CIT (A) SEEMS TO BE THAT THE ASSESSEE IS DEFERRING THE PAYMENT OF TAXES. BUT THIS INFERENCE OF THE LD. CIT (A) CANNO T BE ACCEPTED AS THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING ONE ME THOD OF ACCOUNTING WHICH HAS BEEN ACCEPTED BY THE DEPARTMEN T IN EARLIER ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 10 ASSESSMENT YEARS. ON THE FACTS OF THE CASE IT IS OU R CONCERNED OPINION THAT SINCE THE ASSESSEEE HAS BEEN FOLLOWING A CERTAIN SYSTEM OF ACCOUNTING CONSISTENTLY WHICH HAS EVEN BE EN ACCEPTED BY THE DEPARTMENT IN EARLIER ASSESSMENTS AND, MOREO VER, IN THE INSTANT APPEAL THE DEPARTMENT HAS NOT BEEN ABLE TO DEMONSTRATE AS TO HOW THE ACCOUNTING SYSTEM BEING FOLLOWED WAS GIVING DISTORTED FIGURES OF PROFIT, IT WOULD BE PATENTLY W RONG TO DISTURB THE METHOD OF ACCOUNTING BEING FOLLOWED. AT THIS JUNCTU RE, ANY CHANGE IN THE METHOD WILL RESULT IN THE INCOME FOR MANY AS SESSMENT YEARS TO BE RECOMPUTED WHICH WOULD BE CONTRARY TO THE JUD GMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRI ES LTD. REPORTED IN 358 ITR 295 (SC) WHEREIN IT HAS BEEN HE LD THAT AN EXERCISE WHICH ONLY RESULTS IN CHANGE IN INCOME IN VARIOUS YEARS BUT IS OVERALL TAX NEUTRAL NEED NOT BE PURSUED. HE RE ALSO, THE METHOD ADOPTED BY THE LD. CIT (A) WILL ONLY RESULT IN PROFIT FOR EACH YEAR BEING DIFFERENT BUT THE OVERALL PROFITABILITY WILL BE THE SAME. WE ALSO DRAW SUPPORT FROM THE JUDGMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF COT VS. M/S BILAHARI INVESTMEN T REPORTED IN (2008) 299 ITR 1 (SC) FOR THE PREPOSITION THAT EVER Y ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METH OD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ON LY IN THOSE ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 11 CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT T HE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PR OFITS, THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTI NG METHOD. THE HONBLE DELHI HIGH COURT ALSO HAD AN OCCASION TO AD JUDICATE ON AN IDENTICAL ISSUE IN THE CASE OF PARAS BUILDTECH INDI A PVT. LTD. VS. CIT AND VICE-VERSA IN ITA 602/2015 AND 603/2015 AND VIDE ORDER DATED 18.11.2015, THE HONBLE HIGH COURT HELD AS UN DER: XXXXXX 17. THE OTHER SIGNIFICANT ASPECT IS THAT THE ASSESS EE HAS BEEN ABLE TO MAKE GOOD ITS PLEA REGARDING TREATMENT OF THE SU M RECEIVED BY IT AS ADVANCE IN ITS BOOKS OF ACCOUNTS. THE BALANCE SH EETS FILED BY THE ASSESSEE, COPIES OF WHICH ARE ENCLOSED WITH THE MEMORANDUM OF APPEAL, DO BEAR OUT THE FACT THAT THE COST OF CO NSTRUCTION IS CAPITALIZED AS REGARDS THE FLATS THE CONSTRUCTION O F WHICH IS YET TO BE COMPLETED, AND NO CONVEYANCE DEED HAS BEEN EXECU TED OR POSSESSION HAS NOT BEEN HANDED OVER. THE ASSESSEE'S BALANCE SHEET DATED 31ST MARCH, 2005 DISCLOSES UNDER THE SU B-HEAD 'INVENTORY' UNDER THE HEAD 'CURRENT LOANS AND ADVAN CES' A SUM OF RS.7,09,93,957. THE EXPLANATORY SCHEDULE 4 DESCRIBE S THE SAID FIGURE AS 'STOCK AND INVENTORY'. IT IS ALSO STATED IN ITEM NO. 1 (B) OF SCHEDULE 19 IN THE NOTES TO THE ACCOUNTS FORMING PA RT OF THE FINAL AUDIT STATEMENT AS UNDER: 'B) REVENUE RECOGNITION SALE OF BUILDING: I) WHEN BUILDING IS READY TO BE DELIVERED - ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 12 SALE IS BOOKED IN THE BOOKS OF ACCOUNTS ON THE DATE OF POSSESSION AGREED UPON OR ON THE DATE OF SALE IF TH E SALE DEED IS EXECUTED BEFORE THE DATE OF POSSESSION AGREED. II) WHEN THE BUILDING IS NOT READY TO BE DELIVERED- SALE IS BOOKED ON THE DATE OF THE BUILDING TRANSFER RED AND POSSESSION HANDED OVER. THE INCOME AND EXPENDITURE ARE ACCOUNTED FOR ON ACC RUAL BASIS REVENUE OF SALE OF OFFICES/SHOPS ETC IS RECOG NIZED ON SIGNING OF TITLE DEEDS. ALL SUMS RECEIVED TILL THEN FOR THE CONSTRUCTION PROJECT ARE TREATED AS ADVANCES AND SH OWN AS LIABILITY.' 18. SECTION 145 (1) OF THE ACT STATES THAT THE INCO ME CHARGEABLE UNDER THE HEADS 'PROFITS AND GAINS OF BUSINESS OR P ROFESSION' SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCA NTILE SYSTEM OF ACCOUNTING 'REGULARLY EMPLOYED BY THE ASSESSEE'. IT IS ONLY WITH EFFECT FROM 1ST APRIL 2015 THAT A CHANGE HAS BEEN B ROUGHT ABOUT IN SECTION 145 (2) WHICH PERMITS THE CENTRAL GOVERNMEN T TO NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME THE INCOME C OMPUTATION AND DISCLOSURE STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSES OR IN RESPECT OF ANY CLASS OF INCOME. THAT CHANGE IS PROS PECTIVE AND IN ANY EVENT DOES NOT APPLY TO THE CASE ON HAND. 19. THE SETTLED LEGAL POSITION AS FAR AS SECTION 14 5 OF THE ACT IS CONCERNED IS THAT IT IS NOT OPEN TO AN AO TO REJECT THE ACCOUNTS OF AN ASSESSEE UNLESS HE COMES TO A DETERMINATION THAT NOTIFIED ACCOUNTING STANDARDS HAVE NOT BEEN REGULARLY FOLLOW ED BY THE ASSESSEE. AS POINTED OUT BY THE CIT (A) IN THE ORDE R DATED 2ND JULY, 2010, THE AS OF THE ICAI DID NOT HAVE ANY STA TUTORY RECOGNITION UNDER THE ACT ALTHOUGH IT WAS BINDING U NDER THE COMPANIES ACT, 1956. THE METHOD OF ACCOUNTING F OLLOWED BY ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 13 THE ASSESSEE IN THE PRESENT CASE I.E. PROJECT COMPL ETION METHOD WAS CERTAINLY ONE OF THE RECOGNIZED METHODS AND HAS BEEN CONSISTENTLY FOLLOWED BY IT. 20. IN COMMISSIONER OF INCOME TAX V. BILAHARI INVES TMENT P LTD. (2008) 299 ITR 1 (SC) IT WAS OBSERVED AS UNDER: 'RECOGNITION/IDENTIFICATION OF INCOME UNDER THE 196 1 ACT IS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. IT MAY BE NOTED THAT THE SAME RESULT COULD BE ATTAINED BY ANY ONE O F THE ACCOUNTING METHODS. THE COMPLETED CONTRACT METHOD I S ONE SUCH METHOD. SIMILARLY, THE PERCENTAGE OF COMPLETIO N METHOD IS ANOTHER SUCH METHOD. UNDER THE COMPLETED CONTRACT METHOD, THE REVENUE IS NOT RECOGNIZED UNTIL THE CONTRACT IS COMPLETE. UNDER TH E 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 WH EN THE CONTRACT IS COMPLETED. THIS METHOD LEADS TO OBJECTI VE ASSESSMENT OF THE RESULTS OF THE CONTRACT. ON THE OTHER HAND, THE PERCENTAGE OF COMPLETION MET HOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCOME IN ORDER T O REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZ ED UNDER THE METHOD DETERMINED BY REFERENCE TO THE STA GE OF COMPLETION OF THE CONTRACT. THE STAGE OF COMPLETION CAN BE LOOKED AT UNDER THIS METHOD BY TAKING INTO CONSIDER ATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT. THE ABOVE INDICATES THE DIFFERENCE BETWEEN THE COMP LETED CONTRACT METHOD AND THE PERCENTAGE OF COMPLETION ME THOD.' 21. IN THE PRESENT CASE, THERE WAS THEREFORE NO GOO D REASON FOR THE ITAT TO HAVE REVERSED THE FINDING OF THE CIT (A). T HE ONLY REASON ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 14 GIVEN IN THE IMPUGNED ORDER OF THE ITAT IS THAT 'RI SKS AND REWARDS' OF OWNERSHIP WERE TRANSFERRED TO THE BUYERS WHO HAD PAID THE BOOKING ADVANCE AMOUNTS AND IN SOME CASES THESE RIG HTS WERE TRANSFERRED TO THIRD PARTIES. HOWEVER, THIS DOES NO T IN ANY MANNER AFFECT THE TREATMENT OF THE SAID AMOUNTS IN THE BOO KS OF THE ASSESSEE. AS NOTED HEREINBEFORE, THE EXPENSES OF CO NSTRUCTION WERE NOT DEBITED TO THE P & L ACCOUNT OF THE ASSESS EE. IT WAS SHOWN AS COST OF CONSTRUCTION OR BLOCK OF BUILDINGS . IT IS ONLY AS AND WHEN A CONVEYANCE DEED WAS EXECUTED OR POSSESSI ON DELIVERED THAT THE RECEIPT WAS SHOWN AS INCOME. THE EXPLANATION ADDED BY WAY OF NOTES TO THE ACCOUNTS WAS NOT TAKEN NOTE OF BY THE ITAT WHEN IT CAME TO THE CONCLUSION THAT THE PE RCENTAGE COMPLETION METHOD SHOULD APPLY TO THE ASSESSEE. 22. THE OTHER ASPECT THAT APPEARS TO HAVE ESCAPED T HE ATTENTION OF THE ITAT IS THAT THE ASSESSEE OFFERED TO TAX IN THE SUBSEQUENT FY THE AMOUNTS RECEIVED AND THEREFORE THERE WAS NO ACT UAL LOSS TO THE REVENUE. IN SIMILAR CIRCUMSTANCES, THE SUPREME COUR T IN CIT V. EXCEL INDUSTRIES LIMITED 2013 ITR 295 (SC) OBSERVED THAT THE DISPUTE IF ANY RAISED AT THE INSTANCE OF THE REVENU E WOULD BE AT BEST ACADEMIC. THE STAND OF THE ASSESSEE IN THE PRE SENT CASE ALSO FINDS SUPPORT IN THE DECISION OF THE GUJARAT HIGH C OURT IN CIT-IV V. SHIVALIK BUILDWELL (P) LTD. (2013) 40 TAXMMANN.COM 219 (GUJARAT). IT WAS HELD THAT THE ASSESSEE IN THAT CASE, WHO WAS A DEVELOPER, WAS ENTITLED TO BOOK THE AMOUNT RECEIVED AS BOOKING ADVANCE AS INCOME ON TRANSFER OF THE PROPERTY. TILL THEN THE A DVANCE BOOKING AMOUNTS COULD NOT BE TREATED AS HIS TRADING RECEIPT . THE HIGH COURT RECOGNIZED THAT THE ASSESSEE IN THAT CASE WAS ENTITLED TO APPLY THE PROJECT COMPLETION METHOD IN TERMS OF THE APPLICABLE AS. ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 15 23. THIS COURT TOO HAS BY ORDER DATED 7TH JANUARY 2 015 IN ITA 111/2014 (CIT V. SABH INFRASTRUCTURE LTD.) HELD LIK EWISE, AFTER NOTICING THE DECISIONS OF THE SUPREME COURT IN CIT V. BILAHARI INVESTMENT P. LTD. (SUPRA) AND THE ORDER DATED 15TH NOVEMBER 2011 IN ITA NO. 928 OF 2011(CIT V. MANISH BUILDWELL PVT. LTD.). 5.1 ACCORDINGLY, ON FACTS OF THE CASE AND RESPECTFU LLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE APEX COURT AND T HE HONBLE DELHI HIGH COURT AS ABOVE MENTIONED, WE SET ASIDE T HE ORDER OF THE LD. CIT (A) MAKING THE IMPUGNED ENHANCEMENT AND ALS O DIRECT THE ASSESSING OFFICER THAT THE INCOME AS DECLARED BY TH E ASSESSEE IN ITS RETURN OF INCOME BE TAKEN AS THE FIGURE FOR THE PUR POSE OF CALCULATION OF THE TAX LIABILITY. 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2018. SD/- SD/- (N.K. SAINI) (SUDHANSH U SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER DATED: 23 RD OCTOBER , 2018 GS ITA NO. 4167/DEL/2016 ASSESSMENT YEAR 2011-12 16 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 1