DCIT, New Delhi V. M/s Dhingra Estate Pvt. Ltd., New Delhi

ITA 4352/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7510 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Tax effect; Revenue expenditure
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI GEORGE GEORGE K, JM ITA NO: 4352/DEL/2012 AY : - 2009-10 DCIT VS. DHING RA ESTATE PVT. LTD. CIRCLE 10(1) B-1/2 , SECTOR 11, ROHINI, NEW DELHI. NEW DE LHI. (PAN AABCD4861G) (APPELLANT) (RES PONDENT) APPELLANT BY :S MT. PARWINDER KAUR, SR. DR RESPONDENT :SH RI K. SAMPATH, ADVOCATE O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRE CTED AGAINST THE ORDER OF CIT(A) ON THE FOLLOWING GROUNDS :- 1. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW WAS JUSTIFIED IN DISMISSING THE ACTION OF THE A SSESSING OFFICER OF INVOKING THE PROVISIONS OF SUB SECTION 3 OF SECTION 145 OF T HE IT ACT, 1961 BY REJECTING THE BOOK RESULTS SHOWN BY THE ASSESSEE . 2. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCE S OF THE CASE AND IN LAW WAS JUSTIFIED IN DISMISSING THE ACTION OF THE ASSES SING OFFICER OF COMPUTING THE INCOME OF THE ASSEESSE BY APPLYING THE PERCENTA GE OF COMPLETION METHOD AS PER ACCOUNTING STANDARD 7 ISSUED OF INSTITUTE OF CHARTERED ACCOUNTANT. 2. FACTS IN BRIEF :- THE ASSESSEE IS A DEVELO PER DEALING IN REAL ESTATE PROJECTS. THE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPIN G RESIDENTIAL AND COMMERCIAL COMPLEXES IN THE POSH AREA OF NEW DELHI. DURING THE YEAR THE COMPANY HAS DEVELOPED A COMMERCIAL COMPLEX AT PITAMPURA, WHICH IS POPULARLY KNOWN AS THE ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 2 MALL OF PITAMPURA. FOR DEVELOPING THE PROJECT THE C OMPANY HAS PURCHASED 3840 SQ. MTR. OF LAND FOR SUM OF RS. 7,34,50,000/- AND UPTO THE FINANCIAL YEAR COMPANY HAS INVESTED A SUM OF RS. 24,91,93,562/- ON THE CONSTRU CTION OF THE PROJECT. 3. IN THE RETURN OF INCOME THE ASSESEE HAS CLAI MED LOSS OF RS. 62,21,337/- IN THE PROCESS OF DEVELOPMENT OF PROJECT AND ITS PARTIAL S ALES. THE REASON FOR LOSS WAS ANALYZED AND IT WAS FOUND THAT THE LOSS IS MAINLY B ECAUSE OF THE REASONS THAT ASSESEE HAS CLAIMED LAND REGISTRATION CHARGES AND C ONSTRUCTION COST AS REVENUE EXPENDITURE AND THEREAFTER HE HAS CAPITALIZED A PAR T OF THIS AS WORK IN PROGRESS. THE DETAILS OF INCOME AND EXPENDITURE CLAIMED BY THE AS SESSEE UNDER VARIOUS HEADS IS AS FOLLOWS :- SALES RS. 4,46,64,809/ - OTHER INCOME RS. 53,82,304/ - TOTAL RS. 5,00,47,113/ - LAND REGISTRATION CHARGES AND CONSTRUCTION COST RS. 24,12,78,904/ - FREEHOLD CHARGES RS. 88,65,915/ - FINANCIAL CHARGES RS. 15,81,087/ - DEPRECIATION RS. 24,69,934/ - OTHER - TOTAL RS. 25,69,51,364/ - LESS WORK IN PROGRESS RS. 20,06,82,914/ - BALANCE RS. 5,62,68,450/ - LOSS RS. 62,21,337/ - 4. THE AO ADOPTED PERCENTAGE OF COMPLETION ME THOD, WHICH IN HIS VIEW IS A METHOD PRESCRIBED BY THE ACCOUNTING STANDARDS OF TH E INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. HE MADE AN ADDITION OF RS. 2,2 9,94,398/-. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST AP PELLATE AUTHORITY ALLOW THE APPEAL OF THE ASSESSEE. AGGRIEVED THE REVENUE IS IN APPEAL . ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 3 5. WE HAVE HEARD SMT. PARWINDER KAUR LD. SR. D R ON BEHALF OF THE REVENUE AND SHRI K. SAMPATH , LD. COUNSEL ON BEHALF OF THE ASS ESSEE. 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW WE HOLD AS FOLLOWS :- 6.1 THE AO INVOKED THE PROVISIONS OF SECTION 14 5(3) ON THE GROUND THAT THE ASSESSEE HAS NOT COMPUTED ITS INCOME AS PER ACCOUNT ING STANDARD-7 DESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. SU CH ACTION OF THE AO WAS RIGHTLY HELD AS NOT TENABLE BY THE LD. CIT(A), AS THE ASSES EE HAS BEEN FOLLOWING THE PROJECT COMPLETION METHOD FOR ARRIVING AT THE PROFITS DURIN G THE YEAR, CONSISTENTLY FROM THE ASSTT. YEAR 2005-06 TO 2008-09. THE SYSTEM OF ACCOU NTING HAS BEEN REGULARLY AND CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT IN ORDERS PASSED U/S 143(3) FOR THE ASST T. YEARS 2005-06 TO 2007-08. 6.2. THE ISSUE WHETHER ACCOUNTING STANDARD-7 ISSU ED BY THE CHARTERED ACCOUNTANT OF INDIA IS APPLICABLE TO THE REAL ESTATE DEVELOPER S IS NO MORE RES INTEGRA. THE MUMBAI F BENCH OF THE TRIBUNAL IN ITA NO, 5109/MUM /2008 FOR THE ASSTT. YEAR 2005-06 ORDER DATED 20 TH AUGUST, 2010 AS FOLLOWS :- 13. THE ASSESSEE IN THIS CASE IS A BUILDERS AND RE AL ESTATE DEVELOPER. THE UNDISPUTED FACT IS THAT THE ASSESSEE FOLLOWS PR OJECT COMPLETION METHOD OF ACCOUNTING SINCE ITS INCEPTION IN THE YEA R 1996. IT HAS BEEN OFFERING INCOME BY THIS METHOD OF ACCOUNTING AND TH E DEPARTMENT HAS BEEN ACCEPTING THE SAME OVER THE YEARS. THE OTHER U NDISPUTED FACT IS THAT THE ASSESSEE HAS DECLARED THAT THE PROJECT IS COMPLETED IN THE ASSESSMENT YEAR 2005-06 AND THE ASSESSEE HAS OFFERE D THE INCOME ON PROJECT COMPLETION METHOD IN THAT YEAR. THUS, ONLY THE YEAR OF TAXATION IS UNDER DISPUTE. THE ISSUE IS WHETHER THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAS BEEN RIGHTL Y REJECTED BY THE A.O. THE A.OS CONTENTION, WHICH IS AFFIRMED BY THE CIT(A) IS THAT AS-7 ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 4 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IS APPLICABLE TO THE BUILDERS AND REAL ESTATE DEVELOPERS. THIS FI NDING IN OUR OPINION IS ERRONEOUS. AS-7 PRIOR TO ITS REVISION IN THE YEA R 2002 DEALT WITH THE ACCOUNTING FOR CONSTRUCTION CONTRACTS, IN THE FINAN CIAL STATEMENTS OF ENTERPRISES. WE EXTRACT A PART OF THIS STATEMENT FO R READY REFERENCE: THIS STATEMENT DEALS WITH ACCOUNTING FOR CONSTRUCT ION CONTRACTS IN THE FINANCIAL STATEMENTS OF ENTERPRISES UNDERTAK ING SUCH CONTRACTS THEREAFTER REFERRED TO AS CONTRACTORS). THE STATEMENT ALSO APPLIES TO ENTERPRISES UNDERTAKING CONSTRUCTIO N ACTIVITIES OF THE TYPE DEALT WITH IN THIS STATEMENT NOT AS CONTRA CTORS BUT ON THEIR OWN ACCOUNT AS A VENTURE OF A COMMERCIAL NATU RE WHERE THE ENTERPRISE HAS ENTERED INTO AGREEMENTS FOR SALE. [EMPHASIS OWN] 14. A PERUSAL OF THE ABOVE MAKES IT CLEAR THAT THE STATEMENT APPLIED TO BUILDER AND REAL ESTATE DEVELOPERS. IN A S-7, AS REVISED IN THE YEAR2002, THE SCOPE OF THE STATEMENT IS GIVEN A S FOLLOWS: SCOPE (1) THIS STATEMENT SHOULD BE APPLIED IN ACCO UNTING FOR CONSTRUCTION CONTRACTS IN THE FINANCIAL STATEMENTS OF CONTRACTORS. A CONSTRUCTION CONTRACT IS DEFINED AS FOLLOWS: A CONSTRUCTION CONTRACT IS A CONTRACT SPECIFICALLY NEGOTIATED FOR THE CONSTRUCTION OF AN ASSET OR A COMBINATION OF AS SET THAT ARE CLOSELY INTERRELATED OR INTERDEPENDENT IN TERMS OF THEIR DESIGN, TECHNOLOGY AND FUNCTION OR THEIR ULTIMATE PURPOSE O R USE. FROM READING OF THE ABOVE MAKES IT CLEAR THAT REVIS ED AS-7 ISSUED IN THE YEAR 2002, DOES NOT APPLY TO BUILDERS AND REAL ESTATE CONSULTANTS. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS IN REPLY TO A QUERY GIVEN IN THE COMPENDIUM OF OPINIONS VOL.XXIII 9 5 QUERY NO. 15 AS STATED AS FOLLOWS: B. QUERY 5. IN THE LIGHT OF THE ABOVE, THE QUERIST HAS SOUGH T THE OPINION OF THE EXPERT ADVISORY COMMITTEE ON THE FOLLOWING ISSU ES: (A) WHETHER THE REVISED AS-7 WOULD BE APPLICAB LE T THE COMPANY FOR ACCOUNTING FOR NEW HOUSING PROJECTS, WH ICH MAY BE UNDERTAKEN BY THE COMPANY ON OR AFTER 01.04.2003 ON THE SAME BUSINESS MODEL AS MENTIONED IN THE FACTS OF THE CAS E. (B) IN CASE REVISED AS-7 IS NOT APPLICABLE TO THE C OMPANY, WHETHER THE COMPANY CAN VALUE ITS INVENTORIES IN ACCORDANCE WITH ACCOUNTING STANDARD (AAS)2, VALUATION OF INVENTORI ES, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, CO NSIDERING THE DEFINITION OF INVENTORY AS AN ASSET IN THE PROCESS OF PRODUCTION FOR THE PURPOSE OF SALE, I.E. WHETHER THE ACTIVITY OF DEVELOPING ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 5 HOUSING PROJECTS ON ITS OWN ACCOUNT AS A COMMERCIAL VENTURE BY THE COMPANY CAN BE CONSTRUED AS A PRODUCTION ACTIVI TY. (C) IF THE ACTIVITIES OF THE COMPANY CANNOT BE CONS IDERED AS A PRODUCTION ACTIVITY AND CONSEQUENTLY AS -2 IS ALSO NOT APPLICABLE, WHICH ACCOUNTING STANDARD SHOULD BE FOLLOWED FOR RE COGNITION OF REVENUE AND VALUATION OF ITS CONSTRUCTION WORK-IN-P ROGRESS? C. POINTS CONSIDERED BY THE COMMITTEE 6. THE COMMITTEE NOTES THAT ACCOUNTING STANDARD (AS )-7, ACCOUNTING FOR CONSTRUCTION CONTRACTS, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN DECEMBER 1983, ST ATES IN PARAGRAPH 1 THAT THE STATEMENT ALSO APPLIES TO ENT ERPRISES UNDERTAKING CONSTRUCTION ACTIVITIES OF THE TYPE DEA LT WITH IN THIS STATEMENT NOT AS CONTRACTORS BUT ON THEIR OWN ACCOU NT AS A VENTURE OF A COMMERCIAL NATURE WHERE THE ENTERPRISE HAS ENTERED INTO AGREEMENTS FOR SALE. THEREFORE, THE STANDARD WAS APPLICABLE TO THE ACTIVITIES CARRIED ON BY THE COMPANY AS STAT ED IN PARAGRAPHS 1 AND 2 ABOVE. THE COMMITTEE ALSO NOTES THAT THE REVISED ACCOUNTING STANDARD (AS) 7, CONSTRUCTION C ONTRACTS, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTS OF IN DIA IN 2002, DOES NOT CONTAIN THE AFORESAID SENTENCE CONTAINED I N THE PRE- REVISED AS-7. ON THE OTHER HAND, PARAGRAPH 1 OF REV ISED AS-7, CLEARLY STATES THAT, THIS STATEMENT SHOULD BE APPL IED IN ACCOUNTING FOR CONSTRUCTION CONTRACTS IN THE FINANC IAL STATEMENTS OF CONTRACTORS. THEREFORE, THE COMMITTEE IS OF THE VIEW THAT THE REVISED AS 7 IS NOT APPLICABLE TO SUCH ENTERPRISES. [EMPHASIS OWN] THUS, THE REVISED AS-7 CANNOT BE APPLIED TO ENTERPR ISES WHICH IS IN THE BUSINESS OF REAL ESTATE DEVELOPERS. 15. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF PRESTIGE ESTATE PROJECTS (P) LTD.(SUPRA) HAS HELD AS FOLLOWS: ACCOUNTS ACCOUNTING SYSTEM PROJECT COMPLETI ON METHOD CONSISTENTLY FOLLOWED ASSESSEE DEVELOPER HAD BEEN REGULARLY EMPLOYING PROJECT COMPLETION METHOD WHICH I S AN ACCEPTED METHOD OF ACCOUNTING ACCOUNTING STANDARD -7 H AS NOT BEEN SPECIFIED BY THE CENTRAL GOVERNMENT UNDER S.145(2 ) HENCE, AO COULD NOT REJECT THE ACCOUNTS UNDER S.145(3) ON THE G ROUND THAT THE ASSESSEE HAD NOT FOLLOWED THE PRESCRIBED METHOD OF ACCOUNTING MOREOVER, ASSESSEE WAS UNDER BONA FIDE BELIEF THAT IT WAS ADOPTING A METHOD OF ACCOUNTING WHICH WAS APPLICABLE TO IT AS PER THE REPORT OF THE EXPERT COMMITTEE OF THE IC AI THEREFORE, REVISED AS-7 CANNOT BE APPLIED IN THE CASE OF THE ASSES SEE EVEN OTHERWISE, IN CASE REVISED AS-7 IS TO BE APPLIED, THE OPENING INVENTORIES ARE TO BE VALUED AS PER REVISED AS-7- THAT APART, ON THE PRINCIPLE OF ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 6 CONSISTENCY, REVENUE SHOULD HAVE ACCEPTED THE MET HOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AS THE SAME WAS BEING FOLLO WED FOR MANY YEARS HENCE AO IS DIRECTED TO ACCEPT THE PROJECT COMPLETION METHOD OF ACCOUNTING. 16. MOREOVER, THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA HAS ISSUED GUIDANCE NOTE ON RECOGNITION OF REVENUE BY REAL EST ATE DEVELOPERS. THE RECOMMENDATIONS ARE AT PARA 6, WHICH IS EXTRACTED F OR READY REFERENCE : REVENUE IN CASE OF REAL ESTATE SALES SHOULD BE REC OGNIZED WHEN ALL THE FOLLOWING CONDITIONS ARE SATISFIED: (I) THE SELLER HAS TRANSFERRED T THE BUYER ALL SIG NIFICANT RISKS AND REWARDS OF OWNERSHIP AND THE SELLER RETAINS NO EFFE CTIVE CONTROL OF THE REAL ESTATE TO A DEGREE USUALLY ASSOCIATED W ITH OWNERSHIP; (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING TH E AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE REAL ES TATE SALES; AND (III) IT IS NOT UNREASONABLE TO EXPECT ULTIMATE CO LLECTION. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE FIR ST APPELLATE AUTHORITY WAS NOT IN ERROR IN UPHOLDING THE VIEW TAKEN BY THE AO, THAT THE REVISED AS-7 IS APPLICABLE TO BUILDERS AND REAL ESTATE DEVELOPERS. 17. ON THE FACTS OF THIS CASE, WE AGREE WITH T HE ARGUMENTS OF SHRI YOGESH THAR, LEARNED COUNSEL FOR THE ASSESSEE, THAT THE DE CISION IN THE CASE OF CHAMPIONCONSTRUCTION CO. (SUPRA), HAD LAID DOWN THA T WHEN THE ASSESSEE FOLLOWS PROJECT COMPLETION METHOD, IT WOULD BE APPR OPRIATE TO OFFER INCOME TO TAX IN THE YEAR IN WHICH 80% OF THE CONSTRUCTION WA S COMPLETED. AT PARA 18, PAGE 507-508, THE TRIBUNAL HELD AS FOLLOWS: WE HAVE EXAMINED THE FACTS OF THE CASE FROM THIS P OINT OF VIEW. WE FIND THAT OUT OF THE TOTAL ACCOMMODATION OF 58,970 SQ.FT. CONSTRUCTED, THE ASSESSEE WAS ABLE TO SELL ONLY 25,530 SQ.FT. DU RING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR 1977-78. NEIT HER THE CONSTRUCTION OF THE MULTI-STOREYED BUILDING WAS COM PLETE NOR EVEN THE HALF PORTION OF THE BUILDING SOLD. THE NET SALE PRO CEEDS RECEIVED WERE MUCH LESS THAN THE TOTAL EXPENDITURE/COST INCURRED BY THE ASSESSEE UPTO DATE. IN THE CIRCUMSTANCES SO FAR AS THE ASSES SMENT YEAR 1977- 78 IS CONCERNED WE ACCEPT THE ASSESSEES SUBMISSION THAT IT WOULD BE IN ORDER IF NO PROFITS OR LOSSES ARE ESTIMATED FROM THE VENTURE FOR THE ASSESSMENT YEAR 1977-78.THE ASSESSMENT FOR THIS YEA R IS, THEREFORE, CANCELLED EVEN ON THIS SCORE. 18. IN THIS YEAR THE ASSESSEE HAS ADMITTEDLY COMPLE TED ONLY 53.95% OF THE ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 7 CONSTRUCTION AND HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS SUBSTANTIALLY COMPLETED THE PROJECT, SO AS TO RECOG NIZE INCOME UNDER THE PROJECT COMPLETION METHOD OF ACCOUNTING. 19. AT PARA 19, THE HONBLE TRIBUNAL IN THE CASE OF CHAMPION CONSTRUCTION CO. (SUPRA) HELD AS FOLLOWS: HOWEVER, THE POSITION AS REGARDS THE ASSESSMENT YEAR 1978-79 IS MATERIALLY DIFFERENT. THE CONSTRUCTION OF THE BUILD ING IS COMPLETED IN THAT YEAR. TOTAL AREA EARMARKED FOR SALE IS 61,396/ - SQ.FT. OUT OF WHICH UPTO THE END OF THAT YEAR THE ASSESSEE HAD SOLD 49, 965 SQ. FT. I.E. ABOUT 80 PER CENT OF THE AREA. THE NET RECEIPTS HAV E FAR EXCEEDED THE TOTAL COST OR EXPENDITURE TO THE ASSESSEE. ASSUMING THERE IS ANY POSSIBILITY OF THE ASSESSEES INCURRING SOME LIABIL ITY IN FUTURE IN CONNECTION WITH THE COMPLETION OF THE PROJECT OR OT HERWISE, THE UNSOLD PORTION COMPRISING OF 12,331/- SQ.FT. AND THE DIFFE RENCE BETWEEN THE NET RECEIPTS AND THE TOTAL EXPENDITURE AND THE AMOU NT ACTUALLY TREATED AS THE ASSESSEES INCOME ARE MORE THAN SUFFICIENT T O TAKE CARE OF ANY SUCH CONTINGENCY. THUS, THE METHODOLOGY FOLLOWED BY THE ASSESSEE IN R ECOGNIZING THE INCOME FROM THE PROJECT UNDER PROJECT COMPLETION METHOD IN THE NEXT YEAR IS IN ACCORDANCE WITH THE PROPOSITIONS LAID DOWN BY THE T RIBUNAL IN THE CASE OF CHAMPION CONSTRUCTION CO. (SUPRA). 20. IN ANY EVENT, THE METHOD FOLLOWED BY THE ASSESS EE CANNOT BY ANY STRETCH OF IMAGINATION BE CALLED AS AN UNREASONABLE METHOD. ANY CHANGE IN THE METHOD IS REVENUE NEUTRAL. THE REVENUE CANNOT CHANG E THE METHOD OF ACCOUNTING, AS IS SOUGHT TO BE DONE IN THE FACTS AN D CIRCUMSTANCES OF THE CASE. 21. COMING TO THE CASE LAWS, THE CASE OF CIT V. BIL L HARI INVESTMENT LTD. (299 ITR 1), THE HONBLE SUPREME COURT HAS HELD AS FOLLOWS: 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 ACC OUNTING METHODS. COMPLETED CONTRACT METHOD IS ONE SUCH METHOD. SIMIL ARLY, PERCENTAGE OF COMPLETION METHOD IS ANOTHER SUCH METHOD. 16. UNDER COMPLETED CONTRACT METHOD, THE R EVENUE IS NOT RECOGNIZED UNTIL THE CONTRACT IS COMPLETE. UNDER THE SAID METH OD, COSTS ARE ACCUMULATED DURING THE COURSE OF THE CONTRACT. THE PROFIT AND LOSS IS ESTABLISHED IN THE LAST ACCOUNTING PERIOD AND TRANS FERRED TO P&L A/C. THE SAID METHOD DETERMINES RESULTS ONLY WHEN CONTRA CT IS COMPLETED. THIS METHOD LEADS TO OBJECTIVE ASSESSMENT OF THE RE SULTS OF THE CONTRACT. ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 8 17. ON THE OTHER HAND, PERCENTAGE OF COMPLETION MET HOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCOME IN ORDER TO R EFLECT 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 UNDER THIS MET HOD BY TAKING INTO CONSIDERATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT. 18. THE ABOVE INDICATES THE DIFFERENCE BETWEEN COMP LETED CONTRACT METHOD AND PERCENTAGE OF COMPLETION METHOD. 19. IN THE JUDGMENT OF THE BOMBAY HIGH COURT IN TAP ARIA TOOLS LTD. (SUPRA) IT HAS BEEN HELD THAT IN EVERY CASE OF SUBS TITUTION OF ONE METHOD BY ANOTHER METHOD, THE BURDEN IS ON THE DEPA RTMENT TO PROVE THAT THE METHOD IN VOGUE IS NOT CORRECT AND IT DIST ORTS THE PROFITS OF A PARTICULAR YEAR. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING BASED ON THE CONCEPT OF ACCRUAL, THE METHOD OF ACCOUNTING FO LLOWED BY THE ASSESSEE IS RELEVANT. IN THE PRESENT CASE, THERE IS NO FINDING RECORDED BY THE AO THAT THE COMPLETED CONTRACT METHOD DISTOR TS THE PROFITS OF A PARTICULAR YEAR. MOREOVER, AS HELD IN VARIOUS JUDGMENTS, THE CHIT SCHEME IS ONE INTEGRATED SCHEME SPREAD OVER A PERIO D OF TIME, SOMETIMES EXCEEDING 12 MONTHS. WE HAVE EXAMINED COM PUTATION OF TAX EFFECT IN THESE CASES AND WE FIND THAT THE ENTI RE EXERCISE IS REVENUE REUTRAL, PARTICULARLY WHEN THE SCHEME IS SPREAD AS ONE INTEGRATED SCHEME SPREAD OVER A PERIOD OF TIME. 20. AS STATED ABOVE, WE ARE CONCERNED WITH ASST. YEARS 1991-1992 TO 1997-1998. IN THE PAST, THE DEPARTMENT HAD ACCEP TED THE COMPLETED CONTRACT METHOD AND BECAUSE OF SUCH ACCEPTANCE, THE ASSESSEE, IN THESE CASES, HAVE FOLLOWED THE SAME METHOD OF ACCOU NTING, PARTICULARLY IN THE CONTEXT OF CHIT DISCOUNT. EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACC OUNTING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTE D BY THE ASSESSEE RESULTS IN DISTORTION OF PROFITS, THE DEPA RTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTING METHOD. FURTHER, IN TH E PRESENT CASE, WE FIND FROM THE VARIOUS STATEMENTS PRODUCED BEFORE US , THAT THE ENTIRE EXERCISE, ARISING OUT OF CHANGE OF METHOD FROM COMP LETED CONTRACT METHOD TO DEFERRED REVENUE EXPENDITURE, IS REVENUE NEUTRAL. THEREFORE, WE DO NOT WISH TO INTERFERE WITH THE IMP UGNED JUDGMENT OF THE HIGH COURT. 21. BEFORE CONCLUDING, WE MAY POINT OUT THAT UNDER S.211(2) OF THE COMPANIES ACT, ACCOUNTING STANDARDS (AS) ENACTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS HAVE NOW BEEN ADOPTED [SEE : JUDGMENT OF THIS COURT IN J.K. INDUSTRIES CASE (SUPRA)]. SHRI T RIPATHI, LEARNED COUNSEL FOR THE DEPARTMENT, HAS PLACED RELIANCE ON AS 22 AS THE BASIS OF HIS ARGUMENT THAT THE COMPLETED CONTRACT METHOD SHOULD BE SUBSTITUTED BY DEFERRED REVENUE EXPENDITURE (SPREAD ING THE SAID ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 9 EXPENDITURE ON PROPORTIONATE BASIS OVER A PERIOD OF TIME). HE ALSO RELIED UPON THE CONCEPT OF TIMING DIFFERENCE INTROD UCED BY AS 22. IT MAY BE STATED THAT ALL THESE DEVELOPMENTS ARE OF RE CENT ORIGIN. IT IS OPEN TO THE DEPARTMENT TO CONSIDER THESE NEW ACCOUN TING STANDARDS AND CONCEPTS IN FUTURE CASES OF CHIT TRANSACTIONS. WE EXPRESS NO OPINION IN THAT REGARD. SUFFICE IT TO STATE THAT, T HESE NEW CONCEPTS AND ACCOUNTING STANDARDS HAVE NOT BEEN INVOKED BY THE D EPARTMENT IN THE PRESENT BATCH OF CIVIL APPEALS. [EMPHASIS OWN] 22. THIS JUDGMENT APPLIES TO THE FACTS OF THE CASE IN ALL FORCE. THE ENTIRE EXERCISE IS REVENUE NEUTRAL. THE REVENUE HAS ACCEPT ED THE METHOD OVER THE YEARS. 23. IN THE CASE OF CHAINRUP SAMPATRAM V. CIT (24 IT R 481), THE HONBLE FULL BENCH OF THE SUPREME COURT HAS HELD THAT WHILE VALU ING CLOSING STOCK, ANTICIPATED LOSSES ARE TAKEN INTO ACCOUNT AND THAT THE ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATION IN THE VALUE OF STOCK IS NOT BROUGHT INTO ACCOUNT. THIS CASE LAW, IN OUR CONSIDERED OPINION, IS NOT OF MUCH HELP TO ASSESSEE. 24. THE HOBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. TATA IRON & STEEL CO. LTD. (106 ITR 363) HELD THAT WHEN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE COMPANY CANNOT BE SAID TO BE AN UNREAS ONABLE METHOD, AND THAT IN SUCH A CASE, EVEN IF A BETTER METHOD COULD BE VISUALIZED, THE METHOD CONSISTENTLY FOLLOWED CAN BE ACCEPTED. 25. IN VIEW OF THE ABOVE DISCUSSION, WE HAVE TO NECESSARILY UPHOLD THE CONTENTION OF THE ASSESSEE AND ALLOW GROUND NO. 1 O F THE ASSESSEE. WE HAVE ALLOWED THIS GROUND OF THE ASSESSEE ON THE PROPOSIT IONS DISCUSSED ABOVE, WE DO NOT GIVE ANY FINDING ON WHETHER REVENUE HAS TO B E RECOGNIZED IN THIS YEAR BASED ON THE GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON RECOGNITION OF REVENUE BY R EAL ESTATE DEVELOPERS, BY INTERPRETING THE AGREEMENT OF SALE, ETC., AS THI S WOULD BE AN ACADEMIC EXERCISE. ACCORDINGLY, GROUND NO. I IS ALLOWED. 7. THE FIRST APPELLATE AUTHORITY HAS AT PAR 6.2 MADE AN YEARWISE COMPUTATION AND CAME TO THE CONCLUSION THAT IF THE PERCENTAGE COMPL ETION METHOD, AS PRESCRIBED BY THE AO IS ADOPTED, THEN THE LOSS FOR THE ASSTT. YEA R 2009-10 WOULD BE RS. 17,46,446/-. THUS HE CONCLUDED THAT THE EXERCISE DO NE BY THE AO IS FUTILE AND REVENUE NEUTRAL. ITA 4352/DEL/2012 AY 2009-10 DCIT VS. DHINGRA ESTATE PVT. LTD. 10 8. APPLYING THE PROPOSITION LAID DOWN IN T HE CASE OF M/S. UNIQUE ENTERPRISES (SUPRA) TO THE FACTS OF THIS CASE AND IN VIEW OF TH E UNCONTROVERTED FACTUAL FINDING OF THE FIRST APPELLATE AUTHORITY, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THIS APPEAL. 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2014. SD/- SD/- (GEORGE GEORGE K) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 11 TH DECEMBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER DEPUTY REGISTRAR