ITO 9(1)(4), MUMBAI V. A. SURTI DEVELOPERS P.LTD, MUMBAI

ITA 4846/MUM/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1501 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 31-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJAN
• Keywords: Depreciation; Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE S/SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & RAM LAL NEGI, JUDICIAL MEMBER ITA NO.4846/MUM/2015 ASSESSMENT YEAR : 2011-12 ITO 9(1)(4) MUMBAI VS. A SURTI DEVELOPERS P. LTD., 304-A, MOTI MAHAL, SODAWALA LANE, BORIVALI (W), MUMBAI 400 092. PAN AAACA8288R ( APPELLANT) ( RESPONDENT) APPELLANT BY : SHRI M RAJAN RESPONDENT BY : SHRI RAJESH SANGHVI DATE OF HEARING : 0 6 . 03 .201 9 DATE OF PRONOUNCEMENT : 15. 0 3 . 201 9 O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST O RDER OF LEARNED CIT(A)-16, MUMBAI, DATED 11.06.2015, AND PE RTAINS TO ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL READ AS UNDER: I) 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT AS SESSEE WAS JUSTIFIED IN NOT OFFERING ANY INCOME, IGNORING THE FACTS THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF REVENUE RECOGNITION @ 8% OF THE COST OF CONSTRUCTIO N.' II). 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION MADE IGNORING THE FACTS THAT THE AS-7 DOES NOT ALLO W IN CHANGE OF METHOD OF RECOGNITION OF REVENUE FOR A PARTICULA R PROJECT DURING ITS LIFETIME.' ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 2 III ) 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION HOLDING THAT AS PER CONCEPT OF PRUDENCE, THE EXPECT ED LOSS, IF ANY, HAS TO BE RECOGNIZED AS EXPENDITURE, IGNORING THE FACT THAT SUBSTANTIAL AMOUNT OF CONSTRUCTION WAS COMPLET ED IN BOTH THE PROJECTS AND SUBSTANTIAL CONSIDERATION HAS BEEN RECEIVED BY THE ASSESSEE, HENCE THERE WAS NO UNCERTAINTY IN REVENUE RECOGNITION AND LITIGATION, IF ANY, WAS TEMPORARY.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LAND DEVELOPMENT AND BUILDER. DURING T HE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNT FROM PERCENTAGE METHO D TO PROJECT COMPLETION METHOD. UPON ASSESSING OFFICERS INQUIR Y ASSESSEE GAVE FOLLOWING RESPONSE VIDE ITS LETTER DATED 24.03.2014 : 'AS WE EXPLAINED IN DETAIL VIDE OUR LETTER DATED 18 TH FEBRUARY 2014 EARLIER YOUR HONOUR THAT WE FOLLOWS THE PROJEC T COMPLETION METHOD AND REVENUE FROM THE PROJECT IS R ECOGNIZED ONLY ONCE THE ENTIRE PROJECT IS COMPLETED OR NECESS ARY APPROVALS FROM THE GOVERNMENT AUTHORITIES HAS BEEN RECEIVED, IN OUR CASE THOUGH WE HAVE RECEIVED ADVANCE PAYMENT S FROM CUSTOMERS TO WHOM WE HAVE SOLD THE FLATS THE SAME I S SHOWN AS CURRENT LIABILITIES AS THE PROJECT IS NOT COMPLE TE AND THE SAME IS FOLLOWED FOR THE EXPENSES SIDE AS WELL AND HENCE ALL THE EXPENSES ARE SHOWN AS WORK IN PROGRESS. WE HAVE ALSO PAID TAX IN THE EARLIER YEARS ON THE ESTIMATED BASI S WHICH WAS APPROXIMATELY 8% OF THE EXPENSES MADE BY US TOWARDS THE CONSTRUCTION COST. IN THE PREVIOUS TWO ASSESSMENT Y EARS I.E. ASSESSMENT YEARS 2009-10 AND ASSESSMENT YEAR 2010-1 1 WE HAVE DECLARED THE INCOME ON ESTIMATED BASIS OF RS.1,97,24,298/- AND RS.92,31,538/- AND PAID THE TA X ON THE SAME. THUS, THE TOTAL INCOME FOR BOTH THE EARLIER Y EARS WAS RS.2,89,56,036/- WE HAVE TWO PROJECTS, ONE IS AT VILE PARLE AND OTHE R IS AT JOGESHWARI. THE VILE PARLE PROJECT IS COMPRISING OF THREE WINGS NAMELY A, B & D WING. THE WORK AT A AND B WING WAS APPROXIMATELY 80% COMPLETE WHILE THE WORK AT D WING WAS APPROXIMATELY 30% COMPLETE. THE VILE PARLE PROJECT IS AN SRA ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 3 PROJECT AND DUE TO SOME LITIGATION ESPECIALLY WITH RELATION TO ENVIRONMENTAL ISSUES, THE STOP WORK ORDER IS ISSUED FOR THE SITE. AS A RESULT OF THIS ORDER NO CONSTRUCTION ACT IVITY CAN BE COMMENCED ON THIS SITE AND HENCE LOSSES WERE INCURR ED DUE TO RECURRING, ADMINISTRATIVE AND OTHER EXPENSES. THE C ONSTRUCTION WORK AT JOGESHWARI SITE WAS ALSO AFFECTED DUE TO TH E PROPERTY DISPUTES AND HENCE THE CONSTRUCTION AT THE SITE COU LD ALSO NOT BE CARRIED OUT IN THAT YEAR FOR FULL SWING. THE WOR K AT JOGESHWARI SITE WAS COMPLETED APPROXIMATELY 50% TIL L MARCH 2011. DUE LITIGATION AT BOTH THE PLACES OUR PROJECT WAS IN PROBLEM AND THE FUTURE WAS DARK AT THAT TIME WE OUR SELVES WERE NOT KNOWN WHEN CAN WE COMPLETE THE PROJECT IN THIS SITUATION. AS CAN BE SEEN FROM THE ABOVE EXPLANATION BOTH OUR CONSTRUCTION PROJECTS WERE BADLY STUCK UP DUE TO LI TIGATION AND DISPUTES IN THE CURRENT FINANCIAL YEAR. THIS SEVERE LY IMPACTED THE PROJECT FEASIBILITY OF THE CONSTRUCTION WORKS. WE ARE MAKING LOSS AS OUR ENTIRE SALE VALUE OF PARLE PROJECT FOR A & B WING WAS RS.18,47,36,200/- ON WHICH 80% WORKS WAS COMPLE TED AND FOR D WING THE ADVANCE BOOKING VALUE WAS 15,91,44,000/- ON WHICH 30% WAS COMPLETED ACCORDING LY, WHEN WE DETERMINE THE FIGURES OF PROFITABILITY WE F OUND THAT WE ARE IN LOSS, THE TOTAL EXPENSES TILL 31.03.2011 WAS RS.27,75,62,862/- INCLUSIVE OF PROFIT DECLARE BY US IN EARLIER YEARS AND IF WE CALCULATE THE PROFITABILITY THIS CO MES IN LOSS OF (RS.18,47,36,000 * 80% RS.14,77,88,800/-) AND (RS.15,91,44,000 * 30% RS.4,77,43,200) AND (RS.14,77,88,800 + RS.4,77,43,200 - 27,75,62,869/) RS.8,20,30,869/- THE SAME WAS THE POSITION FOR JOGE SHWARI SITE TOO. DUE TO STOP WORK LITIGATION IN BOTH PROJE CTS WE WERE UNABLE TO DECLARE ANY TILL SETTLEMENT OF THE MATTER S. THE CURRENT YEAR POSITION FOR VILE PARLE PROJECT IS STILL STOP WORK IS NOT OPEN AND WORK FOR THE SITE IS STILL NOT COMM ENCED, FOR JOGESHWARI SITE, WE MADE SETTLEMENT WITH LAND OWNER 'S AND START THE WORK FROM OCTOBER 2011. IN THIS CURRENT Y EAR, THE WORK IS COMPLETE FOR JOGESHWARI SITE. BUT AFTER PAY ING THE COST OF LITIGATION AND OTHERS, WE ARE STILL IN LOSS. DUE TO THIS REASON, WE HAVE NOT PAID ANY TAX ON CONSTRUCTION WIP AND DE CLARE THE OTHER INCOME AS OUR INCOME. PAY TAX ON THAT ONLY.' ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 4 HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED AN D PROCEEDED TO ADD 8% OF THE WORK-IN-PROGRESS AS INCOME. 4. ON APPEAL, THE LEARNED CIT(A) ACCEPTED THAT THER E WAS BONAFIDE AND GENUINE REASON FOR CHANGE IN THE METHOD OF ACCO UNTANCY. HE ALSO FOUND THAT ON THE FACTS CIRCUMSTANCES OF THE C ASE THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE WAS CORRECT. HE NCE, HE DELETED THE ADDITION OBSERVING AS UNDER: 4.2 THE HONORABLE SUPREME COURT EXPLAINED THE 'PROJ ECT COMPLETION METHOD OR COMPLETED CONTRACT METHOD' AND 'PERCENTAGE OF COMPLETION METHOD' IN THE CASE OF C. I.T. VS. BILAHARI INVESTMENT PVT. LTD. (299 ITR 1) AS UNDER: UNDER THE PROJECT COMPLETION METHOD OR COMPLETED CONTRACT METHOD, THE REVENUE IS NOT RECOGNIZED UNTI L THE PROJECT/CONTRACT IS COMPLETE. UNDER THE SAID METHOD , COSTS ARE ACCUMULATED IN A WIP ACCOUNT DURING THE COURSE OF THE PROJECT/CONTRACT. THE PROFIT AND LOSS IS ESTABLISHED IN THE LAST ACCOUNTING PERIOD AND TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. THE SAI D METHOD DETERMINES RESULTS ONLY WHEN THE PROJECT/CONTRACT IS COMPLETED. THIS METHOD LEADS TO OBJECTIVE ASSESSMENT OF THE RESULTS OF THE PROJECT/CONTRACT. ON THE OTHER HAND, THE PERCENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCO ME IN ORDER TO REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZED UNDER THE METHOD IS DETERMINED B Y REFERENCE TO THE STAGE OF COMPLETION OF THE CONTRAC T. THE STAGE OF COMPLETION CAN BE LOOKED AT UNDER THIS MET HOD BY TAKING INTO CONSIDERATION THE PROPORTION THAT CO STS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT 4.3 AS PER REVISED GUIDANCE ON NOTE ACCOUNTING FOR REAL ESTATE TRANSACTION ISSUED BY ICAI IN FEBRUARY 2012, THE PROFIT UNDER 'PERCENTAGE OF COMPLETION METHOD' CAN BE ESTI MATED ON SATISFACTION OF SEVERAL CONDITIONS E.G. EXPENDITURE INCURRED ON ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 5 CONSTRUCTION AND DEVELOPMENT COST IS MORE THAN 25% OF TOTAL CONSTRUCTION AND DEVELOPMENT COST, AT LEAST 25% OF SALEABLE PROJECT AREA IS SECURED BY CONTRACTS OR AGREEMENTS WITH BUYERS, AT LEAST 10% OF THE TOTAL REVENUE AS PER TH E AGREEMENT OF SALES ARE REALIZED ON THE DATE OF REPORTING ETC. UNDER THIS METHOD, THE REVENUE AS WELL AS COST IS RECOGNIZED A S A PERCENTAGE OF PROJECT COMPLETED AND FROM THE PROFIT SO ESTIMATED, COST SUCH AS GENERAL ADMINISTRATIVE COST , SELLING COST, DEPRECIATION OF PLANT AND EQUIPMENTS, ETC. SH OULD BE REDUCED AS THESE COSTS ARE NOT PART OF CONSTRUCTION AND DEVELOPMENT COST. THE METHOD IS APPLIED ON CUMULATI VE BASIS FOR EACH REPORTING PERIOD TO THE CURRENT ESTIMATES OF PROJECT REVENUES AND PROJECT COST. THE METHOD FURTHER PROVI DES THAT THE PROJECT REVENUE BY REFERENCE TO THE STAGE OF CO MPLETION OF THE PROJECT ACTIVITY SHOULD NOT EXCEED THE ESTIMATE D TOTAL REVENUE FROM THE ELIGIBLE AND LEGALLY ENFORCEABLE C ONTRACTS. IF IT IS PROBABLE THAT THE TOTAL PROJECT COSTS WILL EXCEE D TOTAL ELIGIBLE PROJECT REVENUES, THE EXPECTED LOSS SHOULD BE RECOG NIZED AS EXPENDITURE IMMEDIATELY. 4.4 FROM THE GUIDANCE NOTE ON ACCOUNTING FOR REAL E STATE TRANSACTION (REVISED 2012) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IT CLEARLY EMERGES THAT CURRENT PROJECT REVENUE, CURRENT PROJECT COST AND CUMULATIV E PROFITS HAVE TO BE REVIEWED REGULARLY IN THE LIGHT OF UPDAT ED ESTIMATED TOTAL PROJECT COST AND PROJECT REVENUE AND IN ACCOR DANCE WITH THE CONCEPT OF PRUDENCE, THE EXPECTED LOSS, IF ANY, HAS TO BE RECOGNIZED AS EXPENDITURE IMMEDIATELY. 4.5 THE CASE OF THE APPELLANT IS THAT IT REVIEWED T HE VIABILITY AND PROFITABILITY OF ITS PROJECTS AT VILE PARLE AND JOGESHWARI IN THE LIGHT OF SEVERAL ADVERSE DEVELOPMENTS. THESE DEVELOPMENTS CONSISTED OF WORK STOPPAGE NOTICE AT V ILE PARLE PROJECT BY MUNICIPAL CORPORATION OF GREATER MUMBAI, DELAY IN COMPLETION OF PROJECTS, SLUGGISH DEMAND IN THE REAL -ESTATE MARKET, INCREASED COST OF FINANCE, SEVERE LIQUIDITY ISSUES, COURT CASES FILED BY SEVERAL TENANTS IN RELATION TO TITLE OF THE PROPERTY, EXTORTION, TENANT ELIGIBILITY ISSUES, ETC . THESE ADVERSE DEVELOPMENT SERIOUSLY AFFECTED VIABILITY AND PROFIT ABILITY OF PROJECTS AS WELL AS THEIR TIMELY COMPLETION. BECAUS E OF IT, THE APPELLANT WAS OF THE VIEW THAT THESE PROJECTS WERE UNVIABLE, THE ULTIMATE RESULT ON COMPLETION OF THESE PROJECTS WOULD BE LOSS AND THE PROFIT ALREADY OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2009-10 AND 2010-11 WOULD BE MORE T HAT ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 6 THE ACTUAL RESULTS ON COMPLETION OF PROJECTS. ON BE ING ASKED, THE DOCUMENTARY EVIDENCES IN SUPPORT OF THE ABOVE A DVERSE FACTORS WERE ALSO FILED DURING APPELLATE PROCEEDING S. THE COUNSEL OF THE APPELLANT POINTED OUT IN THE COURSE OF HEARING THAT IN CASE OF VILE PARLE PROJECT AND OCCUPATION A ND COMPLETION CERTIFICATE HAS NOT BEEN ISSUED BY THE M UNICIPAL CORPORATION IN RESPECT OF OTHER A, B AND C BUILDING S. THESE DEVELOPMENTS SHOWED THAT THE VIABILITY OF THE BUILD ING PROJECTS AT VILE PARLE AND JOGESHWARI AND PROFITABILITY THER EFROM WERE QUITE DOUBTFUL AND UNCERTAIN. MEANWHILE THE APPELLA NT CONSULTED OTHER PROFESSIONAL ACCOUNTANTS ON THE MET HOD OF ACCOUNTING I.E. PROJECT COMPLETION METHOD' WHO OPIN ED THAT UNDER THE PROJECT COMPLETION METHOD OR COMPLETED CO NTRACT METHOD, THE REVENUE IS NOT RECOGNIZED UNTIL THE PROJECT/CONTRACT IS COMPLETE. UNDER THE SAID METHOD , COSTS ARE ACCUMULATED IN A WIP ACCOUNT. THE PROFIT AND LOSS I S ESTABLISHED IN THE LAST ACCOUNTING PERIOD AND TRANS FERRED TO THE PROFIT AND LOSS ACCOUNT. THE SAID METHOD DETERM INES RESULTS ONLY WHEN THE PROJECT/CONTRACT IS COMPLETED . THERE WAS NO METHOD OF ACCOUNTING WHICH PERMITTED ESTIMAT ION OF INCOME FROM BUSINESS AT 8% OF THE 'WORK-IN-PROGRESS COMPLETED DURING THE YEAR. 4.6 ON PERUSAL OF FACTS OF THE CASE AND DOCUMENTS F ILED DURING APPELLATE PROCEEDINGS, THE APPELLANT WAS FUL LY JUSTIFIED IN DEVIATING FROM THE METHOD OF ESTIMATING INCOME F OLLOWED BY IT AND NOT ESTIMATING ANY INCOME FROM THE BUILDING PROJECTS DURING THE YEAR UNDER CONSIDERATION UNDER THESE EXT RA- ORDINARY DEVELOPMENTS, PARTICULARLY WHEN THE ASSESS ING OFFICER COULD NOT POINT OUT TO ANY DEFECT IN RECORD ING OF REVENUES, EXPENSES, ASSETS AND LIABILITIES IN THE B OOKS OF ACCOUNT REGULARLY MAINTAINED BY THE APPELLANT. A BU SINESS MAN IS THE BEST JUDGE OF ITS AFFAIRS. IF ON BONAFID E CONSIDERATION OF FACTS AS A PRUDENT MAN, HE COMES T O A CONCLUSION THAT THE PROJECTS UNDERTAKEN BY HIM WERE NOT VIABLE, THERE MAY BE LOSS ON COMPLETION THEREOF AND DOES NOT ESTIMATE ANY INCOME AS WAS DONE IN THE PAST, HIS JU DGEMENT CANNOT BE QUESTIONED BY THE ASSESSING OFFICER UNLES S IT IS SHOWN THAT HIS CONCLUSION WAS MALAFIDE. THE ACCOUNT ING CONCEPT OF PRUDENCE REQUIRES THAT THE INCOME AND AS SETS SHOULD NOT BE OVERSTATED AND LIABILITIES AND EXPENS ES SHOULD NOT BE UNDERSTATED. WHILE REVENUES AND PROFITS ARE RECOGNISED ONLY WHEN REALISED OR THERE IS REASONABLE CERTAINTY OF THEIR ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 7 REALISATION, THE LIABILITIES, EXPENSES AND LOSSES A RE RECOGNISED WHEN THERE IS REASONABLE POSSIBILITY OF INCURRING T HEM. 4.7 THE HONOURABLE HYDERABAD BENCH OF I.T.A.T. HELD IN THE CASE OF ADDL. C.I.T. VS. HILL COUNTY PROPERTIES LTD . (57 TAXMANN.COM 400) AS UNDER: 37. IN THE PRESENT CASE, AS A RESULT OF EXTRA-ORDIN ARY EVENTS WITNESSED BY THE SATYAM GROUP OF COMPANIES T O WHICH THE ASSESSEE COMPANY BELONGED IN THE MONTH OF JANUARY, 2009, THERE WAS UNCERTAINTY WITH REGARD TO THE COMPLETION OF PROJECT BY THE ASSESSEE COMPANY A ND DELIVERY OF UNITS BOOKED. KEEPING IN VIEW THIS UNCERTAINTY, SOME OF THE AGREEMENT HOLDERS TENDERED APPLICATIONS FOR CANCELLATION OF THE UNITS BOOKED A ND DEMANDED REFUND OF THE ADVANCES PAID. SOME OF THE AGREEMENT HOLDERS ALSO FILED CASES AGAINST THE ASSESSEE COMPANY FOR CANCELLATION THE AGREEMENTS AN D REFUND OF THE AMOUNTS PAID BY THEM. THE ULTIMATE COLLECTION FROM THESE AGREEMENT HOLDERS THUS BECAME UNCERTAIN AND THE ASSESSEE COMPANY, IN OUR OPINION, RIGHTLY DECIDED TO POSTPONE THE REVENUE RECOGNITION TO THE EXTENT OF SUCH UNCERTAINTY, BY ADOPTING THE NEW METHOD OF RECOGNITION OF INCOME ON THE BASIS OF REGISTRATION OF AGREEMENTS FOR SALE OR HANDING OVER OF POSSESSION OF THE UNITS, AS THE SAME ENABLED IT TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY. AS A MATTER OF FACT, THE CLAIM MADE BY S OME OF THE AGREEMENT HOLDERS FOR CANCELLATION OF AGREEM ENTS FOR SALE ALREADY EXECUTED AND FOR REFUND OF THE ADVANCES ALREADY PAID CREATED UNCERTAINTY RELATING TO COLLECTABILITY WHICH AROSE EVEN AFTER THE EXECUTION OF THE AGREEMENTS FOR SALE, AND THIS UNCERTAINTY WAS ALSO PROVIDED FOR BY THE ASSESSEE BY REVERSING THE INCOM E ALREADY RECOGNIZED ON THE BASIS OF EXECUTION OF THE AGREEMENTS FOR SALE. THE CHANGE IN THE METHOD OF RECOGNITION OF INCOME, AS ADOPTED BY THE ASSESSEE COMPANY IN THE YEAR UNDER CONSIDERATION AS WELL AS THE CONSEQUENT REVERSAL OF INCOME ON THE BASIS OF CANCELLATION/LEGAL CASES THUS WAS IN TERMS OF THE RELEVANT ACCOUNTING STANDARD LAYING DOWN PRUDENTIAL NORMS OF REVENUE RECOGNITION, AND AS HELD BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2008-09, THE SAME WAS ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 8 LEGALLY CORRECT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE COMPANY. IT IS PERTINENT TO NOTE HERE THAT THE AP STATE CONSUMER DISPUTE REDRESSAL COMMISSION, HYDERABAD (VIDE ITS ORDER AT PAGES 38 TO 55 OF THE PAPER BOOK) AS WELL AS NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION, NEW DELHI (VIDE ORDER AT PAGES 56 TO 87 OF THE ASSESSEES PAPER-BOOK) SUBSEQUENTLY ALLOWED THE CLA IM OF THE AGREEMENT HOLDERS SEEKING CANCELLATION OF TH E AGREEMENTS FOR SALE AND ALSO DIRECTED THE ASSESSEE COMPANY TO REFUND THE AMOUNTS PAID BY THEM ALONG WITH INTEREST, AND EVEN THE SLP FILED BY THE ASSESS EE AGAINST THE ORDER OF THE NATIONAL CONSUMER DISPUTE REDRESSAL COMMISSION WAS DISMISSED BY THE HON'BLE SUPREME COURT. THESE SUBSEQUENT EVENTS CLEARLY SHOW THAT THERE WAS AN UNCERTAINTY IN ASSESSING THE ULTI MATE COLLECTION AND REVENUE RECOGNITION WAS RIGHTLY POSTPONED BY THE ASSESSEE COMPANY TO THE EXTENT OF SUCH UNCERTAINTY INVOLVED BY CHANGING THE METHOD OF RECOGNITION OF INCOME AS WELL AS PROVIDING FOR REVE RSAL OF REVENUE ALREADY RECOGNISED EARLIER ON THE BASIS OF CANCELLATIONS/ LEGAL CASES. 38. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE LEARNED DRP WAS FULLY JUST IFIED IN DIRECTING THE ASSESSING OFFICER TO ACCEPT THE CH ANGE IN THE METHOD OF REVENUE RECOGNITION ADOPTED BY THE APPELLANT AND CONSEQUENTIAL REVERSAL OF REVENUE ON THE BASIS OF THE CANCELLATIONS/LEGAL CASES, AND UPHOLDI NG ITS ORDER GIVING RELIEF TO THE APPELLANT ON THIS IS SUE, WE DISMISS GROUND NO.7 OF THE REVENUE'S APPEAL. 4.8 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE APPELLANT WAS FULLY JUSTIFIED IN NOT ESTI MATING INCOME FROM BUSINESS AT 8% OF THE WORK IN PROGRESS COMPLET ED DURING THE YEAR. ACCORDINGLY, THE ADDITION OF RS.1,20,66,2 60/- IS HEREBY DELETED AND THE APPELLANT GETS A RELIEF OF RS.1,20,66,260/-. 5. AGAINST THE ABOVE, THE REVENUE IS IN APPEAL BEFO RE US. ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 9 6. WE HAVE BEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT IN THIS CASE ASSESSEE HAS CHANGED ITS MET HOD OF ACCOUNTING AS COMPARED TO EARLIER YEAR ON THE GROUND THAT ON T HE FACTS AND CIRCUMSTANCES OF THE CASE ASSESSEE HAS EVALUATED IT S PERFORMANCE AND DUE TO THE CIRCUMSTANCES IT WAS PRUDENT TO CHANGE E THE METHOD OF ACCOUNTING FROM PERCENTAGE COMPLETION METHOD TO THE PROJECT COMPLETION METHOD. THERE WERE SOME LEGAL DISPUTES, HENCE THE PROJECT WORKS WAS STALLED. HENCE ASSESSEE CONSIDERED AT APP ROPRIATE TO CHANGE THE METHOD OF ACCOUNTING OF PROJECT REVENUE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION. IT IS NOT THE CASE THAT ASSESSING OFFICER HAS FOUND ANY FALLACY IN THE SUBM ISSION OF THE ASSESSEE. THE AO HAS NOT FOUND THE ASSESSEES SUBMI SSION REGARDING THE PROJECT BEING STALLED TO BE INCORRECT. THE ASSE SSING OFFICERS CASE IS THAT ASSESSEE CANNOT CHANGE ITS METHOD OF ACCOUNTIN G. 7. LD. CIT-A ON THE OTHER HAND HAS EXAMINED THE ISS UE AND FOUND THAT THERE WAS REASONABLE CAUSE FOR THE ASSESSE TO CHANGE THE METHOD OF ACCOUNTING. THE LEARNED CIT-A HAS FOUND THAT THE RE WERE SOME LEGAL DISPUTES, AS A RESULT OF WHICH THE ASSESSEES PROJE CT HAD BEEN STALLED. IN THESE CIRCUMSTANCES LEARNED CIT-A HAS REFERRED T O THE ACCOUNTING GUIDELINES IN THIS REGARD WHICH PROVIDE THAT IN CAS E OF REAL ESTATE TRANSACTION THE ASSESSEE SHOULD PERIODICALLY REVIEW ITS METHOD OF ACCOUNTING. 8. AS THERE WAS A STOPPAGE OF WORK THE ASSESSEE WAS FORCED TO CHANGE THE METHOD OF ACCOUNTING. THE FACTUAL DETAIL SUBMITTED BY THE ASSESSEES COUNSEL DULY SHOW THAT SUBSEQUENTLY UPON THE COMPLETION OF THE PROJECT, IN ACCORDANCE WITH THE PROJECT COMP LETION METHOD ADOPTED, THE ASSESSEE HAS OFFERED THE REMAINING AMO UNT TO TAXATION. IN THIS VIEW OF THE MATTER WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF LEARNED CIT-A. THE GROUND RAISED BY THE REVENUE IS TOTALLY MISPLACED THAT ANY OF THE ACCOUNTING STANDARD OR GUIDELINE PR OVIDE THAT METHOD ITA NO.4846/MUM/2015 A SURTI DEVELOPERS PVT. LTD. 10 ONCE ADOPTED CAN NEVER BE CHANGED HOWSOEVER THE CIR CUMSTANCES CHANGE. 9. IT IS SETTLED LAW AS WELL AS WELL ACCEPTED ACCOU NTING STANDARD THAT IF THE FACTS AND CIRCUMSTANCES WARRANT, METHOD OF ACCOUNTING MAY BE DULY CHANGED AND THE CHANGE IN METHOD WILL B E ACCEPTED. IN THESE CIRCUMSTANCES IN OUR CONSIDERED OPINION THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT-A, WHO HAS DULY RECORDED T HE CIRCUMSTANCES WARRANTED FOR THE CHANGE IN THE METHOD AND HAS FOUN D THE SAME ACCEPTABLE. HENCE, THE ADDITION MADE BY THE AO WHIC H IS NOT BASED UPON COGENT BASIS HAS RIGHTLY BEEN DELETED BY THE L D. CIT(A). WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT- A. ACCORDINGLY, WE UPHOLD THE SAME 10. IN THE RESULT REVENUES APPEAL STANDS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2019. SD/- SD/- (RAM LAL NEGI) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 15.03.2019 THIRUMALESH, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), 4. THE CIT 5. THE DR, A BENCH BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR/ SR. PS) INCOME TAX APPELLATE TRIBUNAL, MUMBAI