M/S ASHOKA HI-TECH BUILDERS P. LTD., Indore V. THE DCIT (CENTRAL)-1, Indore

ITA 686/IND/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4607 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 23-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K G GOYAL
• Assessee Lawyers: P M CHOUDHARI
• Keywords: Rejection of books of accounts; Capital asset; Business income; Search and seizure; Retrospective amendment; Question of law; Assessment record
• Section: 143(3); 142(1); 153A; 133(6); 145; 132; 144

Judgement Text

ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.121/IND/2016 & 686/IND/2016 ASSESSMENT YEAR: 2012-13& 2013-14 REVENUE BY SHRI K.G. GOYAL , SR.DR ASSESSEE BY SHRI P.M.CHOUDHAR I , ADVOCATE DATE OF HEARIN G 26.6.2018 DATE OF PRONOUNCEMENT 03.8.2018 O R D E R PER MANISH BORAD, AM. THESE TWO APPEALS FILED BY THE ASSESSEE PERTAINING TO THE A.Y. 2012-13 & 2013-14 ARE DIRECTED AGAINST THE O RDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-III, INDORE DA TED 30.03.2016 WHICH IS ARISING OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT DATED 24.3.2015 PASSED BY DCIT (CENTRAL)-1,INDORE. ASHOKA HI - TECH BUILDERS P.LTD, INDORE VS. DY. COMMISSIONER OF INCOME TAX(CENTRAL)-I, INDORE ( APPELLANT ) (RESPONDENT ) PAN NO.AAHCA5239R ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EALS FOR ASSESSMENT YEAR 2012-13; 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW IN CONF IRMING THE ADDITION OF RS.16,12,34,754/- MADE BY ADOPTING AND APPLYING THE METHOD OF ACCOUNTING FOLLOWED BY A DIFFERENT ASSESSEE M/S JSM DEVCONS PVT.LTD WITH WHOM THE APPELLANT HAD MERELY ENTERED INTO CONTRACT FOR DEVELOPMENT OF THE LAND BELONGING TO THE APPELLANT COMPANY. THE AO AND CIT(A) FAILED TO SEE THAT THE APPELLANTS INCOME HAD TO BE ASSESSED AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY IT AND THE AO COUL D NOT CHANGE THE APPELLANTS METHOD OF ACCOUNTING ON THE BASIS OF TH E METHOD FOLLOWED BY ANOTHER ASSESSEE. THE AUTHORITIES BELOW HAVE ALSO ERRED IN APPLYING THE ACCOUNTING STANDARDS AS-7 WHICH ARE APPLICABLE TO D EVELOPERS WITHOUT APPRECIATING THE FACT THAT APPELLANT IS NOT THE DEV ELOPER BUT IS LAND OWNER. 2. THE LEARNED CIT(A) AS ALSO THE AO FAILED TO SEE THAT THE INCOME ARISING OUT OF THE DEVELOPMENT AGREEMENT BETWEEN THE APPELL ANT AND THE DEVELOPER M/S JSM DEVCONS PVT LTD WOULD ACCRUE IN T HE HANDS OF THE APPELLANT ONLY WHEN THE APPELLANTS RIGHT TO GET TH E 32% CONSTRUCTED AREA UNDER THE DEVELOPMENT AGREEMENT WOULD CRYSTALLIZE A S PER THE TERMS OF THE DEVELOPMENT AGREEMENT BETWEEN THE PARTIES, ACCO RDING TO WHICH APPELLANT IS ENTITLED TO RECEIVE 32% AREA ON COMPLE TION OF THE CONSTRUCTION OF THAT AREA CORRESPONDINGLY THE METHOD OF ACCOUNTI NG TO RECOGNIZE THE REVENUE ONLY ON EXECUTION AND REGISTRATION OF SALE DEED IN FAVOUR OF BUYER ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 3 I.E. THE METHOD TO RECOGNIZE REVENUE AS PER PROJECT COMPLETION METHOD IS CORRECT AND PROPER AND THE APPELLANTS INCOME OUGHT TO HAVE BEEN ASSESSED IN ACCORDANCE WITH THE SAID METHOD IN VIEW OF THE MANDATORY PROVISIONS OF SECTION 145. 3. WITHOUT PREJUDICE TO ABOVE EVEN ASSUMING WITHOUT ADMITTING THAT THE APPELLANTS INCOME IS TO BE ASSESSED ACCORDING TO T HE PERCENTAGE COMPLETION METHOD, EVEN THEN THE ADDITION OF RS.16, 12,34,754/- MADE BY AO AND CONFIRMED BY CIT(A) IS IMPROPER AND THE ADDI TION OUGHT TO HAVE BEEN RESTRICTED TO RS.6,53,00,764/- RECEIVED BY APP ELLANT FROM THE DEVELOPER TOWARDS ITS 32% SHARE IN THE YEAR UNDER C ONSIDERATION. THE ADDITION IS THUS EXCESSIVE AND UNREASONABLE. 3. ASSESSED HAS ALSO FILED APPEAL FOR A.Y 2013 14 RAISING SIMILAR GROUNDS AGAINST THE ADDITION OF RS.12,25,55,171/- C ONFIRMED BY LD. CIT(A). 4. FROM THE PERUSAL OF THE ABOVE GROUNDS FOR BOTH T HE YEARS THE ISSUE NEEDS TO BE ADJUDICATED IS WHETHER BOTH THE L OWER AUTHORITIES WERE JUSTIFIED IN CONFIRMING THE ADDITION BY APPLYI NG THE PERCENTAGE COMPLETION METHOD AS AGAINST THE PROJECT COMPLETION METHOD/ COMPLETED CONTRACT METHOD ADOPTED BY THE ASSESSEE THEREBY SHOWING THE REVENUE ON THE BASIS OF THE SALE DEEDS REGISTERED. AS ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 4 THE ISSUE RAISED IN THE APPEAL ARE COMMON AND PERTA INING TO THE SAME ASSESSEE, THEY HAVE BEEN HEARD TOGETHER AND AR E BEEN DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BRENATY. FOR THE PURPOSE ADJUDICATION WE WILL TAK E UP THE FACTS FOR A.Y. 2012-13 AS THE BASIS AND OUR DECISION SHALL AP PLY TO THE APPEAL FOR A.Y. 2013-14 ALSO. 5. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE/SAL ES/DEVELOPMENT OF LAND, REAL ESTATE AND INFRASTRUCTURE AND CONSTRU CTION AND CIVIL WORK. SEARCH AND SEIZURE OPERATIONS U/S 132 OF THE ACT WERE CARRIED OUT ON THE BUSINESS AS WELL AS RESIDENTIAL PREMISES OF THE APOLLO GROUP OF INDORE INCLUDING THE ASSESSEE ALONG WITH OTHER CONCERNS/BUSINESS ASSOCIATES ON 21.09.02. AS MOST OF THE CONCERNS AND INDIVIDUAL ARE INTER LINKED THE CASE WERE CLUBBED UNDER THE OVER ALL NAME OF APOLLO (NRK) GROUP OF IN DORE ASSESSEE COMPANY IS ONE OF THE COMPANY OF THE NRK GROUP OF I NDORE AND WAS INCORPORATED ON 22.1.2009. WARRANT OF AUTHORIZATION WAS ISSUED U/S 153A OF THE ACT TO THE ASSESSEE ON 31.5.2013 FO R A.Y. 2007-08 TO 2012-13. AS THE ASSESSEE WAS INCORPORATED ON 22 .1.2009 IT WAS ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 5 REQUIRED TO FILE RETURNS OF INCOME FOR THE A.Y. 200 9-10 TO 2012-13. IN COMPLIANCE TO THE NOTICES U/S 143(2) OF THE ACT THE ASSESSEE FILED RETURNS OF INCOME. AS FAR AS FOR THE ASSESSMENT YE AR 2012-13 IS CONCERNED THE ASSESSEE DISCLOSED LOSS OF RS.25,98,0 02/- IN THE RETURNS FILED REGULARLY U/S 139(1) OF THE ACT ON 2 8.9.2012 AND THE SAME AMOUNT OF LOSS I.E. RS.25,98,002/- WAS DISCLOS ED IN THE RETURN FILED IN COMPLIANCE TO NOTICE U/S 153A OF THE ACT O N 12.7.2013. THEREAFTER NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE DULY SERVED UPON THE ASSESSEE AND NECESSARY DETAILS WERE CALLED FOR FROM THE ASSESSEE. THE ISSUE LINKED TO THE GROUNDS RAISED I N THIS APPEAL RELATES TO AGREEMENT DATED 1.4.2009 ENTERED INTO BE TWEEN THE ASSESSEE AND M/S. JSM DEVCON PVT.LTD. THE ASSESSEE IS THE OWNER OF 2.039 HECTARE OF LAND SITUATED AT PIPLYAKUMAR, TEHSIL INDORE AND THE SAME WAS GIVEN FOR DEVELOPMENT TO M/S. DEVCON P VT. LTD. AS PER THE TERMS AND CONDITION OF THE DEVELOPMENT AGRE EMENT, THE DEVELOPER WILL CONSTRUCT VARIOUS HIGH RISE BUILDING S ON THE LAND AND IN CONSIDERATION FOR ALLOWING THE DEVELOPMENT OF LA ND, THE ASSESSEE COMPANY WILL BE ENTITLED TO 32% OF THE TOTAL SALEAB LE CONSTRUCTED AREA TO BE CONSTRUCTED BY THE DEVELOPER. THE UNITS WERE NOT DEMARCATED BETWEEN THE DEVELOPER AND THE LAND OWNER . INSTEAD, IT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 6 WAS DECIDED THAT ENTIRE REVENUE SHALL BE SHARED IN THE RATIO OF 68:32 AS DECIDED IN THE DEVELOPMENT AGREEMENT. ON EXAMIN ATION OF THE AUDITED ACCOUNTS OF THE ASSESSEE, IT WAS REVEALED T HAT THE ASSESSEE HAS NOT REFLECTED ANY REVENUE FROM SALE OF UNITS HO WEVER IT WAS GETTING ADVANCE AGAINST SALE FROM THE DEVELOPER FRO M 2010-11 ONWARDS. SUMMARY OF THE TRANSACTIONS WITH M/S JSM DEVCON PVT. LTD AS REFLECTED IN THE BOOKS OF THE ASSESSEE IS BE ING REPRODUCED AS UNDER: A.Y 2011-12 A.Y 2012-13 A.Y. 2013-14 OPENING BALANCE 19,00,000 3,23,35,702 7,52,36,466 ADD: SHARE OF ADVANCE RECEIVABLE 4,84,35,702 6,53,00,764 5,23,49,207 LESS: AMOUNT RECEIVED 1,61,00,000 2,24,00,000 2,88,50,000 CLOSING BALANCE 3,23,35,72 7,52,36,466 9,87,35,673 6. AS AT 31 ST MARCH, 2013, THE ASSESSEE COMPANY HAS REFLECTED AN AMOUNT OF RS.9,87,35,673/- RECEIVABLE FROM M/S. DEVCON PRIVATE LIMITED. IN ORDER TO EXAMINE THE TRANSACTION, DETA ILS WERE CALLED FROM M/S. JSM DECON PRIVATE LIMITED U/S 133(6) OF T HE I.T. ACT. IN RESPONSE TO THE SAID NOTICE, M/S JSM DEVCON PRIVATE LIMITED ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 7 SUBMITTED COPIES OF LEDGER ACCOUNT OF THE ASSESSEE COMPANY IN THE BOOKS OF M/S. JSM DEVCON PRIVATE LTD. 7. IT WAS SUBMITTED BY THE ASSESSEE DURING THE ASSE SSMENT PROCEEDINGS THAT IT IS CONSISTENTLY FOLLOWING PROJE CT COMPLETION METHOD AND HAS OFFERED THE REVENUE FOR TAX IN THE Y EAR IN WHICH SALES HAVE BEEN EFFECTED AND THE SALE DEEDS REGISTE RED. HOWEVER LD.A.O WAS NOT CONVINCED WITH THE SUBMISSION AND MA DE BY THE ASSESSEE AND HE APPLIED THE METHOD ADOPTED BY M/S. DEVCON PVT. LTD I.E. THE PERCENTAGE COMPLETION METHOD ON THE AS SESSEE AND CALCULATED THE INCOME OF THE ASSESSEE APPLYING THE RATIO OF 68:32 AS AGREED IN THE AGREEMENT. THE LD. ASSESSING OFFICER TOOK THE BASIS OF FINANCIAL DATA OF M/S. JSM DEVCON PVT. LTD WHICH HAS ACCOUNTED FOR THE REVENUE ON THE BASIS OF PERCENTAGE COMPLETI ON METHOD AS PER THE GUIDELINES PRESCRIBED BY THE ICAI. M/S. JS M DEVCON PVT. LTD RECOGNIZE THE REVENUE OF RS.35,47,19,797/- IN F INANCIAL YEAR 2011-12 AND REVENUE OF RS.26,96,23,914/- IN FINANCI AL YEAR 2012- 13. THE LD. ASSESSING OFFICER TOOK BOTH THESE FIGU RES REPRESENTING 68% OF TOTAL REVENUE OF THE PROJECT AND ACCORDINGLY CALCULATED THE SHARE OF REVENUE FOR FINANCIAL YEAR 2011-12 AND 201 2-13 AT RS.16,69,26,963/- AND RS.12,68,81,842/- RESPECTIVEL Y. AMOUNT OF ADDITION WAS CALCULATED IN THE FOLLOWING MANNER; ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 8 PARTICULAR SALES BEING 32% OF TOTAL AMOUNT RECEIVED BY DEVELOPER COST @3.41% OF SALES PROFIT/ADDITION F.Y. 2011-12 16,69,26,963/- 56,92,209/- 16,12,34,754/ - F.Y. 2012-13 12,68,81,842/- 43,26,671/- 12,25,55,171/ - TOTAL 29,38,08,805/- 1,00,18,880/- 28,37,89,925/- 8. INCOME ASSESSED ACCORDINGLY AFTER MAKING ADDITIO N OF RS.16,12,34,754/-. 9. AGGRIEVED ASSESSEE FILED APPEAL BEFORE LD. CIT(A ) AGAINST THE METHOD AND LD.CIT(A) CONFIRMED THE ACTION TAKEN BY LD.AO OBSERVING AS FOLLOWS; 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER, THE A PPELLANT'S CONTENTIONS AND THE AUDITED ACCOUNTS OF M/ S JSM DEV CON PRIVATE LIMITED. IN THE ASSESSMENT YEAR UNDER CONSI DERATION THE APPELLANT COMPANY HAS NOT REFLECTED ANY REVENUE FRO M THE OPERATIONS IN THE P&L ACCOUNT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT COMPANY IN RESPONSE TO TH E QUERY FOR NOT RECOGNIZING REVENUE IN THE BOOKS OF ACCOUNT HAD FURNISHED THE FOLLOWING REASONS:- ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 9 I)THE COMPANY HAS BEEN RECOGNIZING REVENUE ON THE BA SIS OF SALES DEEDS EXECUTED AT THE TIME OF FULL PAYMENT COUPLED W ITH POSSESSION OF THE OPARTMENT. II)ADVANCES HAVE BEEN RECEIVED FROM VARIOUS CUSTOMER S ON THE BASIS OF SCHEDULE GIVEN IN THE ALLOTMENT LETTER WHICH SPECIFIE S THAT INSTALLMENT SHALL BE PAID ON COMPLETION OF A PARTICULAR LEVEL OF ACTIVITY. THE AMOUNT SO RECEIVED IS LIABLE TO REFUND AND THE POSSESSION SHALL BE GIVEN AT THE TIME OF EXECUTION OF THE SALE DEED. III) IN THE TRANSACTION OF ADVANCE RECEIVED FROM CUSTO MER, THERE IS NO TRANSFER OF PROPERTY AS ENVISAGED IN SEC. 2(47) OF THE INCOME TAX ACT, 1961 READ WITH SECTION 53A OF TRANSFER OF PROPERTY ACT, 1882. IV) SIMILAR TYPE OF ACCOUNTING METHOD (MERCANTILE) H AS BEEN FOLLOWED BY THE ASSESSEE FROM YEAR TO YEAR. 4.1 THE ASSESSING OFFICER DID NOT ACCEPT THE APPELL ANT'S CONTENTIONS FOR THE FOLLOWING REASONS:- I) THE ASSESSEE HAS STATED THAT THE REVENUE IS RECOQNIZED ON EXECUTION OF THE SALE DEEDS. IN THIS RESPECT, IT IS O NCE AGAIN REITERATED THAT THE ASSESSEE COMPANY HAS ENTERED IN TO A JOINT VENTURE AGREEMENT WITH M / S JSM DEVCON PRIVATE LIMITED IN WHICH THE PROJECT WAS TO BE DEVELOPED BY ,THE SAID PARTY AND : THE ENTIRE REVENUE OF THE PROJECT SHALL BE SHARED BETWE EN THE ASSESSEE COMPANY AND THE DEVELOPER COMPANY IN THE RATIO OF 32:68. ALL THE ACTS AND DEEDS IN RESPECT OF THE PROJECT INCLUDING BUT NOT LIMITED TO CONSTRUCTION O F BUILDINQ, OBTAINING APPROVALS FROM AUTHORITIES, DEALING WITH CUSTOMERS, ISSUING ALLOTMENT LETTERS AND RECEIVING PAYMENT AS PER SCHEDULE ARE BEING UNDERTAKEN BY M/ S. JSM DEVCON PRIVATE LIMITED AND THE ASSESSEE IS NOT REQUIRED TO PERFORM ANY ACTIVITY IN THE PROCESS . THAT IS ALL THE RISK ASSOCIATED WITH THE TRANSACTIONS ARE ON THE PART OF THE DEVELOPER. II) M/ S. JSM DEVCON PRIVATE LIMITED, WHILE DECIDING ON THE A CCOUNTING METHOD TO RECOGNISE THE REVENUE HAD TWO OPTIONS BEFORE IT VIZ WHETHER T O APPLY COMPLETED CONTRACT METHOD OR TO ADOPT PERCENTAGE COMPLETION METHOD. IN BOTH THE OPT IONS, THE DIFFERENCE IS ON ONLY ON ACCOUNT OF RISK AND REWARD. IN THE COMPLETED CONTRACT METHOD, THE R ISK AND REWARD DO NOT GET TRANSFERRED UNTIL THE COMPLETION OF THE ENTIRE CONT RACT WHEREAS IN THE PERCENTAGE COMPLETION METHOD THE RISK AND REWARDS ARE TRANSFERRED AND SUB SEQUENT TO SUCH TRANSFER ACTS AND DEED ARE DONE FOR COMPLETION. PARA 3.3 OF THE SAID GUIDANCE NOTE EXPLAIN THE SITUATION IN WHICH THE ABOVE TWO METHODS ARE TO BE APPLIED READS AS UNDER: 'IN CASE OF REAL ESTATE SALES, THE SELLER USUALLY E NTERS INTO AN AGREEMENT FOR SALE WLTIL THE BUYER AT INITIAL STAGES OF CONSTRUCTION. THIS AGREEMENT FOR SALE IS ALSO CONSIDERED TO HAVE THE EFFECT OF TRANSFERRING ALL SIGNIFICANT RISKS AND REWARDS OF O WNERSHIP TO THE BUYER PROVIDED TNE AQRCENICNT IS LEGALLY ENFORCEABLE AND SUBJECT TO THE SATISFACTION OF CONDITIONS WHICH SIGNIFY TRARISFERRINO OF SIGNIFICANT RISKS AND REWARDS EVEN THOUGH THE LEGAL TITLE IS NOT TRANSFERRED OR THE POS SES SION OF THE REAL ESTATE IS NOT GIVEN TO THE BUYER. ONCE THE SELLER HAS TRANSFE RRED ALL THE SIGNIFICANT RISKS AND REWARDS TO THE BUYER, ANY ACTS ON THE REAL ESTATE PERFORMED BY THE SELLER ARE, IN SUBSTANCE, PERFORMED ON BEHALF OF THE BUYER IN THE MANNER SIMI LAR TO A CONTRACTOR. ACCORDINGLY, REVENUE IN SUCH CASES IS RECOGNISED BY APPLYING THE PERCENTAGE OF COMPLETION METHOD. ' III) FROM THE ABOVE, IT IS CLEAR THAT THE RISK AND REWA RD OF THE TRANSACTIONS CAN BE SHIFTED EVEN WHEN THE . LEGAL TITLE IS NOT TRANSFERRED OR THE POSSESSION IS NOT GIVEN TO THE BUYER. M/ S JSM DEVCON PRIVATE LIMITED AFTER CONSIDERING ALL TH E FACTORS HAS ADOPTED PERCENTAGE COMPLETION METHOD FOR REVENUE RECOGNITION, WHICH SH ALL BE BINDING ON ASSESSEE AS WELL, AS IT IS DEPENDENT ON THE DEVELOPER ON ALL THE ACTIVITIES. T HUS, THE ARGUMENT OF THE ASSESSEE THAT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 10 REVENUE IS RECOGNIZED ON THE BASIS OF SALES DEED EXECUTED AT T HE TIME OF FULL PAYMENT COUPLED WITH POSSESSION OF THE APARTMENT DOES NOT HOLD GROU ND. IV) THE ASSESSEE PROFIT AND LOSS ACCOUNT CES IT REL IANCE ON THE ALLOTMENT LETTER ISSUED BY 11'1/ S LLSM DEVCON PRIVATE LIMITED AS PER WHICH THE AMOUNT RECE IVED AS AD.UANCE IS LIABLE TO REFUND AND THE POSSESSION SHALL BE GIVEN AT THE TIME OF EX ECUTION OF THE SALE DEED. AS HAS BEEN DISCUSSED EARLIER THE RISK AND REUIARD S OF THE TRA NEACTION HAS BEEN SHIFTED TO BUYER ON THE DATE OF ENTERING INTO THE AGREEMENT. THE BUYER IS A T LIBERTY TO SELL THE INTEREST IN THE FLAT TO ANOTHER PERSON US PER HIS WILL AND RECEIVE THE CONS IDERATION. SIMILARLY, THE BUYER IS AT LIBERTY TO CANCEL THE BOOKING AND SHALL GET THE AMOUNT PAID AFTER DE DU CTION OF PRE SCRIBED AMOUNTS. ONCE THE RISK AND REWARDS ARE TRANSFERRED, THE PEND ENCY OF CERTAIN THINGS DOES NOT AFFECT THE TRANSACTION. V) THE ASSESSEE HAS CONTESTED THAT THERE IS NO TRANSFE R OF THE PROPERTY AS ENVISAGED U/ S 2(47) READ WITH SECTION 53A OF TRANSFER OF PROPERTY ACT, 1882 AND SINCE, THERE IS NO TRANSFER, THERE IS NO REASON FOR RECOGNIZE REVENUE. IN ORDER TO EXAMINE T HE ARGUMENT OF THE ASSESSEE, IT WOULD BE IMPERATIVE TO EXAMINE SEC. 2(47) WHICH READS AS UNDER: '(47) 'TRANSFER', IN RELATION TO A CAPITAL ASSET, I NCLUDES,- (I) THE S A I E EXCHANGE OR RELINQUISHMENT OF THE ASSET: OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; OR (IV) IN A CASE WHERE THE ASSET IS CONVENED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM. SUC H CONVERSION OR TREATMENT: OR (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON BOND; OR (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PAR! PERFORMANCE OF A CONTRACT OF THE N ATURE REFERRED TO IN SECTION 53 A OF THE TRANSFER OF (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF OR ACQUIRING SHARES IN. A CO-OPERA FIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OR PERSO NS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EF FECT OF TRANSFERRING, OR ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY. EXPLANATION I =FO R THE PURPOSES OF SUB-CLAUSES (V) AND (VI). 'IMMOVABLE PROPERTY' SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 269UA. EXPLANATION 2. -- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED T HAT 'TRANSFER' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED DISPOSING OF OR PART ING WITH AN ASSET OR ANY INTEREST THEREIN, OR CREATING ANY INTEREST IN ANY MANNER WHATSOEVER, DIR ECTLY OR INDIRECTLY, ABSOLUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY. BY WAY OF ANY AGREEME NT (WHETHER ENTERED INTO IN INDIA OR OUTSIDE INDIA) OR OTHERWISE, NOTWITHSTANDING THAT SUCH TRANSFER OF RI GHTS HAS BEEN CL=XRACTERIZED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SH ARE OR SHARES OF A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA: ' VI) ON PERUSAL OF THE ABOVE SUB SECTION, IT WOULD BE SEEN THAT IT DEALS WITH THE TRANSACTION OF TRANSFER OF CAPITAL ASSETS AND NOT STOCK IN TRADE. IN THE INSTANT CASE THE ASSESSEE HAS REFLECTED THE LAND AS STOCK IN TRADE AND THEREFORE THE PROVISION OF SUB SECTION ARE NOT APPLICABLE TO IT. VII) AS REGARDS THE ASSESSEE ARGUMENT THAT IT HAS BEEN RECOGNISING THE REVENUE ON THE SAME LINE FROM YEARS TO YEARS, IT WILL BE SUFFICIENT TO STATE THAT THE SUBMISSION OF THE ASSESSEE IS NOT AS PER RECORDS. ON EXAMINATION OF THE BALANCE SHEET OF THE ASSESSEE FOR THE VARIOUS YEARS, IT CAN BE SEEN THA T THE ASSESSEE HAS NOT RECOGNIZED ANY REVENUE. THUS, THE ASSESSEE SUBMISSION THAT THE PRACTICE IS BEING REGULARLY FOLLOWED BY IT IS ALSO NOT ESTABLIS HED. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 11 4.2 THE APPELLANT COMPANY HAD ACQUIRED 2.039 HECTAR E OF AGRICULTURE LAND ON 23.03.2009 AND THE SAID AGRICULTURE LAND WAS GIVEN APPROVAL FOR HOU SING DEVELOPMENT IN THE MASTER PLAN. THE APPELLANT COMPANY ENTERED INTO A DEVELOPMENT AGREEM ENT ON 01.04.2009 WITH MJ S JSM DEVCON PVT. LTD. AND AS PER THE TERMS OF THE AGREEM ENT THE DEVELOPER, MJ S JSM DEVCON P.VT. LTD. HAD TO CONSTRUCT HIGH RISE BUILDINGS ON THE SA ID LAND AND IN CONSIDERATION THE APPELLANT COMPANY WAS ENTITLED TO RECEIVE 32% OF THE TOTAL FL ATS CONSTRUCTED. '': 4.3 THE APPELLANT COMPANY IS MAINTAMMG ITS BOOKS OF ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING AND REVENUE HAS BEEN RECOGNIZED ON ACCRU ED BASIS, EXCEPT CERTAIN INCOME. IN THE NOTES ON ACCOUNTS, UNDER THE REVENUE RECOGNITIO N, IT IS STATED AS UNDER: THE CO. HAS ENTERED INTO AN AGREEMENT WITH JSM DEVC ON (P) LTD., R/O ORBIT MALL, AND A.B ROAD INDORE FOR DEVELOPMENT AND CONSTRUCTION OF HIGH-N'S E/ MULTISTORIED BUILDINGS UPON ITS LAND AT SURVEY NO. 56 AND 61, GRAM PIPLIYAKUMAR, TEH. & DIST. INDORE, AS PER REGISTERED AGREEMENT DATED 01/04/2009. ACCORDINGLY TOTAL COST OF DEVELOPMENT & CONSTRUCTION OF BUILDING SHALL BE INCURRED & BORN BY THE DEVELOPER CO. JSM DEUCON AND 32 OF THE TOTAL COMPLETED FLATS/ SALEABLE AREA SHALL BE GIVEN TO THE CO PAR:Y ASHOKA HZ TECH BUILDERS PVT. LTD. AS CONSIDERATION. IN PURSUA NCE OF THIS, THE DEVELOPER CO. HAS CREDITED AND TRANSFE RRED 32 OF THE TOTAL CONSIDERATION RECEIVED TOWARDS BOOKING OF FLATS/SALEABLE AREA TILL THE END OF F. Y 2012-13. THE SAME HAS BEEN CREDITED TO BOOKING ADVANCE A/C. THE COMPANY HAS NOT YET RECOGN IZED ANY REVENUE FROM THE CONSTRUCTION ACTIVITY' 4 FURTHER, IN THE AUDITOR'S REPORT FOR THE PERIOD E NDING 31.03.2013 IT IS REPORTED UNDER LEGAL AND REGULATORY REQUIREMENTS IN POINT NO. 8 AS UNDER - '8. AS REQUIRED BY SECTION 227(3) OF THE ACT, WE REPORT THAT: IN OUR OPINION, THE BALANCE SHEET, STATEMENT OF PRO FIT AND LOSS, COMPLY WITH THE MANDATORY ACCOUNTING STANDARDS REFERRED TO IN SUB-S ECTION (3C) OF SECTION 211 OF THE COMPANIES ACT, EXCEPT AS-7 AND AS-9, READ TOGET HER WITH NOTES OP: ACCOUNTS AS PER NOTE 11 ANNEXED WITH BALANCE SHEET . ... ' ..' 4.5 THE APPELLANT COMPANY HAS SUBMITTED DURING THE APPEAL PROCEEDINGS THAT THE METHOD OF ACCOUNTING AS ADOPTED BY IT IS IN CONSONANCE WITH AS -9 ISSUED BY ICAI AND DESERVES TO' BE ACCEPTED. HOWEVER, AS REPRODUCED ABOVE FROM THE AUD ITOR'S REPORT FOR THE PERIOD ENDING 31.03.2013 THE APPELLANT'S ACCOUNTS DO NOT COMPLY WI TH THE ACCOUNTING STANDARD AS-9. 4.6 AT THIS STAGE IT IS IMPORTANT TO LOOK AT THE AP PLICATION OF REVENUE RECOGNITION PRINCIPLES PRESCRIBED IN AS-9 TO REAL ESTATE SALES: '2. FOR RECOGNITION OF REVENUE IN CASE OF REAL ESTA TE SALES, IT IS NECESSARY THAT ALL THE CONDITIONS SPECIFIED IN PARAGRAPHS 10 AND ]] OF ACCOUNTING STANDARD (AS) 9, REUENUE RECOGNITION, AS REPRODUCED BELOW ARE SATISF IED: 10. REVENUE FROM SALES OR SERVICE TRANSACTIONS SHOU LD BE RECOGNIZED WHEN THE REQUIREMENTS AS TO PERFORMANCES SET OUT IN PARAGRAP HS 11 AND 12 ARE SATISFIED, PROVIDED THAT AT THE TIME OF PERFORMANCE IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION. IF AT THE TIME OF RAISING OF ANY CLAIM IT IS UNREASONABLE TO EXPECT ULTIMATE COLLECTION, REVENUE RECOGNITION SHOULD BE POSTPONED . 11. IN A TRANSACTION INVOLVING THE SALE OF GOODS, P ERFORMANCE SHOULD. BE REGARDED AS BEING ACHIEVED WHEN THE FOLLOWING CONDITIONS HAV E BEEN FULFILLED: THE SELLER OF GOODS HAS TRANSFERRED TO THE BUYER TH E PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFIC ANT RISKS AND REWARDS OR OWNERSHIP HAVE BEEN TRANSFERRED TO T HE BUYER AND THE SELLER RETAINS NO EFFECTIVE CONTRO L OF ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 12 THE GOODS TRANSFERRED TO A DEGREE USUALLY ASSOCIATE D WITH OWNERSHIP; AND NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMO UNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALE OF THE GOODS.' . 4. 7 CONSIDERING THE REVENUE RECOGNITION PRINCIPLES PRESCRIBED IN AS-9, THE REAL ESTATE . SALE TAKES PLACE AT A POINT OF TIME WHEN ALL SIGNIFI CANT RISKS AND REWARDS OF OWNERSHIP ARE TRANSFERRED AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT TO SELL. THE EVENT OF ENTERING IN TO AGREEMENT TO SELL IS TO BE CONSTRUED AS HAVING THE EFFECT OF TRANSFERRING OF THE SIGNIFICANT RISKS AND REWARDS OF THE OWNERSHIP TO BUYERS, PROVIDED, TH E AGREEMENT IS LEGALLY ENFORCEABLE. BY VIRTUE OF CLAUSE 17 OF THE ALLOTMENT LETTER THE APP ELLANT COMPANY / DEVELOPER HAS TRANSFERRED THE PRICE RISK WHICH IS THE MOST SIGNIFICANT RISK IN THE REAL ESTATE BUSINESS. AS PER THIS CLAUSE, THE TO STRICTLY ADHERE TO THE PAYMENT SCHEDULE, FAILING WHICH THE E NTIRE AMOUNT ONUS IS ON THE BUYER TO ALREADY PAID, WAS LIABLE TO BE FOREFEITED. THUS, T HERE WAS NO SIGNIFICANT UNCERTAINTY REGARDING THE A MOUNT OF CONSIDERATION TO BE RECEIVED BY THE APPELLANT COMPA NY/DEVELOPER FROM THE SALES AND IT WAS REASONABLE T O EXPECT THE ULTIMATE COLLECTION. 4.8 THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUT E FROM TIME TO TIME RESTRICT THEIR APPLICATION TO THE ASPECTS OF MAINTAINING ACCOUNTS AND DETERMINING TRUE PROFIT OR LOSS ACCORDINGLY. THESE ACCOUNTING STANDARDS OR GUIDANCE NOTES CAN HAVE NO BEARING ON THE QUESTION OF DETERMINATION OF TOTAL INCOME UNDER THE INCOME TAX ACT. SUCH ACCOUNTING STANDARDS ETC. DO NOT ACQUIRE ANY STATUTORY FORCE U NDER THE PROVISIONS OF THE ACT IN SO FAR AS THE QUESTION OF DETERMINATION OF TOTAL INCOME IS CO NCERNED. SCOPE OF THE TOTAL INCOME IS CONTROLLED BY SECTION 5 OF THE INCOME TAX ACT, AND NOT BY THE ACCOUNTING STANDARDS ETC., ISSUED FROM TIME TO TIME. AT THIS JUNCTURE, IT IS S IGNIFICANT TO NOTE THE DIRECTIVE OF SECTION 145, WHICH PROVIDES FOR THE METHOD OF ACCOUNTING. IT TRANSPIRES FROM THE PRESCRIPTION OF SECTION 145 THAT ONLY THE ACCOUNTING STANDARDS ISSU ED BY THE CENTRAL GOVERNMENT UNDER THIS SECTION ARE MANDATORY AND HAVE A BEARING ON TH E COMPUTATION OF TOTAL INCOME. ANY OTHER ACCOUNTING STANDARD ISSUED BY ANY STATUTORY O R NON STATUTORY BODY CANNOT AFFECT THE COMPUTATION OF TOTAL INCOME UNDER THE PROVISIONS OF THE ACT. THE ACCOUNTING STANDARDS ETC . ISSUED BY THE INSTITUTE, HAVE, OF COURSE, RELEVANCE IN THE MANNER OF MAINTENANCE OF ACCOUNTS, BUT, CANNOT OVERRIDE THE MANDATE OF THE PROVISIONS OF TH E ACT. 4.9 TURNING TO THE TAXATION PRINCIPLE RELEVANT FOR PRES ENT PURPOSE, SECTION .S CONTAINS THE SCOPE OF TOTAL INCOME. IT PROVIDES, INTER ALIA, THAT ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE, IS INCLUDED IN THE SCOPE OF TOTAL INCOME. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHICH TH E EXTANT APPELLANT IS FOLLOWING, AN INCOME BECOMES TAXABLE WHEN RIGHT TO RECEIVE AN INC OME IS FINALLY ACQUIRED. ORDINARILY, WHEN SOME GOODS! PRODUCTS ARE SOLD BY A BUSINESSMAN , INCOME DOES NOT ARISE BEFORE THE TRANSFER OF TITLE IN SUCH GOODS TO THE BUYER, IT IS BECAUSE THAT TILL THAT TIME, THE BUYER DOES NOT ACQUIRE ANY RISKS AND REWARDS ATTACHED TO THE PRODUCT, WHICH PASS ONLY WITH THE SALE. BUT, IF THE 'PRODUCT UNDER SALE IS OF A UNIQUE NATURE, SUCH AS, A COMMERCIALLY CONSTRUCTED UNIT, FOR WHICH THE DEVELOPER HAS ENTERED INTO AGREEMENT FOR ' SALE AT THE INITIAL STAGE OF CONSTRUCTION BY TRANSFERRING ALL SIGNIFICANT RISKS AND REWARDS O F THE OWNERSHIP TO THE BUYER, THE INCOME ACCRUES ON YEAR-TO-YEAR, BASIS BY CONSIDERING THE P ERCENTAGE OF COMPLETION OF THE PROPERTY UNDER TRANSFER. IT IS SO FOR THE REASON THAT AFTER SIGNING AGREEMENT TO SELL, THE DEVELOPER L . LL . III . W . V. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 13 ACQUIRES AN INFALLIBLE RIGHT OVER THE PAYMENTS RECE IVED TOWARDS SALE CONSIDERATION WHICH COINCIDE WITH THE PROGRESS IN CONSTRUCTION. THE BUYER SIMULTANEOU SLY ACQUIRES OWNERSHIP OF THE RIGHT IN THE PROPERTY MUCH BEFORE THE TRANSF ER OF LEGAL TITLE IN HIS FAVOUR. SUCH A RIGHT IN THE HANDS OF BUYER IS A VALUABLE RIGHT CAPABLE O F TRANSFER TO ANY THIRD PERSON AT ANY STAGE OF CONSTRUCTION. AS SUCH, IT IS WRONG TO SAY T HAT NO PROFIT ACCRUES TO THE DEVELOPER/BUILDER TILL THE EXECUTION OF REGISTERED SALE DEED. THE POSITION MAY BE DIFFERENT WHEN THE DEVELOPER UNDERTAKES THE CONSTRUCTION WORK WI THOUT ENTERING INTO ANY AGREEMENT FOR SALE TO THE BUYERS AT THE INITIAL STAGE. WHEN . . THE DEVELOPER FIRST COMPLETES THE CONSTRUCTION WORK AT HIS OWN AND THEN SELLS THE COMME RCIAL UNITS TO THE BUYERS, NO INCOME CAN BE SAID TO HAVE ACCRUED TO THE DEVELOPER TILL T HE CONSTRUCTION IS COMPLETED AND SALE IS MADE TO THE BUYERS BY TRANSFER OF LEGAL TITLE. THE REASON BEING THAT TILL THE TRANSFER OF TITLE TO THE BUYERS, IT IS ONLY THE DEVELOPER WHO HOLDS ALL THE RISKS AND REWARDS OF OWNERSHIP. INCOME BECOMES TAXABLE ONLY WHEN IT ACCRUES AND IT ACCRUES WHEN RIGHT TO RECEIVE IT IS FINALLY ACQUIRED. A RIGHT TO RECEIVE INCOME IN THE CASE OF SALE OF COMMERCIAL UNIT IS ACQUIRED WHEN RISKS AND REWARDS ATTACHED TO ITS OWNERSHIP ARE TRANSFERRED TO THE BUYERS AND NOT BEFORE OR AFTER THAT. IT IS BUT NATURAL THAT NO DEV ELOPER WILL TRANSFER RISKS AND REWARDS OF OWNERSHIP TO THE BUYERS UNTIL HE HAS SECURED THE RE CEIPT OF SALE CONSIDERATION. THIS APPEARS TO BE THE REASON WHICH PROPELLED THE INSTITUTE TO C OME OUT WITH GUIDANCE NOTE IN 2006 REQUIRING THE ADOPTION OF THE PERCENTAGE COMPLETION METHOD ALONE FOR THE RECORDING OF ACCOUNTING TRANSACTIONS BY DEVELOPERS SO THAT THE A CCOUNTS GIVE A TRUE AND FAIR VIEW OF ITS PROFITS. SIMILAR VIEW HAS BEEN REITERATED IN THE GU IDANCE NOTE ISSUED IN 2012. SO THE LITMUS TEST OF ACCRUAL OF INCOME OF A DEVELOPER UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IS THE PASSING OF RISKS AND REWARDS OF OWNERSHIP TO THE BU YERS. 4.10 TURNING TO THE FACTS PREVAILING IN THE INSTANT CASE, THE ASSESSEE HAS RECOGNIZED THE REVENUE ONLY WHEN THE REGISTRATION OF THE SALE DEED HAS BEEN DONE IN FAVOUR OF THE BUYER. UNDER AS-7 AND AS-9 THIS IS NOT A RECOGNIZED METHOD OF RECOGNIZING THE REVENUE. THIS METHOD IS NEITHER PROJECT COMPLETION METHOD NOR PER CENTAGE OF COMPLETION METHOD. THE METHOD ADOPTED BY THE ASSESSEE, THEREFORE, CANNOT B E REGARDED TO COMPLY WITH THE INGREDIENTS AS LAID DOWN UNDER SECTION 145. REGISTR ATION OF THE SALE DEED REPRESENTS ONLY THE TRANSFER OF THE TITLE IN FAVOUR OF THE BUYER FR OM THE ASSESSEE. IT HAS NOTHING TO DO WITH THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. SECTION 145 MAKES IT MANDATORY ON THE PART OF THE ASSESSEE TO FOLLOW EITHER CASH OR MERCA NTILE SYSTEM OF ACCOUNTING REGULARLY. RECOGNIZING THE REVENUE WHEN THE SALE DEED HAD BEEN REGISTERED BY THE ASSESSEE IN FAVOUR OF THE BUYER COULD NOT BE REGARDED TO BE EITHER CAS H OR MERCANTILE SYSTEM OF ACCOUNTING. FURTHER, IT IS IMPORTANT TO NOTE THAT THE APPELLANT COMPANY HAS NOT RECEIVED 32 OF THE COMPLETED FLATS AND THEN ENTERED INTO AGREEMENT TO SELL. M/ S JSM DEVCON PVT. LTD. ENTERED INTO AGREEMENTS TO SELL FOR 32 OF THE APPELLANT COM PANY'S SHARE AS WELL AND ACCORDINGLY TRANSFERRED 32 OF THE MONIES RECEIVED TO THE APPELL ANT'S ACCOUNT. THE DEVELOPER, M/S JSM DEVCON PVT. LTD. AFTER CONSIDERING ALL THE FACTORS HAS ADOPTED PERCENTAGE COMPLETION METHOD FOR REVENUE RECOGNITION, WHICH SHALL BE BIND ING ON THE APPELLANT COMPANY AS WELL, AS IT IS DEPENDENT ON THE DEVELOPER FOR ALL THE ACT IVITIES. 4.11 RELIANCE IS ALSO PLACED ON THE FOLLOWING DECIS IONS:- I) DCIT VS. SUDHIT V. SHETTY (2014) 50 TAXMANN.COM 372 (MUMBAI-TRIB) II) ACIT VS. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 14 ALCON DEVELPOERS (2015) 54 TAXMANN.COM 54 (PANAJI-TR IB) III) ACIT VS. PARAS BUILD CALL PVT. LTD. (2015) 57 TAXMANN.COM 112 (DELHI- TRIB) IV) PRESTIGE STATES PROJECT LTD. 129 ITD 342 (BANGLORE-TRIB) 4.12 M/S JSM DEVCON PVT. LTD HAS RECOGNIZED REVENUE OF RS. 35,47,19,797/- IN THE F.Y. 2011- 12 AND RS. 26,96,23,914/- IN THE F.Y. 2012-13 WHICH REPRESENTS 68 OF THE REVENUE OF THE PROJECT AND THE ASSESSING OFFICER HAS WORKED OUT THE APPELL ANT'S SHARE TO RS. 16,69,26,963/- FOR. F.Y. 2011-12 AND RS, 12,68,81,842/- FOR F.Y. 2012-13. AF TER ALLOWING THE PROPORTIONATE COST OF LAND, THE PROFIT OF RS.16,12,34,754/- FOR F.Y 2011-12 AND RS.12,25,55,171/- FOR F.Y. 2012-13 IS WORKED OUT. 4.13 IN VIEW OF THE DISCUSSION IN THE PRECEDING PAR AGRAPHS, ADDITION OF RS.16,12,34,754/- FOR A.Y. 2012-13 AND RS.12,25,55,171/- FOR A.Y. 2013-14 IS CONFIRMED. GROUND NO.1 IS DISMISSED. 10. NOW AGGRIEVED ASSESSEE IS IN APPEAL IN THE TRIB UNAL AGAINST THE FINDING OF LD.CIT(A). 11. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DETAILED WRITTEN SUBMISSIONS SUBMITTED THAT THE ASSESSEE COM PANY ENTERED INTO AN AGREEMENT WITH M/S. JSM DEVCON PVT. LTD (IN SHORT JSM DPL) FOR DEVELOPMENT OF THE LANDS OWNED BY THE COMP ANY IN THE CAPACITY AS LAND OWNER. IT WAS AGREED THAT OUT OF THE TOTAL CONSTRUCTED SALABLE AREA/FLATS CONSTRUCTED BY THE D EVELOPER THE ASSESSEE BEING LAND OWNER IS ENTITLED TO 32% OF THE CONSTRUCTED SALEABLE AREA AND THE DEVELOPER IS ENTITLED TO RETA IN ITS 68% OF THE CONSTRUCTED AREA. AS PER CLAUSE-9 OF THE AGREEMENT IT IS MENTIONED THAT ON COMPLETION OF THE ENTIRE CONSTRUCTION, THE COMPLETED PLOTS ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 15 ARE TO BE DIVIDED AND ALLOCATED BETWEEN THE LAND OW NER AND THE ASSESSEE/ DEVELOPER (JSM DPL) . IN ACCORDANCE WITH CLAUSE 2 OF THE AGREEMENT WHICH ENTITLES TO THE OWNER TO KEEP 32% C ONSTRUCTED AREA UPON COMPLETION OF ENTIRE CONSTRUCTION. LD. C OUNSEL FOR THE ASSESSEE ASSERTED THE WORD ENTIRE CONSTRUCTION TO CONVEY TO THE BENCH THAT APPELLANTS RIGHT TO 32% OF THE CONSTRUC TED AREA WOULD HAVE CRYSTALLIZED ONLY ON COMPLETION OF CONSTRUCTIO N. IT WAS FOR THIS REASON THAT IN THE YEAR UNDER CONSIDERATION I.E. AS SESSMENT YEAR 2012-13, THE ASSESSEE RIGHT TO RECEIVE THE CONSTRUC TED AREA AS PER THE AGREEMENT HAD NOT ACCRUED. FOR THIS VERY REASO N ONLY, ASSESSEE HAS SHOWN THE ADVANCE RECEIVED FROM PROPOSED BUYER S OF THE FLATS AS LIABILITY AND THEY WERE OFFERED TO TAX IN THE YE AR WHEN THE SALE DEED WAS REGISTERED IN THE NAME OF THE BUYER. 12. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEES CAPACITY AS PER THE AGREEMENT WITH JSM DPL IS ONLY AS THE LAND OWNER AND THEREFORE CANNOT BE CONSIDERED EITHER AS A JOINT VENTURE OR A PARTNERSHIP FIRM AND THIS IS ONLY THE DEVELOPM ENT AGREEMENT WHICH WAS ENTERED INTO IN TO RECEIVE 32% OF THE CON STRUCTED SALABLE AREA. HE ALSO APPRAISED THAT THE ASSESSEE COMPANY IS FOLLOWING ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 16 MERCANTILE SYSTEM OF ACCOUNTING AND BOOKS OF ACCOUN TS ARE DULY AUDITED UNDER THE PROVISION OF IT ACT AND COMPANY A CT. IT IS CONSISTENTLY ADOPTING THE ACCOUNTING SYSTEM OF PROJ ECT COMPLETION METHOD AND FOR THE A.Y 2011-12 ALSO HE HAS DISCLOSE D THE ADVANCE RECEIVED FROM THE BUYERS AS LIABILITY AND NO ADDIT ION HAS BEEN MADE BY THE REVENUE AUTHORITIES DURING THE ASSESSME NT FOR THE A.Y. 2011-12 AND THE METHOD ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED. BY MAINTAINING THE SAME CONSISTENCY THE ASSESSEE PREPARED THE FINANCIAL STATEMENT FOR A.Y 2012-13 AN D ONWARDS. AS REGARDS THE ACTION OF LD.AO ADOPTING THE PERCENTAGE COMPLETION METHOD FOLLOWED BY THE DEVELOPER COMPANY I.E. JSM D PL, HE HUMBLY SUBMITTED THAT A PERSON IS FREE TO ADOPT ONE OF THE PRESCRIBED METHOD OF RECOGNIZING THE REVENUE AS PRO VIDED UNDER THE PROVISIONS OF LAW AND IT WAS NOT MANDATORY ON THE P ART OF THE ASSESSEE TO FOLLOW THE SYSTEM OF ACCOUNTING ADOPTED BY THE DEVELOPER. HE FURTHER SUBMITTED THAT AS PER THE SET TLED LEGAL POSITION ACCORDING TO PROVISIONS OF SECTION 145 OF THE ACT WHICH ARE MANDATORY IN NATURE, THE ASSESSING OFFICER IS BOUND TO ASSESS THE APPELLANTS INCOME IN ACCORDANCE WITH THE ACCOUNTING SYSTEM REGULARLY FOLLOWED AND AS FAR AS TAX ON THE INCOME IS CONCERNED THE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 17 ASSESSEE HAS DULY OFFERED THE REVENUE FOR TAX DURIN G THE ASSESSMENT YEAR 2015-16 AND ONWARDS IN RESPECT OF S ALE DEEDS REGISTERED DURING THE YEAR WHICH WERE DULY REFLECTE D IN THE TAX AUDIT REPORT PREPARED FOR FINANCIAL YEAR 2014-15 AND ONWA RDS. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO FINANCIAL STA TEMENTS FOR F.Y. 2014-15 SUBMITTED THAT DURING THIS YEAR ASSESSEE RE CEIVED INCOME AGAINST TOTAL ADVANCE OF RS.30.15 CRORES (APPROX.) AND THE ASSESSEE HAS SHOWN THE SALE OF FLATS/PROPERTY OF RS.6.07 CR ORES. IN SUPPORT OF THIS CONTENTION THE LD.COUNSEL FOR ASSESSEE REFE RRED AND RELIED ON FOLLOWING JUDGMENTS; (1) SUPREME COURT IN CASE OF INVESTMENT LTD V/S CIT REP ORTED IN (1970) 77 ITR 533 (SC), WHERE THEIR LORDSHIPS HAVE HELD TH AT ASSESSEE IS FREE TO EMPLOY FOR THE PURPOSE OF HIS T RADE , HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PURPOSE TO VALUE HIS STOCK-IN-TRADE EITHER AT COST OR AT MARKET PRICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY D EPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR OF VALUATION. THE METHOD OF ACC OUNTING REGULARLY EMPLOYED MAY BE DISCARDED ONLY , IF , IN THE OPINIO N OF TAXING AUTHORITIES , INCOME OF THE TRADE CANNOT BE PROPERLY DEDUCED THER E FROM ( AS PER ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 18 PROVISIONS OF 1922 ACT IN FORCE AT THAT TIME , PRES ENTLY ONLY IF CASE FALLS IN SUB SECTION (3) OF SECTION 145 ). (2) SUPREME COURT IN THE CASE OF CIT V/S KRISHNA SWAMY MUDILIAR REPORTED IN (1964) 53 ITR 122 (SC) , THEIR LORDSHIPS OF APEX COURT WHILE DEALING PROVISIONS OF SECTION 13 O F 1922 ACT (THE PROVISIONS OF WHICH ARE IN PARI-MATERIA OF SECTION 145 OF 1961 ACT) HAVE HELD AS UNDER: SECTION 13 OF 1922 ACT MERELY PRESCRIBES THAT THE C OMPUTATION OF TAXABLE PROFITS SHALL BE MADE ACCORDING TO THE METHOD OF AC COUNTING REGULARLY EMPLOYED. WHERE IN THE OPINION OF THE ITO THE INCOM E , PROFITS AND GAINS CANNOT BE PROPERLY DEDUCED FROM THE METHOD OF ACCOU NTING, IT IS OPEN TO ITO TO COMPUTE THE INCOME UPON SUCH BASIS AND IN SU CH MANNER AS HE MAY DETERMINE. COMPARING THE PROVISIONS WITH THE ENGLISH PROVISION S, IT IS HELD, THE ONLY DEPARTURE MADE BY SECTION 13 OF 1922 ACT FROM TAX LEGISLATION IN ENGLAND IS THAT WHEREAS UNDER ENGLISH LEGISLATION T HE COMMISSIONER IS NOT OBLIGED TO DETERMINE PROFITS OF A BUSINESS VENTURE ACCORDING TO METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE , UNDER THE INDI AN INCOME TAX ACT , PRIMA-FACIE , THE ITO HAS FOR PURPOSES OF SECTION 1 0 & 12 OF 1922 ACT TO COMPUTE INCOME , PROFITS AND GAINS IN ACCORDANCE WI TH METHOD OF ACCOUNTING REGULARLY EMPLOYED . IF, THEREFORE, THER E IS A SYSTEM OF ACCOUNTING REGULARLY EMPLOYED AND BY APPROPRIATE AD JUSTMENTS FROM THE ACCOUNTS MAINTAINED TAXABLE PROFITS MAY BE PROPERLY DEDUCED , THE ITO IS BOUND TO COMPUTE PROFITS IN ACCORDANCE WITH METHOD OF ACCOUNTING. BUT WHERE IN THE OPINION OF ITO , THE PROFITS CANNOT BE PROPERLY DEDUCED FROM ETH SYSTEM OF ACCOUNTING ADOPTED BY ASSESSEE IT IS OPEN TO HIM TO ADOPT A MORE SUITABLE BASIS FOR COMPUTATION OF TRUE PROFITS . ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 19 THEIR LORDSHIPS THEN ALSO DEALT WITH METHOD OF ACCO UNTING AND OBSERVED AS UNDER - AMONG INDIAN BUSINESSMEN AS ELSEWHERE, THERE A RE CURRENT TWO PRINCIPLE SYSTEMS OF BOOK KEEPING , THERE IS , FIRS TLY, THE CASH SYSTEM IN WHICH RECORD IS MAINTAINED OF ACTUAL RECEIPTS AND A CTUAL DISBURSEMENTS , ENTRIES BEING POSTED WHEN MONEY OR MONEYS WORTH IS ACTUALLY RECEIVED , COLLECTED OR DISBURSED . THERE IS SECONDLY, MERCANT ILE SYSTEM IN WHICH ENTRIES ARE POSTED IN ETH BOOKS OF ACCOUNT ON THE D ATE OF TRANSACTION I.E. ON THE DATE ON WHICH RIGHTS ACCRUE OR LIABILITIES A RE INCURRED IRRESPECTIVE OF THE DATE OF PAYMENT . (3) ITAT ALLAHABAD BENCH IN THE CASE OF MAHABIR JUTE MI LLS V/S JCIT REPORTED IN (2013) 36 TAXMANN.COM 587 AS ALSO ON THE DECISION IN THE CASE OF CIT V/S ADVANCE CONSTRUCTI ON COMPANY P. LTD REPORTED IN (2005) 275 ITR 30 (GUJ) , WHERE THE IR LORDSHIPS HAVE REITERATED POSITION THAT CHOICE OF ACCOUNTING METHO D LIES WITH THAT OF ASSESSEE , THE ONLY CAVEAT BEING THAT IT HAS TO SHOW THAT THE CHOSEN METHOD HAS BEEN REGULARLY FOLLOWED . THE SEC TION IS COUCHED IN MANDATORY TERMS AND THE DEPARTMENT IS BOUND TO A CCEPT THE ASSESSEES CHOICE OF METHOD REGULARLY EMPLOYED EXCEPT FOR THE SITUATION WHEREIN THE AO IS PERMITTED TO INTERVENE, IN CASE IT IS FOUND THAT TRUE INCOME PROFITS AND GAINS CANNOT BE ARRIVED AT BY THE METHOD EMPLOYED BY ASSESSEE. THEIR LORDSHIPS FURTH ER HELD THAT THE POSITION OF LAW IS FURTHER WELL SETTLED THAT RE GULAR METHOD ADOPTED BY ASSESSEE CANNOT BE REJECTED MERELY BECAU SE IT GIVES BENEFIT TO ASSESSEE IN CERTAIN YEARS. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 20 12. THE LD. COUNSEL FOR THE ASSESEE FURTHER SUBMITTED T HAT IN VIEW OF THE ABOVE SETTLED LEGAL POSITION, PROVISIONS OF SECTION 145 BEING MANDATORY IN NATURE, LD. AO IS BOUND TO ASSESS APPE LLANTS INCOME IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY ASSESSEE EXCEPT IN THE CASE WHEN THE CASE FALLS IN SECTION 145(3) FOR WHICH THE AO IS REQUIRED TO RECORD SATISFACTION AS CONTEMPLATED IN THE SAID SECTION. IN THE INSTANT CASE, AS CATEGORIC ALLY ACCEPTED BY CIT(A) THE APPELLANT MAINTAINS ACCOUNTS ON MERCANTI LE BASIS . THE SAID METHOD HAS BEEN CONSISTENTLY EMPLOYED BY ASSES SEE AND APPELLANTS ASSESSMENT ON THE BASIS OF SAID METHOD HAS BEEN COMPLETED BY EVEN BY AO FOR FIRST TWO YEARS VIZ, A. Y. 2010-11 & 2011-12 . IN BOTH THESE YEARS ALSO THE APPELLANT HA S CREDITED THE ADVANCE RECEIVED AGAINST PROPOSED SALES OF FLATS TO A SEPARATE ACCOUNT AND SHOWN AS A LIABILITY IN BALANCE SHEET. AT THIS STAGE IT MAY BE RELEVANT TO MENTION IN THOSE YEARS ALSO THE APPELLANT HAS CREDITED THE ADVANCE RECEIVED AGAINST PROPOSED SALE OF FLATS TO THE ADVANCE AGAINST SALE OF FLAT A/C AND NOT TREATED TH E SAME AS INCOME FOR SAID YEARS ON THE BASIS THAT REVENUE IN RESPECT OF SALE OF SAID FLATS WOULD BE RECOGNIZED ONLY ON EXECUTION AN D REGISTRATION OF SALE DEEDS OF FLATS. THE ASSESSMENT OF THE SAID YEA RS HAVE BEEN COMPLETED BY AO BY THE SAME COMMON ORDER, ACCEPTING THE METHOD OF ACCOUNTING AND METHOD OF RECOGNITION OF REVENUE. THUS THE METHOD FOLLOWED BY APPELLANT IS A CONSISTENT METHOD WHICH HAS BEEN EVEN ACCEPTED BY AO FOR TWO YEARS I.E. AY 2010 -11 & 2011-12 . SINCE THE SAID METHOD HAS BEEN CONSISTENTLY FOLLOWE D BY APPELLANT AND EVEN ACCEPTED BY DEPARTMENT, THE SAME CANNOT BE DEVIATED IN ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 21 THE PRESENT TWO YEARS WITHOUT THERE BEING ANY FINDI NG AS CONTEMPLATED U/S 145(3) AND SINCE THERE IS NO FINDI NG AS CONTEMPLATED BY SECTION 145(3) ON THE BASIS OF SATI SFACTION REQUIRED BY THAT SECTION VIZ., (1)ABOUT CORRECTNESS OR COMPL ETENESS OF THE ACCOUNTS OF THE ASSESSEE OR (2) ABOUT THE FACT THAT THE ASSESSEE HAS NOT REGULARLY EMPLOYED THE METHOD OF ACCOUNTS PROVI DED IN SECTION 145(1) OR (3) THAT THE INCOME HAS NOT BEEN COMPUT ED IN ACCORDANCE WITH THE STANDARDS NOTIFIED U/S 145(2) , THE ASSESSMENT OF THE APPELLANT HAS TO BE MADE AS PER METHOD ADOP TED BY IT. THE APPELLANT FURTHER SUBMITS THAT EVEN IN CASE COVERE D BY SECTION 145(3) , THE AO COULD AT THE MOST MAKE ASSESSMENT A S PROVIDED U/S 144 BUT COULD NOT HAVE ENFORCED THE METHOD OF ACCOU NTING FOLLOWED BY ANOTHER ASSESSEE. SUCH COURSE ADOPTED BY AO AS W ELL AS CIT(A) IS NOT SUPPORTED BY ANY PROVISIONS OF LAW. SUCH ORD ERS ARE THEREFORE VITIATED IN LAW. 13. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE OTHER QUESTION THAT REQUIRES CONSIDERATION IS REGAR DING THE POINT OF TIME OF THE ACCRUAL OF INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. AT THE COST OF REPETITION IT IS SUBMITT ED THAT U/S 5 THE INCOME CAN BE BROUGHT TO TAX EITHER ON RECEIPT BASI S OR ON ACCRUAL BASIS . AS TO RECEIPT BASIS THERE IS NO DIFFICULTY BECAUSE INCOME IS OBVIOUS AND ITS PHYSICAL FORM IS EXPERIENCED BUT IN CASE OF ACCRUAL OR ARRIVAL BASIS, IT IS BASED ON RIGHT TO RECEIVE T HE INCOME AND THE INCOME WOULD ACCRUE OR ARISE AT POINT OF TIME WHEN THE RIGHT TO RECEIVE BECOMES TANGIBLE AND ENFORCEABLE AND CRYSTA LLIZES INTO A PARTICULAR SUM [REFER THE DECISION OF SUPREME COURT IN THE CASE OF ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 22 CIT V/S A KRISHNASWAMY MUDLIAR (SUPRA) ]. A REFEREN CE MAY ALSO BE MADE TO THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT V/S SYNDICATE BANK REPORTED IN (2003) 261 ITR 528 . IT IS THUS CLEAR THAT THE ACCRUAL OF INCOME UNDER THE MERCANTILE SYS TEM OF ACCOUNTING DEPENDS UPON THE ACCRUAL OR CRYSTALLIZAT ION OF RIGHT TO RECEIVE AND HENCE IN VIEW OF THE ACCEPTED POSITION THAT THE APPELLANT HAS MAINTAINED ITS ACCOUNTS ON MERCANTILE BASIS, TH E QUESTION THAT REQUIRES CONSIDERATION IS AS TO WHEN THE RIGHT TO R ECEIVE THE CONSTRUCTED FLATS WHICH IN TURN ARE AGREED TO BE SO LD ARISES IN FAVOUR OF THE ASSESSEE. THE APPELLANT IN THIS RESPE CT SUBMITS THAT IT IS NOW WELL SETTLED THAT WHEN A RIGHT ARISES AS A R ESULT OF CONTRACT OR AGREEMENT THE ACCRUAL OF RIGHT WOULD DEPEND UPON TE RMS OF AGREEMENT. A USEFUL REFERENCE MAY BE MADE TO THE DE CISION OF KERALA HIGH COURT IN THE CASE OF JANATHA CONTRACT C O. V/S CIT REPORTED IN (1976) 105 ITR 627 WHERE IT IS HELD AS UNDER AS THE ASSESSEE HAD BEEN FOLLOWING THE MERCANTILE S YSTEM OF ACCOUNTING. IF THE MONEY HAD BECOME DUE DURING T HE ACCOUNTING PERIOD IT WOULD BE INCOME WHICH WOULD HA VE TO BE TAKEN INTO ACCOUNT IN DETERMINING TOTAL INCOME O F THE ASSESSEE. BUT THE QUESTION WHETHER THE MONEY HAD BE COME DUE AND WHETHER INCOME HAD ACCRUED WOULD DEPEND UPO N THE TERMS OF THE CONTRACT. IN THE FACTS OF THE CASE BEFORE THEIR LORDSHIPS, T HEIR LORDSHIPS IN VIEW OF THE RETENTION CLAUSE CAME TO CONCLUSION THAT WHEN THERE WAS A STIPULATION IN THE CONTRACT POSTPONING THE TIME ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 23 FOR PAYMENT OF THE WHOLE OR PART OF THE BALANCE , U NTIL AFTER THE EXPIRATION OF PERIOD DURING WHICH CONTRACTOR WA S LIABLE FOR DEFECTS OR FOR REPAIRS PAYMENT WOULD NOT HAVE B ECOME DUE FOR THE CONTRACTOR. IT IS FURTHER HELD THAT WHA T IS THE NATURE OF CONTRACT AND WHETHER MONEY HAD BECOME DUE WOULD HAVE TO BE ASCERTAINED BY INTERPRETING ALL TH E RELEVANT TERMS AND BY FINDING OUT THE EXACT PRACTICE FOLLOWE D BY DEPARTMENT. WHETHER THERE WAS CERTIFICATE FOR PAYME NT , IF SO WHETHER IT WAS A FINAL CERTIFICATE , AND EVEN IN CA SES WHERE THERE HAD BEEN A FINAL CERTIFICATE WHETHER THERE WA S A FURTHER STIPULATION FOR RETENTION , WOULD ALL HAVE TO BE EX AMINED TO FIND OUT WHETHER MONEY HAD BECOME DUE. 14. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TTED THAT ASPECT OF MERE POSTPONEMENT OF TAX AS A RESULT OF M ETHOD EMPLOYED BY ASSESSEE HAS NOT BEEN VIEWED ADVERSELY BY COURTS SO LONG AS THE METHOD IS REGULARLY AND CONSISTENTLY EM PLOYED AS IS CLEAR FROM THE ABOVE DECISION OF APEX COURT IN THE CASE OF EXCEL INDUSTRIES LTD (SUPRA) . THE SAME VIEW IS FOUND IN THE CASE OF CIT V/S ADVANCE CONSTRUCTION CO. P. LTD (SUPRA) DECIDED BY GUJARAT HIGH COURT WHERE THE ASPECT OF OFFERING THE AMOUNT IN QUESTION FOR TAX IN SUCCEEDING YEARS HAS BEEN FAVORABLY CONSIDER ED BY GUJARAT HIGH COURT. 15. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT APART FROM THE QUESTION OF THE RIGHT OF ACCRUAL UND ER THE AGREEMENT, SINCE THE APPELLANT HAS REGULARLY FOLLOWED THE METH OD OF NOT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 24 RECOGNIZING REVENUE AT THE TIME OF RECEIPT OF ADVAN CES THROUGH DEVELOPER FROM THE PROSPECTIVE BUYERS AGAINST SALE OF FLATS THAT WOULD ULTIMATELY COME TO APPELLANTS SHARE AND SINC E THE AO HAS ACCEPTED THE SAID METHOD IN THE EARLIER YEARS AND F URTHER SINCE THE APPELLANT HAD ALREADY SHOWN THE INCOME IN SUBSEQUEN T YEARS, THE EXERCISE UNDERTAKEN BY DEPARTMENT BEING REVENUE NEU TRAL, THERE IS NO LEGALITY / PROPRIETY IN DISTURBING THE APPELLANT S METHOD OF ACCOUNTING REGULARLY FOLLOWED. 16. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBM ITTED THAT AS OBSERVED BY THE AO AS ALSO CIT(A) , THE APPELLANT H AS FOLLOWED THE METHOD OF RECOGNITION OF REVENUE ONLY AT THE TIME O F EXECUTION AND REGISTRATION OF SALE DEEDS IN FAVOUR OF ULTIMATE BU YER I.E. THE COMPLETED CONTRACT METHOD . ACCORDING TO CIT(A) PRO JECT COMPLETION METHOD / COMPLETED CONTRACT METHOD OR PERCENTAGE OF COMPLETION METHOD ARE NOT METHODS OF ACCOUNTING BUT METHODS OF REVENUE RECOGNITION . SUCH VIEW OF CIT (A) APPEARS TO BE CO NTRARY TO VIEW OF SUPREME COURT IN CASE OF CIT V/S BILLAHARI INVESTME NT LTD. REPORTED IN 299 ITR 1 WHERE THEIR LORDSHIPS HAVE C ONSIDERED THESE METHODS AS METHODS OF ACCOUNTING AND HAS PLACED ITS SEAL OF APPROVAL UPON COMPLETED CONTRACT METHOD ALSO. THEIR LORDSHIPS APPROVING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF TAPARIA TOOLS LTD. V/S JCIT REPORTED IN 260 ITR 102 HAVE HE LD THAT IN EVERY CASE OF SUBSTITUTION OF ONE METHOD TO ANOTHER THE BURDEN IS UPON DEPARTMENT TO PROVE THAT THE METHOD IN VOGUE IS NOT CORRECT AND IT DISTORTS THE PROFITS OF A PARTICULAR YEAR. UNDER TH E MERCANTILE SYSTEM OF ACCOUNTING BASED ON ACCRUAL OF INCOME , T HE METHOD OF ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 25 ACCOUNTING FOLLOWED BY ASSESSEE IS RELEVANT AND SIN CE THERE WAS NO FINDING RECORDED BY AO THAT COMPLETED CONTRACT METH OD DISTORTED PROFITS OF A PARTICULAR YEAR. FURTHER, THE COURT CO NSIDERED THE ENTIRE EXERCISE TO BE REVENUE NEUTRAL. 17. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TTED THAT IN THE INSTANT CASE ALSO SINCE NO FINDING AS IS CONTEMPLAT ED U/S 145(3) HAS BEEN RECORDED BY AO, UNDER THE CIRCUMSTANCES, THE S UBSTITUTION OF METHOD FROM COMPLETED CONTRACT METHOD TO PERCENTAGE COMPLETION METHOD ONLY ON THE BASIS OF THE METHOD FOLLOWED BY DEVELOPER JSM DEVCONS PVT. LTD , IS CLEARLY CONTRARY TO LAW AS WE LL AS JUDICIAL PRONOUNCEMENTS . THE ORDER THUS DESERVES TO BE SET ASIDE. THE APPELLANT ALSO RELIES UPON FOLLOWING DECISIONS WHER E PROJECT COMPLETION METHOD HAS BEEN CONSIDERED TO BE RECOGNI ZED METHOD AND IF CONSISTENTLY FOLLOWED, THE AO IS BOUND TO AS SESS THE INCOME OF THE ASSESSEE ON THAT BASIS. A) DECISION OF GUJARAT HIGH COURT IN THE CASE OF MANJU SHA ESTATES (P) LTD VS ITO REPORTED IN (2017) 393 ITR 6 44 . B) DECISION OF ITAT- MUMBAI IN THE CASE OF PREM ENTERPRISES VS. ITO REPORTED IN (2012) 25 TAXMANN.COM 179 (MUMB AI) C) DECISION OF HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. PRINCIPAL OFFICER, HILL VIEW INFRASTRUCTUR E REPORTED IN (2016) 384 ITR 451- FOLLOWS CIT VS. BILAHARI INVESTMENT (P) LTD. REPORTED IN (2008) 299 ITR 1 (S C) ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 26 D) DECISION OF ITAT-MUMBAI IN THE CASE OF HARDWARE INFRASTRUCTURE P. LTD COPY AT PAGE 346 OF PAPER BOO K E) DECISION OF ITAT- AHMEDABAD IN THE CASE OF UNITY CONSTRUCTIONS V/S ITO COPY AT 350 TO 357 F) DECISION OF ITAT- NEW DELHI IN THE CASE OF DCIT V/S SUB INFRASTRUCTURE 358 PAPER BOOK G) DECISION OF DELHI HIGH COURT IN THE CASE OF MANISH BUILDWELL PVT. LTD. REPORTED IN (2016) 16 TAXMANN.C OM 27 (DEL) 18. PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED SUPPORTING THE DETAILED FINDING OF LD.A.O AN D LD. CIT(A) AND ALSO SUBMITTED THAT THE ASSESSEE SHOULD HAVE FO LLOWED PERCENTAGE COMPLETION METHOD AS ADOPTED BY JSM DPL AS THEY WERE BOOTH WORKING UNDER THE DEVELOPMENT AGREEMENT ENTER ED FOR CONSTRUCTION OF THE BUILDING. 19. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THE ONLY ISSUE FOR OUR CONSIDERATION IN THESE TWO APPEALS IS THAT WHETHER BOTH THE LOWER AUTHORITIES WERE JUS TIFIED IN MAKING ADDITIONS IN THE HANDS OF ASSESSEE BY APPLYING PERC ENTAGE COMPLETION METHOD AS AGAINST THE PROJECT COMPLETION ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 27 METHOD/COMPLETED CONTRACT METHOD FOLLOWED BY THE A SSESSEE. THE ASSESSEE COMPANY WHICH WAS INCORPORATED IN JUNE, 20 09 OWNS A LAND. VIDE AGREEMENT DATED 1.4.2009 (REGISTERED ON 17.4.2009) IT ENTERED INTO DEVELOPMENT AGREEMENT WITH ANOTHER COM PANY NAMELY JSM DEVCON (P) LTD FOR DEVELOPMENT OF THE LANDS OW NED BY THE COMPANY IN THE CAPACITY AS LAND OWNER. AS PER THE AGREEMENT PLACED IN THE PAPER BOOK, ON GETTING NECESSARY SANC TIONS, APPROVALS AND NOC THE DEVELOPER WOULD CONSTRUCT HIGH RISE BU ILDINGS ON THE LAND BELONGING TO THE APPELLANT WITH ALL NECESSARY FACILITIES, AMENITIES ETC. OUT OF THE TOTAL CONSTRUCTED SALEABL E AREA THE APPELLANT AS THE LAND OWNER WOULD BE ENTITLED TO 32 % OF TOTAL CONSTRUCTED SALABLE AREA AS THE RIGHT OF OWNERSHIP AND THIS 32% CONSTRUCTED AREA SHALL VEST WITH THE ASSESSEE ONLY UPON COMPLETION OF THE ENTIRE CONSTRUCTION (AS AGREED IN CLAUSE 9 O F THE AGREEMENT). 20. BEFORE MOVING FURTHER IT IS WORTH DISCUSSING CE RTAIN CLAUSES OF THE AGREEMENT BETWEEN THE ASSESSEE AND JSM DPL AS T HEY ARE THE FOUNDATION OF THE ISSUES EMANATING OUT AT THESE TWO APPEALS:- (I) AS PER CLAUSE (9), ON COMPLETION OF THE ENTIRE CONSTRUCTION THE COMPLETED FLATS ARE TO BE DIVIDED AND ALLOCATED BETWEEN THE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 28 LAND OWNER AND DEVELOPER IN ACCORDANCE WITH CLAUSE (2) OF THE AGREEMENT WHICH ENTITLES THE OWNER TO GET 32% CONST RUCTED AREA UPON COMPLETION OF THE ENTIRE CONSTRUCTION . A COMBINED READING OF CLAUSE (2) & (9) WOULD THUS GO TO SHOW T HAT THE APPELLANTS RIGHT TO GET 32% OF THE AREA WOULD CRYS TALLIZE / ACCRUE ON COMPLETION OF THE ENTIRE CONSTRUCTION AN D TILL THEN OWNER HAS NO RIGHT TO CLAIM ANY RIGHT OVER ANY OF T HE CONSTRUCTED PORTION. (II) CLAUSE (7) OF THE AGREEMENT SPECIFIES THE PERI OD FOR CONSTRUCTION OF BUILDINGS ACCORDING TO WHICH THE DE VELOPER IS REQUIRED TO COMPLETE THE CONSTRUCTION WITHIN 54 MON THS ( SUBJECT TO A GRACE PERIOD OF 6 MONTHS ) FROM THE DA TE OF HANDING OVER OF THE POSSESSION BY OWNER AND OBTAINI NG NECESSARY PERMISSIONS, APPROVALS, NOCS ETC . THE DE VELOPER IS THUS REQUIRED TO HANDOVER THE LANDOWNERS SHARE OF 32% OF THE COMPLETED CONSTRUCTED SALEABLE AREA WITHIN 60 MONTH S FROM ABOVE DATE FAILING WHICH THE DEVELOPER IS REQUIRED TO FIRST ALLOCATE 32% AREA TO THE LAND OWNER OUT OF THE AREA CONSTRUCTED TILL THEN. THIS HAS BEEN STATED TO BE A N ESSENTIAL CONDITION OF THE AGREEMENT. THE FAILURE OF DEVELOPE R TO GIVE SUCH 32% AREA, MAKES THE DEVELOPER LIABLE TO PAY IN TEREST @ 12% P.A. ON THE REMAINING AREA. A CLOSURE STUDY OF THE AGREEMENT THUS SHOWS THAT APPELLANTS RIGHT TO GET 32% OF THE CONSTRUCTED AREA WOULD CRYSTALLIZE ONLY ON COMPLETI ON OF CONSTRUCTION AND DEMARCATION / DIVISION AS PER CLAU SE (9) OR 60 MONTHS FROM THE DATE OF POSSESSION AS AFORESAID WHICHEVER ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 29 IS EARLIER. SINCE THE AGREEMENT IS EXECUTED ON 01-0 4-2009, THE PERIOD OF SIXTY MONTHS WILL BE COMPLETED ON 31 ST MARCH 2014 . IN OTHER WORDS THE APPELLANT HAS NO RIGHT TO CLAIM POSSESSION OF ITS SHARE OF 32% OF CONSTRUCTED AREA . IT WOULD THUS BE CLEAR THAT. IN THE YEARS UNDER CONSIDERATION I.E IN AY 20 12-13 & 2013-14 , THE APPELLANTS RIGHT TO RECEIVE THE CONS TRUCTED AREA AS PER AGREEMENT HAD NOT ACCRUED. THE APPELLANT DID NOT HAVE ANY CAUSE OF ACTION UNDER THE AGREEMENT TILL COMPLE TION OF THE PERIOD SPECIFIED IN THE AGREEMENT. (III) CLAUSE (4) OF THE AGREEMENT REQUIRES DEVELOPE R TO PAY TO THE OWNER A SUM OF RS. 5,01,00,000/- (RUPEES FIVE C RORES ONE LAKHS) TOWARDS REFUNDABLE SECURITY DEPOSIT FOR ENSURING THE PERFORMANCE OF THE TERMS OF CONTRACT . THE SECU RITY DEPOSIT IS REFUNDABLE AS PER CLAUSE (11) OF THE AGREEMENT. THE REFUND OF SECURITY IS ALSO LINKED WITH COMPLETION OF CONST RUCTION AND HANDING OVER OF POSSESSION OF 32% OF THE CONSTRUCTE D AREA TO THE OWNER. THE MANNER OF REFUND OF SECURITY DEPOSIT IS PHASE WISE AS SPECIFIED IN SAID CLAUSE. HOWEVER, THE TOTA L REFUND IS ONLY UPON COMPLETION OF CONSTRUCTION AND HANDING OV ER OF 32% OF THE CONSTRUCTED AREA TO THE OWNER. (IV) CLAUSE (10) OF THE AGREEMENT GIVES EXCLUSIVE RIGHT OF SALE OF CONSTRUCTED FLATS TO THE DEVELOPER ALONG WITH R IGHT TO DETERMINE / FIX THE RATES FOR SALE , CONDITIONS AN D OTHER POLICIES ABOUT SALE OF FLATS , OBVIOUSLY FROM THE P OINT OF VIEW OF UNIFORMITY OF THE POLICY IN THAT BEHALF . SINCE THE EXCLUSIVE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 30 RIGHT OF SALE HAS BEEN CONFERRED UPON THE DEVELOPER , THE OWNER IS REQUIRED TO EXECUTE SALE DEEDS IN RESPECT OF ITS 32% AREA AS PER THE DEAL STRUCK BY THE DEVELOPER. 21. A BARE READING OF THE AGREEMENT AS A WHOLE THUS GOES TO SHOW THAT THE APPELLANTS CAPACITY IN THE SAID AGREEMENT IS ONLY AS A LAND OWNER WHEREBY THE APPELLANT HAS ASSIGNED DEVELOPMEN T RIGHTS IN RESPECT OF THE LANDS IN QUESTION IN FAVOUR OF THE D EVELOPER AND THE APPELLANT IS ENTITLED TO 32% OF CONSTRUCTED SALEABL E AREA IN THE PROJECT CONSTRUCTED BY THE DEVELOPER. THE AGREEMENT IN QUESTION CANNOT THEREFORE BE CONSTRUED EITHER AS A JOINT VE NTURE OR A PARTNERSHIP AGREEMENT BUT IS MERELY A DEVELOPMENT A GREEMENT BETWEEN THE DEVELOPER AND THE LAND OWNER AND THE AP PELLANTS RIGHT TO RECEIVE 32% OF THE CONSTRUCTED SALEABLE AREA ACC RUES AND ARISES ONLY UPON COMPLETION OF THE ENTIRE CONSTRUCTION BY DEVELOPER OR UPON COMPLETION OF THE PERIOD OF 60 MONTHS FROM THE DATE OF HANDING OVER OF THE POSSESSION OF THE LAND BY THE A PPELLANT LAND OWNER ALONG WITH NECESSARY PERMISSIONS , NOCS ETC , WHICHEVER IS EARLIER. 22. IT IS FURTHER OBSERVED THAT THE ASSESSEE FOLLOWS ME RCANTILE SYSTEM OF ACCOUNTING AND SINCE DURING THE YEARS UND ER ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 31 CONSIDERATION, THE CONSTRUCTION ON THE LANDS HANDE D OVER TO THE DEVELOPER FOR DEVELOPMENT AND CONSTRUCTION WAS NOT COMPLETED BUT THE APPELLANT HAD MERELY RECEIVED ADVANCES FROM THE PROPOSED BUYERS, NO REVENUE WAS RECOGNIZED BY APPELLANT AND THE ADVANCES RECEIVED AGAINST PROPOSED SALES WERE CREDITED IN AD VANCES AGAINST SALE OF FLAT ACCOUNT AND SHOWN AS LIABILITY IN THE BALANCE SHEET. AT THIS STAGE IT MAY BE RELEVANT TO NOTE THAT SINCE AS PER THE AGREEMENT, EXCLUSIVE RIGHT OF SALE WAS GIVEN TO THE DEVELOPER M/S JSM DEVCONS PVT. LTD., THE ADVANCES AGAINST SALES W ERE TO BE RECEIVED BY APPELLANT THROUGH THE DEVELOPER, AS SUC H THE ACCOUNTING IN THAT RESPECT HAS BEEN DONE ACCORDINGLY. IT MAY F URTHER BE RELEVANT TO MENTION THAT THE APPELLANT STARTED RECE IVING ADVANCES AGAINST THE SALES FROM A.Y. 2010-11 WHICH HAVE BEEN DULY REFLECTED IN THE BOOKS OF ACCOUNT FROM YEAR TO YEAR ON CONSIS TENT BASIS. 23. FROM PERUSAL OF THE FINANCIAL STATEMENT WE OBSE RVE THAT THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNTS ON ME RCANTILE BASIS AND IT IS CONSISTENTLY SHOWING THE ADVANCES RECEIVE D FROM JSM DPL ON BEHALF OF VARIOUS PROPOSED BUYERS OF FLATS UNDER THE HEAD ADVANCE AGAINST SALE OF FLAT IN THE LIABILITY SIDE OF THE BALANCE SHEET. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 32 IT STARTED RECEIVING THE MONEY FROM ASSESSMENT YEAR 2010-11 ONWARDS. THE REVENUE AUTHORITIES HAS ACCEPTED THE INCOME/LOSS DECLARED IN THE INCOME TAX RETURNS FOR A.Y. 2009-10 , 2010-11 AND 2011-12 UNDER THE RESPECTIVE ORDERS PASSED U/S 15 3A R.W RESPECT TO SECTION 143(3) OF THE ACT. THIS FACT CANNOT BE DISPUTED THAT THE ASSESSMENT OF INCOME/LOSS IN THESE YEARS SUPPORT THE CONTENTION OF THE ASSESSEE THAT THE ACCOUNTING METHOD FOLLOWED BY THE APPELLANT STANDS ACCEPTED ACCORDING TO WHICH THE AM OUNTS RECEIVED FROM PROPOSED BUYERS (THROUGH DEVELOPER) IN ADVANCE S AGAINST SALE OF FLATS SHOWN AS LIABILITY IN THE BALANCE SHEET HA S BEEN ACCEPTED. THE REASON FOR SHOWING SUCH ADVANCES WAS THE LIABIL ITY OF ASSESSEE AS THE TRANSACTION OF SALE WAS NOT COMPLETED AND TR EATED AS SALES WHEN SALE DEED WAS EXECUTED AND REGISTERED IN FAVOU R OF THE BUYER AND AS THE ASSESSEE HAS ADOPTED PROJECT COMPLETION METHOD IT HAS RECOGNIZED THE REVENUE ONLY ON THE COMPLETION OF SA LE I.E. UPON EXECUTION AND REGISTRATION OF SALE DEEDS IN FAVOUR OF THE BUYER. 24. AUDITED FINANCIAL STATEMENT FOR THE A.Y. 2010- 11 AND 2011-12 PLACED AT 49 AND 64 OF PAPER BOOK SHOWS THAT DURING THE ASSESSMENT YEAR 2010-11 THE ASSESSEE RECEIVED RS.19 LAKHS AND FOR ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 33 THE ASSESSMENT YEAR 2011-12 SUM OF RS. 4,65,35,702/ - WAS RECEIVED AS ADVANCE FROM PROPOSED BUYERS. THE REVE NUE AUTHORITIES HAVE ACCEPTED THIS SYSTEM FOR ACCOUNTING ADOPTED BY THE ASSESSEE FOR BOTH THE YEARS IN THE ASSESSMENT FRAMED U/S 143 (3) R.W.T 153A OF THE ACT. 25. IT WAS ONLY FOR ASSESSMENT YEAR 2012-13, 2013-1 4 THAT THE ASSESSING OFFICER APPLIED THE METHOD OF PERCENTAGE COMPLETION ADOPTED BY THE DEVELOPER I.E. JSM DPL ON THE ASSESS EE AND MADE THE ADDITION OBSERVING THAT ASSESSEE HAS ENTERED IN TO THE AGREEMENT AS A JOINT VENTURE FOR DEVELOPMENT AND TH E METHOD OF ACCOUNTING APPLIED BY JSM DPL IS BINDING ON THE APP ELLANT ALSO. THE LD.AO WITHOUT GIVING ANY WEIGHTAGE TO THE ADVAN CES RECEIVED DURING THE YEAR BY THE ASSESSEE AS WELL AS THE ACCO UNTING METHOD ADOPTED CONSISTENTLY JUST FOR THE BASIS OF THE VALU E OF CONSTRUCTION COMPLETED DURING THE YEAR AND ON THE BASIS OF THE R ATIO AGREED IN THE DEVELOPMENT AGREEMENT OF 68:32, CALCULATED THE ADDITION OF RS.16.12 CRORES (APPROX) FOR A.Y. 2012-13 AND RS.12 .25 CRORES FOR A.Y 2013-14. 26. WHEN THE MATTER CAME UP BEFORE THE CIT(A) HE A LSO CONFIRMED THE ADDITION WITHOUT CONSIDERING THE FACT THAT ASSE SSEE IS THE LAND OWNER WHO HAS ASSIGNED THE DEVELOPMENT RIGHT IN FAV OUR OF THE DEVELOPER ON THE TERMS AND CONDITIONS SPECIFIED IN THE AGREEMENT BETWEEN THE PARTIES. WE FIND THAT THE ASSESSEE IS ENTITLED TO THE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 34 POSSESSION OF ITS SHARE OF 32% OF CONSTRUCTED AREA ONLY UPON COMPLETION OF ENTIRE CONSTRUCTION AND BEFORE THAT T HE ASSESSEE HAS NO RIGHT TO CLAIM POSSESSION OF ITS 32% CONSTRUCTED AREA WHICH IS REQUIRED TO BE COMPLETED WITHIN 60 MONTHS FROM THE DATE OF HANDING OVER OF POSSESSION OF LAND ALONG WITH ALL N ECESSARY PERMISSIONS/APPROVALS. THE PERIOD OF 60 MONTHS TAK EN FROM THE DATE OF AGREEMENT SHALL END ON 31.3.2014 AND THE AS SESSEE STILL HAVE THE RIGHT TO SALE THE COMPLETED AREA AS PER A GREEMENT THEREAFTER. 27. TO SUMMARIZE THE FACTS WE FIND THAT THE ASSESSE E GOT THE RIGHT TO SELL ITS 32% SHARE OF THE SALABLE CONSTRUCTED A REA ONLY DURING THE F.Y. 2014-15 AND ONWARDS AND MONEY RECEIVED FR OM THE DEVELOPER I.E. JSM DPL WAS ONLY AN ADVANCES FROM PR OPOSED BUYERS ON WHICH THE ASSESSEE WAS NOT HAVING THE LEGAL RIGH T AND THE FACT COULD NOT BE DENIED THAT WHEN A PERSON DOES NOT HAV E A RIGHT TO HOLD AN AMOUNT THE SAME CAN BE TAKEN BACK BY THE PR OPOSED BUYERS IN CASE THERE IS A DEFAULT ON THE PART OF TH E DEVELOPER AND IN SUCH SITUATION THERE COULD BE A REMOTE POSSIBILITY THAT ASSESSEE COULD HAVE DISCLOSED THE INCOME FROM SALE OF FLATS, THE RIGHT OF WHICH WAS NOT DEVOLVED ON IT. 28. NOW THE ISSUE AS TO WHETHER A PERSON IS MANDATO RILY REQUIRED TO ADOPT PERCENTAGE COMPLETION METHOD OR NOT. THE METH OD OF ACCOUNTING IS GOVERNED BY SECTION 145 OF THE ACT AN D AS PER SECTION 145(2) OF THE ACT THE INCOME IS TO BE COMPUTED IN A CCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING TO B E REGULARLY ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 35 EMPLOYED. THIS SUB SECTION FURTHER EMPOWERS CENTRA L GOVERNMENT TO NOTIFY THE ACCOUNTING STANDARDS TO BE FOLLOWED B Y ANY CASE OF ASSESSEE OR IN RESPECT OF CLAUSE FROM TIME TO TIME AND SUB SECTION 3 OF SECTION 145 EMPOWERS THE ASSESSING OFFICER TO MA KE THE ASSESSMENT OF THE ASSESSEE IN THE MANNER PROVIDED U NDER SECTION 144, IN CASE HE IS NOT SATISFIED ABOUT THE CORRECTN ESS OR COMPLETENESS OF THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. O NCE THE ASSESSEE FOLLOWED ACCOUNTING REGULARLY THE ASSESSING OFFICER IS BOUND TO ASSESS THE INCOME OF THE ASSESSEE ON THE BASIS OF S UCH METHOD OF ACCOUNTING. ON PERUSAL OF THE PROVISION OF SECTION 145 SHOWS THAT IT NOWHERE EMPOWERS THE AUTHORITIES TO ASSESS THE I NCOME ON THE BASIS OF METHOD OF ACCOUNTING FOLLOWED BY ANOTHER A SSESSEE NOR DOES IT EMPOWER THE AUTHORITIES TO THRUST UPON THE ASSESSEE TO ADOPT THE METHOD OF ACCOUNTING FOLLOWED BY ANOTHER ASSESSEE. IN THE INSTANT APPEAL BOTH THE LOWER AUTHORITIES HAVE REJECTED THE BOOKS OF ACCOUNTS OF ASSESSEE AND APPLIED THE PERCE NTAGE COMPLETION METHOD ADOPTED BY THE DEVELOPER JSM DPL AND COMPUTED THE INCOME ACCORDINGLY. WHETHER SUCH ACTIO N OF THE REVENUE AUTHORITIES IS JUSTIFIED OR NOT NEEDS TO BE EXAMINED IN LIGHT OF THE JURISDICTIONAL PRONOUNCEMENTS. 29. WE FIND THAT HONBLE SUPREME COURT IN CASE OF I NVESTMENT LTD V/S CIT REPORTED IN (1970) 77 ITR 533 (SC) , WHERE THEIR LORDSHIPS HAVE HELD THAT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 36 ASSESSEE IS FREE TO EMPLOY FOR THE PURPOSE OF HIS T RADE , HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PURPOSE TO VALUE HIS STOCK-IN-TRADE EITHER AT COST OR AT MARKET PRICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY D EPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR OF VALUATION. THE METHOD OF ACC OUNTING REGULARLY EMPLOYED MAY BE DISCARDED ONLY , IF , IN THE OPINIO N OF TAXING AUTHORITIES , INCOME OF THE TRADE CANNOT BE PROPERLY DEDUCED THER E FROM ( AS PER PROVISIONS OF 1922 ACT IN FORCE AT THAT TIME , PRES ENTLY ONLY IF CASE FALLS IN SUB SECTION (3) OF SECTION 145 ). 30. FURTHER IN ANOTHER JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V/S KRISHNA SWAMY MUDILIAR REPORTED IN (1964) 53 ITR 122 (SC) , THEIR LORDSHIPS OF APEX COURT WHILE DEALING PROVI SIONS OF SECTION 13 OF 1922 ACT (THE PROVISIONS OF WHICH ARE IN PARI-MATERIA OF SECTION 145 OF 1961 ACT) HAVE HELD AS UNDER: SECTION 13 OF 1922 ACT MERELY PRESCRIBES THAT THE C OMPUTATION OF TAXABLE PROFITS SHALL BE MADE ACCORDING TO THE METHOD OF AC COUNTING REGULARLY EMPLOYED. WHERE IN THE OPINION OF THE ITO THE INCOM E , PROFITS AND GAINS CANNOT BE PROPERLY DEDUCED FROM THE METHOD OF ACCOU NTING, IT IS OPEN TO ITO TO COMPUTE THE INCOME UPON SUCH BASIS AND IN SU CH MANNER AS HE MAY DETERMINE. COMPARING THE PROVISIONS WITH THE ENGLISH PROVISION S, IT IS HELD, THE ONLY DEPARTURE MADE BY SECTION 13 OF 1922 ACT FROM TAX LEGISLATION IN ENGLAND IS THAT WHEREAS UNDER ENGLISH LEGISLATION T HE COMMISSIONER IS NOT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 37 OBLIGED TO DETERMINE PROFITS OF A BUSINESS VENTURE ACCORDING TO METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE , UNDER THE INDI AN INCOME TAX ACT , PRIMA-FACIE , THE ITO HAS FOR PURPOSES OF SECTION 1 0 & 12 OF 1922 ACT TO COMPUTE INCOME , PROFITS AND GAINS IN ACCORDANCE WI TH METHOD OF ACCOUNTING REGULARLY EMPLOYED . IF, THEREFORE, THER E IS A SYSTEM OF ACCOUNTING REGULARLY EMPLOYED AND BY APPROPRIATE AD JUSTMENTS FROM THE ACCOUNTS MAINTAINED TAXABLE PROFITS MAY BE PROPERLY DEDUCED , THE ITO IS BOUND TO COMPUTE PROFITS IN ACCORDANCE WITH METHOD OF ACCOUNTING . BUT WHERE IN THE OPINION OF ITO , THE PROFITS CANNOT BE PROPERLY DEDUCED FROM ETH SYSTEM OF ACCOUNTING ADOPTED BY ASSESSEE IT IS OPEN TO HIM TO ADOPT A MORE SUITABLE BASIS FOR COMPUTATION OF TRUE PROFITS . THEIR LORDSHIPS THEN ALSO DEALT WITH METHOD OF ACCO UNTING AND OBSERVED AS UNDER- AMONG INDIAN BUSINESSMEN AS ELSEWHERE, THERE ARE C URRENT TWO PRINCIPLE SYSTEMS OF BOOK KEEPING , THERE IS , FIRS TLY, THE CASH SYSTEM IN WHICH RECORD IS MAINTAINED OF ACTUAL RECEIPTS AN D ACTUAL DISBURSEMENTS , ENTRIES BEING POSTED WHEN MONEY OR MONEYS WORTH IS ACTUALLY RECEIVED , COLLECTED OR DISBURSED . THE RE IS SECONDLY, MERCANTILE SYSTEM IN WHICH ENTRIES ARE POSTED IN ET H BOOKS OF ACCOUNT ON THE DATE OF TRANSACTION I.E. ON THE DATE ON WHIC H RIGHTS ACCRUE OR LIABILITIES ARE INCURRED IRRESPECTIVE OF THE DATE O F PAYMENT . 31. FURTHER IN THE DECISION OF THE COORDINATE BENCH , ITAT ALLAHABAD BENCH IN THE CASE OF MAHABIR JUTE MILLS V /S JCIT REPORTED IN (2013) 36 TAXMANN.COM 587 AS ALSO ON T HE DECISION IN THE CASE OF CIT V/S ADVANCE CONSTRUCTION COMPANY P . LTD REPORTED IN (2005) 275 ITR 30 (GUJ) , WHERE THEIR LORDSHIPS HAVE REITERATED POSITION THAT CHOICE OF ACCOUNTING METHOD LIES WITH THAT OF ASSESSEE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 38 , THE ONLY CAVEAT BEING THAT IT HAS TO SHOW THAT TH E CHOSEN METHOD HAS BEEN REGULARLY FOLLOWED . THE SECTION IS COUCHE D IN MANDATORY TERMS AND THE DEPARTMENT IS BOUND TO ACCEPT THE ASS ESSEES CHOICE OF METHOD REGULARLY EMPLOYED EXCEPT FOR THE SITUATI ON WHEREIN THE AO IS PERMITTED TO INTERVENE, IN CASE IT IS FOUND T HAT TRUE INCOME PROFITS AND GAINS CANNOT BE ARRIVED AT BY THE METHO D EMPLOYED BY ASSESSEE. THEIR LORDSHIPS FURTHER HELD THAT THE PO SITION OF LAW IS FURTHER WELL SETTLED THAT REGULAR METHOD ADOPTED BY ASSESSEE CANNOT BE REJECTED MERELY BECAUSE IT GIVES BENEFIT TO ASSE SSEE IN CERTAIN YEARS. 32. EXAMINING THE FACTS OF INSTANT APPEAL WE IN LIG HT OF ABOVE JUDGMENTS WE FIND THAT THE METHOD OF ACCOUNTING ALO NG WITH FOLLOWING PROJECT COMPLETION METHOD FOR TREATMENT O F ADVANCES RECEIVED FROM PROPOSED BUYERS THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWED THIS METHOD AND APPELLANTS ASSESSMENT HAS BEEN COMPLETED BY THE LD. AO FOR FIRST TWO YEARS VIZ, A. Y. 2010-11 & 2011-12. IN BOTH THESE YEARS ALSO THE APPELLANT HAS CREDITED THE ADVANCE RECEIVED AGAINST PROPOSED SALES OF FLATS TO A SEPARATE ACCOUNT AND SHOWN AS A LIABILITY IN BALANCE SHEET . AT THIS STAGE IT MAY BE RELEVANT TO MENTION THAT IN THOSE YEARS ALS O THE APPELLANT HAS CREDITED THE ADVANCE RECEIVED AGAINST PROPOSED SALE OF FLATS TO THE ADVANCE AGAINST SALE OF FLAT A/C AND NOT TREATE D THE SAME AS INCOME FOR SAID YEARS ON THE BASIS THAT REVENUE IN RESPECT OF SALE OF SAID FLATS WOULD BE RECOGNIZED ONLY ON EXECUTION AN D REGISTRATION OF SALE DEEDS OF FLATS . THE ASSESSMENT OF THE SAID YE ARS HAVE BEEN COMPLETED BY AO BY THE SAME COMMON ORDER , ACCEPTIN G THE METHOD ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 39 OF ACCOUNTING AND METHOD OF RECOGNITION OF REVENUE . THUS THE METHOD FOLLOWED BY APPELLANT IS A CONSISTENT METHOD WHICH HAS BEEN ACCEPTED BY AO FOR TWO YEARS I.E. AY 2010-11 & 2011-12 SINCE THE SAID METHOD HAS BEEN CONSISTENTLY FOLLOWED BY A PPELLANT AND EVEN ACCEPTED BY DEPARTMENT, THE SAME CANNOT BE DEV IATED IN THE PRESENT TWO YEARS WITHOUT THERE BEING ANY FINDING A S CONTEMPLATED U/S 145(3) ON THE BASIS OF SATISFACTION REQUIRED BY THAT SECTION VIZ., (1)ABOUT CORRECTNESS OR COMPLETENESS OF THE ACCOUNT S OF THE ASSESSEE OR (2) ABOUT THE FACT THAT THE ASSESSEE HA S NOT REGULARLY EMPLOYED THE METHOD OF ACCOUNTS PROVIDED IN SECTION 145(1) OR (3) THAT THE INCOME HAS NOT BEEN COMPUTED IN ACCORDANCE WITH THE STANDARDS NOTIFIED U/S 145(2) . 33. NOW IT IS AN ADMITTED FACT BASED ON THE FINANCI AL STATEMENT AND AUDITED REPORTS FOR 2010-11 AND 2011-12 ACCEPTE D BY THE REVENUE AUTHORITIES IN THE ASSESSMENT PROCEEDINGS U /S 143(3) READ WITH RESPECT OF 153(A) OF THE ACT THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING PROJECT COMPLETION METHOD/CO MPLETED CONTRACT METHOD FOR THE TREATMENT OF ADVANCES RECE IVED FROM PROPOSED BUYERS THROUGH DEVELOPER JSM DPL. IN THE LIGHT OF THE ABOVE FACT WE OBSERVE THAT HONBLE GUJARAT HIGH COU RT IN THE CASE OF MANJUSHA ESTATES (P) LTD VS ITO REPORTED IN (201 7) 393 ITR 644 (GUJ,) ADJUDICATING SIMILAR ISSUE I.E. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT I N LAW IN REJECTING THE PROJECT COMPLETION METHOD WHICH WAS FOLLOWED CO NSISTENTLY BY THE ASSESSEE AND INSTEAD APPLYING WORK IN PROGRESS METH OD AND TAXING 80 PER CENT. THEREON AS NET PROFIT? HELD THAT AS ASSESSEE HAS ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 40 FOLLOWED THE METHOD WHICH IS CONSISTENT CONSIDERING THE DECISION IN THE CASE OF CIT V SHIVALIK BUILDWELL P LTD (2013) 4 0 TAXMANN.COM 219 (GUJ.) (SUPRA) AND CIT VS. UMANG HIRALAL THAKUR (2014) 42 TAXMANN.COM 194 (GUJ) (SUPRA) AND THEREFORE THIS CO URT IS ARE OF THE OPINION THAT THE VIEW TAKEN BY THE TRIBUNAL AND THE COMMISSIONER OF INCOME TAX IS NOT CORRECT. ISSUE DECIDED IN FAVO UR OF ASSESSSEE. 34. FURTHER THE HON,BLE HIGH COURT OF GUJARAT IN T HE CASE OF CIT V SHIVALIK BUILDWELL P LTD (2013) 40 TAXMANN.COM 21 9 (GUJ.) DEALING WITH THE SIMILAR ISSUE OBSERVED AS FOLLOWS; ON THE REVENUES APPEAL, THE TRIBUNAL CONFIRMED TH E VIEW OF THE COMMISSIONER OF INCOME TAX (APPEALS), HOWEVER, ON S LIGHTLY DIFFERENT GROUND, NAMELY, THAT THE ASSESSEE BEING A DEVELOPER OF THE PROJECT, PROFIT IN HIS CASE, WILL ARISE ON TRANSFER OF TITLE OF THE PROPERTY AND RECEIPT OF ANY ADVANCES OR BOOKING AMOUNT CANNOT BE TREATED AS TRA DING RECEIPT OF THE YEAR UNDER CONSIDERATION. THE TRIBUNAL FURTHER NOT ED THAT SUCH METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE HAD BEEN ACC EPTED BY THE REVENUE IN EARLIER YEARS. THE TRIBUNAL WAS, THEREF ORE, OF THE OPINION THAT THE ASSESSING OFFICERS DECISION TO REJECT THE BOOK RESULTS DURING THE YEAR UNDER CONSIDERATION WAS NOT JUSTIFIED. WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITTED N O ERROR. IF AS PER THE ACCOUNTING STANDARD AVAILABLE, THE ASSESSEE WAS ENT ITLED TO CLAIM THE ENTIRE INCOME ON COMPLETION OF THE PROJECT AND IF S UCH ACCOUNTING STANDARD WAS ACCEPTED BY THE REVENUE IN THE EARLIER YEARS, IN THE PRESENT YEAR, THE ASSESSING OFFICER COULD NOT HAVE TAKEN A DIFFERENT SAND AND THAT TOO, WITHOUT HEARING THE ASSESSEE. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 41 35. FURTHER IN ANOTHER JUDGMENT BY CIT VS. UMANG HI RALAL THAKUR (2014) 42 TAXMANN.COM 194 (GUJ) IS PLACED ON THE FO LLOWING PARAGRAPHS OF ITS JUDGMENT. IN THE PRESENT CASE, IT IS NOT THE ASSESSING OFFIC ERS CASE THAT THE APPELLANT IS NOT REPORTING OR UNDER REPORTING ITS I NCOME. IN FACT, I FIND IN THE SUBSEQUENT ASSESSMENT YEAR, I.E. THE ASSESSMENT YEAR 2007-08, THE APPELLANT HAS DISCLOSED SUBSTANTIAL INCOME FROM THE PROJECTS UNDERTAKEN IN THE BUSINESS PROPRIETARY CONCERNS, VIZ, M/S. NEE LKANTH ENTERPRISES, M/S. GHANSHYAM ENTERPRISES AND M/S. SWAMINARAYAN EN TERPRISES. IN THE SUBSEQUENT YEAR, I.E. THE ASSESSMENT YEAR 2007- 08 THE PROFIT DECLARED FROM THE PROJECTS RUN BY THESE THREE PROPR IETARY CONCERNS RANGES FROM 43 PER CENT TO 46 PER CENT. THE SUPREM E COURT IN THE CASE OF SANJEEV WOOLDEN MILLS V. CIT (SUPRA), HAS CLEARL Y HELD THAT TO ATTRACT THE PROVISO TO SECTI9ON 145(1) OF THE ACT, THE ASSE SSING OFFICER SHOULD BE OF THE VIEW THAT THE ACCOUNTS ARE CORRECT AND COMPL ETE BUT THE METHOD EMPLOYED IS SUCH THAT THE INCOME CANNOT BE PROPERTY DEDUCED THERE FROM. THE CHOICE OF METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE LIES WITH THE ASSESSEE BUT THE ASSESSEE WO ULD BE REQUIRED TO SHOW TAT HE HAS FOLLOWED THE CHOSEN METHOD REGULARL Y. THE DEPARTMENT IS BOUND BY THE ASSESSEES REGULAR METHOD WOULD NOT BE REJECTED AS IMPROPER MERELY BECAUSE IT GIVES THE ASSESSEE THE B ENEFIT IN CERTAIN YEARS OR THAT AS PER THE ASSESSING OFFICER, THE OTHER MET HOD WOULD HAVE BEEN MORE PREFERABLE. IF THE METHOD ADOPTED DOES NOT AF FORD TRUE PICTURE OF PROFIT, IT WOULD BE REJECTED, BUT THEN SUCH REJECTI ON SHOULD BE BASED ON COGENT EVIDENCE AND SHOULD BE DONE WITH CAUTION. IN THE PRESENT CASE, THE APPELLANT HAS DECLARED SUB STANTIAL PROFITS ON THE BASIS OF PROJECT COMPLETION METHOD IN THE SUBSEQUEN T YEARS. IN CONSTRUCTION, THE PROJECT COMPLETION METHOD AND PER CENTAGE COMPLETION METHODS, BOTH HAVE ALSO BEEN RECOGNIZED BY THE CENT RAL BOARD OF DIRECT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 42 TAXES IN THE INSTRUCTION NO.4 OF 2009 DATED JUNE 30 , 2009. THEREFORE, THE ASSESSING OFFICER IS NOT CONSIDERED JUSTIFIED I N BRINGING TO TAX THE PROFIT OF RS.1,66,70,811 IN THE YEAR UNDER CONSIDER ATION, PARTICULARLY WHEN SUCH PROFITS HAVE ALREADY BEEN OFFERED TO TAX BY THE APPELLANT IN THE ASSESSMENT YEAR 2007-08. THE ADDITION OF RS.1, 66,70,811 ARE DIRECTED TO BE DELETED. 36. FURTHER THE CO-ORDINATE BENCH OF AHMEDABAD TRI BUNAL IN THE CASE OF VRAJ DEVELOPERS PASSED IN ITA NO.19/AHD/200 8 WHICH ATTAINED FINALITY AS IT IS NOT CHALLENGED BY THE DE PARTMENT BEFORE THE HIGH FORUM OBSERVED AS FOLLOWS; THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND THE LEARNED AUTHORIZE D REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COM MISSIONER OF INCOME- TAX (APPEALS) AND ALSO PLACED RELIANCE ON THE BANGA LORE BENCH OF THE TRIBUNAL IN THE CASE OF NANDI HOUSING P. LTD V. DEP UTY CIT (2003) 80 TTJ (BANG) 750, WHEREIN THE TRIBUNAL FOLLOWED THE DECIS ION OF THE KARNATAKA HIGH CURT IN THE CASE OF KHODAY DISTILLERS LTD, IN ITRC NOS. 19MTO 21 OF 1993. THIS, IT IS OBSERVED THAT THE ISSUE WHICH REQ UIRES OUR ADJUDICATION IS THAT THE INCOME IN THE INSTANT CASE IS TO BE COM PUTED AS PER SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE OR AS PER ACCOU NTING FOLLOWED BY THE ASSESSEE OR AS PER ACCOUNTING STANDARD AS7 FOR THE PURPOSE OF CHARGING OF INCOME TAX. WE FIND THAT THE ISSUE IS TO BE DECI DED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145 OF THE ACT SHOWS THAT THE BUSINESS INCOME WHICH IS ASSESSABLE UNDER THE INCOME TAX ACT IS TO BE COMPUTED IN ACCORDANCE WITH THE CONSISTENT SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE UNLESS SUCH SYSTEM, OF ACCOUNTING IS DEFEC TIVE AND/OR FROM SUCH SYSTEM OF ACCOUNTING, PROFIT CANNOT BE DEDUCED . THUS, IN OUR CONSIDERED OPINION, THE OPTION FOR CHOOSING THE SYS TEM OF ACCOUNT IS WITH THE ASSESSEE AND NOT WITH THE LEARNED ASSESSING OFF ICER PROVIDED THE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 43 SYSTEM CHOSEN BY THE ASSESSEE IS CONSISTENTLY FOLLO WED BY HIM AND SUCH SYSTEM IS NOT A DEFECTIVE SYSTEM. IN OUR CONSIDERE D VIEW, PROVISIONS OF AS7 CANNOT OVERRIDE THE PROVISIONS OF SECTION 145 I N SO FAR AS THE COMPUTATION OF BUSINESS INCOME UNDER THE INCOME TAX ACT FOR THE PURPOSE OF DETERMINING INCOME IS CONCERNED. IN THE INSTANT CASE, WE FIND THAT THE LEARNED ASSESSING OFFICER HAS BROUGHT NO M ATERIAL ON RECORD TO SHOW THAT THE SYSTEM OF ACCOUNTING ADOPTED BY THE A SSESSEE FOR THE YEAR UNDER APPEAL WAS NOT CONSISTENTLY FOLLOWED Y THE AS SESSEE OR THE SYSTEM ADOPTED WAS A DEFECTIVE SYSTEM. IN OUR CONSIDERED VIEW, EVEN A PROJECT COMPLETION METHOD IS ALSO A RECOGNIZED SYSTEM OF AC COUNTING. SIMPLY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS RECOMMENDED THE PERCENTAGE COMPLETION METHOD DOES NOT MEAN THAT PRO JECT ACCOUNTING OR THE SAME IS A DEFECTIVE SYSTEM OF ACCOUNTING. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS RECORDED A FINDING AFTE R PURSUING THE ASSESSMENT RECORDS OF THE SUBSEQUENT YEARS THAT THE ASSESSEE HAS OFFERED FOR TAXATION ITS INCOME IN THE SUBSEQUENT Y EAR AS PER THE CONSISTENT SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY ERROR IN THE ABOVE FINDING OF THE LEARNED COMMISSIONER OF INCOME-TAX ( APPEALS). IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY ERROR IN T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND THEREFORE, THE SAME IS UPHELD AND THE APPEAL OF THE REVENUE IS DISMISSED. IT IS REPORTED THAT THE DECISION OF APPELLATE TRIB UNAL IN THE CASE OF VRAJ DEVELOPERS (SUPRA) HAS ATTAINED THE FINALITY AS THE SAID DECISION IS NOT CHALLENGED BY THE DEPARTMENT BEFORE HIGHER FORUM. IN VIEW OF THE ABOVE AND MORE PARTICULARLY, WHEN IT HAS BEEN FOUND THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE ACCOUNTING SYSTEM OF PER CENTAGE COMPLETION METHOD, WHICH IS PERMISSIBLE AND ACCEPTED BY ICAI A ND THE CENTRAL BOARD OF DIRECT TAXES WITH RESPECT TO CONSTRUCTION WORK, IT CANNOT BE SAID THAT THE LEARNED APPELLATE TRIBUNAL HAS COMMIT TED ANY ERROR/ OR ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 44 ILLEGALITY, WHICH CALL FOR THE INTERFERENCE OF THIS COURT. WE SEE NO REASON TO SEE TO INTERFERE WITH THE IMPUGNED JUDGMENT AND ORD ER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETI NG THE ADDITION OF RS.1,66,70,881 WHICH WAS MADE BY THE ASSESSING OFFI CER ON REJECTING THE ACCOUNTING SYSTEM ON PERCENTAGE COMPLETION METHOD F OLLOWED BY THE ASSESSEE. NO QUESTION OF LAW MUCH LESS ANY SUBSTAN TIAL QUESTION OF LAW ARISE IN THE PRESENT APPEAL. HENCE, THE PRESENT AP PEAL DESERVES TO BE DISMISSED AND IS ACCORDINGLY DISMISSED. 37. WE FURTHER FIND THE CO-ORDINATE BENCH OF MUMBA I IN THE CASE OF PREM ENTERPRISES V INCOME TAX OFFICER (2012) 25 TAX MANN.COM 179 (MUM.) DEAL WITH THE SIMILAR ISSUE WHEREIN THE ASSE SSEE WAS CONSTRUCTING A PROJECT AND WAS CONSISTENTLY FOLLOWI NG PROJECT COMPLETION METHOD AND THE ASSESSING OFFICER REJECTE D THE METHOD OF PROJECT COMPLETION ADOPTED BY THE ASSESSEE ON OBSER VING THAT 8% OF THE TOTAL PROJECT HAS BEEN INCURRED UP TO THE RELEV ANT ASSESSMENT YEAR THE INCOME SHOULD HAVE DECLARED ON THE PERCENT AGE COMPLETION METHOD. THE CO-ORDINATE BENCH DECIDED IN FAVOUR OF THE ASSE SSEE HOLDING THAT THE RESULTS DECLARED BY THE ASSESSEE O N THE BASIS OF METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED AND THE ENTIRE PROFIT OF THE PROJECT HAS BEEN OFFERED IN SUBSEQUENT ASSESSMENT Y EAR THEREFORE THERE IS NO JUSTIFICATION IN REJECTING THE METHOD O F ACCOUNTING FOLLOWED BY THE ASSESSEE AND SUBSTITUTING THE SAME BY ADOPTI NG ACCOUNTING AS-7 ISSUED BY ICAI AND FOLLOWED IT FOR ACCOUNTING. 38. SIMILARLY HONBLE HIGH COURT OF PUNJAB & HARYA NA IN THE CASE OF COMMISSIONER OF INCOME TAX (CENTRAL), GURGAON V. PR INCIPAL OFFICER, HILL VIEW INFRASTRUCTURE (P) LTD (2017) 81 TAXMANN. COM 58 (PUNJAB & ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 45 HARYANA) ORDER DATED 13.8.2015 CONFIRMED THE VIEW T AKEN BY THE TRIBUNAL DECIDING IN FAVOUR OF THE ASSESSEE RELATIN G TO THE ISSUE OF THE PROJECT COMPLETION METHOD ADOPTED BY THE ASSESSEE V IS--VIS PERCENTAGE COMPLETION METHOD APPLIED BY US, THE ASS ESSING OFFICER OBSERVING AS FOLLOWS; THE ASSESSEE IN REPLY TO THE QUERY RAISED BY THE A SSESSING OFFICER HAD INTER ALIA CLAIMED THAT IT HAD BEEN CONSISTENTLY FO LLOWING METHOD OF BOOKING OF THE REVENUE ON THE COMPLETION OF THE FLA T WHEN FULL PAYMENT HAD BEEN MADE TO IT BY THE PERSON CONCERNED AND POS SESSION WAS DELIVERED TO HIM. IT WAS POINTED OUT THAT NEITHER A CCOUNTING STANDARD 9 (AS 9) OR ACCOUNTING STANDARD 7 (AS 7) ISSUED BY TH E INSTITUTE OF CHARTERED ACCOUNTS OF INDIA HAS BEEN RECOGNIZED BY THE ACT AND IN SUCH CIRCUMSTANCES, THERE WAS NO GUIDANCE OR STRICT PROC EDURE FOR ADOPTING A PARTICULAR ACCOUNTING STANDARD UNDER THE /ACT AND I T DEPENDS UPON FACTS AND CIRCUMSTANCES OF EACH CASE. IN OTHER WORDS, TH E ASSESSEE WAS ENTITLED TO ADOPT PROJECT COMPLETION METHOD FOR DET ERMINING ITS INCOME WHICH WAS BEING REGULARLY FOLLOWED BY IT. THOUGH T HE ASSESSING OFFICER HAD REJECTED THE PLEA OF THE ASSESSEE, BUT THE CIT( A) WHILE ACCEPTING THE APPEAL OF THE ASSESSEE MADE THE FOLLOWING OBSERVATI ONS:- IT IS HOWEVER NOT THE AOS CASE THAT THE PROFITS H AVE BEEN DISTORTED BY FOLLOWING THE PROJECT COMPLETION METHOD. THE IMPUG NED ORDER IS ALSO SILENT AS REGARDS THE POSITION OF THE BOOKS OF ACCO UNT. IN OTHER WORDS THE BOOKS HAVE NOT BEEN REJECTED, NOR ANY DEFECTS POINT ED OUT. IN THE CASE OF CIT VS. BILAHARI INVESTMENT (P) LTD (2008) 299 ITR 1 SC, THE APEX COURT HELD THAT THE COMPLETION CONTRACT METHOD ADOPTED BY THE ASSESSEE FOR CHIT DISCOUNT CONSISTENTLY OVER THE YEARS, IS NOT R EQUIRED TO BE SUBSTITUTED BY PERCENTAGE COMPLETION METHOD. IN CI T V MANISH BUILDWELL (P) LTD (2011) 245 CTR 397 (DEL), IT WAS ENUNCIATED THAT PROJECT COMPLETION METHOD IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTING. THAT ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 46 IT CANNOT BE SAID THAT THE PROJECT COMPLETION METHO D FOLLOWED BY THE ASSESSEE WOULD RESULT IN DEFERMENT OF PAYMENT OF TA XES. THEREFORE, CONSIDERING THE DISCUSSION ABOVE, I DO N OT FIND ANY MERIT ON THE PART OF THE AO TO HAVE WORKED OUT THE INCOME BY APPLYING THE PERCENTAGE COMPLETION METHOD. THE TRIBUNAL AFFIRMED THE ORDER OF THE CIT(A). IT WAS CONCLUDED THAT PROJECT COMPLETION METHOD AND PERCENTAGE COMPLETION METHOD ARE ACCEPTED STANDARDS OF ACCOUNTING AND THE ASSESSEE H AS OPTION TO ADOPT ANY ONE OF THEM. THE RELEVANT FINDINGS RECORDED BY THE TRIBUNAL READ THUS:- WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US IS IN RELAT ION TO THE METHOD TO BE APPLIED FOR RECOGNIZING THE REVENUE GENERATED BY TH E ASSESSEE IN THE COURSE OF CARRYING ON THE BUSINESS OF REAL ESTATE D EVELOPERS. THE CASE OF THE ASSESSEE IS THAT IT IS FOLLOWING ONE OF THE ACC EPTED ACCOUNTING STANDARDS APPROVED BY ICAI FOR RECOGNIZING THE REVE NUE GENERATED BY IT. THE ASSESSEE HAD FOLLOWED PROJECT COMPLETION METHOD WHICH HAD BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE FOR THE PRECE DING YEARS ALSO. THE ASSESSING OFFICER ON THE OTHER HAND, HAD APPLIED PE RCENTAGE COMPLETION METHOD TO COMPUTE THE INCOME IN THE HANDS OF THE AS SESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) HAD ALLOWED TH E CLAIM OF THE ASSESSEE. BOTH THE METHODS OF ACCOUNTING ARE I.E. PROJECT CO MPLETION METHOD AND PERCENTAGE COMPLETION METHOD IS ACCEPTED STANDARDS OF ACCOUNTING AND EITHER OF THE METHODS CAN BE APPLIED BY THE ASSESSE E. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSEE HAD CHOSEN TO COMPUTE ITS INCOME ON THE BASIS OF PROJECT COMPLETION METHOD I.E. RECO GNIZING THE INCOME ON THE COMPLETION OF THE PROJECT AND NOT FROM YEAR TO YEAR WHEREAS THE CASE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 47 OF THE REVENUE WAS THAT IT SHOULD ACCOUNT FOR THE I NCOME AS IT IS GENERATED IN THE HANDS OF THE ASSESSEE I.E. FROM YE AR TO YEAR ON THE BASIS OF THE WORK COMPLETED BEING RELATABLE TO THE REVENU E GENERATED FROM YEAR TO YEAR. THE HONBLE SUPREME COURT IN CIT VS. BILAHARI INVES TMENT (P) LTD (SUPRA) HAD HELD THAT RECOGNITION/IDENTIFICATION OF INCOME UNDER THE 1961 ACT IS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. IT MA Y BE NOTED THAT THE SAME RESULT COULD BE ATTAINED BY ANY ONE OF THE ACC OUNTING METHODS. COMPLETED CONTRACT METHOD IS ONE SUCH METHOD. IT W AS FURTHER HELD THAT EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING WHICH THE DEPARTMENT HAS EARLIER ACCEPTE D. IT IS ONLY ON THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PR OFITS, THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTING METHOD. APPLYING THE ABOVE SAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE WE FIND THAT THE ASSESSEE BEFORE US HAS BEEN FOLLOWING THE SYSTEMATIC METHOD OF ACCOUNTING FROM YEAR TO YEAR WHICH HAS BEEN ACCEPTE D BY THE DEPARTMENT AND NO DEFECTS HAVE BEEN POINTED OUT BY THE DEPARTM ENT IN THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AND THUS, THERE IS NO REASON TO REJECT THE SAME. THE HONBLE DELHI HIGH COURT IN CIT V MANISH BUILDW ELL (P) LTD (SUPRA) HAD HELD THAT IT IS WELL SETTLED THAT THE PROJECT COMPLETION METHOD IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTING. IT CANNOT BE SAID THAT THE PROJECTION COMPLETION METHOD FOLLOWED Y THE ASSESSE E WOULD RESULT IN DEFERMENT OF THE PAYMENT OF THE TAXES WHICH ARE TO BE ASSESSED ANNUALLY UNDER THE IT ACT. AS-7 ISSUED BY THE ICAI ALSO REC OGNIZES THE POSITION THAT IN THE CASE OF CONSTRUCTION CONTRACTS, THE ASS ESSEE CAN FOLLOW EITHER THE PROJECT COMPLETION METHOD OR THE PERCENTAGE COM PLETION METHOD. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 48 WHERE THE ASSESSEE WAS FOLLOWING A PARTICULAR METHO D OF ACCOUNTING CONSISTENTLY, WHICH HAS BEEN ACCEPTED BY THE DEPART MENT FROM YEAR TO YEAR AND IN THE ABSENCE OF ANY DEFECT BEING POINTED OUT BY THE ASSESSING OFFICER THAT BY FOLLOWING SUCH METHOD, INCOME HAD E SCAPED ASSESSMENT, WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFI CER IN HOLDING THAT PERCENTAGE COMPLETION METHOD SHOULD BE APPLIED TO T HE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. IT IS THE PREROGATIVE OF THE ASSESSEE TO ARRANGE ITS AFFAIRS IN SUCH A MANNER AND FOLLOW ANY RECOGNI ZED METHOD OF ACCOUNTING TO COMPUTE ITS PROFITS. IN VIEW THEREOF , WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN RECOMPUTING T HE INCOME IN THE HANDS OF THE ASSESSEE. UPHOLDING THE ORDER OF COMM ISSIONER OF INCOME TAX (APPEALS), WE DISMISS GROUND OF APPEAL RAISED B Y THE REVENUE. THE DELHI HIGH COURT IN CIT V MANISH BUILD WELL (P) LTD (2011) 16 TAXMANN.COM 27(2002) 204 TAXMAN 106 NOTED THAT PROJ ECT COMPLETION METHOD IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTI NG. IT WAS HELD AS UNDER:- IT IS WELL SETTLED THAT THE PROJECT COMPLETION MET HOD IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTING. IT CANNOT BE SAI D THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE WOULD RE SULT IN DEFERMENT OF THE PAYMENT OF THE TAXES WHICH ARE TO BE ASSESSED A NNUALLY UNDER THE IT ACT THE ASSESSEE RESPONDENT HAD BEEN CONSISTENTLY FOLLO WING ONE OF THE RECOGNIZED METHODS OF ACCOUNTANCY, I.E PROJECT COMP LETION METHOD, FOR COMPUTATION OF ITS INCOME. IN THE ABSENCE OF ANY P ROHIBITION OR RESTRICTION UNDER THE ACT FOR DOING SO, IT CANNOT B E HELD THAT THE APPROACH OF THE CIT(A) AND THE TRIBUNAL WAS ERRONEO US OR ILLEGAL IN ANY MANNER SO AS TO CALL FOR INTERFERENCE BY THIS COURT . NO SUBSTANTIAL QUESTION OF LAW ARISES. CONSEQUENTLY, FINDING NO M ERIT IN THESE APPEALS, THE SAME ARE DISMISSED. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 49 38. IT IS WELL SETTLED THAT THE PROJECT COMPLETION METHOD IS ONE OF THE RECOGNIZED METHODS OF ACCOUNTING. IN CIT V HYUNDAI HEAVY INDUSTRIES CO. LTD (2007) 291 ITR 482/ 161 TAXMAN 1 91 (SC) THE SUPREME COURT HELD AS FOLLOWS:- LASTLY, THERE IS A CONCEPT IN ACCOUNTS WHICH IS CA LLED THE CONCEPT OF CONTRACT ACCOUNTS. UNDER THAT CONCEPT, TWO METHODS EXIST FOR ASCERTAINING PROFIT FOR CONTRACTS , NAMELY, COMPLETED CONTRACT METHOD AND PERCENTAGE OF COMP LETION METHOD. TO KNOW THE RESULTS OF HIS OPERATIONS, TH E CONTRACTOR PREPARES WHAT IS CALLED A CONTRACT ACCOUNT WHICH IS DEBITED WITH VARIOUS COSTS AND WHICH IS CREDITED WITH REVEN UE ASSOCIATED WITH A PARTICULAR CONTRACT. HOWEVER, TH E RULES OF RECOGNITION OF COST AND REVENUE DEPEND ON THE METHO D OF ACCOUNTING. TWO METHODS ARE PRESCRIBED IN ACCOUNTI NG STANDARD NO.7. THEY ARE COMPLETED CONTRACT METHOD AND PERCENTAGE OF COMPLETION METHOD. 39. THIS VIEW WAS REITERATED BY THE SUPREME COURT I N CIT V. BILAHARI INVESTMENT (P) LTD. (2008) 299 ITR 1/168 T AXMAN 95 WITH THE FOLLOWING OBSERVATIONS: RECOGNITION/IDENTIFICATION OF INCOME UNDER THE 196 1 ACT IS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. IT MA Y BE NOTED THAT THE SAME RESULT COULD BE ATTAINED BY ANY ONE O F THE ACCOUNTING METHODS. THE COMPLETED CONTRACT METHOD IS ONE SUCH METHOD. SIMILARLY, THE PROCEEDINGS OF COMPLET ION METHOD IS ANOTHER SUCH METHOD. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 50 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 TH E LAST ACCOUNTING PERIOD AND TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. THE SAID METHOD DETERMINES RESULTS ONLY W HEN THE CONTRACT IS COMPLETED. THIS METHOD LEADS TO OBJECT IVE ASSESSMENT OF THE RESULTS OF THE CONTRACT. THE ON THE OTHER HAND, THE PERCENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCOME IN O RDER TO REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNI ZED UNDER THIS METHOD IS DETERMINED BY REFERENCE TO THE STAGE OF COMPLETION OF THE CONTRACT. THE STAGE OF COMPLETIO N 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. (UNDERLINING OURS) 40. AFTER THE ABOVE JUDGMENTS OF THE SUPREME COURT IT CANNOT BE SAID THAT THE PROJECT COMPLETION METHOD FOLLOWED BY THE ASSESSEE WOULD RESULT IN DEFERMENT OF THE PAYMENT OF THE TAX ES WHICH ARE TO BE ASSESSED ANNUALLY UNDER THE INCOME TAX ACT. A CCOUNTING STANDARDS 7 (AS7) ISSUED BY THE INSTITUTE OF CHARTE RED ACCOUNTANTS OF INDIA ALSO RECOGNIZE THE POSITION THAT IN THE CA SE OF CONSTRUCTION ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 51 CONTRACTS, THE ASSESSEE CAN FOLLOW EITHER THE PROJE CT COMPLETION METHOD OR THE PERCENTAGE COMPLETION METHOD. IN VIE W OF THE JUDGMENTS OF THE SUPREME COURT (SUPRA), THE FINDING OF THE CIT(A), UPHELD BY THE TRIBUNAL, DOES NOT GIVE RISE TO ANY S UBSTANTIAL QUESTION OF LAW. FURTHER, THE TRIBUNAL HAS ALSO FO UND THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE ASSESSING O FFICER TO ADOPT THE PERCENTAGE COMPLETION METHOD FOR ONE YEAR(THE YEAR UNDER APPEAL) ON SELECTIVE BASIS. THIS WILL DISTORT THE COMPUTAT ION OF THE TRUE PROFITS AND GAINS OF THE BUSINESS. FOR THESE REASO NS, WE ARE OF THE VIEW THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. W E, THEREFORE, DECLINE TO ADMIT QUESTION NOS. 2 AND 3. 41. FROM PERUSAL OF ALL THE JUDGMENTS IT HAS BEEN C ONSISTENTLY HELD RATHER A SETTLED LAW THAT THE ACTION OF REVENUE AUT HORITIES CANNOT BE HELD JUSTIFIED IF THEY SUBSTITUTE ANOTHER METHOD OF ACCOUNTING ON THE ASSESSEE WHICH IN THE INSTANT CASE WAS IMPOSING OF PERCENTAGE COMPLETION METHOD ON THE ASSESSEE EVEN WHEN IT HAS BEEN CONSISTENTLY MAINTAINING THE REGULAR BOOKS OF ACCOU NTS ON MERCANTILE BASIS U/S 145 OF THE ACT ADOPTING PROJEC T COMPLETION METHOD TO ACCOUNT FOR THE REVENUE AND THE REVENUE AUTHORITIES HAVE FAILED TO BRING FORTH ANY INCONSISTENCY IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER IN THE INSTANT CAS E HAS MERELY APPLIED THE METHOD OF PERCENTAGE COMPLETION ADOPTED BY THE DEVELOPER JSM DPL AND CALCULATED THE INCOME OF THE ASSESSEE COMPLETELY IGNORING THE FACT THAT THE ASSESSEE WAS MERELY THE OWNER OF LAND AND HE WAS ENTITLED TO 32% OF SALEABLE AREA ONLY ON COMPLETION OF CONSTRUCTION AND THE DEADLINE OF WHIC H WAS 60 ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 52 MONTHS FROM THE DATE OF AGREEMENT I.E. FROM 1.4.200 9. THE LD.A.O ALSO IGNORED THE FACT THAT RIGHT TO SALE ITS SHARE OF CONSTRUCTED AREA WITH THE ASSESSEE WAS ONLY FROM APRIL, 2014 ONWARDS AND THE ASSESSEE HAS OFFERED THE REVENUE FOR TAXATION FROM F.Y 2014-15 ONWARDS AS AND WHEN THE SALE DEED HAS BEEN REGISTER ED. AS HELD BY VARIOUS COURTS AS DISCUSSED ABOVE THAT THE METHOD O F ADOPTING PROJECT COMPLETION METHOD IS NOT ULTRA VIRUS AND TH E ASSESSEE IS FREE TO ADOPT EITHER THE PERCENTAGE COMPLETION METHOD OR PROJECT COMPLETION METHOD WITH THE ONLY RIDER THAT IT SHOUL D BE CONSISTENTLY ADOPTED AND IN CASE OF ANY DEVIATION THE EFFECT OF PROFIT OR LOSS SHOULD BE OFFERED TO TAX AS THE CASE MAY BE. REVEN UE HAS NOT DISPUTED THIS FACT THAT ASSESSEE HAS OFFERED THE IM PUGNED ADVANCES TO TAX IN THE SUBSEQUENT YEARS I.E. FROM FINANCIAL YEAR 2014-15 BASED ON SALE DEED REGISTERED WHICH PROVES THAT THE RE HAS BEEN NO LOSS TO THE REVENUE. MERE POSTPONEMENT OF TAX AS A RESULT OF METHOD EMPLOYED BY ASSESSEE HAS NOT BEEN VIEWED ADV ERSELY BY COURTS SO LONG AS THE METHOD IS REGULARLY AND CONSI STENTLY EMPLOYED AS HELD BY HONBLE APEX COURT IN THE CASE OF EXCEL INDUSTRIES LTD (2013) 358 ITR 295. 42. BEFORE PARTING OF WITH ADJUDICATION OF THIS IS SUE IT WOULD BE RELEVANT TO TAKE NOTE OF THE AMENDMENT BROUGHT IN S TATUTE WITH RETROSPECTIVE EFFECT W.E.F. 1.4.2017 BY WAY OF INSE RTION OF SECTION 43CB FOR THE PURPOSE OF COMPUTATION OF INCOME FROM CONSTRUCTION AND SERVICE CONTRACT. THE RELEVANT PROVISION OF SEC TION 43CB OF THE ACT READS AS FOLLOWS; ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 53 '43CB. COMPUTATION OF INCOME FROM CONSTRUCTION AND SERVICE CONTRACTS .(1) THE PROFITS AND GAINS ARISING FROM A CONSTRUC TION CONTRACT OR A CONTRACT FOR PROVIDING SERVICES SHALL BE DETERMINED ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD IN ACC ORDANCE WITH THE INCOME COMPUTATION AND DISCLOSURE STANDARDS NOTIFIE D UNDER SUB- SECTION (2) OF SECTION 145: PROVIDED THAT PROFITS AND GAINS ARISING FROM A CONTRACT FOR PROVIDING SERVICES, ( I ) WITH DURATION OF NOT MORE THAN NINETY DAYS SHALL BE DETERMINED ON THE BASIS OF PROJECT COMPLETION METHOD; ( II ) INVOLVING INDETERMINATE NUMBER OF ACTS OVER A SPECI FIC PERIOD OF TIME SHALL BE DETERMINED ON THE BASIS OF STRAIGHT L INE METHOD. (2) FOR THE PURPOSES OF PERCENTAGE OF COMPLETION ME THOD, PROJECT COMPLETION METHOD OR STRAIGHT LINE METHOD REFERRED TO IN SUB-SECTION (1) ( I ) THE CONTRACT REVENUE SHALL INCLUDE RETENTION MONEY; ( II ) THE CONTRACT COSTS SHALL NOT BE REDUCED BY ANY INCI DENTAL INCOME IN THE NATURE OF INTEREST, DIVIDENDS OR CAPITAL GAI NS.'. 43. FROM THE PERUSAL OF ABOVE SECTION IT IS CRYSTAL CLEAR THAT BEFORE THE INSERTION OF THIS SECTION THERE WAS NO LEGAL OB LIGATION ON THE PART OF THE ASSESSEE TO FOLLOW PERCENTAGE COMPLETION ME THOD ONLY. BEFORE INSERTION OF THIS SECTION PERSON ENGAGED IN CONSTRUCTION AND SERVICE CONTRACTS WERE FREE TO FOLLOW EITHER THE PR OJECT COMPLETION/ COMPLETED PROJECT METHOD OR PERCENTAGE COMPLETION M ETHOD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145 OF TH E ACT. IN THE INSTANT APPEAL ASSESSEE EVEN THOUGH NOT DIRECTLY IN VOLVED IN THE CONSTRUCTION ACTIVITY AND IT IS MERELY GAVE ITS LAN D FOR DEVELOPMENT AND IT WAS AGREED BETWEEN THE ASSESSEE COMPANY AND THE DEVELOPER THAT 32% OF THE SALEABLE AREA SHALL BE GIVEN TO THE ASSESSEE. THE ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 54 ASSESSEE IS CONSTITUENTLY FOLLOWED COMPLETED PROJEC T CONTRACT/PERCENTAGE COMPLETION METHOD AS RECOGNIZED ITS REVENUE AT THE TIME OF EXECUTION OF GETTING THE SALE DEED R EGISTERED AND BEFORE THAT IT HAS TO BE CONSISTENTLY SHOWING THE A DVANCE FROM SALE OF FLATS AS THE LIABILITY IN THE BALANCE SHEET. 44. WE THEREFORE IN THE GIVEN CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF JUDGMENT REFERRED IN PRECEDING PARAGRAPHS ARE OF THE CONSIDERED VIEW THAT THE LD. A.O WAS NOT JUSTIFIED IN APPLYING THE PERCENTAGE COMPLETION METHOD ON THE ASSESSEE MERELY ON THE BASIS THAT IT WAS FOLLOWED BY THE DEVELOPER JSM DPL AND A RBITRARILY MAKING ADDITION TO THE INCOME IGNORED THE FACT THAT PROJECT COMPLETION METHOD/ COMPLETED CONTRACT METHOD OF AC COUNTING HAS BEEN CONSISTENTLY ADOPTED BY THE ASSESSEE AND EVEN HAVE BEEN ACCEPTED BY THE REVENUE AUTHORITY FOR THE A.Y. 2010 -11 AND A.Y. 2011-12. WE THEREFORE SET ASIDE THE FINDINGS OF LD .CIT(A) AND DELETE THE ADDITION OF RS.16,12,34,754/- FOR ASSESSMENT YE AR 2012-13. 45. AS REGARDS APPEAL NO.ITA/686/IND/2016 PERTAINI NG TO A.Y 2013-14 AS THE ISSUE ARE BEING THE SAME WE APPLY OU R DECISION OF ASSESSMENT YEAR 2012-13 IN ASSESSEES OWN CASE REFE RRED ABOVE ON THE APPEAL FOR THE YEAR 2013-14 AND ACCORDINGLY SET ASIDE THE FINDINGS OF BOTH THE LOWER AUTHORITIES AND DELETE T HE ADDITION OF RS.12,25,55,171/- AND ALLOWED ALL THE GROUND NO. 1 & 2 S RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE A.Y. 2013-14. ASHOKA HI-TECH BUILDERS PVT.LTD ITA NO.121/IND/2016 &686/IND/2016 55 46. IN THE RESULT GROUND NO.1 AND 2 OF THE ASSESSE ES APPEAL FOR A.Y. 2012-13 & A.Y. 2013-14 ARE ALLOWED. GROUND NO .3 BEING ALTERNATE PLEA BECOME INFRUCTUOUS AS GROUND NO.1 & 2 ARE ALREADY ALLOWED. GROUND NO.4 IS GENERAL IN NATURE WHICH NE EDS NO ADJUDICATION. 46. IN THE RESULT BOTH THE APPEAL OF THE ASSESSEE ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 03.8.2 018. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 03 AUGUST, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER PRIVATE SECRETARY/DDO, INDORE