DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR V. M/S TIRUPATI BUILDINERS AND DEVLOPERS, JAIPUR

ITA 920/JPR/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6547 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 01-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Capital asset converted into stock in trade
• Section: 143(3); 145(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES A, JAIPUR JH JES'K LH 'KEKZ] YS[KK LNL; ,OA JH LANHI XLKA ] U;KF;D LNL; DS LE{K BEFORE: SHRI RAMESH C SHARMA, AM & SHRI SANDEEP GOSAIN, JM VK;DJ VIHY LA -@ ITA NO. 920/JP/2019 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2015-16 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR. C UKE VS. M/S TIRUPATI BUILDERS & DEVELOPERS, F-114, VENKATESHWARA TOWER, CENTRAL SPINE, VIDHYADHAR NAGAR, JAIPUR. LFKK;H YS[KK LA -@THVKBZVKJ LA -@ PAN/GIR NO.: AAEFT 6450 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAUL (ADDL.CIT-DR) FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI RAJIV SOGANI (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 03/09/2020 MN?KKS 'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 14/09/2020 VKNS'K@ ORDER PER: R.C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD.CIT(A)-2, JAIPUR DATED 25/04/2019 FOR THE A.Y. 2015-16 IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 1,74,70,288/-. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN REJECTING THE FINDINGS OF THE ITA 920/JP/2019_ DCIT VS M/S TIRUPATI BUILDERS & DEVELOPERS 2 AO THAT PERCENTAGE COMPLETION METHOD IS THE CORRECT METHOD FOR REVENUE RECOGNITION BY THE ASSESSEE. 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN REJECTING THE FINDINGS OF THE AO THAT THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF AS-7 AND AS-9. 4. THE APPELLANT CRAVES ITS RIGHTS TO ADD, AMEND OR ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 2. THE HEARING OF THE APPEAL WAS CONCLUDED THROUGH VIDEO CONFERENCE IN VIEW OF THE PREVAILING SITUATION OF COVID-19 PANDEMIC. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE/DEVELOPER. IT FOLLOW AS-9 IN SO FAR AS RECOGNITION OF REVENUE IS CONCERNED AND FOLLOW AS-7 I.E. PERCENTAGE COMPLETION METHOD TO WORK OUT THE PROFITS AT THE END OF EACH FINANCIAL YEAR AS THE PROJECT SPREADS IN SERIES OF FINANCIAL YEARS. DURING THE COURSE OF ASSESSMENT, THE AO CONCLUDED THAT THE ASSESSEE HAD FAILED TO MAINTAIN ITS ACCOUNTS IN A MANNER WHICH COULD PRESENT 'TRUE AND FAIR PICTURE' OF ITS ACCOUNTS AND FINANCIAL TRANSACTIONS, THEREBY CONTRAVENING THE PROVISIONS OF SEC. 145(2) OF THE ACT. FURTHER, THE AO HELD THAT THE ASSESSEE BY FOLLOWING PROJECT COMPLETION METHOD HAD NOT DECLARED COMPLETE AND CORRECT PROFITS AND AT THE SAME TIME BY NOT FOLLOWING AS-9 & AS-7, WHICH TANTAMOUNT TO NOT FOLLOWING AS-1 AS PER SECTION 145(2) OF THE ACT, THEREFORE, THE BOOKS DID NOT REPRESENT TRUE AND FAIR PICTURE AND ITA 920/JP/2019_ DCIT VS M/S TIRUPATI BUILDERS & DEVELOPERS 3 THUS, THE AO REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND PERCENTAGE COMPLETION METHOD WAS APPLIED FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE AO MADE ADDITION OF RS. 1,74,70,288/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 3. BY THE IMPUGNED ORDER, THE LD CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT 'ASSESSEE IS REGULARLY FOLLOWING PROJECT COMPLETION METHOD, ASSESSING OFFICER ESTIMATING INCOME ON PERCENTAGE COMPLETION METHOD IS INCORRECT. IT IS FURTHER SEEN THAT THE ASSESSING OFFICER IN FACT EVEN NOT APPLIED THE PERCENTAGE COMPLETION METHOD CORRECTLY. HE TREATED ENTIRE ADVANCES RECEIVED AS INCOME WHICH IS INCORRECT. CONSIDERING ALL THESE FACTS, THE ADDITION MADE IS DELETED.' AGAINST WHICH, THE REVENUE IS IN FURTHER APPEAL BEFORE THE ITAT 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BEFORE THE AO THAT THE ASSESSEE FIRM, BEING A REAL ESTATE DEVELOPER, RECOGNIZED ITS REVENUE CONSISTENTLY, ON A YEAR-ON-YEAR BASIS, BY FOLLOWING THE ACCOUNTING POLICY AS STATED HEREINBEFORE. HOWEVER, IN HIS OPINION, PERCENTAGE COMPLETION METHOD WAS TO BE PREFERRED OVER PROJECT ITA 920/JP/2019_ DCIT VS M/S TIRUPATI BUILDERS & DEVELOPERS 4 COMPLETION METHOD. THUS, THE AO HELD THE ENTIRE AMOUNT OF ADVANCE, OF RS. 2,36,70,288, RECEIVED BY THE ASSESSEE FIRM, FROM ITS CUSTOMERS, TO BE CONSIDERED AS PART OF THE REVENUE FOR THE RELEVANT PREVIOUS YEAR. THE AO NOTED THE FACT THAT OUT OF THE TOTAL SUCH ADVANCE, RECEIVED BY THE ASSESSEE FIRM, RS. 62,00,000 WAS REFUNDED TO THE CUSTOMER IN SUBSEQUENT PERIOD. 5. WE FOUND THAT THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS AS A REAL ESTATE DEVELOPER. THUS, ACCOUNTING STANDARD 7, ON CONSTRUCTION CONTRACTS, ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WAS NOT APPLICABLE ON THE ASSESSEE FIRM. AS-7 IS ONLY APPLICABLE TO CONSTRUCTION CONTRACTORS AND NOT TO REAL ESTATE DEVELOPERS. SIMILAR TO THE YEAR UNDER APPEAL, ASSESSEE FIRM IN THE PRECEDING YEARS, AS WELL AS IN THE SUBSEQUENT YEARS, RECOGNIZED ITS REVENUE, ON A CONSISTENT BASIS, AT THE POINT OF TIME WHEN THE SALE DEED WAS REGISTERED OR FINAL PAYMENT RECEIVED AND POSSESSION OF THE PROPERTY WAS HANDED OVER TO THE BUYER, WHICHEVER WAS EARLIER. THESE FACTS HAVE NOT BEEN DISPUTED BY THE AO, DURING THE ASSESSMENT PROCEEDINGS. 6. WE ALSO FOUND THAT IRRESPECTIVE OF THE STAGE OF COMPLETION OF THE PROJECT, REVENUE FROM THE PROJECT WAS RECOGNIZED BY THE ASSESSEE FIRM, DURING FY 2012-13, OF RS. 59,55,000, BY FOLLOWING THE AFOREMENTIONED ITA 920/JP/2019_ DCIT VS M/S TIRUPATI BUILDERS & DEVELOPERS 5 ACCOUNTING POLICY. SUCH METHOD, FOR RECOGNITION OF REVENUE, WAS EVEN ACCEPTED BY THE AO, WHILE PASSING ORDER UNDER SECTION 143(3) OF THE ACT IN THE CASE OF THE ASSESSEE FIRM FOR A.Y. 2013-14 (F.Y. 2012-13). MOREOVER, PERCENTAGE COMPLETION METHOD FOR RECOGNITION OF REVENUE, TILL THE F.Y. 2015-16 (A.Y. 2016-17), WAS NOT MANDATORY/COMPULSORY TO BE FOLLOWED BY THE ASSESSEE. IT IS ONLY WITH EFFECT FROM F.Y. 2016-17 (A.Y. 2017-18), THAT PERCENTAGE COMPLETION METHOD HAS BEEN MADE COMPULSORY FOR THE REAL ESTATE DEVELOPERS, THAT TOO FOR PROJECTS COMMENCING ON OR AFTER 01.04.2016, BY WAY OF INTRODUCTION OF INCOME COMPUTATION AND DISCLOSURE STANDARDS (ICDS - III), RELATING TO CONSTRUCTION CONTRACTS. 7. SINCE THE ASSESSEE FIRM HAS BEEN CONSISTENTLY FOLLOWING THE SAME ACCOUNTING POLICY FOR RECOGNITION OF REVENUE, WHICH HAS EVEN BEEN ACCEPTED IN THE PAST, THEREFORE, THERE IS NO JUSTIFICATION, ON THE PART OF THE LD. AO TO DISTURB THE ACCOUNTING POLICY ADOPTED AND THEREBY APPLY PERCENTAGE COMPLETION METHOD FOR THE RELEVANT PREVIOUS YEAR. HONBLE SUPREME COURT IN THE CASE OF BILAHARI INVESTMENT (P.) LTD.[2008] 168 TAXMAN 95 (SC) (CLC PAGE 6) HELD THAT, ..IN THE PAST, THE DEPARTMENT HAD ACCEPTED THE COMPLETED CONTRACT METHOD AND BECAUSE OF SUCH ACCEPTANCE, THE ASSESSEES, IN THESE CASES, HAVE FOLLOWED THE SAME METHOD OF ACCOUNTING, PARTICULARLY IN THE CONTEXT OF CHIT DISCOUNT. EVERY ITA 920/JP/2019_ DCIT VS M/S TIRUPATI BUILDERS & DEVELOPERS 6 ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED 8. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN HOLDING THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD AND INCOME HAS BEEN PROPERLY ESTIMATED ACCORDINGLY. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A). 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER, 2020. SD/- SD/- LANHI XLKA JES'K LH 'KEKZ (SANDEEP GOSAIN) (RAMESH C SHARMA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 14/09/2020 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE DCIT, CIRCLE-4, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- M/S TIRUPATI BUILDERS & DEVELOPERS, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 920/JP/2019) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR