ITO, New Delhi v. M/s. N.N. United Pvt. Ltd, New Delhi

ITA 1337/DEL/2009 | 2005-2006
Pronouncement Date: 14-01-2011 | Result: Dismissed

Appeal Details

RSA Number 133720114 RSA 2009
Assessee PAN AAACN3839K
Bench Delhi
Appeal Number ITA 1337/DEL/2009
Duration Of Justice 1 year(s) 9 month(s) 6 day(s)
Appellant ITO, New Delhi
Respondent M/s. N.N. United Pvt. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 14-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 14-01-2011
Date Of Final Hearing 10-11-2010
Next Hearing Date 10-11-2010
Assessment Year 2005-2006
Appeal Filed On 08-04-2009
Judgment Text
I.T.A. NO.1337 /DEL/2009 1/4 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH F NEW DELHI BENCH F NEW DELHI BENCH F NEW DELHI BENCH F BEFORE SHRI R. P. TOLANI JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 1337 /DEL/2009 (ASSESSMENT YEAR 2005-06) I.T.O. WARD 13(1) VS. M/S. N.N. UNITED PVT. LTD. NEW DELHI B-161 FIRST FLOOR ANAND VIHAR DELHI-92 (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACN3839K APPELLANT BY: SHRI H. K. LAL SR. DR RESPONDENT BY: SHRI DR. RAKESH GUPTA ADV. ORDER ORDER ORDER ORDER PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: 1. THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YE AR 2005- 06 ARISES OUT OF THE ORDER OF LD. CIT(A)-XXVI NEW DELHI. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING HE ADDITION MADE BY THE A.O. HOLDING THAT SALES IN THE CASE OF BUILDERS SUCH AS ASSESSEE CAN BE RECOGNIZED ONLY WHEN AGREEMENT OF SALE IS EXECUTED AND PROJECTS IS COMPLETED. II) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY A.O. BY RECOGNIZING REVENUE ON THE BASIS OF PERCENTAGE COMPLETION METHOD AFTER REJECTING BOOKS OF ACCOUNT U/S 145 OF I T ACT IN ACCORDANCE WITH GUIDANCE NOTE OF ICAI ON RECOGNITIO N OF REVENUE BY REAL ESTATE DEVELOPERS. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) HAS ERRED IN NOT CONSIDE RING THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF J K INDUSTRIES VS UNION OF INDIA (S.C.) 200 8 297 ITR 0176 AND CIT VS BILHARI INVESTMENT PVT. LTD . (S.C.) (2008) 299 ITR 001 IN WHICH REJECTION OF BOO KS WAS HELD JUSTIFIED IF THE SAME IS NOT AS PER ACCOUN TING I.T.A. NO.1337 /DEL/2009 2/4 PRINCIPLES AND DOES NOT GIVE TRUE AND FAIR PICTURE OF PROFITS. 2. THE ONLY ISSUE FOR CONSIDERATION IN THE GROUNDS OF APPEAL RELATES TO THE DELETION OF ADDITION MADE BY THE A.O . BY RECOGNIZING REVENUE ON THE BASIS OF PERCENTAGE COMP LETION METHOD AFTER REJECTING THE BOOKS OF ACCOUNTS U/S 14 5 OF THE ACT. THE FACTS OF THE CASE STATED IN BRIEF ARE THA T THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE. THE ASSESSEE COMPANY DURING THE RELEVANT P ERIOD WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND INVENTORIES WERE TAKEN AT COST. THE ASSESSEE RECOG NIZED THE REVENUE AT THE TIME OF SALE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT AS P ER AS- 7 GUIDELINES THE ASSESSEE COMPANY SHOULD HAVE ADOP TED PERCENTAGE COMPLETION METHOD OF ACCOUNTING FOR RECOGNIZING THE REVENUE. THE A.O. REJECTED THE MET HOD ADOPTED BY THE ASSESSEE AND APPLIED THE PROJECT COMPLETION METHOD OF ACCOUNTING OF THE REVENUE. TH E A.O. KEEPING IN VIEW THE VARIOUS FACTORS INCLUDING THE SUBSTANTIAL UTILIZATION OF ITS OWN FUND HAD TAKEN 8 2.1% OF TOTAL INVENTORY FOR THE PURPOSE OF COMPUTATION OF T HE TAXABLE INCOME. HE APPLIED GP RATE OF 8% OF INVENT ORY COMPUTED ON PERCENTAGE COMPLETION METHOD AT ` 2 33 10 316/-. 3. ON APPEAL IT WAS SUBMITTED BY THE ASSESSEE THAT THE A.O. HAS APPLIED AS-7 WHICH IS APPLICABLE TO CONTRACTOR S WHEREAS THE ASSESSEE IS ENGAGED IN REAL ESTATE BUSI NESS AND HAS BEEN CONSISTENTLY FOLLOWING PROJECT COMPLET ION METHOD FOR RECOGNITION OF INCOME. THE ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD CONSISTENTLY AN D THEREFORE THE A.O. IS NOT JUSTIFIED IN APPLYING TH E PERCENTAGE COMPLETION METHOD WHICH IS NOT APPLICAB LE TO THE CASE OF THE ASSESSEE. LD. CIT(A) EXAMINED THE MATTER I.T.A. NO.1337 /DEL/2009 3/4 IN THE LIGHT OF THE SUBMISSIONS MADE AND MATERIAL A VAILABLE ON RECORD. HE OBSERVED THAT THE ASSESSEE WAS FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING AND PROJECT COMPLET ION METHOD FOR RECOGNIZING THE REVENUE. THE BOOKS OF ACCOUNTS WERE AUDITED AND ALL SALES AND EXPENSES WE RE FULLY VOUCHED. NO ADVERSE FINDING WAS RECORDED BY T HE A.O. IN THE ASSESSMENT ORDER WHICH MAY SUGGEST THAT EXP ENSES WERE INFLATED OR SALES WERE SUPPRESSED. THE ASSESS EE ALSO CONTENDED THAT THE BOOKS OF ACCOUNTS MAINTAINED IN THE ORDINARY COURSE OF BUSINESS HAVE TO BE ACCEPTED UNL ESS THERE WAS A COMPELLING REASON FOR REJECTION OF THE SAME. THE ASSESSEES CLOSING STOCK OF PREVIOUS YEAR WAS S OLD IN THE NEXT YEAR. THEREFORE REVENUE WAS NOT PREJUDICE D IN ANY MANNER. HE ALSO HELD THAT PARA 11 OF AS-9 WAS ALSO NOT APPLICABLE AS THE ASSESSEE HAD NOT TRANSFERRED ALL RISKS REWARDS AND OWNERSHIP AND THE SALE AGREEMENT IS EXE CUTED WHEN FULL PAYMENTS ARE RECEIVED AND POSSESSION IS H ANDED OVER TO THE BUYERS. HE FURTHER NOTED THAT THE ASSE SSEE BEING A BUILDER WILL RECOGNIZE THE REVENUE ONLY WHE N THE AGREEMENT TO SELL IS EXECUTED AND THE PROJECT IS CO MPLETED. THEREFORE PERCENTAGE COMPLETION METHOD WOULD NOT B E APPLICABLE IN THE CASE OF THE ASSESSEE. LD. CIT(A) THEREFORE DIRECTED THE A.O. NOT TO TREAT HE ADVANC ES RECEIVED AGAINST THE BOOKING AS PART OF SALE CONSID ERATION AND ACCEPT THE BOOK RESULTS AS DECLARED BY THE ASSE SSEE IN THE BOOKS OF ACCOUNTS. 4. BEFORE US LD. SR. D.R. SUBMITTED THAT AS-7 IS A PPLICABLE IN THE CASE OF THE ASSESSEE WHEREAS LD. A.R. FOR THE A SSESSEE SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THA T AS-7 IS APPLICABLE IN THE CASE OF THE CONTRACTORS AND NO T IN THE CASE OF BUILDERS. THEREFORE THE A.O. WAS NOT JUSTI FIED IN REJECTING THE BOOK RESULTS U/S 145 OF THE I. T. ACT . I.T.A. NO.1337 /DEL/2009 4/4 5. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE TH ROUGH AS-7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS. THE OBJECTIVE OF AS-7 IS TO PRESCRIBE THE ACCOUNTING TR EATMENT OF REVENUE COSTS ASSOCIATED WITH CONSTRUCTION CONTR ACT. PARA 1 DEFINES THE SCOPE OF ACCOUNTING STANDARD AS- 7 WHICH STATES THAT THIS STATEMENT SHOULD BE APPLIED IN ACCOUNTING FOR CONSTRUCTION CONTRACTS IN THE FINANC IAL STATEMENT OF THE CONTRACTORS. FROM THE CHAPTER OF ACCOUNTING STANDARD 7 IT IS EVIDENT THAT IT IS NOT APPLICABLE IN THE CASE OF BUILDERS. THEREFORE IN OUR CONSIDE RED OPINION THE A.O. WAS NOT JUSTIFIED IN APPLYING THE ACCOUNTING STANDARD AS-7 IN THE CASE OF ASSESSEE. ACCORDINGLY THE ASSESSEE IS FOLLOWING PROJECT COMP LETION METHOD AND THEREFORE AS AND WHEN SALES ARE TO BE M ADE THE REVENUE WILL BE RECOGNIZED. THEREFORE IN OUR CONSIDERED OPINION PROJECT COMPLETION METHOD IS THE METHOD TO BE FOLLOWED IN THE CASE OF THE ASSESSEE WHICH HAS BEEN CONSISTENTLY FOLLOWED BY HIM. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) I N DECIDING THE MATTER IN FAVOUR OF THE ASSESSEE. 6. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. 7. PRONOUNCED IN THE OPEN COURT ON 14 TH JAN. 2011 SD./- SD./- (R. P. TOLANI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:14 TH JAN. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI