Case Law Details
Brief of the Case
Delhi High Court held In the case of Paras Buildtech India Pvt. Ltd. vs. CIT that the settled legal position as far as Section 145 is concerned is that it is not open to an AO to reject the accounts of an Assessee unless he comes to a determination that notified accounting standards have not been regularly followed by the Assessee. As pointed out by the CIT (A) in the order dated 2nd July, 2010, the AS of the ICAI did not have any statutory recognition under the Act although it was binding under the Companies Act, 1956. The method of accounting followed by the Assessee in the present case i.e. project completion method was certainly one of the recognized methods and has been consistently followed by it. Hence rejection of books of accounts not maintainable.
Facts of the Case
The Assessee is engaged in the business of real estate as a developer. The Assessee either purchases land in its own name or gets the power of attorney from the land owner in case the property is owned by another party so as to carry out activities of development on the land in terms of a collaboration agreement. The Assessee enters into agreements to develop and sell overall projects in terms of sharing with the owner. It enters into contracts with various buyers and receives sums by way advance for booking or reserving flats/shops/areas. On completion of the project, the Assessee hands over the possession of the flats booked to the respective customers/buyers along with the execution of the sale/conveyance deed. It is stated that the Assessee regularly follows Accounting Standard (AS) 9 issued by the Institute of Chartered Accountants of India (ICAI). In this method, revenue is recognized as and when significant risk and reward of ownership/title is transferred. All sums received for the construction project till such time are treated as advances and shown as liability.
The Assessee filed a return of income along with an audited financial statement on 13th October 2005 for AY 2005-06 by declaring an income of Rs.57,75,159. A question arose during the assessment proceedings whether the percentage completion method (encapsulated in AS 7 issued by the ICAI) should be applied to the Assessee? The Assessing Officer (AO) called upon the Assessee to submit whether the working of the profit was done as per the project completion method or the percentage completion method as provided in AS-7 issued by ICAI. In reply thereto, the Assessee took the categorical stand that AS-7 was not applicable since it was a developer and not a contractor. It further took the stand that it had booked sales on signing of title deeds in AYs 2005-06 and 2006-07.
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