Case Law Details

Case Name : Income Tax Officer Vs M/s. Meeti Investment and Consultancy P. Ltd. (ITAT Ahemdabad)
Appeal Number : ITA No. 1714/Ahd/2010
Date of Judgement/Order : 29/11/2013
Related Assessment Year : 2006- 07
Courts : All ITAT (5569) ITAT Ahmedabad (389)

ITO Vs. M/s. Meeti Investment and Consultancy P. Ltd. (ITAT Ahemdabad)

Brief facts of the case are that assessee is engaged in the business of sale/purchase of TDR, income by way of stallage and construction activity. During the assessment proceedings AO found that assessee had received advanced booking amount on account of the construction activity and the WIP was shown at Rs. 1,99,97,296/-. However, the assessee had not shown any profit on the ground that it was following project completion method. The AO rejected the assessee’s method and held that as per AS-7, it has to follow percentage completion method. Accordingly, he rejected the books of account and applied profit rate of 8% on booking advance of Rs. 1,76,70,003/- and made addition of Rs. 14,13,600/-.

Held :- We concur with the views of the Ld. CIT(A) that in the present case, the assessee was not a contractor but was a developer who awards contracts to different contractors for executing civil, electrical, plumbing work etc. Therefore, accounting standard in the present circumstances and facts of the case i.e. AS-7 cannot be made applicable. Accounting standard AS-9 which has been reproduced by the Ld. CIT(A) and has been discussed at pages 4-8 of his order is applicable in the present circumstances and facts of the case. Moreover, it has not been controverted by the Ld. DR appearing for the Revenue that the assessee had awarded the contractors to various other contractors. Also it has not been controverted that there is no construction activity carried out by the assessee during the year and there was a dispute of the parties who had filed civil suit in Mumbai civil court. The assessee had received the advances which are duly reflected in the balance-sheet of the assessee. There is no certainty of the Revenue recognition at this stage. Moreover, all the significant risks and the ownership at this juncture vest in the hands of the owner i.e. the assessee and they have not been transferred to the buyer or the proposed buyer. Therefore, in the circumstance and facts of the case, we find no infirmity in the order of Ld. CIT(A), which appears to be quite reasoned one and he has justified in reversing the order of the AO on the issue. Thus, ground No. 1 of the Revenue is dismissed.

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Category : Income Tax (28537)
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Tags : accounting standard (346) ITAT Judgments (5749)

0 responses to “AS-7 is applicable to a “Contractor” and not to a “Developer””

  1. Abhishek says:

    Then Is AS 7 Applicable to Builders who are constructing Buildinds for their own sale.

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