AO cannot made additions by ignoring method of accounting

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

6. We have heard the submissions of learned counsel the assessee, who submitted that the assessee followed project completion method of accounting for its income from the project Jalaram Park. In this regard. our attention was drawn to the fact that project ,Jalaram Park commenced in April, 2003 and was completed on 29.3.2008. Our attention was drawn to the fact that in A.Y. 2008-09 the Assessee completed the aforesaid project and in the said assessment year, the assessee has declared income from the said project and has also claimed deduction u/s. 80IB(10) of the Act. Our attention was also drawn to computation of income and certificate in Form No. 1OCCB c1aiming deduction u/s. 80IB(10) of the Act; and the completion certificate in respect of the project Jalaram Park. Our attention was drawn to the fact that right from the commencement of the project till completion of the project, the assessee has been filing its return of income clearly mentioning that it is following project completion method ,or accounting for income from the project Jalaram Park. Our attention was also drawn to the fact that in the books of account, cash receipts have been accounted as advance received against sale of flats/shops. These entries were passed in F.Y. 200S-06 relevant to A.Y. 2006-07, Relevant documents in this regard have been placed by the assessee in its paper book. Learned counsel for the assessee further submitted that even in assessment made after search arid seizure, the Assessing Officer has to compute income on the basis of method accounting followed by the assessee. In this regard, reliance was placed by learned counsel for the assessee on the decision of Pune Bench of the lTAT in the case of Dhanvarsha Builders and Developers Pvt. Ltd. Vs. DCIT, 289 ITR 50 (Pune)(AT). Further reliance was placed on the decision of Bangalore ITAT in the case of S.G.R. Enterprises Vs. ACIT, 112 TTJ (Bang) 377; wherein it has boen held that computation of undisclosed income on the basis of documents found in course of search and seizurehave to be compute in accordance with the completed contract of aeccunting followed by the assessee. Further reliance was placed on the decision of Bangalore ITAT in the ease of T.S. Chandrashekar Vs. ACIT, 66 TTJ 360 ; wherein it has been held that where the assessee is following completed contract method of accounting and where the project is not complete, a part of the project cannot be sliced off and its income be inc1uded in the block assessment as undisclosed income, Learned Departmental Representative, however relied on the orders of tho revenue authorities.

7. We have considered the rival submissions. It is not in dispute that receipts in question have direct nexus with the business of the assessee and represent cash receipts against sale of shops and flats. It is also not in dispute that the assessee follows project completion method of revenue recognition and that project was complete only in A.Y. 2008-09. Since, cash receipts have a direct nexus with the project of Jalaram Park, they have to be taxed only as income from the said project. The assessee has already recognized these receipts in its books of account while passing the necessary entries on 5.5.2005 in its books or accounts. In such circumstances we are of the view that receipts in question cannot be brought to tax in A.Y. 2003-04· to 2005-06. These receipts have already been accounted for in the books of account can be taxed only in the year in which project is complete and income from the project is offered for tax. Decision of Bangalore Bench of ITAT in the case of T.S. Chandrashekar (supra) supports the plea of the assessee in this regard. In other words, method of accounting cannot be ignored by the Assessing Officer and the amounts in question cannot be brought to tax in A.Ys 2003-04 to 2005-06. We therefore direct that the additions made in this regard be deleted.

8. The assessee has also raised other alternative grounds of appeal with regard to considering expenses while brining the cash receipts to tax and also claim of deduction u/s. 80IB(lO) of the Act. In view of the decision that cash receipts cannot be brought to tax in A.Ys. 2003-04 to 2005-06, those grounds do not require any adjudication at this stage.

9. In the result, appeals by the assessee are partly allowed.

Order has been pronounced on 28th Day of April, 2009.