ITO v. Reliable Builders and Developers

Case snapshot

Sections / provisions: 145

Questions before the Court / Tribunal

• Project completion method versus percentage completion; GST/ITR reconciliation: The reported Tribunal order affirms the project-completion method followed by the real-estate developer and rejects an addition made merely from sales differences between GST returns and the income-tax return where the difference was reconciled.

Material facts and background

construct saleable building consisting of 228 flats. The Assessee during the assessment year under consideration completed “1st " Slab of said building and has entered into with agreements to sell of 24 flats only, which goes to show that the Assessee has entered into 10.5% of the salable building/project, which strengthen the case of the Assessee, as per Guidelines Notes issued by the body of accountants i.e. ICAI. 6.3

construction and development cost is more than 25% of the

ITA No.4205/M/2023 & ors. M/s. Reliable Builders & Developers

development is not achieved. The project has been commenced on January 7, 2016 and thereafter the Assessee has faced the financial difficulties and consequently the Bank of Baroda vide letter dated 03.06.2019 from which the Assessee has availed finance, treated the loans availed as “NPS” and due to the financial crunches and other impediments, the construction was on hold during the assessment year under consideration and still the project is at standstill. From the certificate of an architect i.e. Arch View Associates dated 13.06.2023, it is clear that up to 31.03.2023, the construction work has been completed upto 17.50% only on site as per the approved plan. Hence it is clear that the Assessee has not achieved the threshold limit. 6.4

With regard to the difference between the ITR & GST returns,

the Ld. Counsel has demonstrated that in the GST returns, the Assessee was supposed to show the aggregate turnover i.e. the aggregate value of all taxable supplies. Further, in GST Act, the consideration has been defined as “any payment made or to be made” whether in money or otherwise in respect of or in response to or the inducement of the supply of goods or services or both. As per GST compliance, as the Assessee was supposed to disclose total turnover towards advances received from the buyers as sales in GST Returns and sale of TDR in ITR and therefore it has duly shown the same in respective returns. However, as the Assessee had adopted the project completion method, hence has shown advances received on account of booking of flats from the respective buyers, as advances against sales in the current liability. Though the advances received from the prospective buyers have been taken as current liability, however, the same were not repayable to the respective creditors and therefore the advances received were shown as advance receipt.

Further, the figure of Rs.35,25,19,560/- is the difference

Appellant / assessee submissions

addition of Rs.35,25,19,560/- by holding as under: “6.1. I have considered the submission of the appellant and the order passed by the Ld. AO. During the assessment proceedings, the assessee was requested to furnish the copies of GST returns & details of sales/turnover. It was noticed by the Ld AO that the assessee had shown sales/turnover of Rs.39,01,93,560/- in the GST return during the A.Y.2018-19 but the assessee has shown sales of Rs. 3,76,74,000/- in the ITR. The appellant submitted that the appellant has offered only proceeds of sale of TDR amounting to Rs 3,76,74,000/- in the return. In GST Returns, the turnover towards advances received from the buyers amounting to Rs 35,25,19,560/- have been declared as sale as per requirement of the GST laws according to which any amount received or receivable as per construction schedule will be liable to GST Tax. For income tax purposes, the assessee had adopted project completion method, hence the assessee has shown amount invested in the project as work in progress and advances received on account of Flat Booking from the prospective buyers as Advance against sales in current liabilities. 6.2. However, the Ld AO took the view that...

Revenue / respondent submissions

The Ld. DR further submitted that sales of certain units of the

The Ld. DR further submitted that Ld. Commissioner reading

The Ld. DR at last submitted that in view of the above facts, it

construction cost at 38.71% as claimed by the Ld. DR, the Assessee by demonstrating following breakup: 1. 2. 3. 4.

tried to justified the amount shown in work in progress. The Ld. Counsel further submitted that the Assessee placed the separate purchase orders for the SRA building and saleable building. May be total amount shown as WIP is 38.71% as claimed by the Ld. DR, however it is a fact that major part of the rehabilitation building was supposed to give free of cost to previous dwellers. Even otherwise in SRA project, the builder is not allowed to construct any saleable area, without constructing and handing over rehabilitation building to

Court / Tribunal analysis and reasoning

however, found the same as not acceptable, and ultimately made the addition of Rs.35,25,19,560/- and added the same in the income of the Assessee, by holding as under: “That as per Annexure-A of reply dated 06.03.2021, the details of property sold during the F.Y. 2018-19 have been furnished along with dates of sale agreements executed for transfer of properties and registered with the Sub Registrar, Borivali. Thus, the properties stand transferred and sale of properties amounting to Rs.39,01,93,560/- stands finalized. Further, the Assessee has shown TDR (Transfer of Development Rights) sales of Rs.3,76,74,000/- only in the P & L Account. TDR means making available certain amount of additional built-up area in lieu of area relinquished so that purchaser can use extra built-up area either himself or transfer to another in need of the extra built-up area for an agreed sum of money. Thus, the TDR sales or the sales of additional built-up area in lieu of relinquishment the Assessee has not declared sales of properties in the P&L Account, which has been made through sales agreement which have been registered with the Sub Registrar, so the reply of the Assessee is not acceptable on this...

completion method, since the beginning of the project under consideration, which has been commenced on January 7th, 2016 (as per VAT records) and even the Assessee during the assessment year under consideration has not reached the minimum threshold to recognize revenue, as per the accounting standard, as the Assessee has completed only 10% of the saleable project and therefore as per Indian Accounting Standard-11 and percentage completion method,

Assessee further explained that the project carried out by the Assessee is of 23 storied residential building having 228 flats in total. The Assessee during the assessment year under consideration has entered into with agreements to sell of 24 flats only, registered with the Sub Registrar, Borivali-5. In the sample Agreements to sell, though total consideration amount has been fixed, however, small percentage of the consideration amount as shown, has actually been received and remaining amount has shown “to be payable in installments” and therefore the Assessee has shown the amount received as earnest money/advances, as advance in the P&L Account as liabilities but not as sales during the assessment year under consideration and therefore as per project completion method, the Assessee is supposed to disclose the sales after completion of the project but not earlier. Accordingly, the Assessee has shown the amount invested in the project as “work in progress” and advances received on account of booking of flats from the prospective buyers, as advance against sales in “current liabilities”. As the Assessee has consistently been following the project completion method, hence such...

Assessee has estimated the project cost at Rs.227 crores, however, as per its P&L Account for the year, its work in progress stood at Rs.87,87,68,238/- thus based on the Assessee’s own financials, it has completed 38.7% of the project. Therefore, the contention of the Assessee and the conclusion drawn by the Ld. CIT(A) that only 10% of the project has been completed is devoid of merits. Further, the Ld. D.R. also raised the issue that reading of INDAS-11 by the Ld. Commissioner is also erroneous, as nowhere the said accounting standard laid down that Revenue ought to be recognized in construction contracts only, when a stage of 25% is completed.

Commissioner of Income Tax vs. Salarpuria Simplex Dwelling LLP. (Cal) (2003) 455 ITR 712 has also considered the method of accounting i.e. completion method as followed by the Assessee in the present case and by taking into account that as per section 145 of the Act, 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. The Hon’ble High Court further affirmed the finding of the tribunal that as per Accounting Standard-7 (AS-7) issued by the Institute of Chartered Accountants of India, the Assessee can follow either the project completion method or the percentage completion method and therefore the AO is not empowered to adopt the percentage completion method for one year on selective basis as it

Income Tax (Admin) (2013) 25 ITR (T) 77, the Jurisdictional High Court after perusing the legal propositions, arrived at a specific finding that Revenue cannot throw a method of accounting on the Assessee though that method is superior and therefore substitution of method of accounting is not allowed, unless loss of revenue is made out of the project of the Assessee.

Operative decision and relief

account of disallowance qua transportation charges paid to the transporters. It appears from the Assessment order that the Assessee vide notice dated 15.12.2020 was asked to furnish the details of payment made and TDS deducted on account of payment made for loading and transportation charges. In response, the Assessee filed its reply, wherein the details were furnished qua TDS deducted and paid, along with challans on expenses-wise. The AO though partly allowed the claim of the Assessee, however, on the ground “that the Assessee had not deducted TDS on the payment made to the transporters but claimed that the transporters are assessed u/s 43AE of the Act but has not filed any documentary evidence to show

Assessee, stands allowed for statistical purposes.

Revenue Department is dismissed, whereas CO no. 42/M/2024 filed by the Assessee is allowed for statistical purposes and ITA No.4205/M/2023 filed by the Assessee is dismissed in limine and also being infructuous.

Authorities and precedents appearing in the judgment

• CIT v. Aditya Builders
• CIT v. Principal Officer
• Jurisdictional High Court in the case of Commissioner of Income Tax vs. Aditya Builders 378 ITR 65 (Bombay)
• Apex Court in the case of CIT vs. Hyundai Heavy
• Commissioner of Income Tax vs. Salarpuria Simplex Dwelling LLP
• Apex Court in the case of CIT vs. Bilahari
• Even in the case of Aditya Builders vs. Commissioner of

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Project completion method versus percentage completion; GST/ITR reconciliation. The operative result is classified as Partly Allowed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Project completion method versus percentage completion; GST/ITR reconciliation. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Preserve portal notices, e-mail/SMS delivery evidence, reply acknowledgements and the statutory appeal timeline; procedural service facts can determine available relief.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

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