Query with regard to as-7

Dear Professional Friends,

Require your valuable and expert opinion on below mentioned query:

A private limited company is into real estate business. It either purchases whole property or enter into collaboration agreement, whereby it receives 1 or 2 floors as the case may be. In both the cases the company first demolish the entire property and then start fresh construction and builds a new residential building as per the norms.

In case a flat is sold on booking or during construction or even after construction is finish, generally the company enters into a agreement to sell. On receiving full and final sale consideration, sale deed is executed and physical possession is handed over on the same day.

The company books profit in the year when the sale deed is executed and not in the year when agreement to sell is made. In a scrutiny case, DCIT was of view that Agreement to Sell is sufficient to consider that risk and reward is transferred and hence AS-7 read with As-9 should be followed by the company and accordingly percentage completion method is applicable and hence rejected books of accounts.

Require your opinion on the same.