The Tax Publishers2020 TaxPub(DT) 0603 (Jp-Trib)

INCOME TAX ACT, 1961

Section 145(3)

Where the assessee was following project completion method wherever sales were recognized on execution of the sale deed and the same had been accepted by the department in the past then the assessing officer cannot impression.. upon the assessee percentage completion method. Rejecting bodies of account only because percentage completion method was not followed is not correct. Further, the impugned amount was already recognised as revenue or reflected back in subsequent years; therefore, assessing the same in year under consideration would result into double taxation.

Accounting method - Rejection - Assessee following project completion method -

Assessee-company was engaged in business of Real Estate. AO observed that balance sheet of the assessee reflected advance related to a development project, which was already completed. He referred to Accounting Standard and Guidance Note issued by the ICAI and held that the assessee was required to follow Percentage completion method and accordingly, it should have recognized the revenue being advances received from customers. He, thereafter, rejected books of account of the assessee under section 145(3) and computed the income by applying Percentage Completion Method and consequently assessed the said advances as income of the assessee and made addition for the same. Held: Assessee had been regularly following an accounting policy whereby sales were recognized on execution of the sale deed and the same had been accepted by the department in the past. Therefore, such accounting policy, which was regularly followed, could not be disturbed in the year under consideration. Further, there is no provision under the Act, which makes percentage completion method of accounting in real estate project mandatory and even the Guidance Note issued by ICAI is recommendatory. The same do not override the choice of the method of accounting to be followed by the assessee provided under the Act. Further, the impugned amount was already recognised as revenue or reflected back in subsequent years; therefore, assessing the same in year under consideration would result into double taxation. Further, the AO also did not consider the expenditure incurred by the assessee against such receipt and if the said expenditure would be considered, there would not remain any income. Accordingly, the impugned addition made by the AO was deleted.

REFERRED : S.K. Properties v. ITO (2017) 162 ITD 419: 2016 TaxPub(DT) 5116 (Bang-Trib)

FAVOUR : In assessee's favour

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 37(1)

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