2015 (10) TMI 2059 - HC - Income Tax

Method of accounting - Whether the ITAT has erred in law in deleting addition of ₹ 12,34,000/- and directing to follow recognized method of accounting to compute the profits in the Real Estate business when the guidance notes of 2006 of ICAI require accounting of income on percentage completion method? - Held that - The Delhi High Court in Commissioner of Income Tax v. Manish Build Well (P) Ltd. (2011 (11) TMI 35 - DELHI HIGH COURT) noted that project completion method is one of the recognized methods of accounting. It cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act. The assessee-respondent had been consistently following one of the recognized methods of accountancy, i.e. project completion method, for computation of its income. In the absence of any prohibition or restriction under the Act for doing so, it cannot be held that the approach of the CIT(A) and the Tribunal was erroneous or illegal in any manner so as to call for interference by this Court. - Decided in favour of assessee.

Summary

Issues:
1. Delay in re-filing the appeal condoned.
2. Disposal of multiple appeals with identical issues.
3. Interpretation of substantial questions of law related to accounting methods in Real Estate business.
4. Assessment of income based on project completion method vs. percentage completion method.
5. Consistency in following accounting methods by the assessee.
6. Judicial precedents supporting project completion method as a recognized accounting standard.
7. Acceptance of project completion method by the department.
8. Upholding the order of the Commissioner of Income Tax (Appeals) and Tribunal.

Analysis:

1. The High Court condoned a delay of 70 days in re-filing the appeal.

2. The judgment addressed a group of appeals with similar issues, aiming for brevity in the proceedings.

3. The key issue revolved around substantial questions of law concerning the application of accounting methods in the Real Estate business.

4. The dispute focused on the assessment of income using project completion method versus percentage completion method.

5. The assessee claimed consistency in following the project completion method for revenue recognition.

6. The CIT(A) observed that the project completion method did not distort profits and was a recognized accounting standard.

7. The Tribunal affirmed that both project completion and percentage completion methods are accepted standards, allowing the assessee to choose either.

8. Citing judicial precedents, the Tribunal supported the assessee's right to follow a consistent accounting method accepted by the department.

9. Ultimately, the High Court dismissed the appeals, upholding the approach of the CIT(A) and the Tribunal in accepting the project completion method as a valid accounting practice for the assessee.

This detailed analysis outlines the legal judgment's core issues, including the interpretation of substantial questions of law, assessment methods, consistency in accounting practices, and the judicial support for the project completion method in Real Estate business.