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2014 (12) TMI 1324 - AT - Income TaxMethod of accounting followed by the assessee - justification in changing the method by AO - Project Completion Method OR Completed Contract method - Held that - Apex Court in the case of CIT v. Hyundai Heavy Industries Co. Ltd. 2007 (5) TMI 196 - SUPREME COURT also took the similar view and held that both the methods of accounting ( i.e. Project Completion Method and Completed Contract method) were recognized methods of accounting. The assessee was at liberty to choose any of the above methods and if any one of the method of accounting was consistently followed by the assessee the AO couldn t change such method of accounting. The completed contract method followed by the assessee in the instant case therefore could not be faulted with by the revenue authorities and on that basis it was not correct to say that the accounts of assessee did not present correct and complete picture of its profits. Therefore there was no justification in changing the method from project completion to percentage completion method by the AO which was upheld by the CIT(A). Therefore the order of the Commissioner (Appeals) is set aside - we allow the appeal of the Assessee and hold that the method of accounting followed by the Assessee has to be accepted. Liability to pay interest u/s.234A and 234B - Held that - The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter and in this view of the matter we uphold his action in charging the said interest. This proposition has been upheld by the Hon ble Apex Court in the case of Anjum H Ghaswala & Others (2001 (10) TMI 4 - SUPREME COURT). Proportionate deduction u/s. 80IB(10) - profits derived from sale of residential units whose built-up area is less than 1500 sq.ft. even though some of the residential units in the very same project exceeds the built-up area of 1500 sq.ft. - Held that - The same has been decided by the Hon ble High Court of Karnataka in the case of CIT v. SJR Builders 2012 (3) TMI 615 - KARNATAKA HIGH COURT as taken the view confirming the order of the Tribunal by holding that where residential units exceed the built-up area of 1500 sq.ft. such units may be excluded for deduction but the assessee will not lose the benefit of deduction u/s. 80IB(10) in its entirety. It is only with reference to the flats which is more than the prescribed area that the assessee will lose the benefit of deduction. - Decided in favour of assessee
Issues Involved:
1. Method of accounting for revenue recognition. 2. Deduction under section 80 IB(10) of the Income Tax Act. 3. Liability to pay interest under sections 234A and 234B of the Income Tax Act. Detailed Analysis: 1. Method of Accounting for Revenue Recognition: The primary issue was whether the assessee should follow the 'Percentage Completion Method' or the 'Project Completion Method' for recognizing revenues, costs, and profits/losses from the development and construction of real estate projects. The assessee consistently followed the 'Project Completion Method,' while the Assessing Officer (AO) insisted on the 'Percentage Completion Method,' assessing the income at Rs. 7,62,57,807 instead of the returned income of Rs. 72,80,690. The CIT (Appeals) upheld the AO's view. Upon appeal, the Tribunal referenced its earlier decision for Assessment Year 2009-10, which favored the assessee, stating that the AO cannot impose a particular method of accounting on the assessee. The Tribunal reiterated that the 'Project Completion Method' is a recognized method of accounting under section 145 of the Act, and the AO's jurisdiction is limited to verifying if the method is consistently followed. The Tribunal allowed the assessee's appeal, holding that the 'Project Completion Method' followed by the assessee must be accepted. 2. Deduction under Section 80 IB(10) of the Income Tax Act: The second issue concerned the assessee's claim for deduction under section 80 IB(10), which the AO denied because 26 flats exceeded the prescribed limit of 1500 sq. ft. The CIT (Appeals) allowed proportionate deduction for the flats within the limit. The Tribunal upheld the CIT (Appeals)'s decision, citing the Karnataka High Court's ruling in CIT v. SJR Builders, which supported proportionate deduction under section 80 IB(10) for compliant flats, even if some units exceeded the size limit. The Tribunal dismissed the Revenue's appeal, affirming that the assessee is entitled to proportionate deduction. 3. Liability to Pay Interest Under Sections 234A and 234B: The assessee contested the liability to pay interest under sections 234A and 234B. The Tribunal held that charging interest is consequential and mandatory, as upheld by the Supreme Court in Anjum H Ghaswala & Others. The AO was directed to recompute the interest while giving effect to the Tribunal's order. Conclusion: - The assessee's appeal was partly allowed, affirming the 'Project Completion Method' for revenue recognition. - The Revenue's appeal was dismissed, confirming the proportionate deduction under section 80 IB(10). - The assessee's stay petition was dismissed as infructuous.
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