2012 (12) TMI 1189 - AT - Income Tax

Summary

Issues Involved:
1. Application of Percentage of Completion Method (POCM) for revenue recognition.
2. Rejection of books of account u/s 145(3).
3. Determination of undisclosed income.
4. Validity of additions made by the Assessing Officer (A.O.).
5. Penalty proceedings u/s 271(1)(c).

Summary:

1. Application of Percentage of Completion Method (POCM) for Revenue Recognition:
The main dispute in all appeals is regarding the application of POCM by the A.O. to determine undisclosed income. The assessee argued that POCM is not mandatory for real estate developers and that the books of account, prepared based on documents found during the search, should be accepted. The Tribunal found that POCM is not mandatory and that the guidance notes issued by ICAI are recommendatory, not mandatory. The Tribunal concluded that revenue recognition should occur when significant risks and rewards are transferred, which in this case, happened only after the conversion of land from agriculture to non-agriculture in October 2008.

2. Rejection of Books of Account u/s 145(3):
The A.O. rejected the books of account on the grounds that they did not provide a true and fair picture of profits. However, the Tribunal found no material defects in the books of account prepared based on documents found during the search. The Tribunal held that the rejection of books of account was not justified and that the A.O. should have accepted the book results.

3. Determination of Undisclosed Income:
The A.O. determined the total project value at Rs. 15 crores and made additions based on the POCM. The Tribunal found that the assessee had shown advances received from customers as liabilities and that revenue recognition should occur only after the transfer of possession and legal title. The Tribunal concluded that the A.O.'s method of determining undisclosed income was not justified.

4. Validity of Additions Made by the A.O.:
The A.O. made additions based on the POCM and rejected the assessee's method of accounting. The Tribunal found that the A.O.'s additions were not justified as the books of account were prepared based on documents found during the search and no material defects were pointed out. The Tribunal ordered that no addition on the impugned basis can be made or sustained in all these years.

5. Penalty Proceedings u/s 271(1)(c):
The A.O. initiated penalty proceedings for concealment of income or furnishing inaccurate particulars of income. However, since the Tribunal found the rejection of books of account and the additions made by the A.O. to be unjustified, the penalty proceedings would not survive.

Conclusion:
The Tribunal allowed all the appeals of the assessee and dismissed all the appeals of the revenue. The Tribunal upheld the correctness of the books of account and concluded that no additions based on the POCM could be made. The Tribunal also found that the penalty proceedings initiated by the A.O. would not survive.