2017 (11) TMI 1997 - AT - Income Tax

Correct method of accounting - whether profit on the project should not be taxed on percentage completion method? -AO following percentage completion method as against the project completion method adopted by the assessee - AR submitted that the assessee has been following project completion method for recognizing the revenue wherein cost of land, construction and other expenses incurred every year is added and carried forward as work in progress and advances received from the customers are shown in the liability side in the balance sheet - AR held that post amendment every assessee has to follow either cash or mercantile system of accounting u/s 145 and that no accounting standards has so far been notified u/s 145(2) of the Act in regard to developers and builders - CIT-A deleted the addition made by the AO on account of profit earned by the assessee during the accounting year under consideration - HELD THAT - The co-ordinate Bench has already decided the said issue in favour of the assessee in assessee s own case for the assessment year 2011-12 2016 (12) TMI 1538 - ITAT MUMBAI by following the decision rendered in CIT vs. Bilahari Investment (P) Ltd. 2008 (2) TMI 23 - SUPREME COURT , CIT vs. Manish Build Well Private Limited 2011 (11) TMI 35 - DELHI HIGH COURT and decision of co-ordinate Bench in Avadhesh Builder 2009 (12) TMI 665 - ITAT MUMBAI . - Decided against revenue.

Summary

Issues:
1. Whether the addition made by the Assessing Officer on account of percentage completion method was justified?

Analysis:
The appeal was filed by the revenue against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2012-2013. The assessee, a construction firm, declared 'Nil' income for the year under consideration. The Assessing Officer (AO) selected the case for scrutiny and questioned the method of recognizing revenue used by the assessee. The AO added the profit earned by the assessee during the accounting year to the total income, stating that every assessee must follow either cash or mercantile system of accounting as per section 145 of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) partly allowed the appeal filed by the assessee and deleted the addition made by the AO.

The revenue challenged the decision, arguing that the AO rightly rejected the explanation given by the assessee and determined the profit earned during the accounting year as per the amended section 145 of the Act. The counsel for the assessee cited a Mumbai Tribunal decision in favor of the assessee in a similar case for the assessment year 2011-12. The Tribunal considered the revenue's grievance that the CIT(A) wrongly deleted the addition made by the AO. The Tribunal upheld the CIT(A)'s decision based on consistency and fairness, directing the assessee to provide evidence that the entire profits from the project had been offered for taxation in subsequent years.

The Tribunal found the facts and issues in the present case to be identical to the assessee's case for the assessment year 2011-12, where the issue was decided in favor of the assessee. Following the previous decision and the findings of the co-ordinate Bench, the Tribunal upheld the CIT(A)'s decision and dismissed the revenue's appeal. The appeal filed by the revenue for the assessment year 2012-2013 was ultimately dismissed.