2017 (3) TMI 883 - AT - Income Tax

Amount received from tenants / occupants for extra facilities or amenities - revenue receipts or capital receipt - Held that - The accounting of expenses and income in a year has to be considered on the basis of project as a whole and not on the basis of individual units. Therefore, the amount received by the Assessee from tenants / occupants for extra facilities or amenities represents revenue receipts and the same is to be accounted for on the basis of percentage completion method which was consistently followed by the Assessee right from the beginning and the Revenue has accepted such accounting of percentage completion method on such projects in the previous assessment years and also in the subsequent assessment years and therefore following the principle of consistency there is no justification in bringing to tax the amount transferred to deferred sales suspense account for which no work has been carried out by the Assessee in the current assessment year. In view of the above findings of the Ld. CIT (Appeals), we do not find any valid reason to interfere with the findings of the Ld CIT (Appeals). - Decided against revenue

Summary

Issues:
- Whether the amount transferred to deferred sales suspense account should be considered as income for the current assessment year.

Analysis:
1. Facts and Background: The appellant, engaged in redevelopment and sale of properties, transferred a portion of revenue to deferred sales suspense account. The Assessing Officer questioned this treatment, considering it as income, leading to an appeal by the Revenue against the CIT (Appeals) order.

2. Revenue's Grounds: The Revenue contended that the amount transferred to deferred sales suspense account should be treated as income for the current year, arguing it was reimbursement of expenses and not sale proceeds.

3. Assessee's Position: The Assessee followed the percentage completion method for revenue recognition, based on agreements with occupants for extra amenities. The Assessee maintained that the revenue was accounted for as per the consistent accounting policy, transferring 42% to deferred sales suspense account.

4. Assessing Officer's Disallowance: The Assessing Officer treated the transferred amount as income, disregarding the Assessee's accounting method. The CIT (Appeals) reversed this decision, emphasizing the Assessee's adherence to recognized accounting standards consistently.

5. Appellate Tribunal's Decision: The Tribunal upheld the CIT (Appeals) decision, noting the importance of considering project revenue and expenses as a whole, not on an individual unit basis. The Tribunal emphasized the Assessee's adherence to the percentage completion method, accepted by the Revenue in past assessments.

6. Principle of Consistency: The Tribunal highlighted the principle of consistency in accounting treatment, citing that the Revenue accepted the Assessee's method in prior and subsequent assessment years. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the CIT (Appeals) decision.

7. Conclusion: The Tribunal's decision underscores the significance of following consistent accounting practices, particularly the percentage completion method in revenue recognition for projects. The judgment emphasizes the need to consider project revenue holistically and supports the Assessee's treatment of the transferred amount to deferred sales suspense account.