2020 (12) TMI 932 - AT - Income Tax

Addition accepting change in the method of accounting adopted by the assessee - assessee was initially following the Percentage completion method by showing income on the basis of percentage of work done - in revised return filed assessee withdrew the claim of deduction u/s 80IB(10) of the Act and changed the method of accounting from the Percentage completion to the Project completion - HELD THAT - We find that the assessee was regularly following the Percentage completion method by valuing the closing work-in-progress at estimated realizable price. Certain unforeseen circumstances developed. The assessee switched over from the Percentage completion method to the Project completion method by filing a revised return. It is not the case of the Revenue that the revised return was otherwise, not valid. Similarly, the Revenue has also not made out a case that the assessee did not consistently follow the Project completion method in the following years. AR vehemently submitted that the assessee continued to follow the Project completion method and offered income under this method in the later years. Once it is seen that the assessee switched over from the Percentage completion method to the Project completion method in a bona fide manner and continued with the changed method in the years to come, in our considered opinion, no fault can be found with the ld. CIT(A) deleting the addition made by the AO sticking to the Percentage completion method, which was abandoned by the assessee. We therefore, accord our imprimatur to the view canvassed by the ld. CIT(A).

Summary

Issues:
Deletion of addition of ?17,74,99,165 due to change in accounting method from Percentage completion to Project completion.

Analysis:
The appeal pertains to the deletion of an addition of ?17,74,99,165 made by the Assessing Officer due to the change in the method of accounting adopted by the assessee from Percentage completion to Project completion. The assessee initially declared income using the Percentage completion method but later switched to the Project completion method in a revised return for the assessment year 2006-07. The Assessing Officer disagreed with this change and computed the total income based on the original return, denying the deduction under section 80IB(10) of the Income-tax Act. The Commissioner of Income-tax (Appeals) accepted the assessee's explanation for the change and deleted the addition. The Revenue challenged this decision before the Tribunal.

Upon review, the Tribunal noted that both the Percentage completion method and the Project completion method are recognized accounting methods. The Percentage completion method recognizes profit based on the progress of construction each year, while the Project completion method recognizes profit upon project completion. In this case, the assessee switched to the Project completion method due to unforeseen circumstances, such as project delays and legal issues. The Tribunal found that the assessee's change in accounting method was valid and done in good faith. The Revenue did not dispute the validity of the revised return or the consistent application of the Project completion method in subsequent years. Therefore, the Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) to delete the addition.

In conclusion, the Tribunal dismissed the appeal by the Revenue, affirming the decision to delete the addition of ?17,74,99,165. The Tribunal found no fault in the assessee's switch from the Percentage completion method to the Project completion method, considering it a valid and bona fide change in accounting method. The Tribunal's decision was based on the assessee's consistent application of the Project completion method and the absence of any irregularities in the revised return.