2021 (10) TMI 508 - AT - Income Tax

Recognized method of accounting - project completion method - whether the assessee, who is a real estate developer, was justified in computing his income by adopting project completion method as against the action of the lower authorities in estimating the income of the assessee on the basis of percentage completion method of accounting? - HELD THAT - As it is held that the assessee was justified in adopting the recognized method of accounting i.e. project completion method. The impugned addition made by the lower authorities by applying percentage completion method is hereby ordered to be deleted. The alternative plea taken by the assessee regarding the dispute relating to figures of amount in case of percentage completion method, has become infructuous and no adjudication is required in that respect. Appeal of the assessee stands allowed.

Issues Involved:
1. Legality of the method employed by the assessee for computing income.
2. Application of AS-7 versus AS-9 for income computation.
3. Consistency in the method of accounting accepted by the Department in previous years.
4. Jurisdictional High Court's decision in the preceding year.
5. Validity of the lower authorities' application of percentage completion method.

Detailed Analysis:

1. Legality of the Method Employed:
The primary issue revolves around whether the assessee, a real estate developer, was justified in computing his income by adopting the project completion method instead of the percentage completion method. The Tribunal noted that the assessee maintained complete books of account and vouchers with no defects found in any assessment proceedings. The books were regularly assessed under section 143(3) without any adverse findings, even after a survey conducted under section 133A.

2. Application of AS-7 versus AS-9:
The Tribunal highlighted that the assessee had been consistently using the project completion method (AS-9), a recognized method prescribed by the Institute of Chartered Accountants of India (ICAI). AS-7, revised in 2002, applies to construction contractors, while AS-9 applies to real estate developers. The Tribunal emphasized that an assessee can follow any recognized method of accounting as long as it is consistent. The Department had accepted this method in previous years, and thus, could not compel the assessee to switch to AS-7.

3. Consistency in the Method of Accounting:
The Tribunal observed that the assessee had been regularly following the project completion method since the assessment year 2003-04. This method was accepted by the Department in all preceding years, including assessments under section 153A/143(3). The Tribunal cited that the project completion method is a recognized method by ICAI and should not be disturbed if consistently followed.

4. Jurisdictional High Court's Decision in the Preceding Year:
The Tribunal referred to the Hon’ble Allahabad High Court's decision, which dismissed the Departmental appeal against the Tribunal’s order for the assessment year 2013-14. The High Court upheld that the assessee, a real estate developer, was justified in using AS-9, and the Department could not shift its stand to compel the use of AS-7. The High Court emphasized that the consistent method of accounting followed by the assessee should not be disturbed in the absence of compelling reasons.

5. Validity of the Lower Authorities' Application of Percentage Completion Method:
The Tribunal found that the lower authorities erred in applying the percentage completion method. The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the additions made based on the percentage completion method. The Tribunal also noted that there was no statutory provision mandating the use of AS-7 over AS-9 for the assessee.

Conclusion:
The Tribunal concluded that the assessee was justified in adopting the project completion method, a recognized accounting method, for computing income. The impugned addition made by the lower authorities by applying the percentage completion method was ordered to be deleted. The alternative plea regarding the dispute over figures in the percentage completion method became infructuous. The appeal of the assessee was allowed in its entirety.

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