2022 (7) TMI 1310 - HC - Income Tax

Revenue recognition - Accounting method - determination of income on completion of its projects - whether percentage computation method should be followed instead of project completion method followed by the assessee - whether Tribunal was justified in law to accept the accounting method followed by the assessee as accounting standard-9 (AS-9) instead of accounting standard-7 (AS-7) despite the fact that the assessing officer arrived at a conclusion finding that the assessee is a contractor and not a builder after analysing the various aspects of the business of the assessee? HELD THAT - After taking note of the decision in Bilahari Investment (P) Ltd. 2008 (2) TMI 23 - SUPREME COURT and that of Manish Build Well (P) Ltd.. 2011 (11) TMI 35 - DELHI HIGH COURT held that the assessee has been consistently following one of the recognised methods of accounting that is project completion method for computation of income and in the absence of any prohibition or restriction under the provisions of the Income Tax Act. For doing so it cannot be held that approach of the CIT(A) and the tribunal was erroneous or illegal in any manner so as to call for interference by Court. Accordingly, the appeal filed by the revenue was dismissed. In the case on hand the CIT(A) as well as the tribunal have noted the aforementioned decision and also the fact that the method of accounting, namely, the project completion method was followed by the assessee and has been accepted by the Department and, thus, by applying the principle of consistency, the appeal of the revenue is dismissed. Thus, we find that there is no error in the order passed by the tribunal nor any substantial question of law arises for consideration in this appeal.

Summary

Issues Involved:
1. Justification of the Tribunal in accepting the accounting method AS-9 instead of AS-7.
2. Deletion of the addition under "Income from Business" by accepting AS-9.
3. Acceptance of AS-9 (Project Completion Method) over AS-7 (Percentage Completion Method) for the assessee treated as a contractor.

Detailed Analysis:

1. Justification of the Tribunal in accepting the accounting method AS-9 instead of AS-7:
The Tribunal accepted the assessee's use of Accounting Standard-9 (AS-9) instead of Accounting Standard-7 (AS-7). The assessee, engaged in property development, consistently followed the "Project Completion Method," recognizing income upon project completion. The Department had accepted this method in previous assessments. The assessing officer argued that the assessee should follow AS-7, treating it as a contractor. However, the Tribunal upheld the CIT(A)'s decision, emphasizing the principle of consistency and referencing the Supreme Court's recognition of the project completion method as valid.

2. Deletion of the addition under "Income from Business" by accepting AS-9:
The Tribunal deleted the addition of Rs.5,67,14,868/- under "Income from Business," accepting the assessee's use of AS-9. The assessing officer's addition was based on the assumption that the assessee deferred tax payments by not using the percentage completion method. The CIT(A) found no defects in the assessee's accounting method and noted that the project completion method is suitable for developers delivering completed products. The Tribunal affirmed this, citing the Supreme Court's rulings that the project completion method is recognized and does not defer tax payments.

3. Acceptance of AS-9 (Project Completion Method) over AS-7 (Percentage Completion Method) for the assessee treated as a contractor:
The Tribunal supported the CIT(A)'s decision to accept AS-9 over AS-7. The assessing officer's classification of the assessee as a contractor was rejected. The CIT(A) and Tribunal emphasized that the project completion method is a recognized accounting method for developers and that the Department had previously accepted this method. The Tribunal referenced multiple Supreme Court decisions affirming the validity of the project completion method and concluded that there was no justification for the assessing officer's selective adoption of the percentage completion method for the year under appeal.

Conclusion:
The appeal by the revenue was dismissed, and the Tribunal's order was upheld. The Tribunal found no substantial question of law, affirming the CIT(A)'s decision and the principle of consistency in the assessee's accounting method. The connection application for stay was also closed.