2024 (3) TMI 617 - AT - Income Tax

Addition on account of revenue recognition following percentage of completion method (POCM) - as per AO assessee had incurred substantial expenses on construction but the revenue had not been recognized on the basis of percentage of completion method - AO considered the total saleable construction cost up to 31.03.2014 as 58.49% and accordingly, held that revenue was required to be recognized on the basis of POCM - CIT(A) deleted addition - HELD THAT - t none of the aforesaid factual observations made by the ld CIT(A) were controverted by the revenue by bringing in contrary materials before us. Further, we find the rate of tax in AY 2014-15 and 2015-16 remains the same. It is a fact that the assessee had indeed started offering income from the project under POCM commencing from AY 2015-16 onwards which is evident from table reproduced supra. Hence, the entire exercise of the revenue in trying to shift the year of taxability to the year under consideration is purely academic in nature. See Gee Industrial Enterprises 2015 (8) TMI 181 - PUNJAB HARYANA HIGH COURT which comes to the rescue of the assessee. This decision has duly considered the decision in the case of Dinesh Kumar Goel 2010 (10) TMI 287 - DELHI HIGH COURT and Excel Industries Ltd 2013 (10) TMI 324 - SUPREME COURT - Thus no infirmity in the order of the CIT(A) and accordingly, ground 1 raised by the revenue is dismissed. Disallowance u/s 14A of the Act where there is no exempt income - HELD THAT - This issue is no longer res integra in view of the recent decision of PCIT Vs. Era Infrastructure Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT wherein, it was held categorically that if there is no exempt income earned by the assessee, disallowance u/s 14A of the Act cannot be pressed into service. Respectfully following the same, ground No. 2 raised by the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 3,26,00,000/- on account of revenue recognition following the percentage of completion method (POCM).
2. Deletion of disallowance u/s 14A where there is no exempt income.

Summary:

Issue 1: Deletion of Addition on Account of Revenue Recognition (POCM)

The revenue challenged the deletion of an addition of Rs. 3,26,00,000/- made by the AO on account of revenue recognition following the percentage of completion method (POCM). The AO observed that the assessee, a promoter and builder, had incurred substantial expenses on a residential project but had not recognized revenue based on POCM. The AO computed a profit of Rs. 3.26 crores on this basis. The assessee contended that the project, initially planned for 10 towers, was restricted to 6 towers due to market conditions, and hence, the revenue was not required to be recognized as the construction cost was less than 25% of the total cost. The CIT(A) found that the project was indeed planned for 10 towers and later restricted to 6 towers due to adverse economic conditions. The CIT(A) observed that the assessee had shown 98.62% of the total revenue in subsequent years and that recognizing revenue in the current year would lead to complications without any benefit to the revenue. The CIT(A) deleted the addition, and the ITAT upheld this decision, noting that the rate of tax remained the same in both years and the issue was academic in nature, referring to precedents like CIT Vs. Vee Gee Industrial Enterprises and CIT Vs. Excel Industries Ltd.

Issue 2: Deletion of Disallowance u/s 14A

The revenue challenged the deletion of disallowance u/s 14A where there was no exempt income. The ITAT referred to the decision of the Hon'ble Jurisdictional High Court in PCIT Vs. Era Infrastructure Ltd, which held that if there is no exempt income earned by the assessee, disallowance u/s 14A cannot be applied. Respectfully following this precedent, the ITAT dismissed the revenue's ground.

Conclusion:

In the result, the appeal of the revenue was dismissed.