2015 (11) TMI 1283 - HC - Income Tax

Applicability accounting Standard (AS-9) - whether the ITAT was correct in upholding the findings of the CIT (A) that Accounting Standard (AS-9) which sanctions the project completion method, was correctly applicable in the circumstances of the cases - Held that - The brief facts are that the assessee is engaged in real estate development and derives its income from actual sale and transfer of property. For this purpose, it purchases land - including built up property - which it subsequently demolishes and develops in the layout township and after which the residential units are sold. In all previous years, the assessee had adopted AS-9, i.e., the project completion method whereby the consideration received on actual sales was shown in its books and claimed as income. Apparently, in a previous detailed order, the ITAT sanctioned this method and held it to be applicable to the business of the assessee, for AY 2006-07 and 2007-08. The CIT (A) had, for the years in question in these appeals, considered the decision of the ITAT for those years In Manish Buildwell (2011 (11) TMI 35 - DELHI HIGH COURT) it was held that it cannot be said that project completion method would result in deferment in payment of taxes which are to be assessed annually. The ITAT in these circumstances held - in relation to the assessee/respondent - that the adoption of the project completion method is an established method of accounting. In these circumstances, without there being any rationale or new development, the Revenue could not have concluded that the project completion method was not appropriate for the assessee. No substantial question of law arises for consideration. The appeals are accordingly dismissed. - Decided against revenue

Summary

Issues:
1. Interpretation of Accounting Standard (AS-9) in real estate development.
2. Applicability of project completion method for income recognition.
3. Judicial precedent on project completion method.
4. Assessment of substantial question of law.

Analysis:
1. The primary issue in this case revolves around the interpretation of Accounting Standard (AS-9) in the context of real estate development. The dispute arises from the Income Tax Appellate Tribunal's (ITAT) decision regarding the applicability of AS-9, which sanctions the project completion method for income recognition in the relevant assessment years 2008-09 and 2009-10.

2. The assessee, engaged in real estate development, follows the project completion method, where income is recognized upon actual sale and transfer of property. The ITAT had previously upheld this method for the assessee in earlier assessment years. The Central Board of Direct Taxes (CBDT) challenged this approach, arguing that the project completion method may not be suitable for the assessee's business.

3. The judicial precedent plays a crucial role in this judgment. The decision of the ITAT in previous years, supported by the CIT (A) and referring to the judgments in CIT v. Manish Buildwell Pvt. Ltd. and CIT v. Belahari Investments Pvt. Ltd., emphasized the validity of the project completion method for income recognition in real estate development. The courts highlighted that the project completion method does not lead to tax payment deferral and is an established accounting practice.

4. The High Court, after thorough consideration of the arguments and precedents, concluded that no substantial question of law arises for consideration in this case. The Revenue's challenge to the project completion method adopted by the assessee was deemed unsubstantiated, as the method was found to be appropriate and consistent with accounting standards. Consequently, the appeals filed by the Revenue were dismissed, affirming the validity of the project completion method for income recognition in the assessee's real estate business.