2017 (11) TMI 858 - HC - Income Tax

Accepting the method of treatment of revenue and income by ITAT - assessee is a developer and undertakes construction projects including those of commercial buildings - AO ought to bring additional amount to tax on the ground that even while the assessee claimed to have followed the AS-9 method, he neither followed the Project Completion Method i.e. the Revenue recognition on transfer of goods, he also did not apply the other more recognized method approved under Section 145 i.e, the Percentage Completion Method Held that - It is an established legal proposition that an assessee can follow any recognized method of accounting and the condition is that the same method has to be followed consistently. Since the assessee in the instant case was regularly following the project completion method and has offered the income in the year of completion of project, there is no sound reason as to why the same should be rejected and percentage completion method be followed. This Court is of the opinion that the instances pointed out by the ITAT, in the present case, are significant both in the previous assessment year as well as in the subsequent assessment years, the AO appears to have accepted the system of accounting. There is nothing on record to suggest that the assessee was undertaking large scale activity. The findings rendered by the ITAT are peculiar to the circumstances of the case and, cannot be said to have universal or wide applicability so as to require a question of law.

Summary

Issues:
1. Whether the ITAT erred in accepting the method of treatment of revenue and income by the assessee.

Analysis:
The Revenue raised a question regarding the ITAT's acceptance of the assessee's method of revenue and income treatment, specifically in relation to construction projects. The AO argued that the assessee did not follow the Project Completion Method or the Percentage Completion Method as required under Section 145 of the Income Tax Act despite claiming to adhere to AS-9 method. The appellant contended that the ITAT wrongly accepted the assessee's submissions, citing guidance from the Institute of Chartered Accountants on the applicability of AS-7 to construction contracts. The ITAT's findings highlighted that the AO had previously accepted the project completion method without estimating income on work-in-progress, emphasizing the consistency of the assessee's accounting method over various assessment years.

The Court noted the significance of the instances highlighted by the ITAT, where the AO had previously accepted the project completion method applied by the assessee without any indication of large-scale activity. The Court emphasized that the findings were specific to the circumstances of the case and did not warrant a question of law with universal applicability. Consequently, the Court concluded that no substantial question of law arose from the case and dismissed the appeal.