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2023 (12) TMI 393 - AT - Income TaxMethod of accounting for real estate project - Income recognition - Addition made applying Percentage of Completion Method POCM - Accrual of income for real estate - Rule of Consistency - AO referred to the Accounting Standard for real estate project issued by Institute of Chartered Accountant of India which provided that w.e.f. 01.04.2012 income has to be accrued in respect of all real estate on POCM - CIT(A) deleted addition - HELD THAT - As prior to the impugned A.Y 2014-15, in the case of all previous A.Ys, assessment has been framed after thorough scrutiny and method of accounting has been accepted by the Assessing Officer. On such facts Rule of Consistency squarely applies. See Excel Industries Ltd 2013 (10) TMI 324 - SUPREME COURT In so far as applicability of Accounting Standard Guidance Note is concerned, it is pertinent to mention that the same has not been notified by the Central Government for the purpose of section 145(2) of the Act. Therefore, no adverse inference can be drawn. See Para Buildtech India (P) Ltd 2015 (11) TMI 1217 - DELHI HIGH COURT Also in the case of Bilhari Investment Pvt Ltd 2008 (2) TMI 23 - SUPREME COURT to decide on choice of method of accounting every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted . It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Decided against revenue.
Issues Involved:
The appeal pertains to the deletion of an addition of Rs. 8.42 crores by applying Percentage of Completion Method (POCM) for Assessment Year 2014-15. Summary: The Revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 8.42 crores by applying POCM. The Assessing Officer believed that POCM was applicable based on field enquiries revealing discrepancies in stock in trade and booking amounts. The CIT(A) accepted the assessee's contention that Project Completion Method (PCM) was applicable, citing consistency in accounting methods accepted in previous assessments. The Tribunal upheld the CIT(A)'s decision, emphasizing the Rule of Consistency and lack of statutory recognition for the Accounting Standard Guidance Note under Section 145(2) of the Act. Referring to legal precedents, including the Supreme Court's ruling on choice of accounting methods, the Tribunal found no reason to interfere with the CIT(A)'s findings, ultimately dismissing the Revenue's appeal. The Tribunal noted that the assessee consistently followed PCM, which had been accepted in previous assessments. The absence of statutory recognition for the Accounting Standard Guidance Note under Section 145(2) precluded adverse inferences. Legal precedents highlighted that the Assessing Officer cannot reject an assessee's accounts based on unnotified accounting standards unless it distorts profits. The Supreme Court's ruling emphasized that different accounting methods can achieve the same result, with completed contract method delaying revenue recognition until project completion, while POCM recognizes income periodically based on project completion stage. The Tribunal found the assessee's method to be valid and revenue-neutral, in line with past practices accepted by the Department. In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 8.42 crores based on the application of PCM over POCM. The judgment was pronounced on 16.08.2023.
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