Revenue Appeal Success: Profits Based on Work Completed, Not Just Current Year Receipts

The Tribunal allowed the Revenue's appeal, ruling that profits should be based on work completed, not limited to receipts of the relevant assessment year alone. The Assessing Officer was directed to calculate profit at 12% on the additional amount received during the year, considering percentage completion method. The Tribunal held that taxability extends beyond receipts of the year, focusing on work completed regardless of when revenues were received. The Tribunal rejected the relief granted by the CIT(A) and restored the Assessing Officer's order.

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Issues:
1. Correctness of order directing the Assessing Officer to work out profit on additional amount received during the year.
2. Whether 12% of entire project receipts should be brought to tax or only receipts pertaining to the relevant assessment year.

Analysis:
1. The Assessing Officer challenged the order of the learned Commissioner (Appeals) directing him to calculate the profit on the additional amount received during the year. The Assessing Officer argued that the profit should be calculated on the entire advances without appreciating the facts brought out by him invoking provisions of sec. 145A. The learned CIT(A) directed the Assessing Officer to work out the profit @ Rs.12% on the receipt of Rs.77,25,300, which was the additional amount received during the year. The CIT(A) observed that for the percentage completion method, the profit should be worked out based on the percentage of work completed during the year. The appeal was partly allowed based on this direction.

2. The key issue in this case was whether 12% of the entire project receipts should be brought to tax or only the receipts pertaining to the relevant assessment year. The Tribunal held that the taxability cannot be confined to the receipts of the year alone as there may not be revenue receipts in that year. The profits are to be ascertained in respect of the work completed and to the extent it is completed in the year of such completion, provided the threshold of substantial completion is achieved. Therefore, revenues to be taken into account are those pertaining to the work completed, regardless of whether the revenues were actually received in that year. The Tribunal found no merit in the relief granted by the CIT(A) and restored the order of the Assessing Officer.

In conclusion, the Tribunal allowed the Revenue's appeal, emphasizing that the profits should be based on the work completed and not limited to the receipts of the relevant assessment year alone.

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