2016 (9) TMI 1494 - AT - Income Tax

Tribunal upholds project completion method for real estate developer's income recognition

Indrapuram Habitat Centre P. Ltd. C/o Ravi Gupta, Adv. Versus ITO, Ward 11 (4) And Dy. CIT, Circle 11 (1), New Delhi

Indrapuram Habitat Centre P. Ltd. C/o Ravi Gupta, Adv. Versus ITO, Ward 11 (4) And Dy. CIT, Circle 11 (1), New Delhi - TMI Issues: Whether the Assessing Officer was correct in adopting the percentage completion method instead of the project completion method chosen by the assessee for recognizing income.Analysis:1. Nature of Business: The assessee, a company engaged in real estate, construction, and development of commercial complexes, was the subject of consideration for Assessment Years 2007-08 and 2009-10.2. Disputed Issue: The primary issue revolved around the choice of accounting method for recognizing income. The Revenue contended that the assessee should adopt the percentage completion method as per Accounting Standard 7 (AS-7), while the assessee argued that AS-7 did not apply as it was a builder and developer, not a contractor.3. Judicial Precedent: The Tribunal examined the nature of the assessee's business and found it to be a real estate developer, not a contractor as held by the lower authority. Citing a precedent from the Mumbai Bench, the Tribunal emphasized that the project completion method was acceptable for builders, and the assessee had consistently followed this method, offering income in the year of project completion.4. Legal Position: The Tribunal concluded that AS-7 did not apply to the assessee's case, affirming the validity of the accounting system consistently followed by the assessee over the years. The decision highlighted the importance of following a recognized accounting method consistently and rejected the Revenue's argument in favor of the percentage completion method.5. Outcome: Consequently, the Tribunal dismissed the Revenue's appeal for Assessment Year 2007-08 and allowed the assessee's appeal for Assessment Year 2009-10, upholding the project completion method for income recognition in line with the assessee's business as a real estate developer.This detailed analysis of the judgment showcases the Tribunal's thorough examination of the issues involved, the legal principles applied, and the ultimate decision reached in favor of the assessee's chosen method of recognizing income in the context of its business activities.