Tribunal upholds assessee's accounting method, allows deductions under Section 80IB(10), excludes open-to-sky projections.

The Tribunal dismissed the department's appeals, upheld the assessee's method of accounting, allowed proportionate deductions under Section 80IB(10), and excluded open-to-sky projections from the built-up area calculation. The matter of measurement discrepancies was remanded to the AO for fresh examination. The assessee's cross-objection was allowed for statistical purposes, and the appeal was partly allowed.

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Issues Involved:
1. Method of Accounting: Project Completion Method vs. Percentage Completion Method.
2. Deduction under Section 80IB(10) of the Income Tax Act.
3. Separate Approval for Housing Projects.
4. Calculation of Built-up Area for Deduction Eligibility.

Issue-wise Detailed Analysis:

1. Method of Accounting: Project Completion Method vs. Percentage Completion Method
The primary issue was whether the assessee should follow the Project Completion Method or the Percentage Completion Method for recognizing revenue. The assessee, a real estate developer, followed the Project Completion Method, recognizing revenue upon the registration of residential units. The AO rejected this method, asserting that the substantial receipt of sale consideration indicated the project was substantially complete, thus necessitating the Percentage Completion Method.

The First Appellate Authority upheld the Project Completion Method, recognizing it as a valid method prescribed by the ICAI, consistently followed by the assessee. The Tribunal concurred, emphasizing that the Project Completion Method is appropriate for real estate developers and should not be disturbed if consistently applied and previously accepted by the department.

2. Deduction under Section 80IB(10) of the Income Tax Act
The assessee claimed a deduction under Section 80IB(10) for profits derived from housing projects. The AO disallowed the deduction, arguing that some residential units exceeded the prescribed area limit and the commercial area exceeded the permissible limit.

The First Appellate Authority allowed the deduction proportionately for units meeting the criteria, rejecting the AO's disallowance based on the commercial area. The Tribunal upheld this decision, agreeing that pro rata deduction is permissible when some units meet the eligibility criteria, citing precedents from various ITAT benches.

3. Separate Approval for Housing Projects
The AO argued that the entire Vista Project was approved as a single project, including commercial establishments, thus disqualifying it from Section 80IB(10) benefits. The assessee contended that separate books and approvals for different sub-projects should allow for the deduction.

The Tribunal ruled that Section 80IB(10) does not necessitate separate approvals for each unit or project. It held that a housing project could comprise both eligible and ineligible units, and the deduction should be available for eligible units irrespective of a composite approval. This view was supported by judicial precedents, including the Madras High Court and Pune ITAT decisions.

4. Calculation of Built-up Area for Deduction Eligibility
The dispute involved whether projections open to the sky should be included in the built-up area calculation. The AO included these areas, disqualifying some units from the deduction.

The Tribunal ruled in favor of the assessee, excluding open-to-sky projections from the built-up area calculation, aligning with the ITAT Pune Bench's decision in Naresh T. Wadhwani vs. DCIT. The Tribunal directed the AO to allow the deduction for units where the built-up area, excluding open-to-sky projections, was within the prescribed limit.

Conclusion
The Tribunal dismissed the department's appeals, upheld the assessee's method of accounting, allowed proportionate deductions under Section 80IB(10), and excluded open-to-sky projections from the built-up area calculation. The matter of measurement discrepancies was remanded to the AO for fresh examination. The assessee's cross-objection was allowed for statistical purposes, and the appeal was partly allowed.

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