ITAT upholds CIT (A)'s decision on income calculation method for real estate developer

The ITAT dismissed Revenue's appeal, affirming the CIT (A)'s decision to delete the addition based on the percentage completion method. The ITAT held that the assessee, a real estate developer, had consistently used the project completion method for income calculation, which was acceptable. It was determined that the revised AS-7 need not apply as the assessee was not a contractor. The ITAT concluded that the percentage completion method applied by the AO was not suitable for the assessee, citing relevant judicial pronouncements in support of their decision.

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Issues:
Revenue's appeal against deletion of addition based on percentage completion method.

Analysis:
The revenue appealed against the deletion of an addition of Rs.55,37,847 made by the AO based on the percentage of completion method. The AO observed that the assessee, engaged in real estate, had estimated a profit of Rs.55,37,847 using this method. The CIT (A) deleted this addition, leading to the revenue's appeal.

During the assessment proceedings, the AO noted that the assessee had not declared any sales but had carried out construction work and collected advances against sales. The AO asked for the profit calculation using the percentage completion method, which the assessee provided. The AO then estimated the profit at Rs.55,37,847 and determined the total income at Rs.30,79,057.

The CIT (A) deleted the addition, and the revenue's DR relied on the AO's order. The assessee's AR argued that the ICAI's AS-7 applies to contractors, not real estate developers, and the assessee had consistently followed the project completion method. The AR cited various legal precedents supporting the method followed by the assessee.

The ITAT noted that the assessee had consistently used the project completion method for income calculation, which the department had accepted. The ITAT agreed with the CIT (A) that the AO did not show how this method distorted profits. Since the assessee was not a contractor, revised AS-7 need not apply. The ITAT upheld the CIT (A)'s decision, citing relevant judicial pronouncements and concluding that the percentage completion method applied by the AO was not suitable for the assessee.

In conclusion, the ITAT dismissed the revenue's appeal, affirming the CIT (A)'s decision to delete the addition based on the percentage completion method.

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