2016 (2) TMI 1377 - AT - Income Tax

Tribunal Upholds Project Completion Method for Revenue Recognition in Real Estate Case, Dismissing Appeal.

DCIT Circle-7 (1), New Delhi Versus Subh Infrastructure Ltd.

The Tribunal dismissed the Revenue's appeal against the CIT(A) order for AY 2010-11, upholding the High Court's decision that validated the project ... Determination of income - method of accounting adopted for revenue reorganization - Accounting of real estate transactions - AO applying the percentage completion method (PCM) and rejecting the project completion method accounting adopted by the assessee - whether Accounting Standard (AS-9) which sanctions the project completion method, was correctly applicable in the circumstances of the cases? - HELD THAT:- Hon’ble High Court [2015 (11) TMI 1283 - DELHI HIGH COURT] has upheld that conclusion of the ITAT [2012 (4) TMI 621 - ITAT DELHI] that the adoption of PCM is in establish method of accounting and without there being any rationale or new development in the fact and circumstances of the case as well as without bringing out any defect on record in the accounting procedure adopted by the assessee, the revenue could not have concluded that the project completion method was not appropriate for the assessee. Hence, order of Hon’ble High Court is also applicable in favour of the assessee to the present case pertaining to AY 2010-11 and accordingly sole ground of the revenue being devoid of merits is dismissed in the result appeal of the revenue is dismissed. Issues: Appeal by Revenue against CIT(A) order for AY 2010-11 - Method of accounting for revenue recognition - Applicability of project completion method (PCM) - High Court's decision on similar issues in previous years.Analysis:1. Appeal by Revenue: The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The arguments of both sides were heard, where the Ld. AR submitted orders of the Hon'ble High Court and Tribunal in the assessee's own case, indicating a favorable decision towards the assessee. The Ld. DR supported the AO's rejection of the accounting method adopted by the assessee for revenue recognition, advocating for the application of the percentage completion method (PCM).2. Applicability of Project Completion Method (PCM): The Hon'ble High Court's order dated 07.01.2015 in the assessee's case upheld the ITAT's decision regarding the adoption of PCM as a valid method of accounting. The Court emphasized that without any new development or defect in the accounting procedure, the Revenue could not conclude that the project completion method was inappropriate for the assessee. The decision highlighted the established nature of PCM for the assessee's business, dismissing the Revenue's claim of impropriety.3. High Court's Decision on Similar Issues: The High Court's decision in the assessee's previous cases for AY 2006-07, 2007-08, 2008-09, and 2009-10 had already supported the adoption of PCM for revenue recognition. The Court referenced previous judgments and rulings to establish the validity and appropriateness of PCM for the assessee's real estate development business. The Revenue's appeals were dismissed, emphasizing that no substantial question of law arose for consideration.In conclusion, the Tribunal upheld the High Court's decision, dismissing the Revenue's appeal for AY 2010-11 based on the established applicability of the project completion method for revenue recognition in the assessee's case. The judgment reiterated the importance of consistency in accounting methods and the lack of grounds to challenge the chosen method without valid rationale or new developments.