Tribunal orders revenue recognition method, cites consistency, no profit underestimation, issues interest levy directions.

M/s. Santha Build-Tech India Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Central Circle III (1), Chennai

M/s. Santha Build-Tech India Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Central Circle III (1), Chennai - TMI Issues Involved:
1. Adoption of 8% of the construction cost under work-in-progress method.
2. Validity and applicability of the "Project Completion Method" versus the "Percentage of Completion Method" for revenue recognition.
3. Levy of interest under sections 234A and 234B of the Income Tax Act, 1961.

Detailed Analysis:

1. Adoption of 8% of the Construction Cost Under Work-in-Progress Method:
The assessee, engaged in real estate, was subject to a search on 02.07.2010. The original return filed showed a total loss, but the assessment concluded with a significant addition to the income. The assessee contested this, arguing that the additions were not based on any incriminating evidence found during the search. The Tribunal noted that both the Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] had adopted an 8% construction cost under the work-in-progress method, which the assessee disputed, citing the "Project Completion Method" as their consistent accounting practice.

2. Validity and Applicability of the "Project Completion Method" Versus the "Percentage of Completion Method":
The main contention was whether the "Project Completion Method" adopted by the assessee was correct or if the "Percentage of Completion Method" adopted by the A.O. was appropriate for determining revenue and costs. The Tribunal referred to the case of Unique Enterprises v. ITO, where it was held that the Accounting Standards (AS) 7 issued by the Institute of Chartered Accountants of India (ICAI) applied only to contractors and not to builders and real estate developers. The Tribunal emphasized that the project completion method is a recognized method of accounting that the assessee had consistently followed. The Tribunal found no evidence that the assessee's method resulted in an underestimation of profit. Additionally, the Tribunal referenced the case of Awadhesh Builders v. ITO, which supported the project completion method for real estate developers, distinguishing it from contractors.

3. Levy of Interest Under Sections 234A and 234B of the Income Tax Act, 1961:
Regarding the levy of interest under section 234A, the Tribunal noted that the interest should be charged from the date of expiry of the notice period under section 153A to the date of assessment completion under section 143(3) read with section 153A. For interest under section 234B, it should be levied on the additional tax from the date of determination of income under section 143(1) or 143(3) to the determination of enhanced income under section 143(3) read with section 153A. The Tribunal directed the A.O. to verify and decide the period of charging interest afresh.

Conclusion:
The Tribunal set aside the orders of the lower authorities, directing the A.O. to accept the project completion method adopted by the assessee for all relevant assessment years. The Tribunal also provided specific directions regarding the levy of interest under sections 234A and 234B, allowing the appeals filed by the assessee for statistical purposes.

Order Pronouncement:
The order was pronounced on 29th April 2016 at Chennai, allowing all the appeals filed by the assessee for statistical purposes.