Project completion method and integrated land-cost allocation upheld in a long-term development project under income tax accounting rules.

A recognised project completion method for revenue recognition could not be rejected under section 145(1) merely because income was deferred until conveyance, where the method was consistently followed, reflected in the books and supported by the integrated nature of the long-term colonisation project. The court also accepted that land cost and saleable area had to be computed on the basis of the project as a whole, not by artificially excluding Phase IV or altering the write-off for land reserved for roads, parks and community purposes. The Revenue's proposed recomputation was held unwarranted because it lacked a sound factual basis and would distort project results.

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Issues: (i) Whether the assessee's method of accounting and recognition of revenue on the basis of the project completion method could be rejected under the proviso to section 145(1) of the Income-tax Act, 1961; (ii) Whether the cost of land and saleable area in the colonisation project could be recomputed by excluding Phase IV and by altering the basis for writing off land reserved for community purposes.

Issue (i): Whether the assessee's method of accounting and recognition of revenue on the basis of the project completion method could be rejected under the proviso to section 145(1) of the Income-tax Act, 1961

Analysis: The assessee followed the project completion method, under which costs were accumulated during the course of the project and revenue was recognized on completion. That method is a recognized method of accounting and, on the facts, the project was a long-term colonisation exercise monitored under the applicable regulatory framework. The earlier tribunal decision on the same accounting issue had attained finality, and the Revenue could not reopen the same controversy. The material on record also did not justify the conclusion that the accounts failed to reflect real income merely because some receipts were carried forward until conveyance.

Conclusion: The rejection of the assessee's method of accounting was not justified, and the issue is decided in favour of the assessee.

Issue (ii): Whether the cost of land and saleable area in the colonisation project could be recomputed by excluding Phase IV and by altering the basis for writing off land reserved for community purposes

Analysis: The entire development was treated by the statutory authority as one integrated project, and the cost of land had to be pooled on that basis. There was no intelligible basis to segregate Phase IV for a different averaging exercise. On the land reserved for roads, parks and community facilities, the factual findings showed that the assessee had substantially complied with the governing development rules and that the write-off and cost allocation adopted by it were consistent with the project structure and with the treatment accepted in earlier and later years. The Revenue's proposed variation would only distort the project results without any real tax gain.

Conclusion: The recomputation proposed by the Revenue was unwarranted, and the issue is decided in favour of the assessee.

Final Conclusion: Both questions of law having been answered against the Revenue, the appeals fail and the assessee's position is sustained.

Ratio Decidendi: A recognized project completion method cannot be rejected under section 145(1) merely because revenue is postponed until conveyance, where the method is consistently followed, reflected in the books, and supported by the integrated nature of the project; likewise, land-cost allocation in a long-term development must follow the project as sanctioned, not an artificial phase-wise segregation unsupported by the governing facts.

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