ITAT allows appeal, directs deletion of addition for property sale advance.

The ITAT allowed the appeal filed by the assessee, reversing the CIT(A)'s decision and directing the AO to delete the addition made towards the advance for the sale of property.

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Issues:
1. Validity of reopening of assessment u/s 147 of the Act.
2. Addition made by the AO towards advance received for sale of flats.

Issue 1: Validity of reopening of assessment u/s 147 of the Act

The appellant challenged the validity of the assessment reopening before the CIT(A), arguing that income chargeable to tax was not escaped due to non-disclosure of income from the sale of a flat. The AO issued a notice u/s 148, converting the case into scrutiny assessment. The CIT(A) observed that the project was complete in the impugned financial year, and as the appellant follows the mercantile system of accounting, the revenue should have been recognized accordingly. The CIT(A) held that the revenue recognition principle in AS-9 cannot override the provisions of the law. The CIT(A) directed the AO to avoid double taxation if the same amount was taxed in the subsequent year. The appellant appealed against the CIT(A)'s decision.

Issue 2: Addition made by the AO towards advance received for sale of flats

The appellant contended that they follow the mercantile system of accounting and project completion method for revenue recognition, as per AS-9 issued by ICAI. The appellant argued that the agreements for sale of flats were entered into in the financial year relevant to AY 2008-09, and the revenue was recognized in the subsequent year. The AO made additions based on the mercantile system of accounting, ignoring the actual sale completion. The appellant cited the decision of the Hon’ble Gujarat High Court to support their argument. The ITAT found that the appellant had recognized revenue in the subsequent year, as per the method consistently followed and accepted by the revenue. The ITAT noted that the AO's findings lacked merit as the sale was complete only when the sale deed was executed, which happened in the subsequent financial year. Relying on the Gujarat High Court decision, the ITAT held that the revenue was rightly recognized by the appellant and directed the AO to delete the addition made towards advance for the sale of property.

In conclusion, the ITAT allowed the appeal filed by the assessee, reversing the CIT(A)'s decision and directing the AO to delete the addition made towards the advance for the sale of property.

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