Tribunal Orders Reassessment of Revenue Based on Executed Agreements Using 'Percentage Completion' Method.

The Tribunal set aside the CIT(A)'s order, directing the AO to reassess revenue recognition based on executed agreements during the assessment year, following the 'Percentage Completion' method. The AO must provide the assessee a reasonable opportunity to present evidence. The appeals were allowed for statistical purposes, applicable mutatis mutandis to assessment years 2010-11, 2011-12, and 2012-13.

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Issues Involved:
1. Addition of Rs. 2,59,62,160/- by recomputing the income.
2. Method of accounting adopted by the appellant.
3. Application of section 2(47) concerning capital assets versus stock-in-trade.
4. Principle of consistency in accounting methods from previous assessment years.
5. Revenue loss to the department due to different assessment years.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,59,62,160/- by recomputing the income:
The Assessing Officer (AO) observed that the assessee had received an advance of Rs. 24,92,42,860/- from prospective buyers for the project "Sterling Tower" but only recognized income from agreements executed. The AO, referring to Accounting Standard (AS)-9, concluded that all conditions for revenue recognition were met and added Rs. 2,58,30,786/- to the income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition.

2. Method of accounting adopted by the appellant:
The appellant followed the 'Percentage Completion' method, recognizing revenue based on the completion percentage certified by an architect. The appellant argued that this method was consistent with the Guidance Note of the Institute of Chartered Accountants of India (ICAI) and AS-9. The AO, however, desired revenue recognition upon receipt of advances, leading to a dispute.

3. Application of section 2(47) concerning capital assets versus stock-in-trade:
The appellant contended that section 2(47) applied to capital assets and not stock-in-trade. The AO, however, held that the definition of transfer under section 2(47) included the transactions in question, thus justifying the revenue recognition on advances.

4. Principle of consistency in accounting methods from previous assessment years:
The appellant highlighted that in previous assessment years (2005-06 and 2008-09), the same accounting method was accepted by the department, arguing against deviation from this method. The CIT(A), however, did not find this argument persuasive enough to overturn the AO's decision.

5. Revenue loss to the department due to different assessment years:
The appellant argued that since the company was taxed at a constant rate, there was no revenue loss to the department even if the income was taxed in different years. The Tribunal noted this but emphasized the importance of following proper revenue recognition principles.

Tribunal's Decision:
The Tribunal reviewed various case laws and principles under AS-9 and AS-7, noting that revenue should be recognized when significant risks and rewards of ownership are transferred, even without legal title transfer. The Tribunal set aside the CIT(A)'s order, restoring the matter to the AO to reassess revenue recognition based on executed agreements during the assessment year. The AO was instructed to provide the assessee with a reasonable opportunity to present evidence.

Conclusion:
The appeals were allowed for statistical purposes, and the AO was directed to reassess the revenue recognition following the 'Percentage Completion' method for the executed agreements in the impugned assessment year. The decision was applied mutatis mutandis to the assessment years 2010-11, 2011-12, and 2012-13.

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