Revenue's Appeal Dismissed on Revenue Recognition & Cost Discrepancy

The tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, dismissing the Revenue's appeal regarding the recognition of revenue based on the percentage completion method and the discrepancy in estimated project cost affecting profit calculation for the Assessment Year 2014-15.

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Issues:
1. Recognition of revenue based on percentage completion method.
2. Discrepancy in estimated project cost leading to the calculation of profits.

Issue 1: Recognition of revenue based on percentage completion method:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) relating to the Assessment Year 2014-15. The Assessing Officer (AO) had determined the total income of the assessee company at Rs. 13,63,41,560, applying the percentage completion method for revenue recognition. The AO contended that the critical necessary approvals for the project were obtained, contracts secured with buyers, and over 10% of contract consideration received, justifying revenue recognition. However, the assessee argued that only 24.89% of the project was completed, below the 25% threshold for revenue recognition as per the Guidelines. The Commissioner of Income Tax (Appeals) held that the AO's addition to income was unjustified and directed its deletion, leading to the Revenue's appeal before the tribunal.

Issue 2: Discrepancy in estimated project cost leading to the calculation of profits:
The dispute also revolved around the estimated project cost, affecting the calculation of profits. The AO based the project's completion percentage on a total construction cost of Rs. 120 crores, while the assessee considered it to be Rs. 138 crores due to increased saleable area and other factors. The assessee supported the higher cost with an Architect certificate and reasons for cost escalation. The tribunal noted the undisputed increase in saleable area and accepted the revised cost of Rs. 138 crores, leading to a completion percentage of 24.89%, below the 25% threshold. The tribunal found no fault in the Commissioner of Income Tax (Appeals)'s decision, dismissing the Revenue's appeal.

In conclusion, the tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, dismissing the Revenue's appeal regarding the recognition of revenue based on the percentage completion method and the discrepancy in estimated project cost affecting profit calculation for the Assessment Year 2014-15.

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