Percentage completion method: separate operations and maintenance costs could not be added to construction cost, and no substantial question of law arose.

Operations and maintenance expenditure was not required to be included in contract cost for revenue recognition under the percentage completion method where the Tribunal found that construction and maintenance were separate phases and maintenance began only after construction ended. On that factual basis, the expenditure attributable to operations and maintenance could not be clubbed with construction costs. The court also noted that the amounts relating to the maintenance phase had already been offered to tax in the year of receipt. In these circumstances, no substantial question of law arose.

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Issues: Whether the operation and maintenance expenditure was required to be included in the cost of contract while recognising revenue under the percentage completion method, and whether any substantial question of law arose.

Analysis: The Tribunal had recorded a factual finding that the construction phases and the operations and maintenance phase were separate in execution and that the maintenance activity commenced only after completion of the construction activity. On that basis, the expenditure attributable to the operations and maintenance phase could not be clubbed with construction costs for determining revenue recognition under the percentage completion method. The Court accepted this rationale and noted that the amounts relating to the operations and maintenance phase had already been offered to tax in the year of receipt. In these circumstances, no substantial question of law arose.

Conclusion: The inclusion of operations and maintenance expenditure in contract costs was not warranted, and the appeal did not give rise to any substantial question of law.

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