Tribunal ruling on revenue recognition method and stock valuation in real estate transactions

The Tribunal dismissed ground no. 2, emphasizing that the limited scrutiny was not restricted to verifying the adoption of the Percentage Completion Method but also included how the method was applied in accounting for real estate transactions. Ground no. 3 was partially allowed, directing the AO to examine and verify the revised working of revenue recognition and closing stock. The appeal was partly allowed for statistical purposes.

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Issues involved:
The judgment involves issues related to the scope of limited scrutiny by the Assessing Officer (AO) and the application of Percentage Completion Method for valuation of closing stock in a real estate business.

Ground No. 1:
The first ground of appeal was considered general in nature and did not require specific adjudication.

Ground No. 2:
The assessee challenged the action of the ld. CIT(A) in confirming additions made by the AO beyond the issues for which the case was selected for limited scrutiny. The AO re-evaluated the closing stock despite the limited scope of scrutiny, which was only to verify the adoption of the Percentage Completion Method. The AO exceeded his jurisdiction by making impugned additions without converting limited scrutiny into complete scrutiny. The Board's Instruction No.20/2015 prohibits additions beyond the selected issues in limited scrutiny cases. The ground was dismissed after considering the arguments from both sides.

Ground No. 3:
Regarding the third ground, the assessee argued that the value of closing stock and sales should be revised based on the Percentage Completion Method as per the Guidance Note issued by ICAI. The matter was set aside to the AO for further examination and verification of the revised working of revenue recognition and closing stock, providing a reasonable opportunity to the assessee for representation.

Conclusion:
The Tribunal dismissed ground no. 2, emphasizing that the limited scrutiny was not restricted to verifying the adoption of the Percentage Completion Method but also included how the method was applied in accounting for real estate transactions. Ground no. 3 was partially allowed, directing the AO to examine and verify the revised working of revenue recognition and closing stock. The appeal was partly allowed for statistical purposes.

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