2024 (2) TMI 637 - AT - Income Tax

Builder's Project Completion Method for Revenue Recognition Upheld Over Percentage Completion Method

DCIT, Central Circle, Haryana Versus Reliable Realtech Pvt. Ltd. C/O NK Jain Adv.

The ITAT Delhi dismissed the Revenue's appeal regarding a builder's income determination from real estate transactions. The assessee consistently followed ... Determination of income - Accounting of real estate transactions - Correct method of accounting adopted for revenue reorganization - Addition by applying percentage of completion method (AS-9) - AR submitted that the assessee has consistently followed the Project Completion Method which has been accepted by the department in earlier years and ‘Principle of Resjudicata’ applies to the case of the assessee. The project is still going on - CIT(A) deleted addition - HELD THAT:- CIT(A) has recorded the finding that the assessee is a builder and not a contractor and that in view of the stipulations of the agreement it cannot be said that significant risks and rewards on ownership had been transferred to buyer prior to execution of the sale deed. As stipulated in the agreement to sell that no property during construction shall stand transferred or deemed to be transferred to the allottee(s) and the apartments under construction shall continue to be sole property of the owner and it is only the duly completed apartment there in the property that shall be transferred on registration of the Apartment in his name. AR’s contention is that the assessee has neither conflicted Guidance note on Accounting for Real Estate Transactions (Revised 2012) while following Project Completion Method for revenue recognition nor ICDS-III is applicable to the assessee. These contentions of the assessee could not be refuted by the Revenue. CIT(A) has followed the decisions of Paras Buildtech India Private Limited [2015 (11) TMI 1217 - DELHI HIGH COURT] and Sabh Infrastructure Ltd. [2012 (4) TMI 621 - ITAT DELHI] We do not find any reason to interfere with the decision of the Ld. CIT(A). Appeal of the Revenue is dismissed. Issues Involved:1. Whether the CIT(A) erred in deleting the addition of Rs. 24,32,00,000 by applying the percentage of completion method (AS-9).2. Whether the order of CIT(A) should be set aside and that of the AO be restored.Summary:Issue 1: Deletion of Addition by CIT(A):The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 24,32,00,000 by applying the percentage of completion method (AS-9). The assessee, a real estate developer, followed the Project Completion Method for revenue recognition, which was consistently applied and accepted by the department in previous years. The AO argued that the assessee should follow the Percentage of Completion Method as per the ICAI guidance note on 'Accounting of real estate transactions, 2012'. The AO added Rs. 24.32 crores to the assessee's income based on this method.The CIT(A) deleted the addition, noting that the assessee consistently followed the Project Completion Method, which is a recognized method of accounting. The CIT(A) cited several judicial pronouncements, including the Delhi High Court's decision in Paras Buildtech India Pvt. Ltd. (382 ITR 630), which upheld the Project Completion Method as a valid accounting practice for real estate developers. The CIT(A) also referenced the Supreme Court's observation in CIT v. Bilahari Investment P Ltd. (2008) 299 ITR 1, which recognized both the Completed Contract Method and the Percentage of Completion Method as valid.Issue 2: Restoration of AO's Order:The Revenue prayed for the CIT(A)'s order to be set aside and the AO's order to be restored. The Tribunal, however, upheld the CIT(A)'s decision, emphasizing that the assessee's method of accounting was consistently applied and accepted in previous years. The Tribunal noted that the AO's reliance on the ICAI guidance note was misplaced, as the Project Completion Method was suitable for the assessee's business model. The Tribunal also highlighted that no incriminating material was found during the search to justify changing the accounting method.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 24,32,00,000 and maintain the assessee's use of the Project Completion Method for revenue recognition. The Tribunal found no reason to interfere with the CIT(A)'s order, which was based on consistent application of a recognized accounting method and supported by judicial precedents.