Revenue recognition under Accounting Standard 7: use audited actuals not third party projections when computing taxable profit.

Where a real-estate assessee recognises revenue under the Percentage Completion Method consistent with Accounting Standard 7 and audited books record actual revenue and costs, assessment additions based on projected revenues submitted to third parties are unwarranted; the practical effect is that profit computation must follow actual recognised revenue and incurred costs rather than bank projections, and deletions of additions founded on projections should be sustained in favour of the assessee.

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Issues: (i) Whether additions made by the Assessing Officer based on projected revenues and projections filed with bank can be sustained where the assessee has recognised revenue under Percentage Completion Method in accordance with Accounting Standard-7 and actual revenue and costs are available.

Analysis: The appeals concern identical factual and legal questions for AY 2015-16 and AY 2016-17 arising from a search and seizure. The assessee, a partnership engaged in real estate development, recognised revenue under the percentage completion method in line with Accounting Standard-7. The Assessing Officer computed profits using projected revenue figures submitted to a bank rather than the actual revenues and costs furnished in audited books and used for filing returns. The Commissioner of Income Tax (Appeals) directed that computation of profits should be on the basis of actual revenue recognised and actual cost incurred; the Tribunal notes the Assessing Officer also recorded that the assessee recognised profits according to AS-7 and that reliance on projections when actuals are available is unwarranted.

Conclusion: The addition based on projected figures is not sustainable and the deletion of the additions by the Commissioner of Income Tax (Appeals) is upheld; outcome is in favour of the assessee.

Ratio Decidendi: Where an assessee recognises revenue under Accounting Standard-7 and audited actual revenue and costs are available, assessment additions based on projected revenues filed with third parties cannot be sustained over the actuals.

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