Real estate revenue recognition depends on enforceable contracts; provisional booking advances cannot satisfy the project threshold.

For real estate revenue recognition, only legally enforceable contracts or agreements that transfer significant risks and rewards can be counted toward the contractual saleable area threshold. Provisional booking advances for flats, being cancellable reservations without transferable rights, do not satisfy that requirement and cannot be included in the 25% calculation. Once those advances are excluded, project income is not recognized under the percentage completion method for the year if the benchmark is not met. Compensation already adjusted against project expenditure cannot be taxed again, and related separate additions fail where the project income estimate itself is deleted.

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Issues: (i) Whether booking advances received for flats could be treated as contracts or agreements for determining the 25% threshold under the real estate project revenue recognition guidelines; (ii) whether income from the Neelkanth Enclave project could be recognized for the year under the percentage completion method; (iii) whether the compensation amount and other income could be separately added to the assessed income.

Issue (i): Whether booking advances received for flats could be treated as contracts or agreements for determining the 25% threshold under the real estate project revenue recognition guidelines.

Analysis: The relevant guidance required the saleable project area to be secured by contracts or agreements that were legally enforceable and that transferred significant risks and rewards of ownership. The booking letters merely showed provisional reservation of flats, with no transferable or assignable legal right and with the reservation liable to cancellation on default. The advances therefore did not create a legally enforceable contract or agreement for the purpose of the threshold calculation.

Conclusion: The booking advances could not be included in the contracted saleable area and the issue was decided in favour of the assessee.

Issue (ii): Whether income from the Neelkanth Enclave project could be recognized for the year under the percentage completion method.

Analysis: Once the booking advances were excluded, the area covered by actual contracts or agreements fell below the 25% benchmark. In that situation, the conditions for revenue recognition were not satisfied and no project income was required to be recognized for the year under consideration.

Conclusion: The addition made by estimating project income was unsustainable and this issue was decided in favour of the assessee.

Issue (iii): Whether the compensation amount and other income could be separately added to the assessed income.

Analysis: The compensation amount had already been adjusted against project expenditure and bringing it again to tax would amount to double taxation. The separate addition for other income also did not survive once the project income estimation itself was deleted, as the total income had to be recomputed on the basis of the returned figures.

Conclusion: The separate additions could not stand and this issue was also decided in favour of the assessee.

Final Conclusion: The Tribunal held that the project income estimation was not justified, the compensation amount could not be taxed again, and the assessee's returned computation was to be restored.

Ratio Decidendi: For real estate revenue recognition, only contracts or agreements that are legally enforceable and transfer significant risks and rewards can be counted toward the contractual saleable area threshold; mere provisional booking advances do not satisfy that requirement.

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