Assessee entitled to follow project completion method consistently used, rejecting percentage completion method application

ITAT Mumbai held that assessee was entitled to follow project completion method consistently used, rejecting AO's application of percentage completion method. Tribunal found assessee completed only 10% of project with 24 out of 228 flats under agreement, insufficient to trigger percentage completion method. Differences between GST and ITR turnover were properly reconciled as different statutes have distinct parameters. Commission/brokerage expenses were allowable as incurred per agreement terms. Issues regarding architect fees and transportation charges were remanded to AO for fresh adjudication, considering COVID-19 assessment difficulties and allowing assessee opportunity to substantiate claims with proper documentation.

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Issues Involved:

1. Difference in sales/turnover as per Income Tax Return (ITR) and GST returns.
2. Adoption of project completion method by the Assessee.
3. Disallowance of architect and professional fees.
4. Disallowance under section 40(a)(ia) of the Income Tax Act for transportation charges.

Detailed Analysis:

1. Difference in Sales/Turnover as per ITR and GST Returns:

The primary issue was the discrepancy between the sales figures reported in the Income Tax Return (ITR) and the GST returns. The Assessing Officer (AO) added Rs. 35,25,19,560 to the Assessee's income, treating it as undisclosed sales, due to the difference between the sales reported in the GST returns and the ITR. The Assessee explained that the discrepancy arose because advances received from buyers were shown as sales in the GST returns as per GST laws, whereas for income tax purposes, the Assessee followed the project completion method, showing these advances as current liabilities. The Commissioner of Income Tax (Appeals) deleted the addition, accepting the Assessee's explanation that the project was incomplete and revenue recognition was not warranted under the project completion method. The Tribunal upheld the Commissioner's decision, noting that the Assessee had consistently followed the project completion method and the difference was adequately explained.

2. Adoption of Project Completion Method:

The Assessee consistently adopted the project completion method for revenue recognition, arguing that the project had not reached the threshold for revenue recognition as per the relevant accounting standards. The Revenue contended that the Assessee had completed more than 25% of the project, thus necessitating revenue recognition. However, the Tribunal held that the Assessee was entitled to choose the project completion method, as recognized by the Supreme Court and various High Courts, and the AO could not compel a different method unless there was a clear loss of revenue. The Tribunal found that the Assessee had not completed 25% of the project, and thus, revenue recognition was not required.

3. Disallowance of Architect and Professional Fees:

The AO disallowed Rs. 1,25,67,743 claimed as architect and professional fees due to lack of supporting documentation. The Assessee admitted to errors in providing PAN details but claimed to have rectified the mistake by submitting correct information later. The Tribunal noted that the assessment occurred during the COVID-19 pandemic, which might have contributed to the Assessee's inability to provide complete documentation. The Tribunal remanded the issue back to the AO for fresh consideration, allowing the Assessee an opportunity to substantiate its claim with the necessary documents.

4. Disallowance under Section 40(a)(ia) for Transportation Charges:

The AO disallowed Rs. 5,27,107 under section 40(a)(ia) for non-deduction of TDS on transportation charges. The Assessee argued that the transporters were assessed under section 44AE and provided acknowledgments from some transporters as additional evidence. The Tribunal, considering the challenges of the pandemic period, remanded the issue back to the AO to verify the Assessee's claims and the additional evidence provided, directing the AO to reassess the matter afresh.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upheld the deletion of the addition for undisclosed sales, and accepted the project completion method adopted by the Assessee. The Tribunal remanded the issues of disallowance of architect fees and transportation charges back to the AO for fresh consideration, allowing the Assessee to provide further evidence. The Assessee's appeal was dismissed as infructuous, given that the issues raised were already addressed in the cross-objection.

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