Project revenue recognition method dispute: Project Completion vs Percentage Completion; additions u/s43CA and statements rejected

Where an assessee had consistently applied the Project Completion Method for revenue recognition and the Department had accepted it in earlier years, the AO could not unilaterally substitute the Percentage Completion Method in the impugned year absent any change in facts or law; the consequential addition for alleged undisclosed project profit was rightly deleted. An addition founded solely on a statement recorded u/s 131/133A, without corroborative evidence, was held unsustainable; the deletion was upheld. Further, the first proviso to s. 43CA(1) introducing a 10% safe harbour was treated as curative and applied retrospectively; since the stamp valuation variation was 7%, the s. 43CA addition was deleted. Revenue's appeal was dismissed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Assessing Officer was justified in substituting the assessee's consistently followed Project Completion Method (PCM) with the Percentage Completion Method for the impugned year, and thereby taxing estimated project profit during the year.

2. Whether an addition towards alleged undisclosed profit could be sustained merely on the basis of a statement recorded during survey proceedings (u/s 133A/131) without corroborative evidence, when the assessee followed PCM accepted in earlier years.

3. Whether the addition under section 43CA on the basis of difference between stated consideration and stamp duty value was sustainable where the variation was 7%, in view of the Court's acceptance that the 10% tolerance/safe harbour is curative and applicable retrospectively.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Substitution of PCM with Percentage Completion Method for the impugned year

Legal framework (as discussed by the Court): The Court examined the relevance of the assessee's consistently followed accounting method for real estate development, including the applicability of recognition principles referred to as AS-9/work completion method, and rejected substitution by estimated percentage completion where the Department had accepted PCM in earlier years.

Interpretation and reasoning: The Court found that the assessee had consistently followed PCM since inception, and the Department had accepted this method in preceding years including A.Y. 2018-19. For the impugned year, the Assessing Officer did not point out any change in facts or law warranting deviation. On these facts, applying percentage completion only for a single year was held unjustified. The Court accepted that there was no justification to substitute the assessee's work completion/PCM recognition approach with an estimate-based approach in the impugned year.

Conclusion: The Court upheld deletion of the estimated profit addition founded on applying percentage completion in place of PCM, holding such substitution unjustified in absence of any demonstrated change in facts or law and given consistent past acceptance of PCM.

Issue 2: Sustainability of profit addition based solely on statement recorded during survey (u/s 133A/131) without corroboration

Legal framework (as applied by the Court): The Court applied the settled position that a statement recorded during survey proceedings, by itself, lacks evidentiary force to sustain an addition unless supported by corroborative material, and specifically relied on the principle affirmed in the cited Supreme Court decision on this point.

Interpretation and reasoning: The Assessing Officer computed profit at 8% of sales based on the partner's statement and treated it as undisclosed profit for the year. The Court held that the addition was made merely on the basis of such statement and was unsupported by corroborative evidence establishing accrual/taxability under the accounting method consistently followed. In the Court's view, such an uncorroborated statement could not sustain the addition, particularly where PCM was consistently followed and accepted and where the Assessing Officer's approach was estimation-based rather than evidence-based.

Conclusion: The Court held the addition towards alleged undisclosed profit unsustainable as it was founded merely on a statement recorded during survey proceedings without corroborative evidence, and therefore upheld its deletion.

Issue 3: Addition under section 43CA and retrospective application of 10% tolerance where variation was 7%

Legal framework (as discussed by the Court): The Court addressed the "safe harbour/tolerance limit" under section 43CA, and accepted the reasoning that the 10% tolerance introduced later is curative and thus retrospective, relying on judicial precedent referred to in the order (including a coordinate bench decision applying the proviso retrospectively).

Interpretation and reasoning: The Assessing Officer made an addition under section 43CA because the stamp duty value exceeded stated consideration, and the variation (about 7%) was above 5%. The Court agreed with the appellate reasoning that the enhanced 10% tolerance is curative in nature and applicable retrospectively. Since the variation was 7%, it fell within the accepted 10% tolerance, making the addition unsustainable.

Conclusion: The Court upheld deletion of the section 43CA addition, holding that because the value variation was only 7% and within the retrospectively applicable 10% tolerance, no adjustment was warranted.

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