Revenue recognition treatment of finished goods and advances upheld as non-turnover where subsequent years taxed sales, addition deleted.

Revenue recognition dispute concerns classification of finished goods and advances as sales versus applying project completion/percentage of completion accounting. The tribunal relied on subsequent-year taxation of the same receipts and precedent authorities to conclude that treating such stock/advances as turnover would cause double taxation; consequently the assessment additions treating finished goods/advances as sales were deleted and the assessee's appeal grounds were allowed.

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Issues: Whether the Assessing Officer was justified in treating amounts shown as finished goods/advances as sales for the assessment year 2018-19 and making an addition of Rs.2,13,49,415.

Analysis: The assessee consistently followed the project completion method of accounting under which revenue is recognized on execution of sale deed and delivery of possession; costs of construction were capitalized as inventory/work-in-progress until such recognition. The assessee subsequently disclosed sales and paid tax in later assessment years in respect of the same stock; financial statements and year-wise sales data show turnover arising in subsequent years. Jurisprudence establishes that recognized accounting methods such as project completion method are permissible and that where amounts are taxed in subsequent years with no loss to revenue, making an addition earlier may result in double taxation. The assessing officer's treatment of the entire closing stock as sales ignored the accounting method regularly employed and the fact of subsequent taxation on those sales.

Conclusion: The addition of Rs.2,13,49,415 treating finished goods/advances as sales is deleted; all grounds of appeal are allowed in favour of the assessee.

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