2026 (2) TMI 259 - AT - Income Tax

Project completion accounting for construction contracts treated under AS 9; outcome: accounting method accepted and taxation deferred until sale deed execution

Assessee's adoption of the project completion method consistent with Accounting Standard AS 9 governed revenue recognition for construction and sale of ... Addition made by rejecting the income offered under percentage completion method as per AS 9 by your appellant - assessee is engaged in the business of construction/development of residential complex and sale of flat on completion of construction - AO disallowed the expenditure in respect of penalty paid to Silvasa Municipal Corporation for deviation in plan. HELD THAT:- It is pertinent to note that since the assessment year 2014-15, the assessee was following the project completion method which is since inception of the firm. Revenue has accepted this accounting method which is recognized by the Institute of Chartered Accountant and is in accordance of Accounting Standard AS-9. This fact was not disputed by the Assessing Officer as well as by the CIT(A). In assessee’s case, the ownership of the flat was transferred only after execution of the sale deed on realization of full consideration but in fact the advance receipt from the buyers were shown as liability in the balance sheet of assessment year 2014-15 which was offered to tax in the later years as and when the sale deeds were executed. Appeal of the assessee is allowed. Issues: Whether the addition of Rs. 19,15,358/- by the Assessing Officer for rejecting income computed under the percentage/project completion method (AS 9) was justified.Analysis: The Tribunal examined the assessee's accounting treatment and found that the assessee had consistently followed the project/percentage completion method since inception and that this method is recognised under Accounting Standard AS 9. The Tribunal noted that advances received from buyers were shown as liabilities in the balance sheet for assessment year 2014-15 and the income was offered to tax in subsequent years upon execution of sale deeds and realization of full consideration. The Tribunal observed that the Assessing Officer and the CIT(A) failed to take these facts into account and that the revenue had previously accepted the accounting method.Conclusion: The addition is not justified; the appeal is allowed in favour of the assessee.