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 flats; revenue previously accepted this method and the Assessing Officer did not dispute its conformity. Advance payments were recorded as liabilities and taxed only when sale deeds were executed on transfer of ownership; consequently, disallowance related to accounting treatment and penalty payment was not sustained. The appellate outcome allowed the assessee, confirming that income recognition on project completion (and taxation on execution of sale deeds) is operative where the accounting method complies with recognised standards and has been accepted by revenue.

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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.

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