Consistent revenue recognition method prevails where books are not rejected; allied expense disallowances were also deleted.

In the absence of rejection of books under section 145(3) or any demonstrated defect in the consistently followed revenue-recognition method, the Revenue could not compel substitution of the Project Completion Method with the Percentage of Completion Method; the addition on that basis was deleted. Disallowance under section 40(a)(ia) for advertisement expenses also failed because the payments were below the relevant TDS threshold and the recipients had accounted for the income and paid tax. The conveyance disallowance was likewise deleted, as the expenses were supported by vouchers and no specific non-business use was shown.

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Issues: (i) Whether the revenue from the real estate project could be brought to tax by substituting the assessee's consistently followed Project Completion Method with the Percentage of Completion Method and making an addition on that basis; (ii) Whether disallowance made under section 40(a)(ia) of the Income-tax Act, 1961 for advertisement expenses was sustainable; (iii) Whether disallowance of conveyance expenses was sustainable.

Issue (i): Whether the revenue from the real estate project could be brought to tax by substituting the assessee's consistently followed Project Completion Method with the Percentage of Completion Method and making an addition on that basis.

Analysis: The assessee had consistently recognized revenue only on execution of conveyance deed and transfer of possession, and this method had been accepted in earlier assessment years. No rejection of books under section 145(3) of the Income-tax Act, 1961 was made, nor was any defect shown in the accounting method so as to justify a forced change in revenue recognition. The project facts also showed that advances were treated as liabilities till sale was legally concluded. The settled principle of consistency applied, and the attempt to tax the same income again by adopting a different recognition method was not justified.

Conclusion: The addition made by applying the Percentage of Completion Method was rightly deleted and the issue is decided in favour of the assessee.

Issue (ii): Whether disallowance made under section 40(a)(ia) of the Income-tax Act, 1961 for advertisement expenses was sustainable.

Analysis: The impugned payments were each below the threshold on which deduction of tax at source was required under section 194C of the Income-tax Act, 1961, and the recipients had also accounted for the amounts in their returns and paid taxes. In these circumstances, the disallowance could not be sustained.

Conclusion: The disallowance under section 40(a)(ia) was rightly deleted and the issue is decided in favour of the assessee.

Issue (iii): Whether disallowance of conveyance expenses was sustainable.

Analysis: The expenses were incurred in the normal course of business, supported by vouchers and other material, and no specific instance of non-business expenditure was shown by the Assessing Officer. The deletion of the disallowance by the first appellate authority was therefore justified.

Conclusion: The disallowance of conveyance expenses was rightly deleted and the issue is decided in favour of the assessee.

Final Conclusion: The appellate authority's deletions on the principal transfer-pricing revenue issue and the ancillary disallowances were sustained, and the Revenue's appeal failed in full.

Ratio Decidendi: In the absence of rejection of books under section 145(3) of the Income-tax Act, 1961 and in the absence of any demonstrated defect in the consistently followed method of accounting, the Revenue cannot compel substitution of one recognized revenue-recognition method with another merely to accelerate taxation.

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