The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the percentage completion method of Revenue recognition practised by Builder is acceptable as per Accounting Standards.
The assessee was represented by Shri Suchek Ancheliya and the Department was represented by Shri Hoshang B. Irani.
The Revenue challenged the order dated 31/03/2022 passed by the Ld. National Faceless Appeal Centre (NFAC), Delhi related to the deletion of the addition of Rs.5,93,35,636/- by the First Appellate Authority(FAA), which was made by the Assessing Officer in respect of profit offered during the survey proceeding.
The Assessing Officer observed that M/s Gopuram Developers, the assessee has undertaken the construction work of the project namely “Jeerawali residency” at Ghatkoper Mumbai. The assessee has showna closing stock of flats for Rs.10,28,44,296/- The objection of the Ld. Assessing Officer is that even after completion of the project, the assessee did not declare profit from the said project.
It was submitted by the assessee before AO that during the course of survey action the assessee offered an income of Rs. 5 crore on account of the sale of flats only, but due to the recession in the property market, those flats could not be sold in the year under consideration. The A.O. rejected the contention of the assessee and computed the addition of Rs.5,93,35,636/-
On further appeal, before the FAA the assessee mainly submitted that it was consistently following the percentage completion method and profit had been offered to tax as and when it was accrued to the assessee. The FAA after considering the submission of the assessee that income from the project had been offered by the assessee over a period of years, made a view that income from the project had been already declared by the assessee in subsequent assessment years on the sale of flats following the percentage completion method for recognizing profit from the project of real estate development.
The assessee contended that in the case of the percentage completion method, the profit is declared in proportion to the cost incurred on the project as compared to the total project cost, accordingly, the assessee has offered profit from the project from 2008-09 till 2015-16 and still closing stock amounting to Rs. 3,07,23,277/- was available with the assessee for sale.
The ITAT bench consists of Shri Om Prakash Kant (Accountant Member) & Smt. Kavitha Rajagopal, (Judicial Member) observed that the appellant is following the mercantile system of accounting and the appellant is recognizing the revenue based onthe percentage competition method since the inception of the firm. The method of revenue recognition adopted by the appellant is as per the Accounting Standards. Both themethodof Project Completion Method and Percentage Completion Methodare being followed in the cases of Real Estate Development / Builders.
The ITAT upheld the percentage completion method of Revenue recognition following the judicial precedents and dismissed the appeal of the Revenue.
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