Change in Accounting Method Mandated under Ind AS Notified by MCA not Amounts to Inconsistency: ITAT on DLF’s Case [Read Order]

In a recent ruling of the Delhi income tax appellate tribunal ( ITAT ) bench, it was ruled that the change in the accounting method which was mandated under Ind AS as notified by the Ministry of Corporate Affairs ( MCA ) does not amount to inconsistency or arbitrary.

The brief facts of the case are that DLF Limited, engaged in real estate development, had been consistently recognizing revenue under the Percentage of Completion Method (POCM) as per Indian GAAP until 31.03.2016.

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With the mandatory implementation of Ind-AS from 01.04.2016, as notified by the Ministry of Corporate Affairs for listed companies and companies with turnover exceeding ₹500 crores, the company transitioned to Ind-AS POCM for revenue recognition.

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This change resulted in an adjustment of ₹5,82,695.93 lakhs in the return of income for FY 2016-17, reflecting the difference between revenue recognized under the old and new methods. The Assessing Officer (AO) made an addition of ₹4,34,272.21 lakhs to the returned income, which was later fully allowed as a deduction by the CIT(A).

The assessee argued that the change in accounting method was mandatory, bona fide, revenue-neutral, and necessary to prevent double taxation, as the same income had been or would be taxed over the project life.

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Additionally, the assessee claimed a one-time deduction of ₹5,286.82 lakhs related to the change in the treatment of upfront fees on loans under Ind-AS 109, which was also accepted by the CIT(A).

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The AO made an addition of Rs.58,26,95,93,000/- on account of one time Ind-AS claim under the head “Large any other amount claimed as deduction” on account of adoption of Ind-AS. However, the same was deleted by the CIT(A), which became one of the grounds in the appeal filed by the revenue.

According to the revenue, CIT(A) ignored that the change of method tantamount to inconsistency and The change in accounting is contrary to law laid down by Apex Court in the various cases that assessee has to follow consistently one method of accounting.

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The bench of Brajesh Kumar Singh (Accountant Member) and Madhumita Roy (Judicial Member) observed that “The change of method from IGAAP POCM to IndAS 18 POCM is mandated by MCA and there is no case of any arbitrary change of method. It is not a case of change of method by the assessee on its own volition but mandatory implementation of IndAS notified by MCA in terms of Section133 of Companies Act which is binding on the assessee. In these circumstances, the change of method is in conformity with statutory notification by MCA and decisions of Apex  Court. In fact, the assessee has followed the changed method consistently as per applicable guidelines and notified standards.”

Accordingly it upheld the deletion of an addition of Rs. 6000+ core.

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