Change in Method of Treating Income would lead to Double Taxation if the Sales Consideration amount was Taxed once: ITAT [Read Order]

The Rajkot bench of the Income Tax Appellate Tribunal ( ITAT ) has held that a change in the method of treating income would lead to double taxation if the sales consideration amount was taxed once.

The assessee was represented by Shri Kamal Bhambhani and the respondent was represented by Shri B.D. Gupta.

The assessee is a partnership firm engaged in the business of real estate development. The AO observed that the assessee was recognizing the sales in its books of accounts upon the execution of the sale deed of the propertywas recognizing the income in respect of properties in the accounts though the assessee has not recognized the sales in the books of accounts. 

The AO was not satisfied with the method adopted by the assessee for showing the sales and recognition of the income and worked out the gross profit ratio at the rate of 15.50 which amounting to Rs. 46,69,823.00 only. The AO added the sum of Rs. 66,983.00 to the total income of the assessee. 

The assessee contended that if any addition was sustained in the year under consideration, the same shall lead to the double addition, as the assessee has offered income upon realization of a hundred per cent of the amount of the sales in the later years.

It was viewed that the assessee is a developer and not a works contractor and the revenue have to be recognized as per accounting standard 11 issued by the ICAI and not as per accounting standard 7 which applied to the contractor. 

The Tribunal observed that the CIT failed to look into the income which has already been taxed in the earlier years and in the absence of such direction it would lead to the double addition in the hands of the assessee. Further observed that the assessee has been following the method of accounting for recognizing the income consistently which has been accepted by the revenue and the revenue cannot interfere to change the method adopted by the assessee when the income of the assessee has already been taxed in the later years.

Shri Waseem Ahmed, accountant member and Shri Siddhartha Nautiyal, judicial memberset aside the order passed by CIT-A and directed the AO to delete the addition.The appeal of the assessee was allowed.

Support our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.