The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) remanded the matter because neither the Assessing Officer (AO) nor the Commissioner of Income Tax (Appeals) [CIT(A)] had accurately computed the taxpayer’s income under the Percentage Completion Method (PCM).
MBM Developers, the assessee, a real estate partnership firm, filed its income tax return for the Assessment Year 2018-19, declaring an income of Rs. 1,24,12,640. The case was selected for scrutiny due to the high closing stock in the real estate business.
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During the assessment, the AO observed discrepancies in the firm’s application of PCM for revenue recognition and added Rs. 2,92,12,520 to taxable income, alleging an under-reporting of income due to improper allocation of expenses. The AO determined that the firm had recognized excess expenditure, reducing taxable income.
Recomputing the firm’s taxable income for two projects MBM Rohith Residency and MBM Green Woods by proportionally adjusting expenses based on total project costs and sales, the AO concluded that the taxable income should be Rs. 4,16,25,160. The CIT(A) upheld the AO’s decision, stating that the assessee failed to submit additional evidence under Rule 46A and did not substantiate its revenue and expense calculations.
On appeal before the ITAT, the assessee argued that the AO’s methodology led to double taxation, as it included income already declared in prior years. The assessee argued that its revenue recognition method had been previously accepted by tax authorities, citing the Supreme Court ruling in Radhasaomi Satsang v. CIT, 193 ITR 321 (SC).
The assessee claimed that it had already offered a higher income of Rs. 32,68,467 and that the AO’s calculation errors led to an exaggerated tax liability.
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The two-member bench comprising Prashant Maharishi (Vice President) and Soundararajan K. (Judicial Member) found that both the AO and CIT(A) failed to compute taxable income accurately, the AO’s calculations lacked transparency and clarity, the assessee did not provide sufficient project-wise financial details, and the audited accounts failed to disclose revenue recognition policies and expense breakdowns.
The tribunal directed the assessee to submit fresh documentation, including details on total saleable area, actual sales, total estimated project costs, and precise allocation of expenses. It also ruled that partner remuneration and interest expenses must be allowed in the correct assessment year. The tribunal remanded the matter back to the AO, directing a fresh assessment after proper verification of evidence. The appeal was allowed for statistical purposes.
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