Rule of consistency Prevails: ITAT Rules Percentage completion cannot be forced when Taxpayer follows Project Completion Method [Read Order]

The Guwahati Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeal and ruled that the revenue cannot shift a taxpayer from the Project Completion Method to the Percentage Completion Method if the former has been followed consistently and the income is offered to tax.

M/s S.R.K.M Steels (P) Ltd. (assessee), a real estate developer, filed a return for Assessment Year 2015-16 declaring an income of ₹1,13,010. The Assessing Officer (AO) observed that the assessee had incurred over 38% of the estimated project cost but had not recognized revenue for the year.

The AO contended that since the area of flats sold exceeded the 25% threshold limit specified in ICAI guidelines, the assessee was required to recognize revenue under the Percentage Completion Method. The AO made an addition of ₹2,23,94,373 to the assessee's income.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of the Income Tax (appeals) [CIT(A)]. The CIT(A) granted relief to the assessee. Aggrieved by the CIT(A)’s relief to the assessee, the revenue filed appeal before the ITAT.

The counsel for the assessee argued that the assessee consistently followed the Project Completion Method. It was argued that the AO misinterpreted allotment letters as legally enforceable "agreements to sell" and that the income in question was already offered to tax in Assessment Years 2016-17 and 2017-18 upon project completion.

The Bench, comprising Rajesh Kumar (Accountant Member) and Manomohan Das (Judicial Member) observed that the assessee had already paid approximately ₹90 lakhs in tax on this revenue in subsequent years. The bench noted that restoring the AO's addition would tax the same income twice.

Following the Supreme Court's ratio in Radhasoami Satsang vs. CIT and CIT vs. Excel Industries Ltd, the tribunal noted that the revenue cannot change its stance across different years if the fundamental facts remain the same.

It also held that the AO failed to prove that the "twin conditions" of AS-7/AS-9 (25% area sold and 10% realization) were actually met, as many transactions involved mere advances or allotment letters rather than legally enforceable contracts.

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