2011 (12) TMI 595 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Assessing Officer is correct in making the addition of various amounts to the profits declared by the assessee by changing the project completion method of accounting to percentage completion method.

Summary:

Issue 1: Addition of Amounts by Changing Accounting Method

The revenue appealed against the CIT(A)'s order, questioning the Assessing Officer's (AO) decision to add various amounts to the assessee's profits by switching from the project completion method to the percentage completion method. The assessee, a real estate developer, declared an income of Rs. 11,79,81,345/- for AY 2007-08. The AO added Rs. 15,67,33,801/- for Saraswati and Rakhi Project, Rs. 12,81,15,367/- for Golden Willows Project, and Rs. 33,21,57,324/- for Beau Monde Project, based on AS 7 and 9 standards and advances received.

The CIT(A) deleted these additions, noting the assessee's consistent use of the project completion method since AY 2000-01, which the AO had accepted in previous and subsequent years. The assessee argued that income was declared upon project completion, with specific project details provided for Saraswati & Rakhi, Golden Willows, and Beau Monde projects, showing delays due to legal issues and completion timelines.

The Tribunal observed that the AO's method of adding amounts was inconsistent and incorrect, as it did not uniformly apply the percentage completion method. The AO's approach ignored project costs and did not justify treating advances as income. The Tribunal upheld the CIT(A)'s decision, emphasizing that the project completion method is a recognized accounting method, consistently followed by the assessee and accepted by the Revenue. The Tribunal also noted that the AO failed to demonstrate any distortion of profits due to the assessee's method.

The Tribunal referenced legal principles, including the Supreme Court's ruling in CIT vs. Bilahari Investment (P) Ltd 299 ITR 1, which supports an assessee's right to follow a consistent accounting method unless it distorts profits. The Tribunal found no reason to disturb the assessee's method and dismissed the Revenue's appeal and the cross-objection as academic.

Conclusion:

The Tribunal upheld the CIT(A)'s order, rejecting the Revenue's grounds and maintaining the assessee's consistent use of the project completion method. The cross-objection was dismissed as academic. The order was pronounced on 16th December 2011.