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2020 (7) TMI 524 - AT - Income TaxRevision u/s 263 - Income recognition method - method accounting regularly employed by the appellant in recognizing the revenue from sale of residential flats which was submitted and considered during the assessment proceedings u/s.143(3) - whether assessee was duty bound to follow AS-7 for revenue recognition? - HELD THAT:- Assessee is a construction company engaged in the construction of flats/residential units on the land owned by it without any contract with the customers for construction of flats/residential units. It is ample clear that the assessee company is consistently following revenue recognition method by adopting completed project method, wherein, the revenue is recognised at the time of sale of flats/residential units by way of registered sale deed in favour of the customers and advance from customer and work in progress is recognised at cost in the balance sheet. Assessee has recognised revenue on two broad heads viz; sale of flats and sale of plots/land and amount of advance is transferred to the sales account when the registered sale deed is executed in favour of the customers adding the amount of advance pertaining to flats/residential units/plots sold during the relevant financial year and further adding the amount of advance received during the year. PCIT could not point out any defect in the revenue recognition method i.e. completed project method/percentage completion method adopted by the assessee and we are satisfied that the method consistently followed by the assessee and accepted by the department for recognition of revenue by following AS-2 alongwith AS-9 is a reasonable and right method for recognition of revenue on sale of flats/residential units/land. As per section 43CB the profits and gains of a construction company arising from construction contract or a contract for providing services shall be determined on the basis of percentage completion method and the same is mandatory for revenue recognition w.e.f. 1.4.2017 i.e. assessment year 2017-18 and this method of revenue recognition was not mandatory and compulsory to be followed for assessment year 2013-14. PCIT cannot revise or revisit the assessment order(s) by pressing into service the provisions of section 43CB of the Act in the present case. Findings arrived at by PCIT in the impugned order without any deliberation of explanation of the assessee explaining the method of accounting of revenue on account of sales and regarding non-applicability of AS-7 cannot be held as valid and sustainable without any further examination and exercise. PCIT cannot direct the AO for denovo assessment without assigning any defects or deficiencies in the method of accounting of revenue recognition on account of sale of flats/residential units/land and regarding non-applicability of AS-7 as contended by ld counsel for the assessee during the proceedings u/s 263. We are of the considered view that the revisionary order passed by the Ld. Pr. CIT is without jurisdiction - Decided in favour of assessee.
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