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Tax Publishers Revenue recognition - real estate business - pre-ICDS years *Facts:* Assessee was a real estate developer who were following completed contract method (CCM). Arising out of a search where no incriminating evidence was unearthed the AO chose to apply the percentage of completion method (POCM) and slapped additions. On appeal CIT(A) reversed the same accepting the grounds of the assessee that - 1. Both methods give the same result with time lag/stagger. 2. Assessee has been consistently following the CCM. 3. There was no incriminating evidence unearthed. 4. The CCM was also an acceptable method as per accounting standards/held judicial verdicts. On appeal by the revenue - Held against the revenue that the method of accounting followed by the assessee was consistent and acceptable. *Applied:* Commissioner of Income Tax v. Bilahari Investment P Ltd. (2008) 299 ITR 1 (SC) : 2008 TaxPub(DT) 1709 (SC) CIT-IV v. Shivalik Buildwell (P) Ltd. (2013) 40 taxmmann.com 219 (Gujarat) : 2017 TaxPub(DT) 0337 (Guj-HC) DCIT v. M/s Sabh Infrastructure Ltd. in [ITA 4572/Del/2009 and 2813/Del/2010, dt. 20-4-2012] Commissioner of Income Tax and Another v. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) : 2007 TaxPub(DT) 1249 (SC) Prestige Estate Projects (P.) Ltd. v. DCIT reported in (2010) 129 TTJ 680 (Bang) : 2010 TaxPub(DT) 0803 (Bang-Trib) PCIT v. Panchsheel Colonizers (P) Ltd. (2019) 111 taxmann.com 459 (Raj) : 2018 TaxPub(DT) 1544 (Raj-HC) *Dissented:* SLP granted against the Rajasthan HC decision of PCIT v. Panchsheel Colonizers (P) Ltd. (2019) 111 taxmann.com 460 (SC) : 2019 TaxPub(DT) 0974 (SC) i) No real income much less Accrual of Income - regard must be had to the substance of the transaction rather than to its mere form ii) That the completed contract method is a recognized method and is in accordance with Accounting Standard-9 issued by ICAL iii) That a method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping of accounts or of valuation iv) That method employed by assessee is 'Revenue Neutral'- It cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. v) That Guidance Note on Accounting for Real Estate Transactions (Revised 2012) duly recognizes application of AS-9 in respect of real estate developer also ICDS-III is not applicable in respect of real estate developer. vi) Income Computation and Disclosure standards' (ICDS) notified by Central Government in exercise of power under section 145(2) cannot override binding judicial precedents of provisions of Act or Rules framed thereunder. vii) Reliance on Accounting Standard-7 is misconceived. viii) That guidance note on recognition of revenue by real estate developers is not binding. *Ed. Note: The decision might not apply to post ICDS years where POCM has been made compulsory as per law. The issue nonetheless might see a final say by the SC in the SLP of Panchsheel. The fact that no incriminating evidence was unearthed itself would have quashed the proceedings but this was a case where multiple notices were issued not only under section 153A. Case:* DCIT v. Reliable Realtech (P) Ltd. 2024 TaxPub(DT) 826 (Del-Trib)

Tax Publishers

Revenue recognition - real estate business - pre-ICDS years

Facts:

Assessee was a real estate developer who were following completed contract method (CCM). Arising out of a search where no incriminating evidence was unearthed the AO chose to apply the percentage of completion method (POCM) and slapped additions. On appeal CIT(A) reversed the same accepting the grounds of the assessee that -

1. Both methods give the same result with time lag/stagger.

2. Assessee has been consistently following the CCM.

3. There was no incriminating evidence unearthed.

4. The CCM was also an acceptable method as per accounting standards/held judicial verdicts.

On appeal by the revenue -

Held against the revenue that the method of accounting followed by the assessee was consistent and acceptable.

Applied:

Commissioner of Income Tax v. Bilahari Investment P Ltd. (2008) 299 ITR 1 (SC) : 2008 TaxPub(DT) 1709 (SC)

CIT-IV v. Shivalik Buildwell (P) Ltd. (2013) 40 taxmmann.com 219 (Gujarat) : 2017 TaxPub(DT) 0337 (Guj-HC)

DCIT v. M/s Sabh Infrastructure Ltd. in [ITA 4572/Del/2009 and 2813/Del/2010, dt. 20-4-2012]

Commissioner of Income Tax and Another v. Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) : 2007 TaxPub(DT) 1249 (SC)

Prestige Estate Projects (P.) Ltd. v. DCIT reported in (2010) 129 TTJ 680 (Bang) : 2010 TaxPub(DT) 0803 (Bang-Trib)

PCIT v. Panchsheel Colonizers (P) Ltd. (2019) 111 taxmann.com 459 (Raj) : 2018 TaxPub(DT) 1544 (Raj-HC)

Dissented:

SLP granted against the Rajasthan HC decision of PCIT v. Panchsheel Colonizers (P) Ltd. (2019) 111 taxmann.com 460 (SC) : 2019 TaxPub(DT) 0974 (SC)

i) No real income much less Accrual of Income - regard must be had to the substance of the transaction rather than to its mere form

ii) That the completed contract method is a recognized method and is in accordance with Accounting Standard-9 issued by ICAL

iii) That a method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping of accounts or of valuation

iv) That method employed by assessee is 'Revenue Neutral'- It cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act.

v) That Guidance Note on Accounting for Real Estate Transactions (Revised 2012) duly recognizes application of AS-9 in respect of real estate developer also ICDS-III is not applicable in respect of real estate developer.

vi) Income Computation and Disclosure standards' (ICDS) notified by Central Government in exercise of power under section 145(2) cannot override binding judicial precedents of provisions of Act or Rules framed thereunder.

vii) Reliance on Accounting Standard-7 is misconceived.

viii) That guidance note on recognition of revenue by real estate developers is not binding.

Ed. Note: The decision might not apply to post ICDS years where POCM has been made compulsory as per law. The issue nonetheless might see a final say by the SC in the SLP of Panchsheel. The fact that no incriminating evidence was unearthed itself would have quashed the proceedings but this was a case where multiple notices were issued not only under section 153A.

Case: DCIT v. Reliable Realtech (P) Ltd. 2024 TaxPub(DT) 826 (Del-Trib)