Contract Revenue Recognition -- Real income

Facts: Assessee, a contractor had raised various disputed claims on government contracts for Rs 29.80 crores. Since recovery of these were based on government considering these claims or via arbitration; a debit was also made in books as "claims not acknowledged by customers" for Rs. 29.80 crores. AO disallowed this contra expense thus taxing the Rs. 29.80 as income. CIT(A) reversed the same citing absence of real income principle + basing ICDs. On higher appeal by revenue -

Held against the revenue that if income is only notional/hypothetical then it cannot be taxed.

Paragraphs 9 and 11 of ICDS III Contract accounting --

"9. Contract revenue shall be recognized when there is reasonable certainty of its ultimate collection".

"11. Where contract revenue already recognized as income is subsequently written off in the books of accounts as uncollectible, the same shall be recognised as an expense and not as an adjustment of the amount of contract revenue."

Paragraph 5 of ICDS IV Revenue Recognition -- "5. Where the ability of assessee to the ultimate collection with reasonable certainty is lacking at the time of raising any claim for escalation of price and export incentives, revenue recognition in respect of such claim shall be postponed to the extent of uncertainty involved".

Case: DCIT v. Section T. Constructions (P) Ltd. 2023 TaxPub(DT) 450 (Del-Trib)