Case Law Details
Unique Enterprises Vs ITO (ITAT Mumbai)
Revised Accounting Standard 7- ‘Construction Contract’ is applicable to only contractors and not to builders and real estate consultants. Accordingly, the Project Completion Method consistently followed by the taxpayer for recognising revenue in the books of accounts cannot be regarded as an unreasonable.
Recently, the Mumbai bench of the Income-tax Appellate Tribunal (the Tribunal) has held that the Accounting Standard (AS) 7 – ‘Construction Contract’ (revised) issued by the Institute of Chartered Accountants of India (ICAI) is applicable only to contractors and not to builders and real estate developers. Accordingly, the Project Completion Method followed by the taxpayer for recognising revenue in the books of accounts cannot be regarded as an unreasonable. Further, the tax department cannot change the method of accounting as any change would be a tax neutral.
Background:- The ICAI issued Accounting Standard (AS) 7 – ‘Construction Contract’ in the year 1983 which was later on revised in the year 2002. The AS 7 laid down the principles of accounting for ‘construction contracts’ in the financial statements of the Contractors. As per the revised AS 7 the accounting was to be done as per percentage/ progressive completion method.
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nice and very useful