SNN Spiritua Developer Vs DCIT (ITAT Bangalore)
The assessee filed two appeals before the Income Tax Appellate Tribunal Bangalore against separate orders of the Commissioner of Income Tax (Appeals) dated 27.02.2025 for Assessment Years (AY) 2019-20 and 2020-21. The appeals were heard together.
For AY 2019-20, the primary issue concerned the manner of revenue recognition under the Percentage Completion Method (PCM). The assessee, a partnership firm engaged in real estate development and part of the SNN group, had commenced a project named ‘SNN Raj Spiritua’. It originally filed its return declaring income of Rs. 1,49,35,860/-. Following a search and survey action under Sections 132 and 133A, documents were seized and notice under Section 153C was issued. The assessee did not file a return in response, and the Assessing Officer (AO) passed an order under Section 144.
The AO examined revenue recognition and observed that the assessee computed revenue under PCM only for areas covered by agreements. However, since the assessee could determine the total booked area, compute consideration receivable, and had received advances, the AO concluded that oral agreements existed. He recomputed revenue at Rs. 13,02,70,824 and made an addition of Rs. 11,73,94,617.
Before the CIT(A), the assessee argued that Accounting Standard 9 and the Guidance Note on Accounting for Real Estate Transactions issued by ICAI governed revenue recognition. Revenue could be recognized only when significant risks and rewards of ownership were transferred through legally enforceable agreements. Mere booking of flats with token advances did not constitute enforceable agreements. The CIT(A), however, upheld the AO’s action, holding that booking advances indicated a high degree of certainty of sale and could form a basis for revenue recognition.
