ACIT Vs Sylvanus Builders and Developers Limited (ITAT Ahmedabad)
Ahmedabad ITAT: AO Cannot Recompute Project Profits Under POCM Without Rejecting Books; Completion Certificate Alone Does Not Mean 100% Project Completion
The Ahmedabad ITAT dismissed the Revenue’s appeals and held that the Assessing Officer cannot substitute the assessee’s consistently followed Percentage of Completion Method (POCM) with his own estimated computation of profits without rejecting the books of account under Section 145(3) or establishing suppression of revenue or inflation of expenditure. The Tribunal upheld the deletion of additions made for AYs 2020-21 and 2022-23.
The Assessing Officer alleged suppression of profits of ₹16.40 crore on the ground that the assessee, a real estate developer, had failed to recognise the entire project revenue after obtaining the Completion Certificate and handing over possession. According to the AO, the project should have been treated as 100% complete, warranting full recognition of revenue under POCM.
The Tribunal observed that the assessee had consistently followed POCM, which had been accepted by the Department in earlier years. It further held that a Completion Certificate issued by the local authority is not conclusive evidence that all contractual obligations of the developer stand completed, especially where substantial expenditure on amenities, infrastructure, finishing works and other commitments continues thereafter.
The Tribunal also noted that the Assessing Officer had neither pointed out any defect in the audited books of account nor rejected the books under Section 145(3). The addition was made merely by adopting an alternative computation of the percentage of completion. The reconciliation produced by the assessee demonstrated that the entire project revenue was ultimately recognised and offered to tax, and the alleged suppression arose only because the AO ignored post-completion expenditure, making it a mere timing difference in revenue recognition rather than suppression of income.
Holding that there was no evidence of suppressed receipts, inflated expenditure or defects in the books, the Tribunal ruled that the Assessing Officer was not justified in disturbing the assessee’s consistently followed method of accounting by an estimated recomputation of profits. Accordingly, it upheld the CIT(A)’s order deleting the additions and dismissed the Revenue’s appeals.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
These appeals have been filed by the Revenue against separate orders passed by Learned Commissioner of Income Tax (Appeals)-12, Ahmedabad [“CIT(A)” for short], both orders dated 24.02.2026, for the Assessment Years 2020-21 and 2022-23. Since the issues involved in both the appeals are common and identical, we extract the grounds of appeal raised in ITA No.1459/Ahd/2026 for Assessment Year 2020-21 for the purpose of adjudication. The decision rendered in the said appeal shall apply mutatis mutandis to the other appeal bearing ITA No. 1460/Ahd/2026 for Assessment Year 2022-23.
