Deduction u/s 80-IB(10) can’t be denied merely because Assessee uses “Project completion method”

AO denied deduction u/s 80-IB(10) only on the ground that assessee engaged in business of construction had adopted ‘Project completion method’ instead of ‘Percentage completion method’ as prescribed under AS-7 (Revised). The Honorable High Court observed that there was no allegation to the effect that on account of “Project completion method” adopted by the assessee, its profit for any particular year was distorted. Further, the assessee had followed the same system consistently for a long period of time. It was thus held that assessee must be allowed deduction u/s 80-IB(10).

HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No.1389 of 2011

COMMISSIONER OF INCOME TAX
Versus
SATADHAR ENTERPRISES

Date : 23/10/2012

ORAL ORDER
(Per : HONORABLE MR. JUSTICE AKIL KURESHI)

1. The assessee is in appeal against the judgment of the Income Tax Appellate Tribunal (‘the Tribunal’, for short) dated 27-5-2011. For the assessment year 2003-04, following question is presented for our consideration:-

“Whether the Appellate Tribunal is right in law and on facts in deleting the dis allowance of Rs.28,84,378/- made by the Assessing Officer by adopting the ‘Percentage Completion Method’ instead of ‘Project Completion Method’ declared by the assessee, without considering the fact that every assessee, engaged in the construction business has to follow Percentage Completion Method, as per AS-7 [Revised]?”

2. From the record, we notice that the respondent assessee is engaged in the business of construction. It had undertaken construction of housing project at an estimated cost of Rs.7,41,60,000/-. On the income derived from such project, it claimed deduction under section 80IB(10) of the Income Tax Act, 1961 (‘the Act’, for short). The revenue in this appeal objects to such claim only on the ground that the assessee had adopted the ‘Project Completion Method’. The Assessing Officer was of the opinion that the assessee ought to have adopted ‘Percentage Completion Method’. Ultimately, when the issue reached the Tribunal, the Tribunal followed decisions of other Tribunals and also referred to the decision of the Apex Court in case of Commissioner of Income-Tax vs. Bilahari Investment P. Ltd. reported in (2008) 299 ITR 1 to hold that recognition of income is attainable by several methods of accounting. The Tribunal observed that Completed Construction Method is one such accounting method as much as the Percentage Completion Method. The Tribunal recorded that there was no finding of the Assessing Officer that the completed construction method adopted by the assessee distorted the profits for any year. The assessee had followed the same method of accounting year after year.3. We are of the opinion that the Tribunal committed no error. Completed Construction Method is one of the recognized methods for accounting particularly adopted in construction business. The Apex Court in case of Bilahari Investment P. Ltd. (supra) in the background of the assessee being a company subscribing to chit funds as a business activity held and observed that