Case Law Details
Aadarh Developers Vs ACIT (ITAT Rajkot)
Admittedly, the assessee is a developer and not a works contractor. Therefore, the revenue has to be recognized by the assessee as per accounting standard 11 issued by the ICAI and not as per the accounting standard 7 which is applicable to the contractor.
The accounting standard 11 says that the revenue should be recognized once the risk and the rewards are transferred to the prospective buyer. In the case on hand, the risk and reward is transferred upon the execution of the sale deed which is a vital piece of evidence to draw an inference that the property has transferred. The Hon’ble Gujarat High Court in the case of Commissioner of Income-tax Vs Shivalik Buildwell (P.) Ltd. reported in 40 taxman.com 219 has held as under:
If as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different stand and that too, without hearing the assessee.
In addition to the above, we are convinced with the argument of the learned counsel for the assessee that if any addition is made in the year under consideration, then it would lead to the double addition. It is because the assessee before us has claimed that it has offered income upon realization of hundred percent of amount of the sales in the later years. However we find that no finding has been given by the learned CIT with respect to the income which has already been taxed in the earlier years. Certainly, in the absence of such direction it would lead to the double addition in the hands of the assessee. Be that as it may be, the assessee has been following its method of accounting for recognizing the income consistently which has been accepted by the revenue and therefore based on the principle of consistency, the revenue cannot disturb the method adopted by the assessee particularly in a situation where the income of assessee has already been offered to tax in the later years. As such, there is no loss to the Revenue. In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT-A and direct the AO to delete he addition made by him.
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