Case Law Details
Soham Buildcon Vs PCIT (ITAT Ahmedabad)
Introduction: The case of Soham Buildcon vs PCIT-3 (ITAT Ahmedabad) revolves around an appeal filed by the assessee challenging the order of the Principal Commissioner of Income Tax-3, Ahmedabad. The latter passed a directive under section 263, deeming the assessment order for the assessment year 2016-17 as erroneous and prejudicial to the interest of the revenue. This article provides a detailed analysis of the proceedings and the final ruling by the Ahmedabad ITAT.
Detailed Analysis: The crux of the issue lies in the method of revenue recognition employed by the assessee, a partnership firm engaged in real estate construction. The learned PCIT contended that revenue should have been recognized based on the percentage completion method, as per accounting standard 7 issued by the ICAI. However, the assessment order accepted the returned income without proper inquiry into the method of revenue recognition and the valuation of closing stock.
The Ahmedabad ITAT examined the provisions of section 263 of the Act, emphasizing the twin conditions that must be satisfied for its invocation: the order must be both erroneous and prejudicial to the interests of the revenue. While the PCIT argued that the AO’s failure to verify the method of revenue recognition rendered the assessment order erroneous, the ITAT found no prejudice to the revenue due to the method adopted by the assessee.
Furthermore, the ITAT drew support from legal precedents, highlighting the difference between the completed contract method and the percentage completion method. It emphasized that under the completed contract method, revenue is recognized only upon completion of the contract, whereas the percentage completion method allows for periodic recognition based on the stage of completion.
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