Case Law Details
Cavalcade Properties Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Introduction: The case of Cavalcade Properties Pvt. Ltd. vs. DCIT (ITAT Mumbai) revolves around the contentious issue of revenue recognition concerning advances received against flat bookings. This article delves into the details of the case, the arguments presented, and the final verdict rendered by the Income Tax Appellate Tribunal (ITAT) Mumbai.
Detailed Analysis: The appeal filed by Cavalcade Properties Pvt. Ltd. contested the decision of the Commissioner of Income-tax (Appeals) regarding the treatment of advance amounts received for unexecuted and unregistered sale of flats. The crux of the matter lies in the method of revenue recognition, specifically the Percentage of Completion method (POCM) employed by the assessee.
While the assessee recognized revenue at the stage of 40% completion of the project, the Assessing Officer included advance receipts from flat bookings for revenue recognition. This discrepancy led to the addition of additional income by the Assessing Officer, a decision upheld by the Commissioner of Income-tax (Appeals).
However, upon further appeal, the ITAT scrutinized the matter and emphasized the importance of significant risk and reward transfer to the buyer for revenue recognition. Citing precedents and principles laid down by the Institute of Chartered Accountants of India (ICAI), the ITAT concluded that revenue should only be recognized when there is certainty of realization and transfer of significant risks and rewards to the buyer.
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