Devona Constructions Limited Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, disposed of cross-appeals filed by the assessee and the Revenue for Assessment Year 2021-22 arising from the order of the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, engaged in the business of real estate construction, had declared a loss, but the Assessing Officer (AO) made several additions, including estimation of profit on work-in-progress (WIP), disallowance of interest expenditure under Section 36(1)(iii), addition under Section 41(1) for alleged cessation of liability, and disallowance of provisions for prior-period expenses.
In the assessee’s appeal, the principal issue concerned the AO’s estimation of profit by applying an 8% profit rate on work-in-progress on the ground that the assessee had received substantial advances but recognized only nominal revenue during the year. The AO held that the assessee ought to have followed the Percentage of Completion Method (POCM), whereas the assessee contended that it consistently followed its method of recognizing revenue when work was approved by the customer. It also pointed out that the same method had been accepted by the Department in earlier and subsequent assessment years under scrutiny assessments, and that revenue arising from the same projects had been taxed in those years. The Tribunal observed that the assessee had consistently followed the same accounting method, which had been accepted by the Revenue in preceding and subsequent years. It further noted that the AO neither rejected the books of account nor invoked Section 145(3) before estimating income. Applying the principle of consistency, the Tribunal held that the Revenue could not change the method of revenue recognition only for the year under appeal while accepting it in other years. Accordingly, it deleted the addition of ₹3.31 crore made by estimating profit on work-in-progress and allowed the assessee’s appeal.
