Halcrow Group Ltd. Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, adjudicated an appeal concerning an addition of ₹4,30,05,774 made by the Assessing Officer (AO) on account of change in the method of revenue recognition. The assessee, a UK-based company engaged in infrastructure planning, design, and management services, filed its return for AY 2013–14 declaring a loss. During the relevant year, it was executing the Kishanganga project in Jammu and Kashmir and recognized revenue using the percentage of completion method.
The dispute arose because the assessee changed its method of determining the stage of completion. Earlier, it used staff cost as the basis, but during the year, it shifted to total cost incurred as a percentage of estimated total cost, in line with Accounting Standard (AS) 7 issued by ICAI. This change was applied retrospectively, resulting in reversal of revenue amounting to ₹5,58,51,260 pertaining to earlier years, disclosed as a prior period item. Consequently, the profit for the year reduced by ₹4,30,05,774.
The AO treated this reduction as under-reported profit and made an addition of ₹4.30 crore, contending that the earlier method should have been followed. However, the assessee explained that the revised method ensured proper compliance with AS-7 and avoided distortions in profitability across years. It also pointed out that the reversal of earlier revenue had already been claimed as a deduction and accepted by the AO.
