The Rajkot bench of the Income Tax Appeal Tribunal (ITAT) held that a change in the method of treatment of income would lead to double taxation if the amount of the consideration for the sale was taxed once.
The assessee was represented by Shri Kamal Bhambhani and the respondent was represented by Shri BD Gupta.
The appraised is a partnership engaged in the field of real estate development. The AO observed that the assessee recorded the sales in his books of account when signing the deed of sale of the property and recognized the income relating to the properties in the accounts even though the assessee had not recorded sales in the books of accounts.
The AO was not satisfied with the method adopted by the assessee to show the sales and revenue recognition and calculated the gross profit ratio at the rate of 15.50, which equates to Rs. 46,69,823.00 only . The AO added the sum of Rs. 66,983.00 to the assessee’s total income.
The assessee argued that if an add-on was maintained in the relevant year, it will result in a double-add-on, because the assessee offered income upon achieving one hundred percent of the amount of sales during the later years.
It was considered that the assessee is a promoter and not a works contractor and that the income should be accounted for according to accounting standard 11 issued by the ICAI and not according to accounting standard 7 which applies to the contractor.
The Tribunal observed that the CIT had not considered income that had already been taxed in previous years and that in the absence of such an instruction would lead to double addition in the hands of the assessee . Further observed that the assessee has followed the revenue recognition method consistently which has been accepted by revenue and that revenue cannot intervene to change the method adopted by the assessee when the assessee’s income has already been imposed in the last years.
Accounting Member Shri Waseem Ahmed and Judicial Member Shri Siddhartha Nautiyal rescinded the order made by CIT-A and ordered the AO to remove the addition. The assessee’s appeal was allowed.
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