Pune Tribunal disapproves tax authority’s change in method from Project Completion to Percentage of Completion Method absent any finding of distortion in profit declared

In the case of S. S. Group^[1] (Taxpayer), the issue before the Pune Tribunal was whether the tax authority is justified in imposing Percentage of Completion Method (POCM) on the taxpayer to declare profits from real estate projects instead of Project Completion Method (PCM) adopted consistently by the Taxpayer. In the facts of the case, the tax authority disputed adoption of PCM in the relevant year followed consistently in the past, on the limited ground that the Taxpayer had, in the course of a search conducted at its premises admitted to follow POCM method for the relevant year. 

The Pune Tribunal allowed the Taxpayer’s appeal on the basis that, (i) Statement recorded of the Taxpayer and the statement as projected by the tax authority was incorrect since the Taxpayer had never admitted to following POCM for the relevant year, but had admitted to follow POCM only for the year subsequent to the relevant year; (ii) Tax authority itself had accepted PCM adopted by the Taxpayer in the immediately preceding years; (iii) There is no finding of the tax authority that the PCM adopted by the Taxpayer has resulted in any distortion or ambiguity in arriving at the profit; (iii) ICAI Guidance Note on Accounting for Real Estate Transactions (Revised 2012) allowed taxpayers to adopt any of the two methods and did not bind taxpayers to adopt POCM, (iv) Supreme Court ruling in case of CIT v. Bilahari Investment (P) Ltd. [[2008] 299 ITR 1] and Karnataka High Court ruling in case of CIT v. Prestige Estate Projects Pvt. Ltd. [[2020] TaxCorp (DT) 82901] had held that method of recognizing revenue could be substituted only in case where there was distortion of profit. 

[1]  TS-593-ITAT-2023 (Pune)