ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE - 2(4), AHMEDABAD, AHMEDABAD vs. PACIFICA INDIA PROJECTS PRIVATE LIMITED, AHMEDABAD

The Revenue raised the following grounds of appeals:-

The brief facts of the case are that the assessee is engaged in the business of Real Estate Development and follows the Percentage of Completion Method (POCM) for recognition of Revenue from its project. For the A.Y. 2020-21, the assessee filed its return of income declaring total income of Rs.71,08,720/-. A search action u/s 132 of the Act was conducted in the Pacifica Group, including the assessee company, on 20.03.2023. During the course of assessment proceeding, the Assessing Officer examined the Revenue recognition adopted by the assessee in respect of its projects and observed that despite issuance of Completion Certificate and handing over of possession to buyers, the assessee had not recognized the entire project revenue. The Assessing Officer held that the assessee had incorrectly applied POCM by carrying

Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) contending that the addition was based on assumptions without any evidence of suppression of sales or undisclosed income. Before the Ld. CIT(A), the assessee also reiterated that it had consistently followed POCM, that the Completion Certificate did not signify completion of all contractual obligations, and that substantial project expenditure continued to be incurred after issuance of the Completion Certificate also.

The Ld. CIT(A), after considering the submissions and material on record, held that the Assessing Officer was not justified in treating the Completion Certificate as conclusive evidence of 100% completion of the project. The CIT(A) further observed that no defect was pointed out in the books of accounts, no rejection u/s 145(3) was made and no evidence of suppression of revenue was brought on record. Accordingly, the addition of Rs.3,52,12,602/- was deleted by CIT(A).

Aggrieved by the order of the Ld. CIT(A) deleting the addition, the Revenue is in appeal before the Tribunal.

Before us, the Ld. DR supported the order passed by the Assessing Officer and submitted that the assessee had not correctly applied the POCM in respect of the project. The Ld. DR

The Ld. AR, on the other hand, submitted that impugned addition made by the Assessing Officer was based on an erroneous re-computation of revenue under POCM and was not supported by any incriminating material found during the course of search proceedings. The Ld. AR argued that the assessee consistently followed PCOM, which had been accepted by the Department in the earlier years. The Assessing Officer had neither pointed out any defects in the audited books of account nor rejected the books u/s 145(3) of the Act before making an estimated re-computation of profit. The Ld. AR further contended that the Assessing Officer had incorrectly assumed that issuance of Completion Certificate resulted in 100% completion of the project. It was further submitted that the Assessing Officer erred in adopting a fixed estimated project cost without considering revised estimates and actual subsequent project expenditure as required under ICDS-III. The addition was, therefore, only due to an incorrect timing adjustment and not due to any suppression of revenue. The Ld. AR also submitted that no evidence of undisclosed sales, unaccounted receipts, unexplained assets or bogus expenditure was found during the search. The alleged suppression was based only on an alternative working prepared by the Assessing Officer.

The Ld. AR further submitted that the reconciliation was filed showing that the total revenue recognized by the assessee over the project period exceeded the revenue considered by the Department and that the alleged suppression of profit arose only because post-completion certificate expenditure was ignored while recomputing the project results. Accordingly, the Ld. AR submitted that the appeal of the Revenue deserves to be dismissed.

We have considered the rival submissions and perused the material available on record. The dispute relates to addition made by the AO by recomputing project profit under the POCM on the basis that, after issuance of the Completion Certificate, the assessee ought to have recognized 100% revenue of the project. The assessee has consistently followed POCM for recognition of revenue which has been accepted in the earlier years is an admitted fact. Further, the Assessing Officer has not pointed out any defects in the books of accounts nor rejected the books of accounts u/s 145(3) of the Act. It is also evident that search in assessee’s case did not yield any evidence of unrecorded cash or hidden assets. All project income is accounted for through bank channels and eventually taxed over the projects duration. The addition has been made merely by adopting an alternative working and revising the percentage of completion. Further, the Completion Certificate issued by the

Further, we have gone through the details of areas of flat sold, total value of the sale, revenue recognized, proportionate costs incurred for the sold area, profit earned, profit already considered in the earlier years, profit for the year and the closing work in progress. The details demonstrated that against the aggregate project value of 345.44 Crores determined by the Revenue, the assessee has actually recognized the aggregate value of Rs.349.70 Crores. These amounts have been collated with P&L account over the period of time. This establishes that the entire project revenue has been duly recognized and offered to tax by the assessee. The Revenue has also alleged suppression of profit, closing the entire expenditure till the date of receipt of Completion Certificate disregarding the fact that after receipt of Completion Certificate, the assessee had incurred substantial expenditure on account of common amenities, project obligation, infrastructure facilities, finishing work and other contractual commitments. Hence, it can be held that the entire project revenue has been duly recognized and offered to tax by the assessee. In the absence of any finding of suppression of revenue, inflation of expenditure or defect in the regularly maintained books of accounts, the AO was not justified in substituting the assessee’s consistently followed method of accounting by an estimated computation. Accordingly, we find no infirmity with the order of the Ld. CIT(A) deleting the addition. The order of the Ld. CIT(A) is upheld and grounds raised by the Revenue are dismissed.

In the result, the appeal for A.Y. 2020-21 in ITA No.2335/Ahd/2026 is dismissed.

In the combined result, all the appeals are dismissed.