Project Completion Method vs. Percentage Completion Method

Scope of limited Scrutiny

KEY Observations:
Observations of the Hon. ITAT

1. The order of the AO was held as erroneous so far as prejudicial to the interest of the revenue on the ground that the AO has not examined applicability of the Percentage Completion Method.

2. It is pertinent to note that the method of accounting was not subject matter of limited scrutiny taken up through CASS.

3. The Percentage Completion Method has been made compulsory for the real estate business vide amendment by Finance Act 2018 whereby section 43CB was introduced w.e.f. 01.04.2017.

4. Prior to the said amendment it was not mandatory for the real estate business to apply Percentage Completion Method as for the year under consideration the newly inserted section 43CB was not applicable.

5. Another question arises is whether the AO can go beyond the subject matter of limited scrutiny while passing the assessment order. The answer to this question is certainly not without converting the limited scrutiny into complete scrutiny. Therefore, in case the AO proceeded within the scope of limited scrutiny and not taken up any issue beyond the scope of limited scrutiny the same cannot be held to be erroneous for lack of inquiry.

6. The scope of limited scrutiny has been explained by the CBDT and it was advised to the assessing officers not to travel beyond the jurisdiction while making assessment of limited scrutiny cases.

7. Thus, it is not open to the AO take up any issue which is not subject matter of the limited scrutiny until and unless the limited scrutiny is controverted into complete scrutiny. Hence not conducting an inquiry on the issue beyond subject matter of limited scrutiny would not be considered as lack of inquiry on the part of the AO so as to render the order of the AO erroneous so far as prejudicial to the interest of revenue.

8. Even otherwise the Project Completion Method of accounting is well recognized and accepted method and if the assesse is following this method regularly and consistently then the revenue cannot force the assessee to adopt different method not mandated by statute.

9. Therefore, when the assesse is consistently following the Project Completion Method which is not prohibited by law the acceptance of the same by the AO cannot be held as erroneous decision on the part of the AO and consequently the Pr. CIT cannot invoke the provisions of section 263 of the Act on a claim which is bona fide and a possible view not
prohibited by law.

10. Therefore the impugned order passed u/s 263 of the Act is not sustainable in law and liable to be set aside.