ITAT deleted addition as the method of accounting had been accepted by the department in earlier years and the entire exercise was revenue neutral
In a recent judgment, ITAT Delhi deleted addition made as the method of accounting had been accepted by the department in earlier years and the entire exercise was revenue neutral as the total amount had been brought to tax in the following assessment year.
ABCAUS Case Law Citation:
5055 (2026) (02) abcaus.in ITAT
The appellant assessee was engaged in the business of real estate and declared income from various, projects following ‘Percentage Completion Method’. During scrutiny proceedings, the AO observed that in the method followed by the assessee, the revenue was accounted for when at least 30% of the total consideration had been received. However, the method of accounting mentioned in the Audit Report was Mercantile System.
Accordingly, the AO held that the assessee was neither following percentage completion method nor any other recognized method which was in tune with the mercantile system of accounting. He, therefore, proposed to make an addition after computing the agreed sale consideration in respect of 5 properties which was not reflected in the sales during the year and issued a show cause notice.
The AO rejected the assessee’s contention that she had been consistently following the same method for earlier years also, and completed the assessment after making the said addition.
The CIT(A) held that the impugned additions were rightly made by the AO and dismissed the appeal.
Before Tribunal it was vehemently argued that the AO could not have disregarded the accounting policies consistently followed by the assessee over the years which have also been accepted by the department in preceding and succeeding years after scrutiny. It was further submitted the AO was not justified in making the impugned addition without rejecting the books of accounts. Further reliance had been placed by the AR on several decision of the Hon’ble Apex Court in support of his contentions.
The Tribunal observed that the assessee’s method of accounting had been accepted by the department in earlier years and even after scrutiny, no addition had been made on this account in any of the earlier years as is evident from the chart submitted by the assessee. Further, the entire exercise was revenue neutral as the total amount had been brought to tax in the following assessment year.
Accordingly, the addition was deleted.
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