Booking of Flats Without Agreement Can’t Trigger PCM Revenue | ITAT

Case Details: SNN Spiritua Developer vs. Deputy Commissioner of Income-tax - [2026] 183 taxmann.com 43 (Bangalore-Trib.)

Judiciary and Counsel Details

• Soundararajan K., Judicial Member & Waseem Ahmed, Accountant Member
• Ramakrishna Kamat, CA for the Appellant.
• Muthu Shankar, CIT (DR) for the Respondent.

Facts of the Case

The assessee was a partnership firm and a sister concern of the SNN group, which was engaged in the real estate business. The assessee filed its return of income for the relevant assessment year, reporting income to tax of Rs. 1,49,35,860.

A search and seizure action under section 132 was carried out in the case of some entities, including the assessee. In response to the notice issued under section 153C, the assessee failed to file a return of income. Consequently, the Assessing Officer (AO) passed an order under section 144 and computed the income by rejecting the assessee’s revenue recognition method.

The matter reached the Bangalore Tribunal.

ITAT Held

The Tribunal held that it was not in dispute that the assessee follows Accounting Standard 9 issued by ICAI read with the Guidance Note on Accounting for Real Estate Transactions. As per the said standard and guidance note, revenue can be recognised only when all significant risks and rewards of ownership are transferred. Such transfer is to be examined with reference to legally enforceable agreements and not merely on the basis of bookings or receipt of advances.

In the instant case, certain flats were merely booked during the year by receipt of token advances, and agreements for sale in respect of those flats were executed only in subsequent years. Mere booking of flats, without execution of a written and enforceable agreement, does not result in the transfer of significant risks and rewards. Therefore, the same cannot form the basis for recognising revenue under the Percentage Completion Method (PCM).

Further, paragraph 5.3 of the Guidance Note mandates that at least 10 per cent of the agreement value as per legally enforceable documents must be realised at the reporting date in respect of each flat. The assessee furnished a separate table showing flats that the AO included for revenue recognition, even though the amount realised as of the reporting date was less than the prescribed 10 per cent of the agreement value. These facts have not been disputed by the Revenue.

The AO’s approach of treating booking advances as equivalent to contracts merely because the booked area and consideration could be identified is not in accordance with the Guidance Note. The ability to estimate consideration or receipt of advances cannot substitute the mandatory requirement of a legally enforceable agreement or fulfil the specific conditions prescribed for revenue recognition.