AS-7 not applicable to a developer, revenue not to be recognised on POCM method

In the facts of the case, the assessee was engaged in the business of construction of civil work and road construction. As per AO's view, as the assessee was not following percentage completion method ("POCM") as required by AS-7, the revenue against work-in-progress has escaped tax. However, the assessee claimed that in this project he acted as a developer, as he was only developing the complex on behalf of the corporation but was not authorized to sell the shops of the complex without its approval. Therefore, AS-7 is not applicable in his case, thus, it could not recognize revenue on the basis of POCM. However, it followed the standard which is otherwise meant for revenue recognition i.e. AS-9.

The ITAT held that where the assessee acts as a developer, revenue can reasonably be recognized as per AS-9 and not as per AS-7. Thus, when the amount received as an advance, which has not reached certainty, the same shouldn't be charged to tax on the basis of POCM method - ACIT/DCIT v. NATIONAL BUILDERS [2012] 22 taxmann.com 55 (Ahmedabad - ITAT)