9911796707
TMI Blog2025 (3) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... tent with ICAI's AS-9 and the Guidance Note, both of which allow revenue recognition only upon sale deed execution and possession transfer. DR's contention that the assessee is a contractor is misplaced, as it fails to recognize the fundamental distinction between a contractor executing a construction project for a client and a real estate developer constructing and selling units on its own land. The assessee is not providing a service to a third party under a contractual obligation but is developing a project at its own risk and selling completed units to buyers. In contrast, a contractor undertakes construction for another party based on predetermined specifications. DR's assertion that Section 43CB of the Act does not differentiate between a real estate developer and a contractor is incorrect. The assessee's business model does not involve entering into construction contracts but rather the sale of completed units. The fact that the agreement specifies stage-wise payments does not convert the nature of the transaction into a construction contract. Advances received from customers are not "contract revenue" but part of the consideration for the ultimate sale of property. DR' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the customer advances of Rs. 28,30,86,301/- crore as revenue and computed the total taxable income at Rs. 4,01,23,650/-, making an addition of Rs. 2,08,61,570/-. 3. The assessee preferred an appeal before CIT(A), who deleted the addition, holding that: * The assessee is a real estate developer, not a construction contractor, and hence, Section 43CB of the Act does not apply. * The assessee followed AS-9 and the ICAI Guidance Note, which provide that revenue is recognized only when significant risks and rewards are transferred through a registered sale deed and possession handover. * The AO incorrectly applied PCM, which is applicable only to construction contractors and not to real estate developers. * The method of accounting followed by the assessee had been accepted in previous years (A.Y. 2015-16, 2017-18) and could not be arbitrarily changed. 4. Aggrieved by the order of CIT(A), the Revenue filed an appeal before us with the following ground of appeal: a) In the facts and on the circumstances of the case and in law, the Id. CIT(A)has erred in deleting the addition of Rs. 2,08,61,570/-, in view of provision of section 43CB of the Income Tax Act. 5. During the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same AO for the AY 2021-22 indicating that the AO has not raised any objection in the method of accounting adopted by the AO. 7.2. In support of its arguments, the AR placed reliance on multiple judicial precedents by way of written submission. These judicial precedents include: - Decision of Co-ordinate Bench in the case of ITO v. Shivalik Buildwell (P) Ltd. (ITA No. 1698/Ahd/2009, Order dated 05.08.2011), which was affirmed by the Hon'ble Gujarat High Court in the case of Shivalik Buildwell (P) Ltd. (40 Taxmann.com 219, 2013). The Bench held that real estate developers' profits arise only upon the transfer of title, and advances received from customers cannot be treated as trading receipts in the year of receipt. - Decision of Co-ordinate Bench in the case of Unity Construction v. ITO (ITA No. 1577/Ahd/2008, Order dated 28.07.2011), where it was held that once a revenue recognition method is accepted by the department in earlier years, it cannot be arbitrarily rejected in subsequent years. - Decision of Co-ordinate Bench in the case of DCIT v. Maxworth Infrastructure P. Ltd. (ITA No. 202/Del/2018, Order dated 21.10.2021), where the Bench held that the PCM, as applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units on its own land. The crucial distinction between a contractor and a developer lies in ownership of the land and the nature of contractual obligations. A contractor undertakes construction on behalf of another party under a contract and does not own the land on which construction takes place. The project belongs to the customer, and the contractor merely executes the work as per the terms of the agreement. A developer, in contrast, owns the land, undertakes the project at its own risk, and sells completed units to customers. The buyer does not engage the developer for "construction services" but purchases a completed asset from the developer. The transaction is one of sale of property, not a contractual construction assignment. 8.2. Since the assessee does not provide construction services to any third party under a contract, it does not fall within the ambit of Section 43CB of the Act, which is specifically designed to regulate the revenue recognition of contractors executing construction projects for clients rather than developers selling self-constructed properties. 8.3. The Accounting Standard (AS) applicable to a business further reinforces the distinction. AS-7 (Constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transaction into a construction contract. Advances received from customers are not "contract revenue" but part of the consideration for the ultimate sale of property. The DR's contention that the judicial precedents relied upon by the CIT(A) relate to periods before the introduction of Section 43CB of the Act and are therefore not applicable is flawed. The principle that real estate developers must recognize revenue upon the transfer of ownership and not on a percentage completion basis has been established through long-standing jurisprudence, which remains applicable even after the introduction of Section 43CB of the Act. 8.6. The judicial precedents relied upon by the assessee conclusively establish that revenue from real estate development is taxable only upon the transfer of title and possession. The principle of consistency must be followed. The Revenue had accepted the same method in earlier and subsequent assessment years, and there is no material change in facts warranting a deviation. 8.7. In view of the above, we find no infirmity in the order of the CIT(A), who rightly deleted the addition made by the AO. 9. Accordingly, the appeal of the Revenue is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
