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TMI Blog2025 (3) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... 08,61,570/- made by the Assessing Officer [hereinafter referred to as "AO"] under Section 43CB of the Income Tax Act, 1961 [hereinafter referred to as "the Act"] by applying the Percentage Completion Method ("PCM") for revenue recognition. Facts of the Case: 2. The assessee, Aaryan Buildspace LLP, engaged in the business of real estate development, filed its return of income for AY 2018-19, declaring a total income of Rs. 1,92,62,080/-. The case was selected for scrutiny, and notices under Section 143(2) and Section 142(1) of the Act were issued. The assessee was developing a real estate project named "ARYAN OPULENCE" on its own land and followed Accounting Standard-9 ("AS-9") and the ICAI Guidance Note on Real Estate Transactions (2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 course of hearing before us, the Departmental Representative (DR) contended that the assessee had entered into an agreement of sale specifying stage-wise payments, which made it a "construction contractor" rather than a real estate developer. The DR further contended that section 43CB of the Act does not distinguish between different classes of contractors and hence applies to both construction contractors and real estate developers acting as contractors. The DR also stated that since advances were received and substantial work was completed, PCM should be applied, and the AO was justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the department had accepted this method in earlier assessments for AYs 2015-16, 2017-18, and 2019-20. There was no change in facts or circumstances in the current year that would justify a deviation from the established accounting method. The AR placed on record the copy of assessment orders passed by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43CB of the Act and its placement within the framework of the Act clarify that it governs income recognition for contractors undertaking construction projects for clients, not for developers executing real estate projects on their own account. Section 43CB of the Act was introduced through the Finance Act, 2018, with retrospective application from 01.04.2017, to regulate the computation of income from construction contracts and contracts for providing services. The section explicitly mandates that profits and gains from a "construction contract" or "contract for services" must be determined on the basis of the PCM in accordance with the Income Computation and Disclosure Standards (ICDS). The phrase "construction contract" is critical t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 (Construction Contracts) applies only to construction contracts where revenue is recognized based on project milestones and the Percentage Completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers. In contrast, a contractor undertakes construction for another party based on predetermined specifications. The DR's assertion that Section 43CB of the Act does not differentiate between a real estate developer and a contractor is incorrect. A careful reading of Section 43CB of the Act makes it evident that it applies exclusively to "construction contracts" and "contracts for providing services"-terms that inherently require the existence of a contractual obligation between the service provider (contractor) and the recipient (client). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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