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a. CIT vs. Hill View Infrastructure Pvt. Ltd. [81 taxmann.com 58 (P&H)] b. CIT vs. Varun Developers [126 taxmann.com 235 (Kar)]

14. So far as the decision of the Mumbai Bench of the Tribunal in the case of Trident Estate Pvt. Ltd. relied on by the CIT(A) / NFAC is concerned, he submitted that the said case relates to assessment year 2014-15 where the assessee was following the project completion method. The Tribunal accepted the contention of the assessee and held that the project completion method or completed contract method is a recognized method and there is no requirement to determine the income as per percentage completion method. In that context as a general remark, the Tribunal observed that the provisions of section 43CB of the Act are applicable w.e.f. assessment year 2017-18. He submitted that the issue whether the provisions of section 43CB of the Act and ICDS III are applicable to construction contract and not to real estate developers was not the issue before the Tribunal. Therefore, the said decision relied on by the CIT(A) / NFAC is not applicable to the facts of the present case.

Different approaches were regularly followed by real estate developers. Both methods i.e. Percentage Completion Method and Project Completion method which were regularly followed by assessee were recognized by various Courts. To overcome this confusion and avoid further litigations the CBDT introduced ICDS w.e.f 1.4.2017.

2. Income Computation & Disclosure Standards ("ICDS") has been notified and it was applicable for computation of income for A.Y. 2017-18 and onwards. As per the ICDS, business income from construction contracts and service contract in specified cases shall be computed on the basis of percentage completion method. However, said action of the government by making percentage completion method compulsory for recognition of revenue was squashed by Hon'ble Delhi High Court in Chamber of Tax Consultants v. UOI [2017] 87 taxmann.com 92/[2018] 252 Taxman 77/[2018] 400 ITR 178 (Delhi). To overcome the said judgment of Hon'ble Delhi High Court, Section 43CB was specifically inserted vide Finance Act, 2018 in Income Tax Act, 1961 ("Act") w.r.e.f. 1-4-2017. As per section 43CB of the Act, business income in case of construction contract and service contracts in specified cases, shall be determined on the basis of percentage completion method.

"42. Before parting of with adjudication of this issue it would be relevant to take note of the amendment brought in statute with retrospective effect w.e.f 1.4.2017 by way of insertion of Section 43CB for the purpose of computation of income from construction and service contract. The relevant provision of Section 43CB of the Act reads as follows:

43CB. Computation of income from construction and service contracts.-

Further, the appellant was issued notice u/s 142(1) on 25.08.2022 asking whether revenue was offered in accordance to section 43CB. In response to the same, appellant stated in its submission dated 08.09.2022 that the firm is a promoter, builder and developer and not executing any type of construction contract hence section 43CB is not applicable to it. The said section is applicable to a construction contractor. The appellant also stated that it has adopted completed contract method for recognition of revenue since last more than 15 years /beginning of the firm and was duly accepted by the department as well as in all earlier year assessment. Under the completed contract method the revenue on account of sales is recognized in P&L account on the basis of possession given to customers with undisputed amount of consideration. Vide notice u/s 142(1) issued to the appellant on 16.09.2022 the AO had asked for a sample copy of prospective buyer agreement duly signed by the buyer and to provide the details about the project cost and project revenue. In response to the same, the appellant had submitted the reply on 19.09.2022 providing one sample buyer agreement and project details. The AO calculated profit of the said project with respect to the section 43CB of the Act as per percentage of completion method of accounting as under.