Section 43CB providing POCM method for determining profit from construction contract is mandatory

 4,634 total views

Section 43CB providing POCM method for determining profit from construction contract is mandatory

Hi-tech Estates & Promoters (P.) Ltd.

[2020] 117 taxmann.com 965 (Cuttack – Trib.)

Short Overview of the case:

Three Issues were involved in the case as under :

First Issue :

– Section 43CB of the Income-tax Act, 1961

 – Computation of income from construction and service contracts

 – Assessment year 2013-14

– Assessee company was engaged in construction of flats and residential units on land owned by it.

– Assessee company was consistently following revenue recognition method by adopting completed project method, wherein revenue was recognized at time of sale of flats /residential units by way of registered sale deed in favour of customers

 – For relevant year, assessment was completed by accepting method of accounting adopted by assessee

 – Subsequently, Commissioner passed a revisional order rejecting assessee’s method of accounting based on AS-7

– Commissioner also directed Assessing Officer for de novo assessment by applying percentage completion method as mandated by section 43CB

– Whether as per section 43CB, profits and gains of a construction company arising from construction contract or a contract for providing services shall be determined on basis of percentage completion method and same is mandatory for revenue recognition with effect from 01-04-2017 i. e. assessment year 2017-18 and, thus , said method was not mandatory and compulsory to be followed in assessment year in question

Cuttack ITAT held it as yes.

Second Issue: 

 Whether therefore, Commissioner could not revisit assessment order passed in case of assessee by pressing into service provisions of section 43CB

Cuttack ITAT held it as yes.

– Third Issue :

Whether in view of aforesaid, impugned revisional order was to be set aside

Cuttack ITAT held it as yes.

Conclusions of the case:

Provisions of section 43CB prescribing percentage completion method for determining profits and gains of a construction company are to be applied mandatorily with effect from 01-04-2017 i.e. assessment year 2017-18 onwards and, therefore, assessment completed in case of assessee, a construction company, on basis of project completion method in relevant assessment year could not be declared as invalid on aforesaid ground.

Leave a Comment

Your email address will not be published.

the taxtalk

online portal for tax news, update, judgment, article, circular, income tax, gst, notification Simplifying the tax and tax laws is the main motto of the team tax talk, solving