The Commissioner has revised my client's assessment under s.263 saying he should have followed percentage of completion. The year is before AY 2017-18. Is that revision good?
No. The Tribunal held that percentage of completion became mandatory for revenue recognition only from 1 April 2017, that is AY 2017-18, by the insertion of s.43CB, and that this method was not mandatory or compulsory for AY 2013-14; the Commissioner therefore could not revise or revisit the assessment order by pressing s.43CB into service. It quashed the s.263 order, the s.263 notice and all proceedings and orders passed in pursuance of it.
Decided by the ITAT (Chandra Mohan Garg (Judicial Member) and Laxmi Prasad Sahu (Accountant Member)) on 2020-07-20, reported as ITA No.391/CTK/2018, Assessment Year 2013-14 (Income Tax Appellate Tribunal, Cuttack Bench). It bears on section 43CB, section 263, section 145, section 145(2), section AS-7 of the Income Tax Act 1961, in Revision & Rectification and Assessment & Scrutiny matters.
This is the mirror image of the retention money cases and it fixes the boundary line. For every year up to AY 2016-17 both the completed contract method and the percentage of completion method are recognised methods under the mercantile system, and the Revenue cannot substitute one for the other unless it records a finding that the method adopted distorts profits. From AY 2017-18 s.43CB removes the choice for construction contracts and service contracts. The decision is also useful on s.263 practice: the Tribunal held that the Commissioner cannot direct a de novo assessment without assigning any defect or deficiency in the method of revenue recognition and without dealing with the assessee's explanation. The Departmental Representative conceded before the bench that s.43CB applies from AY 2017-18 and could not controvert that it is not mandatorily applicable to AY 2013-14.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, a promoter and developer, followed the project completion method of revenue recognition for AY 2013-14, maintaining regular books of account on the mercantile basis. The Principal Commissioner invoked s.263 and directed a de novo assessment, taking the view among other things that the percentage of completion method ought to have been followed and that AS-7 applied. Before the Tribunal the assessee's counsel relied on the Indore bench decision in Ashoka Hi-tech Builders Pvt Ltd for the proposition that the amendment inserting s.43CB with retrospective effect from 1 April 2017 applies for AY 2017-18 onwards, on the Mumbai bench decision in Bhoomi Constructions for the proposition that the Revenue cannot impose a different method on the assessee unless there is a finding of fact that the method adopted does not reflect true profits, and on the Supreme Court's decision in CIT v. Bilahari Investment Pvt Ltd [(2008) 299 ITR 1] on the completed contract method as a recognised method. The Departmental Representative accepted before the bench that s.43CB applies from AY 2017-18 and could not controvert that it is not mandatorily applicable to AY 2013-14.
The appeal of the assessee was allowed. The revisionary order passed by the Principal Commissioner was held to be without jurisdiction and was quashed on the legal issue as well as on merit, together with the notice under s.263 and all proceedings and orders passed in pursuance of it (paras 47 and 48). On the substantive point, the percentage of completion method is mandatory for revenue recognition with effect from 1 April 2017, that is AY 2017-18, and was not mandatory and compulsory to be followed for AY 2013-14, so the Principal Commissioner could not revise or revisit the assessment order by pressing s.43CB into service (para 46).
The Tribunal recorded that the legislature, by the Finance Act 2018, inserted s.43CB with effect from 1 April 2017, providing that profits and gains arising from a construction contract or a contract for providing services shall be determined on the percentage of completion method in accordance with the income computation and disclosure standards notified under s.145(2), so that the provision applies from AY 2017-18 onwards; and that the Departmental Representative in all fairness agreed and could not controvert that it is not mandatorily applicable to AY 2013-14 (para 29). It went on to hold that, the method not having been mandatory for AY 2013-14, the Principal Commissioner could not revise the assessment order by pressing s.43CB into service, and that the findings in the impugned order, arrived at without any deliberation on the assessee's explanation of its method of accounting for revenue on sales and on the non-applicability of AS-7, could not be held valid and sustainable; the Commissioner could not direct a de novo assessment without assigning any defect or deficiency in the method of accounting of revenue recognition on the sale of flats, residential units and land, or on the non-applicability of AS-7 (para 46).
the profits and gains of a construction company arising from construction contract or a contract for providing services shall be determined on the basis of percentage completion method and the same is mandatory for revenue recognition w.e.f. 1.4.2017 i.e. assessment year 2017-18 and this method of revenue recognition was not mandatory and compulsory to be followed for assessment year 2013-14.
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Handle my notice → Ask a CA on WhatsAppNo. The Tribunal held that percentage of completion became mandatory for revenue recognition only from 1 April 2017, that is AY 2017-18, by the insertion of s.43CB, and that this method was not mandatory or compulsory for AY 2013-14; the Commissioner therefore could not revise or revisit the assessment order by pressing s.43CB into service. It quashed the s.263 order, the s.263 notice and all proceedings and orders passed in pursuance of it. This was decided by the ITAT (Chandra Mohan Garg (Judicial Member) and Laxmi Prasad Sahu (Accountant Member)) and bears on section 43CB, section 263, section 145, section 145(2), section AS-7 of the Income Tax Act 1961. It is reported as ITA No.391/CTK/2018, Assessment Year 2013-14 (Income Tax Appellate Tribunal, Cuttack Bench). This is the mirror image of the retention money cases and it fixes the boundary line. For every year up to AY 2016-17 both the completed contract method and the percentage of completion method are recognised methods under the mercantile system, and the Revenue cannot substitute one for the other unless it records a finding that the method adopted distorts profits. From AY 2017-18 s.43CB removes the choice for construction contracts and service contracts. The decision is also useful on s.263 practice: the Tribunal held that the Commissioner cannot direct a de novo assessment without assigning any defect or deficiency in the method of revenue recognition and without dealing with the assessee's explanation. The Departmental Representative conceded before the bench that s.43CB applies from AY 2017-18 and could not controvert that it is not mandatorily applicable to AY 2013-14. If it applies to you, the first step is this: Date the year first. If the assessment year is 2016-17 or earlier, s.43CB is simply not in the field and any revision or addition resting on it is without foundation.
The assessee, a promoter and developer, followed the project completion method of revenue recognition for AY 2013-14, maintaining regular books of account on the mercantile basis. The Principal Commissioner invoked s.263 and directed a de novo assessment, taking the view among other things that the percentage of completion method ought to have been followed and that AS-7 applied. Before the Tribunal the assessee's counsel relied on the Indore bench decision in Ashoka Hi-tech Builders Pvt Ltd for the proposition that the amendment inserting s.43CB with retrospective effect from 1 April 2017 applies for AY 2017-18 onwards, on the Mumbai bench decision in Bhoomi Constructions for the proposition that the Revenue cannot impose a different method on the assessee unless there is a finding of fact that the method adopted does not reflect true profits, and on the Supreme Court's decision in CIT v. Bilahari Investment Pvt Ltd [(2008) 299 ITR 1] on the completed contract method as a recognised method. The Departmental Representative accepted before the bench that s.43CB applies from AY 2017-18 and could not controvert that it is not mandatorily applicable to AY 2013-14. The matter was decided on 2020-07-20 by the ITAT (Chandra Mohan Garg (Judicial Member) and Laxmi Prasad Sahu (Accountant Member)). On those facts the ITAT held as follows. The appeal of the assessee was allowed. The revisionary order passed by the Principal Commissioner was held to be without jurisdiction and was quashed on the legal issue as well as on merit, together with the notice under s.263 and all proceedings and orders passed in pursuance of it (paras 47 and 48). On the substantive point, the percentage of completion method is mandatory for revenue recognition with effect from 1 April 2017, that is AY 2017-18, and was not mandatory and compulsory to be followed for AY 2013-14, so the Principal Commissioner could not revise or revisit the assessment order by pressing s.43CB into service (para 46).
The Tribunal recorded that the legislature, by the Finance Act 2018, inserted s.43CB with effect from 1 April 2017, providing that profits and gains arising from a construction contract or a contract for providing services shall be determined on the percentage of completion method in accordance with the income computation and disclosure standards notified under s.145(2), so that the provision applies from AY 2017-18 onwards; and that the Departmental Representative in all fairness agreed and could not controvert that it is not mandatorily applicable to AY 2013-14 (para 29). It went on to hold that, the method not having been mandatory for AY 2013-14, the Principal Commissioner could not revise the assessment order by pressing s.43CB into service, and that the findings in the impugned order, arrived at without any deliberation on the assessee's explanation of its method of accounting for revenue on sales and on the non-applicability of AS-7, could not be held valid and sustainable; the Commissioner could not direct a de novo assessment without assigning any defect or deficiency in the method of accounting of revenue recognition on the sale of flats, residential units and land, or on the non-applicability of AS-7 (para 46). In the words reproduced by the source cited on this page: "the profits and gains of a construction company arising from construction contract or a contract for providing services shall be determined on the basis of percentage completion method and the same is mandatory for revenue recognition w.e.f. 1.4.2017 i.e. assessment year 2017-18 and this method of revenue recognition was not mandatory and compulsory to be followed for assessment year 2013-14." The decision followed or applied Ashoka Hi-tech Builders Pvt Ltd (ITAT Indore) — relied on; CIT v. Bilahari Investment Pvt Ltd [(2008) 299 ITR 1 (SC)] — relied on.
It was decided by the ITAT on 2020-07-20 and is reported as ITA No.391/CTK/2018, Assessment Year 2013-14 (Income Tax Appellate Tribunal, Cuttack Bench). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 43CB, section 263, section 145, section 145(2), section AS-7, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal of the assessee was allowed. The revisionary order passed by the Principal Commissioner was held to be without jurisdiction and was quashed on the legal issue as well as on merit, together with the notice under s.263 and all proceedings and orders passed in pursuance of it (paras 47 and 48). On the substantive point, the percentage of completion method is mandatory for revenue recognition with effect from 1 April 2017, that is AY 2017-18, and was not mandatory and compulsory to be followed for AY 2013-14, so the Principal Commissioner could not revise or revisit the assessment order by pressing s.43CB into service (para 46). It arises in Revision & Rectification and Assessment & Scrutiny matters, on section 43CB, section 263, section 145, section 145(2), section AS-7 of the Income Tax Act 1961, and was decided by Chandra Mohan Garg (Judicial Member) and Laxmi Prasad Sahu (Accountant Member). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For pre-AY 2017-18 years, hold the Revenue to the requirement of a finding that the method adopted distorts profits before it may substitute percentage of completion. On a s.263 notice, take the point that the Commissioner has not identified any defect in the method of revenue recognition and has not dealt with the explanation — that is what carried this case. Where the assessee has consistently followed project completion and has offered the revenue in the later year when the sale deeds were registered, put the subsequent years' offers on record to show the timing is neutral to the Revenue. Do not carry this decision into AY 2017-18 or later; from that year the statute has made the choice.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns one document, Jaypee Development Corporation Ltd v DCIT (ITAT Delhi, 22 August 2022); it was opened and contains no mention of Hi-Tech Estates at all - the order is about section 14A and Rule 8D. A name search returns 115 documents; every Orissa High Court hit is RERA or state-law litigation of the same company, not a section 260A appeal. No later Bench has applied the holding that section 43CB, inserted with effect from AY 2017-18, cannot be used to revise an assessment for an earlier year. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to 48 numbered paragraphs over 39 pages; para 48 is the disposal. Care is needed with paragraph numbers: this order reproduces long extracts from the Indore bench decision in Ashoka Hi-tech Builders Pvt Ltd and from the Supreme Court in CIT v. Bilahari Investment Pvt Ltd, and the numbers 15, 16, 20, 21, 41 and 42 that appear in the fragments belong to those quoted decisions, not to this order. This Tribunal's own paragraphs relied on here are 46, 47 and 48; para 29 is also this Tribunal's own, as is confirmed by the Pune bench in Raviraj Pashankar Developers reproducing it as the observation of the Cuttack bench in this case. The assessment year is 2013-14. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal of the assessee was allowed. The revisionary order passed by the Principal Commissioner was held to be without jurisdiction and was quashed on the legal issue as well as on merit, together with the notice under s.263 and all proceedings and orders passed in pursuance of it (paras 47 and 48). On the substantive point, the percentage of completion method is mandatory for revenue recognition with effect from 1 April 2017, that is AY 2017-18, and was not mandatory and compulsory to be followed for AY 2013-14, so the Principal Commissioner could not revise or revisit the assessment order by pressing s.43CB into service (para 46).
TaxSphere, “Hi-Tech Estates and Promoters Pvt Ltd v PCIT — s.43CB cannot be used to revise an assessment for a year before AY 2017-18”, https://taxnotice.vittsphere.com/caselaw/case/hi-tech-estates-and-promoters-v-pcit-43cb-applies-only-from-ay-2017-18/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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