No, not for a construction contract. Since the Finance Act 2018 the percentage of completion method is required by s.43CB itself, not merely by ICDS III, so the older argument that the standard was ultra vires no longer answers it. Service contracts have two carve-outs: one lasting not more than ninety days goes on project completion, and one involving an indeterminate number of acts over a period goes on straight line.
The operative text is short. Section 43CB(1): "The profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145". Then the proviso, which applies only to service contracts: "profits and gains arising from a contract for providing services— (i) with duration of not more than ninety days shall be determined on the basis of project completion method; (ii) involving indeterminate number of acts over a specific period of time shall be determined on the basis of straight line method."
Sub-section (2) settles two things that used to be litigated separately. For the purposes of any of those three methods, "the contract revenue shall include retention money" and "the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains." Both of those had been in ICDS III, and both had been struck down by the Delhi High Court in The Chamber of Tax Consultants v. Union of India as contrary to binding decisions. Parliament's response was to put them in the Act.
That is why the commencement matters, and it is routinely got wrong. On the Finance Bill 2018 as introduced, the new section is to be "inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2017", and the notes on clauses record that the amendment "will take effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years". So there is no year in which the mandate rests on a notification alone: for assessment year 2016-17 and earlier ICDS did not apply at all, and from assessment year 2017-18 both the requirement and sub-section (2) on retention money and incidental income are in the Act. The reading-down in Chamber of Tax Consultants was directed at the ICDS as they applied for assessment year 2017-18, and the retrospective insertion overtook it. Treat the argument that ICDS III is ultra vires as spent rather than as the fall-back for an earlier year.
The ninety-day carve-out is narrow and it is easy to misread. It applies only to a contract for providing services, not to a construction contract, and on the words of the proviso the test is the duration of the contract rather than the length of the accounting period. So a service engagement spanning a year-end but running for less than ninety days in total is on project completion, and the same engagement extended to four months is not. Whether "duration" is measured by the contractual term or by the time the work in fact took has not been decided on any authority located for this entry, so do not treat that refinement as settled; record both on the file.
The straight line carve-out covers a service contract involving an indeterminate number of acts over a specific period — an annual maintenance contract, a retainer, a support arrangement where nobody can say in advance how many call-outs there will be. The revenue is spread evenly over the period rather than measured by work done, precisely because work done cannot be measured.
What s.43CB does not do is displace the rest of the computation. Costs still have to satisfy s.37(1) and the specific sections; the method decides only the timing of recognition. Nor does it convert a real estate developer's sale of a completed flat into a construction contract — s.43CA deals with the transfer of land or building held as stock in trade and works on a different footing entirely.
The adjustment is a timing one, which means it is often argued casually and then compounds: an assessee who offers profit on completion and is reassessed on percentage of completion pays tax earlier and carries the mismatch through every subsequent year of the project until it unwinds. Establishing that the year in dispute is assessment year 2017-18 or later, so that the mandate is statutory, and whether the contract is a construction contract or a service contract short enough to fall in the carve-out, decides most of these notices.
My liability is certain but I cannot put a final figure on it yet and I will not pay it for years. Can I still deduct the provision?
I am an MES contractor and the department supplies me cement and steel at fixed rates. The Income-tax Officer added the value of that material to my cash receipts before applying a flat rate. Can he?
I sell developed plots and book the whole sale price on the mercantile basis, but I still have to build the roads and drains I promised the buyers. Can I deduct the estimated cost of that work now?
My closing stock is worth more than it cost me. Does the rise in value get taxed, and does it matter that the goods were lying outside the place where I trade?
The AO wants to substitute my method of accounting for one that suits him better. What does he have to establish first?
I received bonus shares and later sold my holding. What is the cost of the bonus shares: face value, nil, or something else?
The officer rejected my books, estimated my profits at a flat rate, and then also added an unexplained cash credit. Can he do both, and must he say what source the credit came from?
The AO has taxed my advance licence and DEPB benefits in the year I exported. Is that the right year?
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