FAITHFULL DEVELOPERS ,MUMBAI V. ACIT CIR-20(1), MUMBAI

ITA 6347/MUM/2025

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Faithfull Developers, a partnership firm engaged in real estate development, appealed against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), which confirmed the addition of estimated business profits for the assessment year 2018-19. The Assessing Officer had estimated the business profits based on the percentage completion method as required by Section 43CB of the Income Tax Act, 1961, which was applicable from April 1, 2017, onwards. The appellant argued that their business, being a real estate business, should not be subjected to this method of accounting, as it was traditionally used for construction contracts. However, the CIT(A) and the tribunal referenced the case of Hi-tec Estates and Promoters Private Limited vs PCIT, which supported the application of Section 43CB to real estate businesses. Consequently, the tribunal dismissed the appeal, confirming the additions made by the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792026 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2018-2019
• Appeal Filed On: 07-10-2025
• Other Referred Cases: Hi-tec Estates and Promoters Private Limited vs PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITHA KAUSHIK
• Keywords: Business income; Retrospective amendment; Business expenditure; Capital Gains
• Section: 145

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH MUMBAI BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER& SHRI OMKARESHWAR CHIDARA, ACCOUNTANT MEMBER ITA No. 6347/Mum/2025 (Assessment Year: 2018-19) Faithfull Developers 747, Rekha Sadan 6, Parsi Colony Road, Dadar Mumbai – 400014. Vs. ACIT – 20(1) Piramal Chamber Lalbaug, Parel Mumbai – 400012. PAN/GIR No. AAAFF7720N (Applicant) (Respondent) Assessee by None Revenue by Ms. Kavitha Kaushik , Sr. DR Date of Hearing 03.12.2025 Date of Pronouncement 04.12.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee challenging the impugned order dt. 04.09.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2018-19. The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition made by the Learned Assessing Officer (\"AO\") of estimated business profit of .11,13,08,897/- computed on an estimated turnover of 2.74,20,59,318/- under Section 43CB of the Act, on mere assumptions and presumptions, on the grounds that: Printed from counselvise.com 2 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai The provisions of Section 43CB, mandating the percentage completion method of accounting for revenue recognition, are applicable from 01.04.2017 (i.e., from A.Υ. 2017-18 onwards) and extend to real estate business which had already been completed in earlier years. 2 circumstances of the case and in law, the Learned CIT(A) has erred in disallowing the entire business expenses incurred during the year and consequently not allowing the business loss of .11,37,60,627/- to be carried forward to the subsequent year, without assigning any cogent reason or justification. Per statement -I. 2. None appeared on behalf of the assessee, when the case was called repeatedly. On perusal of the case file, we observed that the notice of the present hearing was already issued to the assessee through RPAD and also through e-mail id. [e-mail] as per the report of registry. Since the notice was issued on the address given by the assessee and 30 days have already been lapsed from the date of issuance of notice therefore while drawing inference under the General Clauses Act, it s presumed that service has been validly effected upon the assessee on the address mentioned by the assessee. On the other hand Ld. DR present in the court is ready with the arguments. We have decided to proceed with the hearing of the case ex-parte and to decide the same by considering the material placed on record with the assistance of Ld. DR. 3. The assessee has raised two grounds which are interrelated and interconnected and relates to Printed from counselvise.com 3 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai challenging the order of Ld. CIT(A) in sustaining the additions made by Ld.AO. Therefore we have decided to adjudicate these grounds through the present consolidated order. 4. We have heard the Ld. DR, perused the material placed on record, judgemetns cited before us and also the orders passed by the revenue authorities. From the records we noticed that assessee is a partnership firm engaged in the business of development of land and construction of building and the case was selected for scrutiny and the assessment was completed by making additions on account of estimated business income and deemed rental income. Aggrieved by the said order the assessee preferred appeal which was partly allowed and additions with regard to estimated business income was sustained. Consequently the assessee has filed the appeal before us on the grounds mentioned herein above: 5. From the records, we found that these grounds have already been adjudicated in detail by Ld. CIT(A) and the operative portion of the same is contained in para 4 to 4.9 which is reproduced herein below: 4. Ground Nos. 1.2.3&4: All these grounds pertain to the estimation of business profit at Rs.11.13.08.897/- u/s 43CB of the Act and hence all these grounds are taken up together for adjudication. Printed from counselvise.com 4 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai 4.2 The appellant developed a project namely Mahalaxmi SRA CHS Ltd and sale building namely \"Victorian\" situated at Jahangir Merwanji street, Ambawadi, Parel, Mumbai-12. The project was completed in the financial Year 2016-2017 relevant to Assessment Year 2017-2018 and accor accordingly the revenue was offered for Tax in the Assessment Year 2017-2018 4.3 For the AY 2018-19, the AO observed that appellant has not offered income on percentage completion method. Hence, the AO issued show cause to the appellant that why the income should not compute under percentage completion method following ICDS, as mandated by section 43CB of the Act. Appellant submitted before that section 43CB was not applicable to the applicant since it was engaged in real estate business and not construction contract. After analysing appellant's submission AO concluded that real estate business is also covered u/s 43CB of the Act and estimated the income under percentage complete method at Rs. 11,13,08,897/- 4.4 During the course of appeal proceedings, appellant submitted that it was following regularly and consistently the project completion method. For the FY 2016- 17, relevant to AY 2017-18 income was offered under project completion method which was accepted by the department. Hence, the appellant should be allowed to continue the project completion method in the subsequent years also. The income would be offered on sale of flats as and when the sale is completed. Appellant requested that the addition of Rs.11,13,08,897/- based on the estimated profit under 4.5 Appellant's submissions were carefully considered. With introduction of section 43CB, as inserted by the Finance Act 2020, with retrospective effect from 01/04/2017 percentage completion method, Section 43CB of the Act is reproduced as under: it is mandatory for the businesses involving construction contract to offer income on \"Computation of income from construction and service contracts. Printed from counselvise.com 5 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai 43CB. (1) The profits and gains arising from a construction contract or a of completion method in accordance with the income computation and contract for providing services shall be determined on the basis of percentage disclosure standards notified under sub-section (2) of section 145: Provided that profits and gains services,- sarising from a contract for providing (1) 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. (2) For the purposes of percentage of method, project completion method or straight line method referred to in sub- section (1)—(0) the contract revenue shall include retention money; (ii) the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains. 4.6 Appellant's submission that real estate business will not be covered u/s 43CB, since it is different from construction contract is not correct. In the case of Hi-tec Estates and Promoters Private Limited vs PCIT (2020) 117 taxman.com 965(Cuttack-Tribunal), it was held that the provisions of section 43CB prescribing percentage completion method are to be applied mandatorily with the effect from 14/04/2017 i.e. AY 2017-18 onwards. The relevant extract of the Tribunal's decision is reproduced as under: \"29. At the same time, we cannot ignore that the legislature, by Finance Act. 2018. has inserted Section 43CB to the Act w.e.f. 1-4-2017, which provides the profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage completion method notified under sub-section (2) of Section 145 of the Act. Thus, this provision is (PCM) in accordance Printed from counselvise.com 6 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai with the income computation and disclosure standards applicable from assessment year 2017-18 onwards\" 4.7 From the above, it is clear that the percentage completion method as mandated in section 43CB of the Act is applicable to real estate business also. Hence, the appellant's submission that section 43CB should not applied in the appellant's case is not acceptable. The AO's action on applying section 43CB in appellant's case is confirmed. 4.8 The appellant submitted that there were errors in computing the estimated income u/s 43CB of the Act. Appellant submitted that secured and unsecured loan were considered for estimating the profit. The sales figure was considered thrice while computing estimated profit. Appellant also submitted that certain direct and indirect costs were not considered while computing the estimated profits. AO is directed to consider the appellant's submission with respect to such errors and recomputed the estimated profits in accordance with law. 4.9 Thus, the addition made of Rs. 11,13,08,897/- u/s 43CB of the Act is confirmed, subject to removal of errors as pointed out by the appellant. Appeal on this ground is dismissed. 6. Since Ld. CIT(A) has considered all the contentions raised by the assessee, more particularly wherein assessee had submitted that real-estate business will not be covered u/s 43CB of the Act as it is different from construction contract. However, Ld. CIT(A) after relying upon the decision in the case of Hi-tec Estates and Promoters Pvt Ltd., Vs. PCIT [2020] 117 taxman.com 965 (Cuttack - Trib) had reached to the conclusion that the percentage completion method as mandated in Sec. 43CB of the Act is applicable to real-estate business also, Printed from counselvise.com 7 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai therefore rejected the contentions of the assessee and confirmed the additions made u/s 43CB of the Act. 7. No new facts or circumstances have been placed on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or to deviate from the lawful findings so recorded by Ld. CIT(A). Hence, the grounds raised and by the assessee stands dismissed. 8. In the result, the appeal filed by the assessee stands dismissed. Order pronounced in the open court on 04.12.2025 Sd/- Sd/- (OMKARESHWAR CHIDARA) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 04/12/2025 KRK, Sr. PS Printed from counselvise.com 8 ITA No.6347/Mum/2025 Faithfull Developers , Mumbai आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u000eथ / The Respondent. 3. संबंिधत आयकर आयु\u0019 / The CIT(A) 4. आयकर आयु\u0019(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण,मु\u0003बई/ DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/BY ORDER, स\u000eािपत ित //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु\u0003बई मु\u0003बई मु\u0003बई मु\u0003बई / ITAT, Mumbai Printed from counselvise.com "