Real-estate profit estimation u/s43CB: whether percentage completion method applies; appeal dismissed, additions for income and rent upheld

Whether s. 43CB mandates the percentage completion method for a real-estate business for estimating business profit and sustaining consequential additions for estimated business income and deemed rental income was the dominant issue. The Tribunal held that the first appellate authority correctly applied s. 43CB and, relying on prior ITAT precedent, treated the percentage completion method as applicable to real-estate activity; in the absence of any new facts or material to rebut those findings, there was no basis to disturb the appellate order. The appeal was dismissed and the additions were sustained.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether the Assessing Officer and the appellate authority were correct in applying section 43CB and the percentage completion method to compute profits for the relevant assessment year in the case of a real estate development activity, despite the assessee claiming that it followed the project completion method and that its project stood completed in an earlier year.

2. Whether any interference was warranted with the confirmation of the addition of estimated business profit under section 43CB when no new facts or material were produced before the Tribunal to rebut the findings of the appellate authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of section 43CB and mandatory use of percentage completion method for the assessee's activity

Legal framework: The Tribunal proceeded on the basis that section 43CB mandates determination of profits and gains arising from construction/service contracts on the basis of the percentage completion method in accordance with the notified standards, and that this provision applies from 01.04.2017 (relevant from AY 2017-18 onwards), as treated by the appellate authority.

Interpretation and reasoning: The assessee's contention was that section 43CB was inapplicable because it was engaged in real estate business and not a "construction contract", and that it consistently followed the project completion method which had been accepted earlier. The appellate authority rejected this distinction and concluded that section 43CB (and the percentage completion method) applies to real estate business as well. The Tribunal noted that the appellate authority had relied on a Tribunal decision to support mandatory application of section 43CB from AY 2017-18 onwards, and accepted the appellate authority's conclusion that the provision covers the assessee's activity.

Conclusions: The Tribunal upheld the application of section 43CB and the percentage completion method to the assessee's case and found no basis to disturb the sustained addition on this legal aspect.

Issue 2: Whether the confirmed estimated profit addition required interference in the absence of rebuttal material

Interpretation and reasoning: The Tribunal recorded that the appellate authority had already dealt with the assessee's contentions in detail and had confirmed the addition under section 43CB, while also directing the Assessing Officer to address computational errors pointed out by the assessee (such as alleged duplication of sales figures and non-consideration of certain costs) while recomputing the estimated profits in accordance with law. Before the Tribunal, the assessee did not appear and did not place any new facts or circumstances to controvert or rebut the appellate findings.

Conclusions: In the absence of any new material to challenge the appellate authority's reasoning, the Tribunal declined to interfere and dismissed the grounds, thereby sustaining the addition under section 43CB (as confirmed by the appellate authority, subject to correction of computational errors as directed therein).

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