“Builders” who build immovable properties for sale to customers are not bound to follow “Percentage Completion method” as prescribed under AS-7:

Assessee, an individual engaged in the construction business, followed “Project completion method” for accounting income from such construction business. AO was of the view that income from such business must be offered by following “Percentage completion method”. Hence, he worked out assessee’s income on the basis of “Percentage completion method” and made an addition in respect of the same. On appeal, Ld. CIT(A) observed that the assessee had disclosed profits on the concerned projects in subsequent Asst. Year on the basis of “Project completion method”. Moreover, such system of accounting was followed consistently by the assessee and was also accepted by the Dept. in the earlier Asst. Year vide order u/s 143(3). Ld. CIT(A) held that AS-7 applies in case of “Construction Contracts” wherein a “Contractor” carries out construction work on behalf of the other person who has awarded such contract to him. However, in case of “Builders” (as in the present case), they build immovable properties for sale to customers. Hence, there is no construction contract and the assessee is not bound to follow “Percentage completion method” as per AS-7. The addition was deleted accordingly. On Revenue’s appeal, the Hon’ble ITAT confirmed the Ld. CIT(A)’s order.