AS-7 is applicable to a “Contractor” and not to a “Developer”:

Assessee is engaged in the business of sale/purchase of TDR and earns income by way of stallage and construction activity. During the year under consideration, assessee received advance booking amount on account of construction activity and the same was shown as WIP following the “Project completion method”. AO was of the view that assessee must follow “Percentage completion method” as per AS-7. Hence, he rejected assessee’s books of accounts and estimated profit @ 8% of the booking advance. The said addition was deleted by CIT(A). On Revenue’s appeal, Hon’ble ITAT observed that in earlier year, Hon’ble ITAT had held that the assessee was not a “Contractor” but was a “Developer” who awarded contracts to different contractors for executing civil, electrical, plumbing work, etc. Hence, AS-7 was not applicable to the assessee. Also, no construction activity was carried out during the year under consideration. Assessee had merely received advances and there was no certainty of revenue recognition at that stage. Also, all the significant risks and ownership at that juncture vested in the hands of the assessee. Hence, like addition was deleted in earlier year by the Hon’ble ITAT. Following the earlier year’s order, Hon’ble ITAT deleted the impugned addition.

[ITO vs. M/s. Meeti Investment and Consultancy P. Ltd. – ITA No.1714/Ahd/2010]