ITAT Dismisses IT Additions Against Real Estate Developer Under PoCM Method
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed additions and enhancements made against a real estate developer, ruling that the actions of the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] were legally unfounded.
Real Estate DeveloperItatPocmUndisclosed IncomeRevenue RecognitionReal EstateOct 04, 2025
The matter pertained to Assessment Years 2013-14 and 2014-15. The AO made two significant sets of additions: first, an amount of ₹50.38 lakh was treated as undisclosed income based on diary entries seized from the residence of Rakesh Kumar Yadav, a director in the assessee company and other entities. Additionally, large additions running into several crores were made by applying an ad-hoc 20 percent revenue recognition rate on advances received from customers, purportedly under the Percentage of Completion Method (PoCM). The CIT(A), while deleting some of the additions, went on to enhance the income of the assessee substantially, including an enhancement of ₹26.69 Crore for AY 2013-14 and ₹39.76 lakh for AY 2014-15.
The assessee, represented by Shri Rajat Jain and Shri Akshat Jain, argued that the seized documents did not pertain to its project “Golf View-II” but to “Golf View-I” being developed by Antariksh Developers. The assessee further submitted that revenue recognition under PoCM was carried out strictly in line with Accounting Standard-9 and the Guidance Note issued by ICAI. They contended that revenue had first been recognized in AY 2013-14 after mandatory conditions such as environmental clearance and 25 percent completion of construction were met. It was also argued that the enhancements made by the CIT(A) violated Section 251(2) of the Income Tax Act, which requires the issuance of a show-cause notice before any enhancement of income.
The Tribunal found merit in the assessee’s submissions. On the issue of undisclosed income, it held that the seized diary was discovered at the residence of a director and not at the assessee’s premises. In the absence of corroborative material linking the entries to Colourful Estates, the statutory presumptions under Sections 132(4A) and 292C could apply only against the person from whose possession the documents were found. Accordingly, the addition of ₹50.38 lakh was deleted.
On the issue of revenue recognition, the Tribunal held that the AO’s method of estimating 20 percent of customer advances as income was arbitrary and without basis. It observed that the assessee had already recognized revenue in accordance with PoCM from AY 2013-14 onwards and that the exercise was revenue-neutral over the life of the project. Further, the enhancements made by the CIT(A) were found to be unlawful since they were carried out without issuing a show-cause notice, a clear violation of Section 251(2).
The Tribunal also highlighted the contradictory approach of the CIT(A), who accepted the assessee’s PoCM working for AY 2014-15 but rejected it for AY 2013-14. It stressed that such inconsistency was untenable, particularly when the Assessing Officer himself had not disputed the PoCM workings in remand proceedings.
Concluding its analysis, the ITAT quashed both the additions made by the AO and the enhancements carried out by the CIT(A), granting complete relief to Colourful Estates Pvt. Ltd. for both assessment years. The appeals were accordingly allowed.
Frequently Asked Questions
What is the Percentage of Completion Method (PoCM)?
The Percentage of Completion Method (PoCM) is an accounting method used to recognize revenue and expenses for long-term contracts, such as construction projects, based on the percentage of the project completed.
Why did the ITAT rule in favor of the real estate developer?
The ITAT ruled in favor of the real estate developer because it found that the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] acted without a proper legal foundation, particularly in their methods of estimating income and the lack of a show-cause notice for enhancements.
What was the main contention regarding the seized diary entries?
The main contention was that the seized diary entries did not pertain to the real estate developer's project but to another project, and thus could not be used to claim undisclosed income.
What is the significance of Section 251(2) of the Income Tax Act?
Section 251(2) of the Income Tax Act requires the issuance of a show-cause notice before any enhancement of income. The CIT(A) violated this section by making enhancements without issuing a show-cause notice.
How did the Tribunal address the inconsistency in the CIT(A)'s approach?
The Tribunal highlighted the contradictory approach of the CIT(A), who accepted the real estate developer's PoCM working for one assessment year but rejected it for another, deeming such inconsistency untenable.
Related News Articles
RERA Cases Weekly Round-Up: Relief for Homebuyers Across India
From refund orders to structural defect rectification
Gurugram Leads Housing Price Surge, Mumbai Lagging Behind
In the last five years, the average price of new housing projects in India’s top 10 cities has surged by 88%, with Gurugram leading the pack at a 160% increase. Mumbai, on the other hand, has seen the lowest rise at 37%. This surge is attributed to massiv
Anant Raj Reports 75% Increase in Net Profit for Q2 FY25
Anant Raj has announced a significant 75% increase in its net profit for the second quarter of the fiscal year 2025. The company also reported a 53.67% rise in its net consolidated total income. This robust growth is a testament to the company's strategic
DLF JV Firm Sells IT Park in West Bengal's Largest Real Estate Deal for Rs 637 Cr
In a significant move, DLF, the country's largest real estate developer by market cap, has completed the sale of an IT park in West Bengal for Rs 637 crore. The deal, involving a joint venture firm, marks one of the largest real estate transactions in the
Eleganz Interiors Files DRHP with NSE Emerge
Eleganz Interiors plans to use Rs 25 crore from the IPO proceeds to repay a portion of its outstanding borrowings, as it files its DRHP with NSE Emerge.
Tata Steel Slapped with Rs 146 Mn Fine for Delay in Stamp Duty Payment
Tata Steel, one of India's leading steel producers, has been penalized with a fine of Rs 146 million by the Maharashtra government for failing to timely pay the stamp duty. The fine, as per the company's exchange filing, highlights the importance of adher