Sujata Farms Pvt. Ltd., Pune V. DCIT, Circle-6, Pune

ITA 2049/PUN/2012

• Counselvise Citation: 204924514 RSA 2012
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 22-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR PRAYAG JHA PRATIK JHA
• Keywords: Capital asset; Business income; Principle of natural justice; Rule of consistency; Bad and doubtful debts; Revenue expenditure
• Section: 143(3); 133A; 148; 54; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO S. 2047 TO 2052 /PN/20 1 2 ASSESSMENT YEAR S : 200 3 - 04 TO 2008 - 09 SUJATA FARMS PVT. LTD., 35/15, CHANDRASEN APARTMENT, PRABHAT ROAD, LANE NO. 8, PUNE VS. DCIT, CIRCLE 6, PUNE (APPELLANT) (RESPONDENT) PAN NO. AACCS5879C APPELLANT BY: DR. PRAYAG JHA, PRATIK JHA RESPONDENT BY: SHRI RAJESH DAMOR DATE OF HEARING : 1 1 - 0 8 - 2 014 DATE OF PRONOUNCEMENT : 17 - 0 9 - 2014 ORDER PER R.S . PADVEKAR , JM : - THIS BATCH OF SIX APPEALS ARE FILED BY THE ASSESSEE CHALLENGING THE COMMON IMPUGNED ORDER S OF THE LD. CIT(A) - III, PUNE DATED 02 - 03 - 2012 FOR THE A.Y S . 200 3 - 04 TO 2008 - 09. THE ASSES SEE HAS FILED THE CONCISE GROUNDS IN ALL THE APPEALS WHICH ARE VERBATIM AS UNDER: (I) THE LD . CIT (A) ERRED IN HOLDING THAT THE A.O . WAS JUSTIFIED IN TREATING THE TOTAL AMOUNT AS PER LETTER OF OFFER OF ALLOTMENT AS SALE PROCEEDS OF PLOTS AND BRINGING TH E SAME TO INCOME TAX IN THE YEAR OF SIGNING OF LETTER OF OFFER OF ALLOTMENT. (II) THE LD. CIT(A) ERRED IN HOLDING THAT TRANSFER OF PLOT OF LAND TOOK PLACE AT THE TIME OF SIGNING OF LETTER OF OFFER OF ALLOTMENT AND THAT EXECUTION OF SALE DEED AND REGISTRAT ION THEREOF WAS A MERE FORMALITY IGNORING THE FACT THAT TRANSFER OF IMMOVABLE PROPERTY DOES NOT TAKE PLACE WITHOUT EXECUTION AND REGISTRATION OF SALE DEED. (III) THE LD. CIT(A) ERRED IN HOLDING THAT THE BUYER OF PLOT WAS ENTITLED TO ALIENATE ANY RIGHT , TITLE INTEREST OR BENEFITS IN THE SAID PLOT IN 2 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE FAVOUR OF ANY PERSON WITHOUT APPRECIATING THAT THE LETTER OF OFFER OF ALLOTMENT WAS NOT TRANSFERABLE. (IV) THE LD . CIT(A) GROSSLY ERRED IN CONCLUDING THAT SIGNING OF LETTER OF OFFER OF ALLOTMENT ENABLED THE B UYER TO POSSESSION AND ENJOYMENT OF THE PLOT AND THE PLOT STOOD TRANSFERRED TO SUCH BUYER IGNORING THE FACT THAT NO SUCH RIGHT WAS TRANSFERRED TO THE BUYER AT THAT POINT OF TIME AND THE LETTER WAS ONLY AN OFFER SUBJECT TO CERTAIN CONDITIONS FULFILLMENT OF WHICH WAS CRUCIAL TO TRANSFER OF POSSESSION AND OWNERSHIP. 2. THE ISSUE ARISING IN ALL THESE APPEALS ARE ON THE CHARGE BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE, IT WAS REQUIRED UPON THE ASSESSEE COMPANY TO RECOGNIZE SALES, ON HANDING OVER THE POSSESSION OF THE PLOT OF LAND I.E. THE DATE OF LETTER OF ALLOTMENT. IN THE OPINION OF THE ASSESSING OFFICER THE ASSESSEE COMPANY HAS NOT RECOGNIZED THE SALES AND ACCORDINGLY, CORRECT INCOME HAS NOT BEEN DECLARED IN ALL THESE ASSESSMENT YEARS. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE COMPANY IS IN THE BUSINESS OF DEVELOPING AND DEALING IN PLOTS OF AGRICULTURAL LAND SINCE 1990 - 91. THE ASSESSEE HAS ALSO REGULARLY FILED THE RETURN OF INCOME FOR THE A.YS. 2003 - 04 TO 2008 - 09. THERE WAS A SURVEY ACTION AGAINST THE ASSESSEE ON 01 - 02 - 2010 U/S. 133A OF THE INCOME - TAX ACT. AS NOTED BY THE ASSESSING OFFICER (IN SHORT THE A.O. ) IT WAS NOTICED THAT EVEN THOUGH THE ASSESSEE COMPANY WAS HANDING OVER POSSESSION OF PLOTS OF LAND TO THE BUYERS BY ISSUING THE LETTER S OF OFFER AND ALLOTMENT BUT THOSE TRANSACTIONS WERE NOT DECLARED AS A SALES BUT IN FACT SHOWN AS ADVANCES IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE ASSESSEE OUGHT TO HAVE DISCLOSED THE SAID RECEIPTS AS ITS SALES IN THE RESPECTIVE ASSESSMENT YEARS AS THE POSSESSION OF THE PLOTS HAD ALREADY BEEN HANDED OVER TO THE BUYERS BY ISSUIN G THE LETTER OF ALLOTMENT. THE ASSESSING OFFICER WAS OF 3 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE THE OPINION THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, HE, THEREFORE, ISSUED THE NOTICES TO THE ASSESSEE U/S. 148 AND REO PENED ALL THE ASSESSMENTS. 2.1 THE ASSESSEE HAS UNDERTAKEN A PROJECT NAMELY GIRIVAN AT VILLAGE DONGARGAON/HOTALE, TAL. - MULSHI, DISTT. PUNE. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE ACQUIRED THE LANDS FROM FARMERS OR OWNERS AND AFTER DEVELOPING THE SAME AND DIVIDED INTO DIFFERENT PLOTS. THE PROSPEC TIVE BUYER VISITS THE SITE OF THE PROJECT WHERE EMPLOYEES OF THE ASSESSEE APPRISE THE CUSTOMERS OF THE VARIOUS ASPECTS OF THE PROPERTY. IF THE VISITORS/CUSTOMERS ARE INTERESTED IN BUYING PLOT FROM THE ASSESSEE THEN THEY FILL - UP THE BOOKING FORM AFTER CHOO SING THE PLOT OF LAND IN THE SAID PROJECT GIRIVAN BY MAKING THE PAYMENT OF THE BOOKING AMOUNT. THE BUYER HAS TO CONFIRM THE BOOKING WITHIN 10 15 DAYS OR ELSE THE BOOKING AMOUNT WOULD BE FORFEITED. ONCE THE BUYER CONFIRMED THE BOOKING , A LETTER OF ALLOTM ENT IS ISSUE D TO THE BUYER AND ACCORDING TO THE ASSESSING OFFICER THE SAID LETTER OF ALLOTMENT CONFERS RIGHT OF ENJOYMENT ON THE BUYER OVER THE PROPERTY. THE ASSESSING OFFICER HAS REFERRED TO THE CONTENTS OF THE LETTER OF OFFER ISSUED BY THE ASSESSEE COMP ANY TO THE DIFFERENT BUYERS IN THE ASSESSMENT ORDER. 2.2 THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT THE ASSESSEE ALSO COLLECTED VARIOUS AMOUNTS FROM THE BUYERS TOWARDS DEVELOPMENT OF PLOTS WHICH INCLUDED FENCING, LEVELING OF THE LAND, RUBBLE FILLING, BORE WELL DRILLING, BUSH CLEANING, TERRACING, AND PITCHING BY STONES AND RUBBLE AND PROVISION OF ACCESS ROAD . IT WAS FOUND THAT THE BUYER OF THE PLOT ALSO HAD THE LIBERTY TO PREPARE THE MAPS AND DESIGNS OF THE DEVELOPMENT OF HIS PLOT. THE DEVELOPMENT COU LD BE CARRIED OUT EITHER BY THE ASSESSEE FOR THE BUYER OR THE BUYER HAD THE CHOICE OF APPOINTING ANYBODY TO DO THE DEVELOPMENT OF HIS PLOT. CITING AN EXAMPLE, IT IS HIGHLIGHTED BY THE ASSESSING OFFICER THAT THE IMPOUNDED MATERIAL SHOWED THAT IN CASE OF PLO T NO. D148/149A BELONGING TO ONE SHRI CLLANDRAKANT MOKATE, THE 4 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE POSSESSION OF THE PROPERTY WAS HANDED OVER TO HIM BY THE ASSESSEE AND THE BUYER HAD ALSO PREPARED THE DRAWING FOR THE SHED THAT HAD TO BE ERECTED ON THE LAND. THE ASSESSING OFFICER EMPHASIZED T HAT THE PLOT HOLDER ENJOYED THE RIGHTS OVER THE PROPERTY IMMEDIATELY AFTER BOOKING AMOUNT WAS PAID AND THE SCHEDULE OF PAYMENT WAS DECIDED BETWEEN THE ASSESSEE AND THE PLOT HOLDER. ACCORDING TO THE ASSESSING OFFICER, WHEN CONFRONTED ON THIS ASPECT DURING R ECORDING OF STATEMENT IN THE COURSE OF SURVEY U/S.!33A, THE MANAGING DIRECTOR OF THE COMPANY WAS EVASIVE IN HIS REPLY. THE ASSESSEE WAS, THEREFORE, CALLED UPON BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY THE AMOUNTS RECEIVED IN LIEU OF LETTER OF ALLOTMEN T SHOULD NOT BE CONSIDERED AS SALES. HOWEVER, STRONGLY RESISTING THE MOVE, THE ASSESSEE CONTENDED THAT THE LETTER OF OFFER OF ALLOTMENT ISSUED TO THE BUYER AT THE TIME OF BOOKING, GIVING OUT THE DETAILS OF PAYMENT SCHEDULE AND RESERVATION OF SPECIFIC PLOT AND NO ACTUAL POSSESSION OF THE PLOT WAS GIVEN. IT WAS ALSO SOUGHT TO HIGHLIGHT THAT EVEN AFTER ISSUANCE OF SUCH A LETTER, THE COMPANY WAS STILL RESPONSIBLE FOR DEVELOPMENT OF PLOT. 2.3 IT WAS CONTENDED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE PR ACTICE OF ACCOUNTING FOR THE RECEIPTS AS INCOME IN THE YEAR IN WHICH THE SALE DEED WAS EXECUTED AND ONLY THEREAFTER, THE POSSESSION WAS GIVEN. IT WAS CLAIMED THAT UNTIL THEN, THE BOOKING AMOUNT RECEIVED WAS SHOWN ON LIABILITY SIDE WHICH, ON EXECUTION OF SA LE DEED, WAS ADJUSTED BY CREDITING SALES ACCOUNT TO THE EXTENT OF SALE PRICE OF THE PLOT AND THE AMOUNT OF DEVELOPMENT CHARGES COLLECTED FROM THE PLOT HOLDER WAS ADJUSTED AGAINST COMMON DEVELOPMENT EXPENSES INCURRED BY THE COMPANY AND SHOWN UNDER CURRENT A SSETS IN THE BALANCE SHEET. IT WAS FURTHER CONTENDED THAT AS PER THE 'BOMBAY TENANCY AND AGRICULTURAL LAND ACT, 1948 AND 'MAHARASHTRA LAND REVENUE CODE 1 AND OTHER LAND LAWS NO PERSON OTHER THAN A FARMER CAN PURCHASE OR ACQUIRE ANY RIGHT, TITLE, INTEREST OF WHATSOEVER KIND IN AN AGRICULTURAL LAND. THEREFORE, UNLESS THE 5 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE PROSPECTIVE BUYER PRODUCES A PROOF THAT HE IS A FARMER, THE CONVEYANCE OR SALE DEED COULD NOT BE EXECUTED IN HIS NAME WHICH FOLLOWS THAT THE RIGHTS IN A LAND BY MEANS OF TRANSFER OF RISKS AND REWARDS CANNOT BE TRANSFERRED TO HIM UNTIL THAT POINT OF TIME. IT WAS ALSO POINTED OUT THAT THE COMPANY RECEIVED CONSIDERATION IN INSTALLMENTS ON THE BASIS OF LETTER OF OFFER OF ALLOTMENT AND ONLY ON RECEIPT OF FULL AMOUNT AND PRODUCTION OF THE DOCUMENTS O F BEING AN AGRICULTURALIST, THE SALE DEED WAS EXECUTED AND ACTUAL AND LEGAL POSSESSION WAS GIVEN. THE ASSESSEE ALSO CLAIMED THAT THE METHOD OF REVENUE RECOGNITION CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE SINCE THE ASSESSMENT YEAR 1990 - 91 WHICH WAS ALSO ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENT U/S. 143(3) FOR THE A.Y. 1997 - 98. THE ASSESSEE IS ALSO STATED TO HAVE FURNISHED LETTERS FROM CERTAIN PLOT HOLDERS STATING THEREIN THAT LEGAL RIGHTS OVER THE PROPERTY WERE NOT HANDED OVER TO THE BUYERS NOR THE PO SSESSION HAS BEEN GIVEN TO THEM. 3. MEANWHILE, CERTAIN ENQUIRIES WERE CARRIED OUT BY THE ASSESSING OFFICER WITH THE BUYERS OF THE PLOTS AT THE PROJECT UNDER REFERENCE, NAMELY, GIRIVAN PROJECT. IT WAS FOUND BY THE ASSESSING OFFICER THAT CERTAIN PLOT OWNERS IN THE SAID SCHEME, NUMBERING ABOUT 250, HAD FORMED AN ASSOCIATION WHICH WAS REGISTERED UNDER THE SOCIETY'S REGISTRATION ACT, 1860. IN RESPONSE TO SUMMONS ISSUED BY THE ASSESSING OFFICER TO THE SAID ASSOCIATION ONE SHRI ARUN VINAYAK DESHMUKH, VICE PRESIDE NT OF THE SAID SOCIETY ATTENDED BEFORE THE ASSESSING OFFICER, WHOSE STATEMENT WAS RECORDED BY THE ASSESSING OFFICER. IN HIS STATEMENT, OPERA TIVE PART OF WHICH IS EXTRACTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, SHRI DESHMUKH, EXPLAINING THE PROC ESS OF ACQUIRING THE PLOT IN THE PROJECT, REPORTEDLY STATED THAT THE DEVELOPMENT OF THE PLOT WAS CARRIED OUT BY THE ASSESSEE COMPANY ON THE RESPECTIVE PLOTS ON BEHALF OF THE PLOT HOLDERS AND THE PLOT HOLDERS WERE ALSO ALLOWED TO CARRY OUT CONSTRUCTION INDE PENDENTLY AFTER OBTAINING NOC FROM THE COMPANY. IN HIS STATEMENT, IT IS ALSO ACKNOWLEDGED BY SHRI DESHMUKH THAT BY 6 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE VIRTUE OF THE LETTER OF OFFER OF ALLOTMENT, THE OWNERS HAD FULL RIGHTS WITH RESPECT TO THE REWARDS AND RISKS OF THE PROPERTY INVOLVED AND ACC ORDING TO HIM, REGISTRATION OF SALE DEED WAS A MERELY FORMALITY TO COMPLY WITH THE LAND REVENUE LAWS AND IT HAD NOTHING TO DO WITH THE ACTIVITIES THAT WERE CARRIED ON BY THE PLOT HOLDERS ON THE LAND. HE IS ALSO STATED TO HAVE DECLINED TO AUTHENTICATE THE C ONTENTS OF LETTERS PURPORTEDLY ISSUED BY CERTAIN PLOT OWNERS STATING THAT THEY DID NOT GET THE POSSESSION OR ENJOYMENT OVER THE PROPERTY BY VIRTUE OF THE LETTER OF OFFER OF ALLOTMENT. MR. DESHMUKH CLARIFIED THAT THAT THE CONTENTS OF THE SAID LETTERS WERE D RAFTED BY THE COMPANY AND THAT EVEN THE SIGNATURES OF THE OWNERS WERE OBTAINED BY FRAUDULENT MEANS. 3.1 THE ASSESSING OFFICER, ON THE BASIS OF THE ABOVE AFFIRMATIONS AND EVIDENCES COLLECTED DURING THE SURVEY, THUS, DREW THE INFERENCE THAT THE ASSESSEE WA S INDULGING INTO THE PRACTICE OF GIVING POSSESSION OF THE SAID PLOTS TO THE BUYERS BUT NOT RECORDING THE SALES. TO AFFIRM HIS VIEW, THE ASSESSING OFFICER HAS HIGHLIGHTED THE SEQUENCE OF EVENTS INVOLVING VARIOUS STAGES, IN RESPECT OF PLOT NO.D - 47, A - 3, BELO NGING TO DR. R.M. CHATURVEDI, AS UNDER: - SR. NO. DATE DETAILS 1. 25/11/2002 LETTER OF OFFER OF ALLOTMENT AND RECEIPT OF ENTIRE PLOT COST 2. 20/12/2002 NOC FOR DEVELOPMENT OF PLOT AND CONSTRUCTION OF SERVANT QUARTERS CUM STORE HOUSE 3. 10/12/2003 PERMISSION OF CONSTRUCTION OF SERVANT QUARTERS 4. JAN 2004 CONSTRUCTION OF SERVANTS QUARTERS COMPLETED 5. TILL DATE AGREEMENT FOR SALE IS NOT PREPARED AND REGISTERED HIGHLIGHTING THE ABOVE, THE ASSESSING OFFICER EMPHASIZED THAT T HE ASSESSEE HAD HANDED OVER THE POSSESSION AND RIGHTS OVER THE PROPERTY TO THE BUYER BUT NEVER SHOWED THE AMOUNT RECEIVED BY IT AS SALES. CITING THIS POSITION AND ALSO DRAWING ATTENTION TO THE STATEMENT OF SHRI ARUN DESHMUKH, THE ASSESSEE WAS ASKED TO EXPL AIN ITS STAND ON THE ISSUE THE 7 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE ASSESSING OFFICER HAD RAISED. OBJECTING TO TREAT THE ADVANCES AS SALES, THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT SUCH AN ACTION WOULD BE AGAINST THE PRINCIPLES OF ACCOUNTING AND WOULD NOT GIVE TRUE AND FAIR VI EW OF PROFIT AND AFFAIRS OF THE COMPANY BUT WOULD SHOW ABSURD RESULTS. FURTHER, CLAIMING THAT THE BOOKING AMOUNT IS ALSO INCLUSIVE OF DEVELOPMENT OF PROJECT ALSO . IT WAS CONTENDED THAT EVEN PRESUMING THAT THE BOOKING RECEIPTS WERE TO BE CONSIDERED AS SALE S, THEN CORRESPONDING EXPENSES TOWARDS PROJECT DEVELOPMENT WHICH WAS CAPITALIZED AND NOT CLAIMED AS REVENUE EXPENDITURE, OUGHT TO HAVE BEEN ALLOWED. FURTHER, RESPONDING TO THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER, THE ASSESSEE ALSO QUESTIONED THE VALIDITY OF THE STATEMENT OF SHRI ARUN DESHMUKH STATING THAT THE SAME WAS NOT SUPPORTED BY ANY EVIDENCE BESIDES CLAIMING THAT THE PLOT NO.D - 47/A - 3 CITED BY THE ASSESSING OFFICER DID NOT BELONG TO DR. CHATURVEDI AS CITED BY THE ASSESSING OFFICER. 4. THE LEARNED ASSESSING OFFICER, HOWEVER, RELYING ON THE VARIOUS DOCUMENTS GATHERED DURING THE SURVEY AND ALSO RELYING ON THE STATEMENT OF SHRI ARUN DESHMUK STUCK CONCLUDED T HAT THE ASSESSEE HANDED OVER THE POSSESSION OF THE PROPERTY AND RIGHTS OF EFFECTIVE ENJ OYMENT OF THE SAID PROPERTY TO THE BUYERS IMMEDIATELY AFTER ENTERING INTO THE LETTER OF OFFER OF ALLOTMENT AND DECISION OF SCHEDULE OF PAYMENT. IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTI NG WHEREIN THE REVENUES ARE TO BE CONSIDERED WHEN THEY ACCRUE AND EXPENSES ARE TO BE CONSIDERED WHEN THE LIABILITY TO INCUR THE SAME ARISES. HAVING INFERRED SO, THE ASSESSING OFFICER SOUGHT TO ADDRESS WHETHER, IN THE GIVEN FACTUAL BACKGROUND AND CIRCUMSTAN CES, THE ASSESSEE HAS SOLD/TRANSFERRED THE PLOTS SO AS TO ACCOUNT IT AS REVENUE IN ITS PROFIT AND LOSS ACCOUNT. ATTEMPTING TO DEFINE THE TERM 'SALE', THE ASSESSING OFFICER MENTIONS THAT AS PER THE ORDINARY MEANING OF THE WORD SALE, IT IS A TRANSACTION ENTE RED 8 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE INTO VOLUNTARILY BETWEEN TWO PERSONS KNOWN AS THE BUYER AND THE SELLER BY WHICH THE BUYER ACQUIRES PROPERTY OF THE SELLER FOR AN AGR EED CONSIDERATION KNOWN AS A PRICE. THE ASSESSING OFFICER POINTS OUT THAT IN THE PRESENT CASE, WHAT IS TRANSFERRED OR SO LD BY ASSESSEE TO THE BUYER OF PLOT ARE HIS RIGHTS IN THE PLOT OF LAND UNDER CONSIDERATION. THUS, ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS RELINQUISHED/ SOLD HIS RIGHTS OVER THAT PIECE OF LAND ON RECEIPT OF CONSIDERATION AGAINST THE PLOT. THUS, ACCORDING TO THE ASSESSING OFFICER, THOSE LETTERS OF OFFER OF ALLOTMENT ARE IN THE NATURE OF AGREEMENTS OF SALE WHICH ARE NOT REGISTERED. STRESSING UPON OF THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSING OFFICE R OBSERVED THAT RECEIPT OF TOTAL CONSIDERATION IS NOT MATERIAL BUT WHAT IS MATERIAL IS THERE WAS OBLIGATION CREATED ON THE BUYER BY WAY OF AN AGREEMENT VIZ. LETTER OF OFFER OF ALLOTMENT BETWEEN THE ASSESSEE AND THE BUYER AND VIEWED FROM THAT PERSPECTIVE, R EVENUE ACCRUED TO THE ASSESSEE . FURTHER, REFERRING TO THE TERM 'TRANSFER' AS DEFINED IN CLAUSE (VI) OF SECTION 2(47) OF THE ACT, THE ASSESSING OFFICER ASSERTED THAT IF THE TRANSACTION HAS THE EFFECT OF TRANSFERRING, OR ENABLING THE ENJOYMENT OF ANY IMMOVAB LE PROPERTY THEN THE SAME WOULD BE CONSIDERED AS THE TRANSFER OF ASSET FOR THE PURPOSES OF INCOME TAX ACT, 1961. NOTING THAT IN THE PRESENT CASE, THE BUYERS WERE ENABLED THE ENJOYMENT OF THE RIGHTS OVER THE PROPERTY BY VIRTUE OF THE LETTER OF OFFER OF ALLO TMENT, THE ASSESSING OFFICER CONCLUDES THAT FEATURES RELATING TO THE PLOTS SOLD BY THE ASSESSEE SQUARELY COVERED BY CLAUSE(VI) OF THE SAID SECTION OF THE ACT. 5. ADDRESSING THE ISSUE RAISED BY THE ASSESSEE THAT SINCE THE SALE DEEDS IN RESPECT OF THE PLOTS OF WHICH LETTER OF ALLOTMENTS WERE GIVEN HAVE NOT BEEN REGISTERED, THE TRANSACTION W OULD NOT QUALIFY AS SALE BECAUSE THE RISKS AND REWARDS ARE NOT TRANSFERRED TO THE BUYERS LEGALLY, THE ASSESSING OFFICER MENTIONS THAT THERE IS NO PROVISION IN THE INCOME TA X ACT SAYING THAT REGISTRATION IS COMPULSORY FOR THE PURPOSE OF 9 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE TRANSFER/SALE OF IMMOVABLE PROPERTY. ACCORDING TO HIM, IN SUCH A SCENARIO, THE CONCEPT OF SALE OF IMMOVABLE PROPERTY HAS TO BE GATHERED FROM SECTION 54 OF THE TRANSFER OF PROPERTIES ACT 1882, ACCORDING TO WHICH THE MOST IMPORTANT AND MATERIAL TO THE TRANSFER IS THE INTENTION OF THE PARTIES. IT IS EMPHASIZED BY THE ASSESSING OFFICER THAT PROPERTIES DO NOT NECESSARILY PASS ON AS SOON AS THE INSTRUMENT IS REGISTERED, FOR, THE TRUE TEST IS THE INTE NTION OF THE PARTIES, WHILE REGISTRATION IS PRIMA FACIE A PROOF OF AN INTENTION TO TRANSFER, BUT IT IS NO PROOF OF AN OPERATIVE TRANSFER, IF THERE IS A CONDITION PRECEDENT AS TO THE PAYMENT OF CONSIDERATION. IN THIS CONTEXT, THE ASSESSING OFFICER HAS PLACE D RELIANCE ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF KASTURI (D) VS . CIT (2001) REPORTED IN 251 ITR 532, WHERE THE COURT HELD THAT EVEN IN ABSENCE OF REGISTRATION WHERE POSSESSION IS DELIVERED IN PURSUANCE OF AGREEMENT OF SALE BUT NOT REGISTE RED, THE SAME MAY BE QUALIFIED AS TRANSFER. 6. THE ASSESSING OFFICER HAS ALSO ATTEMPTED TO VIEW THE TRANSACTIONS IN QUESTION IN THE CONTEXT OF THE SALE OF GOODS ACT, 1930. THE ASSESSING OFFICER NOTED THAT ACCORDING TO THE SAID ACT, THE SALE HAS TO BE RECOG NIZED ONCE THE DELIVERY OF GOODS TAKES PLACE. IF THE GOODS ARE RETURNED BY THE BUYER/CUSTOMER THEN THE SELLER IS ELIGIBLE TO CLAIM THE SAME AS SALES RETURN OR REJECTION OR BAD DEBTS AS PER THE FACTS OF THE TRANSACTION AND IN THE SCHEME OF INCOME TAX ACT, 1 961, HE WILL BE ELIGIBLE FOR SUCH A CLAIM. THUS, STRESSING THAT THE DELIVERY OF GOODS ENTAILS THE POSSESSION OF THE GOODS IN THE HANDS OF THE BUYER, THE ASSESSING OFFICER OBSERVED THAT IN THE PRESENT CASE, THE GOODS IN THE FORM OF PLOTS OF LAND HAVE BEEN T RANSFERRED TO THE BUYER ENABLING HIM TO THE ENJOYMENT OF THE SAID PROPERTY/PLOTS. THUS, HOLDING THAT THE LETTER OF OFFER OF ALLOTMENTS ENTERED INTO BY THE ASSESSEE AND THE PROSPECTIVE BUYERS WERE IN THE FORM OF AGREEMENTS OF SALE OF PLOTS, THE ASSESSING OF FICER CONCLUDED THAT THE ASSESSEE HAS SOLD THE PLOTS IN RESPECT OF 10 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE WHICH THE LETTER OF OFFER OF ALLOTMENTS WERE ENTERED INTO. OBSERVING THAT THE ASSESSEE HAS NOT CONSIDERED/DECLARED THE AMOUNTS RECEIVED IN LIEU OF SUCH SALES IN ITS BOOKS OF ACCOUNTS AS REV ENUE, THE ASSESSING OFFICER FURTHER HELD THAT SUCH AMOUNTS RECEIVED BY THE ASSESSEE IN LIEU OF LETTER OF OFFER OF ALLOTMENTS WHICH ARE IN THE FORM OF AGREEMENTS OF SALE OF PLOTS WERE SALE CONSIDERATION RECEIVED BY THE ASSESSEE IN THE RESPECTIVE YEARS. SUCH AGGREGATE CONSIDERATIONS RECEIVED BY THE ASSESSEE WERE THEN QUANTIFIED BY THE ASSESSING OFFICER ON THE BASIS OF LETTERS OF ALLOTMENT FOR DIFFERENT ASSESSMENT YEARS AS UNDER: - ASSESSMENT YEAR PLOT COST QUANTIFIED AS PER LETTER OF OFFER OF ALLOTMENT 2002 - 03 RS.87,51,230/ - 2004 - 05 RS.73,45,173/ - 2005 - 06 RS.1,64,22,84/ - 2006 - 07 RS.1,97,96,405/ - 2007 - 08 RS.5,35,44,915/ - 2008 - 09 RS.4,43,18,258/ - 7. IN SUM AND SUBSTANCE ON THE BASIS OF THE LETTER OF OFFER/ALLOTMENT ISSUED BY THE ASSESSEE TO THE BUYERS OF THE PLOT. THE ASSESSING OFFICER RE - CASTED THE ENTIRE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR ALL THESE SIX ASSESSMENT YEARS AND RE - WORKED OUT THE NET PROFIT AS UNDER: PARTICULARS ASSESSMENT YEAR (AMOUNT IN RS.) 03 - 04 04 - 05 05 - 06 06 - 07 07 - 08 08 - 09 SALES OF QUANTIFIED 87,51,230 73,45,173 1,64,22,842 1,97,96,405 5,35,44,915 4,43,18,258 ADD: CLOSING STOCK 85,25,093 86,88,972 89,50,665 86,17,757 99,56,341 1,05,39,518 LESS: OPENING STOCK 82,79,324 85,25,093 86,88,972 89,50,6 65 86,17,757 99,56,341 GROSS PROFIT 89,96,999 75,09,052 1,66,84,535 1,94,63,497 5,48,83,499 4,49,01,435 ADD: OTHER INCOME 35,64,555 53,22,519 37,35,476 64,06,134 61,41,069 88,25,789 LESS: EXPENSES AS PER P & L A/C 96,97,937 91,49,453 1,04,58,789 1,51,68,786 1,57,40,110 1,45,98,081 NET PROFIT 28,63,617 36,82,118 99,61,222 1,07,00,846 4,52,84,458 3,91,29,143 11 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE THE ABOVE EXERCISE IS DONE BY THE ASSESSING OFFICER MAINLY ON THE TWO REASONS I. BUYER GETS EFFECTIVE POSSESSION OR RIGHT OF ENJOYMENT OF THE PROPERTY ON RECEIPT OF LETTER OF OFFER / ALLOTMENT. II. AS PER PROVISIONS SEC. 2(47) OF INCOME TAX ACT ANY TRANSACTION WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF THE IMMOVABLE PROPERTY . 8. THE ASSESSEE CH ALLENGED AL L THE REFRAME ASSESSMENT BY THE ASSESSING OFFICER BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESSES. AS ON PRINCIPLES THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE TOTAL AMOUNT AS PER LETTER OF ALLOTMENT AS A SALE PROCE EDS OF THE PLOT AND BRINGING THE CORRESPONDING INCOME TO TAX IN THE YEARS/YEAR OF SIGNING OF THE LETTER OF ALLOTMENT. LD. CIT(A) DIRECTED TO VERIFY WHETHER THERE WAS A DOUBLE TAXATION OF THE ANY AMOUNT. THE REASONS AND FINDINGS OF THE LD. CIT(A) FOR ENDO RSING THE VIEW TAKEN BY THE ASSESSING OFFICER ARE AS UNDER: 6. THE CONTENTIONS RAISED BY THE LD. COUNSEL FOR THE APPELLANT ARE CAREFULLY EXAMINED WITH REFERENCE TO THE FACTS OF THE CASE AND THE MATERIAL PLACED ON RECORD. THE APPELLANT ACQUIRES LAND FROM FA RMERS OR OWNERS WHICH WERE THEN DEVELOPED INTO PLOTS OF DIFFERENT SIZES. THE PROSPECTIVE BUYERS VISIT THE SITE OF THE PROJECT WHERE EMPLOYEES OF THE APPELLANT APPRISE THE CUSTOMERS OF THE VARIOUS ASPECTS OF THE PROPERTY. INTERESTED CUSTOMERS FILL - UP THE BO OKING FORM AFTER CHOOSING THE PLOT OF LAND BY PAYING THE BOOKING AMOUNT. THE APPELLANT ALSO COLLECTS VARIOUS AMOUNTS TOWARDS DEVELOPMENT OF THE PLOT WHICH INCLUDED FENCING, LEVELING OF THE LAND, RUBBLE FILLING, BORE WELL DRILLING, BUSH CLEANING, TERRACING, AND PITCHING BY STONES AND RUBBLE AND PROVISION OF ACCESS ROAD. THE BUYER HAS TO CONFIRM THE BOOKING WITHIN 10 - 15 DAYS OR ELSE THE BOOKING AMOUNT WOULD BE FORFEITED. ON CONFIRMATION OF THE BOOKING, A LETTER OF OFFER OF ALLOTMENT IS ENTERED INTO BETWEEN TH E APPELLANT AND THE COMPANY, WHICH CONFERS VARIOUS RIGHTS ON THE BUYER OVER THE PROPERTY AND THE BUYER OF THE PLOT HAS ALSO THE LIBERTY OF PREPARING THE MAPS AND DESIGNS FOR THE DEVELOPMENT OF HIS PLOT. THE MAIN CONTROVERSY IN THE PRESENT 12 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE CASE IS THE TIMIN G OF RECOGNITION OF REVENUE FROM THE SALE OF PLOTS OF LAND IN ONE SUCH REAL ESTATE PROJECT KNOWN AS GIRIVAN DEVELOPED BY THE APPELLANT. ACCORDING TO THE APPELLANT, THERE IS SIGNIFICANT UNCERTAINTY IN COLLECTION OF AMOUNT OF SALE CONSIDERATION AT THE TIME O F ISSUE OF 'LETTER OF OFFER OF ALLOTMENT' TO THE BUYERS OF PLOTS OF LAND. CITING THIS REASON, THE APPELLANT HAS RECOGNISED THE REVENUE FROM SALE OF PLOTS FOR ALL THE YEARS UNDER APPEAL AT THE TIME OF EXECUTION OF SALE DEED ON RECEIPT OF FULL AMOUNT OF SALE CONSIDERATION. ON THE OTHER HAND, THE CASE OF THE ASSESSING OFFICER IS THAT ALL THE RIGHTS ASSOCIATED WITH THE OWNERSHIP OF THE PLOT WERE TRANSFERRED TO THE BUYER AT THE TIME OF SIGNING THE OFFER OF ALLOTMENT AND THEREFORE THE REVENUE FROM SALE OF PLOTS H AS TO BE RECOGNIZED IN THE YEAR OF OFFER OF ALLOTMENT NOTWITHSTANDING THE POSITION THAT THE SALE CONSIDERATION WAS BEING RECEIVED IN INSTALLMENTS SPREADING OVER A PERIOD OF TWO TO FOUR YEARS. AS ALREADY MENTIONED, THE COMPANY WAS ENGAGED IN THE BUSINESS OF ACQUIRING THE LAND, DEVELOPING THE LAND INTO PLOTS OF DIFFERENT DIMENSIONS AND SELLING IT TO THE INTERESTED BUYERS. THEREFORE, PURCHASE AND SALE OF LAND DURING THE YEARS IS AN ADVENTURE IN NATURE OF TRADE AND THE LAND IN QUESTION CONSTITUTES STOCK - IN - TRAD E AND THE INCOME THERE FROM IS BUSINESS INCOME AS ADMITTED BY THE APPELLANT. IN FACT, THE INCOME FROM PURCHASE AND SALE OF LAND WAS BROUGHT TO TAX UNDER THE HEAD 'INCOME FROM BUSINESS' BY THE ASSESSING OFFICER. THE PROVISIONS OF SECTION 2(47) ARE APPLICABL E ONLY IN CASE OF CAPITAL ASSETS AND UNDER SECTION 2(14), CAPITAL ASSETS DO NOT INCLUDE STOCK - IN - TRADE. THEREFORE, AS SUBMITTED BY THE LD. COUNSEL, PROVISIONS OF SECTION 2(47) ARE NOT APPLICABLE TO THE TRANSACTIONS IN QUESTION. NOW THE ISSUE THAT ARISES IS WHEN THE INCOME FROM SALE OF PLOTS IN QUESTION, WHICH CONSTITUTE STOCK - IN - TRADE IN THE CASE OF THE APPELLANT, IS REQUIRED TO BE RECOGNIZED IN THE PROFIT & LOSS A/C. FOR DECIDING THE TIMING OF RECOGNITION OF INCOME FROM SALE OF GOODS, IT IS NECESSARY TO RE FER TO THE CONDITIONS SPECIFIED IN PARAGRAPHS 10 AND 11 OF ACCOUNTING STANDARD (AS) - 9, WHICH READ AS UNDER: 10. REVENUE FROM SALES OR SERVICE TRANSACTIONS SHOULD BE RECOGNIZED WHEN THE REQUIREMENTS AS TO PERFORMANCES SET OUT IN PARAGRAPHS 11 AND 12 ARE SAT ISFIED, PROVIDED THAT AT THE TIME OF PERFORMANCE IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION. IF AT THE TIME OF RAISING OF ANY CLAIM IT IS UNREASONABLE TO EXPECT ULTIMATE COLLECTION, REVENUE RECOGNITION SHOULD BE POSTPONED. 13 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE 11. IN A TRANSACTION IN VOLVING THE SALE OF GOODS, PERFORMANCE SHOULD BE REGARDED AS BEING ACHIEVED WHEN THE FOLLOWING CONDITIONS HAVE BEEN FULFILLED: (I) THE SELLER OF GOODS HAS TRANSFERRED TO THE BUYER THE PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFICANT RISKS AND REWARDS O R OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER AND THE SELLER RETAINS NO EFFECTIVE CONTROL OF THE GOODS TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP; AND ( II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WIL L BE DERIVED FROM THE SALE OF THE GOODS.' AS STIPULATED IN THE AS - 9, A KEY CRITERION FOR DETERMINING WHEN TO RECOGNISE REVENUE FROM A TRANSACTION INVOLVING THE SALE OF GOODS IS THAT THE SELLER HAS TRANSFERRED THE PROPERTY IN THE GOODS TO THE BUYER FOR A CO NSIDERATION. THE TRANSFER OF PROPERTY IN GOODS, IN MOST CASES, RESULTS IN OR COINCIDES WITH THE TRANSFER OF SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP TO THE BUYER. HOWEVER, THERE MAY BE SITUATIONS WHERE TRANSFER OF PROPERTY IN GOODS DOES NOT COINCIDE WITH THE TRANSFER OF SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP. REVENUE IN SUCH SITUATIONS IS RECOGNISED AT THE TIME OF TRANSFER OF SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP TO THE BUYER. ANOTHER IMPORTANT CRITERION FOR RECOGNITION OF INCOME FROM SUCH TRANSA CTIONS IS THAT THERE IS NO SIGNIFICANT UNCERTAINTY REGARDING ULTIMATE COLLECTION OF THE AMOUNT OF CONSIDERATION. THE FACTS OF THE PRESENT CASE ARE NOW TESTED VIS - A - VIS THESE CRITERIA LAID DOWN IN AS - 9. A) EFFECTIVE CONTROL OF THE PLOTS TRANSFERRED AN D POSSESSION OF THE PLOTS: 6.1 THE CONTENTION OF THE LD. COUNSEL FOR THE APPELLANT IN THIS REGARD IS THAT EXCLUSIVE POSSESSION IS NOT GIVEN TO THE BUYERS AT THE TIME OF SIGNING OF 'LETTER OF OFFER OF ALLOTMENT OF PLOT AND THE COMPANY RETAINS FULL AND EFFE CTIVE CONTROL OF THE OWNERSHIP OF THE LAND AT ALL THE TIMES UNTIL THE SALE DEED IS EXECUTED. THIS CRITERION HAS TO BE EXAMINED WITH REFERENCE TO THE TERMS AND CONDITIONS OF AGREEMENT ENTERED BETWEEN THE PARTIES INVOLVED IN THE TRANSACTION. IT IS THEREFORE APPROPRIATE TO REFER TO THE FOLLOWING TERMS AND CONDITIONS OF THE LETTER OF OFFER OF ALLOTMENT AS MENTIONED AT PAGE 3 OF THE ASSESSMENT ORDER: 14 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE YOU HAVE BEEN GIVEN PERMISSION TO USE THE SAME, SUBJECT TO AND AGAINST THE PERFORMANCE OF THE TERMS AND CONDITION S OF THIS LETTER OF OFFER OF ALLOTMENT AND THE RULES AND REGULATIONS OF THE PROJECT AS UNDER: - A. YOU WILL USE THE PLOT FOR HORTICULTURE, AFFORESTATION, PLANTATION, FLORICULTURE AND CONSTRUCTION OF FARM HOUSE AS PER THE RULES. B. YOU WILL MAKE THE CO NSTRUCTION ON THE PLOT AS PER THE RULES AND REGULATIONS OF GOVERNMENT BODIES AND USE THE SAME ACCORDING TO ITS SANCTIONED PURPOSE. C. YOU WILL NOT USE THE PLOT FOR POULTRY, PIGGERY, GOAT FARMING, DAIRY, BRICK BET, WORKSHOP OR FACTORY. D. WHILE APPOIN TING ANY CARE TAKER OR SERVANT ON YOUR PLOT, YOU WILL OBTAIN 'GIRIVAN PROJECT EXPERIENCE CERTIFICATE' OF THE CONCERNED PERSON FROM COMPANY. E. YOU WILL NOT USE OR ALLOW TO USE THE INFRASTRUCTURAL FACILITIES OF GIRIVAN PROJECT OWNED AND CONTROLLED BY CO MPANY I.E. ROADS, ELECTRICITY, WATER RESOURCES, COMMON FACILITY CENTERS, ADMINISTRATION SET - UP ETC. FOR THE USE, OCCUPANCY AND ENJOYMENT OF ANY OTHER LAND IN AREA OF GIRIVAN PROJECT OR IN THE VICINITY THEREOF, EXCEPT THE PLOT ALLOTTED TO YOU, 6.1.1 AS SEEN FROM A COPY OF THE LETTER OF ALLOTMENT FURNISHED BY THE APPELLANT, THE BUYERS ARE GIVEN THE RIGHTS TO USE THE ALLOTTED PLOT FOR AN AGRICULTURAL PURPOSE AND FOR CONSTRUCTION OF THEIR FARM HOUSE OF COURSE SUBJECT TO THE RULES AND REGULATIONS AS MENTIONED AB OVE. DURING THE SURVEY OPERATION, THE ASSESSING OFFICER CONDUCTED ENQUIRIES, WHICH REVEALED THAT SOME OF THE PLOT OWNERS IN THE PROJECT 'GIRIVAN' HAD FORMED AN ASSOCIATION WHICH WAS REGISTERED UNDER THE SOCIETY'S REGISTRATION ACT, 1860. SHRI ARUN VINAYAK D ESHMUKH, VICE PRESIDENT OF THE SAID SOCIETY EXPLAINED THE ENTIRE PROCESS OF ACQUIRING THE PLOT IN THE PROJECT AND ALSO STATED THAT THE DEVELOPMENT OF THE PLOT WAS CARRIED OUT EITHER BY THE APPELLANT COMPANY ON BEHALF OF THE PLOT HOLDERS OR BY THE PLOT HOLD ERS THEMSELVES AFTER OBTAINING NOC FROM THE COMPANY. IN HIS STATEMENT RECORDED ON 20.12.2010, WHICH IS EXTRACTED AT PAGE 9 & 10 OF THE ASSESSMENT ORDER, SHRI DESHMUKH FURTHER STATED THAT BY VIRTUE OF THE LETTER OF OFFER OF ALLOTMENT, THE BUYERS ACQUIRED FU LL RIGHTS OVER 15 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE THE PROPERTY INVOLVED AND THE REGISTRATION OF SALE DEED WAS A MERE FORMALITY TO COMPLY WITH THE LAND REVENUE LAWS AND IT HAD NOTHING TO DO WITH THE ACTIVITIES THAT WERE CARRIED ON BY THE PLOT HOLDER ON THE LAND. WITH REGARD TO CONTENTS OF L ETTERS PURPORTEDLY ISSUED BY CERTAIN PLOT OWNERS STATING THAT THEY DID NOT GET THE POSSESSION OR ENJOYMENT OVER THE PROPERTY BY VIRTUE OF THE LETTER OF OFFER OF ALLOTMENT, MR. DESHMUKH CLARIFIED THAT THAT THE CONTENTS OF THE SAID LETTERS WERE DRAFTED BY TH E COMPANY AND THAT EVEN THE SIGNATURES OF THE BUYERS WERE OBTAINED BY FRAUDULENT MEANS. THE STATEMENT OF THE VICE - PRESIDENT OF THE PLOT OWNERS ASSOCIATION CLEARLY SHOWS THAT THE EFFECTIVE POSSESSION OF THE PROPERTY WAS HANDED OVER TO THE BUYERS ALONG WITH THE RIGHTS OF ENJOYMENT OF THE PROPERTY SOON AFTER SIGNING THE LETTER OF OFFER OF ALLOTMENT. AS REGARDS THE CLAIM OF NOT GRANTING OF OPPORTUNITY FOR CROSS - EXAMINATION OF SHRI DESHMUKH, IT IS TO BE NOTED THAT THE RIGHT TO CROSS - EXAMINATION IS NOT AN ABSOLUT E RIGHT AND THE RIGHT OF HEARING DOES NOT INCLUDE A RIGHT TO CROSS - EXAMINE. RIGHT TO CROSS EXAMINE THE WITNESS WHO MADE ADVERSE REPORT IS NOT AN INVARIABLE ATTRIBUTE OF THE REQUIREMENT OF THE DICTUM 'AUDI ALTERAM PARTEM'. THE PRINCIPLES OF NATURAL JUSTICE DO NOT REQUIRE FORMAL CROSS EXAMINATION. FORMAL CROSS EXAMINATION IS A PART OF PROCEDURAL JUSTICE AND IS GOVERNED BY RULES OF EVIDENCE AND IT IS A CREATION OF COURT. THEREFORE, IT CANNOT BE LAID DOWN AS A GENERAL PROPOSITION OF LAW THAT THE ASSESSING OFFIC ER CANNOT RELY ON ANY EVIDENCE WHICH HAS NOT BEEN SUBJECTED TO CROSS EXAMINATION. IN THE PRESENT CASE, EVEN OTHERWISE THE INTEREST OF EQUITY AND NATURAL JUSTICE IS SERVED AS A COPY OF THE STATEMENT OF MR. DESHMUKH WAS MADE AVAILABLE TO THE APPELLANT AND TH E APPELLANT, VIDE THE SHOW CAUSE NOTICE OF THE AO DATED 20.12.2010, WAS GIVEN FULL OPPORTUNITY TO HAVE ITS SAY ON THE STATEMENT AND THEREFORE PRINCIPLES OF NATURAL JUSTICE HAVE NOT BEEN VIOLATED. THE LETTER OF OFFER OF ALLOTMENT ENTERED INTO BY THE APPELL ANT AND THE PROSPECTIVE BUYERS WAS IN THE FORM OF AGREEMENT OF SALE OF PLOTS AND THE APPELLANT HAS SOLD THE PLOTS IN RESPECT OF WHICH THE LETTER OF OFFER OF ALLOTMENT WAS SIGNED. IN SUCH A SITUATION, THE CONFIRMATIONS FROM VARIOUS BUYERS FILED BY THE APPEL LANT THAT POSSESSION WAS GIVEN TO THEM ONLY AT THE TIME OF EXECUTION OF SALE DEED DOES NOT CARRY CONVICTION AND IT IS ONLY AN AFTERTHOUGHT AND THESE CONFIRMATIONS ARE CONTRARY TO THE CLAUSE USE AND ENJOYMENT OF THE SAID PLOT' INCORPORATED IN THE LETTER OF ALLOTMENT, WHICH IS SCANNED AND REPRODUCED HEREUNDER: 16 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE USE AND EN JO YMENT OF THE SAID PLOT : - YOU HAVE TO USE THE SAID PLOT FOR AN AGRICULTURAL PURPOSE AND FOR CONSTRUCTION OF YOUR OWN FARMHOUSE AS PER THE RULES AND REGULATIONS. YOU WILL NOT DO OR CARRY ANY ACTIVITY WHICH IS A NUISANCE OR HARMFUL TO THE PROJECT AND/OR THE OTHER PLOT - HOLDERS. YOU WILL DEVELOP YOUR SAID PLOT AND MAKE PLANTATION, CULTIVATION ETC. THEREUPON AND WILL NOT RETAIN SAID PLOT UNDEVELOPED OR AS IT IS. YOU ARE WELL AWARE THAT ACTUAL ENJ OYMENT OF THE PROPERTY IS MORE IMPORTANT THING, RATHER THAN TO HOLD IT ON PAPER. 6.1.2 IT IS ALSO NOTICED FROM THE LETTER OF ALLOTMENT THAT THE BUYERS ARE ENTITLED TO TRANSFER THE ALLOTTED PLOT OR ALIENATE ANY RIGHT, TITLE, INTEREST OR BENEFITS THEREIN OF WHATSOEVER NATURE IN FAVOUR OF ANY OTHER PERSON/PERSONS ON OBTAINING NOC AND NO DUES CERTIFICATE FROM THE COMPANY. THE QUESTION OF TRANSFER OF PLOT OR RIGHTS THEREIN ARISES ONLY WHEN SUCH RIGHTS ARE CONFERRED TO THE BUYERS AT THE TIME OF ALLOTMENT. ALL THE SE FACTS CLEARLY INDICATE THAT THE GOODS IN THE FORM OF PLOTS OF LAND HAVE BEEN TRANSFERRED TO THE BUYER AT THE TIME OF SIGNING THE OFFER OF ALLOTMENT ENABLING HIM TO THE POSSESSION AND ENJOYMENT OF THE SAID PROPERTY/PLOTS. 6.1.3 EVEN PRESUMING FOR A WHI LE THAT THE POSSESSION GIVEN TO THE BUYERS UNDER THE LETTER OF ALLOTMENT IS NOT EXCLUSIVE POSSESSION AS CLAIMED BY THE APPELLANT, IT IS TO BE NOTED THAT THE POSSESSION NEED NOT NECESSARILY BE THE SOLE AND EXCLUSIVE POSSESSION OF THE BUYER FOR RECOGNITION O F INCOME FROM SALE OF PLOTS. SO LONG AS THE BUYER IS, BY VIRTUE OF THE POSSESSION GIVEN, ENABLED TO EXERCISE GENERAL CONTROL OVER THE PROPERTY AND TO MAKE USE OF THE PROPERTY FOR THE INTENDED PURPOSE, THE MERE FACT THAT THE APPELLANT HAS ALSO THE RIGHT TO ENTER THE PROPERTY TO OVERSEE THE DEVELOPMENT ACTIVITY IN THE PROJECT OR TO ENSURE PERFORMANCE OF THE TERMS AND CONDITIONS OF OFFER OF ALLOTMENT DOES NOT TAKE AWAY THE RIGHTS OF THE BUYER ACQUIRED UNDER THE LETTER OF ALLOTMENT. IF THE CONTENTION OF THE APP ELLANT IS ACCEPTED, THERE IS EVERY POSSIBILITY OF DEFERRING THE LAST INSTALLMENT OF A SMALL AMOUNT TO A DISTANT DATE, AND EVEN IF SMALL AMOUNT REMAINS TO BE PAID AND THE BUYER FAILS TO PAY, LEADING TO A DISPUTE BETWEEN T PARTIES, THE TRANSACTION CANNOT BE SAID TO HAVE BEEN EFFECTED AND THE RECOGNITION OF INCOME FROM THE TRANSACTION MAY BE INDEFINITELY POSTPONED. THERE IS A ALSO POSSIBILITY OF THE APPELLANT WITH THE CONNIVANCE OF THE BUYERS POSTPONING THE EXECUTION OF CONVEYANCE DEED ON THE OSTENSIBLE GROUND THAT THE ENTIRE 17 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE CONSIDERATION HAS NOT BEEN RECEIVED AND SOME BALANCE REMAINED TO BE PAID. THEREFORE, POSSESSION GIVEN TO THE BUYERS NEED NOT RIPEN ITSELF INTO EXCLUSIVE POSSESSION ON PAYMENT OF ALL THE INSTALLMENTS IN ENTIRETY FOR THE PURPOSE OF RECOGNITI ON OF INCOME. THERE IS NO JUSTIFICATION TO POSTPONE THE RECOGNITION OF INCOME TO A POINT OF TIME WHEN THE POSSESSION OF THE BUYER WILL BECOME EXCLUSIVE POSSESSION AFTER FULL CONSIDERATION IS PAID AND SALE DEED IS EXECUTED. 6.1.4 THUS, BY VIRTUE OF LETTER O F ALLOTMENT, POSSESSION OF THE PLOT IS HANDED OVER TO THE BUYERS ALONG WITH RIGHTS OF ENJOYMENT OVER THE PROPERTY AND IT IS NOT CORRECT TO SAY THAT THE APPELLANT RETAINS FULL AND EFFECTIVE CONTROL OF THE OWNERSHIP OF THE LAND AT ALL THE TIMES UNTIL THE SAL E DEED IS EXECUTED AND THEREFORE THE FIRST CRITERION LAID DOWN IN AS - 9 FOR RECOGNITION OF INCOME FROM SALE OF PLOTS IN THE RESPECTIVE YEARS OF ALLOTMENT IS SATISFIED. B) TRANSFER OF ALL SIGNIFICANT RISKS AND REWARDS TO THE BUYERS: 6.2 DRAWING ATTENTI ON TO PARAGRAPH LL(I) OF AS - 9, THE NEXT CONTENTION OF THE LD. COUNSEL IS THAT ALL SIGNIFICANT RISKS AND REWARDS ASSOCIATED WITH OWNERSHIP OF THE PROPERTY ARE NOT TRANSFERRED TO THE BUYERS AT THE TIME OF SIGNING OF LETTER OF OFFER OF ALLOTMENT'. ACCORDING TO THE APPELLANT, LETTER OF ALLOTMENT IS NOT A TRANSFERABLE DOCUMENT AND THEREFORE RISK AND REWARDS ARE TRANSFERRED ONLY WHEN SALE DEED IS EXECUTED AND HENCE INCOME FROM SALE OF PLOTS IS RECOGNIZED ON EXECUTION OF SALE DEED. THIS CONTENTION OF THE LD. COUN SEL IS NOT WELL FOUNDED. THE APPELLANT HAS ENTERED INTO AN AGREEMENT FOR SALE AND DEVELOPMENT OF THE PLOTS WITH THE BUYERS, WHO IN TURN HAVE MADE THE INITIAL PAYMENT AND AGREED TO PAY THE BALANCE CONSIDERATION AS PER THE SCHEDULE SPECIFIED IN THE LETTER OF ALLOTMENT. BY VIRTUE OF THE LETTER OF ALLOTMENT, CERTAIN RIGHTS ARE ASSIGNED TO THE BUYERS AND CONSEQUENTLY THE BUYERS HAVE ENTERED THE PROPERTY AND UNDERTAKEN DEVELOPMENT OF PLOT INCLUDING CONSTRUCTION ON THE PLOT. THE FACT THAT THE LEGAL OWNERSHIP OF THE LAND CONTINUED WITH THE APPELLANT TO BE TRANSFERRED TO THE BUYERS AT A FUTURE DISTANT DATE REALLY DOES NOT AFFECT THE RIGHTS ALREADY ACQUIRED BY THE BUYERS AT THE TIME OF SIGNING THE LETTER OF ALLOTMENT. AS ALREADY MENTIONED, FURNISHING OF NECESSARY PROOF THAT THE BUYER IS A FARMER IS A MERE FORMALITY TO COMPLY WITH THE LAND REVENUE LAWS AND IT HAS NOTHING TO DO WITH THE ACTIVITIES THAT ARE CARRIED ON BY THE PLOT HOLDERS ON THE LAND NOR DOES IT AFFECT THE 18 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE RIGHTS ALREADY ACQUIRED BY THE BUYER. AS L ONG AS THE ALLOTMENT IS IN OPERATION AND NOT CANCELLED, THE OWNERS CONTINUE TO ENJOY SUCH RIGHTS IN THE PLOT ALLOTTED. IT IS COMMON KNOWLEDGE THAT RISK AND REWARDS ARE ALSO ASSOCIATED WITH ANY AGREEMENT EXECUTED BETWEEN THE PARTIES. I T IS ONLY AFTER UNDERSTANDING THE WHOLE SCHEME OF PROPERTY DEVELOPMENT OF THE DEVELOPER; ANY BUYER WILL ENTER INTO AN AGREEMENT BEING FULLY AWARE OF THE RISK AND REWARDS ASSOCIATED WITH THE AGREEMENT AND PURCHASE A PLOT. SO LONG AS THE BUYERS ABIDE BY THE TERMS OF AGREEMENT, WHICH ARE LEGALLY ENFORCEABLE BY BOTH THE PARTIES, THE APPELLANT TRANSFERS ALL 'SIGNIFICANT RISK AND REWARDS TO THE BUYERS THAT VERY MOMENT AGREEMENTS WERE SIGNED BY BOTH THE PARTIES. IT IS ALSO SETTLED LEGAL POSITION THAT LEGAL OWNERSHIP OF LAND AND EXECUTION OF SALE DEED ARE NOT NECESSARY FOR EXPLOITATION OF LAND. THE BOOKING AND ALLOTMENT OF PLOT TO A BUYER, TAKING POSSESSION OF THE PROPERTY BY THE BUYER AND UNDERTAKING DEVELOPMENT OF THE PROPERTY ARE INSTANTANEOUS AND THEREFORE ALL THE RISKS AND REWARDS ASSOCIATED WITH THE OWNERSHIP OF THE PROPERTY ARE TRANSFERRED TO THE BUYERS AT THE TIME OF SIGNING OF 'LETTER OF OFFER OF ALLOTMENT' AND NOT DEFERRED TILL THE EXECUTION OF CONVEYANCE DEED. WHEN A PROSPECTIVE BUYER OF PLO T GIVING CONSENT TO THE TERMS OF SALE AS CONTAINED IN ALLOTMENT LETTER REFERRED SUPRA, THE APPELLANT SIMULTANEOUSLY TRANSFERS 'ALL SIGNIFICANT RISKS AND REWARDS' TO THE PROSPECTIVE BUYERS WHEN THE ALLOTMENT LETTER IS SIGNED BY THE PARTIES INVOLVED IN THE S AID TRANSACTION. THEREFORE, IT IS DIFFICULT TO ACCEPT THE CONTENTION OF THE APPELLANT THAT 'SIGNIFICANT RISK AND REWARDS' ARE NOT TRANSFERRED IN SPITE OF ENTERING INTO AGREEMENTS WITH THE BUYERS WHICH ARE LEGALLY ENFORCEABLE CONTRACTS. THUS, IN THE INSTANT CASE, THE TRANSFER OF RIGHTS IN THE PROPERTY AT THE TIME OF LETTER OF ALLOTMENT RESULTS IN OR COINCIDES WITH THE TRANSFER OF SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP TO THE BUYER AND THEREFORE THE REVENUE FROM THE SALE OF PLOTS HAS TO BE RECOGNIZED IN T HE YEAR OF ALLOTMENT. C) EXPECTANCY OF ULTIMATE REALIZATION: 6.3 AS PER THE ACCOUNTING STANDARD - 9, THE THIRD IMPORTANT CRITERION IS THAT THE REVENUE SHOULD BE RECOGNIZED WHEN IT BECOMES MEASURABLE AND THE SURROUNDING CIRCUMSTANCES GIVE RISE TO REASON ABLE EXPECTANCY OF ULTIMATE REALIZATION. IN THE INSTANT CASE, THE SALE CONSIDERATION FOR SALE OF PLOT WAS FIXED AND SPECIFIED IN THE ALLOTMENT LETTER AND THE REVENUE FROM SALE OF PLOTS WAS MEASURABLE AND AT THE TIME OF SIGNING THE LETTER OF ALLOTMENT, THER E WAS 19 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE REASONABLE EXPECTANCY OF ULTIMATE REALIZATION. THE APPELLANT, EXCEPT STATING THAT IN MANY CASES THERE IS A CANCELLATION OF BOOKING AFTER PAYMENT OF CERTAIN INSTALLMENTS WHEN MONEY IS REFUNDED AS PER THE RULES OF THE COMPANY, HAS NOT FURNISHED DETAILS OF SUCH CASES AND THE PERCENTAGE OF SUCH CANCELLATIONS AFTER PAYMENT OF A FEW INSTALLMENTS. IT IS ONLY AN ASSERTION MADE BY THE APPELLANT NOT BACKED BY ANY EVIDENCE. THEREFORE, THE THIRD CRITERION THAT NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUN T OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALE OF THE GOODS IS ALSO SATISFIED IN THE CASE OF THE APPELLANT. 6.4 THUS, FOR ALL PRACTICAL PURPOSES, THE CONDITIONS AS SPECIFIED IN PARAGRAPHS 10 AND 11 OF AS - 9 FOR THE RECOGNITION OF REVENUE IN THE Y EAR OF ALLOTMENT OF PLOTS HAVE BEEN FULFILLED IN RESPECT OF THE TRANSACTIONS IN QUESTION. FURTHER, AS RIGHTLY POINTED OUT BY THE ASSESSING OFFICER, THE APPELLANT HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING WHEREIN THE REVENUES ARE TO BE ACCOUNTE D AS AND WHEN THEY ACCRUE AND EXPENSES ARE TO BE CONSIDERED AS AND WHEN THE LIABILITY TO INCUR THE SAME ARISES. IN ACCRUAL SYSTEM OF ACCOUNTING, RECEIPT OF TOTAL CONSIDERATION IS NOT MATERIAL AND WHAT IS RELEVANT IS RIGHT TO RECEIVE THE CONSIDERATION FROM SALE OF PROPERTY. IN THE PRESENT CASE, THE LETTERS OF ALLOTMENT ARE IN THE NATURE OF AGREEMENTS OF SALE AND THE BUYERS WERE ENABLED THE ENJOYMENT OF THE RIGHTS OVER THE PROPERTY BY VIRTUE OF THE LETTER OF ALLOTMENT. THE RIGHT TO RECEIVE THE SALE CONSIDERAT ION HAS ACCRUED TO THE APPELLANT SOON AFTER SIGNING LETTER OF ALLOTMENT AND THEREFORE INCOME FROM THE TRANSACTIONS OUGHT TO HAVE BEEN RECOGNIZED BY THE APPELLANT IN THE RESPECTIVE YEARS OF ALLOTMENT OF PLOTS TO THE BUYERS. AT THIS JUNCTURE, IT IS RELEVANT TO REFER TO THE FOLLOWING OBSERVATIONS OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF DHIR & CO. COLONISERS (P.) LTD REPORTED IN 288 ITR 561, WHICH ARE DIRECTLY ON THE ISSUE: WHERE ASSESSEE COLONISER AGREED TO SELL PLOTS TO VARIOUS PARTIES, ONCE POSSESSION OF PLOTS WAS TRANSFERRED AND TRANSFEREES EVEN MADE CONSTRUCTIONS, DOMINION OVER PROPERTY PASSED ON TO TRANSFEREES AND AMOUNTS RECEIVED BY ASSESSEE COULD NOT BE HELD TO BE MERE DEPOSITS AND PROPERTY TRANSFERRED COULD NOT BE HELD TO BE STOCK - IN - TRADE OF ASSE SSEE; RECEIPT ON ACCOUNT OF SALE OF PLOTS CONSTITUTED TRADING RECEIPTS IN ASSESSEE'S HANDS 20 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE IN THE CASE OF THE APPELLANT ALSO, DOMINION OVER PROPERTY WAS PASSED ON TO THE RESPECTIVE BUYERS SOON AFTER SIGNING THE LETTER OF ALLOTMENT AND SOME OF THE BUYERS EV EN STARTED CONSTRUCTIONS ON THE PLOT AND THEREFORE AMOUNTS RECEIVED BY APPELLANT ON ACCOUNT OF SALE OF PLOTS COULD NOT BE HELD TO BE MERE ADVANCES UNTIL THE SALE DEED IS EXECUTED AND THE SAME CONSTITUTE TRADING RECEIPTS IN THE YEAR OF ALLOTMENT. 6.5 APROPO S THE CLAIM OF THE APPELLANT THAT THE REVENUE HAS ACCEPTED THE METHOD OF ACCOUNTING OF REVENUE RECOGNITION FOLLOWED BY THE APPELLANT IN THE SCRUTINY ASSESSMENT FOR THE A.Y. 1997 - 98, IT IS TO BE MENTIONED THAT THE PRINCIPLES OF ESTOPEL AND RES - JUDICATA DO N OT APPLY STRICTLY TO THE PROCEEDINGS UNDER THE INCOME - TAX ACT AND THE ISSUE CAN ALWAYS BE EXAMINED WITH REFERENCE TO THE FACTS SUPPORTING IT OR CHANGED LEGAL POSITION IN ANY SUBSEQUENT ASSESSMENT YEAR. THIS VIEW IS SUPPORTED BY THE DECISION OF THE BOMBAY H IGH COURT IN THE CASE OF KOTAK MAHINDRA FINANCE (265 ITR 114). IN THE CASE OF THE PRESENT APPELLANT, A SURVEY OPERATION UNDER SEC. 133A WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE APPELLANT AND DURING THE SURVEY OPERATION, IT WAS NOTICED THAT THOUGH TH E APPELLANT WAS HANDING OVER THE POSSESSION OF THE PLOTS OF LAND TO THE BUYERS ON CONCLUSION OF THE LETTER OF OFFER OF ALLOTMENT, IT WAS NOT RECOGNIZING THE SALE AND SHOWING THE ADVANCES RECEIVED FROM BUYERS AS LIABILITY IN THE BALANCE SHEET. IN SUCH CIRCU MSTANCES AND AS NEW FACTS HAVE COME TO LIGHT DURING THE SURVEY ACTION, THE ASSESSING OFFICER IS JUSTIFIED IN EXAMINING THE ISSUE FROM A DIFFERENT PERSPECTIVE IN THE YEAR UNDER CONSIDERATION. EACH YEAR IS A DISTINCT AND SEPARATE YEAR FOR THE PURPOSE OF THE INCOME - TAX ACT AND IT CANNOT BE SAID THAT ONCE THE APPELLANT HAS BEEN ALLOWED A PARTICULAR CLAIM OR THE ASSESSING OFFICER ACCEPTED METHOD OF RECOGNITION OF INCOME IN THE EARLIER YEARS, THE SAME CLAIM SHOULD BE ALLOWED IN PERPETUITY WITHOUT EXAMINING WHETHE R THERE IS ANY CHANGE IN THE FACTUAL AND LEGAL POSITION VIS - A - VIS THE CLAIM IN A PARTICULAR YEAR. IN THIS CONTEXT, IT MAY BE RELEVANT TO REFER TO THE FOLLOWING OBSERVATIONS OF APEX COURT IN THE CASE OF BRITISH PAINTS INDIA LTD (188 ITR 44) IT IS NOT ONLY T HE RIGHT BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS INCORRECT TO SAY THAT THE OFFICER IS BOUND TO ACCEPT THE 21 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE SYSTEM OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE, THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS, AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. THEREFORE, JUST BECAUSE A PARTICULAR SYSTEM OF A CCOUNTING HAD BEEN CONSISTENTLY FOLLOWED AND THE CORRECTNESS OF WHICH WAS NOT QUESTIONED IN THE EARLIER YEARS, IT IS NOT CORRECT TO SAY THAT THE AO IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT EVEN WHEN NEW FACTS HAVE COM E TO THE LIGHT DURING THE SURVEY OPERATION. THE METHOD OF RECOGNITION OF REVENUE ADOPTED BY THE APPELLANT RESULTS IN DISTORTION OF PROFITS IN A PARTICULAR YEAR AND THEREFORE THE AO IS CORRECT IN SUBSTITUTING THE METHOD WITH A NEW METHOD, WHICH IS ALSO IN C ONSONANCE WITH AS - 9 AS DISCUSSED HEREINABOVE. IN SUCH A SITUATION, THE THREE DECISIONS RELIED UPON BY THE APPELLANT IN ITS WRITTEN SUBMISSIONS HAVE NO APPLICATION TO THE FACTS OF THE PRESENT CASE. 6.6 FOR THE FOREGOING REASONS, THE ASSESSING OFFICER IS JUS TIFIED IN TREATING THE TOTAL AMOUNT AS PER LETTER OF ALLOTMENT AS SALE PROCEEDS OF PLOTS AND BRINGING THE CORRESPONDING INCOME TO TAX IN THE YEAR(S) OF SIGNING LETTER OF OFFER OF ALLOTMENT AND ACCORDINGLY THE ACTION OF ASSESSING OFFICER IN THIS REGARD IS U PHELD IN PRINCIPLE FOR ALL THE ASSESSMENT YEARS UNDER APPEAL. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE LD. COUNSEL SUBMITS THAT AT THE TIME OF ISSUING THE ALLOTMENT LETTE R POSSESSION IS NOT GIVEN TO THE BUYERS BUT THE ASSESSEE RETAINS FULL AND EFFECTIVE CONTROL POSSESSION AND THE OWNERSHIP OF THE LAND AT ALL THE TIMES UNTIL THE S ALE D EED IS EXECUTED. HE SUBMITS THAT LETTER OF ALLOTMENT IS A N ACCEPTANCE BY THE ASSESSEE TO SALE PLOT AND UNLESS THE ASSESSEE MAKES THE FULL PAYMENT AND COMPLIES WITH THE TERMS AND CON DITIONS THEN ONLY THE TITLE IN THE LAND IS TRANSFERRED TO THE BUYERS. HE SUBMITS THAT THE EXERCISE DONE BY BOTH THE AUTHORITIES BELOW BASED ON THE WRONG APPRECIATI ON OF THE NATURE OF THE ALLOTMENT LETTER ISSUED BY THE ASSESSEE TO THE PROSPECTIVE BUYERS OF THE PLOT. BY WAY OF 22 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE ALLOTMENT LETTER THE ASSESSEE ASSURES THE BUYER THAT THE PLOT SELECTED BY THE BUYER WILL BE ULTIMATELY SOLD TO HIM. HE SUBMITS THAT GIRIVAN I S A VERY BIG PROJECT OCCUPYING THE HUGE LAND , HAVING DIFFERENT LOCATIONS O F THE PLOTS . H ENCE , IT IS CHOICE OF THE BUYERS TO SELECT HIS PLOTS. A LETTER OF THE ALLOTMENT IS NOTHING BUT IT IS A FIRST STAGE OF ACCEPTANCE OF THE OFFER OF THE BUYER BY ISSUING HIM TO LETTER. HE SUBMITS THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING SINCE, 1990 - 91 BY RECOGNIZING THE INCOME ON THE SALE OF PLOT ONLY AFTER THE REGISTERED SALE DEED IS EXECUTED. HE SUBMITS THAT MERELY BECAUSE DURING THE COURSE OF SUR VEY ACTION IT WAS FOUND THAT THE PLOT OWNER S OF GIRIVAN OF THE ASSESSEE HAD FORMED AN ASSOCIATION BY REGISTER ING THE SAME UNDER THE SOCIETY'S REGISTRATION ACT, 1860 BUT NOWHERE IT IS A STATED OR BROUGHT ON RECORD THAT IN RESPECT OF HOW MANY PLOT OWNERS THE REGISTERED SALE DEED WERE EXECUTED AND POSSESSION WAS GIVEN. THE LD. COUNSEL REFERRED TO THE PAPER BOOK COMPILATION MORE PARTICULARLY PAGE NO. 83, WHERE THE COPY OF THE LETTER OF ALLOTMENT OF ONE MR. ARUN PANGARKAR DATED 26 - 07 - 2002 IS PLACED. HE SUBMITS THAT THE LETTER OF ALLOTMENT IS ISSUED ON THE LETTER HEAD OF ASSESSEE COMPANY AND NOWHERE IT IS MENTIONED IN THE ALLOTMENT LETTER THAT THE BUYER HAS BEEN GIVEN THE POSSESSION. HE REFERRED TO THE SAID COPY OF THE ALLOTMENT LETTER AND SUBMITS THAT IT IS CL EARLY MENTIONED THAT THE TIMELY PAYMENT IS ESSENTIAL OF THE CONTRACT. HE SUBMITS THAT EVEN IF THE BUYER FAILS TO PAY TWO INSTALLMENTS AS PER LETTER OF ALLOTMENT THE BOOKING OF THE PLOT WILL BE CANCELLED. THE ALLOTMENT LETTER IS NOTHING , IT IS ONE SORT OF THE BOOKING OF PLOT. HE REFERRED TO THE CLAUSE WHERE THE COST OF THE PLOT IS MENTIONED IN THE ALLOTMENT LETTER AND SCHEDULE OF THE PAYMENT BY THE BUYER. AS PER ALLOTMENT LETTER , HE SUBMITS THAT SO FAR AS THE ALLOTMENT LETTER ISSUED TO MR. ARUN PANGARKAR IS CONCERNED THE COST OF THE PLOT IS RS.1,85,250/ - , THE BOOKING AMOUNT IS RS.10,000/ - ONLY. HE SUBMITS THAT THERE WAS A DELAY IN GETTING THE PERMISSION TO THE PROJECT AS BASIC PROJECT IS DEVELOPED KEEPING IN VIEW THE ENVIRONMENT AND HENCE, THE BUYER HAS TO USE THAT PLOT FOR PLANTATION /AGRICULTURE 23 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE PURPOSE AND FOR CONSTRUCTION OF THE FARM HOUSE. HE SUBMITS THAT MERE ISSUANCE OF THE ALLOTMENT IT CANNOT BE SAID THAT THE ASSESSEE HAS GIVEN THE POSSESSION TO THE PROSPECTIVE BUYER WHEN IN FACT IT IS ACKNOWLEDGM ENT OF THE BOOKING OF THE PLOT. HE SUBMITS THAT THE ASSESSING OFFICER HAS RELIED ON THE STATEMENT OF ONE MR. ARUN DESHMUKH ON THE ISSUE OF HANDING OVER THE POSSESSION . THE SAID ALLEGED STATEMENT WAS RECORDED BEHIND THE BACK OF THE ASSESSEE AND THE ASSESS EE WAS NOT ALLOWED OPPORTUNITY TO CROSS - EXAMINE HIM EVEN IF ON SPECIFIC REQUEST. HE SUBMITS THAT THE SALE DEED EXECUTED IN FAVOUR OF SHRI DESHMUKH IS PLACED IN THE COMPILATION IN MARATHI AT PAGE NOS. 22 TO 29. HE SUBMITS THAT AS PER THE SALE DEED THE P OSSESSION OF THE SAID PLOT WAS GIVEN TO SHRI DESHMUKH ON 11 - 03 - 2004 THEN HOW IT CAN BE SAID THAT THE POSSESSION WAS GIVEN AT THE TIME OF ALLOTMENT LETTER. 10. IN RESPECT OF THE APPLICABILITY OF SEC. 2(47) OF THE INCOME - TAX ACT, HE SUBMITS THAT THE DEFIN ITION OF THE TRANSFER IS NOT APPLICABLE WHEN THE INCOME IS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS O R PROFESSION BUT THE SAID DEFINITION IS SPECIFICALLY APPLICABLE WHEN THE INCOME IS DETERMINED UNDER THE HEAD CAPITAL GAIN AND HENCE, RELIANCE PLACED BY THE ASSESSING OFFICER IS TOTALLY MISPLACED. ON THE CONSISTENCY OF METHOD OF ACCOUNTING , HE SUBMITS THAT LAW IS WELL SETTLED HENCE, ON THE PRINCIPLE OF CONSISTENCY RECOGNITION OF THE REVENUE MAY NOT BE DISTURBED NOR THERE IS JUSTIFICATION IN DOING SO. HE PLEADED FOR ALLOWING THE GROUNDS TAKEN BY THE ASSESSEE. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11. THE FIRST ISSUE WHICH ARISES FOR OUR CONSIDERATION IS WHETHER THAT THE ASSESSEE SHOULD HAVE RECOGNIZED THE REVENUE WHEN THE ALLOTMENT LETTERS WERE ISSUED TO THE PROSPECTIVE BUYERS. THE ASSESSEE COMPANY HAS UNDERTAKEN A PROJECT GIRIVAN AND AS PER THE FACTS ON RECORD IT APPEARS THAT THE GIRIVAN PROJECT IS THE FARMING OR AGRICULTURAL PROJECT. THE ASSESSEE COMPANY ACQUIRED THE H UGE LAND IN THE VILLAGE 24 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE DONGARGAON/HOTALE, TAL. - MULSHI, DISTT. PUNE AND AFTER DEVELOPING THE INFRASTRUCTURE LIKE ROAD, WATER PROVISION ETC. MADE THE PLOTS AND OFFER THE SAME FOR SALE. ON THE BASIS OF THE SURVEY ACTION U/S. 133A THE ASSESSING OFFICER ISSUED THE NOTICE U/S. 148 TO THE ASSESSEE ON THE CHARGE THAT FOR THESE SIX ASSESSMENT YEARS THE ASSESSEE HAS NOT PROPERLY DECLARED THE INCOME. WE FIND THAT THE ASSESSING OFFICER HAS RE - CASTED THE ENTIRE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE WHICH IS M ERELY BASIS OF THE ALLOTMENT LETTER ISSUED BY THE ASSESSEE TO THE PROSPECTIVE BUYERS. 12. WE HAVE GONE THROUGH THE ALLOTMENT LETTER WHICH COPY IS PLACED ON RECORD. IN OUR OPINION BOTH THE AUTHORITIES BELOW HAVE NOT AT ALL UNDERSTOOD THE NATURE OF THE S AID ALLOTMENT LETTER. THE ALLOTMENT LETTER IS ISSUED ON COMPANY LETTER HEAD . O N PERUSAL OF THE CONTENTS OF THE ALLOTMENT LETTER , W E FIND THAT IT IS LIKE A BOOKING LETTER ACCEPTING THE OFFER OF THE BUYER. NOWHERE THERE IS MENTION ED IN THE ALLOTMENT LETTE R THAT THE POSSESSION OF THE PLOT IS GIVEN TO THE PROSPECTIVE BUYERS. THE ASSESSEE HAS FILED THE COPY OF ALLOTMENT LETTER DATED 26 - 07 - 2002 ISSUED TO ONE MR. ARUN RAMDAS PANGARKAR. AS PER THE ALLOTMENT LETTER SAID MR. ARUN RAMDAS PANGARKAR HAS APPLIED FOR THE ALLOTMENT OF THE PLOT AND BOOKING AN AMOUNT WAS PAID TO THE ASSESSEE COMPANY AND THE ASSESSEE AGREED TO ALLOT HIM THE PLOT OF AGRICULTURAL LAND AS PER THE PARTICULARS GIVEN. IT IS STATED IN THE ALLOTMENT LETTER THAT THE SAID BUYER HAS INSPECTED THE P LOT AND THE SAME IS ALLOTTED AS PER HIS CHOICE. IN RESPECT OF THE PRIVATE ROADS THERE IS MENTIONED IN THE ALLOTMENT LETTER . I T APPEARS THAT EVEN THE ALLOTMENT LETTERS WERE ISSUED WHEN THE PROJECT WAS UNDER DEVELOPED THAT THERE WERE NO PROPER ROADS BUT DE MARCATION WAS DONE. IT APPEARS THAT THE ELECTRICITY POLES AND WATER FACILITY WAS UNDER PROGRESS. THE COST OF THE PLOT IS MENTIONED AS WELL AS ADMINISTRATIVE AND SECURITY EXPENSES ARE MENTIONED. THERE IS CO NDITION THAT THE SAID PERSON HAS TO USE THE PLOT FOR AN AGRICULTURAL PURPOSE AND FOR CONSTRUCTION OF HIS OWN FARM HOUSE AS PER RULES AND REGULATIONS AND PROSPECTIVE BUYER HAS TO PROVE THAT HE 25 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE IS AGRICULTURIST. IT IS IN CLEAR TERMS CLARIFIED THAT THE ASSESSEE COMPANY WILL EXECUTE SALE DEED OF THE SAID P LOT DEPENDING UPON THE BUYERS AGRICULTURE STATUS AND CLAIMING THE AMOUNT TOWARDS COST OF PLOT ADMINISTRATIVE EXPENSES ETC. IT IS ALSO MENTIONED THAT THE BUYER HAS TO BECOME MEMBER OF GIRIVAN PROJECT. WE DO NOT UNDERSTAND ON WHICH BASIS BOTH THE AUTHORITI ES BELOW CAME TO CONCLUSION THAT THE POSSESSION WAS GIVEN TO THE PROSPECTIVE BUYERS AND THE ASSESSEE SHOULD HAVE RECOGNIZED THE REVENUE OR INCOME ON THE ISSUE OF ALLOTMENT LETTERS. IN OUR UNDERSTANDING THE APPROACH OF BOTH THE AUTHORITIES BELOW ON THIS PA RTICULAR IS TOTALLY MISPLACED. 13. THE ASSESSEE IS FOLLOWING CONSISTEN T METHOD OF ACCOUNTING IN RESPECT OF THE SAID GIRIVAN PROJECT RECOGNIZING INCOME ON EXECUTION OF SALE DEED AND SAVE THESE SIX ASSESSMENT YEARS THE SAME HAS BEEN ACCEPTED. AS ARGUED BEF ORE US AND WHICH ALSO NOT CONTROVERTED BY THE REVENUE , THE ASSESSEE IS RECOGNIZING THE INCOME ON THE FINAL EXECUTION OF THE SALE DEED. ALLOTMENT LETTER CANNOT BE SAID TO BE CONFERRING THE POSSESSION ON THE PROSPECTIVE BUYERS BUT IT IS ONLY ACCEPTING THE O FFER OF THE BUYER TO SALE THE SPECIFIC PLOT. AS PER THE TRANSFER OF PROPERTY ACT THE TITLE IS TRANSFERRED ONLY ON THE COMPLETION OF THE TERMS AND CONDITIONS AGREED BETWEEN THE PARTIES. WE FIND THAT AUTHORITIES BELOW HAVE REFERRED TO SEC. 2(47) OF THE ACT . SEC. 2(47) OF THE INCOME - TAX ACT IS A DEFINITION OF THE TERM TRANSFER . A S RIGHTLY ARGUED BY THE LD. COUNSEL THE SAID DEFINITION IS APPLICABLE WHEN THE INCOME IS COMPUTED UNDER THE HEAD CAPITAL GAIN. ADMITTEDLY, IN THE CASE OF PRESENT ASSESSEE THE IN COME IS COMPUTED UNDER THE HEAD BUSINESS HENCE, THE SAID DEFINITION IS NOT APPLICABLE AT ALL. MOREOVER, AS THE LETTER OF ALLOTMENT DOES NOT DISCLOSE NOR IT IS MEANT FOR CONFERRING THE RIGHT OF THE ENJOYMENT OR POSSESSION ON THE DATE OF ISSUE. IN OUR OPIN ION THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE CANNOT BE DISTURBED. THE ASSESSING OFFICER DID ALL THE EXERCISE MERELY ON THE BASIS OF THE SURVEY 26 ITA NO S. 2047 TO 2052/PN/2012, SUJATA FARMS PVT. LTD. PUNE ACTION U/S. 133A WHICH HE COULD HAVE DONE IN NORMAL ASSESSMENT PROCEEDINGS U/S. 143(3) BY VER IFYING METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FOR RECOGNIZING INCOME. WE HAVE ALSO GONE THROUGH THE COMPILATION FILED BY THE ASSESSEE AND THE ASSESSEE HAS FILED THE COPIES OF LETTER S FROM THE BUYERS OF THE PLOTS AND AS PER THE LETTER S GIVEN BY THE B UYERS OF THE PLOTS , THE POSSESSION OF THE PLOT IS GIVEN ONLY ON THE EXECUTION ON THE SALE DEED. IN OUR OPINION BOTH THE AUTHORITIES BELOW HAVE MISUNDERSTOOD THE PROVISIONS OF LAW NOR THEY HAVE PROPERLY APPRECIATED THE LETTER OF ALLOTMENT ISSUED BY THE ASS ESSEE TO THE PROSPECTIVE BUYERS. WE, THEREFORE, ALLOW THE GROUNDS TAKEN BY THE ASSESSEE AND SET ASIDE THE ORDER OF THE CIT(A) IN ALL THESE SIX ASSESSMENT YEARS AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE A SSESSEE AND ALSO TO ACCEPT THE RETURN/LOSS DECLARED. 14. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 17 - 0 9 - 2014 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 17 TH SEPTEMBER, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 4 THE CIT(A) - III, PUNE THE CIT - III, PUNE 5 THE DR, ITAT, A BENCH, PUNE. 6 GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE