ACIT, Bhubaneswar V. M/s Prava Kiln & Construction (P) Ltd, Bhubaneswar

ITA 298/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4464 (ITAT-CUTTACK)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 11-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2010
• Court: TRIBUNAL
• Keywords: Tax effect

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 298/CTK/2010 C.O.NO.25/CTK/2010 (FILED BY THE ASSESSE) / ASSESSMENT YEAR 2006 - 07 ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), BHUBANESWAR. - - - VERSUS - M/S.PRAVA KILN & CONSTRUCTION (P) LTD., PLOT NO.250A, SAHEED NAGAR, BHUBANESWAR, PAN: AACCP 1255 D ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI D.K.MOHANTY/C.R.JENA, ARS / FOR THE RESPONDENT: / SH RI S.K.DASH, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THE REVENUE IS IN APPEAL AGITATING THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) DT.7.5.2010 ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF 8,73,406 MADE BY THE AO ON ACCOUNT OF PROFIT INHERENT IN THE CLOSING WIP DECLARED BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE A CCOUNTING STANDARD AS - 7 WAS APPLICABLE TO THE ASSESSEE AS ITS BUSINESS ACTIVITY WAS SIMILAR TO CONSTRUCTION CONTRACTS AND HENCE THE LD. CIT(A) ERRED IN HOLDING THAT AS - 7 WAS NOT APPLICABLE TO THE ASSESSEE. THOUGH THE LD. CIT(A) DECIDED THE SAME ISSUE IN A SSESSEES FAVOUR FOR THE PRECEDING YEAR, FURTHER APPEAL WAS NOT MADE ONLY BECAUSE OF THE LOW TAX EFFECT INVOLVED FOR THE SAID YEAR . 2. THE CROSS OBJECTION HAS BEEN PREFERRED BY THE ASSESSEE - RESPONDENT SUPPORTING THE ORDER OF THE LEARNED CIT(A). 3. THE L EARNED DR SUBMITTED THAT THE ONLY ISSUE REMAINS TO BE CONSIDERED IS THAT THE CONCEPT FOR FOLLOWING AS - 7 HAS NOT BEEN APPRECIATED BY I.T.A.NO. 298/CTK/2010 C.O.NO.25/CTK/2010 2 THE LEARNED CIT(A) INSOFAR AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAD CATEGORICALLY DETERMINED THE ENHANCED INCOME NOT RENDERED FOR TAXATION BY THE ASSESSEE IN THE WORK - IN - PROGRESS HELD BY IT WAS TAXED AT THE PROFIT PERCENTAGE IN THE IMPUGNED ASSESSMENT YEAR MAY KINDLY BE CONSIDERED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE - RESPONDENT SUPPORTED T HE ORDER OF THE LEARNED CIT(A). HE SUBMITTED THAT THE ASSESSEE - RESPONDENT IS A DEVELOPER, WHO ACQUIRES LAND EITHER BY WAY OF PURCHASE OR BY WAY OF JOINT DEVELOPMENT AGREEMENT. THE RESPONDENT, MARKET THE PRODUCTS AND ENTERED INTO AN AGREEMENT WITH THE PROSP ECTIVE BUYERS FOR DEVELOPMENT OF THE PROPERTY SUBJECT TO PAYMENT OF CONSIDERATION AS PER THE TERMS OF THE AGREEMENT. ONCE THE DEVELOPMENT IS COMPLETED AND FULL CONSIDERATION IS RECEIVED, THE DELIVERY AND POSSESSION OF THE DEVELOPED PROPERTY ARE HANDED OVER TO THE PROSPECTIVE BUYERS. IN CASE, THERE IS A DEFAULT IN PAYMENT OF ANY AMOUNT DUE AS PER SCHEDULE, THE RESPONDENT IS AT LIBERTY TO RESCIND THE AGREEMENT SUBJECT TO ISSUE OF NOTICE & FORFEIT CERTAIN AMOUNT TOWARDS DAMAGES. SIMILARLY, THE PROSPECTIVE BUYE R MAY ALSO TERMINATE THE AGREEMENT SUBJECT TO PAYMENT OF LIQUIDATED DAMAGES. THEREFORE, UNDISPUTEDLY, THE RESPONDENT IS IN THE PRACTICE OF TRANSFERRING TO THE BUYERS ALL THE SIGNIFICANT RISK AND REWARD IN THE PROPERTY ONLY AFTER THE FULL CONSIDERATION ARE RECEIVED FROM THE PROSPECTIVE BUYER AND THE POSSESSION OF PROPERTY IS THEREAFTER HANDED OVER. IN THIS SCHEME OF THINGS, THE RESPONDENT IS FULLY COVERED UNDER THE GUIDELINES IN AS - 9. THOUGH THE AFORESAID FACT WAS VERY MUCH APPRECIATED BY THE LD. A.O., BUT H OWEVER, WITHOUT DISTORTING THE FACTS AS ABOVE, THE LD. A.O. INVOKED THE APPLICABILITY OF AS - 7. A TTENTION IS DRAWN TO THE ASSESSMENT ORDER WHEREIN THE LD. A.O. HAS ACCEPTED THAT THE NATURE OF BUSINESS OF THE I.T.A.NO. 298/CTK/2010 C.O.NO.25/CTK/2010 3 RESPONDENT WAS THAT OF CONSTRUCTION AND SAL E OF R ESIDENTIAL/ COMMERCIAL BUILDIN G S. VERIFYING THE VARIOUS FACTS AS ABOVE, CORROBORATED WITH THE DEVELOPMENT AGREEMENT ENTERED INTO WITH THE PROSPECTIVE BUYER, THE LD. CIT (A) APPRECIATING THE VARIOUS CLAUSES OF THE AGREEMENT DEALING WITH PERFORMANCE OF THE TE RMS O F THE CONTRACT AS WELL AS THE G UIDANCE NOTE OF RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPERS ISSUED BY THE ICAI , SO ALSO THE OPINION OF THE EXPERT ADVISORY COMMITTEE SET UP BY THE ICAI TO EXAMINE THE VARIOUS ISSUES IN THE ACCOUNTING POLICIES RELAT ING TO THE REAL ESTATE BUSINESS, THE LD. CIT (A) HA S GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE BEING NOT A CONTRACTOR BUT A DEVELOPER AND THE ASSESSEE RETAINS POSSESSION AND ALL THE RIGHTS IN THAT APARTMENT TILL THE ENTIRE CONSIDERATION IS PAID BY THE PROSPECTIVE BUYERS ACCORDING TO THE SCHEDULE OF INSTALLMENTS AND THERE BEING AN WITHDRAWAL CLAUSE BY EITHER OF THE SIDES ON PAYMENT OF LIQUIDATED DAMAGES, THE RESPONDENT IS WELL COVERED IN ACCORDANCE WITH THE A.S. 9 BUT NOT A.S. 7. TO STRENGTH HIS VIEWS AS ABOVE, IT HAS ALSO BEEN OBSERVED THAT WHAT IS CONSTRUCTED AND SOLD IS NOT JUST THE APARTMENT, BUT ALSO THE FULLY DEVELOPED LAND AREA AND COMMON FACILITIES WITH AMENITIES LIKE PARKING, WATER SUPPLY, LIFT, TERRACE AREA, WATCHMAN ACCOMMODATION ETC. THEREFORE , THE RESPONDENTS ACTIVIT IES ARE OF DEVELOPMENT OF THE PROPERTY, WHICH ARE IN CONTRAST TO A CONSTRUCTION CONTRACT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ABOVE GROUND S I NDICATE THAT THERE WAS NO OCCASION BY THE ASSESSING OFFICER TO DERIVE INHERENT PROFIT HELD BY THE ASSESSEE IN THE WORK - IN - PROGRESS DECLARED BY THE ASSESSEE WHETHER AS A REAL ESTATE DEVELOPERS OR A CONTRACTOR FOR THE BILLS RECEIVABLE ONLY ON THE BASIS THAT ONE SOLITARY FLAT WAS SO LD IN THE I MPUGNED ASSESSMENT YEAR. THE DELIBERATION OF I.T.A.NO. 298/CTK/2010 C.O.NO.25/CTK/2010 4 THE LEARNED CIT(A) ON THE ISSUE THEREFORE HAS BEEN CONSIDERED THAT THE ASSESSEE A S NOW BEFORE US SUBMITTED BY THE LEARNED COUNSEL ARE APPROPRIATE TO THE EXTENT THAT IT IS THE PREROGATIVE OF THE ASSESSEE WHO IS CONDUCTING THE BUSIN ESS TO INDICATE THE PORTION OF A RECEIPT ONLY WHEN THE INCOME CAN BE DERIVED BY VARIOUS METHODS. WE HAVE BEEN APPRISED OF THE FACT THAT THE ACCOUNTING STANDARD 9 COVERS THE ISSUE ON HAND I.E., PROJECT COMPLETION METHOD AND NOT IN AN INT ERVENING PERIOD WHEN THE ASSETS TO BE SOLD IS STILL INCOMPLETE AND HELD AS WORK - IN - PROGRESS BY THE ASSESSEE. ACCORDING TO AS - 7 IT IS INDICATED ON DELIBERATION THAT WHEN NO PARTICULAR METHOD OF ACCOUNTING IS FOLLOWED IS TO BE SET AT REST BY THE LEARNED CIT( A) ON THE FACTS WHICH THE LEARNED DR HAS NOT BEEN ABLE TO CONTROVERT. THE ASSESSING OFFICER HAS TRIED TO DERIVE INCOME FOR THE IMPUGNED ASSESSMENT YEAR WHICH BY NO STRETCH OF IMAGINATION CAN BE SAID TO HAVE EITHER ACCRUED OR WAS DUE TO THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. TAX ONLY CAN BE LEVIED ON INCOME WHICH HAS BEEN CRYSTALLISED TO THE RECIPIENT AS WE LL AS TO THE PAYEE. HERE THE LEARNED CIT(A) ON THE BASIS OF FACT RIGHTLY CONCLUDED THAT AS - 7 IS NOT APPLICABLE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WHICH WE ARE INCLINED TO UPHOLD. 6. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AN D THE C.O. FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 13 TH APRIL, 2011 ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DA TE: 13 TH APRIL, 2011 ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 298/CTK/2010 C.O.NO.25/CTK/2010 5 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 2(2), BH UBANESWAR. 2 / THE RESPONDENT: M/S.PRAVA KILN & CONSTRUCTION (P) LTD., PLOT NO.250A, SAHEED NAGAR, BHUBANESWAR, 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY