Sri Krishnappa Narayanappa Gopal , Bangalore V. Assistant Commissioner of Income Tax Circle-3(2)(1), Bangalore

ITA 377/BANG/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8172 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 01-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NOS.377 & 378/BANG/2019 ASSESSMENT YEAR : 2014-15 & 2015-16 SRI KRISHNAPPA NARAYANAPPA GOPAL, #519, 10 TH MAIN ROAD, MC LAYOUT, VIJAYANAGAR, BENGALURU-560 040. PAN ABVPG 7067 M. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-3(2)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI V SRINIVASAN, ADVOCATE RESPONDENT BY : SHRI R.N SIDDAPPAJI, ADDL. CIT (DR) DATE OF HEARING : 02.07.2019 DATE OF PRONOUNCEMENT : 10.07.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTE D AGAINST THE ORDER DATED 27/12/2018 PASSED BY LD CIT(A)-3, BENGA LURU AND THEY RELATE TO ASST. YEAR 2014-15 AND 2015-16. 2. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE A SSESSEE FOR ASST. YEAR 2014-15, WHEREIN THE ASSESSEE IS CHALLENGING THE AD DITION OF RS.73.31 LAKHS RELATING TO PROFIT FROM REAL ESTATE ACTIVITY MADE BY THE AO TO THE INCOME RETURNED BY THE ASSESSEE. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. ITA NOS.377 & 378/BANG/2019 PAGE 2 OF 8 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHAS E OF LAND, CONVERTING IT INTO VARIOUS PLOTS AND SELLING THEM. THE ASSESSEE HAS FOLLOWED THE METHOD OF OFFERING INCOME ON COMPLETIO N OF SALE OF EACH OF THE PLOTS. THE AO TOOK THE VIEW THAT THE ASSESSEE SHOU LD HAVE FOLLOWED THE PERCENTAGE COMPLETION METHOD AS PER THE ACCOUNTING STANDARDS AND GUIDANCE NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE AO NOTICED THAT THE ASSESSEE HAS EXECUTED 2 PRO JECTS NAMELY MANGANAHALLI VILLEAGE (GOKUL LAYOUT) AND RAMASANDRA VILLAGE (NANDA GOKULA LAYOUT). IN RESPECT OF MANGANAHALLI VILLEAG E (GOKUL LAYOUT), THE AO NOTICED THAT THE ASSESSEE HAS DEVELOPED 49 PLOTS , OUT OF WHICH 45 PLOTS HAVE BEEN SOLD IN THE EARLIER YEARS. OUT OF THE RE MAINING UNSOLD 4 PLOTS, THE ASSESSEE HAD TAKEN ADVANCE IN RESPECT OF 2 PLOT S. THE AO TOOK THE VIEW THAT THIS PROJECT HAS BEEN COMPLETED 100%. AC CORDINGLY HE TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE OFFERED INCOME F ROM 2 PLOTS AGAINST WHICH ADVANCE WAS RECEIVED BY THE ASSESSEE. HE COM PUTED THE INCOME BY ADOPTING HIS OWN METHOD AT RS.15.76 LAKHS. BY MAKING SIMILAR KINDS OF CALCULATIONS IN RESPECT OF RAMASANDRA VILLAGE (NAND A GOKULA LAYOUT), THE AO ESTIMATED THAT THE ABOVE SAID PROJECT IS COMPLET E BY 96%. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE OFFERED 57.10 LAKHS AS INCOME IN RESPECT OF PLOTS AGAINST WHICH ADVANCE WA S RECEIVED. ACCORDINGLY HE MADE ADDITION OF RS.73.31 LAKHS TO T HE INCOME RETURNED BY THE ASSESSEE. THE LD CIT(A) CONFIRMED THE SAME. 4. THE LD AR SUBMITTED THAT THE ASSESSEE IS AN INDI VIDUAL AND IS UNDERTAKING THE PLOTTING ACTIVITY ON SMALL SCALE. FURTHER THE ASSESSEE HAS BEEN OFFERING INCOME ONLY ON SALE OF PLOT, SINCE TH E RIGHT AND LIABILITIES RELATING TO THE PLOT WOULD GET TRANSFERRED TO THE B UYER, ONLY ON COMPLETION OF SALE. THE ASSESSEE HAS BEEN FOLLOWING THIS METHODO LOGY FOR THE PAST ITA NOS.377 & 378/BANG/2019 PAGE 3 OF 8 SEVERAL YEARS AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE. ACCORDINGLY HE SUBMITTED THAT THE AO WAS NOT JUSTIF IED IN DISTURBING THE SAME DURING THE YEAR UNDER CONSIDERATION. THE LD A R FURTHER SUBMITTED THAT THE AO HAS TAKEN SUPPORT OF GUIDANCE NOTE ISSU ED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON ACCOUNTING FOR RE AL ESTATE TRANSACTION. THE LD AR SUBMITTED THAT THE SAID GUIDANCE NOTE MAY APPLY TO LARGE SCALE REAL ESTATE ACTIVITIES. ACCORDINGLY HE SUBMITTED T HAT THE AO WAS NOT JUSTIFIED IN APPLYING THE SAME TO THE ASSESSEE. 5. THE LD DR, SUBMITTED THAT THE GUIDANCE NOTE ON A CCOUNTING FOR REAL ESTATE TRANSACTIONS ISSUED BY THE INSTITUTE OF CHAR TERED ACCOUNTANTS OF INDIA IN 2012 AND ITS SCOPE EXTENT TO SALE OF PLOTS OF LAND ALSO. IT WOULD COVER THE PROJECTS OF SMALLEST GROUP OF UNITS/PLOTS WHICH ARE LINKED WITH A COMMON SET OF AMENITIES. ACCORDINGLY HE SUBMITTED THAT THE AO WAS JUSTIFIED IN TAKING SUPPORT OF THE GUIDANCE NOTE. HE FURTHER SUBMITTED THAT THE GUIDANCE NOTE RECOMMENDS ADOPTION OF PERCENTAGE COMPLETION METHOD FOR SALE OF DEVELOPED PLOTS. THE LD DR FURTHER SUB MITTED THAT THE JAIPUR BENCH OF ITAT HAS HELD IN THE CASE OF M/S VASTUKAR TOWNSHIP PVT LTD (ITA NO.105/JP/2017 DATED 22-12-2017 THAT IN THE CASE OF A TAX PAYER ENGAGED IN THE DEVELOPMENT OF TOWNSHIP PROJECTS, THE ADVANC E RECEIVED FROM BUYERS ON UNREGISTERED SALE AGREEMENTS SHOULD BE RECOGNIZE D AS INCOME IN THE YEAR IN WHICH ADVANCE IS RECEIVED. THE LD DR SUBMI TTED THAT THE ABOVE SAID DECISION OF THE TRIBUNAL SUPPORTS THE CASE OF THE AO. 6. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. FROM THE ASSESSMENT ORDER, WE NOTICED THAT THE ASSESSEE HAS SOLD 44 PLOTS OUT OF 49 PLOTS IN THE GOKUL LAYOUT IN THE EARLIER YEARS AND THE INCOME THERE FROM HAS BEEN OFFERED ONLY ON COMPLETION OF SALE OF EACH OF THE PLOTS. IN THE CASE OF NANDAGOPAL LAYOUT THE ASSESSEE HAS SOLD 91 PLOTS OUT OF 219 PLOTS ITA NOS.377 & 378/BANG/2019 PAGE 4 OF 8 IN THE EARLIER YEAR. IN THIS CASE ALSO THE ASSESSE E HAS OFFERED INCOME ON COMPLETION OF SALE OF EACH OF THE PLOTS. THE METHOD OLOGY SO ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE AO IN THE EARLIER YEARS. 7. WE NOTICED THAT THE AO HAS TAKEN SUPPORT OF G UIDANCE NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON REAL ESTATE TRANSACTIONS IN SUPPORT OF HIS VIEW THAT THE ASSESSEE SHOULD OFF ER INCOME UNDER PERCENTAGE COMPLETION METHOD. HOWEVER, A PERUSAL OF THE GUIDANCE NOTE OF ICAI WOULD SHOW THAT THE SAME IS RECOMMENDARY I N NATURE. FURTHER THE SAID GUIDANCE NOTE VISUALIZES PROJECTS WHEREIN THE DEVELOPMENT ACTIVITIES RELATING TO SALE OF PLOT OF LAND IS SIGNIFICANT AND CONSISTS OF COMMON SET OF AMENITIES. IT IS FURTHER PROVIDED THAT THE PLOTS C ANNOT BE PUT TO INTENDED EFFECTIVE USE UNLESS THE COMMON AMENITIES ARE MADE AVAILABLE IN THE FUNCTIONAL. FURTHER DEVELOPED PLOTS REFERRED TO I N THE GUIDANCE NOTE WOULD INVOLVE LAND DEVELOPMENT, STRUCTURAL ENGINEERING, A RCHITECTURAL DESIGN, CONSTRUCTION ETC. UNLESS ALL THESE FEATURES ARE SHO WN TO EXIST IN THE PRESENT CASE, IT MAY NOT BE POSSIBLE TO APPLY THE GUIDANCE NOTE TO THE INSTANT CASE EVEN THOUGH, AS STATED EARLIER, THE GUIDANCE NOTE I S RECOMMENDARY IN NATURE. ADMITTEDLY, THE AO HAS FAILED TO SHOW THAT THE VARIOUS CONDITIONS SPECIFIED IN THE GUIDANCE NOTE WERE EXISTING IN THE PRESENT CASE. 8. WE HAVE NOTICED THAT THE ASSESSEE HAS BEEN OFFER ING INCOME ON COMPLETION OF SALE OF EACH OF THE PLOTS. THE REASO N GIVEN BY THE ASSESSEE IS THAT THE RISK AND LIABILITIES ATTACHED TO THE PL OTS WOULD GET TRANSFERRED FROM THE ASSESSEE TO THE BUYER ONLY ON COMPLETION O F SALES. THE LD A.R FURTHER SUBMITTED THAT THE POSSESSION OF PLOTS IS G IVEN ONLY AFTER REGISTERING THE CONVEYANCE DEED. UNDER THESE CIRCUMSTANCES, T HERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE INCOME SHALL A CCRUE TO HIM ONLY ON COMPLETION OF SALES. ITA NOS.377 & 378/BANG/2019 PAGE 5 OF 8 9. IT IS SETTLED PROPOSITION OF LAW THAT THE AO IS ENTITLED TO CHANGE THE METHOD OF ACCOUNTING ONLY IF IT IS SHOWN THAT THE M ETHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE DOES NOT RESULT IN COMPUTAT ION OF CORRECT AMOUNT OF TOTAL INCOME. IN THE INSTANT CASE THE AO HAS FA ILED TO SHOW THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE DOES N OT RESULT IN COMPUTATION OF CORRECT AMOUNT OF INCOME. AT THE TI ME OF HEARING, THE LD AR SUBMITTED THAT THE ASSESSEE HAS OFFERED INCOME IN T HE SUBSEQUENT YEARS ALSO ON COMPLETION OF SALE OF PLOTS WHICH WOULD INC LUDE THE INCOME RELATING TO THE PLOTS ASSESSED BY THE AO DURING THE YEAR UND ER CONSIDERATION. THE ABOVE FACT WOULD SHOW THAT THE ACTION OF THE AO IS, IN EFFECT REVENUE NEUTRAL ONLY. IT IS ALSO NOT THE CASE OF THE AO TH AT THE ASSESSEE WOULD NOT DECLARE INCOME FROM SALE OF PLOTS. HIS ONLY CASE W AS THAT THE INCOME RELATING TO A PLOT AGAINST WHICH ADVANCE HAS BEEN R ECEIVED SHOULD BE ASSESSED IN THE HANDS OF THE ASSESSEE EVEN THOUGH T HE SALE IS NOT COMPLETE, WHICH ACCORDING TO US IS NOT JUSTIFIED. 10. THE LD D.R HAS PLACED RELIANCE ON THE DECISI ON RENDERED BY THE JAIPUR BENCH OF TRIBUNAL IN THE CASE OF M/S VASTUK AR TOWNSHIP PVT LTD (SUPRA). WE HAVE GONE THROUGH THE SAID DECISION AN D WE NOTICE THAT THE ASSESSEE THEREIN WAS DEVELOPING A TOWNSHIP AND HAS FOLLOWED PERCENTAGE COMPLETION METHOD FOR DECLARING INCOME FOR INCOME TAX PURPOSES. THE DISPUTE WAS WHETHER THE ASSESSEE SHOULD OFFER INCOM E IN RESPECT OF AMOUNT RECEIVED FROM CUSTOMERS AS ADVANCE. THE TER MS OF AGREEMENT ENTERED BETWEEN THE PARTIES SPECIFIED THAT THE BUYE R IS BOUND TO PAY THE INSTALMENTS AS PER PAYMENT SCHEDULE. ACCORDINGLY T HE TRIBUNAL TOOK THE VIEW THAT THE TRANSACTION IS COMPLETE ONCE THE PLOT IS BOOKED IN THE NAME OF BUYER AND HENCE INCOME RELATING TO ADVANCE AMOUNT S HOULD BE ASSESSED TO TAX UNDER PERCENTAGE COMPLETION METHOD. HENCE T HE FACTS PREVAILING IN ITA NOS.377 & 378/BANG/2019 PAGE 6 OF 8 THE ABOVE SAID CASE IS DIFFERENT AND HENCE THE REVE NUE, IN OUR VIEW, CANNOT TAKE SUPPORT OF ABOVE DECISION. 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THERE IS NO REASON TO TINKER WITH THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR OFFERING INCOME. ACCORDINGLY WE SET ASIDE THE ORDE R PASSED BY THE LD CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MAD E BY HIM. 12. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE AS SESSEE FOR ASST. YEAR 2015-16. 13. AT THE TIME OF HEARING, THE LD AR DID NOT PRESS GROUND NOS.2, 2.1 AND 3. ACCORDINGLY THESE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND NO.1 AND 6 ARE GENERAL IN NATURE AND GROUND NO.5 IS CONS EQUENTIAL. 14. THE REMAINING GROUND RELATES TO CLAIM FOR REDU CTION OF INCOME WHICH WAS ASSESSED BY THE AO IN ASST. YEAR 2014-15. THIS GROUND SHALL BECOME INFRUCTUOUS, AS WE HAVE DELETED THE ADDITION MADE B Y THE AO IN ASST. YEAR 2014-15. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASST. YEAR 2014-15 IS ALLOWED AND APPEAL RELATING TO ASST. YEAR 2015-16 I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 10 TH JULY, 2019. / VMS / ITA NOS.377 & 378/BANG/2019 PAGE 7 OF 8 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3 . THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER A SST. REGISTRAR, ITAT, BANGALORE. ITA NOS.377 & 378/BANG/2019 PAGE 8 OF 8 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. DICTATION NOTE ENCLOSED 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. ..