CAVALCADE PROPERTIES P. LTD, MUMBAI V. ITO WD 12(1)(4), MUMBAI

ITA 4030/MUM/2017

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 3794 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUM; AWANGSHI GIMSON DR I T A NO
• Keywords: Capital asset; Opportunity of being heard; Source of fund; Application of stay; Cost of acquisition; Revenue expenditure
• Section: 115JB; 133(6); 143(1); 250; 143(2); 64; 43; 48; 72; 13; 22; 68; 145

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI S . RIFAUR RAHMAN , AM & SHRI RAM LAL NEGI, JM ./ I.T.A. NO . 4030 / MUM/ 2017 ( / ASSESSMENT YEAR: 2012 - 13 ) M/S CAVALCADE PROPERTIES PVT. LTD. PLOT NO. C - 30, G - BLOCK, OP P - SIDBI, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051 / VS. ITO WARD 12(1)(4), AAYA KAR BHAVAN, CHURCHG ATE, MUMBAI - 400 020 ./ ./ PAN NO. AA CCC 6226 B ( / APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO . 4273 / MUM/ 2017 ( / ASSESSMENT YEAR: 2012 - 13 ) ITO WARD 12(1)(4), AAYAKAR BHAVAN, CHURCHGRATE, MUMBAI - 400 020 / VS. M/S CAVALCADE PROPERTIES PVT. LTD. PLOT NO. C - 30, G - BLOCK, OPP - SIDBI, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051 ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI MADHUR AGARWAL , AR / RESPONDENTBY : SHRI AWANGSHI GIMSON , DR 2 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. / DATE OF HEARING : 12 .09 .201 9 / DATE OF PRONOUNCEMENT : 30.10.2019 / O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : THE PRESENT TWO APPEAL S HAVE BEEN FILED BY THE ASSESSEE AS WELL AS REVENUE AGAINST THE ORDER OF LD. COMMIS S IONER OF INCOME TAX - 2 0 IN SHORT REFERRED AS LD. CIT , MUMBAI, DATED 02.03.17 FOR A SS ESSMENT YEAR (IN SHORT A Y ) 2012 - 13 . 2 . T HE BRIEF FACTS OF THE C ASE ARE THAT ASSESSEE FILED ITS R ETURN OF INCOME FOR AY 2012 - 13 ON 29 - 09 - 2012 DECLARING TOTAL INCOME AT RS. NIL . THE RETURN WAS PROCESSED UNDER THE PROVISIONS OF SECTION 143(1) OF THE INCOME TA X ACT, 1961 ACCEPTING RETURNED INCOME. THE RETURN WAS SELECTED FOR SCRUTINY UNDER CASS. NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERVED ON THE A SSESSEE AND IN RESPONSE, ASSESSEE FILED RELEVANT INFORMATION AS CALLED FOR. 2.1. THE FACTS OF THE C ASE ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT. THE ASSESSEE HAS TWO ON - 3 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. GOING PROJECTS IN PU NE, ONE AT MOHAMMEDWADI AND THE OTHER AT BHOSARI. THE ASSESSEE IN THE RETURN OF INCOME HAS CLAI MED SET OFF OF BROUGHT FORWARD LOSSES OF R S.112. 39 CRORES AND DECLARED TOTAL INCOME AT RS. NIL, THE BOO K PROFIT OF RS.8,78,56,865/ - AND PAID RELEVANT TAX U/S. 115JB AT @18.5.% . DURING THE ASSESSMENT PROCEEDING, AO OBSERVED THAT ASSESSEE HAS CREDITED REVENUE FROM OPERATION & OTHER INCOME AGGREGATING TO RS. 204.89 CRORES IN THE PROFIT AND LOSS ACCOUNT, WHICH INCLUDES SALE OF UNITS/ FLATS, TRANSFER OF LAND AND RIGHTS IN LAND AND SALE OF SURPLUS MATERIAL & EXTRA OF RS.53,82,61,498/ - , RS. 1 ,45,00, 00,000 / - AND RS.2,38,472/ - RESPECTIVELY. IT WAS OBSERVED THA T THE ASSESSEE HAS RECOGNIZED REVENUE FOR THE FIRST TIME IN THE INSTANT ASSESSMENT YEAR I.E. A.Y.2012 - 13 ON PERCENTAGE OF COMPL ETION METHOD (POCM) BASIS. 3. FURTHER IT WAS OBSERVED BY THE AO THAT T HE WORK - IN - PROGRESS ACCOUNT AS ON 31.3.2012, T HE ASSESSEE H AS CAPITALIZED EXPENSES AGGREGATING TO RS 217.77 CRORES AND 149.18 C R ORES AGAINST MOHAMMED WADI PROJECT AND BHOSARI PROJECT RESPECTIVELY . THE ASSESSEE HAS SHOWN COST OF CONSTRUCTION FOR 11 BUILDINGS AT RS. 49,35,48,616/ - , COST OF TRANSFER OF RIGHTS OF RS. 4 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. 125,10,80,754/ - AND B ALANCE OF RS.43,31,03,260/ - AS CLOSING WORK - IN - PROGRESS AS ON 31.3,2012. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE HAS FURNISHED THE WORKING OF PERCENTAGE OF COMPLETION METHOD AS UNDER BUILDING TOTAL SALEABLE AREA % COMPLETION AR EA SOLD TOTAL SALE AMOUNT % OF BUILDING AREA SOLD REVENUE COST BUILDING A 56715 88 [49215 152336425 87 134105746 114967647 BUILDING 8 56715 86 46230 139197225 82 119302320 1 08077519 BUILDING FL 36765 76 18810 58494 949 51 44728061 39899220 BUILDING G 1 1 6100__ 88 12650 39172500 79 34535228 32025051 BUILDING G 2 1 6100 69 8625 28209225 54 19591 604 18345618 BUILDING F3 3676 5 62 23940 7 8257330 65 484T8059 45875170 BUILDING F2 3 6765 53 24795 810 10980J 67 4254 8345 41000999 BUILDING C 58760 47 26085 84685414 44 39657124 39277869 BUILDING E 58760 60 27235 91865125 46 55375012 54079523 BUILDING D & F4 95530 - - - - - - TOTAL 468975 237585 753229173 538261498 49 3548616 4 THE ASSESSEE IN RESPECT OF ABOVE WORKINGS COMPLETION OF PROJECT FURNISHED CERTIFICAT E DATED 08/02/2015 ISSUED BY SHRI MILI ND ZAMBRE, ARCHITECT CA/89/12060 CERTIFYING THE EXTENT OF 5 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. CONSTRUCTION W ORK CARRIED OUT IN 11 BUILDINGS SITUATED AT MOHA MMEDWADI PROJECT AND THE SAME IS AS UNDER: - BUILDING P ERCENTAGE COMPLETION (A PPROX) A 88 B 86 C 47 D 37 E 60 F 1 76 F2 53 F3 62 F4 36 G1 88 G2 69 5. THE AO VERIFIED THE AGREEMENT AND AMOUNT RECEIVED FROM THE CUSTOMERS WI TH THE RELEVANT INFORMATION. THE DETAILS OF AMOUNT RECEIVED FROM CUSTOMER AND INCOME DECLARED BY THE ASSESSEE ARE TABULATED AS UNDER: - DETAILS OF ROISTERED AGREEMENTS VIS - A - VIS REVENUE RECO6NITION BUILDIN G AGREEMENT VALUE IN RS. LESAL CHARGES IN RS. EL ECT. METER DEPOSIT IN RS, AMOUNT RECEIVED IN RS. INCOME DECLARED IN RS, A 148,265,300 380,000 3,691,125 152,336,425 134,105,746 6 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. B 135,379,975 350,000 3,467,250 139,197,225 119,302,320 C 82,539,039 190,000 1,956,375 84,685,414 3 9,657,124 D 40,646,150 100,000 817,125 41,563,275 0 E 89,602,500 220,000 2,042,625 91,865,125 55,375,012 F 1 56,834,199 250,000 1,410,750 58,494,949 44,728,061 F2 78,831,355 320,000 1,859,625 81,010,980 42,548,345 F3 76,171,830 290,000 1,795,500 78,257,330 48,418,059 F4 22,061,250 100,000 513,000 22,674,250 0 61 38,003,750 220,000 948,750 39,172,500 34,535,228 62 27,402,350 160,000 646,875 28,209,225 19,591,604 TOTAL 795.737,698 2,58 0,000 19,149,000 817,466,698 538,261,499 6. AO OBSERVED FROM THE ABOVE TABLE THAT THE TOTAL INC OME DECLARED IS RS 53,82,61,498/ - WHICH TALLIES WITH THE AMOUNT CREDITED BY THE ASSESSEE IN THE PR OFIT AND LOSS ACCOUNT. IT WAS FURTHER OBSERVED BY AO TH A T THE ASSESSEE HA S DECLARED INCOME BASED ON THE PERCENTAGE OF COMPLETION METHOD AND THE INCOME DECLARED WERE IN LINE WITH THE PROJECT COMPLETION AS CERTIFIED BY THE ARCHITECT. IT WAS FURTHER OBSERVED THAT ASSESSEE HAS NOT DECLARED ANY INCOME ON BUILDINGS D & F4 AS THE SAME WAS CERTIFIED 37% AND 36% COMPLETION OF CONSTRUCTION IN THE RESPECTIVE TWO BUILDINGS. WHEN THE ASSESSEE WAS CALLED UPON TO EXPLAIN THE ABOVE AND AR OF THE ASSESSEE HAS NOT OFFERED 7 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. SATISFACTORY REASONS AND NOT HAPPY WITH THE REASONS SUBMITT ED BY AR OF THE ASSESSEE, AO TREATED THE INCOME N OT DECLARED, THEREFORE INCLUDED 37% ON BUILDING D AND 36% ON BUILDING F4 TO THE EXTENT OF RS.1, 53,78,412/ - AN D RS. 81,62,730/ - RESPECTIVELY IN THE INCOME OF THE ASSESSEE. 7. FURTHER AO OBSERVED THAT THE STAT EMENT SHOWING CUSTOMER WISE AGREEMENT & NET ADVANCE RECEIVED FURNISHED BY THE ASSESSEE, ASSESSEE HAS NOT DECLARED ANY INCOME ON THE AMOUNTS RECEIVED FROM CUSTOMERS WHERE THE AGREEMENTS WE RE NOT REGISTERED. THE DETAILS OF UNREGISTERED AGREEMENT IS TABULATED AS UNDER: DETAILS OF UNREGISTERED AGREEMENTS VIS - A - VIS REVENUE RECOGNITION BUILDIN G AGREEMENT VALUE [ IN RS. INCOME DECLARED [IN RS.J NET ADVANCE RECEIVED AS ON 31.3.2012 IN RS.] A 24,352,750 0 24,052,173 6 32,661,365 0 26,732,733 C 94,036 ,625 0 41,583,533 D 142,321,805 0 39,030,386 E 106,905,275 0 75,765,116 FI 55,253/75 0 46,896,187 F2 38,849,005 0 27,931,775 F3 42,183,740 0 30,283,245 F4 102,136,436 0 42,791,769 8 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. G1 10,343,125 O 10,008,441 G2 23,568, 030 0 17,829,382 TOTAL 672,611,931 0 382,904,740 8 IT IS OBSERVED BY THE AO THAT A SSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND CLAIMED TO BE DECLARING INCOME ON PERCENTAGE OF COMPLETION METHOD. THE ASSESSEE HAS ACCOUNTED THE ACCRUAL OF INCOME ON THE MONIES RECEIVED OUT OF THE SALE PROCEEDS ON A PERCENTAGE OF COMPLETION METHOD ON THE BASIS OF REGISTRATION OF SALE DEED IN FAVOUR OF THE INTENDED BUYER WHILE THE ASSESSEE HAS NOT ACCOUNTED ANY INCOME ON THE MONIES RECEIVED OUT OF THE SALE PROCEEDS ON THE SALE DEED NOT REGISTERED IN FAVOUR OF THE INTENDED BUYER. AO FURTHER OBSERVED THAT R EGISTRATION OF THE SALE DEED REPRESENTS ONLY THE TRANSFER OF THE TITLE IN FAVOUR OF THE BUYER. IT HAS NOTHING TO DO WITH THE METHOD OF ACCOUNTING FOLLOWED B Y THE ASSESSEE. SINCE THE ASSESSEE IS FOLLOWING THE PERCENTAGE OF COMPLETION METHOD, REVENUE IS RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT IN THE ACCOUNTING PERIOD TO THE EXTENT THE WORK IS COMPLETED. THE REFORE, THE METHOD ADOPTED BY THE ASSESSEE CANNOT BE REGARDED TO BE IN ACCORDANCE 9 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. WITH THE MERCANTILE SYSTEM OF ACCOUNTING , SINCE OVERALL AGREEMENT BETWEEN THE PARTIES IS EQUALLY VALID AGREEMENT IN THE EYES OF LAW. FURTHER, ASSESSEE IS NOT DENYING THAT IT HAS ENTERED INTO AGREEMENT WITH INTENDED BUYERS BUT S TATING THAT THE AGREEMENTS ARE NOT REGISTERED. T HE AMOUNTS RECEIVED FROM SUCH INTENDED BUYERS ARE REALIZED AND DULY UTILIZED AND ACCOUNTED IN THE BOOKS OF ASSESSEE. THEREFORE, AO OBSERVED THAT ASSESSEE HAS NOT FOLLOWED THE RECOGNITION OF REVENUE ON THE BAS IS OF PERCENTAGE OF COMPLETION METHOD . ACCORDING TO AO, THE METHOD ADOPTED BY THE ASSESSEECANNOT BE REGARDED TO COMPLY WITH THE METHOD AS LAID DOWN U/S 145 OF THE INCOME TAX ACT. THE AO ASKED AR OF THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOVE RECEIPTS CANNO T BE TREATED AS INCOME OF THE ASSESSEE BASED ON THE PERCENTAGE OF COMPLETION METHOD. THERE WAS NO RESPONSE FROM THE ASSESSE. 9 FOLLOWING THE ABOVE DISCUSSION WITH REGARD TO NON - RECOGNITION OF THE INCOME, AO BROUGHT TO TA X THE INCOME BASED ON THE PERCENTAG E OF COMPLETION METHOD TO THE EXTENT OF MONEY RECEIVED FROM INTENDED BUYERS WHEREIN AGREEMENTS ARE NOT REGISTERED .THE DETAILS OF REVENUE NEGOTIATIONS ARE GIVEN BELOW: - 10 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. DETAILS OF UNREGISTERED A6REEMENTS VIS - A - VIS REVENUE RECOGNITION 8UILDIN6 PERCENTAGE COMPLETION CERTIFIED BV ARCHITECT ASREEMENT VALUE [IN RSJ ......... AMOUNT RECEIVED [IN RS.J INCOME @ %OF WORK COMPLETED OF AMOUNT RECEIVED {XN RS.J A 88 24,352.750 24,053,173 21,165,912 B 86 32,661,365 26,732,733 22,990,150 C 47 94.036. 625 41.583,533 19,544,26 1 D 37 142,321.805 39,030,386 14,441,243 E 60 106,909,275 75,765,116 45,459,069 F1 76 55,Z53,775 46,896,187 35,641,102 F2 53 38,849.005 27,931,775 14,803,840 F3 62 42,183,740 30,283,245 1 8,775,611 F4 ' 36 102.136,436 42,791,769 15,405,037 G1 G2 88 10.343.125 10,008,441 8,807.428 69 23,568,030 17,629,382 12,302,274 TOTAL 672,611,931 383,904,740 229.335.92 7 10. ON THE BASIS OF ABOVE CALCULATION, AO MADE THE ADDITION OF RS. 2 2,93,35,927 AS INCOME OF THE ASSESSEE. 11. DURING THE ASSESSMENT PROCEEDING, AO VERIFIED THE DETAILS OF SUNDRY CREDITORS SUBMITTED BY THE ASSESSEE . IN ORDER TO VERIFY THE CORRECTNESS OF THE BALANCES, NOTICES U/S 133(6) OF THE ACT. IN THE CASE OF M/S D. S. ARGADE PROMOTERS & BUILDERS, THE AO OBSERVED THAT CLOSING BALANCE AS PER THE ASSESSEES BOOKS OF 11 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ACCOUNT IS RS. 7,16,03,616/ - ON 31.03.12, WHEREAS THE COMPANY (D. S. ARGADE PROMOTERS) HAS SHOWN RS. 2,82,06,255/ - . THERE IS A DIFFERENCE OF RS. 4,33,97,361/ - AND THE SAME WAS ASKED TO THE ASSESSEE TO SUBSTANTIATE THE DIFFERENCE, BUT ASSESSEE HAS NOT FILED ANY RECONCILIATION OR EXPLANATION WITH REGARD TO THE ABOVE DIFFERENCE AND THE SAME WAS DISALLOWED AND ADDED TO THE NET PROFIT. 12. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRED THE APPEAL BEFORE LD. CIT(A) AND OBJECTED TO THE ADDITION MA DE IN THE CASE OF PROJECT D & F4 . THE ADDITION MADE ON ACCOUNT OF PROPORTIONATE ADVANCE RECEIVED IN RESPECT OF UN - EXECUTED AND UN - REGISTERED AGREEMENT AND ADDITION ON AC COUNT OF DIFFERENCE IN THE CREDITORS BALANCE. 13. WITH REGARD TO FIRST ISSUE, ASSESSEE HAS FILED THE FOLLOWING SUBMISSIONS: - 5.1 DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS MADE FOLLOWING SUBMISSIONS: 12 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE AO, IN THE ORDER, HAS NOT DISCUSSE D THE SUBMISSIONS FILED BY THE APPELLANT DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS WHICH PROVIDE THE RATIONALE FOR NOT OFFERING THE INCOME FROM SALE OF FLATS IN BUILDING D AND F4 TO TAX DURING THE A Y 2012 - 13. WE HAVE OUTLINED IN BELOW THE P RINCIPLE SUBMISSIONS WHICH EXPLAIN THE REASONS AND RATIONALE THEREOF 1.1.1.1 SUBMISSION #1 ; THE APPELLANT HAS FOLLOWED A CONSISTENT ACCOUNTING POLICY WHICH IS IN ACCORDANCE WITH THE APPLICABLE LAWS AT THE TIME DURING THE FINANCIAL YEAR ('FY') 2011 - 12 , RELEVANT FOR THE ASSESSMENT YEAR ('AY') 2012 - 13, THE APPELLANT WAS GOVERNED BY THE PROVISIONS OF THE THEN COMPANIES ACT, 1956 ('OLD COS ACT'), WHICH WAS IN FORCE AT THE TIME. SECTION 210 OF THE OLD COS ACT PROVIDED THAT EVERY COMPANY IS REQUIRED TO PREPARE ITS FINANCIAL STATEMENTS IN ACCORDANCE WITH THE ACCOUNTING STANDARDS ('AS') ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ('ICAI'). CONSEQUENTLY, THE APPELLANT WAS BOUND BY LAW TO FOLLOW THE AS, AND NOT DOING SO WOULD HAVE RESULTED IN CONTRAVENTION OF APPLICABLE LAW AT THAT TIME. 13 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE AS - 7 ALONG WITH GUIDANCE NOTE ON 'RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPERS' ISSUED IN 2006 (THE 'GUIDANCE NOTE') WERE BOTH APPLICABLE TO THE APPELLANT FOR THE FY 2011 - 12'. AS PER THE ACC OUNTING POLICY CONSISTENTLY FOLLOWED BY THE APPELLANT, REVENUE IS RECOGNIZED ON SALE OF FLATS / UNITS OF UNDER CONSTRUCTION BUILDINGS AS PER THE PERCENTAGE OF COMPLETION METHOD ('POCM') AND WHEN THE FOLLOWING CONDITIONS ARE CUMULATIVELY SATISFIED: - CONS TRUCTION OF THE BUILDING IS AT LEAST 40 PERCENT COMPLETE; AND - AGREEMENTS, TO BE ENTERED INTO WITH THE PURCHASER OF FLATS / UNITS, ARE EXECUTED AND REGISTERED, AS ALL THE SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP GETS TRANSFERRED TO THE BUYERS (REFER N OTE NO. 1.08 OF THE NOTES TO FINANCIAL STATEMENTS, WHICH ARE ENCLOSED AS ANNEXURE 1A); AND - POCM TO BE APPLIED ON THE AGREEMENT VALUES OF THE FLATS / UNITS. THE ACCOUNTING POLICY AS STATED ABOVE IN ACCORDANCE AS - 7 AND THE GUIDANCE NOTE, BOTH OF WHICH WERE APPLICABLE TO THE APPELLANT FOR THE FY 2011 - 12. AS - 7 CLEARLY PROVIDES THAT CONTRACT REVENUES SHOULD BE 14 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. RECOGNIZED ONLY WHEN, INTER - ALIA, IT IS PROBABLE THAT THE ECONOMIC BENEFITS ASSOCIATED WITH THE CONTRACT WILL FLOW TO THE ENTERPRISE. THE GUIDANCE NOTE ALSO STATES THAT ONE OF THE CONDITIONS FOR RECOGNITION OF REVENUE FOR A REAL ESTATE DEVELOPER IS THAT THERE SHOULD BE NO SIGNIFICANT UNCERTAINTY EXISTING REGARDING THE AMOUNT OF CONSIDERATION THAT WILL BE DERIVED FROM THE REAL ESTATE SALES. IN REAL E STATE PROJECTS, THERE IS ALWAYS UNCERTAINTY ON REALIZATION OF REVENUE, ESPECIALLY IN THE INITIAL STAGES OF THE PROJECT, AS TO WHETHER THE PROJECT WILL ACHIEVE ULTIMATE COLLECTION. IN VIEW OF THE EXISTING MARKET CONDITIONS AND RISKS INVOLVED IN EXECUTING TH E CONSTRUCTION OF THE BUILDINGS, THE APPELLANT HAS ADOPTED A POLICY THAT THE ECONOMIC BENEFITS WOULD PROBABLY ACCRUE TO IT AND THERE WOULD BE CERTAINTY OF REALIZING THE CONSIDERATION ONLY WHEN THE CONSTRUCTION OF THE BUILDING IS AT LEAST 40 PERCENT COMPLET E AND WHEN THE AGREEMENT EXECUTED WITH THE BUYER IS REGISTERED WITH THE STATUTORY AUTHORITIES. THE THRESHOLD OF 40 PERCENT IS ADOPTED BY THE APPELLANT SINCE, DURING INITIAL STAGES OF CONSTRUCTION OF THE BUILDING, THERE IS ALWAYS AN UNCERTAINTY WITH REGARD TO THE COMPLETION OF THE PROJECT / BUILDING. 15 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE THRESHOLD FOR RECOGNITION OF REVENUE UNDER POCM, VARIES IN RESPECT OF EACH REAL ESTATE COMPANY, BASED ON THE INDIVIDUAL FACTS. HOWEVER, IT SHOULD BE NOTED THE THRESHOLD OF 40% ADOPTED BY THE APPELLANT IS NOT UNCOMMON IN THIS INDUSTRY. FOR INSTANCE, THE ANNUAL REPORT OF VIPUL LTD FOR FY 2011 - 12 STATED THE FOLLOWING AS ITS ACCOUNTING POLICY ON REVENUE RECOGNITION: 'REVENUE RELATING TO SALE OF RESIDENTIAL AND COMMERCIAL PLOTS IS RECOGNIZED ON PROPORTIONAT E BASIS WHEN 50% OF THE PROGRESS HAS BEEN ACHIEVED AS MEASURED IN TERMS OF ACTUAL COST INCURRED TO TOTAL ESTIMATED COST SUBJECT TO THE EXECUTION OF THE AGREEMENT TO SELL. ' (EMPHASIS SUPPLIED) THE ACCOUNTING POLICY ADOPTED BY THE APPELLANT, AS DISCUS SED ABOVE, HAS BEEN CONSISTENTLY FOLLOWED BY IT IN THE PRECEDING YEARS. CONSIDERING THAT THE CONSTRUCTION OF NONE OF THE BUILDINGS WAS COMPLETED UPTO 40% IN THE PRECEDING YEARS, THE APPELLANT HAD NOT OFFERED ANY INCOME TO TAX AT THAT TIME. THE SAID ACCOUNT ING POLICY WAS DISCLOSED TO THE AO AT THE TIME OF SCRUTINY ASSESSMENT PROCEEDINGS FOR PRECEDING AYSAS WELL AND WAS NEVER DISPUTED / CHALLENGED BY THE AO (COPY OF FINANCIAL STATEMENTS, ASSESSMENT ORDER FOR ASSESSMENT 16 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. YEAR ('AY') 2010 - 11 AND 2011 - 12 ARE ENCL OSED AS ANNEXURE IB). CONSEQUENTLY, THE A O HAS DISREGARDED THE POSITION PREVIOUSLY ACCEPTED BY THE INCOME - TAX DEPARTMENT, AND ERRED IN BRINGING TO TAX THE INCOME FROM SALES OF FLATS / UNITS IN BUILDINGS D ANDF4 IN AY 2012 - 13, 1.1.2 SUBMISSION #2 : THE ADDITIONAL INCOME BROUGHT - TO TAX BY THE AO IN THE AY 2012 - 13 HAS ALREADY BEEN OFFERED TO TAX IN SUBSEQUENT AYS B Y THE APPELLANT W ITHOUT PREJUDICE TO THE ABOVE, IT IS RESPECTFULLY SUBMITTED T HAT THE ADDITION MADE BY THE LEARNED AO ON THIS ASPECT IS M ERELY A TIMING ISSUE, IE INSTEAD OF OFFERING THE INCOME IN SUBSEQUENT YEAR , THE SAME INCOME WOULD BE CHAR GEABLE TO TAX IN THE CAPTIONED . DURING T HE FY 2012 - 13, THE CONSTRUCTION OF BUILDINGS D AND F4 WAS COMPLETED BY MORE THAN 40%. CONSEQUENTLY, THE APPELL ANT HAS OFFERED THE PROFITS FROM SALE OF FLATS IN THESE BUILDINGS (WHERE SUCH SALES HAVE BEEN REGISTERED) IN THE AY 2013 - 14 ITSELF. IN THIS REGARD, THE COMPUTATION OF TOTAL INCOME AND A STATEMENT SHOWING THAT INCOME FROM BUILDING D AND F4 17 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ARE OFFERED TO TA X IN SUBSEQUENT YEARS WHERE THE SAID BUILDINGS ARE MORE THAN 40% COMPLETE IS ENCLOSED AS ANNEXURE 1C. SINCE THE SAID ADDITION IS MERELY A TIMING ISSUE, AND THE RATE OF TAX IS NOT CHANGED IN CASE OF COMPANIES THE SAID ADDITION WOULD BE REVENUE NEUTRAL AND W OULD NOT RESULT IN ANY LOSS TO THE EXCHEQUER. IN VIEW OF THE ABOVE, SINCE IN THE FACTS OF THE PRESENT CASE, THE TRANSACTION WOULD BE REVENUE NEUTRAL, NO ADDITION SHOULD BE MADE TO THE TOTAL INCOME OF THE APPELLANT FOR THE CAPTIONED AY WITH REGARD TO THIS A SPECT. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS: - CIT VS BILAHARI INVESTMENT (P) LTD (2008) (299ITR 1) (SC), WHEREIN IT WAS HELD THAT - '...EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNT ING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PROFITS, THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTING METHOD. FUR THER, IN THE PRESENT CASES, WE FIND FROM THE VARIOUS STATEMENTS PRODUCED BEFORE US, THAT THE ENTIRE 18 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. EXERCISE, ARISING OUT OF CHANGE OF METHOD FROM COMPLETED CONTRACT METHOD TO DEFERRED REVENUE EXPENDITURE, IS REVENUE NEUTRAL... ' - CIT V. REALEST BUILD ERS & SERVICES LTD (2008) (307 ITR 202) (SC), WHEREIN IT WAS HELD THAT '.... IF THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT THERE IS UNDER - ESTIMATION OF PROFITS, HE MUST GIVE FACTS AND FIGURES IN THAT REGARD AND DEMONSTRATE TO THE COURT THAT THE IMP UGNED METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER - ESTIMATION OF PROFITS AND IS. THEREFORE, REJECTED. OTHERWISE, THE PRESUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL... ' - CIT VS NAGRI MILLS CO LTD (1958) (33 ITR 681) (BOM HC), WHEREIN IT WAS OBSERVED THAT - 'WE HAVE OFTEN WONDERED WHY THE INCOME - TAX AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME - TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTI ON SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOW ABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT: BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE , AND WHETHER THE DEDUCTION IN RESPECT OF 19 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. BONUS WAS GRANTED IN THE ASSESSMENT Y EAR 1952 - 53 OR IN THE ASSESSMENT Y EAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1 953 - 54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES INFIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF T HE CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSES OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. ' CITVS TRIVENIENGG. & INDUSTRIES LTD (2011) (336ITR374) (DELHI HQ, WHEREIN IT WAS HELD THAT - ' . ..HOWEVER, IN THE PROJECTED SCENARIO OF THIS CASE AFTER TAKING STOCK OF THE ENTIRE SITUATION, WE ARE OF THE OPINION THAT IT IS NOT NECESSARY TO CONCLUSIVELY ANSWER THE AFORESAID QUESTIONS FORMULATED. IT IS BECAUSE OF THE REASON THAT WE FIND THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. IT MAY BE POINTED OUT THAT IT IS A MATTER OF RECO RD THAT AGAINST THE PROVISION OF RS. 139 LAKHS, THE ASSESSEE HAD TO ACTUALLY INCUR EXPENDITURE OFRS. 218.03 LAKHS, I.E., MORE THAN THE PROVISION MADE. IT IS UNDISPUTED THAT THE EXPENDITURE INCURRED BY THE 20 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ASSESSEE ON THE PROJECT IS ADMISSIBLE DEDUCTION. THE ONLY DISPUTE THAT THE REVENUE SEEKS TO RAISE IS REGARDING THE YEAR OF ALLOWABILITY OF EXPENDITURE. CONSIDERING THAT THE ASSESSEE IS A COMPANY ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXER CISE OF SEEKING TO DISTURB THE Y EAR OF ALLOWABILITV OF EXPENDITURE IS. IN ANY CASE, REVENUE NEUTRAL. ' 1.1.3 SUBMISSION #3: ALLOWING DEDUCTION FOR THE COST OF CONSTRUCTION WITHOUT PREJUDICE TO ABOVE SUBMISSIONS, EVEN IF IT IS ASSUME D THAT THE PROPORTIONATE AGREEMENTS VALUE FROM BUILDINGS D AND F4 SHOULD BE CHARGEABLE TO TAX IN THE CAPTIONED AY, THEN, THE COST OF CONSTRUCTION SHOULD ALSO BE ALLOWED AS A DEDUCTION IN COMPUTING THE TOTAL INCOME OF THE APPELLANT FOR THE CAPTIONED AY. H OWEVER, THE LEARNED AO ERRED IN NOT ALLOWING THE DEDUCTION FOR COST INCURRED IN RESPECT OF THOSE TWO BUILDINGS. IN THIS REGARD, WE WISH TO SUBMIT THAT, IT IS A FUNDAMENTAL PRINCIPLE /CANON OF TAXATION THAT ONLY THE 'NET INCOME ' SHOULD BE CHARGEABLE T O TAX AND NOT THE GROSS INCOME, UNLESS SPECIFICALLY PROVIDED IN THE ACT. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING JUDGEMENTS: 21 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. - CALCUTTA COLTDVSC I T(1959) (37ITR1) (SC) '........... THE APPELLANT HERE IS BEING ASSESSED IN RESPECT OF THE PROFIT S AND GAINS OF ITSBUSINESS AND THE PROFITS AND GAINS OF THE BUSINESS CANNOT BE DETERMINED UNLESS AND UNTIL THE EXPENSES OR THE OBLIGATIONS WHICH HAVE BEEN INCURRED ARE SET OFF AGAINST THE RE CEIPTS. THE EXPRESSION 'PROFITS AND GAINS' HAS TO BE UNDERSTOOD IN ITS COMMERCIAL SENSE AND THERE CAN BE NO COMPUTATION OF SUCH PRO FITS AND GAINS UNTIL THE EXPENDITURE WHCIH IS NECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS IS DEDUCTED THEREFROM WHET HER THE EXPENDITURE IS ACTUALLY INCURRED OR THE LIABILITY IN RESPECT THEREOF HASACCRUED EVEN THOUGH IT MAY HAVE TO BE DISCHARGED AT SOME FUTURE DATE. AS WAS OBSERVED BY LORD HERSCHELL IN RUSSEL V. TOWN AND COUNTY BANK LTD. [1888] 13 APP. CASALS. ......... THE DUTY IS TO BE CHARGED UPON 'A SUM NOT LESS THAN THE FULL AMOUNT OF THE BALANCE OF THE PROFITS OR GAINS OF THE TRADE, MANUFACTURE, ADVENTURE, OR CONCERN :' AND IT APPEARS TO ME THAT THAT LANGUAGE IMPLIES THAT FOR THE PURPOSE OF ARRIVING AT THE BALANCE OF PROFITS ALL THAT EXPENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE RECEIPTS MUST BE DEDUCTED, OTHERWISE YOU DO NOT ARRIVE AT THE BALANCE OF PROFITS, INDEED, YOU DO NOT ASCERTAIN, AND CANNOT ASCERTAIN, WHETHER THERE IS 22 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. SUCH A THING AS PROFIT OR NOT. THE PROFIT OF A TRADE OR BUSINESS IS THE SURPLUS BY WHICH THE RECEIPTS FROM THE TRADE OR BUSINESS EXCEED THE EXPENDITURE NECESSARY FOR THE PURPOSE OF EARNING THOSE RECEIPTS. THAT SEEMS TO ME TO BE THE MEANING OF THE WORD 'PROFITS' IN RELATION TO ANY TRADE OR BUSINESS. UNLESS AND UNTIL YOU HAVE ASCERTAINED THAT THERE IS SUCH A BALANCE, NOTHING EXISTS TO WHICH THE NAME 'PROFITS ' CAN PROPERLY BE APPLIED. ' GRESHAM LIFE ASSURANCE SOCIETY VS STYLES (1892) (3 TC 185) '... WHEN WE SPEAK OF THE PROFITS AND GAINS OF A TRADER WE MEAN THAT WHICH HE HAD MADE BY HIS TRADING. WHE THER THER E BE SUCH A THING AS PROFIT OR G AIN CAN ONLY BE ASCERTAINED BY SETTING A G AINST THE RECEIPTS THE - EXPENDITURE OR OBLIGATIONS TO WHICH THEY HAVE GIVEN RISE....' TOPMAN EXPORTS VS CIT (342 ITR 49) (SC) '... ... ... THE WORD 'PROFIT' MEANS THE GROSS PR OCEEDS OF A BUSINESS TRANSACTION LESS THECOSTS OF THE TRANSACTION. TO QUOTE FROM BLACK'S LAW DICTIONARY (FIFTH EDITION): 'PROFIT. MOST COMMONLY, THE GROSS PROCEEDS OF A BUSINESS TRANSACTION LESS THE COSTS OF THE TRANSACTION, I.E. NET PROCEEDS. EXCESS OF RE VENUES OVER EXPENSES FOR 23 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. A TRANSACTION; SOMETIMES USED SYNONYMOUSLY WITH NET INCOME FOR THE PERIOD. GAIN REALIZED FROM BUSINESS OR INVESTMENT OVER AND ABOVE EXPENDITURES. ' 'PROFITS', THEREFORE, IMPLY A COMPARISON OF THE VALUE OF AN ASSET WHEN THE ASSET IS ACQUIRED WITH THE VALUE OF THE ASSET WHEN THE ASSET IS TRANSFERRED AND THE DIFFERENCE BETWEEN THE TWO VALUES IS THE AMOUNT OF PROFIT OR GAIN MADE BY A PER SON. KALURAM GANESHRAM (HUF) VS CIT (1 72 ITR 154) (MP HQ '.. WHEN SECTION 2(24) DEFINES THE TERM 'I NCOME' IT DOES NOT MAKE ANY DISTINCTION BETWEEN THE GROSS INCOME AND TAXABLE INCOME FOR THE PURPOSES OF TAXATION. HOWEVER, THERE IS NO DOUBT THAT IT IS NOT THE GROSS INCOME, BUT IT IS THE TAXABLE INCOME WHICH BASIS OF DETERMINATION OF THE AMOUNT OF TAX PAY ABLE... ' IF THE DEDUCTION FOR THE COST OF CONSTRUCTION OF THE BUILDINGS D AND F4 IS ALLOWED, THE NET INCOME WHICH WOULD BE CHARGEABLE TO TAX IN THE CAPTIONEDAY WOULD BE REDUCED TOINR 19,06,459 (COPY OF COMPUTATION OF CORRESPONDING COST RELATED TO BUILDING D AND F4 IS ENCLOSED AS ANNEXURE ID) 24 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. IN ANY CASE, IT SEEMS THAT THE LEARNED AO AGREES WITH THE ABOVE PROPOSITION THAT THE DEDUCTION FOR THE COST OF CONSTRUCTION SHOULD BE ALLOWED SINCE IN THE LETTER REJECTING THE APPELLANT'S APPLICATION FOR STAY OF DEMAND , DATED MAY 6, 2015, THE LEARNED AO HAS STATED THAT EVEN AFTER ALLOWING DEDUCTION FOR COST, THERE IS A HUGE DEMAND (COPY OF REJECTION LETTER DATED MAY 6, 2015 IS ENCLOSED HEREWITH AS ANNEXURE IE) 14. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, LD. C IT( A) ALLOWED THE FIRST ISSUE AND THE GROUND RAISED BY THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: - 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS AND CONTENTIONS OF THE APPELLANT AND ALSO THE ORDER OF THE AO. FROM THE AUDITED FINANCIALS OF TH E APPELLANT, IT IS NOTED THAT THE APPELLANT HAS FOLLOWED THE PROVISIONS OF THE COMPANIES ACT, 1956 WHICH PROVIDES TO PREPARE THE FINANCIAL STATEMENTS IN ACCORDANCE WITH THE MANDATORY ACCOUNTING STANDARDS (AS). THE APPELLANT HAS FOLLOWED AS - 7 ALONG WITH GUI DANCE NOTE ON 'RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPER' ISSUED IN 2006. IT IS ALSO OBSERVED FROM THE AUDITED FINANCIAL AND ASSESSMENT ORDER OF EARLIER YEARS THAT THE 25 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. APPELLANT HAS BEEN CONSISTENTLY FOLLOWING AS - 7 ALONG WITH THE SAID GUIDANCE NOTE. 5.3 ON A CAREFUL READING OF AS - 7 AND GUIDANCE NOTE, IT IS CLEAR THAT THERE IS NO STIPULATION ON COMPLETION OF MINIMUM PERCENTAGE OF CONSTRUCTION FOR RECOGNITION OF REVENUE. THE ACCOUNTING STANDARD AND GUIDANCE NOTE REFER TO RECOGNITION OF INCOME IN CASE O F REAL ESTATE DEVELOPER WHEN THERE IS NO SIGNIFICANT UNCERTAINTY REGARDING THE AMOUNT OF CONSIDERATION THAT WILL BE DERIVED FROM THE SALE OF FLAT AND WHEN THE SIGNIFICANT RISK AND REWARD OF OWNERSHIP IS TRANSFERRED TO THE BUYER. IN ABSENCE OF SPECIFIC STIP ULATION OF PERCENTAGE IN AS AND GUIDANCE NOTE, THERE IS VARIATION IN ADOPTING THE THRESHOLD PERCENTAGE FOR RECOGNITION OF REVENUE IN REAL ESTATE INDUSTRY. THE VARIATION RANGES FROM 25% TO 50% BASED ON INDIVIDUAL FACTS AND CIRCUMSTANCES OF EACH CASE. THERE IS NO DISPUTE THAT THE APPELLANT HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF DECLARING INCOME BASED ON POCM ON ACHIEVING 40% COMPLETION OF CONSTRUCTION. FURTHER THE AO HAS ACCEPTED THIS METHOD FOLLOWED BY THE APPELLANT IN EARLIER ASSESSMENT YEARS WITHOUT BRINGING OUT ANY FAULTS AS TO HOW THE METHOD DISTORTS THE PROJECT REVENUE RECOGNITION. SINCE THERE IS NEITHER ANY CHANGE IN THE 26 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. METHOD ADOPTED BY THE APPELLANT NOR ANY SUBSTANTIAL CHANGE IN LAW FROM EARLIER YEAR, THERE IS NOT MUCH BASIS FOR THE AO TO CHAN GE THE METHOD OF ACCOUNTING ADOPTED BY THE APPELLANT IN THIS YEAR BASED ON METHOD OF ACCOUNTING OF EARLIER YEARS. I HAVE ALSO GONE THROUGH THE JUDICIAL PRONOUNCEMENT RELIED UPON BY THE APPELLANT. THE CASE LAW CITED BY THE APPELLANT ARE SQUARELY APPLICABLE TO THE FACTS OF APPELLANT'S CASE. RELIANCE IS ALSO PLACED ON SC JUDGEMENT IN CASE OF CIT VS REALEST BUILDERS & SERVICES PVT LTD (2008) [170 TAXMAN 218) WHEREIN IT IS HELD THAT TAX DEPARTMENT NEEDS TO PROVIDE FACTS AND FIGURES THAT THE METHOD ADOPTED BY THE TAX PAYER RESULTS IN UNDER ESTIMATION OF PROFITS FOR CHANGING THE METHOD OF ACCOUNTING U/S 145, OTHERWISE IT WILL BE PRESUMED THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. AO HAS NOT POINTED OUT ANY DISCREPANCY THAT THE METHOD FOLLOWED REGULARLY BY THE ASS ESSEE WAS DISTORTING OR UNDER ESTIMATING THE PROFITS AND SINCE NO SUCH FACTS AND FIGURES HAVE BEEN BROUGHT ON RECORD BY THE AO, THE METHOD FOLLOWED BY THE ASSESSEE CANNOT BE INTERFERED WITH. 5.4 IN ANY CASE, THE APPELLANT HAS SUBMITTED THAT THE INCOME FROM THESE TWO BUILDINGS HAS BEEN OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEAR AND THE 27 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ASSESSMENT ORDER FOR THAT YEAR IS ALSO PASSED. THUS, IT IS MERELY A TIMING FACTOR OF ONE YEAR AND THUS, THERE IS NO LOSS TO REVENUE. IN VIEW OF THIS DISCUSSION IT IS NOT ED THAT THE ADDITION MADE BY THE AO ON ACCOUNT OF PROPORTIONATE AGREEMENT VALUES IN RESPECT OF EXECUTED AND REGISTERED AGREEMENTS, BASED ON POC FOR BUILDINGS D & F4 CANNOT BE SUSTAINED IN APPEAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY THIS GROUND OF APP EAL IS ALLOWED. 15. WITH REGARD TO THE SECOND ISSUE, ASSESSEE HAS FILED THE FOLLOWING SUBMISSION BEFORE LD. CIT(A): - 2.3. 1 SUBMISSION #1: ACCOUNTING POLICY OF THE APPELLANT IS IN ACCORDANCE WITH POCM AS PRESCRIBED IN THE AS AND GUIDANCE NOTE AS SUBMI TTED ABOVE IN PARA 1.3.1 THE ACCOUNTING POLICY FOLLOWED BY THE APPELLANT WAS IN ACCORDANCE WITH THE APPLICABLE AS AND GUIDANCE NOTE, WHICH THE APPELLANT WAS BOUND TO FOLLOW PER THE OLD COS ACT AND ANY DIFFERENT MANNER OF ACCOUNTING AND REVENUE RECOGNITION IN ITS BOOKS WOULD RESULT IN CONTRAVENTION OF THE APPLICABLE LAW AT THE TIME. 28 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. AS PER THE GUIDANCE NOTE, RECOGNITION OF REVENUE IN CASE OF REAL ESTATE SALES, IT IS NECESSARY THAT ALL THE CONDITIONS SPECIFIED IN PARAGRAPH 10 AND 11 OFAS - 9 - REVENUE RECO GNITION WHICH IS REPRODUCED BELOW, ARE SATISFIED: '10. REVENUE FROM SALES OR SERVICE TRANSACTIONS SHOULD BE RECOGNIZ ED WHEN THE REQUIREMENTS AS TO PERFORMANCE SET OUT IN PARAGRAPHS 11 AND 12 ARE SATISFIED, 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. 11. IN A TRANSACTION INVOLVING 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 OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER AND THE SEL LER RETAINS NO EFFECTIVE CONTROL OF THE GOODS TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP; AND 29 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALE OF THE GOODS.' IN THIS REG ARD, THE GUIDANCE NOTE SPECIFICALLY STATES THAT ALL SIGNIFICANT RISKS AND REWARD IN THE FIATS ARE SAID TO HAVE BEEN TRANSFERRED TO THE BUYER WHEN THE SELLER HAS ENTERED INTO A LEGALLY ENFORCEABLE AGREEMENT FOR SALE WITH THE BUYER. THIS CONDITION CANNOT HAV E SAID TO BE SATISFIED TILL SUCH TIME THE AGREEMENT FOR SALE HAS BEEN EXECUTED AND REGISTERED. IN THE APPELLANT'S CASE, ENTERING INTO THE MOU WOULD NOT BE SUFFICIENT TO TRANSFER ALL RISKS AND REWARDS IN RELATION TO THE FIATS/UNITS TO THE INTENDED BUYE R. AS CAN BEEN SEEN IN THE MOU, IT IS MERELY A CONFIRMATION THAT THE INTENDED BUYER IS WILLING TO PURCHASE THE FIAT / UNIT AND THE SAME SHOULD BE RESERVED FOR HIM UNTIL SUCH TIME AS THE ACTUAL SALE IS CONSUMMATED BY WAY OF THE EXECUTED AND REGISTERED SALE AGREEMENT. EMPIRICALLY AS WELL, IT HAS BEEN SEEN THAT CANCELLATIONS AT THE MOU STAGE ARE FAR HIGHER THAN CANCELLATIONS ONCE THE BUYER HAS ENTERED INTO A REGISTERED SALE AGREEMENT. A COMPARATIVE STATEMENT DEPICTING THE SAME UPTO THE FY 2011 - 12 IS ENCLOSED A S ANNEXURE 1H. THE FACT THAT THE BUYER ALSO PAYS STAMP DUTY ON THE 30 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. REGISTERED SALE AGREEMENT ADDS FURTHER ASSURANCE THAT HE INTENDS COMPLETING THE SALE TRANSACTION. ' FOR THE ABOVE REASONS, IT WOULD BE A GROSS VIOLATION OF THE APPLICABLE AS AND THE GUI DANCE NOTE TO RECORD REVENUE IN THE APPELLANT'S BOOKS OF ACCOUNTS MERELY ON ENTERING INTO THE MOU. FURTHER, THE MERE EXISTENCE OF A CONTRACT, WHETHER WRITTEN OR ORAL, DOES NOT SATISFY THE CONDITIONS FOR RECOGNITION OF REVENUE UNDER THE AS AND GUIDANCE NOTE. A LEGALLY ENFORCEABLE CONTRACT WHICH ENJOINS A SALE WOULD REQUIRE A PROPER CONVEYANCE DEED, DULY EXECUTED AND REGISTERED, ON WHICH STAMP DUTY HAS BEEN PAID. ABSENT THIS, A SALE CANNOT BE SAID TO HAVE TAKEN PLACE. CONSEQUENTLY, IN ACCORDANCE WITH THE GUIDANCE NOTE, THE APPELLANT HAS NOT RECOGNIZED REVENUE UNTIL SUCH TIME AS THE AGREEMENT FOR SALE OF THE FLATS WITH THE BUYER HAS BEEN EXECUTED AND REGISTERED AND HAS TREATED THE AMOUNT RECEIVED PURSUANT TO THE MOU AS ADVANCES IN ITS BOOKS OF ACCOUNTS. THE AFOREMENTIONED ACCOUNTING POLICY ADOPTED BY THE APPELLANT IS NOT UNCOMMON OR SPECIFIC ONLY TO THE APPELLANT. IT IS WIDELY FOLLOWED IN THE REAL ESTATE INDUSTRY. THE FOLLOWING ARE THE EXAMPLES OF THE 31 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ACCOUNTING POLICIES BY CERTAIN LEADING REAL ESTATE COMPANIES: - MARATHON NEXGEN REALTY LTD - ANNUAL REPORT FOR FY 2011 - 12 'REVENUE IN RESPECT OF REALTY DEVELOPMENT ACTIVITIES IS RECOGNIZED UPON TRANSFER OF SIGNIFICANT RISKS AND REWARDS TO THE BUYER IN TERMS OF UNDERLYING SALE AGREEMENT, PROVIDED IT IS NOT UNREASONABLE TO EXPECT ULTIMATE COLLECTION. THE COMPANY PERCEIVES THAT RISK AND REWARD STAND TRANSFERRED TO THE BUYER WHEN THE UNDERLYING SALE AGREEMENTS ARE REGISTERED WITH THE APPROPRIATE AUTHORITIES. ' (EMPHASIS SUPPLIED) - PURVANKARA PROJECTS LTD - ANNUAL REPORT FOR FY 2011 - 12 'REVENUE FROM THE SALE OF PROPERTIES IS RECOGNIZED WHEN THE SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE CUSTOMER, WHICH COINCIDES WITH THE ENTERING INTO A LEGALLY BINDING AGREEMENT ' (EMPHASIS SUPPLIE D) IN THIS REGARD, THE APPELLANT WOULD RESPECTFULLY LIKE TO SUBMIT THAT THE LEARNED AO ERRED IN DETERMINING THE INCOME IN RESPECT OF PROPORTIONATE ADVANCE AMOUNTS RECEIVED IN RESPECT OF UNEXECUTED AND / OR UNREGISTERED 32 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. AGREEMENTS, BASED ON POCM FOR ALL THE ELEVEN BUILDINGS, DISREGARDING THE ACCOUNTING POLICY CONSISTENTLY FOLLOWED BY THE APPELLANT WHICH WAS IN ACCORDANCE WITH THE GUIDANCE NOTE, AS APPLICABLE TO THE APPELLANT. 2.3.2 SUBMISSION #2: APPELLANT HAS FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING SECTION 145 OF THE ACT PERMITS AN ASSESSEE TO EITHER FOLLOW THE CASH OR MERCANTILE SYSTEM OF ACCOUNTING AND REQUIRES THAT THE ACCOUNTING POLICY ADOPTED BY THE ASSESSEE SHOULD THEN BE CONSISTENTLY FOLLOWED BY IT IN EACH AY. THE APPELLANT FULFILLS TH E REQUIREMENTS OF THE ACT BY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING CONSISTENTLY, WHEREIN IT RECOGNIZES INCOME AS AND WHEN SUCH INCOME 'ACCRUES ' TO IT, AND NOT WHEN IT RECEIVES ANY PAYMENT OR CASH. TO DETERMINE WHEN AN INCOME ACCRUES, THE APPE LLANT WAS REQUIRED TO REFER TO THE APPLICABLE LAWS, IN ITS CASE THE OLD COS ACT, THE AS AND THE GUIDANCE NOTE. AS SUBMITTED ABOVE (IN PARA 2.3.1), THE ASSESSEE HAS RECOGNIZED IN ACCORDANCE WITH THE APPLICABLE LAWS UNDER THE POCM ON REGISTRATION OF THE AGRE EMENT WITH BUYERS WHEN ALL SIGNIFICANT RISKS AND REWARD HAVE BEEN 33 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. TRANSFERRED TO THE BUYERS OF THE FLATS / UNITS IN THE BUILDINGS. IN THIS REGARD, RELIANCE IS PLACED ON THE FOLLOWING JUDGEMENTS: - CIT VS WOODWARD GOVERNOR INDIA (P) LTD (2009) (312 ITR 254) (SC), WHEREIN IT WAS HELD THAT - '... IN THIS CASE, WE ARE CONCERNED WITH SECTION 28. THEREFORE, SECTION 145(1) IS ATTRACTED TO THE FACTS OF THE PRESENT CASE. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BROUGHT INTO CREDIT BEFORE IT I S ACTUALLY RECEIVED; IT BRINGS INTO DEBIT AN EXPENDITURE FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED, (SEE JUDGMENT OF THIS COURT IN THE CASE OF UNITED COMMERCIAL BANK V. CIT [1999] 240 ITR 3551). THEREFORE, THE ACCOUNTING METHOD FOLLOWED BY AN ASSESSEE CONTINUOUSLY FOR A GIVEN PERIOD OF TIME NEEDS TO BE PRESUMED TO BE CORRECT TILL THE ASSEESSING OFFICER COMES TO THE CONCLUSION FOR REASONS TO BE GIVEN THAT THE SYSTEM DOES NOT REFLECT TRUE AND CORRECT PROFITS. AS STATED, THE RE IS NO FINDING GIVEN BY THE ASSESSING OFFICER ON THE CORRECTNESS OF THE ACCOUNTING STANDARD FOLLOWED BY THE ASSESSEE(S) IN THIS BATCH OF CIVIL APPEALS.' 34 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. CHALLAPALLI SUGARS LTD. VS CIT (1975) (98 ITR 167)(SC), WHEREIN IT WAS HELD THAT - 'IT WOULD APPEAR FR OM THE ABOVE THAT THE ACCEPTED ACCOUNTANCY RULE FOR DETERMINING THE COST OF FIXED ASSETS IS TO INCLUDE ALL EXPENDITURE NECESSARY TO BRING SUCH ASSETS INTO EXISTENCE AND TO PUT THEM IN WORKING CONDITION. IN CASE MONEY IS BORROWED BY A NEWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLANT, THE INTEREST INCURRED BEFORE THE COMMENCEMENT OF PRODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALISED AND ADDED TO THE COST OF THE FIXED ASSETS WHICH HAVE BEEN CREATED AS A RESULT OF SUCH EXPE NDITURE. THE ABOVE RULE OF ACCOUNTANCY SHOULD, IN OUR VIEW, BE ADOPTED FOR DETERMINING THE ACTUAL COST OF THE ASSETS IN THE ABSENCE OF ANY STATUTORY DEFINITION OR OTHER INDICATION TO THE CONTRARY. ' - CIT VS TRIVENI ENGG. & INDUSTRIES LTD (2011) (196 TA XMAN 94) (DELHI HC), WHEREIN IT WAS HELD THAT - '... IN THE GIVEN SCENARIO WHERE IN RELATION TO THE PROJECT WORKS UNDERTAKEN BY THE ASSESSEE, COMPLETED CONTRACT METHOD OF ACCOUNTING IS FOLLOWED, WHICH IS CONSISTENT WITH THE ACCOUNTING STANDARDS AND THESE AC COUNTING STANDARDS ALSO LAY DOWN THE NORMS 35 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. INDICATING THE PARTICULAR POINT OF TIME WHEN THE PROVISIONS FOR ALL KNOWN LIABILITIES AND LOSSES HAS TO BE MADE, THE MAKING OF SUCH A PROVISION BY THE ASSESSEE APPEARS TO BE JUSTIFIED MORE SO WHEN THE ASSESSEE HAD RECOGNIZED GAIN AS WELL ON SUCH PROJECT DURING THIS YEAR ITSELF. THIS APPEARS TO BE IN CONSONANCE - WITH PRINCIPLE OF MATCHING COST AND REVENUE AS WELL. ' - DCIT VS GANGA DEVELOPERS (ITA NO 949/MUMBAI) (ITAT MUMBAI),WHEREIN IT WAS HELD THAT '... WE FIND THAT THE INCOME FROM DIFFERENT PROJECTS UNDER EXECUTION DURING THE YEAR UNDER CONSIDERATION WAS OFFERED BY THE ASSESSEE TO TAX BY FOLLOWING CONSISTENTLY THE WELL - RECOGNIZED METHOD AND THERE WAS NO JUSTIFICATION IN THE ACTION OF THE A.O. IN ESTIMATING THE PROFIT OF THE SAID PROJECTS AT HIGHER VALUE BY DISTURBING THE METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE WHICH CLEARLY RESULTED IN DOUBLE ADDITION OF THE SAME INCOME...' - M/S UNIQUE ENTERPRISE VS ITO (ITA NO S109/MUM/2008) (ITAT MUMBAI), WHEREIN IT H AS BEEN HELD THAT - '...IN THE PAST, THE DEPARTMENT HAD ACCEPTED THE COMPLETED CONTRACT METHOD AND BECAUSE OF SUCH ACCEPTANCE, THE ASSESSEE, IN THESE CASES, HAVE FOLLOWED 36 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE SAME METHOD OF ACCOUNTING, PARTICULARLY IN THE CONTEXT OF CHIT DISCOUNT. EVERY AS SESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING, - WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PRO FITS, THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTING METHOD. FURTHER, IN THE PRESENT CASE, WE FIND FROM THE VARIOUS STATEMENTS PRODUCED BEFORE US, THAT THE ENTIRE EXERCISE, ARISING OUT OF CHANGE OF METHOD FROM COMPLETED CONTRACT METHOD TO DEFERR ED REVENUE EXPENDITURE, IS REVENUE NEUTRAL. ... ' IN VIEW OF THE ABOVE, WE SUBMIT THAT THE LEARNED AO SHOULD HAVE RESPECTED THE ACCOUNTING POLICY FOLLOWED BY THE APPELLANT AND HENCE, THERE SHOULD BE NO ADDITION ON ACCOUNT OF PROPORTIONATE ADVANCES RECEIVED ON UNEXECUTED/UNREGISTERED AGREEMENTS. 2.3.3 SUBMISSION #3: THE ADDITIONAL INCOME BROUGHT TO TAX BY THE AO IN THE AY2012 - 13 HAS ALREADY BEEN OFFERED TO TAX IN SUBSEQUENT AYS BY THE APPELLANT WITHOUT PREJUDICE TO THE ABOVE, AS SUBMITTED IN PARAGRAPH 1.3.2, SINCE THIS TRANSACTION WOULD BE REVENUE NEUTRAL, NO ADDITION SHOULD BE MADE ON THIS 37 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ASPECT IN THE CAPTIONED AY. THE COMPUTATION OF TOTAL INCOME OF THE APPELLANT FOR SUBSEQUENT YEARS AND A STATEMENT SHOWING THAT THE ADVANCES RECEIVED HAVE BEEN RECOGNIZED A S A REVENUE AND OFFERED TO TAX POST EXECUTION AND REGISTRATION OF THE AGREEMENTS IS ENCLOSED AS ANNEXURE 11. 2.3.4 SUBMISSION #4: ALLOWING DEDUCTION FOR THE COST OF CONSTRUCTION WITHOUT PREJUDICE TO ABOVE, EVEN IF IT IS ASSUMED THAT THE PROPORTIO NATE ADVANCE AMOUNTS RECEIVED IN RESPECT OF UNEXECUTED & UNREGISTERED AGREEMENTS SHOULD BE CHARGEABLE TO TAX IN THE CAPTIONED AY, THEN, THE COST OF CONSTRUCTION SHOULD ALSO BE ALLOWED AS A DEDUCTION IN COMPUTING THE TOTAL INCOME OF THE APPELLANT FOR THE CA PTIONED A Y. HOWEVER, THE LEARNED AO HAS NOT GRANTED CORRESPONDING DEDUCTION FOR COST OF CONSTRUCTION OF INR 20,16,31,381 IN COMPUTING THE TAXABLE INCOME OF THE APPELLANT FOR THE CAPTIONED AY. AS SUBMITTED ABOVE (IN PARA 1.3.3), WE WISH TO SUBMITTED THAT WHERE THE DEDUCTION FOR THE COST OF CONSTRUCTION IS GRANTED, THE NET ADDITION TO THE TOTAL INCOME OF THE APPELLANT FOR THE CAPTIONED AY WOULD BE 38 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. REDUCED TO 1NR 2,77,04,546 (COPY OF COMPUTATION OF CORRESPONDING COST IS ENCLOSED AS ANNEXURE 1J). F URTHER, AS CAN BEEN SEEN IN THE LETTER, THE AO AGREES WITH THE PROPOSITION THAT THE DEDUCTION FOR THE COST OF CONSTRUCTION SHOULD BE ALLOWED. 16 AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) PARTLY ALLOWED THE GROUND RAISED BY THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: - 6.2 ON PERUSAL OF AO'S ORDER AND SUBMISSION OF THE APPELLANT, I AM OF THE VIEW THAT THE CONTENTION OF THE APPELLANT THAT ALL THE SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP GET TRANSFERRED TO BUYERS ONLY ON EXECUTION AND RE GISTRATION OF AGREEMENTS CANNOT BE ACCEPTED. I AGREE WITH THE AO THAT EXECUTION AND REGISTRATION ARE ONLY THE LEGAL FORMALITIES AND DO NOT CHANGE THE ACCRUAL OF INCOME UNDER MERCANTILE SYSTEM OF ACCOUNTING. WHAT ALL THE AS AND GUIDANCE NOTE PROVIDE IS THAT THERE SHOULD BE TRANSFER OF SIGNIFICANT RISK AND REWARD. IN CASE OF APPELLANT, THE BUYER HAS PAID ADVANCES FOR PURCHASE OF A PARTICULAR FLAT BY ENTERING INTO AN MOU AND NON - EXECUTION AND NON - REGISTRATION DO NOT GIVE RIGHT TO THE APPELLANT TO POSTPONE THE INCOME AS THEY ARE JUST LEGAL FORMALITIES. 39 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. WHEN FLAT HOLDERS HAVE BEEN PAYING ADVANCES TOWARDS FLAT AS PER THE SCHEDULED DATE, THE INCOME ON SALE OF FLATS AS PER THE AMOUNT RECEIVED HAS TO BE OFFERED TO TAX IRRESPECTIVE OF THE FACT WHETHER AGREEMENT IS REG ISTERED OR NOT. HOWEVER AS HELD IN PARA 5 ABOVE, IT IS NOTED THAT THE ADVANCES RECEIVED IN RESPECT OF BUILDINGS D & F4 CANNOT BE CONSIDERED FOR THE REVENUE RECOGNITION AS THEY HAVE NOT YET REACHED THE STAGE OF REVENUE RECOGNITION. 6.3 IT IS NOTED THAT INCO ME TAX IS A TAX ON THE PROFIT OF THE BUSINESS AND NOT ON THE GROSS RECEIPTS UNLESS SPECIFICALLY PROVIDED IN THE ACT. AS PER SECTION 28 NET PROFIT OF THE BUSINESS IS TO BE TAXED AND NOT GROSS RECEIPTS. PROFIT CANNOT BE COMPUTED UNTIL THE EXPENDITURE INCURRE D WHICH ARE NECESSARY FOR THE PURPOSE OF EARNING RECEIPTS IS DEDUCTED. THUS THE CONTENTION OF THE APPELLANT THAT PROPORTIONATE COST OF CONSTRUCTION SHOULD HAVE BEEN ALLOWED AGAINST THE ADDITIONS ON ACCOUNT OF PROPORTIONATE ADVANCE AMOUNTS RECEIVED IN RESPE CT OF UNEXECUTED & UNREGISTERED AGREEMENTS, BASED ON THE PERCENTAGE OF COMPLETION OF BUILDINGS IS JUSTIFIED. FURTHER, THE FACT THAT THE AO HAS ACCEPTED THE DEDUCTION OF COST FOR PORTION OF REVENUE DECLARED BY THE APPELLANT JUSTIFIES THAT THE COST OF CONSTR UCTION HAS TO BE ALLOWED WHILE 40 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. DETERMINING THE PROFIT FROM THE PROJECT. THE AO CANNOT ADOPT A DIFFERENT STAND FOR THE DECLARED REVENUE AND ADDITIONS MADE FROM THE SAME PROJECT IN THE SAME ASSESSMENT ORDER. SINCE NO REASON HAS BEEN ASSIGNED AND THERE IS NO ADVERSE REMARK OF THE AO AND THE TAX AUDITORS AS REGARDS THE COST OF CONSTRUCTION, IT APPEARS THAT THE AO HAS INADVERTENTLY FAILED TO ALLOW THE COST OF CONSTRUCTION WHICH HAS RESULTED IN TAXING THE RECEIPT ON GROSS BASIS. THE APPELLANT HAS PROVIDED A DETAI LED WORKING OF PROPORTIONATE COST TO BE ALLOWED AGAINST THE ADDITIONAL REVENUE WHICH NEEDS TO BE ALLOWED. IN ORDER TO ARRIVE AT THE CORRECT FIGURE OF TAXABLE PROFIT EARNED BY THE APPELLANT. SUBJECT TO THIS VERIFICATION OF THE FACTS BY THE AO, APPELLANT IS ENTITLED TO CLAIM DEDUCTION OF THE COST AS DETAILED IN THE WORKING. THE AO IS DIRECTED TO VERIFY THE SAME FROM THE RECORDS AND ALLOW THE CORRESPONDING COST AGAINST THE SAID REVENUE. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 17 WITH REGARD TO T HIRD ISSUE, ASSESSEE HAS FILED THE FOLLOWING SUBMISSION BEFORE LD. CIT(A): - 4.4.1 SUBMISSION #1 : THE APPELLANT - WAS NOT PROVIDED - WITH ADEQUATE TIME /OPPORTUNITY TO PROVIDE RECONCILIATION OF THE CREDITOR'S BALANCE IN ITS BOOKS 41 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED AO HAS NOT PROVIDED THE APPEL LANT ADEQUATE TIME /OPPORTUNITY OF BEING HEARD IN ORDER TO RECONCILE THE SAID DIFFERENCE AND SUB MIT REQUISITE DOCUMENTS. IT SHOULD BE NOTED THAT THE REPLY PROVIDED BY THE CREDITOR FOR CONFIRMING THE BALANCE OUTSTANDING IN HIS BOOKS WAS ONLY SHOWN ONCE TO THE APPELLANT AND NO COPY WAS PROVIDED. FURTHER, THE DISCREPANCIES IN THE BALANCE OUTSTANDING IN THE BOOKS OF THE CREDITOR AND THE APPELLANT WAS ONLY ORALLY DISCUSSED BY THE AO AND NO OPPORTUNITY WAS PROVIDED TO THE APPELLANT TO FILE ANY WRITTEN SUBMISSIONS AND DOCUMENTARY EVIDENCE IN THIS REGARD PRIOR TO MAKING AN ADDITION OF I NR 4,33,97,361 TO THE TOTAL INCOME OF THE APPELLANT WITHOUT GIVING ANY REASONS AS TO WHY SUCH AMOUNTS SHOULD BE TREATED AS INC OME OF THE APPELLANT. THE LEARNED AO HAS MERELY STATED IN THE ORDER THAT SINCE THERE IS A DIFFERENCE, THE APPELLANT HAS SHOWN EXCESS LIABILITY. IN VIEW OF THE ABOVE AND IN THE INTEREST OF JUSTICE TO WHICH THE APPELLANT IS ENTITLED TO, WE HUMBLY REQUEST Y OUR GOODSELF TO KINDLY MAKE AVAILABLE A COPY OF THE REPLY RECEIVED FROM THE CREDITOR, ON ACCOUNT OF WHICH THE ALLEGED EXCESS LIABILITY EXISTS IN THE APPELLANT'S BOOKS OF ACCOUNTS. 42 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. 4.4.2 SUBMISSION #2: EVIDENCE FOR RECONCILIATION OF THE CREDITOR'S BALANC ES THE APPELLANT FURTHER WISHES TO SUBMIT DOCUMENTARY EVIDENCE CONFIRMING THE AMOUNTS OUTSTANDING AND PAYABLE TO THE CREDITOR AS ON MARCH 31, 2012 BASIS WHICH THE LIABILITY HAS BEEN RECOGNIZED IN THE BOOKS OF THE APPELLANT AS ANNEXURE IK. IT IS FURTHER S UBMITTED THAT THE FACT THAT THIS OUTSTANDING LIABILITY PAYABLE TO THE CREDITOR IS GENUINE IS EVIDENCED FROM THE REPORT OF THE AUDITOR IN THE FINANCIAL STATEMENTS OF THE APPELLANT, WHEREIN NO QUALIFICATION HAS BEEN MADE IN THIS REGARD BY THE AUDITOR. 4.4.3 SUBMISSION #3: DISCREPANCY IN BALANCE OF CREDITOR IN THE BOOKS OF THE APPELLANT AND CREDITOR CANNOT RESULT IN ADDITIONAL TAXABLE INCOME AND THE ADDITION IS BAD IN LAW WITHOUT PREJUDICE TO THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT MERELY BECAUSE THERE IS A DIFFERENCE BETWEEN THE BALANCES AS PER THE BOOKS OF ACCOUNTS OF THE APPELLANT AND THE CREDITOR, THE AO CANNOT TREAT THE SAID DIFFERENCE AS INCOME OF THE APPELLANT. THE AO HAS TO DEMONSTRATE, WITH COGENT MATERIAL AND STRONG REASONS THAT THE DIFFERENCE IS NOT A LIABILITY OF THE APPELLANT AND HENCE, SHOULD BE CONSIDERED AS INCOME. RELIANCE, IN THIS REGARD, CAN BE PLACED ON THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF 43 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. CONTINENTAL CARBON INDIA LIMITED VS INCOME TAX OFFICER (ITA NO 2858/DEL/2QL 1) (IT ATDELHI), WHEREIN IT WAS HELD AS UNDER: 'APROPOS DIFFERENCE IN BALANCES OFASSESSEE AND SUPPLIER, THE SAME CANNOT BE ADDED U/S 68 AS THE EXISTENCE OF ASSESSEE, SUPPLIER AND PURCHASES ARE ADMITTED. THE DIFFERENCE IN ACCOUNTS MAY BE DUE TO VARIOUS REASONS INC LUDING DISCOUNT, GOODS RETURNS; QUALITY, DIFFERENCES, REBATES AND SO MANY OTHER BUSINESS EXIGENCIES. SUCH DIFFERENCES CANNOT LEAD TO ADDITION U/S 68/69C. AT THE MOST, IF THE DIFFERENCES REMAIN UNRESOLVED FOR NUMBER OF YEARS, THE AO MAY PROCEED TO 41(1), BU T NOT U/S 68 OR 69C. SUPPLIERS EXISTENCE AND TRANSACTIONS HAVING BEEN ACCEPTED, THE - DIFFERENCE THUS CANNOT BE ADDED AS INCOME. THE ASSESSEE FURNISHED RECONCILIATION, IF THE SAME WERE WRONG, IT WAS THE BURDEN OF AO TO DEMONSTRATE THAT IT WA S NOT PROPER. IF AO FAILS TO DISCHARGE HIS ONUS, IT WILL BE INAPPROPRIATE TO PUNISH ASSESSEE FOR THE SAME.' (EMPHASIS SUPPLIE D) FURTHER, IT IS RESPECTFULLY SUBMITTED THAT THE ADDITION IS BAD IN LAW, SINCE THE AO HAS NOT SIGHTED THE PROVISIONS OF THE ACT UNDER WHICH SUC H ADDITION IS BEING MADE. AN ADDITION CANNOT BE ARBITRARY, BUT ONLY TO COMPLY WITH THE PROVISIONS OF THE ACT. 44 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. EVEN UNDER THE ACT, THE DIFFERENCE IN THE BALANCES COULD HAVE BEEN CHARGEABLE TO TAX EITHER UNDER SECTION 68 OR SECTION 41(1). IN THE FACTS OF T HE PRESENT CASE, WE WISH TO SUBMIT AS UNDER: THE LEARNED AO HAS NOT DOUBTED THE GENUINENESS OF THE CREDITOR AND HENCE, THE PROVISIONS OF SECTION 68 OF THE ACT SHOULD NOT APPLY; AND THE APPELLANT HAS NOT OBTAINED ANY BENEFIT BY WAY OF CESSATION / REMISSION OF LIABILITY WITH REGARD TO THE AMOUNTS PAYABLE TO SAID CREDITOR AND THERE HAS NOT BEEN SUBSTANTIAL TIME FOR WHICH THE SAID CREDITOR REMAINED UNPAID AND HENCE, THE PROVISIONS OF SECTION 41 (1) OF THE ACT SHOULD NOT APPLY. THE HIGH COURT OF GUJARAT IN THE C ASE OF CIT VS BHOGILAL RAMJIBHAI ATARA (43 TAXMANN.COM 55) HAS HELD THAT: 'WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL. SECTION 41(1) OF THE ACT AS DISCUSSED IN THE ABOVE THREE DECISIONS WOULD APPLY IN A CASE WHERE THERE HAS BEEN REMISSION OR CESSATI ON OF LIABILITY DURING THE YEAR UNDER CONSIDERATION SUBJECT TO THE CONDITIONS CONTAINED IN THE STATUTE BEING FULFILLED. ADDITIONALLY, SUCH CESSATION OR REMISSION HAS TO BE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, BOTH ELEMENTS ARE MISSING. THERE WAS NOTHING ON RECORD TO SUGGEST THERE WAS REMISSION OR CESSATION OF LIABILITY THAT TOO DURING 45 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007 - 08 WHICH WAS THE YEAR UNDER CONSIDERATION. IT IS UNDOUBTED LY A CURIOUS CASE. EVEN THE LIABILITY ITSELF SEEMS UNDER SERIOUS DOUBT. THE ASSESSING OFFICER UNDERTOOK THE EXERCISE TO VERIFY THE RECORDS OF THE SO CALLED CREDITORS. MANY OF THEM WERE NOT FOUND AT ALL IN THE GIVEN ADDRESS. SOME OF THEM STATED THAT THEY HA D NO DEALING WITH THE ASSESSEE. IN ONE OR TWO CASES, THE RESPONSE WAS THAT THEY HAD NO DEALING WITH THE ASSESSEE NOR DID THEY KNOW HIM. OF COURSE, THESE INQUIRIES WERE MADE EXPARTE AND IN THAT VIEW OF THE MATTER, THE ASSESSEE WOULD BE ALLOWED TO CONTEST SU CH FINDINGS. NEVERTHELESS, EVEN IF SUCH FACTS WERE ESTABLISHED THROUGH BI - PARTE INQUIRIES, THE LIABILITY AS IT STANDS PERHAPS HOLDS THAT THERE WAS NO CESSATION OR REMISSION OF LIABILITY AND THAT THEREFORE, THE AMOUNT IN QUESTION CANNOT BE ADDED BACK AS A D EEMED INCOME UNDER SECTION 41(C) OF THE ACT. THIS IS ONE OF THE STRANGE CASES WHERE EVEN IF THE DEBT ITSELF IS FOUND TO BE NON - GENUINE FROM THE VERY INCEPTION, AT LEAST IN TERMS OF SECTION 41(1) OF THE ACT THERE IS NO CURE FOR IT. BE THAT AS IT MAY, INSOFA R AS THE ORDERS OF THE REVENUE AUTHORITIES ARE CONCERNED, ME TRIBUNAL NOT HAVING MADE ANY ERROR, THIS TAX APPEAL IS DISMISSED.' 46 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. 18. AFTER CONSIDERING THE SUBMIS SION OF ASSESSEE, LD. CIT(A) DISMISSED THIS GROUND OF APPEAL RAISED BY THE ASSESSEE WITH THE F OLLOWING OBSERVATIONS: - 8.2 I HAVE GONE THROUGH THE FACTS AND SUBMISSION MADE BY THE APPELLANT IN THIS REGARD. IT IS SUBMITTED BY THE APPELLANT THAT THE ONE OF THE CREDITOR WHOSE BALANCE IS NOT MATCHING IS AN AGGREGATOR AND HAD MAINTAINED MULTIPLE ACCO UNTS AND ALL THE ACCOUNTS WERE NOT PROVIDED TO AO IN RESPONSE TO NOTICE U/S 133(6) AT THE TIME OF VERIFICATION OF BALANCE DURING THE ASSESSMENT PROCEEDINGS. IT IS NOTED THAT THE AO HAD MADE ADDITION ON ACCOUNT OF DIFFERENCE IN THE CREDITORS BALANCE WITHOUT AFFORDING THE OPPORTUNITY TO CROSS EXAMINE THE CREDITOR OR TO REBUT THE REPLIES RECEIVED IN RESPONSE TO NOTICE U/S 133(6) OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT HAS PROVIDED RECONCILIATION AND EVIDENCES TO SUBSTANTIATE THAT T HE LIABILITY TO PAY TO CREDITOR AS APPEARING IN ITS BOOKS OF ACCOUNTS IS GENUINE. HOWEVER, SINCE THE DOCUMENTS COULD NOT BE PLACED ON RECORD BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS SUFFICIENT OPPORTUNITY WAS NOT GIVEN TO APPELLANT D URING ASSESSMENT PROCEEDINGS, IT IS DIFFICULT TO ACCEPT THE CLAIM OF THE APPELLANT AT THIS STAGE WITHOUT VERIFICATION BEFORE THE AO. IN VIEW OF THIS DISCUSSION 47 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. AND HAVING REGARD TO FULL FACTS OF THE CASE THE ADDITION MADE BY THE AO ON ACCOUNT OF DIFFERENCE IN CLOSING BALANCE OF CREDITOR OF RS. 4,33,97,361/ - IS UPHELD. ACCORDINGLY THIS GROUND OF APPEAL IS DISMISSED. 19. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE AS WELL AS REVENUE HAS PREFERRED THEIR RESPECTIVE APPEAL BEFORE US. THE GROUNDS OF APPEAL RAISED B Y THE ASSESSEE ARE AS UNDER: - BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CAVALCADE PROPERTIES PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE 'APPELLANT') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) - 20, MUMBAI [HEREINAFTER REFERRED TO AS THE 'CIT(A)'] UNDER SECTION 250 OF THE INCOME - TAX ACT, 1961 ('ACT'), ON THE FOLLOWING GROUNDS WHICH ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. ON FACTS AND CIRCUMSTANCE OF THE C ASE AND IN LAW, THE LEARNED CIT(A) ERRED CONFIRMING THE ACTION OF THE LEARNED AO IN RESPECT OF AN ADDITION OF INK 22,93,35,927 TO THE TOTAL INCOME OF THE APPELLANT ON THE PROPORTIONATE VALUE OF ADVANCE AMOUNTS RECEIVED BY THE APPELLANT AGGREGATING TO INK 3 8,29,04,740 IN RESPECT OF UNEXECUTED AND UNREGISTERED SALE 48 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. AGREEMENTS OF FLATS/ UNITS OF THE ELEVEN UNDER - CONSTRUCTION BUILDINGS THOUGH INSTRUCTING THE LEARNED AO TO ALLOW THE PROPORTIONATE COST AGAINST SUCH ADDITION. 2. ON FACTS AND CIRCUMSTANCE O F THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED CONFIRMING THE ACTION OF THE LEARNED AO IN RESPECT OF AN ADDITION TO THE TOTAL INCOME OF THE APPELLANT OF INR 4,33,97,361 BEING THE DIFFERENCE IN THE CLOSING BALANCE AS PER THE BOOKS OF ACCOUNTS OF THE APPELL ANT AND AS PER THE RECORDS OF ONE SUNDRY CREDITOR OF THE APPELLANT VIZ., M/S. D S ARGADE PROMOTERS & BUILDERS. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, OMIT OR SUBSTITUTE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT THE TIME OF APPE AL, TO ENABLE THE LEARNED INCOME TAX APPELLANT TRIBUNAL TO DECIDE THE APPEAL ACCORDING TO LAW. 20. AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: - 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,35,41,142/ - MADE IN RESPECT OF INCOME ACCRUED TO ASSESSEE ON BASIS OF PERCENTAGE COMPLETION METHOD IN 49 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. RESPECT OF BUILDING 'D' 85 *F4', WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS RECEIVED ENTIRE AMOUNT RECEIVABLE FROM THE BUYERS O F THE FLATS WHOSE AGREEMENTS ARE REGISTERED, WHICH ELIMINATES THE ELEMENT OF RISK ENTIRELY.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,98,46,289/ - ON PERCENTAGE COMPLETION METHOD OF UN REGISTERED AGREEMENT IN RESPECT OF BUILDING 'D' & 'F4', THOUGH ON IDENTICAL ISSUE, IN PRINCIPLE, HE AGREED THAT THE NET INCOME [AFTER ALLOWING COST OF CONSTRUCTION] MAY BE BROUGHT TO TAX IN RESPECT OF UNREGISTERED DOCUMENTS PERTAINING TO UNITS/FLATS LOCATE D IN OTHER 9 BUILDINGS OF THE SAME PROJECT [OTHER THAN BUILDING 'D' 85 T4'].' 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW RELIEF ON ACCOUNT OF COST INCURRED BY ASSESSEE TOWARDS PROJECT IN R ESPECT OF OTHER 9 BUILDINGS [EXCLUDING BLDG. D & F4] AFTER VERIFICATION, WHICH TANTAMOUNTS TO SETTING ASIDE THE ASSESSMENT ON THIS ISSUE OF DETERMINATION OF COST OF CONSTRUCTION WHICH NEVER CROPPED UP EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING APPEL LATE PROCEEDINGS, AND NEVER WERE THE DETAILS REGARDING THE SAME BROUGHT ON RECORD, AND 50 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. HENCE IT IS ULTRAVIRUS THE POWERS VESTED WITH CIT(A) VIDE SECT.251 OF THE I.T. ACT.' 4. 'THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT (A) ON THE ABOVE GROUNDS BE SET AS IDE AND THAT OF THE A.O. BE RESTORED'. 5. 'THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ALL OR ANY OF THE GROUNDS OF APPEAL.' 21. BEFORE US, LD. AR SUBMITTED THAT AT PAGE NO. 30 OF THE PAPER BOOK IN WHICH ASSESSEE SOLD THE FLAT TO THE INTENDED BUYER, ASSESSEE ONLY ENTERS INTO A MEMORANDUM OF UNDERSTANDING (MOU), WHICH IS A FORM FOR PROVISIONAL BOOKING AND THIS AGREEMENT WAS ACCEPTED ON PAYMENT OF AGREED AMOUNT AS EVIDENCE FOR THE IMPENDING SALE OF THE FLAT/UNIT. FOLLOWING THE MOU, THE ASSESSEE ENTER S INTO THE ACTUAL SALE AGREEMENT WHICH IS EXECUTED BY BOTH THE PARTIES AND DULY REGISTERED WITH THE AUTHORITIES ON PAYMENT OF APPLICABLE STAMP DUTY. AS MENTIONED IN THE MOU, THE ACTUAL SALE TAKES PLACE ONLY ON EXECUTION AND REGISTRATION OF THE ACTUAL SALE AGREEMENT. LD. AR BROUGHT TO OUR NOTICE A COPY OF THE PROVISIONAL BOOKING, IN WHICH, IT CLEARLY INDICATES THAT SUBJECT TO CONF IRMATION ONLY ON EXECUTI ON OF 51 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. REGISTERED DOCUMENT OF OWNERSHIP AGREEMENT. HE SUBMITTED THAT WITH THE PRO VISIONAL BOOKING, INTENDED BUYERS ASK ED TO PAY WHICH MAY BE 10 % TO 15% OF COST OF FLATS. SINCE IT IS PROVISIONAL BOOKING, IT CANNOT BE CONSIDERED AS A FINAL BOOKING UNTIL AND UNLESS, THE SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE INTENDED BUYERS AND THE SELLER RETAINS NO EFFECTIVE CONTROL OVER THE PROPERTY. HE BROUGHT TO OUR NOTICE GUIDANCE NOTE ON RECOGNITION OF REVENUE OF REAL ESTATE DEVELOPERS, AS PER WHICH, ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP CAN BE CONSIDERED AS TRANSFERRED PROVIDED THE A GREEMENT IS LEGALLY ENFORCEABLE AND SUBJECT TO THE SATISFACTION OF THE FOLLOWING CONDITIONS, WHICH SIGNIFY TRANSFER OF SIGNIFICANT RISK AND REWARD TO THE BUYER EVEN THOUGH LEGAL TITLE IS NOT TRANSFERRED OR THE POSSESSION OF THE REAL ESTATE IS NOT GIVEN TO THE BUYER: A) THE SIGNIFICANT RISK RELATED TO THE REAL ESTATE HAVE BEEN TRANSFERRED TO THE BUYER, IN CASE OF REAL ESTATE SALES, PRICE RISKS IS GENERALLY IS CONSIDERED TO BE ONE OF THE MOST SIGNIFICANT RISK. B) THE BUYER HAS A LEGAL RIGHT TO SELL OR TRANSF ER HIS INTEREST IN THE PROPERTY WITHOUT ANY CONDITION OR SUBJECT TO ONLY SUCH CONDITIONS 52 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. WHICH DO NOT MATERIALLY AFFECT HIS RIGHT TO BENEFITS IN THE PROPERTY. 22. FROM THE ABOVE, HE SUBMITTED THAT IN THE GIVEN CASE, THE ASSESSEE ENTERS INTO ONLY A DRAFT AGREEMENT AND ASSESSEE HAS NOT TRANSFERRED ANY LEGAL RIGHT TO SELL THE PROPERTY TO THE LAND OWNER NOR LAND OWNER HAS NOT GIVEN ANY SETTLEMENT PLAN FOR THE COST OF THE PROPERTY AND FURTHER HE RELIED UPON THE SUBMISSIONS MADE BEFORE LD. CIT(A). 23 . WITH REGA RD TO THE REVENUE S APPEAL, LD. A R SUBMITTED THAT ASSESSEE IS REGULARLY FOLLOWING THE METHOD OF REVENUE RECOGNITION BASED ON PERCENTAGE OF COMPLETION METHOD @ 40% AND DEPARTMENT HAS ACCEPTED THE ABOVE METHOD IN THE PREVIOUS ASSESSMENT YEAR ALSO. HE BROUGHT TO OUR NOTICE THAT THE PROJECTS D & F4, IN WHICH, THE COMPLETION OF PROJECT HAS NOT CROSSED 40%, THEREFORE ASSESSEE HAS NOT RECOGNIZED THE INCOME DURING THE ASSESSMENT YEAR AS PER THEIR REGULAR METHOD OF ACCOUNTING . IN THIS REGARD, HE SUPPORTED THE FINDIN G OF LD. CIT(A). 24 . WITH REGARD TO THE DIFFERENCE IN CREDITORS RECOGNITION, HE SUBMITTED THAT AO HAS ISSUED NOTICE U/S 133(6) OF THE ACT TO THE SUNDRY CREDITORS AND COLLECTED INFORMATION AND FOUND THAT THE 53 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. BALANCE DECLARED BY THE ASSESSEE IN THE BALANCE S HEET AND THE BALANCE DECLARED BY THE SUNDRY CREDITORS ARE DIFFERENT. HE SUBMITTED THAT THE AO HAS NOT GIVEN COPY OF INFORMATION RECEIVED U/S 133(6) TO THE ASSESSEE A ND THE SAME FACTS WERE PLACED BEFORE LD. CIT(A). HOWEVER, LD. CIT(A) DISMISSED OUR APPEAL, EVEN THOUGH AO HAS NOT GIVEN AN OPPORTUNITY TO THE ASSE S SEE, THEREFORE HE PRAYED THAT THIS MATTER MAY BE REMITTED BACK TO THE AO FOR FRESH CONSIDERATION. 25 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO AND SUBMITTED THAT AS PER THE GUIDANC E NOTE ISSUED BY ICAI, THERE IS NO SPECIFIC GUIDANCE ON DECLARATION OF HOW MUCH REVENUE TO BE RECOGNIZED BY FOLLOWING THE PERCENTAGE OF COMPLETION METHOD. NORMALLY, ASSESSEE IS FOLLOWING 25% TO 50%. FURT HER THERE IS NO ACCOUNTING METHOD DECLARED BY THE ASS ESSEE IN ITS FINANCIAL STATEMENT. HE SUBMITTED THAT THE PROJECTS D & F4 HAS COMPLETED MORE THAN 25% OF THE PROJECT AND SUPPORTED THE ORDER PASSED BY THE AO. 2 6 WITH REGARD TO THE APPEAL OF THE ASSESSE, HE SUBMITTED THAT ONCE THE INTENDED BUYER PAYS ADVANC E TO THE ASSESSEE AND ASSESSEE UT ILIZED THE SAME IN THE COMPANY AND SINCE THE BUYER 54 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. REMIT TED THE ADV ANCE, HE AVAILS A RIGHT TO POSSESS THE FLAT. THE REGISTRATION OF THE FLAT IS ONLY A FORMALITY AND THE RIGHTS OF THE NEW INTENDED BUYERS ARE SIMILAR TO THE O THER REGISTERED BU YERS. THERE IS NO ANY SIGNIFICANT DIFFERENCE, ACCORDINGLY HE SUPPORTED THE FINDINGS OF LD. CIT(A). 27 WITH REGARD TO THE DIFFERENCE IN OUTSTANDING BALANCE IN SUNDRY CREDITORS, HE SUBMITTED THAT ASSESSEE HAS NOT SUBMITTED ANY INFORMATION TO THE SATISFACTION OF THE AO AND HE AGREED THAT THIS ISSUE MAY BE REMITTED BACK TO THE AO FOR FRESH CONSIDERATION. 28 CONSIDERING THE RIVAL SUBMISSION AND MATERIAL PLACED ON RECORD, WE NOTICE THAT ASSESSEE IS IN THE BUSINESS OF PROPERTY DEVELOPMENT AND DEVELOPING TWO ONGOING PROJECTS IN PUNE . I N THE ABOVE PROJECTS UNDER CONSIDERATION, ASSESSEE WAS DEVELOPING 11 BUILDINGS. OUT OF THE 11 BUILDINGS, BUIL DING D & F4 WERE COMPLETED LESS THAN 40 % ON PERCENTAGE OF COMPLETION METHOD. WHEREAS OTHER PROJECTS WER E COMPLETED MORE THAN 40%. AS PER THE ACCOUNTING METHOD ADOPTED BY T HE ASSESSEE , ADOPTED PROJECTS WHICH HAS COMPLETED 40% OR MORE AS THE REVENUE FOR THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY, ASSESSEE RECOGNIZED THOSE PROJECTS 55 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. WHICH ARE COMPLETED 40% OR MO RE. ACCORDINGLY, ASSESSEE HAS NOT RECOGNIZED THE PROJECTS D & F4 FOR THE REVENUE RECOGNITION AS THE SAME WERE NOT COMPLETED AT THE SPECIFIED RATE OF COMPLETION I.E. 40%. SINCE THE ASSESSEE IS FOLLOWING THE ABOVE METHOD OF ACCOUNTING REGULARLY, BASED ON TH E PERCENTAGE OF COMPLETION AS CERTIFIED BY THE ARCHITECT URE . ACCORDINGLY, ASSESSEE HAS RECOGNIZED THE REVENUE IN ALL THE BUILDINGS AS PER THE CERTIFICATE EXCEPT BUILDING D & F4. HOWEVER, AS PER THE ACCOUNTING STANDARD AND GUIDANCE NOTE, THERE IS NO PERCENT AGE WHICH SHOULD BE RECOGNIZED AS REVENUE, HOWEVER IT IS OPEN FOR THE ASSESSEE TO ADOPT AN APPROPRIATE METHOD CONSISTENTLY. SINCE ASSESSEE IS FOLLOWING A METHOD OF RECOGNITION OF REVENUE 40% OR MORE , THE SAME METHOD WAS ADOPTED BY THE ASSESSEE IN THE EARLI ER ASSESSMENT YEARS AND THE DEPARTMENT ALSO ACCEPTED THE SAME METHOD OF REVENUE RECOGNITION. SINCE THERE IS NO CHANGE IN THE METHOD ADOPTED BY THE ASSESSEE TO THIS ASSESSMENT YEAR ALSO. THIS POSITION IS IN LINE WITH THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VRS. REAL ESTATE BUILDERS AND SERVICES PVT. LTD. TAXMAN 172 218 (SC). LD. CIT(A) HAS ALSO APPRECIATED THE FACT THAT ASSESSEE HAS OFFERED THE INCOME FROM THESE TWO BUILDINGS IN 56 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. THE SUBSEQUENT ASSESSMENT YEARS AND THE ASSESSMENT ORDER FOR THAT Y EAR ALSO PASSED. TH US, IT IS MERELY AN ADMISSION OF INCOME IN NEXT YEAR AND THERE IS NO LOSS TO THE REVENUE. CONSIDERING THE FACTS AND CIRCU MSTANCES OF THE CASE, WE ARE INCLINED TO ACCEPT THE FINDINGS OF LD. CIT(A), ACCORDINGLY APPEAL FILED BY THE REVENUE STANDS DISMISSED. 29 WITH REGARD TO ADVANCE FROM UNREGISTERED BUYERS, ASSESSEE HAS RECEIVED ADVANCE FROM THE INTENDED BUYERS BY ENTERING INTO MOU AT THE TIME OF INITIAL INQUIRY AND ASSESSEE TREATED THE ADVANCES FOR THE PURPOSE OF REVENUE ONLY WHEN ASSES SEE ENTERS INTO AGREEMENT FOR SALE AND REGISTERS THE SAME . T ILL SUCH TIME , IT IS TREATED AS REGULAR ADVANCE. THE AO BROUGHT TO TAX BASED ON THE PERCENTAGE OF COMPLETION METHOD EVEN ON THE ADVANCE RECEIVED BY THE ASSESSEE FROM THE UN - REGISTERED BUYERS. 3 0 ON THE OTHER HAND, ASSESSEE SUBMITTED AS PER THE GUIDANCE NOTE ISSUED BY THE ICAI, THE SAME IS SUBMITTED BY THE ASSESSEE AS PER WHICH THE SIGNIFICANT RISKS AND REWARDS GOT TRANSFERRED TO BUYERS ONLY ON EXECUTION AND REGISTRATION OF AGREEMENTS. 57 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. 31 SINCE THE ASSESSEE IS FOLLOWING THE ACCOUNTING STANDARD AND GUIDANCE NOTE, WE NOTICE THAT LD. CIT(A) HAS RECOGNIZED THE ABOVE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE CASE OF RECOGNITION OF REVENUE BASED ON P ERCENTAGE OF COMPLETION METHOD EVEN ON THE ADVANCES RECEIVED FROM UNREGISTERED BUYERS. 32 WITH REGARD TO THE ADVANCE RECEIVED FROM INTENDED BUYERS, THE GUIDANCE NOTE CLEARLY INDICATES THAT THE SIGNIFICANT RISKS AND REWARDS OF THE OWNERSHIP HAS AN IMPACT ON RECOGNITION OF REVENUE. WE NEED TO DETE RMI NE AS AND WHEN ASSESSEE RECEIVES AN ADVANCE FROM THE INTENDED BUYERS , WHETHER THE BUYERS RECEIVED THE SIGNIFICANT RISKS ON THE ABOVE PROPERTY AND WHETHER THE INTENDED BUYER HAS LEGAL RIGHT TO SELL OR TRANSFER INTEREST ON THE PROPERTY WITHOUT ANY CO NDITI ON. WHETHER THE ASSESSEE HAS A SIGNIFICANT CERTAINTY WITH REGARD TO THE RECEIPT OF CONSIDERATION AND THERE IS NO UNREASONABLENESS TO ULTIMATE COLLECTION. THE PERIOD BETWEEN ENTERING INTO MOU WITH THE INTENDED BUYER AND ACTUAL REGISTRATION OF AGREEMENT FOR SALE, THE INTENDED BUYER MAY CHANGE HIS MIND NOT TO BUY OR GO AHEAD WITH THE PURCHASE OR MAY NOT AGREE WITH THE PAYMENT SCHEDULE 58 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. PROPOSED BY THE BUILDER . MAY BE THE BUYER MAY NOT HAVE PROPER CREDIT LINE WITH THE BANKER OR MAY NOT SATISFY THE BUILDER WITH T HE REALISTIC SETTLEMENT PLAN. I N SUCH A SITUATION SUCH MOU MAY BE CANCELLED . THE ASSESSEE HAS TO CONSIDER ALL THE ASPECTS AND MAKE SURE IT CAN RECEIVE THE SALE CONSIDERATION REASONABLY. IN CASE, THE ASSESSEE RECOGNIZES THE INITIAL DOWN PAYMENT FROM THE INT ENDED BUYER AND W HEN THE INTENDED BUYER CANCELS THE INITIAL AGREEMENT. THE REVENUE RECOGNIZED BY THE ASSESSEE MAY NOT BE REAL. THEREFORE, IN OUR CONSIDERED VIEW, THE METHOD ADOPTED BY THE ASSESSEE IS AS PER THE GUIDANCE NOTE ISSUED BY ICAI. 33 FURTHER, L D. AR RELI ED UPON THE FOLLOWING JUDGMENTS: DCIT VS PANCARDS CLUB LTD (2014) (3 70ITR 45) (BOM. HC), WHEREIN IT WAS HELD THAT - THE TRIBUNAL THEN REFERRED TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SID DHESHWAR SAHAKARI SAKHAR KARKHANA LTD V. CJT [2004] 270 ITR 1/139 TAXMAN 434. THE C ONC EPT OF DEPOSIT OR EXPRESSION AS SUCH, WOULD DENOTE ACCORDING TO THE HON'BLE SUPREME COURT THAT THE AMOUNT RECEIVED AS 59 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. SUCH, WAS TO BE REFUNDED. THE RIGHT TO DEMAND THE REFUND WOULD AC CRUE TO THE MEMBER/DEPOSIT OR. THE RIGHT THOUGH CONTINGENT IN NATURE, INITIALLY,INHERES IN THE DEPOSITOR FROM THE BEGINNING. IT IS IN THESE CIRCUMSTANCES AND RELYING UPON THE PRINCIPLE LAID DOWN IN THIS DECISION THAT THE SUPREME COURT CONCLUDED THAT IN VIEW OF THE OBLIGATION ON THE ASSESSEE TO REFUND THE AMOUNT OF ADVANCE RECEIVED ON SALE OF ROOM NIGHTS THAT IT CANNOT BE TREATED AS A TRADING RECEIPT.... ' DCJT VS SHIV SAI DEVELOPERS (2012) (134 ITD 445) (ITAT MUMBAI), WHEREIN IT WAS HELD THAT '...THERE WAS THUS A CONCLUSIVE EVIDENC E IN THE FORM OF MEMORANDUM OF UNDERSTANDING TO SHOW THAT THE AMOUNT OFRS. 1.51 CRORE WAS RECEIVED BY THE ASSESSEE IN CASH AS EARNEST MONEY OR ADVANCE AGAINST THE TRANSACTION OF LAND. IN THE CASE OFHASMUKHLAL M. PARIKH (SUPRA), CITED BY LEARNED COUNSEL FOR THE ASSESSEE, THE EARNEST MONEY WAS RECEIVED BY THE ASSESSEE AGAINST THE TRANSACTION OF SALE OF LAND IN THE RELEVANT YEAR BUT THE SALE DEED WAS EXECUTED IN THE LATTER YEAR AND IT WAS HELD BY THE HON'BLE BOMBAY HIGH COURT THAT THE ENTIRE PROFIT ON SALE OF LAND WAS ACCRUED TO THE ASSESSEE IN THE LATTER YEAR AND NOT IN THE YEAR UNDER CONSIDERATION. TO THE SIMILAR EFFECT IS THE 60 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OFASHALAND CORPN. (SUPRA), WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED AS EARN EST MONEY AND ADVANCE RECEIVED TOWARDS TRANSACTION WOULD NOT, BY ITSELF, PARTAKE OF THE CHARACTER OF TAXABLE INCOME AS THE TRANSFER OF LAND WAS TAKEN PLACE ONLY IN THE SUBSEQUENT YEAR. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE TRANSFER OF LAND BY THE ASSESSEE HAD NOT TAKEN PLACE IN THE YEAR UNDER CONSIDERATION AND THIS BEING SO, WE HOLD RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OFHASMUKHLAL M. PARIKH (SUPRA) AND THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AS HALAND CORPN. (SUPRA), THAT THE AMOUNT OF RS. 1.51 CRORES RECEIVED BY THE ASSESSEE AS EARNEST MONEY OR ADVANCE COULD NOT BE TREATED AS ITS INCOME IN THE YEAR UNDER CONSIDERATION.' 3.3.4 SUBMISSION M: PROFITS FROM SALE OF THE PROPERTY SHOULD BE CHARGEABLE T O TAX UNDER THE HEAD PGBP IT IS SUBMITTED THAT THE TRANSFER OF THE SAID PROPERTY SHOULD BE CHARGEABLE TO TAX UNDER THE HEAD PGBP SINCE THE APPELLANT IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND RELATED ACTIVITIES AND ACQUISITION OF THE LAND AND TRANSFERRING THE SAME IS ALSO ONE OF THE OBJECTS OF THE APPELLANT (COPY OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE 61 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. APPELLANT IS ENCLOSED AS ANNEXURE 1Q ). THE SAID FACT HAS ALSO BEEN RECOGNIZED BY THE LEARNED AO IN HIS ASSESSMENT ORDER WHEREI N IT IS MENTIONED THAT THE NATURE OF BUSINESS OF THE APPELLANT IS BUILDERS AND DEVELOPERS. 3.3.5 SUBMISSION #5: COST OF THE LAND SHOULD BE ALLOWED AS A DEDUCTION IN ANY CASE THE PROPERTY HAS BEEN ACQUIRED BY THE APPELLANT IN SEPARATE PARCELS FOR AN AG GREGATE CONSIDERATION OF I NR 125,10, 80,748. THIS FACT HAS BEEN ACCEPTED BY THE AO IN THE ORDER AS WELL. THE APPELLANT WOULD LIKE TO RESPECTFULLY SUBMIT THAT WHETHER THE INCOME FRO M TRANSFER OF T HE LAND IS CONSIDERED AS PGBP OR IOS ONLY THE PROFITS, IE NET INCOME AFTER REDUCING THE COST FROM THE CONSIDERATION OF, INR 145,00,00,000 SHOULD BE BROUGHT TO TAX. IF THE INCOME IS BROUGHT TO TAX UNDER THE HEAD IOS, DEDUCTION THEN THE COST OF ACQUISITION OF I NR 125,10, 80,748 SHOULD BE ALLOWED AS A DEDUCTION IN CO MPUTING THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 57 OF THE ACT AS IT IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING THE INCOME. 62 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. IN THIS REGARD, WE WISH TO SUBMIT THAT VARIOUS JUDGMENTS, INTER - ALIA, INCLUDING THE FOLLOWING, HAVE HELD THAT ONLY THE 'NET INCOME' IE AFTER ALLOWING DEDUCTIONS FOR THE COST OF EARNING SUCH INCOME, AS PER THE PROVISIONS OF SECTION 57 OF THE ACT, SHOULD BE CHARGEABLE TO TAX: CIT VS BOKARO STEELS LTD (170ITR 522) (PATNA HC), WHERIN IT WAS HELD THAT '.....THE W ORD 'INCOME' IS A MORE GENERAL TERM THAN 'PROFITS' OR 'GAINS'. A RECEIPT MAY BE TAXABLE AS INCOME, ALTHOUGH IT MAY CONTAIN NO ELEMENT OF PROFIT OR GAIN. 'PROFITS' OR 'GAINS' MEANS SOMETHING WHICH IS IN THE NATURE OF INTEREST OR FRUIT, AS OPPOSED TO THE PRI NCIPAL OR TREE. 'GAINS' IS REALLY THE EQUIVALENT OF 'PROFITS'. THE PROFIT OF A TRADE OR BUSINESS IS THE SURPLUS BY WHICH THE RECEIPTS FROM THE TRADE OR BUSINESS EXCEED THE EXPENDITURE NECESSARY FOR THE PURPOSE OF EARNING THOSE RECEIPTS. THE TAX IS UPON INC OME, PROFITS OR GAINS; IT IS NOT A TAX ON GROSS RECEIPTS. THE EXPRESSION 'PROFITS' OR 'GAINS' IS NOT LIMITED TO BUSINESS ONLY, BUT IS USED IN THE ACT WITH REFERENCE TO OTHER SOURCES OF INCOME AS WELL.' (EMPHASIS SUPPLIED) THE ABOVE HIGH COURT DECISION HAS BEEN SUBSEQUENTLY AFFIRMED BY THE SUPREME COURT IN 236 ITR 315. 63 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. 34 . AFTER PERUSING THE ABOVE JUDICIAL PRONOUNCEMENTS, WE ARE IN AGREEMENT WITH THE FACT THAT THERE HAS TO BE REASONABLE CERTAINTY OF REALIZATION OF CONSIDERATION OR SIGNIFICANT RISK MUST PASS TO THE INTENDED BUYER, SINCE THESE BASIC TERMS ARE MISSING IN THE INITIAL STAGE OF PROVISIONAL BOOKING, WE ARE INCLINED TO AGREE WITH THE ASSESSEE THAT INITIAL ADVANCE CANNOT BE TREATED AS INCOME OF THE ASSESSEE SINCE UNLESS AND UNTIL T HERE IS RISK AND R EWARD IS PASSED ON TO THE INTENDED BUYER AND INTENDED BUYER HAS RIGHT TO RE - TRANSFER THE RIGHT AND THE ASSESSEE HAS CERTAINTY OF RECEIPTS OF SALE CONSIDERATION UNTIL THEN THE RECEIPTS CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. ACCORDINGLY, GROUNDS RAI SED BY THE ASSESSEE ARE ALLOWED. 35 . WITH REGARD TO DIFFERENCE IN SUNDRY CREDITORS BALANCE, WE NOTICE THAT AO HAS COLLECTED INFORMATION U/S 133(6) AND HAS NOT GIVEN PROPER OPPORTUNITY TO THE ASSESSEE TO RECONCI LE AND SUBMIT THE SAME BEFORE HIM . ACCORDING LY, WE ARE INCLINE TO REMIT THIS MATTER BACK TO THE FILE OF AO TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO RECO NCILE THE SAME AND COMPLETE THE ASSESSMENT ORDER 64 I.T.A. NO. 4030 & 4273 /MUM/201 7 M/S CAVALCADE PROPERTIES PVT. LTD. ACCORDINGLY. THEREFORE, THIS GROUND RAISED BY THE ASSESEE IS ALLOWED FOR STATISTICAL PURPOSE S. 36 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE STA NDS DISMISSED AND APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCT 20 19 . SD/ - SD/ - ( RAM LAL NEGI ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 30 . 10 .201 9 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMB AI