Appeal Details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 8189 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 1 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-08-2022
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Assessment Year
2008-2009
Appeal Filed On
28-06-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 4333/MUM/2018 Assessment Year: 2006-07 & ITA No. 4334/MUM/2018 Assessment Year: 2007-08 & ITA No. 4335/MUM/2018 Assessment Year: 2008-09 ACIT-30(3), C-13, 5 th floor, R. No. 510, Pratyaksha Kar Bhavan, BKC, Bandra (East), Mumbai-400051. Vs. Shri Suratchandra B. Thakkar (HUF), Tipco Compound, Rani Sati Marg, Malad (E), Mumbai-400097. PAN No. AAAHT 0788 G Appellant Respondent Revenue by : Mr. Hoshang B. Irani, DR Assessee by : None Date of Hearing : 28/07/2022 Date of pronouncement : 12/08/2022 ORDER PER OM PRAKASH KANT, AM These three appeals by the assessee are directed against a common order dated 06/04/2018 passed by the Ld. Commissioner of Income-tax (Appeals) assessment year 2006 common issue-in-dispute is involved in all the three appeals, same were heard together and disposed of order for convenience. 2. Identical grounds have been raised in all the three assessment year except difference of amount and t reproducing the grounds raised by the assessee in IT 4333/Mum/2018 for assessment years 2006 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not treating of advances the assessee of the assessee for AY 2006 3. In assessment year 2007 ₹96,04,258/- and in assessment year 2008 ₹2,77,19,807/- has been challenged Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 tax (Appeals)-41, Mumbai [in short ‘the Ld. CIT(A) assessment year 2006-07; 2007-08 and 2008-9 respectively dispute is involved in all the three appeals, same were heard together and disposed off by way of this consolidated order for convenience. Identical grounds have been raised in all the three assessment year except difference of amount and therefore for brevity, we are reproducing the grounds raised by the assessee in IT 4333/Mum/2018 for assessment years 2006-07, as under: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not treating of advances the assessee of ₹1,78,68,399/- from flat buyers as income of the assessee for AY 2006-07. assessment year 2007-08, deletion of amount of and in assessment year 2008-09 deletion of amount of has been challenged by the Revenue. Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 2 the Ld. CIT(A)’] for respectively. Since a dispute is involved in all the three appeals, same by way of this consolidated Identical grounds have been raised in all the three assessment herefore for brevity, we are reproducing the grounds raised by the assessee in ITA No. 07, as under: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not treating of advances received by from flat buyers as income of deletion of amount of 09 deletion of amount of 4. Briefly stated facts of the case are that assessee HUF had entered into a development agreement with M/s K Raheja Private Limited (i.e. the developer) for development of flats and commercial units on which was owned by the assessee along with two brothers of Karta of HUF the owners of the land and the developers were to share the sale proceeds in the ratio of 45.5% and 54. was having 1/4 th share in the land, and therefore it was entitled to receive 25% of the 45.5% share receivable by the landowners project consisted of construction of four towers on the said land, out of which first two to corresponding to assessment year 2008 two towers were completed in previous year corresponding to assessment year 2009 ₹1,78,68,399/-; ₹96,04, Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 Briefly stated facts of the case are that assessee HUF had entered into a development agreement with M/s K Raheja (i.e. the developer) for development of flats and commercial units on certain land at Malad (East), Mumbai which was owned by the assessee along with other co two brothers of Karta of HUF). As per the development agreement, the owners of the land and the developers were to share the sale proceeds in the ratio of 45.5% and 54.5% respectively. The assessee share in the land, and therefore it was entitled to receive 25% of the 45.5% share receivable by the landowners project consisted of construction of four towers on the said land, out of which first two towers were completed in previous year corresponding to assessment year 2008-09, whereas the remaining two towers were completed in previous year corresponding to assessment year 2009-10. The assessee received advance of rupees 96,04,258/- and ₹2,77,19,807/- against sale of f Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 3 Briefly stated facts of the case are that assessee HUF had entered into a development agreement with M/s K Raheja Universal (i.e. the developer) for development of residential Malad (East), Mumbai, other co-owners (i.e. the development agreement, the owners of the land and the developers were to share the sale 5% respectively. The assessee share in the land, and therefore it was entitled to receive 25% of the 45.5% share receivable by the landowners. The project consisted of construction of four towers on the said land, out wers were completed in previous year 09, whereas the remaining two towers were completed in previous year corresponding to 10. The assessee received advance of rupees against sale of flats in assessment year 2006 However no income was offered by the assessee against the said advance received on the plea that assessee was following Completion Method and ent year 2008-09 and 2009 occupation certificate and execution of conveyance deed in favour of the buyers. 5. According to the construction was being met by the developer and the project did not require any contribution from the side of the assessee, the advance received by the assessee became final and certain. The Officer further observed that no work the assessee in its books of accounts. In view of the Officer, there was no risk attached to the advances becomes income of the assessee in the year of the receipt. Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 in assessment year 2006-07, 2007-08 and 2008-09 respectively. However no income was offered by the assessee against the said advance received on the plea that assessee was following and entire income was declared in assessment 09 and 2009-10, on completion of the project occupation certificate and execution of conveyance deed in favour of According to the Assessing Officer the entire cost of n was being met by the developer and the project did not require any contribution from the side of the assessee, the advance received by the assessee became final and certain. The further observed that no work-in-progress was reported in its books of accounts. In view of the there was no risk attached to the assessee and therefore becomes income of the assessee in the year of the receipt. Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 4 09 respectively. However no income was offered by the assessee against the said advance received on the plea that assessee was following Project ire income was declared in assessment 10, on completion of the projects, receipt of occupation certificate and execution of conveyance deed in favour of the entire cost of n was being met by the developer and the project did not require any contribution from the side of the assessee, the advance received by the assessee became final and certain. The Assessing progress was reported by in its books of accounts. In view of the Assessing assessee and therefore becomes income of the assessee in the year of the receipt. 6. The Ld. CIT(A) has summariz made before him, for assessment year 2006 “10. On the other hand, the Ld. AR of the appellant has stated that the appellant has contributed only land along with his 2 brothers (coparceners) while the Developer has contributed labour, administration expenses, stamp duty, registration charges and all day to day expenses to construct the building. The appellant received advances from the prospective buyers through the Developer in the ratio fixed in the development a amounting to Rs. 1,78,68,399/ (or Tower A and B), as shown in the balance sheet towards his contribution of cost of land. 11. During the appellate proceedings, the Ld. AR has highlighted certain clauses. from th argument. According to him, as per as per clause no. 41 of the development agreement, the appellant has given only rights to the Developers to develop the property into residential & commercial units without transfe to sale residential units, to the prospective buyers, is vested with the Developer. Furthermore, as per the clause no. 29 of the development agreement, the appellant was entitled to receive gross sale proceeds including interest components for delayed payment from the prospective buyers of flats against sale of his share in the property owned along with his two brothers as coparceners being the land component. Further as per clause 46 of the development agreeme after completion of the building, it is the responsibility of the Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 A) has summarized the contentions for assessment year 2006-07 as under: 10. On the other hand, the Ld. AR of the appellant has stated that the appellant has contributed only land along with his 2 brothers (coparceners) while the Developer has contributed all material, labour, administration expenses, stamp duty, registration charges and all day to day expenses to construct the building. The appellant received advances from the prospective buyers through the Developer in the ratio fixed in the development a amounting to Rs. 1,78,68,399/-, which were related to Tower & II (or Tower A and B), as shown in the balance sheet towards his contribution of cost of land. 11. During the appellate proceedings, the Ld. AR has highlighted certain clauses. from the development agreement to put forth his argument. According to him, as per as per clause no. 41 of the development agreement, the appellant has given only rights to the Developers to develop the property into residential & commercial without transferring the right in the land although the right to sale residential units, to the prospective buyers, is vested with the Developer. Furthermore, as per the clause no. 29 of the development agreement, the appellant was entitled to receive gross sale proceeds including interest components for delayed payment from the prospective buyers of flats against sale of his share in the property owned along with his two brothers as coparceners being the land component. Further as per clause 46 of the development agreeme after completion of the building, it is the responsibility of the Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 5 s of the assessee 07 as under: 10. On the other hand, the Ld. AR of the appellant has stated that the appellant has contributed only land along with his 2 brothers all material, labour, administration expenses, stamp duty, registration charges and all day to day expenses to construct the building. The appellant received advances from the prospective buyers through the Developer in the ratio fixed in the development agreement, , which were related to Tower & II (or Tower A and B), as shown in the balance sheet towards his 11. During the appellate proceedings, the Ld. AR has highlighted e development agreement to put forth his argument. According to him, as per as per clause no. 41 of the development agreement, the appellant has given only rights to the Developers to develop the property into residential & commercial rring the right in the land although the right to sale residential units, to the prospective buyers, is vested with the Developer. Furthermore, as per the clause no. 29 of the development agreement, the appellant was entitled to receive gross sale proceeds including interest components for delayed payment from the prospective buyers of flats against sale of his share in the property owned along with his two brothers as coparceners being the land component. Further as per clause 46 of the development agreement, after completion of the building, it is the responsibility of the developer to form a co purchasers of the newly constructed building. It is clearly mentioned in the said clause of the agreement that the ap along with his 2 brothers and the Developer shall jointly convey their respective rights and interest in the said property and the said building in favour of the co be formed by the purchasers of the premises conveyance deed in favour of the co company is to be done only after completion of the building, receipt of the occupation certificate, after all the residential premises have been sold and the total sal received. 12. The Ld. AR has further brought to the notice of the undersigned the notes forming part of the accounts of the appellant which states that the appellant concern, in respect of real estate development business, is following consistently the completed building project method of accounting. Under this method the profit on the building project is determined only when the building project is completed. All the construction, administration, finance and other expenses allowable directly in the project including land cost are carried forward as work in progress to the building project account till the year of completion of the building. All the advances received against the sale of flats are carried for from the customers and the same is accounted on the completion of the building and handing over of the possession to flat buyer. In this regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision in case of Madhuvana Hous 76 TTJ 948 wherein it is held that the appellant is entitled to adopt Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 developer to form a co-operative society or a limited company of the purchasers of the newly constructed building. It is clearly mentioned in the said clause of the agreement that the ap along with his 2 brothers and the Developer shall jointly convey their respective rights and interest in the said property and the said building in favour of the co-operative society or limited company to be formed by the purchasers of the premises. This execution of the conveyance deed in favour of the co-operative society or limited company is to be done only after completion of the building, receipt of the occupation certificate, after all the residential premises have been sold and the total sale price of all the said premises have been 12. The Ld. AR has further brought to the notice of the undersigned the notes forming part of the accounts of the appellant which states that the appellant concern, in respect of real estate development business, is following consistently the completed building project method of accounting. Under this method the profit on the building project is determined only when the building project is completed. All the construction, administration, finance and other expenses allowable directly in the project including land cost are carried forward as work in progress to the building project account till the year of completion of the building. All the advances received against the sale of flats are carried forward as advances received from the customers and the same is accounted on the completion of the building and handing over of the possession to flat buyer. In this regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision in case of Madhuvana Housing Building Cooperative Society v. ACIT 76 TTJ 948 wherein it is held that the appellant is entitled to adopt Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 6 operative society or a limited company of the purchasers of the newly constructed building. It is clearly mentioned in the said clause of the agreement that the appellant along with his 2 brothers and the Developer shall jointly convey their respective rights and interest in the said property and the said operative society or limited company to . This execution of the operative society or limited company is to be done only after completion of the building, receipt of the occupation certificate, after all the residential premises have e price of all the said premises have been 12. The Ld. AR has further brought to the notice of the undersigned the notes forming part of the accounts of the appellant which states that the appellant concern, in respect of real estate development business, is following consistently the completed building project method of accounting. Under this method the profit on the building project is determined only when the building project is completed. All the construction, administration, finance and other related expenses allowable directly in the project including land cost are carried forward as work in progress to the building project account till the year of completion of the building. All the advances received ward as advances received from the customers and the same is accounted on the completion of the building and handing over of the possession to flat buyer. In this regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision ing Building Cooperative Society v. ACIT 76 TTJ 948 wherein it is held that the appellant is entitled to adopt such method of accounting as would give complete picture of true income of the assessee provided the same is regularly employed. The appellant is regularly employing the same method of accounting i.e. project completion method to determine complete picture of income. 13, It is also contended that during pendency of construction work, the appellant has received advances against his contribution of l and not against construction of the building, therefore the advance received cannot be treated as income of appellant till the construction is completed or occupation certificate is received from Municipal Authority or possession is handed over or the proceeds are received from the purchases. This is imminent because advances received from the flat buyers are refundable in case of cancellation of booking of flats. Moreover, projects runs for number of years and price escalation cannot be denie construction is complete and possession of the flats are given, determination of correct income is not feasible. As per the clauses of the Development agreement, the title of the land is transferred to the co-operative society or limited purchasers only after completion of the project. Only then the income arising from the sale of property is taxable in the hands of the appellant i.e. in F.Y. 2007 appellant offered tax on entire sale p or Tower A and B) amounting to Rs. 8,97,11,407/ thereon totalling to Rs. 2,12,30,019/ Ld. AR that the AO has also cumulatively determined the same receipt of Rs. 8,97,11,407/ Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007 Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 such method of accounting as would give complete picture of true income of the assessee provided the same is regularly employed. The regularly employing the same method of accounting i.e. project completion method to determine complete picture of 13, It is also contended that during pendency of construction work, the appellant has received advances against his contribution of l and not against construction of the building, therefore the advance received cannot be treated as income of appellant till the construction is completed or occupation certificate is received from Municipal Authority or possession is handed over or the proceeds are received from the purchases. This is imminent because advances received from the flat buyers are refundable in case of cancellation of booking of flats. Moreover, projects runs for number of years and price escalation cannot be denied. Hence, till the construction is complete and possession of the flats are given, determination of correct income is not feasible. As per the clauses of the Development agreement, the title of the land is transferred to operative society or limited company on behalf of the purchasers only after completion of the project. Only then the income arising from the sale of property is taxable in the hands of the appellant i.e. in F.Y. 2007-2008 (A.Y. 2008-09) when the appellant offered tax on entire sale proceeds of land (for Tower & II or Tower A and B) amounting to Rs. 8,97,11,407/- and paid tax thereon totalling to Rs. 2,12,30,019/-. It is further explained by the Ld. AR that the AO has also cumulatively determined the same receipt of Rs. 8,97,11,407/- for the three years i.e., for A.Y. 2006 Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007 Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 7 such method of accounting as would give complete picture of true income of the assessee provided the same is regularly employed. The regularly employing the same method of accounting i.e. project completion method to determine complete picture of 13, It is also contended that during pendency of construction work, the appellant has received advances against his contribution of land and not against construction of the building, therefore the advance received cannot be treated as income of appellant till the construction is completed or occupation certificate is received from Municipal Authority or possession is handed over or the full sale proceeds are received from the purchases. This is imminent because advances received from the flat buyers are refundable in case of cancellation of booking of flats. Moreover, projects runs for number d. Hence, till the construction is complete and possession of the flats are given, determination of correct income is not feasible. As per the clauses of the Development agreement, the title of the land is transferred to company on behalf of the purchasers only after completion of the project. Only then the income arising from the sale of property is taxable in the hands of 09) when the roceeds of land (for Tower & II and paid tax . It is further explained by the Ld. AR that the AO has also cumulatively determined the same or the three years i.e., for A.Y. 2006-07, Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007-08, Rs. 96,04,258/- for Tower & II (Advance) and for A.Y. 2008 6,22,38,750 for Tower & II (Final payment). Thus the amount computed by the AO for thr offered for taxation in A.Y. 2008 no variation at all. Once the appellant has already paid tax on total sale of Rs. 8,97,11,407/ project is completed, the AO is not justified in taxing the same amount in the preceding years, when the receipts were in the nature of advances. There is no loss to the revenue on account of taxation as the tax is fully paid on Rs. 8,97,11,407/ Hence, the Ld. AR pleaded that the impugned addition made by the AO should be deleted. 7. After considering of the submission of the assessee, the Ld. CIT(A) accepted the income offered by the assessee following project completion method. 8. The Ld. DR before us relied on the order of the Officer and submitted that advance received against sale of the flat should have been assessed in the year of the income of the assessee on 9. We have heard Representative and perused the relevant material on record Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 for Tower & II (Advance) and for A.Y. 2008 6,22,38,750 for Tower & II (Final payment). Thus the amount computed by the AO for three years is the same amount which is offered for taxation in A.Y. 2008-09 i.e., Rs. 8,97,11,407/ no variation at all. Once the appellant has already paid tax on total sale of Rs. 8,97,11,407/- in the A.Y. 2008-09, the year in which the s completed, the AO is not justified in taxing the same amount in the preceding years, when the receipts were in the nature of advances. There is no loss to the revenue on account of taxation as the tax is fully paid on Rs. 8,97,11,407/- in the A.Y. 2008 Hence, the Ld. AR pleaded that the impugned addition made by the AO should be deleted.” After considering of the submission of the assessee, the Ld. CIT(A) accepted the income offered by the assessee following project completion method. before us relied on the order of the and submitted that advance received against sale of the flat should have been assessed in the year of the receipt as same became income of the assessee on receipt of the said advance. We have heard arguments of the Ld. and perused the relevant material on record Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 8 for Tower & II (Advance) and for A.Y. 2008-09, Rs. 6,22,38,750 for Tower & II (Final payment). Thus the amount ee years is the same amount which is 09 i.e., Rs. 8,97,11,407/-. There is no variation at all. Once the appellant has already paid tax on total 09, the year in which the s completed, the AO is not justified in taxing the same amount in the preceding years, when the receipts were in the nature of advances. There is no loss to the revenue on account of taxation in the A.Y. 2008-09. Hence, the Ld. AR pleaded that the impugned addition made by the After considering of the submission of the assessee, the Ld. CIT(A) accepted the income offered by the assessee following before us relied on the order of the Assessing and submitted that advance received against sale of the flat as same became of the said advance. Ld. Department and perused the relevant material on record including the impugned order of the Ld. CIT(A). We find that the Ld. CIT(A) has summarised the various clauses of the development agreements entered into by the own developer. The relevant part under: “15. The above clauses of the agreement reveal that (i) The legal and juridical possession of the land has always remained with land owners till the conveyance to the association of the flat purchasers. It is specifically mentioned that there is neither sale or transfer or intention to give possession of the land to the Developer under section 53A of the Transfer of prop license to enter upon the said property for the purpose of development. (ii) The land owners have the obligation to obtain FSI by way of TDR of approximately 1,00,157.08 sq.ft. as well as to obtain permissions commercial/residential uses at their own cost. (iii) Entire cost of development works in respect of the said property is to be borne by the Developer alone without the land owners being required to contribute any amou Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 including the impugned order of the Ld. CIT(A). We find that the Ld. CIT(A) has summarised the various clauses of the development agreements entered into by the owners of the land and the developer. The relevant part of the impugned order is extracted as The above clauses of the agreement reveal that (i) The legal and juridical possession of the land has always remained with land owners till the completion of the buildings and conveyance to the association of the flat purchasers. It is specifically mentioned that there is neither sale or transfer or intention to give possession of the land to the Developer under section 53A of the Transfer of property Act, 1882. The Developer is merely given license to enter upon the said property for the purpose of (ii) The land owners have the obligation to obtain FSI by way of TDR of approximately 1,00,157.08 sq.ft. as well as to obtain permissions for the re development of the land for commercial/residential uses at their own cost. (iii) Entire cost of development works in respect of the said property is to be borne by the Developer alone without the land owners being required to contribute any amount Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 9 including the impugned order of the Ld. CIT(A). We find that the Ld. CIT(A) has summarised the various clauses of the development ers of the land and the of the impugned order is extracted as (i) The legal and juridical possession of the land has always completion of the buildings and conveyance to the association of the flat purchasers. It is specifically mentioned that there is neither sale or transfer or intention to give possession of the land to the Developer under section 53A of the erty Act, 1882. The Developer is merely given license to enter upon the said property for the purpose of (ii) The land owners have the obligation to obtain FSI by way of TDR of approximately 1,00,157.08 sq.ft. as well as to obtain for the re development of the land for (iii) Entire cost of development works in respect of the said property is to be borne by the Developer alone without the land owners being (iv) The agreement for sale of flats in the said buildings tripartite agreement Developer with the buyers. (v) Out of the gross sale proceeds, including interest compensation charged to the purchasers of f owners are entitled to receive and retain 45.5% (in their respective shares) being the land component while the remaining 54.5% shall belong to the Developer. (vi) As per the arrangement made with the Vijaya Bank, the proceeds of sale of flats upon receipt in the Escrow account will be directly transferred to the 45.5% and the Developer @ 54.5%. (vi) The land owners and the Developer shall jointly convey their respective right title in favour of a co by the purchasers of the premises after completion of the buildings. (vii) Finally, it is mentioned that the development agreement has neither created any relationship of partner or as A.O.P. and/or as Joint venture between the land owners and the Developer. The relationship between them are that of 'principal to principal' for the purpose of development of the said property. 16. Apart from th the issue under consideration Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 (iv) The agreement for sale of flats in the said buildings tripartite agreement executed by the land owners and the Developer with the buyers. (v) Out of the gross sale proceeds, including interest compensation charged to the purchasers of flats/residential premises, the land owners are entitled to receive and retain 45.5% (in their respective shares) being the land component while the remaining 54.5% shall belong to the Developer. As per the arrangement made with the Vijaya Bank, the sale of flats upon receipt in the Escrow account will be directly transferred to the land owners' account in the ratio of 45.5% and the Developer @ 54.5%. (vi) The land owners and the Developer shall jointly convey their respective right title and interest in the land and the said buildings in favour of a co-operative society or limited company to be formed by the purchasers of the premises after completion of the buildings. (vii) Finally, it is mentioned that the development agreement has er created any relationship of partner or as A.O.P. and/or as Joint venture between the land owners and the Developer. The relationship between them are that of 'principal to principal' for the purpose of development of the said property. 16. Apart from that following facts are also important to determine the issue under consideration Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 10 (iv) The agreement for sale of flats in the said buildings will be a executed by the land owners and the (v) Out of the gross sale proceeds, including interest compensation lats/residential premises, the land owners are entitled to receive and retain 45.5% (in their respective shares) being the land component while the remaining 54.5% shall As per the arrangement made with the Vijaya Bank, the sale of flats upon receipt in the Escrow account will be land owners' account in the ratio of (vi) The land owners and the Developer shall jointly convey their and interest in the land and the said buildings operative society or limited company to be formed by the purchasers of the premises after completion of the buildings. (vii) Finally, it is mentioned that the development agreement has er created any relationship of partner or as A.O.P. and/or as Joint venture between the land owners and the Developer. The relationship between them are that of 'principal to principal' for the at following facts are also important to determine 1) Occupation certificates from BMC are received on 22/01/2008 for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s 2008-09 and 2009 2) Land is conveyed in favo possession to the flats buyer i.e. after A.Y. 2009 3) As declared in the return of income of A.Y. 2004 converted into "stock in trade" valued at Rs. 7,37,50,000/ subsequent yea its "stock in trade". 4) From the return of income of A.Y. 2008 appellant has offered the sale proceeds of tower no. A and B at Rs. 8,97,11,470/- under the head business inc the towers are completed during the year under consideration, occupancy certificates are received and possessions are handed over. Simultaneously, income under the head capital gain on transfer of land u/s 45(2) of the I.T. Act, i sold during the year, is also offered and after indexation the same is worked out at long term capital loss of Rs. 5,83,942/ assessment order u/s 143(3) of A.Y. 2008 accepted the business income off LTCG u/s 45(2) at Rs. 30,03,122/ land done by the DVO as on 01.04.1981. 9.1 In background of the above facts, the Ld. CIT(A) in his detailed finding held that land in question was not tr developer till completion of the construction and therefore entire Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 1) Occupation certificates from BMC are received on 22/01/2008 for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s 09 and 2009-10 2) Land is conveyed in favour of the society after handing over the possession to the flats buyer i.e. after A.Y. 2009-10 & 2010- 3) As declared in the return of income of A.Y. 2004-05, the land was converted into "stock in trade" valued at Rs. 7,37,50,000/ subsequent years, the appellant has consistently treated the land as its "stock in trade". 4) From the return of income of A.Y. 2008-09, it is observed that the appellant has offered the sale proceeds of tower no. A and B at Rs. under the head business income on the plea that both the towers are completed during the year under consideration, occupancy certificates are received and possessions are handed over. Simultaneously, income under the head capital gain on transfer of land u/s 45(2) of the I.T. Act, in the ratio of FSI of land sold during the year, is also offered and after indexation the same is worked out at long term capital loss of Rs. 5,83,942/ assessment order u/s 143(3) of A.Y. 2008-09, the Jt. CIT while accepted the business income offered for taxation recomputed the LTCG u/s 45(2) at Rs. 30,03,122/- after getting the valuation of the land done by the DVO as on 01.04.1981.” background of the above facts, the Ld. CIT(A) in his detailed finding held that land in question was not transferred to the developer till completion of the construction and therefore entire Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 11 1) Occupation certificates from BMC are received on 22/01/2008 for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s ur of the society after handing over the -11 05, the land was converted into "stock in trade" valued at Rs. 7,37,50,000/- and all has consistently treated the land as 09, it is observed that the appellant has offered the sale proceeds of tower no. A and B at Rs. ome on the plea that both the towers are completed during the year under consideration, occupancy certificates are received and possessions are handed over. Simultaneously, income under the head capital gain on n the ratio of FSI of land sold during the year, is also offered and after indexation the same is worked out at long term capital loss of Rs. 5,83,942/-. In the 09, the Jt. CIT while ered for taxation recomputed the after getting the valuation of the background of the above facts, the Ld. CIT(A) in his detailed ansferred to the developer till completion of the construction and therefore entire risk of the project remained with the landowners including the assessee, therefore, he justified method (or Project Completion Method) The relevant finding of the Ld. CIT(A) for assessment year 2006 is reproduced as under: “17. From the above clauses of the agreement and various facts on record, it is clear that the appellant being land owner has contributed land as per Joint Development Arrangement but does not transfer the land to the Developer during the year under consideration. The appellant HUF does not have joint control in construction and sale of the project except revenue sharing arrangement in Towers part to be built up by the Developer and execution of the conveyance deeds in favour of the society/ LLP. The HUF is entitled to receive the sale consideration as fixed percentage of sale proceeds realized fr mentioned in the clause 43 of the agreement that the arrangement between land owners and the Developer is not in the nature of partnership or joint venture. In such a scenario, the guidance note requiring adoption of percentage of completion methods (PCM) for revenue reorganization in the case of real estate transactions, as applicable to the Developer, cannot be applied to the appellant being land owners. Even the AO is consistent with the view that Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 risk of the project remained with the landowners including the he justified in adoption of completed contract (or Project Completion Method) followed by the assessee. The relevant finding of the Ld. CIT(A) for assessment year 2006 is reproduced as under: 17. From the above clauses of the agreement and various facts on record, it is clear that the appellant being land owner has and as per Joint Development Arrangement but does not transfer the land to the Developer during the year under consideration. The appellant HUF does not have joint control in construction and sale of the project except revenue sharing arrangement in Towers I, II, III and IV, ownership in the commercial part to be built up by the Developer and execution of the conveyance deeds in favour of the society/ LLP. The HUF is entitled to receive the sale consideration as fixed percentage of sale proceeds realized from the buyers of the flats. It is also specifically mentioned in the clause 43 of the agreement that the arrangement between land owners and the Developer is not in the nature of partnership or joint venture. In such a scenario, the guidance note adoption of percentage of completion methods (PCM) for reorganization in the case of real estate transactions, as applicable to the Developer, cannot be applied to the appellant being land owners. Even the AO is consistent with the view that Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 12 risk of the project remained with the landowners including the adoption of completed contract followed by the assessee. The relevant finding of the Ld. CIT(A) for assessment year 2006-07 17. From the above clauses of the agreement and various facts on record, it is clear that the appellant being land owner has and as per Joint Development Arrangement but does not transfer the land to the Developer during the year under consideration. The appellant HUF does not have joint control in construction and sale of the project except revenue sharing I, II, III and IV, ownership in the commercial part to be built up by the Developer and execution of the conveyance deeds in favour of the society/ LLP. The HUF is entitled to receive the sale consideration as fixed percentage of sale om the buyers of the flats. It is also specifically mentioned in the clause 43 of the agreement that the arrangement between land owners and the Developer is not in the nature of partnership or joint venture. In such a scenario, the guidance note adoption of percentage of completion methods (PCM) for reorganization in the case of real estate transactions, as applicable to the Developer, cannot be applied to the appellant being land owners. Even the AO is consistent with the view that proportionate or completion method is not applicable to the appellant's case. 18. In my considered opinion, in such a case, the land owner can adopted a suitable revenue recognition criteria having consistency in the accounting policies being followed from year on the accounting policies being followed and development agreement entered with the Developer, revenue can be recognised once the project is complete and occupation certificates are issued by the municipal authorities. However, much will d terms and conditions under which the development agreement was entered into and how the revenue flows. Before further dealing on this issue, it needs to be ascertained as to whether the land, in the instant case, will constitute a capital as this regard, the appellant has brought on record that in the return of income of A.Y. 2004 trade" and from that time, the appellant has consistently shown it as its "stock in trade". In relevant remarks for conversion of land, from capital asset to "stock in trade" is found to be clearly mentioned. The value of the land in the balance sheet is taken at Rs. 7,37,50,000/ doubt that the land in question is a business asset. Transfer of such business asset will not be covered within the definition of transfer as prescribed under section 2(47) of the IT Act. Transferring such cases of business asset will be governed by the transfer ownership.of asset as per general law/Transfer of Property Act, 1882. In the case of business transactions, any benefit flowing from the business arrangement to any person is taxable as business income as per provision of section 28 of the IT Act. Tran Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 rtionate or completion method is not applicable to the appellant's case. 18. In my considered opinion, in such a case, the land owner can adopted a suitable revenue recognition criteria having consistency in the accounting policies being followed from year to year. Based on the accounting policies being followed and development agreement entered with the Developer, revenue can be recognised once the project is complete and occupation certificates are issued by the municipal authorities. However, much will depend upon the terms and conditions under which the development agreement was entered into and how the revenue flows. Before further dealing on this issue, it needs to be ascertained as to whether the land, in the instant case, will constitute a capital asset or a business asset. In this regard, the appellant has brought on record that in the return of income of A.Y. 2004-05, the land was converted into "stock in trade" and from that time, the appellant has consistently shown it as its "stock in trade". In the return of income for A.Y. 2004 relevant remarks for conversion of land, from capital asset to "stock in trade" is found to be clearly mentioned. The value of the land in the balance sheet is taken at Rs. 7,37,50,000/-. Hence, there is no that the land in question is a business asset. Transfer of such business asset will not be covered within the definition of transfer as prescribed under section 2(47) of the IT Act. Transferring such cases of business asset will be governed by the transfer ownership.of asset as per general law/Transfer of Property Act, 1882. In the case of business transactions, any benefit flowing from the business arrangement to any person is taxable as business income as per provision of section 28 of the IT Act. Transfer of asset Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 13 rtionate or completion method is not applicable to the 18. In my considered opinion, in such a case, the land owner can adopted a suitable revenue recognition criteria having consistency to year. Based on the accounting policies being followed and development agreement entered with the Developer, revenue can be recognised once the project is complete and occupation certificates are issued epend upon the terms and conditions under which the development agreement was entered into and how the revenue flows. Before further dealing on this issue, it needs to be ascertained as to whether the land, in the set or a business asset. In this regard, the appellant has brought on record that in the return 05, the land was converted into "stock in trade" and from that time, the appellant has consistently shown it the return of income for A.Y. 2004-05, the relevant remarks for conversion of land, from capital asset to "stock in trade" is found to be clearly mentioned. The value of the land in . Hence, there is no that the land in question is a business asset. Transfer of such business asset will not be covered within the definition of transfer as prescribed under section 2(47) of the IT Act. Transferring such cases of business asset will be governed by the transfer of ownership.of asset as per general law/Transfer of Property Act, 1882. In the case of business transactions, any benefit flowing from the business arrangement to any person is taxable as business sfer of asset in such a case may be recognised at the time of execution of sale deed. This would effectively mean adoption of Completed Contract Method (CCM). In my considered opinion, the year in which payment or advanced or part sale consideration is rec land owner cannot be the year in which tax liability is attracted to the land owner. In the case of CIT vs Motilal C. Patel & Co. (1988) 40 Taxman 336 (Guj.), it has been held that unless and until sale transaction of registered sale deed, there cannot be earning of any profit. The fact that a part of consideration was received prior to such registration, in pursuance of agreement to sale, would not make any difference. Also the fact that the assessee not change the position. On the facts of the case the receipts of a part of the agreed sale consideration in a previous year preceding to the previous year in which sale deed was registered needs to be considered as a rec assessable in the subsequent assessment year. 19. It is further observed from clauses 11, 23 and 46 that the ownership of land was never passed over to the Developer and the appellant continued to be the leg till the flats in the 4 towers are sold to different buyers. It is particularly mentioned in clause 46 that the Developer, upon completion of the buildings shall form a co the purchasers of the p owners, and the Developer shall jointly convey their respective right title and interest in the said property and the said buildings in favour of a co Developer decides Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 in such a case may be recognised at the time of execution of sale deed. This would effectively mean adoption of Completed Contract Method (CCM). In my considered opinion, the year in which payment or advanced or part sale consideration is received by the land owner cannot be the year in which tax liability is attracted to the land owner. In the case of CIT vs Motilal C. Patel & Co. (1988) 40 Taxman 336 (Guj.), it has been held that unless and until sale transaction of immovable property is completed by means of registered sale deed, there cannot be earning of any profit. The fact that a part of consideration was received prior to such registration, in pursuance of agreement to sale, would not make any difference. Also the fact that the assessee deals in immovable property would not change the position. On the facts of the case the receipts of a part of the agreed sale consideration in a previous year preceding to the previous year in which sale deed was registered needs to be considered as a receipt in the latter previous year and the same is assessable in the subsequent assessment year. 19. It is further observed from clauses 11, 23 and 46 that the ownership of land was never passed over to the Developer and the appellant continued to be the legal and effective owner of the land till the flats in the 4 towers are sold to different buyers. It is particularly mentioned in clause 46 that the Developer, upon completion of the buildings shall form a co-operative society/ LLP of the purchasers of the premises in the said buildings. The land owners, and the Developer shall jointly convey their respective right title and interest in the said property and the said buildings in favour of a co-operative society or the LLP. Moreover, if the Developer decides to submit the said property to the provisions of Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 14 in such a case may be recognised at the time of execution of sale deed. This would effectively mean adoption of Completed Contract Method (CCM). In my considered opinion, the year in which eived by the land owner cannot be the year in which tax liability is attracted to the land owner. In the case of CIT vs Motilal C. Patel & Co. (1988) 40 Taxman 336 (Guj.), it has been held that unless and until sale pleted by means of registered sale deed, there cannot be earning of any profit. The fact that a part of consideration was received prior to such registration, in pursuance of agreement to sale, would not make any difference. deals in immovable property would not change the position. On the facts of the case the receipts of a part of the agreed sale consideration in a previous year preceding to the previous year in which sale deed was registered needs to be eipt in the latter previous year and the same is 19. It is further observed from clauses 11, 23 and 46 that the ownership of land was never passed over to the Developer and the al and effective owner of the land till the flats in the 4 towers are sold to different buyers. It is particularly mentioned in clause 46 that the Developer, upon operative society/ LLP of remises in the said buildings. The land owners, and the Developer shall jointly convey their respective right title and interest in the said property and the said buildings in operative society or the LLP. Moreover, if the to submit the said property to the provisions of the Maharashtra Apartment ownership Act, 1970, the land owner and the Developer shall jointly execute a "Declaration" as per section 2 of the said Act as well as the deeds of apartment in favour of the respective purchasers. Such conveyance/deeds of apartment shall be executed only after the completion of the said buildings and receipt of occupation certificate and after all the residential flats and premises therein shall have been sold and the total purchas price of all the said premises have been received. From the above, it is very clear that the transfer of land has not taken place from the land owner to the Developer as per definition of transfer under section 2(47) and there is no incidence of tax till undivided land is transferred to the flat owners or possession is given to them. 20. The whole scenario or arrangement can also be looked into from the point of view of joint Developers, notwithstan agreement laid down that the agreement is not a partnership between the parties as contemplated under the partnership Act 1932 and/or Joint Venture/Association of Persons between the two parties. Such a view point ca 10 of the agreement wherein it is stipulated that the land owners bear the obligation at their costs to obtain FSI of other properties by way of TDR of approximately 1,00,157.08 sq.ft. and load the same on the prope in the agreement that the land owners shall obtain permissions for the re-development of the said property for commercial/residential user under section 22 of the ULC & R Act at their own cost within 60 days of the date of agreement. There are other clauses too, which Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 the Maharashtra Apartment ownership Act, 1970, the land owner and the Developer shall jointly execute a "Declaration" as per section 2 of the said Act as well as the deeds of apartment in favour ctive purchasers. Such conveyance/deeds of apartment shall be executed only after the completion of the said buildings and receipt of occupation certificate and after all the residential flats and premises therein shall have been sold and the total purchas price of all the said premises have been received. From the above, it is very clear that the transfer of land has not taken place from the land owner to the Developer as per definition of transfer under section 2(47) and there is no incidence of tax till the right in the undivided land is transferred to the flat owners or possession is 20. The whole scenario or arrangement can also be looked into from the point of view of joint-venture between the land owners and the Developers, notwithstanding the fact that the clause 43 of the agreement laid down that the agreement is not a partnership between the parties as contemplated under the partnership Act and/or Joint Venture/Association of Persons between the two parties. Such a view point can be considered in view of clauses 5 and 10 of the agreement wherein it is stipulated that the land owners bear the obligation at their costs to obtain FSI of other properties by way of TDR of approximately 1,00,157.08 sq.ft. and load the same on the property under consideration. It is further mentioned in the agreement that the land owners shall obtain permissions for development of the said property for commercial/residential user under section 22 of the ULC & R Act at their own cost within 60 of the date of agreement. There are other clauses too, which Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 15 the Maharashtra Apartment ownership Act, 1970, the land owner and the Developer shall jointly execute a "Declaration" as per section 2 of the said Act as well as the deeds of apartment in favour ctive purchasers. Such conveyance/deeds of apartment shall be executed only after the completion of the said buildings and receipt of occupation certificate and after all the residential flats and premises therein shall have been sold and the total purchase price of all the said premises have been received. From the above, it is very clear that the transfer of land has not taken place from the land owner to the Developer as per definition of transfer under the right in the undivided land is transferred to the flat owners or possession is 20. The whole scenario or arrangement can also be looked into from venture between the land owners and the ding the fact that the clause 43 of the agreement laid down that the agreement is not a partnership between the parties as contemplated under the partnership Act and/or Joint Venture/Association of Persons between the two n be considered in view of clauses 5 and 10 of the agreement wherein it is stipulated that the land owners bear the obligation at their costs to obtain FSI of other properties by way of TDR of approximately 1,00,157.08 sq.ft. and load the rty under consideration. It is further mentioned in the agreement that the land owners shall obtain permissions for development of the said property for commercial/residential user under section 22 of the ULC & R Act at their own cost within 60 of the date of agreement. There are other clauses too, which indicate towards the aforesaid view of joint land owner and the Developer. In such a situation, the land owner has stepped into the shoes of the Developer and he also shares risks and rewards of the business being managed by the Developer. The revenue recognition criteria of land owner will then be linked with the revenue recognition criteria of the Developer. It is now well-settled that accounting standard 9 together with Guidance Note 2012 governs the revenue recognition criteria of Developer and hence the same may be considered as applicable, in the instant case, on the appellant. A brief discussion of the same is being made here in the succeeding paragraphs. 21. The revised Guidance Note 2012 has recognised that revenue in such cases should be recognized when all the following conditions are satisfied: (i) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller re the real estate transferred to a degree usually associated with ownership. (ii) At the time of transfer of all significant risks and rewards of ownership it is not unreasonable to expect ultimate collection; and (iii) No significant uncertainty exists regarding the amount of the consideration that will be derived. In the instant case, the land owners and the Developer have not transferred all significant risk and/or possession of the flats in Tower I & II (or Tower A and B) til flats and full control of the building remained with them till the end Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 indicate towards the aforesaid view of joint-venture between the land owner and the Developer. In such a situation, the land owner has stepped into the shoes of the Developer and he also shares risks and rewards of the business being managed by the Developer. The revenue recognition criteria of land owner will then be linked with the revenue recognition criteria of the Developer. It is now settled that accounting standard 9 together with the revised Guidance Note 2012 governs the revenue recognition criteria of Developer and hence the same may be considered as applicable, in the instant case, on the appellant. A brief discussion of the same is being made here in the succeeding paragraphs. 21. The revised Guidance Note 2012 has recognised that revenue in such cases should be recognized when all the following conditions (i) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate transferred to a degree usually associated with (ii) At the time of transfer of all significant risks and rewards of ownership it is not unreasonable to expect ultimate collection; and ficant uncertainty exists regarding the amount of the consideration that will be derived. In the instant case, the land owners and the Developer have not transferred all significant risk and/or possession of the flats in Tower I & II (or Tower A and B) till 31/3/2008 as ownership of the flats and full control of the building remained with them till the end Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 16 venture between the land owner and the Developer. In such a situation, the land owner has stepped into the shoes of the Developer and he also shares the risks and rewards of the business being managed by the Developer. The revenue recognition criteria of land owner will then be linked with the revenue recognition criteria of the Developer. It is now the revised Guidance Note 2012 governs the revenue recognition criteria of Developer and hence the same may be considered as applicable, in the instant case, on the appellant. A brief discussion of the same is 21. The revised Guidance Note 2012 has recognised that revenue in such cases should be recognized when all the following conditions (i) The seller has transferred to the buyer all significant risks and tains no effective control of the real estate transferred to a degree usually associated with (ii) At the time of transfer of all significant risks and rewards of ownership it is not unreasonable to expect ultimate collection; and ficant uncertainty exists regarding the amount of the In the instant case, the land owners and the Developer have not transferred all significant risk and/or possession of the flats in 31/3/2008 as ownership of the flats and full control of the building remained with them till the end of the that year. Full payment was also not received till 31/3/2008. In addition to this, Occupation Certificate (OC) was received from BMC for Tower No occupation of the flats were given to the buyers. In view of the above, I agree with the Ld. AR that advance payments received in part during A.Y.s 2006 those years. The same has been correctly treated as sale in the year of completion i.e., A.Y.2008 It is also brought on record that the Towers C & D are completed in A.Y 2009-10, OC was received in A.Y 2009 10 (on 24th April, and water & electricity connection were obtained much after the OC received. Possessions to the buyers were given much after water & electric connection was done. Hence, all the above mentioned conditions got satisfied in A.YS 2008 Towers. It is further claimed that the commercial premises got completed in the A.Y 2009 and is lying as stock in trade in the P & L A/c of the assessee. 22. Identical facts were considered by Hon'ble Gujar the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 (Guj.). The facts of that case were the assessee land, adopting the cash system of accounting. On 14 executed an agreement to sell certain number operative society, who also took over their possession by paying Rs. 5,000/ as an earnest money at the time of agreement and Rs. 2,08,772 as advance towards sale price in December 1970. The assessee credited the above aggregate receipts of trading account in the calendar year 1970 relevant for the A.Y. 1972-73. All the formal sale deeds were, however, executed on Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 of the that year. Full payment was also not received till 31/3/2008. In addition to this, Occupation Certificate (OC) was received from BMC for Tower No I &ll (or Tower A and B) on 22nd Jan, 2008 when occupation of the flats were given to the buyers. In view of the above, I agree with the Ld. AR that advance payments received in part during A.Y.s 2006-07 and 2007-08 cannot be treated as sale in . The same has been correctly treated as sale in the year of completion i.e., A.Y.2008-09 of Towers and II (or Towers A and B). It is also brought on record that the Towers C & D are completed in 10, OC was received in A.Y 2009 10 (on 24th April, and water & electricity connection were obtained much after the OC received. Possessions to the buyers were given much after water & electric connection was done. Hence, all the above mentioned conditions got satisfied in A.YS 2008-09 and 2009-10, fo Towers. It is further claimed that the commercial premises got completed in the A.Y 2009- 10, which has remain unsold till date and is lying as stock in trade in the P & L A/c of the assessee. 22. Identical facts were considered by Hon'ble Gujarat High Court in the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 (Guj.). The facts of that case were the assessee-firm was a dealer in land, adopting the cash system of accounting. On 14-11 executed an agreement to sell certain number of plots to a co operative society, who also took over their possession by paying Rs. 5,000/ as an earnest money at the time of agreement and Rs. 2,08,772 as advance towards sale price in December 1970. The assessee credited the above aggregate receipts of Rs. 2,13,772 in its trading account in the calendar year 1970 relevant for the A.Y. 73. All the formal sale deeds were, however, executed on Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 17 of the that year. Full payment was also not received till 31/3/2008. In addition to this, Occupation Certificate (OC) was received from I &ll (or Tower A and B) on 22nd Jan, 2008 when occupation of the flats were given to the buyers. In view of the above, I agree with the Ld. AR that advance payments received in 08 cannot be treated as sale in . The same has been correctly treated as sale in the year 09 of Towers and II (or Towers A and B). It is also brought on record that the Towers C & D are completed in 10, OC was received in A.Y 2009 10 (on 24th April, 2008) and water & electricity connection were obtained much after the OC received. Possessions to the buyers were given much after water & electric connection was done. Hence, all the above mentioned 10, for the four Towers. It is further claimed that the commercial premises got 10, which has remain unsold till date and is lying as stock in trade in the P & L A/c of the assessee. at High Court in the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 firm was a dealer in 11-1970, it of plots to a co- operative society, who also took over their possession by paying Rs. 5,000/ as an earnest money at the time of agreement and Rs. 2,08,772 as advance towards sale price in December 1970. The Rs. 2,13,772 in its trading account in the calendar year 1970 relevant for the A.Y. 73. All the formal sale deeds were, however, executed on different dates between 26 consideration of Rs. 4,40,939 but the sale transa society were completed in the accounting year relevant to the A.Y. 1972-73. For the A.Y. 1971 declared profit from the aforesaid receipts of Rs. 2,13,772/ assessment was set aside under section 263 Income Tax who held that, since the sale deeds were executed in the next calendar year 1971, the entire profit arising from the sale transaction would be taxable in the A.Y. 1972 sets of facts, Hon'ble High Court continue to be the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee could be said to hav portion of the decision is reproduced hereunder: Section 28 imposes a charge on profits of business of previous year. Such profits are real profits ascertained on ordinary principles of commercial trading and the assessee was a dealer in land and the land would be its stock trade. Thus, the profits derived from the transactions of its purchase and sale would represent business profits chargeable to income The assessee would continue to be the owner of the purchased land till it is divested of the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee could be said to have earned profi suffered loss. In the instant case, in the previous year relevant to the assessment year 1971-72, no sale transaction admittedly took place and the Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 different dates between 26-2-1971 and 26-6-1972 for a total consideration of Rs. 4,40,939 but the sale transactions with the society were completed in the accounting year relevant to the A.Y. 73. For the A.Y. 1971-72, the ITO accepted the assessee's declared profit from the aforesaid receipts of Rs. 2,13,772/ assessment was set aside under section 263 by the Commissioner of Income Tax who held that, since the sale deeds were executed in the next calendar year 1971, the entire profit arising from the sale transaction would be taxable in the A.Y. 1972-73. Based on these sets of facts, Hon'ble High Court held that the assessee would continue to be the owner of the purchased land till it is divested of the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee could be said to have earned profit or suffered loss. The relevant portion of the decision is reproduced hereunder: Section 28 imposes a charge on profits of business of previous year. Such profits are real profits ascertained on ordinary principles of commercial trading and commercial accounting. In the instant case, the assessee was a dealer in land and the land would be its stock trade. Thus, the profits derived from the transactions of its purchase and sale would represent business profits chargeable to income assessee would continue to be the owner of the purchased land till it is divested of the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee could be said to have earned profi In the instant case, in the previous year relevant to the assessment 72, no sale transaction admittedly took place and the Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 18 1972 for a total ctions with the society were completed in the accounting year relevant to the A.Y. 72, the ITO accepted the assessee's declared profit from the aforesaid receipts of Rs. 2,13,772/-. This by the Commissioner of Income Tax who held that, since the sale deeds were executed in the next calendar year 1971, the entire profit arising from the sale 73. Based on these held that the assessee would the owner of the purchased land till it is divested of the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee e earned profit or suffered loss. The relevant Section 28 imposes a charge on profits of business of previous year. Such profits are real profits ascertained on ordinary principles of commercial accounting. In the instant case, the assessee was a dealer in land and the land would be its stock-in- trade. Thus, the profits derived from the transactions of its purchase and sale would represent business profits chargeable to income-tax. assessee would continue to be the owner of the purchased land till it is divested of the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee could be said to have earned profit or In the instant case, in the previous year relevant to the assessment 72, no sale transaction admittedly took place and the assessee only executed the aforesaid agreement dated 4 sell certain plots of land to the soc to be its stock does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating into an extinguishment creation of the title of the vendee that the assessee earns profit or suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the character of income or profit only when sale transaction was completed in a Doctrine of part performance embodied in section 52A of the Transfer of Property Act could not also be brought into aid to treat the said receipt of Rs. 2,13,772 as trading receipt. The agreement in writing to sell, coupled with parting any legal title on the purchaser, i.e., the society and take the land out of the assessee's stock accounting has no relevance in determining whether receipt of the above nature was trading accounting, whether cash method or mercantile method, would have bearing only in respect of completed business transaction. 23. There is also merit in the argument of the Ld. AR that there is no loss to the revenue as the the project completion years taxes thereon. Income tax rates are same for consideration. find that the AO has cumulatively determined the same receipt of Rs. 2006-07 Rs. 1,78,68,399 for Tower & II (advance), for A.Y. 2007 Rs. 96,04,258/ Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 assessee only executed the aforesaid agreement dated 4-11 sell certain plots of land to the society. Thus, the said land continued to be its stock-in-trade. It is axiomatic that an agreement to sell does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating into an extinguishment of the title of the vendor and simultaneous creation of the title of the vendee that the assessee earns profit or suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the character of income or profit only when sale transaction was completed in accordance with law. Doctrine of part performance embodied in section 52A of the Transfer of Property Act could not also be brought into aid to treat the said receipt of Rs. 2,13,772 as trading receipt. The agreement in writing to sell, coupled with parting of possession, would not confer any legal title on the purchaser, i.e., the society and take the land out of the assessee's stock-in-trade. The assessee's method of accounting has no relevance in determining whether receipt of the above nature was trading receipt or income. The method of accounting, whether cash method or mercantile method, would have bearing only in respect of completed business transaction. There is also merit in the argument of the Ld. AR that there is no loss to the revenue as the appellant has offered full income during the project completion years i.e., A.Y.2009-10 & 2010-11 and paid taxes thereon. Income tax rates are same for all the years under consideration. find that the AO has cumulatively determined the same receipt of Rs. 8,97,11,407/- for the three years i.e., for A.Y. 07 Rs. 1,78,68,399 for Tower & II (advance), for A.Y. 2007 Rs. 96,04,258/- for Tower I & II (advance) and for A.Y. 2008 Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 19 11-1970 to iety. Thus, the said land continued trade. It is axiomatic that an agreement to sell does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating into of the title of the vendor and simultaneous creation of the title of the vendee that the assessee earns profit or suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the character of income or profit only when sale transaction was Doctrine of part performance embodied in section 52A of the Transfer of Property Act could not also be brought into aid to treat the said receipt of Rs. 2,13,772 as trading receipt. The agreement in of possession, would not confer any legal title on the purchaser, i.e., the society and take the land trade. The assessee's method of accounting has no relevance in determining whether receipt of the receipt or income. The method of accounting, whether cash method or mercantile method, would have bearing only in respect of completed business transaction. There is also merit in the argument of the Ld. AR that there is no appellant has offered full income during 11 and paid all the years under consideration. find that the AO has cumulatively determined the for the three years i.e., for A.Y. 07 Rs. 1,78,68,399 for Tower & II (advance), for A.Y. 2007-08 for Tower I & II (advance) and for A.Y. 2008-09, Rs. 6,22,38,750 for Tower & II ( as full and final settlement amount against advances received from the Developer in earlier years). Thus the amount computed by the AO for the three years is the same that is being offered for taxation in A.Y. 2008 8,97,11,407/-. There is no variation at all. 24. Considering the issue involved and discussion made in the preceding paragraphs, I donot find any justification for advances of Rs. 1,78,68,399/ treated as income of the appellant for A.Y.2006 directed to delete the same. Thus, ground of appeal no. 2 is allowed. 9.2 For assessment year 2007 followed his finding in assessment year 2006 9.3 We further note that that assessee has already paid tax on the advance received against the sale of flat in assessment year 2008 and 2009-10. The relevant by the Ld. CIT(A) in sub under: “3. The appellant has already paid tax on total sale 12,94,37,102/ in the A.Y. 2009 completed. There is no loss to the revenue on account of taxation point of view as the tax is fully paid on Rs. 12,94,37,102/ Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 6,22,38,750 for Tower & II ( as full and final settlement amount t advances received from the Developer in earlier years). Thus the amount computed by the AO for the three years is the same that is being offered for taxation in A.Y. 2008-09 i.e., Rs. . There is no variation at all. 24. Considering the totality of the facts and the circumstances of the issue involved and discussion made in the preceding paragraphs, I donot find any justification for advances of Rs. 1,78,68,399/ treated as income of the appellant for A.Y.2006-07. Hence, the AO is irected to delete the same. Thus, ground of appeal no. 2 is allowed. assessment year 2007-08 and 2008-09 the Ld. CIT(A) has followed his finding in assessment year 2006-07. We further note that that assessee has already paid tax on the e received against the sale of flat in assessment year 2008 10. The relevant submission of the assessee reproduced Ld. CIT(A) in sub-para 3 (three) of para 37, is extracted as The appellant has already paid tax on total sale 12,94,37,102/ in the A.Y. 2009-10, the year in which the project is completed. There is no loss to the revenue on account of taxation point of view as the tax is fully paid on Rs. 12,94,37,102/- Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 20 6,22,38,750 for Tower & II ( as full and final settlement amount t advances received from the Developer in earlier years). Thus the amount computed by the AO for the three years is the same 09 i.e., Rs. totality of the facts and the circumstances of the issue involved and discussion made in the preceding paragraphs, I donot find any justification for advances of Rs. 1,78,68,399/- being 07. Hence, the AO is irected to delete the same. Thus, ground of appeal no. 2 is allowed.” 09 the Ld. CIT(A) has We further note that that assessee has already paid tax on the e received against the sale of flat in assessment year 2008-09 submission of the assessee reproduced three) of para 37, is extracted as The appellant has already paid tax on total sale of Rs. 10, the year in which the project is completed. There is no loss to the revenue on account of taxation in the A.Y. 2009-10. i.e. Rs. 3,47,27,723/ consideration as well as for the subsequent year are the same and therefore no mala fide intention of your assessee to postpone the accrual of sale of the year to the subsequent year. Therefore there is no basis or justification in t 9.5 The Ld. CIT(A) has pointed out that the land in question was treated as a stock in trade by the assessee and therefore transfer of the same was not lia capital gain. Hon’ble Supre Private Ltd 115 Taxman.com 5 agreement granting permission to start advertising, selling and construction and permitted to execuate sale agreement to the developer. The Hon’ble Supreme Court held that such permission is not possession under section 53 of the transfer of the property We concur with the finding of the Ld. CIT(A) that possession of land has been handed over to the prospective buyers consequent to conveyance in favour of CIT(A) has further held that the assessee was regularly following Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 10. i.e. Rs. 3,47,27,723/-. The tax rate for the year under consideration as well as for the subsequent year are the same and therefore no mala fide intention of your assessee to postpone the accrual of sale of the year to the subsequent year. Therefore there is no basis or justification in the addition made by the A.O.” Ld. CIT(A) has pointed out that the land in question was treated as a stock in trade by the assessee in its books of accounts and therefore transfer of the same was not liable to be taxed as Hon’ble Supreme Court in the case of Seshasayee Steal 115 Taxman.com 5(SC) considered a development agreement granting permission to start advertising, selling and tion and permitted to execuate sale agreement to the . The Hon’ble Supreme Court held that such permission is under section 53 of the transfer of the property We concur with the finding of the Ld. CIT(A) that possession of land has been handed over to the prospective buyers consequent to in favour of co-operative Society of flat owners. The Ld. CIT(A) has further held that the assessee was regularly following Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 21 ate for the year under consideration as well as for the subsequent year are the same and therefore no mala fide intention of your assessee to postpone the accrual of sale of the year to the subsequent year. Therefore there is Ld. CIT(A) has pointed out that the land in question was books of accounts ble to be taxed as Seshasayee Steal considered a development agreement granting permission to start advertising, selling and tion and permitted to execuate sale agreement to the . The Hon’ble Supreme Court held that such permission is under section 53 of the transfer of the property Act. We concur with the finding of the Ld. CIT(A) that possession of land has been handed over to the prospective buyers consequent to the operative Society of flat owners. The Ld. CIT(A) has further held that the assessee was regularly following accounting method of year to year. The Ld. CIT(A) has further observed th the developer also Contract Completed Method The Ld. DR has not controverted any of the above factual finding of Ld. CIT(A). 9.6 In view of the above finding of the Ld. CIT(A) Method or Completed Contract Method declaring income from the project under reference. The grounds of the appeal of the revenue in all the three years are accordingly dismissed. 10. In the result, all the three appeals of the dismissed. Order pronounced in the Court on Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 accounting method of Completed Contract Method consistently from . The Ld. CIT(A) has further observed th Contract Completed Method has been The Ld. DR has not controverted any of the above factual finding of In view of the above discussion, we do not find any error in the finding of the Ld. CIT(A) in upholding the Project Completion Completed Contract Method followed by the assessee for declaring income from the project under reference. The grounds of the appeal of the revenue in all the three years are accordingly In the result, all the three appeals of the ounced in the Court on 12/08/2022. Sd/- SANDEEP SINGH KARHAIL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 22 consistently from . The Ld. CIT(A) has further observed that in the case of has been accepted. The Ld. DR has not controverted any of the above factual finding of , we do not find any error in the Project Completion followed by the assessee for declaring income from the project under reference. The grounds of the appeal of the revenue in all the three years are accordingly In the result, all the three appeals of the Revenue are OM PRAKASH KANT) MEMBER Dated: 12/08/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 the Order forwarded to : BY ORDER, (Sr. Private Secretary ITAT, Mumbai Suratchandra B. Thakkar (HUF) ITA Nos. 4333 to 4335/M/2018 23 Sr. Private Secretary) ITAT, Mumbai
Other Referred Cases
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Laws Referred To
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1:1 Consultation on Legal Requirements
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Object Clause - Merchant Banking Business
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