VISHWAKARTA BUILD SOLUTIONS P.LTD, MUMBAI V. CIT (A) 22, MUMBAI

ITA 7393/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7835 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2014
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 7393 / MUM/20 1 4 ( ASSESSMENT YEAR : 2010 - 11 ) M/S. VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 501, DUSHYANT SOCIETY MITHAGAR ROAD, MULUND (E) 400 081 VS. CIT(A) 22, MUMBAI PAN/GIR NO. AACCV8190K APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI NILESH JOSHI REVENUE BY MS.POOJA SWAROOP DATE OF HEARING 07 / 02 /201 7 DATE OF PRONOUNCEME NT 31 / 03 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 22, MUMBAI DATED 14/08/2014 FOR THE ASSESSMENT YEAR 2010 - 11, IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED ASSESSING OFFICER HAS ERRED IN TREATING 60% UPTO COMPLETION OF 4TH SLAB OF RS. 71,19,510/ - AND AGREEMENT VALUE IN RESPECT OF FLAT NOS. 701 AND 702, AS INCOME. 2. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE ACCOUNTING STANDARD ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHICH IS DULY FOLLOWED BY THE APPELLANT. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THERE IS A CANCELLATION OF AGREEMENT IN RESPECT OF FLATS NOS. 701 AND 702 AND ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 2 ALSO MADE THE ADDITION ON THE BASIS OF AGREEMENT EXECUTED BY APPELLANT IN RESPECT OF THE SAID FLAT. 3. THE LEARNED ASSESSING OFFICER HAS FAILED TO CONSIDER THE SYSTEM OF PERCENTAGE COMPLE TION METHOD. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 3. FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN BUSINESS OF BUILDERS AND DEVELOPERS AND CURRENTLY DOING RE - DEVELOPMENT PROJECT TITL ED DUSHYANT CHS LTD. IN SAJJANWADI, MITHAGAR ROAD, MULUND (EAST), MUMBAI - 400081. DURING THE COURSE OF ASSESSMENT, T HE LEARNED A.O. TREATED 2 AGREEMENTS W HICH WERE ON THE 7 TH FLOOR OF THE REDEVELOPMENT BUILDING VIZ., FLAT NO. 701 & 702 WHICH WERE UNDER DISPU TE AND PLAN WAS NOT APPROVED BY MCGM AS INCOME UP TO COMPLETION OF 4TH SLAB R S .7190510 / - AND LEVIED TAX ON IT. THUS, THE AO TREATED 60% (UPTO COMPLETION OF 4TH SLAB) OF RS. 71,90,510/ - OF THE AGREEMENT VALUE, FROM AGREEMENTS OF FLAT NO. 701 AND 702 AS INCO ME. 4 . BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACTION OF AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5 . IT WAS CONTENDED BY LEARNED AR THAT PARA 6 OF THE 'GUIDANCE NOTE ON RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPER ISSUED BY ACCOUNTIN G STANDARDS BOARD OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHICH IS FOLLOWED BY ALL THE REAL ESTATE DEVELOPERS FOR RECOGNITION OF INCOME STATES AS FOLLOWS: ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 3 PARA NO. 6: REVENUE IN CASE OF REAL ESTATE SALES SHOULD BE RECOGNIZED WHEN ALL THE FOLLOWING CONDITIONS ARE SATISFIED: CONDITION NO. (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 TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP. CONDITION NO. (II): NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE REAL ESTATE SALES. CONDITION NO. (III): IT IS NOT UNREASONABLE TO EXPECT ULTIMATE C OL LECTION. 7. IN TERMS OF THE ABOVE GUIDING N OTE , LEARNED AR PLEADED THAT ASSESSEE WAS NOT LIABLE TO OFFER TAXES IN RESPECT OF THE PROPOSED CONSTRUCTION ON 7 TH FLOOR. AS PER THE TERMS OF THE AGREEMENT, DEVELOPER WAS RETAINING THE EFFECTIVE CONTROL. DEVELOPER HAD TO PERFORM SUBSTANTIAL ACT AND WAS OBL IGED TO GET THESE FLATS APPROVED FROM THE GOVERNMENT DEPARTMENT MCGM FOR ITS LEGAL OWNERSHIP. HENCE, THE CONDITION NO. (I) WAS NOT SATISFIED. (II) DUE TO LACK OF AVAILABILITY OF FSI IN TH E FINANCIAL YEAR, PLAN FOR THE 7 TH FLOOR OF THE BUILDING WAS NOT AP PROVED BY THE GOVERNMENT DEPARTMENT MCGM AND HENCE SIGNIFICANT UNCERTAINTY CREPT INTO THE AGREEMENTS DUE TO NON - APPROVAL BY GOVERNMENT AUTHORITY. THEREFORE , THE AGREEMENTS ENFORCEABILITY BECAME QUESTIONABLE. HENCE, THE CONDITION NO. (II) WAS NOT SATISFIED (III) THE PROSPECTIVE PURCHASERS HAD APPROACHED BANKS FOR HOME LOAN TO PAY THEIR RESPECTIVE DUES FOR THE PURCHASE OF FLATS. THE BANK HAD REFUSED TO LEND LOAN TO THE PURCHASERS DUE TO 7TH FLOOR PLAN WAS ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 4 NOT APPROVED BY GOVERNMENT AUTHORITY AND HENCE AGREE MENTS WERE NOT LEGALLY ENFORCEABLE TO LEND LOAN TO THE PROSPECTIVE PURCHASERS. THE PURCHASERS HAD ALSO CREATED DISPUTE ON MAKING PAYMENT DUE TO NON - APPROVAL AND DEMANDED THE APPROVED PLAN OF THE 7TH FLOOR BY GOVERNMENT AUTHORITY TO MAKE PAYMENTS. S O, IT WAS UNREASONABLE TO EXPECT ULTIMATE COLLECTION. HENCE, THE CONDITION NO. (III) WAS NOT SATISFIED. 8. HE FURTHER CONTENDED THAT IN THE NEXT YEAR WHEN PERMISSION WAS OBTAINED, THE ASSESSEE HAS OFFERED THE INCOME IN RESPECT OF 7 TH FLOOR AND PAID TAXES THEREON. 9. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT ASSESSEE HAS ENTERED INTO AGREEMENT TO SALE, THEREFORE, ADVANCE SO RECEIVED WAS LIABLE TO TAX AS CURRENT YEAR INCOME IRRESPECTIVE OF THE FACT THAT ASS ESSEE DID NOT GET PERMISSION TO CONSTRUCT FLATS ON THE 7 TH FLOOR. 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD, WE FOUND THAT THE ASSESSEE COMPANY H AS UNDER TAKEN THE REDEVELOPMENT PROJECT OF M/ S. DUSHYANT CHS LIMITED AS PER THE DEVELOPMENT AGREEMENT EXECUTED BETWEEN BOTH THE PARTIES DATED 18 - 07 - 2008. THE ASSESSEE COMPANY HAS TO ABIDE WITH THE PROVISIONS OF LAW WHILE CONSTRUCTING THE NEW BUILDING BY WAY DEMO LISHING THE OLD BUILDING AND GETT ING THE BUILDING PLANS APPROVED FROM MCGM WAS T HE ESSENCE OF CONTRACT. ON RECEIPT OF THE DEVELOPMENT RIGHTS FROM THE SAID SOCIETY THE ASSESSEE ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 5 COMPANY HAS GOT THE BUILDING PLAN APPROVED ON 08 - 08 - 2008 WHICH IS GROUND TO 3RD FLOOR OF THE BUILDING FRO M THE MCGM A S PER 1 FS I UNDER THE PROVISIONS OF DCR 1991. THE COPY OF IOD AND APPROVED PLAN UPTO 3 RD FLOOR DATED 08/08/2008 WAS FILED BEFORE THE LOWER AUTHORITIES. AS PER THE PROVISIONS OF THE SAID DCR THE ASSESSEE COMPANY WAS ALLOWED TO CONSTRUCT FURTHER 4 UPPER FLOORS AFTER OBTAINING FURTHER APPROVALS FROM THE MCGM WHICH IS TO BE COUNTED IN 2ND FSI. TO OBTAIN FURTHER APPROVALS OF THE BUILDING THE ASSESSEE COMPANY WAS REQUIRED TO PURCHASE TDR FROM THE OPE N MARKET AND WAS ALSO REQUIRED TO MAKE PAYMENT TOWA R DS FEES, CHARGES AND PREMIUMS TO THE MCGM TOWARDS THE GRANTING A STAIRCASE, LIFT AND LOBBY AREA FREE OF FSI AS PER THE SECTION 35(2) (C) O F DCR 1991. FROM THE RECORD WE FOUND THAT ON 31 - 03 - 2010 THE ASSESSEE COM PANY HAD PERMISSIONS TO BUILD ONLY UPTO 3 RD FL OORS AS PER PLAN APPROVE D BY MDGM DATED 0 8 - 08 - 2008. THE ASSESSEE COMPANY HAS P URCHASED THE TDR FROM THE OPEN MARKET IN THE MONTH OF MAY 2010 FOR GETTING FURTHER BUILDING PLANS APPROVED FROM THE MCGM AS PER DCR 1991. ON 10TH JUNE 2010, THE BOMBAY HIGH COURT HAS ISSUED TWO DIFFERENT ORDERS IN TWO DIFFERENT CASES RESTRICTING MCGM NOT TO CHARGE PREMIUMS FOR GRANTING ADDITIONAL EXTRA FSI AND TO GIVE EXEMPTION IN FSI FOR THE AREAS LIKE STAIRCASE, L IFT A ND PASS AGE. T HE BOMBAY HIGH COURT HAS ORDERED AGAINST THE PRE MIUM FOR S TAIRCASE, LI FT, LOBBY WHICH WAS CHARGED BY THE MCGM. ON ISSUE OF THE BOMBAY HIGH COURT ORDER, THE MUNICIPAL CORPORATION OF G REATER MU MBAI HAS DECIDED NOT TO EXEMPT T HE ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 6 COMMON AREA LIKE STAIRCASE, LIFT AND PASSAGE FROM THE FLOOR SPAC E INDEX (FSL) CALCULATION. THE M UNICIPAL C OMMISSIONER HAS ASKED TO THE ALL DEVELOPERS AND BUILDERS TO INCLUDE THE AREA OF STAIRCASE, LIFT AND PASSAGE INTO FLOOR SPACE INDEX (FSI) WHILE OBTAIN ING FURTHER BUILDING PLANS APPROVAL . THE DECISION TAKEN BY THE MCGM HAS RESULTE D INTO REDUCTION OF SELLABLE ARE OF THE BUILDING . IN THE CASE OF ASSESSEE, IT HAS PROPOSED TO CONSTRUCT 7 STOREY BUILDING AND D UE TO DECISION IMPLEMENTED BY THE MCGM AGAINST TH E BOMBAY HIGH COURT ORDER THE ASSESSEE COMPANY ENDED WITH THE BUILDING FSI UPTO 6TH FLOOR ONLY BECAUSE OF NON EXEMPTION OF COMMON AREAS LIKE STAIRCASE, LI FT AND LOBBY FROM THE FSI. THE COPY OF AMENDE D APPR OVED PLAN UPTO 6TH FLOOR DATED 13 - 09 - 2010 CONSIDERING STAIRCASE, LIFT AND LOBBY AREA INTO FSI WAS FILED BY ASSESSEE BEFORE THE LOWE R AUTHORITIES. 11. THE ASSESSEE COMPANY PRIOR TO THE PURCHASE OF TDR AND THE BOMBAY HIGH COURT ORDER HAS ALREADY ENTERED INTO THE AGREEMENTS TO SELL WITH PROSPECT PURCHASERS FOR THE FLATS PROPOSED TO BE CONSTRUCTED ON THE 7TH F LOOR OF THE BUILDING. THESE AGREEMENTS WERE SUBJECT TO VARIOUS TE RMS AND CONDITIONS MENT IONED THEREIN. DUE TO THE STAND TAKEN BY THE MCGM AGAINST THE BOMBAY HIGH COURT ORDER AN UNCERTAINTY CAME UP TO THE TUNE OF CONSTRUCTION OF PROPOSED 7TH FLOOR OF THE BUILDING. DUE TO NON - APPROVAL OF BUILDING PLANS FOR THE 7TH FLOOR OF THE BUILDING THE AGREEMENTS WHICH WERE EXECUTED BECAME NOT LEGALLY ENFORCEABLE. THE PURCHASER'S OF FLATS ALSO DISPUTED MAKING OF PROGRESS PAYMENTS SINCE THEIR BANKS REFUSED TO GRANT HOUSING LOAN ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 7 DUE TO NON AVAILABILIT Y OF B UILD I NG P LAN APPROVED F OR THE 7TH F LOOR WHERE THESE 2 FLAT S WERE SITUATED. ALSO DUE TO THE NON APPROVAL OF THE 7TH FLOOR OF THE BUILDING BY THE MCGM AN UNCERTAINTY CAME INTO THE AGREEMENT AND THE FLATS WHICH WERE AGREED TO SELL WERE INTO THE QUESTION . SINCE A S PER THE CLAUSE NO. 7 OF THE AGREEMENTS FOR SALE THE PURCHASER WERE ENTITLED TO GET FULL REFUND ON DEMAND ON DEVELOPER FAILS TO GIVE POSSESSION OF THE FIATS WITHIN STIPULATED TIME PERIOD. 12. IT IS ALSO NOT IN DISPUTE THAT AS ON 30TH SEPT, 2010, THE BUILDING PLAN WAS APPROVED ONLY UPTO 6TH F LOOR O F THE BUILDING. A COMPLETE UNCERTAINTY WAS EXISTED IN RESPECT OF FURTHER APPROVAL AND CONSTRUCTION OF 7TH FLOOR OF THE BUILDING. THE ASSESSEE COMPANY HAS FOLLOWED ACCOUNTING STANDARDS ISSUED BY LCA I. AS P ER AS - 7 REVENUE WAS BOOKED ON THE FLATS AGREED TO SALE BY % COMPLETION METHOD. AS PER THE SAID METHOD REVENUE WAS BOOKED U P TO A 60% OF AGREEMENT VALUE OF RESPECTIVE FLATS AGREED TO SELL UPTO 6TH FLOOR. HOWEVER AN UNCERTAINLY EXISTED PERTAINING TO CONSTRUC TION OF F LATS NO. 701 AND 702 THE BOOKING AMOUNT RECEIVED AGAINST THESE 2 FLATS WAS KEP T UNDER HEAD ADVANCE RECEIVED IN THE BALAN C E SHEET. AS PER THE UNDERSTANDING OF AS - 9 THE REVENUE SHOULD BE BOOKE D W H EN ALL THE FOLLOWING 2 CONDITIONS ARE SATISFIED. (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 TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP. ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 8 (II) NO SIGNIFICANT UNCERTAINTY EXIST S REGARDING THE AMOUNT OF CONSIDERATION THAT WILL BE DERIVED FROM THE REAL ESTATE SALE. HENCE, IN CASE OF FLAT NO. 701 AND 702 NONE OF THE ABOVE CONDITIONS WERE SATISFIED AND THEREFORE THE STAND TAKEN BY THE ASSESSEE COMPANY OF POSTPONING REVENUE RECOGNITION IN RESPECT OF THESE TWO FLATS IS JUSTIFIED. 13. WE ALSO FOUND THAT THE AGREEMENT PERTAINING TO THE FLAT NO. 701 IS DULY CANCELLED BY THE REGISTERED DEED OF CANCELLATION DATED 30 - 11 - 2011. THE AGREEMENT PERTAINING TO THE FLAT NO.702 IS TERMINATED AND THE SUIT FOR CANCELLATION OF AGREEMENT IS PENDING IN THE BOMBAY CITY CIVIL COURT. 14. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES FOR BRINGING TAX NET ADVANCE AMOUNT RECEIVED IN RESPECT OF FL AT NO.701 & 702 FOR WHICH NO PERMISSION WAS THERE FOR CONSTRUCTION. MOREOVER, ASSESSEE ITSELF HAS OFFERED THE SAID AMOUNT IN THE SUBSEQUENT YEAR WHEN THE PLAN WAS APPROVED; THERE IS NO REASON TO TAX THE VERY SAME INCOME DOUBLE. 15. IN THE RESULT, THE APPE AL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 31 / 03 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 31 / 03 /201 7 KARUNA SR. PS ITA NO. 7393/MUM/2014 M/S.VISHWAKARTA BUILD SOLUTIONS PVT. LTD., 9 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//