DCIT, Hyderabad V. M/s S.P. Real Estate Developers Pvt. Ltd., Hyderabad

ITA 866/HYD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74614 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: M CHANDRAMOULESWARA RAO
• Keywords: Capital asset; Business income; Document seized; Competent authority; Notional interest; Revised return; Documents seized
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 866/HYD/2010 ASSESSMENT YEAR 2008)09 THE DEPUTY CIT CENTRAL CIRCLE)6 HYDERABAD VS. M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. SECUNDERABAD PAN: AAFCS3233H [APPELLANT] [RESPONDENT] ITA NO. 1058/HYD/2010 ASSESSMENT YEAR 2008)09 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. SECUNDERABAD PAN: AAFCS3233H VS. THE DEPUTY CIT CENTRAL CIRCLE)6 HYDERABAD [APPELLANT] [RESPONDENT] REVENUE BY: SRI P. SOMA SEKHAR REDDY ASSESSEE BY: SRI M. CHANDRAMOULESWARA RAO DATE OF HEARING: 20.12.2013 DATE OF PRONOUNCEMENT: 12.02.2014 ORDER ORDER ORDER ORDER PER CHANDRA POOJARI, AM : THE ABOVE APPEALS ARE CROSS APPEALS DIRECTED AGAIN ST THE ORDER OF THE CIT(A))I, HYDERABAD DATED 28.4.201 0 FOR ASSESSMENT YEAR 2008)09. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 2 2. THE REVENUE RAISED GROUNDS OF APPEAL, AS FOLLOWS: 1. THE CIT(A) ERRED IN DELETING ADDITION MADE BY THE AO ON THE GROUND THAT THERE WAS A DISPUTE WITH REGARD TO THE RIGHT OVER THE LAND AND CONSTRUCTION AS ON 31.03.2008 AND THAT NO REAL INCOME ACCRUED TO THE ASSESSEE. 2. THE CIT(A) ERRED IN APPRECIATING THE FACT THAT THE LITIGATION PENDING OF WRIT PETITION NO. 7333 IN HIG H COURT AS ON 31.03.2008 IS NOT ON THE TITLE OF THE PROPERTY OF THE ASSESSEE COMPANY AND ASSESSEE)COMPANY IS NOT A PARTY TO THE WRIT PETITION AND HENCE IT HAS NO IMPACT ON THE ACCRUAL OF THE INCOME TO THE ASSESSEE. 3. THE CIT(A) ERRED IN APPRECIATING THE FACT THAT THE LITIGATION HAS NO IMPACT ON THE ACCRUAL OF INCOME TO THE ASSESSEE)COMPANY AS IT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. 3. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : (I) THE AO HAS ERRED IN DISALLOWING THE EXPENDITURE U/S. 40(A)(IA) MENTIONING THAT THE EXPENSES ATTRACT TDS BUT IN ACTUAL THESE EXPENSES ARE NOT EXPENSES FOR A CONTRACT AND DO NOT ATTRACT TDS. (II) THE AO HAS AGAIN ERRED IN DISALLOWING THE TRAVELLING EXPENSES WHICH ARE DIRECTLY RELATED TO THE ASSESSEE'S BUSINESS. 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE COMPANY HAD ENTERED INTO A DEVELOPMENT AGREEMENT WITH M/S. ECE INDUSTRIES LTD. FOR DEVELOP MENT OF 67,824 SQUARE YARDS (SQY) OF LAND IN SY. NO. 74/P A ND 75/P SITUATED AT BORABANDA, HYDERABAD. FOR THIS, THE ASS ESSEE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 3 COMPANY WAS REQUIRED TO PAY RS. 30,50,36,525 AS CON SIDERATION FOR OBTAINING GPA RIGHTS. OUT OF THIS, RS. 13.50 C RORES WAS TOWARDS REIMBURSEMENT OF COST, CHARGES AND TAXES IN CURRED ON LAND AND RS. 16,72,00,000 TOWARDS SITE DEVELOPMENT, CONSTRUCTION OF BOUNDARY WALL AND OTHER SERVICES PR OVIDED BY ECE INDUSTRIES. THE COST OF THE LAND WAS ARRIVED AT RS. 28,36,525. APPARENTLY, THE ASSESSEE HAD ALREADY PAID RS. 13.50 CRORES TOWARDS REIMBURSEMENT AND RS. 28,36,525 TOWARDS LAN D COST. THE BALANCE OF RS. 16.72 CRORES WAS PAYABLE BY POST DAT ED CHEQUES ISSUED TO ECE INDUSTRIES. THEREAFTER, THE D EVELOPMENT CUM GENERAL POWER OF ATTORNEY WAS EXECUTED IN FAVOU R OF ASSESSEE)COMPANY TRANSFERRING DEVELOPMENT RIGHT ON 24,425.80 SQY OF LAND. ON THE SAME DATE, ECE INDUSTRIES EXEC UTED ANOTHER DEVELOPMENT AGREEMENT CUM GPA IN FAVOUR OF M/S. JANAPRIYA ENGINEERS SYNDICATE TRANSFERRING 43,398 S QY OF LAND. IT WAS MENTIONED THAT ECE INDUSTRIES WAS NOT ENTITLED TO ANY SHARE OF CONSTRUCTED AREA AS PER THE DEVELOPMENT AGREEMEN T ENTERED BY IT WITH JANAPRIYA ENGINEERS SYNDICATE. THE GPA WAS GIVEN BY THE ECE INDUSTRIES TO JANAPRIYA ENGINEERS SYNDICATE ON BEHALF OF S.P. REAL ESTATE DEVELOPERS I.E., THE ASS ESSEE. ON 25.1.2008 ANOTHER DEVELOPMENT AGREEMENT WAS ENTERED BY THE ASSESSEE COMPANY WITH JANAPRIYA TRANSFERRING THE DE VELOPMENT RIGHTS IN THE BALANCE LAND OF 24,425 SQY. THE ASSE SSEE COMPANY WAS TO GET 36% OF THE TOTAL BUILT UP AREA ALONG WIT H PARKING SPACE AND ALSO RECEIVED RS. 3 CRORES AS REFUNDABLE DEPOSIT. AS PER THE DEVELOPMENT AGREEMENT THE ASSESSEE COMPANY WAS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 4 ENTITLED TO 4,90,098 SQUARE FEET (SFT) OF BUILT UP AREA AND 576 OF CAR PARKING AREA. ON THE SAME DATE, THE ASSESSEE CO MPANY SOLD 3,25,893.71 SFT OUT OF ITS SHARE TO JANAPRIYA AT THE RATE OF RS. 2000 PER SFT AND ALSO SOLD 382 CAR PARKING AREA AT THE RATE OF RS. 60,000 PER PARKING AND RECEIVED RS. 5,00,000 AS ADV ANCE AND THE BALANCE AMOUNT WAS TO BE RECEIVED IN INSTALMENT S. THUS, THE TOTAL CONSIDERATION TO BE RECEIVED FORM JANAPRI YA WAS RS. 67,47,07,420. AS ON 31)3)2008, THE ASSESSEE COMPAN Y RECEIVED RS. 7,08,60,500. AT THE SAME TIME, THE ASSESSEE CO MPANY HAD ALSO SOLD PART OF ITS SHARE OF PLOTS TO OUTSIDERS A ND RECEIVED ADVANCES AGAINST THEM. HOWEVER, THE COMPANY HAD NO T REFLECTED ANY SALES IN ITS P&L ACCOUNT AND NO INCOM E WAS SHOWN IN RESPECT OF SALE OF THE FLATS. WHEN QUESTI ONED ABOUT THE SAME, THE ASSESSEE SUBMITTED THAT THE INCOME ON THE BASIS OF DEVELOPMENT AGREEMENT WAS TO BE TAXED AS BUSINES S INCOME. THE PROJECT WAS UNDER CONSTRUCTION AND THE RE WAS A DISPUTE PENDING IN THE COURT BETWEEN THE ASSESSEE)C OMPANY AND ECE INDUSTRIES LTD REGARDING TRANSFER OF THE LA ND. THEREFORE, IT WOULD OFFER THE BUSINESS INCOME AFTER SETTLEMENT OF DISPUTE AND AFTER CONSTRUCTION OF THE FLATS. THE AO, HOWEV ER, DID NOT ACCEPT THE ARGUMENT PUT FORTH BY THE ASSESSEE)COMPA NY. THE AO HELD THAT THE PURCHASE AND SALE TRANSACTIONS WER E COMPLETED AND THE INCOME ACCRUED THEREON IS TAXABLE ON DUE BASIS SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING. THE AO REFERRED TO ACCOUNTING STANDARD) 9 ON REVENUE RECOGNITION. SINCE THE ASSESSEE HAS TRANSF ERRED ITS RIGHTS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 5 TO JANAPRIYA VIDE AGREEMENT DATED 25)1)2008, THE AO WAS OF THE VIEW THAT THE REVENUE SHALL BE RECOGNISED AT TH E TIME OF TRANSFER OF RIGHT. THE AO REFERRED TO CLAUSE NO. 11 OF THE AGREEMENT AND STATED THAT THE RISK AND REWARDS ASSO CIATED WITH THE RIGHT TO DEVELOP THE PROPERTY WERE TRANSFE RRED ON 25.1.2008. THE AO ALSO OBSERVED THAT IT MAY BE REAS ONABLY EXPECTED THAT THERE IS NO UNCERTAINTY IN ULTIMATE C OLLECTION IN VIEW OF THE FACT THAT MUNICIPAL APPROVAL FOR CONSTR UCTION OF THE PROPERTY HAD BEEN OBTAINED VIDE LETTER DATED 6)1)20 07 FROM MUNICIPAL AUTHORITIES AND ALSO THE CONSTRUCTION HAD COMMENCED AND WAS GOING ON IN FULL SWING. THE AO, THEREFORE, CONCLUDED THAT THE INCOME FROM BUSINESS WAS TO BE T AXED ON THE ABOVE TRANSACTIONS. 5. THE AO ALSO OBSERVED THAT THE ASSESSEE COMPANY HAD RECEIVED ADDITIONAL BUILT)UP AREA OF 27920 SFT FROM JANAPRIYA ENGINEERS WHICH WAS NOT MENTIONED IN THE MOU. AFTE R CONSIDERING THE EXPLANATION FILED BY THE ASSESSEE, THE AO HELD THAT THE CONSIDERATION FOR THE ABOVE ADDITIONAL BUI LT UP AREA ALSO NEEDS TO BE TAXED IN THE A.Y. 2008)09. THIS AP ART, THE AO HELD THAT THE SALES MADE TO JANAPRIYA ENGINEERS WER E NOT ACCOUNTED FOR IN THE BOOKS NOR REFLECTED IN THE RET URN OF INCOME. SINCE THE ASSESSEE HAD NOT OFFERED ANY PRO FIT ON THE ABOVE SALES, THE SAME ARE LIABLE TO BE TAXED IN THE A.Y. 2008) 09. APART FROM THE ABOVE, THE AO ALSO MADE DISALLOW ANCE OF RS. 9,79,901 U/S, 40(A)(IA) AND RS. 7,11,099 ON ACC OUNT OF FOREIGN TRAVELLING EXPENSES. THUS THE TOTAL INCOME WAS ASSE SSED AT RS. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 6 76,18,25,970 AS AGAINST THE LOSS OF RS. 44,697 ADMI TTED IN THE RETURN. 6. ON APPEAL, THE CIT(A) OBSERVED THAT THE BASIC QUEST ION THAT ARISES IS WHETHER THE ASSESSEE SHOULD HAVE REC OGNISED THE REVENUE ARISING FROM THE DEVELOPMENT AGREEMENT WITH JANAPRIYA ENGINEERING SYNDICATE. IT IS A FACT NOT D ISPUTED THAT THE ASSESSEE HAD INITIALLY ENTERED INTO A DEVELOPME NT AGREEMENT WITH M/S. ECE INDUSTRIES FOR DEVELOPMENT OF LAND ADMEASURING 67,824 SQY IN SURVEY NO. 74/P AND 75/P AT BORABANDA, HYDERABAD. EVEN THE OWNER OF THE LAND M /S. ECE INDUSTRIES HAD PREPARED A SCHEME FOR CONSTRUCTION O F DWELLING UNITS ON THE AFORESAID LAND IN ACCORDANCE WITH SECT ION 21 OF THE URBAN LAND CEILING ACT AND HAD OBTAINED APPROVAL FO R IT FROM THE COMPETENT AUTHORITY. WHEN THE ASSESSEE EXPRESS ED ITS INTEREST AND INTENTION TO CONSTRUCT AND DEVELOP HOU SES THAT THE OWNER OF THE LAND ENTERED INTO DEVELOPMENT AGREEMEN T WITH THE ASSESSEE. AS PER THE SAID AGREEMENT THE OWNER WAS TO RECEIVE CERTAIN AMOUNT FROM THE ASSESSEE FOR DEVELO PMENT AND GPA RIGHTS AS ALSO REIMBURSEMENT OF COST, CHARGES E TC. BUT THE ASSESSEE FAILED TO HONOUR ITS COMMITMENT IN PAYMENT OF THE SAID AMOUNT. IN THE MEANWHILE THE ASSESSEE HAD ENT ERED INTO DEVELOPMENT AGREEMENT WITH JANAPRIYA ENGINEERS SYND ICATE FOR DEVELOPING THE SAID LAND AND AS PER THE SAID AG REEMENT THE ASSESSEE WAS ENTITLED TO CERTAIN BUILT UP AREA AND CAR PARKING. OUT OF ITS OWN SHARE, THE ASSESSEE HAD APPARENTLY S OLD 490097 SFT AREA TO JANAPRIYA ALONG WITH 1382 CAR PARKING A REAS. IT IS THE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 7 AMOUNT RESULTING FROM THE TRANSFER OF THE CONSTRUCT ED AREA AS WELL AS THE TRANSFER OF THE PARKING SLOTS, THAT THE AO HAS PROPOSED TO BRING INTO THE TAX NET AS BUSINESS INCO ME OF THE ASSESSEE. THE AO IN THIS REGARD OBSERVED THAT THE AMOUNT IS TAXABLE SINCE THE ASSESSEE COMPANY IS FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING AND SINCE THE PURCHASE AND SAL E WITH JANAPRIYA ENGINEERS IS ALREADY COMPLETE. THE AO AL SO NOTED THAT THE MUNICIPAL APPROVAL FOR CONSTRUCTION HAD BE EN OBTAINED FROM MUNICIPAL CORPORATION OF HYDERABAD AN D THE CONSTRUCTION HAD COMMENCED ON THE SAID PLOT OF LAND . THE AO WAS ALSO OF THE VIEW THAT THERE IS REASONABLE CERTA INTY OF RECEIPT OF THE INCOME IN FUTURE. THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT SINCE IT COULD NOT HONOUR THE COMMITMENT OF MAKING PAYMENT TO THE LAND OWNER, THE LAND OWNER FILED A CIVIL SUIT BEFORE THE COURT. THE ASSESSEE ALSO SUB MITTED THAT THE HON'BLE HIGH COURT OF ANDHRA PRADESH HAD GIVEN AN I NJUNCTION ON CONSTRUCTION ON THE AFORESAID PLOT AND HENCE THE RE WAS NO CERTAINTY ABOUT THE INCOME ARISING OUT OF CONSTRUCT ION IN FUTURE. THE ASSESSEE SUBMITTED THAT SINCE THERE WAS NO CERT AINTY ABOUT THE INCOME ARISING FROM THIS SALE OF THE DEVELOPMEN T RIGHTS OR SALE OF FLATS, THE INCOME COULD NOT BE RECOGNISED A S ON 31)3) 2008 IN VIEW OF THE INJUNCTION OF THE HON'BLE A.P. HIGH COURT. APPARENTLY, THIS FACT WAS ALSO BROUGHT TO THE NOTIC E OF THE AO IN COURSE OF THE ASSESSMENT PROCEEDINGS AND COPY OF TH E LETTER FILED BEFORE THE AO WAS SUBMITTED DURING THE APPELL ATE HEARING. THE CIT(A) OBSERVED FROM THE SAID LETTER DATED ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 8 26.11.2009 FILED BEFORE THE AO THAT THE ASSESSEE HA D ALREADY INFORMED THE AO THAT THEY WERE NOT THE OWNER OF THE LAND NOR THE BUILDING HAD BEEN COMPLETED DURING THE RELEVANT ASSESSMENT YEAR AND NO AMOUNT HAD BEEN EARNED AS BU SINESS INCOME OR CAPITAL GAIN. THE ASSESSEE HAD ALSO BROU GHT TO THE NOTICE OF THE AO THAT THOUGH THE BUILDING PERMISSIO N HAD BEEN OBTAINED BY 31)3)2007, A CIVIL CASE WAS FILED BY SO ME EX) EMPLOYEE OF ECE INDUSTRIES BY WRIT PETITION NO. 221 53 OF 2007 STATING THAT THE SAID LAND WAS PROMISED TO BE ALLOT TED FOR CONSTRUCTION OF DWELLING UNITS FOR WORKMEN OF ECE I NDUSTRIES. FURTHER, ANOTHER GROUP CLAIMING THEMSELVES TO BE WE AKER SECTION OF THE SOCIETY HAD FILED A WRIT PETITION BE FORE THE HIGH COURT VIDE WRIT PETITION NO. 7333 OF 2008 CLAIMING THAT THE PROPOSED DWELLING UNITS SHOULD BE ALLOTTED TO THEM ONLY. THE ASSESSEE HAD FILED COPIES OF THE WRIT PETITION AND INTERIM ORDER OF HON'BLE HIGH COURT. THE CIT(A) HAD GONE THROUGH COPY OF THE ORDER OF HON'BLE HIGH COURT IN WRIT PETITION MP NO. 7333 OF 2008. IN THE SAID PETITION, APART FROM GOVT. OF A. P. AND SPECIAL OFFICER AND COMPETENT AUTHORITY UNDER THE A.P. URBA N LAND CEILING ACT, THE GHMC (RESPONDENT NO. 2), M/S. ECE INDUSTRIES (RESPONDENT 4) AND M/S. JANAPRIYA ENGINEERS SYNDICA TE (RESPONDENT 5) WERE ALSO NAMED AS RESPONDENTS. THE HON'BLE HIGH COURT HAD MADE THE FOLLOWING ORDER: 'UNTIL FURTHER ORDERS, THE RESPONDENT NO. 2 IS DIRE CTED TO ENSURE THAT NO CONSTRUCTION OR CIVIL WORKS WHATSOEVER ARE CARRIED ON BY THE RESPONDENTS 4 AND 5 TILL THE LAND TO AN EXTE NT OF 56730.57 SQ. METER IN SURVEY NO. 74 AND 75 IN FATHENAGAR, SA NATH NAGAR HYDERABAD IN RESPECT WHEREOF THE THIRD RESPON DENT HAD BY PROCEEDINGS NO. G1/10571/76/13/78 DATED 4-2-2001 GRANTED ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 9 PERMISSION FOR CONSTRUCTION OF QUARTERS TO WEAKER S ECTIONS UNDER SECTION 21 OF THE URBAN LAND (CEILING REGULAT ION) ACT 1976 FOR 8 BLOCKS FOR 1900 UNITS. THE SECOND RESPO NDENT SHALL ENSURE THAT NO CONSTRUCTION ARE CARRIED ON NOTWITHS TANDING THE BUILDING PERMISSION GRANTED BY THE SECOND RESPONDEN T IN PERMIT NO. 144/48 IN FILE NO. 8483/TPS/MCH/HO/03. NOTICE.' 7. THE CIT(A) OBSERVED THAT IN THE WRIT PETITION REFER RED TO ABOVE, THE SECOND RESPONDENT WAS GHMC AND THE 4TH RESPONDENT WAS ECE INDUSTRIES. THE 5 TH RESPONDENT WAS JANAPRIYA ENGINEERS SYNDICATE. FROM THE ORDER OF T HE HON'BLE HIGH COURT AS ABOVE, IT IS CLEAR THAT THE HON'BLE C OURT HAS PASSED INJUNCTION DIRECTING GHMC TO ENSURE THAT NO CONSTRUCTION WAS TO BE CARRIED ON EITHER BY ECE IND USTRIES OR BY JANAPRIYA ENGINEERS THOUGH BUILDING PERMISSION HAD BEEN GRANTED BY GHMC EARLIER. IT IS A MATTER OF FACT TH AT THE ASSESSEE WAS TO RECEIVE CONSIDERATION IN THE FORM O F CONSTRUCTED AREA AND CAR PARKING. SINCE THE HIGH CO URT HAD PASSED THE ORDER DATED 18)3)2008 AS ABOVE WHICH WAS IN FORCE AS ON 31.03.2008, IT IS CLEAR THAT AS ON 31)3)2008, JANAPRIYA ENGINEERS WAS RESTRAINED FROM CONSTRUCTION OR ANY O THER CIVIL WORKS. IT IS ALSO A MATTER OF FACT THAT THE INFLOW OF INCOME TO THE ASSESSEE FROM JANAPRIYA ENGINEERS DEPENDS ON THE CO NSTRUCTION OF THE BUILT UP AREA AND SUBSEQUENT TRANSFER THEREO F. THE AO WHILE PASSING THE ORDER, HAS RELIED ON THE BUILDING PERMISSION GRANTED BY THE GHMC IN ORDER TO ASSESS THE FUTURE I NFLOW OF INCOME FROM JANAPRIYA TO THE ASSESSEE. SINCE THE H ON'BLE HIGH COURT HAD PASSED RESTRAINT ORDER FOR ANY FURTHER CO NSTRUCTION, THE CIT(A) WAS OF THE VIEW THERE COULD NOT HAVE BEEN AN Y CERTAINTY ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 10 OF INFLOW OF INCOME ARISING OUT OF THE CONSTRUCTED BUILT UP AREA TO BE TRANSFERRED BY THE JANAPRIYA ENGINEERS TO THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT THE PURCHASE AND SALE OF FLATS COULD HAVE REACHED FINALITY AS ON 31.3.2008 IN VIEW OF THE INJUNCTION OF HON'BLE HIGH COURT. 8. THE CIT(A) FURTHER OBSERVED THAT THE LAND OWNER M/S . ECE INDUSTRIES ITSELF HAD MOVED THE CIVIL COURT FOR GET TING BACK THE POSSESSION OF LAND, RIGHT OVER OF WHICH WAS TRANSFE RRED TO THE ASSESSEE FOR DEVELOPMENT THEREOF. IN COURSE OF THE APPELLATE PROCEEDINGS, THE AR OF THE ASSESSEE HAS FILED THE O RDER OF THE LOWER COURT AND SUBSEQUENT DECISIONS AND INTERIM OR DERS OF HON'BLE A.P. HIGH COURT AND SUPREME COURT. THE HON 'BLE CITY CIVIL COURT HYDERABAD IN THEIR ORDER, HAD DIRECTED THE RESPONDENT I.E., THE ASSESSEE THAT THEY SHALL NOT C LAIM EQUITY OVER THE CONSTRUCTION MADE ON THE LAND AND ARE BOUN D BY THE DECISION IN THE SUIT. THEY WERE ALSO DIRECTED TO FU RNISH THE PARTICULARS OF PROSPECTIVE BUYERS OF RESIDENTIAL FL ATS IN ADVANCE TO THE COMPETENT AUTHORITY URBAN LAND CEILING AND I T MUST BE MADE CLEAR TO THE PROSPECTIVE BUYERS THAT THEIR PUR CHASES ARE SUBJECT TO THE RESULT OF THE SUIT BY MAKING A SPECI FIC RECITAL IN THE AGREEMENT OF SALE OR SALE DEED. SUBSEQUENTLY, THE LITIGATION HAS REACHED THE HON'BLE SUPREME COURT IN CIVIL APPE AL NO. 5127/5128 OF 2009 WHEREIN THE ASSESSEE HAD BEEN MAD E THE RESPONDENTS. THE HON'BLE SUPREME COURT IN THE JUDG MENT, WHILE ALLOWING THE RESPONDENTS TO GO AHEAD WITH THE CONST RUCTION ACTIVITIES ON THE GROUND THAT IF INJUNCTION IS GRAN TED TO ECE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 11 INDUSTRIES, IT WILL SUBSTANTIALLY AND IRREPARABLY I NJURE AND PREJUDICE THE DEFENDANTS (THE ASSESSEE IN THE PRESENT CASE). THE HON'BLE SUPREME COURT, HOWEVER, OBSERVED THAT THE DEFENDANT / RESPONDENT (THE ASSESSEE) SHALL NOT CLAIM EQUITY OV ER CONSTRUCTION MADE IN THE SUIT PROPERTY AND THEY WOU LD BE BOUND BY THE DECISION IN THE SUIT. IN OTHER WORDS, THE HON'BLE SUPREME COURT CONFIRMED THE VIEW OF THE CIVIL COURT WITH REGARD THE CLAIM OF EQUITY AND CONDITIONAL SALE. F ROM THE LITIGATION AS ABOVE, IT IS CLEAR THAT THE ULTIMATE FATE OF CONSTRUCTION AND RIGHT OVER THE CONSTRUCTED AREA IS STILL SUBJUDICE AND IT CANNOT BE TAKEN FOR GRANTED THAT E ITHER THE ASSESSEE COMPANY OR M/S. JANAPRIYA ENGINEERS WOULD HAVE AN UNCONDITIONAL RIGHT OVER THE SAID CONSTRUCTION. IT IS BECAUSE THE SUPREME COURT HAVE OBSERVED THAT IN CASE OF THE SUI T IS DECIDED IN FAVOUR OF ECE INDUSTRIES THE CONSTRUCTED STRUCTURES MAY EVEN HAVE TO BE PULLED DOWN IN ORDER TO HAND OV ER THE VACANT POSSESSIONS OF THE LAND TO ITS RIGHTFUL OWNE RS. THUS, THE CIT(A) WAS OF THE VIEW THAT EVEN IF THE CONSTRUCTIO N WORK IS GOING ON BY THE DEVELOPERS, THERE IS NO CERTAINTY T HAT THE ASSESSEE WOULD FINALLY BE RIGHTFUL OWNER OF THE CON STRUCTED/BUILT UP AREA WHICH IT IS ENTITLED TO AS PER THE AGREEMEN T WITH THE JANAPRIYA ENGINEERS SYNDICATE. 9. THE CIT(A) OBSERVED THAT THE ASSESSEE HAD ALSO SUBM ITTED THAT THE AO HAD COMPUTED INCOME ON THE ENTIRE AMOUN T OF FUTURE SALES BY TREATING THE SAME AS PRESENT INCOME ACCRUED TO THE ASSESSEE AT TIME OF ENTERING INTO THE AGREEMENT IGNORING ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 12 THE FACT THAT THE SUBJECT PROPERTY IS NOT IN EXISTE NCE AND WILL COME UP ONLY IN FUTURE. THUS, THE AO HAS TAXED HYPO THETICAL INCOME TO RESULT AT A FUTURE DATE IGNORING THE CONC EPT OF REAL INCOME. THE CIT(A) FOUND FORCE IN THE CONTENTION OF THE ASSESSEE ESPECIALLY IN VIEW OF THE ONGOING LITIGATI ON ON THE RIGHT OVER THE LAND AS WELL AS THE FUTURE CONSTRUCTION. THE ASSESSEE HAD RELIED ON THE INDIAN ACCOUNTING PRACTICE IN THI S REGARD AS PER WHICH IF A SALE AGREEMENT IS FOR SALE OF GOODS, REVENUE SHALL BE RECOGNISED IF THE ENTITY HAS TRANSFERRED TO THE BUYERS THE SIGNIFICANT RISK AND REWARD OF OWNERSHIP OF AND CON TROL OVER THE GOODS SOLD. THIS EFFECTIVELY MEANS THAT THE REVENU E ON REAL ESTATE SALE COULD BE RECOGNISED WHEN THE REAL ESTAT E IS CONSTRUCTED AND DELIVERED TO THE BUYER. THE ASSESS EE HAS ALSO SUBMITTED THAT CLAUSE 9 AND 10 OF THE AGREEMENT DAT ED 25)1) 2008 CLEARLY RECOGNISES THAT THE AGREEMENT IS ONLY A PROPOSED SALE AND IN CASE OF ANY DISPUTE OR LITIGATION OR BY ANY COURT ORDER OR GOVERNMENT ORDER, IF THE WORK IS DISTURBED OR STOPPED NO MONEY WILL BE PAID UNTIL THE WORK IS RESUMED AND FURTHER ON RECEIPT OF EACH INSTALMENT THE ASSESSEE WILL EXECUT E REGISTERED SALE DEED IN FAVOUR OF PROSPECTIVE BUYERS FROM THE PROPOSED BUILT UP AREA. SINCE THE FLATS ARE YET TO BE CONST RUCTED AND POSSESSION YET TO BE GIVEN, THE ASSESSEE SUBMITTED THAT RECOGNITION OF REVENUE AND TAXING THE SAME IS CONTR ARY TO THE CONCEPT OF REAL INCOME AND PROVISIONS OF AS)9. 10. THE CIT(A) OBSERVED THAT THE GENERAL PRINCIPLE GOVE RNING REVENUE RECOGNITION AS PER ACCOUNTING STANDARD)9 DE MANDS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 13 THAT THE REVENUE IS MEASURABLE AND THAT AT THE TIME OF SALE OR RENDERING THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION. IN THE CASE UNDER CONSIDERATI ON, IT IS A FACT THAT THE ULTIMATE INCOME BY THE ASSESSEE WILL FLOW FROM M/S. JANAPRIYA ENGINEERS SYNDICATE BY WAY OF HANDING OVE R THE CONSTRUCTED AREA AND CAR PARKING SPACE OR ITS MONEY WORTH. AS THE MATTER IS UNDER LITIGATION AS STATED EARLIER, T HERE IS NO CERTAINTY THAT M/S. JANAPRIYA ENGINEERS OR THE ASSE SSEE WOULD BE THE RIGHTFUL OWNER OF THE CONSTRUCTION THAT WOUL D COME UP ON THE DISPUTED LAND. ACCORDINGLY, THE CIT(A) WAS O F THE VIEW THAT THE STAND OF THE ASSESSEE THAT THERE IS UNCERT AINTY OF REALISATION OF INCOME IS NOT WITHOUT FORCE. AS PER THE ACCOUNTING STANDARD, WHEN CONSIDERATION IS NOT DETE RMINABLE WITHIN A REASONABLE LIMIT THE RECOGNITION OF REVENU E IS POSTPONED. IN SUCH CASES, IT MAY BE APPROPRIATE TO RECOGNISE REVENUE ONLY WHEN IT REASONABLY CERTAIN THAT THE UL TIMATE COLLECTION WILL BE MADE. THE AO PROPOSES TO TAX THE INCOME THAT WILL ARISE IN FUTURE ON THE BASIS THAT THE ASS ESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THAT APPROVAL F OR CONSTRUCTION HAS BEEN GRANTED BY THE MUNICIPAL AUTH ORITIES. AS STATED EARLIER AS ON THE LAST DAY OF THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE HON 'BLE A.P. HIGH COURT HAD DIRECTED THE MUNICIPAL CORPORATION W HO HAD GRANTED THE APPROVAL FOR CONSTRUCTION TO ENSURE THA T NO CONSTRUCTION ACTIVITY IS CARRIED ON EITHER BY ECE I NDUSTRIES OR BY JANAPRIYA ENGINEERS SYNDICATE. TO THAT EXTENT IT CA NNOT BE SAID ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 14 THAT REALISATION OF COLLECTION ARISING OUT OF THE C ONSTRUCTED AREA HAD REACHED FINALITY OR CERTAINTY AS AT THE END OF THE ACCOUNTING PERIOD. IT IS ALSO RELEVANT TO REFER TO THE AGREEMENT BETWEEN THE ASSESSEE AND JANAPRIYA ENGINEERS SYNDIC ATE ESPECIALLY TO CLAUSE NO. 9 OF THE AGREEMENT. AS PER THE SAID CLAUSE, IN CASE THE PROJECT WORK I.E., CONSTRUCTION ACTIVITY STOPS DUE TO ANY DISPUTE OR LITIGATION ARISING BECAUSE OF ANY COURT ORDER OR GOVERNMENT ORDER OR BY INVOLVEMENT OF PRIV ATE PARTY PAYMENT OF EQUATED MONTHLY INSTALMENTS WILL BE STOP PED FOR THAT PARTICULAR PERIOD. AFTER SETTLEMENT OF DISPUT ES OR LITIGATIONS PAYMENT OF EQUATED MONTHLY INSTALMENTS WILL RESUME. THE RESPONSIBILITY OF SETTLEMENT OF DISPUTE OR LITIGATI ON REGARDING THE LAND AND ITS BOUNDARIES ENTITY LIED WITH THE FIRST PARTY (THE ASSESSEE). THIS SHOWS THAT IN VIEW OF ONGOING LITI GATION THE ASSESSEE COULD NOT HAVE RECEIVED THE INSTALMENT DUE TO IT FROM JANAPRIYA ENGINEERS SYNDICATE. FURTHER, AS PER CLA USE 10 ON PAYMENT OF EACH EQUATED MONTHLY INSTALMENTS THE ASS ESSEE WOULD EXECUTE THE REGISTERED SALE DEED IN FAVOUR OF THE PROSPECTIVE BUYER FOR THE PROPORTIONATE BUILT UP AR EA ALONG WITH UNDIVIDED SHARE OF LAND. IN VIEW OF THE ONGOING DI SPUTE THE CIT(A) WAS IN DOUBT WHETHER THE ASSESSEE COULD HAVE EXECUTED SUCH DEED IN FAVOUR OF THE BUYER. IN OTHER WORDS, THE SO CALLED SALE TRANSACTION BETWEEN THE ASSESSEE AND JANAPRIYA ENGINEERS SYNDICATE CANNOT BE SAID TO BE AN UNCONDITIONAL SAL E IN THE LIGHT OF LITIGATION OVER THE RIGHT OF THE LAND AND THE RESTRAINT ORDER OF THE HON'BLE HIGH COURT FOR FURTHER CONSTRU CTION. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 15 11. THE CIT(A) OBSERVED THAT THE ASSESSEE HAS ALSO PUT FORTH THAT IT IS ONLY AFTER COMPLETION OF THE PROJECT THA T THE ACTUAL EXPENDITURE CAN BE FOUND AND CORRECT PROFIT OR LOSS ON SALE OF FLATS CAN BE COMPLETED. THE ASSESSEE SUBMITTED THAT THE AO HAS TRIED TO ASSESS THE HYPOTHETICAL INCOME OR NOTI ONAL INCOME ON THE GROUND THAT THE ASSESSEE IS FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING. THE ASSESSEE HAD RELIED ON THE DECI SION OF HON'BLE SUPREME COURT IN THE CASE OF GODHRA ELECTRI CITY COMPANY LTD. (225 ITR 746). IN THE SAID CASE, THE H ON'BLE APEX COURT OBSERVED THAT INCOME TAX IS A LEVY ON INCOME. NO DOUBT INCOME TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIM E AT WHICH THE LIABILITY TO TAX IS AFFECTED I.E., ACCRUAL OF I NCOME OR ITS RECEIPT, BUT THE SUBSTANCE OF THE MATTER IS INCOME. IF THE INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X EVEN THOUGH IN BOOK KEEPING AN ENTRY IS MADE ABOUT A HYP OTHETICAL INCOME WHICH MAY NOT MATERIALISE. IN THE CASE UNDE R CONSIDERATION, NO DOUBT AS PER MERCANTILE SYSTEM OF ACCOUNTING AN INCOME MAY ACCRUE, BUT GOING BY THE FACT THAT TH E VERY SOURCE OF INCOME IS IN DISPUTE, IT CANNOT BE SAID T HAT THERE IS ANY REAL INCOME OR DETERMINABLE INCOME. THE ASSESSE E IN ITS WRITTEN SUBMISSION HAS COUNTERED THE OBSERVATION OF THE AO THAT THE LITIGATION HAS NO IMPACT ON ACCRUAL OF INCOME. THE ASSESSEE SUBMITTED THAT LITIGATION IN A COURT OF LAW HAS A B EARING ON CRYSTALLISATION OF INCOME OR LIABILITY. THE ASSESS EE IN THIS REGARD RELIED ON THE DECISION OF HON'BLE ALLAHABAD HIGH CO URT IN THE CASE OF CIT VS. GIRIJAR UDYOG PVT. LTD (273 ITR 495 ), WHEREIN IT WAS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 16 OBSERVED THAT CONCEPT OF ACCRUAL OF INCOME DOES NOT CREATE INCOME BUT ONLY RECOGNISES IT WHEN THERE IS ONE. I N THAT CASE IT WAS HELD THAT WHEN THERE IS NO CHANCE OF RECOVERY O F PRINCIPAL AMOUNT AND THE ASSESSEE CHOSE NOT TO CHARGE ANY INT EREST ON THE SAME, THE AO WAS NOT JUSTIFIED IN BRINGING INTO TAX SUCH INTEREST ON ACCRUAL BASIS. THE ASSESSEE HAS ALSO RE FERRED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF P. MARIAPPA GOUNDER VS. CIT (232 ITR 2), WHEREIN THE DECISION O F HON'BLE A.P. HIGH COURT IN THE CASE OF KHAN BAHADUR AHMED ALLADD IN AND SONS VS. CIT WAS QUOTED. THE OBSERVATION OF THE HO N'BLE SUPREME COURT WAS THAT DISPUTED AMOUNT CANNOT BE TR EATED AS INCOME. 12. THE CIT(A) AFTER TAKING INTO CONSIDERATION THE DECI SIONS RELIED UPON BY THE ASSESSEE AND ALSO CONSIDERING TH E FACT THAT THERE WAS A DISPUTE WITH REGARD TO THE RIGHT OVER T HAT LAND AND CONSTRUCTION AS ON 31)3)2008, OBSERVED THAT IT CANN OT BE SAID THAT THERE WAS ANY REAL INCOME ACCRUED TO THE ASSES SEE AS ON 31)3)2008 RELEVANT TO THE ASSESSMENT YEAR UNDER CON SIDERATION. THEREFORE, HE WAS OF THE VIEW THAT THE AO WAS NOT J USTIFIED IN CONSIDERING THE AMOUNT OF RS. 76,55,59,475 AS PROFI T ARISING TO THE ASSESSEE ON THE BASIS OF DEVELOPMENT AGREEMENT FOR THE ASSESSMENT YEAR 2008)2009. SINCE THIS PROFIT HAS B EEN WORKED OUT BASED ON THE TOTAL BUILT UP AREA AS PER THE MOU AND INCLUDING THE ADDITIONAL AREA OF 27920 SFT NOT MENT IONED IN THE MOU, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE O N THIS ISSUE ARE AUTOMATICALLY COVERED THEREIN. HE HAS ARRIVED AT THIS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 17 CONCLUSION ON THE GROUND THAT THE HON'BLE ANDHRA PR ADESH HIGH COURT HAD RESTRAINED THE MUNICIPAL CORPORATION AND M/S. JANAPRIYA ENGINEERS SYNDICATE FOR ANY CONSTRUCTION TO BE CARRIED ON THE SAID PLOT OF LAND, WHICH WAS IN FORC E AS ON 31.3.2008. ACCORDINGLY, HE DIRECTED THE AO TO DELET E THE ADDITION SO MADE. AGAINST DELETION OF ADDITION, TH E REVENUE IS IN APPEAL BEFORE US. ITA NO. 866/HYD/2010 (DEPT. APPEAL) : DR SUBMISSIONS: 13. THE LEARNED DR SUBMITTED THAT THE ASSESSEE TRANSFER RED ITS RIGHT TO DEVELOP THE LAND IN FAVOUR OF JANAPRIYA EN GINEERS SYNDICATE LTD., VIDE DEVELOPMENT AGREEMENT DATED 23 .9.2007 AND AGREEMENT DATED 25.1.2008. ACCORDING TO THE DR , REVENUE SHALL BE RECOGNISED AT THE TIME OF TRANSFERRING OF SIGNIFICANT RISK AND REWARD OF PRICE IN THE PROPERTY. THE TRANSFER OF RIGHT TO DEVELOP THE LAND IS DONE ALONG WITH TRANSFER OF RIS K AND REWARDS OF RIGHT TO DEVELOP THE PROPERTY, VIDE AGREEMENT DA TED 25.1.2008. HE DREW OUR ATTENTION TO THE CLAUSE REL ATING TO TRANSFER OF RISK AND REWARDS ASSOCIATED WITH THE RI GHT TO DEVELOP THE PROPERTY AS UNDER: '11. THE FIRST PARTY AUTHORIZES THE SECOND PARTY TO DO THE FOLLOWING THINGS: A) TO SELL THE FLATS, TO ENTER INTO AN AGREEMENT OF SA LE WITH PURCHASERS OF FLATS, EITHER THE WHOLE OF SCHEDULED PROPERTY OR PORTION OF IT OR UNDIVIDED SHARE IN THE SCHEDULE D PROPERTY AND ACKNOWLEDGE THEM BY ISSUING RECEIPTS. B) TO ENTER INTO A DEVELOPMENT AGREEMENT WITH ANY DEVELOPER/BUILDER TO DEVELOP THE SCHEDULED PROPERTY BY ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 18 CONSTRUCTING INDIVIDUAL BUILDINGS OR RESIDENTIAL AP ARTMENTS OR COMMERCIAL APARTMENTS. C) TO ENTER INTO CONTRACT AGREEMENT WITH ANY CONTRACTO R. D) TO SIGN ALL THE APPLICATIONS TO BE SUBMITTED TO THE AP TRANSCO FOR SUPPLY OF ELECTRICITY, TO THE CONCERNED AUTHORITIES FOR PROVIDING DRAINAGE AND WATER SUPPLY ETC., AND PROCESS THE SAID APPLICATIONS. E) TO LOOK AFTER AND PROTECT THE SCHEDULED PROPERTY FR OM ENCROACHERS, LAND GRABBERS AND UNSOCIAL ELEMENTS AN D TO TAKE NECESSARY AND APPROPRIATE ACTION AGAINST THEM BY MAKING APPLICATIONS TO THE CONCERNED AUTHORITIES AN D IF NECESSARY TO APPROACH CIVIL AND CRIMINAL COURTS. F) TO PAY THE TAXES AND REVENUE PAYABLE ON THE SCHEDUL ED PROPERTY TO THE STATE GOVERNMENT, CENTRAL GOVERNMEN T AND LOCAL AUTHORITY. G) TO MAKE USE OF SCHEDULED PROPERTY TO ITS MAXIMUM ADVANTAGE. H) TO DEAL WITH STATE, CENTRAL AND QUASI GOVERNMENT ORGANIZATIONS IN RESPECT TO THE SCHEDULED PROPERTY. I) TO FILE ANY SUIT OR PROCEEDING IN ANY COURT OR AUTH ORITY TO PROTECT THEIR RIGHT AND TITLE TO THE SCHEDULED PROP ERTY AND FOR THE SAME TO SIGN THE PLAINT VAKALAT AND ALL NECESSA RY APPLICATIONS AND DOCUMENTS ON THEIR BEHALF AND ALSO TO GIVE EVIDENCE AND ENGAGE ANY ADVOCATE OF THEIR CHOICE IN THE SAID SUIT OR PROCEEDING. J) TO DEFEND IF ANY SUIT OR PROCEEDING IS INITIATED BY ANY PERSON CHALLENGING THEIR RIGHT AND TITLE TO THE SCH EDULED PROPERTY AND TO DO ALL THE ACTS NECESSARY TO PROTEC T THEIR PROPERTY. K) TO MORTGAGE THE SCHEDULED PROPERTY TO ANY BANK OR FINANCIAL INSTITUTION TO GET ANY LOAN FOR THE DEVEL OPMENT OF THE SCHEDULED PROPERTY AND EXECUTE ALL THE NECESSAR Y DOCUMENTS FOR THE SAID PURPOSE. L) GENERALLY TO DO ALL THE ACTS DEEDS AND THINGS WHATS OEVER IN RESPECT OF THE SCHEDULED PROPERTY WHICH THE VENDORS WILL DO IN THEIR INTEREST. SCHEDULED PROPERTY: ALL THAT UNDIVIDED SHARE OF LAND ADMEASURING 13,505 .90 SQ METERS OR 16,242.70 SQ YARDS OR OF 20,430.50 SQ MET ERS OR ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 19 24,425.80 SQ YARDS ALONG WITH PROPOSED TO BE CONSTR UCTED SUPER BUILT UP AREA OF 3,25,893.71 SQ FT OUT OF 4,9 0,097.72 SQ FT OF RESIDENTIAL FLATS AND 382 CAR PARKING IN S Y. NO. 74/P AND 75/P, SITUATED AT FATHENAGAR VILLAGE HYDERABAD (EMPHASIS SUPPLIED).' 14. FURTHER HE SUBMITTED THAT IT IS EVIDENT THAT THE RI SKS AND REWARDS ASSOCIATED WITH THE RIGHT TO DEVELOP THE PR OPERTY ARE TRANSFERRED ON 25.01.2008. IT MAY BE NOTED THAT THE CONSIDERATION IS FIXED IN THE AGREEMENT DATED 25.01 .2008 AS RS. 2000 PER SFT AND 60,000 PER CAR PARKING. IT MAY BE REASONABLY EXPECTED THAT THERE IS NO UNCERTAINTY IN THE ULTIMA TE COLLECTION IN VIEW OF THE FOLLOWING FACTORS: (A) THE MUNICIPAL APPROVALS FOR CONSTRUCTION HAVE BEEN OBTAINED VIDE LETTER DATED 06.01.2007 OF MUNICIPAL CORPORATION OF HYDERABAD. ACCORDINGLY BUILDING PERMIT CHARGES AND OTHER FEE AMOUNTING TO RS. 6,12,81,439/) HAVE BEEN PAID BY M/S. JANAPRIYA ENGINEERS SYNDICATE LTD. (B) THE CONSTRUCTION COMMENCED AND IS GOING ON IN FULL SWING. 15. FURTHER, HE SUBMITTED THAT JANAPRIYA ENGINEERS SYND ICATE LTD. HAS PAID RS. 7,08,60,500 TO THE ASSESSEE. THI S SHOWS IMPLEMENTATION OF THE AGREEMENT FOR TRANSFER OF RIG HT WHICH IS IN PROGRESS. FURTHER, REGARDING THE TAXABILITY OF ADD ITIONAL BUILT UP AREA, HE SUBMITTED THAT AS PER THE SEIZED DOCUMENTS IN THE CASE OF JANAPRIYA ENGINEERS SYNDICATE GROUP ANNEXUR E A/JES/1 PAGE NO. 10 CONTAINS THE ADDITIONAL AREA GIVEN TO S .P. REAL ESTATES. THE TOTAL SALEABLE AREA AS PER SANCTIONED PLAN AND AGREEMENT IS RS. 13,67,000. HOWEVER, TOTAL SALEABL E AREA AS PER WORKING PLAN IS RS. 14,58,000. THE ADDITIONAL AREA IS 91,000 SFT. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 20 OUT OF THESE, ASSESSEE COMPANY IS ENTITLED TO 20% O F THIS AREA AMOUNTING TO RS. 18,200. HOWEVER, JANAPRIYA MANAGI NG DIRECTOR ACCEPTED TO ALLOT 25000 SQ. FEET ON THIS A CCOUNT. THE EXCESS AREA AS PER THE ORIGINAL AGREEMENT RECEIVABL E OF 2920 SFT IS ALLOTTED IN PRADEEP MENON'S PARENTS NAME IN BLOCK)4 AND THE BALANCE 25000 ADDITIONAL AREA IS ALLOTTED IN BL OCK)1 AND BLOCK)4. SO, THE ADDITIONAL AREA RECEIVED OF 25000 SQ. FEET AND 2920 SQ. FEET WHICH IS OVER AND ABOVE THE AREA MENT IONED IN THE MOU WAS PROPOSED TO BE TAXED IN THE HANDS OF AS SESSEE) COMPANY FOR THE A.Y. 2008)09. THE ASSESSEE)COMPANY IS REQUESTED TO EXPLAIN VIDE THIS OFFICE LETTER DATED 9)11.2009 WHY THE ABOVE ADDITIONAL AREA RECEIVED OF 27,920 SFT SH OULD NOT BE TAXED. THE ASSESSEE COMPANY SUBMITTED THAT THE PROJ ECT IS UNDER CONSTRUCTION AND, THEREFORE, IT WILL BE OFFER ED FOR TAX IN THE YEAR IN WHICH THESE ARE CONSTRUCTED AND SOLD. HOWE VER, THE ASSESSEE'S EXPLANATION IS NOT ACCEPTABLE FOR THE RE ASONS DISCUSSED IN THE ABOVE PARAS AND IT NEED TO BE TAXE D FOR THE ASSESSMENT YEAR 2008)09 AS DEVELOPMENT AGREEMENT IS ENTERED AND POSSESSION OF LAND IS ALREADY HANDED TO THE DEV ELOPER. AR SUBMISSIONS: 16. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT TH E ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RE AL ESTATE DEVELOPMENT AND CONSTRUCTION OF RESIDENTIAL APARTME NTS AND HOUSES. ON 17/09/2007, THE ASSESSEE COMPANY HAS ACQ UIRED DEVELOPMENT RIGHTS OVER AN EXTENT OF 67,824 SQY OF LAND IN SURVEY NOS. 74 & 75 AT BORABANDA, FATHENAGAR VILLAG E, ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 21 BALANAGAR, HYDERABAD FROM M/S. ECE INDUSTRIES LIMIT ED, NEW DELHI AND PAID RS. 13.50 CRORES TOWARDS REIMBURSEME NT OF COSTS AND OTHER CHARGES OF THE LAND AS ADVANCE. AS PER T HE TERMS OF THE SAID DEVELOPMENT AGREEMENT, THE ASSESSEE HAS CO MMITTED TO PAY AN AMOUNT OF RS. 16.72 CRORES FOR WHICH POST DATED CHEQUES WERE DELIVERED AND FURTHER AGREED TO PAY RS . 28,36,525 TOWARDS COST OF LAND AND ISSUED A POST DATED CHEQUE DATED 05/10/2008. SUBSEQUENTLY, M/S. ECE INDUSTRIES LIMIT ED (THE OWNER OF THE LAND) HAS EXECUTED A REGISTERED 'DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY' IN FAVOUR OF M/S. JANAPRIYA ENGINEER SYNDICATE LIMITED, HYDERABAD FOR AN EXTENT OF LAND AD MEASURING 43.398 SQY OUT OF THE TOTAL EX TENT OF 67824.5 SQY AND ANOTHER DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY WAS EXECUTED BY THE OWNER OF THE LAND IN FAVOUR OF THE ASSESSEE COMPANY FOR AN EXTEN T OF LAND ADMEASURING 24525.8 SQY. BOTH THESE AGREEMENTS WERE EXECUTED ON 21/09/2007. SUBSEQUENT TO THE EXECUTIO N OF THE SAID DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATT ORNEY DATED 21/09/2007, THE ASSESSEE COMPANY HAS ENTERED INTO AN DEVELOPMENT AGREEMENT ON 23/09/2007 WITH M/S. JANAP RIYA ENGINEER SYNDICATE (THE DEVELOPER) FOR THE DEVELOPM ENT AND CONSTRUCTION OF RESIDENTIAL APARTMENTS ON THE SUBJE CT LAND SITUATED IN SURVEY NOS. 74 & 75 AT BORABANDA, FATHE NAGAR, BALANAGAR MANDAL, HYDERABAD AND AGREED TO ACCEPT 36 % OF THE BUILT UP AREA TO BE DEVELOPED AS PER THE APPROV ED PLAN. SUBSEQUENT TO THE AGREEMENT DATED 23/09/2007, THE A SSESSEE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 22 COMPANY HAS ENTERED INTO AN AGREEMENT ON 21/05/2008 ACCORDING TO WHICH IT AGREED TO HANDOVER ITS SHARE OF FLATS AND PARKING AREA TO THE DEVELOPER TO SELL AS PER THE TE RMS AND CONDITIONS AGREED UPON. THE ASSESSING OFFICER HAS C ONSIDERED THE DEVELOPMENT AGREEMENT ENTERED BY THE ASSESSEE COMPANY WITH THE LAND OWNER, M/S. ECE INDUSTRIES LI MITED WHEREBY IT ACQUIRED DEVELOPMENT RIGHTS OVER THE LAN D SITUATED IN SURVEY NOS. 74 & 75 OF BORABANDA VILLAGE, AND AN OTHER AGREEMENT ENTERED WITH M/S. JANAPRIYA ENGINEER SYND ICATE LIMITED, HYDERABAD ON 21/05/2008 AND CONCLUDED THAT THE PURCHASE AND SALE IS COMPLETE IN THE ABOVE TRANSACT ION AND THEREFORE, THE TRANSACTION OF 21/05/2008 RESULTED I N ACCRUAL OF INCOME SUBJECTED THE SAME TO TAX. THE ASSESSING OF FICER HAS BROUGHT THE AGREEMENT DATED 21/05/2008 TO TAX STATI NG THAT THE ASSESSEE IS A COMPANY AND IS FOLLOWING THE MERC ANTILE SYSTEM OF ACCOUNTING AND THE AGREEMENT GRANTING RIG HT TO SELL APARTMENT THAT ARE TO COME UP ON THE SUBJECT LAND H AS RESULTED IN ACCRUAL OF INCOME. 17. THE AR SUBMITTED THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS BROUGHT TO TAX THE VALUE OF T HE TRANSACTION AS PER THE AGREEMENT DATED 25/01/2008 ENTERED BY TH E ASSESSEE COMPANY WITH THE DEVELOPER, M/S. JANAPRIYA ENGINEER SYNDICATE AND STATED THE FOLLOWING REASONS: (A) THE ASSESSEE IS A COMPANY AND IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 23 (B) THE ACQUISITION OF THE DEVELOPMENT RIGHTS BY THE ASSESSEE COMPANY AS PER THE AGREEMENT DATED 17/09/2007 AND SUBSEQUENTLY GRANTING RIGHT TO SELL APARTMENTS AND PARKING AREA THAT HAS TO COME)UP ON THE SUBJECT LAND AS PER AGREEMENT DATED 25/01/2008 ENTERED WITH M/S. JANAPRIYA ENGINEER SYNDICATE, THE DEVELOPER IS AKIN TO THE PURCHASE AND SALE AND THEREFORE, HE TREATED THAT THE INCOME HAS ACCRUED FROM THE TRANSACTION OF GRANTING RIGHTS TO SELL THE APARTMENTS AND BROUGHT THE SAME TO INCOME TAX COMPLETELY IGNORING THE FACT THAT THE CONSTRUCTION HAS NOT COMPLETED AND APARTMENTS WERE NOT AVAILABLE TO DEAL WITH. (C) BY ENTERING INTO AGREEMENT WITH THE DEVELOPER ON 25/01/2008, ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE DEVELOPER AND QUOTED THE PROVISIONS OF ACCOUNTING STANDARD (AS)9) AS FOLLOWS: '11. IN A TRANSACTION INVOLVING SALE OF GOODS, PERFORMANCE SHOULD BE REGARDED AS BEING ACHIEVED WHEN THE FOLLOWING CONDITIONS HAS BEEN FULFILLED. (I) THE SELLER OF THE GOODS HAS TRANSFERRED TO THE BUYER THE PROPERTY IN THE GOODS FOR A PRICE OR ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER AND THE SELLER RETAINS NO EFFECTIVE CONTROL OF THE GOODS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 24 TRANSFERRED TO A DEGREE USUALLY ASSOCIATED WITH OWNERSHIP; AND (II) NO SIGNIFICANT UNCERTAINTY EXISTS REGARDING THE AMOUNT OF THE CONSIDERATION THAT WILL BE DERIVED FROM THE SALE OF THE GOODS.' (D) HE RECOGNISED REVENUE ON THE TRANSFER OF DEVELOPMENT RIGHTS. 18. THE AR FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS FILED AN APPEAL BEFORE THE CIT(A) AND MADE THE FOLL OWING SUBMISSIONS: (A) THAT IT HAS ACQUIRED DEVELOPMENT RIGHTS OVER THE LANDED PROPERTY SITUATED IN SURVEY NOS. 74 & 75 IN BORABANDA VILLAGE, FATHENAGAR, BALANAGAR MANDAL, HYDERABAD VIDE AGREEMENT DATED 17/09/2007 AND THE AGREEMENT IS CONDITIONAL AND CERTAIN CONDITIONS ARE STILL TO BE FULFILLED. (B) THAT IT HAS OBTAINED A CONDITIONAL DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY DATED 21/09/2007 FROM THE OWNER OF THE LAND AND SUCH DEVELOPMENT RIGHTS HAVE BEEN TRANSFERRED TO THE DEVELOPER M/S. JANAPRIYA ENGINEER SYNDICATE LIMITED ON 23/09/2007. THIS AGREEMENT IS TO OBTAIN BUILT)UP AREA IN THE CAPACITY AS CO)PROMOTER AND NOT TO SURRENDER THE DEVELOPMENT RIGHTS PER SE. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 25 (C) THAT THE TRANSFER OF RIGHT TO DEVELOP THE LAND AND CONSTRUCTION OF APARTMENTS GIVEN TO JANAPRIYA ENGINEER SYNDICATE LIMITED IS A BUSINESS AGREEMENT AND THIS IS A BUSINESS TRANSACTION AND THE PROVISIO NS OF SEC. 2 (47) IN RELATION TO TRANSFER OF CAPITAL A SSET WILL NOT BE APPLICABLE TO THE PRESENT CASE. (D) THAT INCOME WILL NOT ACCRUE AT THE TIME OF ENTERING INTO DEVELOPMENT AGREEMENT IN THE CASE OF BUSINESS TRANSACTIONS. THIS IS AN AGREEMENT FOR DEVELOPMENT OF APARTMENTS OVER THE SUBJECT LAND AND THE PROFITS WILL ARISE ON THE COMPLETION OF THE CONSTRUCTION AND DELIVERY OF THE POSSESSION. THEN ONLY INCOME CAN BE SUBJECTED TO TAX. (E) AS PER THE PROVISIONS OF ACCOUNTING STANDARD (AS)9) AND GUIDANCE NOTE ON RECOGNITION OF REVENUE BY REAL ESTATE DEVELOPERS ISSUED BY THE COUNCIL OF ICAI AND PARA)3 OF GUIDANCE NOTE ) THE REAL ESTATE SALES TAKE PLACE IN A VERITY OF WAYS AND MAY BE SUBJECT TO DIFFERENT TERMS AND CONDITIONS AS SPECIFIED IN THE AGREEMENT FOR SALE. ACCORDINGLY, THE POINT OF TIME AT WHICH ALL SIGNIFICANT RISKS AN D REWARDS OF OWNERSHIP CAN BE CONSIDERED AS TRANSFERRED, IS REQUIRED TO BE DETERMINED ON THE BASIS OF THE TERMS AND CONDITIONS OF THE AGREEMENT FOR SALE. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 26 (F) THAT THE AGREEMENT DATED 25/01/2008 IS MAINLY MEANT FOR GIVING RIGHTS TO DEAL WITH THE PROPERTY O F THE ASSESSEE COMPANY THAT WILL COME)UP AT SOME TIME IN THE FUTURE AND, THEREFORE, THE QUESTION OF TRANSFER OF SIGNIFICANT RISKS AND REWARD IN THE OWNERSHIP OF THE PROPERTY CANNOT ARISE IN THE CASE OF THE PROPERTY WHICH IS NOT IN EXISTENCE AT THE TI ME OF THE AGREEMENT. FURTHER, THE AGREEMENT IS CONDITIONAL AND THE PAYMENTS AGAINST THE AGREEMENT ARE SUBJECTED TO SEVERAL CONDITIONS STATED THEREIN AND WITHOUT FULFILMENT OF ALL THE CONDITIONS, IT CANNOT BE TERMED AS TRANSFER OF RISK S AND REWARDS IN THE OWNERSHIP OF THE PROPERTY TO THE BUYER. (G) THAT THE SUBJECT LAND SITUATED IN SURVEY NOS. 74 & 75 IN BORABANDA VILLAGE AND THE PROPOSED PROJECT THEREON HAS BECOME THE CENTRE OF SERIOUS DISPUTES AND NUMBER OF SUITS WERE FILED BY VARIOUS PARTIES CLAIMING DISTRIBUTION AND ALLOTMENT OF LAND AND FLA TS. (H) THAT, SEVERAL WRIT PETITIONS WERE FILED BEFORE THE HON'BLE AP HIGH COURT AND THE HON'BLE HIGH COURT HAS ISSUED ORDERS RESTRAINING THE PARTIES FROM PROCEEDING WITH CONSTRUCTION AND FROM ALIENATING THE PROPERTY. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 27 (I) THAT, THE W.P. NO. 5644 OF 2008 WAS FILED BY SRI S. ANTHONY IN THE HON'BLE AP HIGH COURT AND THE HON'BLE COURT HAS GRANTED STAY RESTRAINING THE DEVELOPERS FROM PROCEEDING WITH THE CONSTRUCTION AND IN VIEW OF THE INTERIM ORDERS PASSED ON 18/03/2008 THE DEVELOPERS WERE RESTRAINED FROM PROCEEDING WITH THE FURTHER CONSTRUCTION ON THE SUBJECT LAND AND ALSO FROM ALIENATING THE PROPERTY. THE SAID ORDERS OF THE HON'BLE HIGH COURT WERE CONTINUED TILL 23/04/2008 AND THE ASSESSEE COMPANY WERE RESTRAINED FROM PROCEEDING WITH THE CONSTRUCTION AND ALIENATION OF THE PROPERTY W.E.F. 25/10/2007 TO 23/04/2008 AND THE ORDERS OF THE HON'BLE HIGH COURT RESTRAINING ANY CONSTRUCTION ON THE SUBJECT LAND WERE AVAILABLE AND WERE INFORMED AS AT 31/03/2008 AND CONTINUED UNTIL 23/04/2008. THERE IS COMPLETE UNCERTAINTY ABOUT THE PROGRESS OF THE PROJECT ON THE DISPUTED LAND AND CONSEQUENTLY, THE INCOME HAS NOT BEEN RECEIVED BY THE ASSESSEE)COMPANY. (J) THAT, THE AGREEMENT WHICH WAS RELIED ON BY THE AO VIDE AGREEMENT DATED 25/01/2008 HAS BEEN CANCELLED AND THE PARTIES HAVE AGREED TO TREAT THE AGREEMENT AS NULL, VOID AND CANCELLED THE SAME. THIS CANCELLATION WAS MADE BY CANCELLATION AGREEMENT DATED 25/09/2008 I.E., SUBSEQUENT TO ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 28 THE END OF THE PREVIOUS YEAR BUT BEFORE THE FILING OF THE INCOME TAX RETURN. (K) THAT, FURTHER, THE LAND OWNERS, M/S. ECE INDUSTRIES LIMITED HAVE FILED CASES IN CITY CIVIL COURT AT HYDERABAD PRAYING THE HON'BLE COURT TO GRANT (I) RS . 50,00,000/) PER MONTH COMMENCING FROM THE MONTH OF MAY 2008 FOR THE UNAUTHORIZED, ILLEGAL OCCUPATION AND USE OF THE LAND TILL THE DELIVERY OF THE POSSESSION BACK TO THE LAND OWNER, (II) TO DELI VER THE POSSESSION OF THE SUBJECT LAND SITUATED IN SURV EY NOS. 74, & 75 SITUATED IN BORABANDA, FATHENAGAR VILLAGE, HYDERABAD (III) AND TO AWARD COSTS AND OTHER RELIEFS. (L) THAT ON 30/05/2008 (BEFORE THE DATE OF FILING OF TH E INCOME TAX RETURN BY THE ASSESSEE COMPANY), THE HON'BLE CITY CIVIL COURT IN I.A. 262/08 IN OS 126/2008 HAS AWARDED AD)INTERIM INJUNCTION RESTRAINING THE ASSESSEE COMPANY OR ITS AGENTS, SERVANTS OR ANY PERSON CLAIMING THROUGH OR UNDER THE ASSESSEE COMPANY FROM MAKING ANY CONSTRUCTIONS OVER THE SUBJECT SCHEDULED PROPERTY INCLUDING CHANGING THE NATURE OF THE SAME IN ANY MANNER. (M) THAT FROM THAT DAY ONWARDS THE COURT CASES FILED BY THE LAND OWNER AGAINST THE ASSESSEE COMPANY ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 29 AND OTHERS CLAIMING UNDER IT ABOUT THE SUBJECT LAND HAS TRAVELLED UP TO THE HON'BLE SUPREME COURT OF INDIA WHICH HAS APPROVED THE ORDERS OF THE LOWER COURT AND ORDERED THAT THE ASSESSEE COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTION MADE IN THE LAND AND THEY ARE BOUND BY THE DECISION IN THE SUIT. THE ASSESSEE COMPANY SHALL FURNISH THE PARTICULARS OF THE PROSPECTIVE BUYERS OF THE RESIDENTIAL UNITS IN ADVANCE TO THE COMPETENT AUTHORITY URBAN LAND CEILING AND IT MUST BE MADE CLEAR TO THE PROSPECTIVE BUYERS THAT THEIR PURCHASE S ARE SUBJECTED TO THE RESULT OF THE SUIT BY MAKING SPECIFIC RECITAL IN THE AGREEMENT OF THE SALE OR SA LE DEED AS THE CASE MAY BE. (N) THE DISPUTES AS MENTIONED ABOVE ARE CONTINUING AND PENDING AS SUCH IN THE COURTS AND THE CONSTRUCTION COULD NOT BE PROCEEDED WITH AND EQUITIES OVER THE LAND AND CONSTRUCTIONS CANNOT BE CLAIMED BY THE ASSESSEE COMPANY. (O) THAT, IN THESE CIRCUMSTANCES THE CONSTRUCTION CANNOT BE PROCEEDED WITH AND THE ASSESSEE COMPANY CANNOT CLAIM EQUITIES OVER THE LAND AND ON THE CONSTRUCTION AND IT CANNOT TRANSFER OR ALIENATE THE PROPERTY TO THE BUYERS OF THE FLATS. I T WAS SUBMITTED THAT THE CLAIM OF THE AO THAT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 30 SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP HAVE BEEN TRANSFERRED TO THE BUYER IS UNJUSTIFIED AS THE SUBJECT MATTER IS SUBJUDICE. (P) THAT THE MONIES THAT ARE TO BE RECEIVED BY THE ASSESSEE COMPANY UNDER THE AGREEMENT DATED 25/01/2008 HAVE NOT BEEN RECEIVED BY IT AND ULTIMATELY THIS AGREEMENT HAS BEEN CANCELLED AND THE SUBJECT LAND HAS BECOME A CENTRE OF VERY SERIOUS LITIGATION. INCOME HAS NOT ACCRUED TO THE ASSESSEE AND THE ASSESSING OFFICER HAS BROUGHT TO TAX ONLY A HYPOTHETICAL INCOME WHICH IS CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT. 19. THE LEARNED AR SUBMITTED THAT THE CIT(A) HAS EXAMIN ED THE ENTIRE ISSUE AND THE SUBMISSIONS MADE WITH REFE RENCE TO THE DOCUMENTARY EVIDENCES FILED. THE CIT(A) HAS MADE TH E FOLLOWING OBSERVATIONS IN HIS APPELLATE ORDER: (A) THAT THE ASSESSEE COMPANY HAS FAILED TO HONOUR ITS COMMITMENT IN THE PAYMENT OF AMOUNTS IN TERMS OF THE AGREEMENT DATED 17/09/2007 ENTERED WITH THE LAND OWNER. (B) THAT THE HON'BLE HIGH COURT HAS PASSED INJUNCTION ORDERS DIRECTING GHMC TO ENSURE THAT NO CONSTRUCTION WAS TO BE CARRIED ON EITHER BY THE LAND OWNER OR BY M/S. JANAPRIYA ENGINEER ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 31 SYNDICATE, THOUGH BUILDING PERMISSION HAS BEEN GRANTED BY THE GHMC EARLIER. AND SUCH INJUNCTION ORDERS WERE IN FORCE EVEN ON 31/03/2008 AND AFTERWARDS. (C) THAT THE ASSESSEE COMPANY WAS TO RECEIVE CONSIDERATION IN THE FORM OF CONSTRUCTED AREA AND CAR PARKING AREA. THE HON'BLE AP HIGH COURT HAS PASSED THE ORDER WP NO. 5644 OF 2008 ON 18/03/2008 WHICH WAS IN FORCE AS ON 31/03/2008. CONSEQUENT TO SUCH HIGH COURT ORDER THE DEVELOPER M/S. JANAPRIYA ENGINEERS SYNDICATE WAS RESTRAINED FROM CONSTRUCTION AND OTHER CIVIL WORKS. (D) THAT THE CIT(A) HAS STATED THAT ) IT IS A MATTER OF FACT THAT THE INFLOW OF INCOME TO THE ASSESSEE FROM JANAPRIYA ENGINEERS SYNDICATE LIMITED DEPENDS ON THE CONSTRUCTION OF THE BUILT)UP AREA AND SUBSEQUENT TRANSFER THEREOF. THE AO WHILE PASSING THE ORDER, RELIED ON THE BUILDING PERMISSION GRANTE D BY THE GHMC AND IGNORED THE FACT OF THE HON'BLE HIGH COURT PASSED RESTRAINT ORDER FOR ANY FURTHER CONSTRUCTION AND THEREFORE, THE COMMISSIONER IS OF THE VIEW THAT THERE COULD NOT HAVE BEEN ANY CERTAINTY OF INFLOW OF INCOME ARISING OUT OF THE CONSTRUCTED BUILT)UP AREA TO BE TRANSFERRED BY THE JANAPRIYA ENGINEERS TO THE ASSESSEE COMPANY. THEREFORE, THE CIT(A) HAS STATED THAT THE PURCHASE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 32 AND SALE OF FLATS COULD NOT HAVE REACHED FINALITY A S ON 31/03/2008 IN VIEW OF THE INJUNCTION OF THE HON'BLE HIGH COURT. (E) THAT THE CIT(A) HAS ALSO CONSIDERED THE CASES FILED BY THE LAND OWNER, M/S. ECE INDUSTRIES AGAINST THE ASSESSEE COMPANY FOR TAKING BACK THE POSSESSION OF THE SUBJECT LAND AND FOR GRANT OF COMPENSATION, WHICH HAS TRAVELLED FROM CITY CIVIL COURT, HYDERABAD TO THE HON'BLE APEX COURT OF INDIA. HE ALSO CONSIDERED THE ORDERS OF THE CIVIL COURT AND OTHER SUPERIOR COURTS, EVEN THOUGH THESE ORDERS ARE SUBSEQUENT TO THE DATE OF CLOSURE OF THE PREVIOUS YEAR I.E., 31/03/2008 BUT THE SAME WERE TAKEN PALACE BEFORE THE FILING OF THE INCOME TAX RETURN. (F) THAT THE CIT(A) HAS STATED THAT ) 'EVEN IF THE CONSTRUCTION WORK IS CONTINUING ON BY THE DEVELOPERS, THERE IS NO CERTAINTY THAT THE ASSESSEE (ASSESSEE COMPANY) WOULD FINALLY BE RIGHTFUL OWNER OF THE CONSTRUCTED/BUILT)UP AREA WHICH IT IS ENTITL ED TO AS PER THE AGREEMENT WITH M/S. JANAPRIYA ENGINEER SYNDICATE'. (G) THAT THE CIT(A) STATED AS 'I FIND FORCE IN THE CONTENTION OF THE ASSESSEE ESPECIALLY IN VIEW OF TH E ONGOING LITIGATION ON THE RIGHT OVER THE LAND AS WE LL ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 33 AS THE FUTURE CONSTRUCTION'. THE CIT(A) AT PARA NO. 5.3 HAS STATED THAT ) 'IN OTHER WORDS, THE SO CALLE D SALE TRANSACTION BETWEEN THE ASSESSEE AND M/S. JANAPRIYA ENGINEER SYNDICATE CANNOT BE SAID TO BE AN UNCONDITIONAL SALE IN THE LIGHT OF LITIGATION OV ER THE RIGHT OF THE LAND AND THE RESTRAINT ORDER OF TH E HON'BLE HIGH COURT FOR FURTHER CONSTRUCTION'. (H) THAT ULTIMATELY, AT PARA NO. 05.5 OF THE APPELLATE ORDER, THE CIT(A) HAS CONSIDERED THE DECISIONS RELI ED ON BY THE ASSESSEE COMPANY AND ALSO CONSIDERING THE FACTS THAT THERE WAS A DISPUTE WITH REGARD TO THE RIGHT OVER THE SUBJECT LAND AND CONSTRUCTION THEREON AS ON 31/03/2008, IT CANNOT BE SAID THAT THERE WAS ANY REAL INCOME ACCRUED TO THE ASSESSEE AS ON 31/03/2008 RELEVANT THE ASSESSMENT YEAR UNDER CONSIDERATION. HE ALSO STATED THAT THE AO IS NOT JUSTIFIED IN CONSIDERING THE AMOUNT OF RS. 76,55,59,475 AS PROFIT ARISING TO THE ASSESSEE COMPANY ON THE BASIS OF DEVELOPMENT AGREEMENT FOR THE ASSESSMENT YEAR 2008)09. HE FINALLY STATED THAT HIS CONCLUSIONS WERE ON THE GROUND THAT THE HON'BLE ANDHRA PRADESH HIGH COURT HAS RESTRAINED M/S. JANAPRIYA ENGINEERS SYNDICATE FROM PROCEEDING WITH ANY FURTHER CONSTRUCTION ON THE SAID PLOT OF LAND (SURVEY NOS. 74 & 75) WHICH WAS I N FORCE AS ON 31/03/2008. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 34 20. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS ACQU IRED DEVELOPMENT RIGHTS ON THE LAND BELONGING TO M/S. EC E INDUSTRIES LIMITED, NEW DELHI SITUATED IN SURVEY NOS. 74 & 75, BORABANDA FATHENAGAR, BALANAGAR MANDAL, HYDERABAD VIDE AN AGR EEMENT DATED 17/09/2007 AND PAID RS. 13.5 CRORES AND COMMI TTED TO PAY RS. 16.72 CRORES AS PER THE SCHEDULE STATED THE REIN AND ANOTHER RS. 28,36,525/) TOWARDS COST OF LAND FOR WH ICH CHEQUES WERE ISSUED. SUBSEQUENTLY, A DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY WAS ENTERED INTO BY THE A SSESSEE WITH THE LAND OWNER ON 21/09/2007 AND ACQUIRED DEVE LOPMENT RIGHTS OVER THE LAND SITUATED IN SURVEY NOS. 74 & 7 5 SUBJECT TO CERTAIN TERMS AND CONDITIONS OF PAYMENT OF AMOUNTS TO THE LAND OWNER. BASING ON THE ABOVE SAID DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY, THE ASSESS EE HAS ENTERED INTO DEVELOPMENT AGREEMENT WITH M/S. JANAPR IYA ENGINEER SYNDICATE ON 23/09/2007 WHEREBY IT IS ENTI TLED TO RECEIVE 36% OF THE BUILT)UP AREA AND ALSO THE PARKI NG AREA THAT WILL COME)UP ON THE SUBJECT LAND. SUBSEQUENT TO THI S AGREEMENT, ON 25/01/2008 IT AGREED TO TRANSFER RIGH T TO SELL THE FLATS AND PARKING AREAS THAT WILL COME)UP IN FUTURE . THE ASSESSING OFFICER HAS TREATED THE DEVELOPMENT AGREE MENT AS A TRANSACTION GIVING RISE TO ACCRUED INCOME OF THE SA LE OF FUTURE PROPERTY. 21. THE AR SUBMITTED THAT ENTERING INTO DEVELOPMENT AGREEMENT BY THE LAND OWNER IS DIFFERENT AND DISTIN GUISHABLE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 35 FROM ENTERING TO THE DEVELOPMENT AGREEMENT BY OTHER S. IN THE FARMER CASE, SUCH DEVELOPMENT AGREEMENT WILL GIVE R ISE TO 'TRANSFER' UNDER THE PROVISIONS OF SEC. 2(47) OF TH E INCOME TAX ACT AND MAY GIVE RISE TO CAPITAL GAINS. BUT IN THE SECOND SITUATION, WHEREIN DEVELOPMENT RIGHTS ACQUIRED BY T HE ASSESSEE COMPANY FOR ITS BUSINESS AND WERE SHARED WITH ANOTH ER DEVELOPER FOR DEVELOPMENT OF THE SUBJECT LAND IS A BUSINESS TRANSACTION AND THE SUBJECT LAND WAS TO BE TREATED AS BUSINESS ASSET. THEREFORE, THE TRANSACTION ENTERED INTO BY T HE ASSESSEE COMPANY WITH M/S. JANAPRIYA ENGINEER SYNDICATE LIMI TED (DEVELOPER) IS A BUSINESS TRANSACTION WHICH WILL GI VE RISE TO BUSINESS INCOME. INCOME FROM BUSINESS OF DEVELOPMEN T AND CONSTRUCTION OF RESIDENTIAL APARTMENT WILL ARISE ON THE COMPLETION OF THE CONSTRUCTION AND DELIVERY OF THE POSSESSION AND TRANSFER OF TITLE. THE ASSESSEE IS FOLLOWING TH E PROJECT COMPLETION METHOD FOR REVENUE RECOGNITION. THE ACT WILL TAX 'INCOME' AND IT CANNOT TAX 'HYPOTHETICAL INCOME'. THE ACT IS MEANT TO TAX THE REAL INCOME. 22. THE AR SUBMITTED THAT THE ASSESSEE COMPANY IS IN TH E BUSINESS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTIO N OF RESIDENTIAL APARTMENTS AND HOUSES. IN THE CASE OF B USINESS OF CONSTRUCTION OF FLATS OR MULTI STORIED BUILDINGS, T HE INCOME FROM SALE OF SUCH FLAT OR BUILDING WILL NORMALLY ACCRUE ON ITS COMPLETION AND HANDING OVER OF THE POSSESSION OF TH E SAME. IN THE CASE OF SALE OF FLATS AND WHERE THE CONSIDERATI ON OF SALE IS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 36 RECEIVED IN INSTALMENTS, THE INCOME FROM SUCH SALE SHALL BE RECOGNIZED AFTER THE COMPLETION OF THE CONSTRUCTION OF FLAT AND DELIVERY OF THE POSSESSION AND TRANSFER OF THE TITL E TO THE ULTIMATE BUYER. TILL SUCH TIME THE FINAL POSSESSION IS GIVEN , IT CANNOT BE SAID THAT THE 'RISKS AND REWARDS AND THE OWNERSHIP OF THE PROPERTY' HAS BEEN TRANSFERRED TO THE BUYER. THE IN STALMENTS RECEIVED WILL BE TREATED AS ADVANCE AND CANNOT BE T REATED AS INCOME FROM SALE OF FLATS. THE ASSESSEE COMPANY BY NOT DECLARING REVENUE FROM THE PROJECT IN ITS P & L A/C . HAS IMPLIEDLY DECLARED THAT IT WILL RECOGNISE INCOME ON PROJECT C OMPLETION BASIS. 23. THE AR SUBMITTED THAT IN THE PRESENT CASE OF THE AS SESSEE IT HAS, BY THE AGREEMENT DATED 25/01/2008 HAS ALLOW ED THE DEVELOPER TO SELL THE FLATS WHICH ON THE DATE OF AG REEMENT HAVE NOT COME INTO EXISTENCE. FURTHER, THE PAYMENT AGAINST THE AGREEMENT IS ONLY A DEPOSIT/ADVANCE AND IS NOT TO BE TREATED AS SALE INCOME TILL SUCH TIME THAT THE CONS TRUCTION IS COMPLETE AND POSSESSION OF THE BUILT)UP AREA INCLUD ED THE PARKING AREA WERE DELIVERED TO THE PURCHASER. IN TH E SAID AGREEMENT WHICH WAS RELIED ON BY THE ASSESSING OFFI CER IT WAS CLEARLY AGREED CLAUSE)(9) THAT ) 'IN CASE PROJECT W ORK I.E., CONSTRUCTION ACTIVITY STOPS DUE TO ANY DISPUTE ON L ITIGATIONS ARISING BECAUSE OF ANY COURT ORDER OR GOVERNMENT OR DER OR BY INVOLVEMENT OF A PRIVATE PARTY, PAYMENT OF EQUATED MONTHLY INSTALMENTS WILL BE STOPPED FOR THAT PARTICULAR PER IOD. AFTER SETTLEMENT OF DISPUTES OR LITIGATIONS, PAYMENT OF E QUATED ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 37 MONTHLY INSTALMENTS WILL RESUME. THE RESPONSIBILITY OF SETTLEMENT OF DISPUTE OR LITIGATIONS REGARDING LAND AND ITS BO UNDARIES AND TITLE LIES WITH FIRST PARTY AND THE SECOND PARTY SH ALL COOPERATE WITH THE FIRST PARTY BY BEARING COSTS FOR SUCH DISP UTE SETTLEMENT'. 24. THE AR ASSESSEE PLEADED THE BENCH TO REFER TO PAGE NO. 170 OF VOLUME 1 (EDITION, 2008), INDIAN ACCOUNTING STANDARDS & GAAP, INTERPRETATION, ISSUES AND PRACTICAL APPLICAT ION AUTHORED BY DOLPHY D'SOUZA PUBLISHED BY SNOW WHITE PUBLICATI ON PVT. LTD., MUMBAI (COPY ENCLOSED). THE AUTHOR'S VIEW IS THAT 'IF A SALE AGREEMENT IS FOR THE SALE OF GOODS, REVENUE SH ALL BE RECOGNIZED IF THE ENTITY HAS TRANSFERRED TO THE BUY ER THE SIGNIFICANT RISKS AND REWARDS OF OWNER SHIP OF, AND EFFECTIVE CONTROL OVER, THE GOODS SOLD. THESE CONDITIONS SHAL L BE APPLIED TO THE UNDERLYING REAL ESTATE IN ITS CURRENT STATE, NOT TO THE BUYER'S RIGHT TO ACQUIRE THE FULLY CONSTRUCTED REAL ESTATE AT THE LATER DATE. THIS EFFECTIVELY MEANS THAT REVENUE ON REAL ESTATE SALES IS RECOGNIZED WHEN THE REAL ESTATE IS CONSTRU CTED AND DELIVERED TO THE BUYER'. 25. FURTHER, THE AR SUBMITTED THAT THE AUTHOR ALSO OPIN ED THAT ) 'IF THE REAL ESTATE DEVELOPER IS CONSTRUCTING A M ULTI)STORIED BUILDING AND A PURCHASER IS BUYING A FLAT IN THE BU ILDING, WITH LITTLE CONTROLLER OVER THE TECHNICAL SPECIFICATION OF THE FLAT AND NO CONTROL OVER THE CONSTRUCTION, THE SALE OF THE F LAT WOULD BE ACCOUNTED FOR AS A PRODUCT SALE. IN OTHER WORDS THE SALE WOULD BE RECOGNIZED BY A REAL ESTATE DEVELOPER WHEN THE P URCHASER ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 38 IS GIVEN THE POSSESSION OF THE FLAT'. IN ALL THE SI TUATIONS AND ALSO EVEN UNDER THE LAW OF TRANSFER OF PROPERTY A ACT, A 'SALE' PRE) SUPPOSES THE EXISTENCE OR AVAILABILITY OF THE SUBJE CT PROPERTY AT THE TIME OF SALE. IF THE PROPERTY IS NOT IN EXISTEN CE LIKE IN THE PRESENT CASE OF THE ASSESSEE, WHERE THE FLATS ARE N OT READILY AVAILABLE AND ARE TO BE CONSTRUCTED, SALE CANNOT BE RECOGNIZED AND CONSEQUENTLY NO REVENUE CAN BE RECOG NIZED. AS PER THE TERMS OF THE AGREEMENT DATED 25/01/2008, THE AGREEMENT IS ONLY FOR SALE OF FUTURE PROPERTY AND S ALE WILL TAKE PLACE ONLY IF THE CONSTRUCTION IS COMPLETED AND SHA RE OF THE ASSESSEE IS IDENTIFIED. THE AR REQUESTED THE BENCH TO REFER TO CLAUSE NOS. (9) &(10) OF AGREEMENT DATED 25/01/2008 WHICH CLEARLY RECOGNIZE THAT THE AGREEMENT IS ONLY A PROP OSED SALE AND IN CASE OF ANY DISPUTE OR LITIGATION OR BY ANY COURT ORDER OR GOVERNMENT ORDER IF THE WORK IS DISTURBED OR STOP, NO MONEY WILL BE PAID UNTIL THE WORK IS RESUMED AND FURTHER, ON R ECEIPT OF EACH INSTALMENT THE ASSESSEE WILL EXECUTE REGISTERE D SALE DEED IN FAVOUR OF THE PROSPECTIVE BUYERS FOR PROPORTIONA TE BUILT UP AREA. SINCE, THE FLATS ARE YET TO BE CONSTRUCTED AN D POSSESSION WAS NOT GIVEN, THE RECOGNITION OF REVENUE AND TAXIN G THE SAME IS CONTRARY TO THE CONCEPT OF REAL INCOME AND PROVI SIONS OF ACCOUNTING STANDARD )9. 26. FURTHER THE AR SUBMITTED THAT THE ASSESSING OFFICER ALSO MISCONCEIVED THE MEANING OF THE WORDS 'RISKS AND RE WARDS' ASSOCIATED WITH THE DEVELOPMENT OF THE PROPERTY. I N THE CASE OF ANY PROPERTY RISKS AND REWARDS ARE DEEMED TO HAV E BEEN ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 39 TRANSFERRED, IF THE TITLE IS TRANSFERRED AND POSSES SION OF THE PROPERTY IS GIVEN. IN THE PRESENT CASE OF SALE OF F LATS, SINCE, THEY ARE STILL TO BE CONSTRUCTED AND NOT IN EXISTENCE, S UCH TRANSFER OF RISKS AND REWARDS ASSOCIATED WITH THE RESIDENTIAL F LATS CANNOT TAKE PLACE. A PERSON CANNOT TRANSFER A TITLE TO THE PROPERTY WHICH IS NOT IN EXISTENCE AND PARTICULARLY WHEN SUC H TITLE IS NOT AVAILABLE WITH HIM AND WHICH IS IN LITIGATION AND D ISPUTE. THE AO HAS VIOLATED THE PROVISIONS OF THE LAW AND THE CONC EPT OF 'PRUDENCE' IN AS)L, THAT IN VIEW OF THE UNCERTAINTY ATTACHED TO THE FUTURE EVENTS, PROFITS ARE NOT ANTICIPATED BUT RECOGNIZED ONLY WHEN THEY ARISE. IT IS A WELL KNOWN CONCEPT TH AT FUTURE INCOME SHOULD NOT BE RECOGNIZED UNLESS THE ASSESSEE ACQUIRES A RIGHT TO SUCH INCOME AND PROVISION MUST ALWAYS BE MADE FOR FUTURE LIABILITIES AND KNOWN LOSSES EVEN THOUGH AMO UNT CANNOT BE DETERMINED WITH CERTAINTY. THEREFORE, THE AO HA S BROUGHT TO TAX HYPOTHETICAL INCOME WHICH HAS NOT BEEN EARNED BY THE ASSESSEE COMPANY. HE RELIED ON THE DECISION OF THE HON'BLE AP HIGH COURT IN THE CASE OF KHAN BAHADUR AHEMED ALADD IN & SONS VS CIT (1969) 74 ITR 651 WHEREIN THE COURT HAS HELD THAT ) 'THE SCHEME OF THE ACT WOULD SHOW THAT ONLY THOSE S UMS ARE TAXABLE WHICH ACCRUE AS INCOME I.E., THEY MUST ACTU ALLY ACCRUE OR ARISE. NO AMOUNT CAN BE SAID TO ACCRUE UNLESS I T IS ACTUALLY DUE. CLAIM TO AN AMOUNT IS NOT TANTAMOUNT TO THE AM OUNT BEING DUE OR, IN OTHER WORDS, THAT THE AMOUNT'. 27. THE AR RELIED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY COMPANY LTD VS CIT (225 ITR 746) ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 40 (SC): WHEREIN THE APEX COURT HELD THAT IT IS REAL I NCOME WHICH IS TAXABLE AND NOT ANY HYPOTHETICAL OR NOTIONAL INCOME . TO ARRIVE AT THIS FINDING ONE HAS TO LOOK INTO THE SURROUNDIN G CIRCUMSTANCES AND IF ONE APPLIES THOSE RATIOS TO TH E FACTUAL POSITION OF THE PRESENT CASE, THE ASSESSEE HAS NOT RECEIVED ANY AMOUNTS WHICH CAN BE TAXED AS BUSINESS INCOME. 28. THE AR SUBMITTED THAT THE ITAT DELHI BENCH IN THE C ASE OF ATHUL R. AGGRAWAL VS. ACIT (2001) 781 ITD 343 (DELH I) WHEREIN THE TRIBUNAL HAS CONSIDERED A CASE WHERE POSSESSION OF THE LAND CANNOT BE TAKEN DUE TO UNAUTHORISED OCCUPATIONS AND PROJECT COULD NOT BE GROUNDED. IT WAS HELD THAT INCOME HAS NOT ACCRUED AS THE TERMS OF THE AGREEMENT COULD NOT BE FULFILLED DUE TO PREVALENT CIRCUMSTANCES. 29. THE AR SUBMITTED THAT THE AGREEMENT BY WHICH THE ASSESSEE COMPANY HAS ACQUIRED DEVELOPMENT RIGHTS OV ER SUBJECT LANDS SITUATED IN SURVEY NOS. 74 &75, BORAB ANDA, BALANAGAR MANDAL, HYDERABAD DATED 17/09/2007 HAS BE EN CANCELLED BY THE LAND OWNER, M/S. ECE INDUSTRIES LI MITED BY A LETTER DATED 05/05/2008 OF THEIR ADVOCATE SRI R. RA GHUNANDAN RAO. THE DEVELOPMENT AGREEMENT RELIED ON BY THE AS SESSING OFFICER ENTERED INTO BY THE ASSESSEE COMPANY WITH M /S. JANAPRIYA ENGINEERS SYNDICATE (DEVELOPER) TO TAX TH E HYPOTHETICAL INCOME HAS BEEN CANCELLED AND TREATED THE AGREEMENT AS NULL, VOID AND CANCELLED AND REPLACED BY AN AGREEMENT DATED 25/09/2008. IT IS SUBMITTED THAT TH E ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 41 CANCELLATION OF THE DEVELOPMENT AGREEMENT IS MADE B EFORE THE DATE OF FILING OF THE INCOME TAX RETURN AND THE FACT OF SUCH CANCELLATION HAS BEEN CONSIDERED BY THE ASSESSEE AN D ACCORDINGLY IT FILED ITS IT RETURN FOR AY 2008)09. NEW TERMS AND CONDITIONS WERE AGREED ON 25/09/2008. SINCE THE AGR EEMENT HAS BEEN CANCELLED BY CANCELLATION AGREEMENT DATED 25/09/2008, THE EARLIER AGREEMENT DATED 25/01/2008 HAS BECOME VOID AND INEFFECTIVE AND ANY INCOME HAS NOT ACCRUED. 30. THE AR SUBMITTED THAT SUBSEQUENT CANCELLATION OF TH E AGREEMENT HAS THE EFFECT OF NULLIFYING THE AGREEMEN T DATED 25/01/2008 AND IN SUCH SITUATION IT IS UNJUSTIFIED ON THE PART OF THE ASSESSING OFFICER TO TAX HYPOTHETICAL INCOME DE EMING THAT CANCELLED AGREEMENT HAS GIVEN RIGHT TO ACCRUAL OF B USINESS INCOME. THIS IS CONTRARY TO THE CONCEPT OF TAXING O NLY THE 'REAL INCOME' AS DECLARED BY THE HON'BLE SUPREME COURT IN ITS SEVERAL DECISIONS. THE AR RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDHARNATH JUTE MFG. C O. LTD. VS. CIT (1971) 82 ITR 363 AND SUTLEJ COTTON MILLS LTD V S. CIT (1979) 116 ITR 1 (SC). THE AR SUBMITTED THAT THE MERCANTILE S YSTEM OF ACCOUNTING CANNOT GIVE RISE TO INCOME FROM AN AGREE MENT WHICH HAS NOT ACTED UPON AND WHICH WAS CANCELLED BY THE CONCERNED PARTIES. 31. THE AR ALSO RELIED ON THE JUDGEMENT OF SUPREME COUR T IN THE CASE OF CIT VS. SHOORJI VALLABHDAS & CO. (1962) 46 ITR 144 ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 42 WHEREIN THE APEX COURT HELD THAT REDUCED INCOME AS PER, THE AGREEMENT RECEIVED BY THE ASSESSEE HAS TO BE TAXED AND NOT THE HYPOTHETICAL INCOME. HE ALSO RELIED ON THE DECI SION OF THE TRIBUNAL MUMBAI BENCH)A IN THE CASE OF LOK HOUSING AND CONSTRUCTIONS LTD VS. ACIT REPORTED IN 27 TAXMANN.C OM 15 (MUMBAI)TRIB). THE TRIBUNAL IN THIS CASE HAS CONSI DERED AN IDENTICAL ISSUE OF CANCELLATION OF IMMOVABLE PROPER TY AGREEMENTS BY THE SISTER CONCERNS SUBSEQUENT TO THE CLOSE OF THE ASSESSMENT YEAR BUT BEFORE THE DUE DATE FOR FIL ING THE REVISED RETURN. THE TRIBUNAL HAS HELD THAT THE SUB SEQUENT CANCELLATION OF THE AGREEMENTS THOUGH MADE AFTER EN D OF THE RELEVANT PREVIOUS YEAR HAS TO BE TAKEN INTO CONSIDE RATION IN THE COMPUTATION OF REAL INCOME, BECAUSE SUCH CANCELLATI ON HAS DEFINITE BEARING ON THE ACCRUAL OF INCOME. THE TRI BUNAL HAS OPINED THAT, IT IS NOT JUSTIFIED TO BRING TO TAX HY POTHETICAL INCOME STATED IN THE ORIGINAL RETURN OF INCOME IGNORING TH E REVISED RETURN FILED BY THE ASSESSEE AFTER TAKING INTO CONSIDERATI ON THE CANCELLATION OF AGREEMENTS MADE SUBSEQUENTLY AFTER THE END OF THE RELEVANT PREVIOUS YEAR. CANCELLATION OF THE AGREEMENTS BOTH BY THE LAND OWNER AND ALSO BY THE DEVELOPER IN THE PRESENT CASE HAVE RESULTED IN NO BUSINESS INCOME AC CRUED TO THE ASSESSEE COMPANY AND, THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN BRINGING TO TAX 'HYPOTHETICAL INCO ME' IN ITS HANDS. 32. THE AR SUBMITTED THAT THE SUBJECT LAND IN SURVEY NO S. 74 & 75 OF BORABANDA VILLAGE OVER WHICH THE ASSESSEE COM PANY HAS ACQUIRED DEVELOPMENT RIGHTS AND PROPOSED CONSTRUCTI ON OF ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 43 RESIDENTIAL APARTMENTS HAS BECOME CENTRE OF SERIOUS DISPUTES AND CONSEQUENTLY IT COULD NOT PROCEED WITH THE CONS TRUCTION ACTIVITY AND ALIENATION OF THE PROPERTY TO THE BUYE RS. THE DISPUTES THAT WERE RAISED AGAINST THE DEVELOPMENT O F THE SUBJECT LAND SITUATED IN SURVEY NOS. 74 & 75 OF THE BORABANDA VILLAGE WHICH HAS DIRECT BEARING ON THE BUSINESS AC TIVITY AND EARNING OF REAL ESTATE INCOME BY THE ASSESSEE ARE A S UNDER: S. NO. WP NO. NAME OF THE COURT PETITIONER'S NAME PRAYER AND ORDER DATE OF RESTRAINT ORDER 1. 22163 OF 2007 AP HIGH COURT SRI M. LAKSHMA REDDY TO GRANT POSSESSION OF LAND AND DISTRIBUTION TO WORKERS 25.10.2007 TO 05.03.2008 2. 5644 OF 2008 AP HIGH COURT S. ANTHONY AND OTHERS RESTRAINING FROM FURTHER CONSTRUCTION ON THE SUBJECT LAND 18.03.2008 TO 23.04.2008 33. THE AR SUBMITTED THAT THE HON'BLE AP HIGH COURT IN WP NO. 22163 OF 2007 FILED BY M. LAKSHMA REDDY, EX)EMPLOYE E OF THE ECE INDUSTRIES LIMITED, OWNER OF THE LAND HAS OBTAI NED INTERIM DIRECTIONS TO NOT TO PROCEED WITH THE CONSTRUCTION AND DEVELOPMENT ACTIVITY ON SURVEY NOS. 74 & 75 AND NOT ALIENATE THE PROPERTY. THIS ORDER WAS VACATED BY THE HON'BL E COURT ON 05/03/2008. SUBSEQUENTLY, SRI S. ANTHONY AND OTHER S HAVE FILED WRIT PETITIONS IN THE HON'BLE AP HIGH COURT. THE HO N'BLE HIGH COURT ON 18/03/2008 HAS ISSUED ORDERS RESTRAINING T HE DEVELOPERS FROM PROCEEDINGS WITH FURTHER CONSTRUCTI ON AND ALSO FROM ALIENATING THE PROPERTY. THE ORDER OF THE HON' BLE AP HIGH COURT HAS CONTINUED BEYOND THE END OF THE RELEVANT PREVIOUS YEAR AND UNTIL 23/04/2008. THEREFORE, AS ON THE DA TE 31/03/2008 THE DEVELOPMENT WORK HAS CAME TO A GRIND ING HALT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 44 AND INCOME HAS NOT RECEIVED OR ACCRUED FROM THE CON STRUCTION BUSINESS. THE RESTRAINING ORDERS HAVE AFFECTED THE PROJECT WORK DURING THE RELEVANT PREVIOUS YEAR AS WORK COULD NOT BE PROCEEDED ON THE DISPUTED LAND. 34. THE AR FURTHER SUBMITTED THAT THE LAND OWNERS HAVE CANCELLED THE AGREEMENT GRANTING DEVELOPMENT RIGHTS DATED 17/09/2007 BY SERVING A LEGAL NOTICE DATED 05/05/20 08. SRI R. RAGHUNANADAN RAO, ADVOCATE OF THE LAND OWNER COMPAN Y HAS INFORMED THE ASSESSEE COMPANY THAT DUE TO DEFAU LT IN PERFORMANCE OF THE CONTRACT AND THE NON)NEGOTIABLE CONDITIONS OF PAYMENT STATED IN AGREEMENT DATED 17/ 09/2007 AND THE SUBSEQUENT DEVELOPMENT AGREEMENTS DATED 21/09/2007 HAVE BEEN TERMINATED BY THE LAND OWNER N AMELY, M/S. ECE INDUSTRIES LIMITED. SUBSEQUENT TO THE CAN CELLATION OF THE AGREEMENT, M/S. ECE LIMITED HAS FILED A SUIT FO R RECOVERY OF POSSESSION OF THE SUBJECT LAND SITUATED IN SURVEY N OS. 74 & 75 OF BORABANDA VILLAGE AND DAMAGES IN THE CITY CIVIL COURT AT HYDERABAD ON 30/05/2008. THE HON'BLE CITY CIVIL COU RT IN IA NO. 262/08 HAS GRANTED INTERIM ORDERS RESTRAINING THE A SSESSEE COMPANY ITS AGENTS, ITS SERVANTS OR ANY PERSON CLAI MING THROUGH IT FROM MAKING ANY CONSTRUCTION OVER THE SUIT SCHED ULED PROPERTY SITUATED IN SURVEY NOS. 74/P & 75/P IN BOR ABANDA VILLAGE AND ALSO FROM CHANGING THE NATURE OF THE SA ID DISPUTED PROPERTY. SUBSEQUENTLY THE HON'BLE CITY CIVIL COUR T BY ITS ORDER DATED 21/08/2008 HAS ORDERED AS FOLLOWS: ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 45 (1) THAT THE RESPONDENTS SHALL DEPOSIT THE BALANCE VALUE OF THE PROPERTY WHICH COMES TO AROUND RS. 28,00,000 /) INTO COURT WITHIN ONE MONTH AND (2) THAT THE RESPONDENTS SHALL FURNISH BANK GUARANT EE FOR THE VALUE OF THE UNRELEASED POST DATED CHEQUES AND PAY/DEPOSIT THE VALUE OF FOUR CHEQUES WHICH WERE DISHONOURED WITHIN ONE MONTH FROM TODAY AND (3) THAT THE RESPONDENTS SHALL NOT CLAIM EQUITIES O VER THE CONSTRUCTION MADE IN THE LAND AND THEY ARE BOUND BY THE DECISION IN THE SUIT. THE RESPONDENTS SHALL FUR NISH THE PARTICULARS OF THE PROSPECTIVE BUYERS OF THE RESIDE NTIAL UNITS IN ADVANCE TO THE COMPETENT AUTHORITY URBAN L AND CEILING AND IT MUST BE MADE CLEAR TO THE PROSPECTIV E BUYERS THAT THEIR PURCHASES ARE SUBJECT TO THE RESU LT OF THE SUIT BY MAKING A SPECIFIC RECITAL IN THE AGREEMENT OF SALE OR SALE DEED AS THE CASE MAY BE AND (4) THAT THIS COURT FURTHER ORDERED BOTH PARTIES SH ALL BEAR THEIR RESPECTIVE PARTIES'. THIS ORDER WAS GIVEN BY THE HON'BLE COURT ON 21/08/ 2008. 35. SUBSEQUENTLY THE DISPUTE BY THE LAND OWNER HAS TRAV ELLED FROM CITY CIVIL COURT HYDERABAD TO HON'BLE SUPREME COURT OF INDIA AND PRESENTLY THE DISPUTE IS PENDING BEFORE T HE HON'BLE AP HIGH COURT. THE FOLLOWING TABLE IS SUBMITTED TO EXPLAIN TO THE HON'BLE BENCH THAT THE DISPUTES HAVE NOT BEEN CLEAR ED AND ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 46 THE MATTER HAS NOT BEEN SETTLED AND THE SUBJECT LAN D ISSUE IS SUBJUDICE EVEN TO THIS DATE. S. NO. WP NO. ORDER EFFECTIVE DATE 1. IA NO. 262/2008 IN OS NO. 126/2008 OF CITY CIVIL COURT. AWARDED INTERIM INJUNCTION RESTRAINING CONSTRUCTION ACTIVITY ON THE SCHEDULED LAND. 30.05.2008 2. IA NO. 1823/2008 IN OS NO. 287/2008 OF CITY CIVIL COURT MAINLY (I) PAYMENT OF RS. 28,00,000, (II) FURNISHING BG FOR THE CHEQUES DISHONOURED AND (III) ASSESSEE COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTION MADE ON THE SCHEDULED LAND AND ANY SALE OF PROPERTY IS SUBJECT TO THE FINAL DECISION OF THE COURT AND SUBJECT TO THE CLEAR RECITAL IN THE PURCHASE DOCUMENTS. 21.08.2008 3. AP HIGH COURT IN MA NO. 1297/2008 DELETION OF CLAUSES (1) & (2) OF THE ABOVE ORDER BUT THE THIRD CLAUSE THAT THE ASSESSEE COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTION ON THE SUBJECT LAND CONTINUED. 27.04.2009 4. THE HONBLE SUPREME COURT OF INDIA IN CIVIL APPEAL NO. 5127-5128 OF 2009. AFFIRMED THE HONBLE HIGH COURT ORDER AND CONTINUED THE CLAUSE NO. (3) THAT THE ASSESSEE- COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTIONS MADE IN THE SUIT PROPERTY AND THEY WOULD BE BOUND BY THE DECISION IN THE SUIT. FURTHER, LIST OF PROSPECTING BUYERS OF THE RESIDENTIAL UNITS TO BE SUBMITTED IN ADVANCE TO THE COMPETENT AUTHORITY URBAN LAND CEILING AND IT MUST BE MADE CLEAR TO THE PROSPECTIVE BUYERS THAT THEIR PURCHASES ARE SUBJECT TO THE RESULT OF THE SUIT BY MAKING A 'SPECIFIC RECITAL' IN THE AGREEMENT OF SALE OF SALE DEED, AS THE CASE MAY BE. 06.08.2009 5. HONBLE CITY CIVIL COURT, HYDERABAD OS NO. 287/2008 THE HONBLE COURT HAS GRANTED RELIEF IN FAVOUR OF THE ASSESSEE-COMPANY. 19.04.2010 6. HONBLE AP HIGH COURT IN CCAMP NO. 359 & 360 OF 2010 IN CCA NO. 96 OF 2010 THE COURT ORDERED THAT THE ASSESSEE-COMPANY ANY EQUITIES OVER THE CONSTRUCTION MADE IN THE SUIT SCHEDULED PROPERTY AND THEY WOULD BE BOUND BY THE DECISION IN THE SUIT. 25.07.2010 36. THE AR SUBMITTED THAT THE SCHEDULED LAND IN SURVEY NOS. 74 & 75 HAS BECOME A CENTRE OF VERY SERIOUS LITIGAT ION BEFORE THE DATE OF THE END OF THE RELEVANT PREVIOUS YEAR I .E., 31/03/2008 AND THE LITIGATION HAS CONTINUED EVEN AF TER THE CLOSE OF THE FINANCIAL YEAR BUT BEFORE THE DATE OF FILING OF THE INCOME TAX RETURN BY THE ASSESSEE COMPANY AND CONTI NUED TILL ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 47 TODAY. PRESENTLY, THE HON'BLE HIGH COURT OF ANDHRA PRADESH VIDE ITS ORDER DATED 25/07/2010 HAS ORDERED THAT THE ASS ESSEE COMPANY AND ALSO THE DEVELOPERS M/S. JANAPRIYA ENGI NEERS SYNDICATE SHALL NOT CLAIM ANY EQUITIES OVER THE CON STRUCTIONS MADE ON THE LAND SITUATED IN SY. NOS. 74 & 75 OF BO RABANDA VILLAGE AND THEY WOULD BE BOUND BY THE DECISION IN THE PENDING SUIT. THE ASSESSEE COMPANY CANNOT BE SAID T O HAVE EARNED BUSINESS INCOME FROM DEALING IN THE PROJECT PROPOSED ON THE DISPUTED LAND IS UNJUSTIFIED IN VIEW OF THE CONTINUOUS LITIGATION AND RESTRAINING ORDERS AGAINST THE CONST RUCTION AND IT WAS IN CAPACITATED IN DEALING WITH THE PROPERTY BY THE ORDERS OF THE HON'BLE AP HIGH COURT WHEREBY IT HAS ORDERED TH AT THE ASSESSEE COMPANY SHALL NOT CLAIM ANY EQUITIES OVER THE CONSTRUCTIONS MADE ON THE DISPUTED SCHEDULED LAND. (ORDER DATED 25/07/2010) THE AR SUBMITTED THAT THE GOVERN MENT OF ANDHRA PRADESH HAS ISSUED G.O.MS NO. AND DECLARED T HE SUBJECTED DISPUTED LANDS AS EXCESSIVE IN TERMS OF T HE PROVISIONS OF URBAN CEILING ACT AND ORDERED TO TAKE POSSESSION OF THE LAND. IN VIEW OF THE SAID ORDERS THE FUTURE OF THE PROPOSED PROJECT ON THE SUBJECT LAND BECAME UNCERTAIN AND IN COME FROM SUCH A SITUATION CANNOT BE TERMED AS ACCRUED T O THE ASSESSEE AS THERE ARE LOT OF UNCERTAINTIES INVOLVED IN THE PROJECT AND ITS COMPLETION. THE AR SUBMITTED THAT: (1) IT IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL FLATS AND HOUSES. REVENUE FROM THE CONSTRUCTION IS RECOGNIZED ON THE COMPLETION OF THE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 48 PROJECT AND DELIVERY OF THE POSSESSION OF THE RESIDENTIAL UNITS TO THE BUYERS. (2) THE PROJECT COULD NOT BE COMPLETED DUE TO THE FACT THAT THE LAND SITUATED IN SURVEY NOS. 74 & 75 BORABANDA VILLAGE IN BALANAGAR MANDAL HAS BECOME A CENTRE OF VERY SERIOUS DISPUTES AND SEVERAL SUITS WERE FILED IN THE COURTS. (3) THE HON'BLE AP HIGH COURT HAS ISSUED INTERIM INJUNCTION ORDERS RESTRAINING TO PROCEED CONSTRUCTI ON OR OTHER CIVIL WORK ON THE DISPUTED LAND OVER WHICH THE ASSESSEE ACQUIRED DEVELOPMENT RIGHTS. THE INTERIM ORDERS RESTRAINING THE WORK ON THE LAND WER E IN FORCE AS AT THE LAST DATE OF THE PREVIOUS YEAR RELEVANT YEAR 2008)09 AND SUCH RESTRAINT ORDER HAS CONTINUED SUBSEQUENT TO THE CLOSE OF THE RELEVANT PREVIOUS YEAR. DUE TO THE COURT ORDERS THERE IS LOT OF UNCERTAINTY PREVAILED OVER THE PROGRESS OF THE PROJECT AND ON THE EARNING OF THE INCOME FROM THE PROJECT. (4) THE LAND OWNER HAS CANCELLED THE AGREEMENTS AND FILED CASES INITIALLY IN THE CITY CIVIL COURT AND T HE MATTER HAS TRAVELLED UP TO HON'BLE SUPREME COURT OF INDIA WHICH ORDERED THAT THE ASSESSEE COMPANY SHALL NOT CLAIM ANY EQUITIES OVER THE CONSTRUCTION ON ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 49 THE SUBJECT LAND AND THEY WOULD BE BOUND BY THE DECISION IN THE SUIT. IT FURTHER ORDERED THAT THIS FACT MUST BE MADE CLEAR TO THE PROSPECTIVE BUYERS THAT THEIR PURCHASES ARE SUBJECT TO THE RESULT OF THE SU IT BY MAKING A SPECIFIC RECITAL IN THE AGREEMENT OF SALE OR SALE DEED AS THE CASE MAY BE. (5) IN VIEW OF THE ABOVE ORDER OF THE HON'BLE SUPREME COURT, THE ASSESSEE COMPANY IS COMPLETELY INCAPACITATED IN DEALING WITH THE CONSTRUCTION AREA ON THE SUBJECTED DISPUTED LAND AND IT WAS PROHIBITED FROM MAKING THE SALES. (6) THE AGREEMENT ENTERED BY THE ASSESSEE COMPANY GIVING RIGHT TO SELL THE APARTMENTS VIDE AGREEMENT DATED 25/01/2008 HAS BEEN CANCELLED BY THE CONCERNED PARTIES BY A CANCELLATION AGREEMENT DATED 25/09/2008. THE CANCELLATION OF THE AGREEMENT HAS ALSO TAKEN PLACE BEFORE THE DATE OF THE FILING OF THE INCOME TAX RETURN. (7) THE EVENTS OCCURRED AFTER THE DATE OF THE BALANCE SHEET, I.E., 31/03/2008 HAVE ALSO TO BE TAKEN INTO CONSIDERATION IN DETERMINING THE AMOUNT OF REAL INCOME ACCRUED TO THE ASSESSEE COMPANY. IN VIEW OF THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN THE CASE OF LOK HOUSING AND CONSTRUCTIONS LTD VS. ACIT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 50 (2012) 27 TAXMANN.COM 15 (MUMBAI)TRIB), CANCELLATION OF AGREEMENTS AND OTHER EVENTS OCCURRED AFTER THE END OF THE PREVIOUS YEAR BUT BEFORE THE DATE OF FILING THE IT RETURN AND WHICH HAVE DIRECT BEARING ON THE INCOME EARNING CAPACITY OF THE ASSESSEE HAVE TO BE CONSIDERED AND REAL INCOME HAS TO BE DETERMINED ONLY AFTER CONSIDERING SUCH EVENTS. 37. THE LEARNED AR RELIED ON THE FOLLOWING DECISIONS: (A) CIT VS. MOGHAL BUILDERS AND PLANNERS (2001) 252 ITR 488 (AP) WHEREIN HELD THAT INCOME FROM CONSTRUCTION AND SALE OF FLATS ACCRUES TO THE ASSESSEE ON THE BASIS OF HANDING OVER OF POSSESSION TO THE RESPECTIVE BUYERS AND NOT ON THE BASIS OF INVESTMENT MADE BY THE ASSESSEE. THE HON'BLE AP HIGH COURT HAS APPLIED THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF MADGUL VIDYOG'S CASE (1990) 184 ITR 484 (CAL.). (B) CIT VS. CHANDIGRAH INDUSTRIAL AND GENERAL DEVELOPMENT CORPORATION LIMITED (2009) 319 ITR 85 (P&H). IN THIS CASE THE ASSESSEE HAS CLAIMED THE INCOME MUST BE ASSESSED ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS. THE CLAIM WAS NOT ACCEPTED BY THE ASSESSING OFFICER, BUT COMMISSIONER (APPEALS) AND THE ITAT HELD THAT INCOME HAS TO BE BROUGHT TO ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 51 TAX ON RECEIPT BASIS IN VIEW OF THE NATURE OF THE TRANSACTIONS AND THIS WAS UPHELD BY THE HON'BLE HIGH COURT. (C) K. RADHIKA, K. SRINIVASA RAO, K. VENKAYAMMA AND K. HEMALATHA VS. DCIT (2011) 47 SOT 180 (HYD)TRIB).: I N THIS CASE THE ASSESSEE WHO RECEIVED A MEAGRE AMOUNT OUT OF TOTAL CONSIDERATION THE TRANSFEREE IS AVOIDING, ADHERING TO THE AGREEMENT AND THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE REVENUE AUTHORITIES TO SHOW THAT THERE WAS ACTUAL CONSTRUCTION HAS TAKEN PLACE AT THE IMPUGNED PROPERTY IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO THERE IS NO EVIDENCE TO SHOW THAT THE RIGHT TO RECEIVE THE SALE CONSIDERATION WAS ACTUALLY ACCRUED BY THE ASSESSEE. WITHOUT ACCRUAL OF THE CONSIDERATION OF THE ASSESSEE, THE ASSESSEE IS NOT EXPECTED TO PAY CAPITAL GAIN ON THE ENTIRE SALE CONSIDERATION. (D) M/S. LANCO KONDAPALLI POWER PVT. LTD. VS. DCIT IN I TA NO. 1615/HYD/2010. THE TRIBUNAL IN THIS CASE HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GODHRA ELECTRICITY COMPANY LTD VS. CIT 225 ITR 746 AND ALSO CONSIDERED THE 'EFFECTS OF UNCERTAINTY ON REVENUE RECOGNITION' ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 52 STATED IN ACCOUNTING STANDARD )9 OF ICAI HAS HELD THAT SIMPLY BILLS WERE RAISED FOR MAKING CLAIM CANNOT RESULT IN ACCRUAL OF INCOME AS THE MATTER IS SUBJUDICE. THE TRIBUNAL HAD MADE IT CLEAR THAT THE AMOUNT WILL BE TAXABLE IN THE YEAR OF ITS RECEIPT. 38. THE AR SUBMITTED THAT THE ACCRUAL OF INCOME IN THE HANDS OF THE PRESENT ASSESSEE COMPANY IS CONTINGENT AND I NCHOATE AND ITS ACCRUAL IS DEPENDENT ON THE FINAL SETTLEMEN T OF THE DISPUTES PENDING IN COURTS AND COMPLETION OF THE CO NSTRUCTION OF APARTMENTS AND DELIVERY OF THE POSSESSION TO THE BUYERS. SINCE, THE DISPUTES HAVE NOT BEEN SETTLED AT THE EN D OF THE RELEVANT PREVIOUS YEAR AND FURTHER, THE AGREEMENTS ENTERED WITH THE LAND OWNER AS WELL AS WITH THE DEVELOPER HAVE B EEN CANCELLED, THE INCOME CANNOT BE SAID TO HAVE ACCRUE D TO THE ASSESSEE COMPANY. THE INCOME WILL BE OFFERED TO TAX ON THE COMPLETION OF THE CONSTRUCTION AND AFTER CLEARING O F THE COURT CASES AND DELIVERY OF POSSESSION AND TRANSFER OF LE GAL TITLE TO THE BUYERS. AT PRESENT, DUE TO COURT ORDERS, HOPE ON TH E PROJECT HAS BECOME COMPLETELY UNCERTAIN AND HIGHLY DOUBTFUL. T HE AR PRAYED TO CONSIDER THE ABOVE FACTS OF PENDING LITIG ATION AND UNCERTAINTIES SURROUNDING THE ULTIMATE IMPLEMENTATI ON OF THE PROJECT AND REALIZATION OF SALE PROCEEDS AND AFFIRM THE ORDER OF THE CIT(A). FURTHER HE DREW OUR ATTENTION TO THE FOLLOWING DOCUMENTS: ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 53 S NO. DESCRIPTION PAGE NOS. IN PB-II 1. WRIT PETITION NO. 22163 OF 2007 FILED BY M. LAKS HMA REDDY, EX- EMPLOYEE OF THE LAND OWNER COMPANY IN AP HIGH COURT 1-9 2. ORDER IN THE ABOVE WP BY AP HIGH COURT 10-27 3. WP NO. 5644 OF 2008 BY S. ANTHONY AND OTHERS IN AP HIGH COURT 28-37 4. ORDER OF THE HIGH COURT IN THE ABOVE WP NO. 5644 OF 2008 38-61 5. COURT CASES FILED BY THE LAND OWNER IN CITY CIVI L COURT 62-79 6. ORDERS OF THE CITY CIVIL COURT IN THE ABOVE PETI TIONS 80-160 7. ORDER OF THE HONBLE HIGH COURT 161-187 8. COPY OF MEMOS FILED IN AP HIGH COURT 188-191 9. ORDER OF THE HONBLE SUPREME COURT IN THE CASE F ILED BY THE LAND OWNER 192-207 10. JUDGEMENT OF THE CITY CIVIL COURT DATED 19.04.2 010 208-259 11. WP FILED IN AP HIGH COURT AND COPY OF THE ORDER IN THE LITIGATION FILED BY LAND OWNER 260-274 12. COPIES OF CAUTION NOTICES ADVERTISED IN NEWSPAP ERS AGAINST THE CONSTRUCTION ON THE DISPUTED LAND 275-278 13. GOVERNMENT ORDER NO. 1534 OF THE REVENUE DEPART MENT OF GOVT. OF AP ORDERING FOR RESUMING THE LAND SITUATED IN TH E DISPUTED SURVEY NOS. 74 AND 75. 279-289 39. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE, THE ASSESSEE INITIALLY ENT ERED INTO DEVELOPMENT AGREEMENT WITH M/S. ECE INDUSTRIES LTD. ON 17.9.2007 FOR DEVELOPMENT OF LAND ADMEASURING 67824 SQY SITUATED AT SY. NOS. 74/P AND 75/P AT BORABANDA, FA THENAGAR VILLAGE, ASHOK MARG, HYDERABAD FOR WHICH THE ASSESS EE WAS REQUIRED TO PAY RS. 30,50,36,525 TO M/S. ECE INDUST RIES LTD. AS A CONSIDERATION FOR OBTAINING DEVELOPMENT AND GPA RIG HTS. OUT OF THE ABOVE AMOUNT, THE ASSESSEE HAS ACTUALLY PAID RS . 13.5 CRORES AND ANOTHER AMOUNT OF RS. 28,36,525 AND BALA NCE IS ONLY RS. 16.72 CRORES FOR WHICH POST)DATED CHEQUES ARE I SSUED TO M/S. ECE INDUSTRIES LTD.. SUBSEQUENTLY, M/S. ECE INDUST RIES LIMITED (THE OWNER OF THE LAND) HAS EXECUTED A REGISTERED 'DEVEL OPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY' IN FAVOUR OF M/S. JANAPRIYA ENGINEER SYNDICATE LIMITED, HYDERABAD FOR AN EXTENT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 54 OF LAND AD MEASURING 43.398 SQY OUT OF THE TOTAL EX TENT OF 67824.5 SQY AND ANOTHER DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATTORNEY WAS EXECUTED BY THE OWNER OF THE LAND IN FAVOUR OF THE ASSESSEE COMPANY FOR AN EXTEN T OF LAND ADMEASURING 24525.8 SQY. BOTH THESE AGREEMENTS WERE EXECUTED ON 21/09/2007. SUBSEQUENT TO THE EXECUTIO N OF THE SAID DEVELOPMENT AGREEMENT CUM GENERAL POWER OF ATT ORNEY DATED 21/09/2007, THE ASSESSEE COMPANY HAS ENTERED INTO AN DEVELOPMENT AGREEMENT ON 23/09/2007 WITH M/S. JANAP RIYA ENGINEER SYNDICATE (THE DEVELOPER) FOR THE DEVELOPM ENT AND CONSTRUCTION OF RESIDENTIAL APARTMENTS ON THE SUBJE CT LAND SITUATED IN SURVEY NOS. 74 & 75 AT BORABANDA, FATHE NAGAR, BALANAGAR MANDAL, HYDERABAD AND AGREED TO ACCEPT 36 % OF THE BUILT UP AREA TO BE DEVELOPED AS PER THE APPROV ED PLAN. SUBSEQUENT TO THE AGREEMENT DATED 23/09/2007, THE A SSESSEE COMPANY HAS ENTERED INTO AN AGREEMENT ON 21/05/2008 ACCORDING TO WHICH IT AGREED TO HANDOVER ITS SHARE OF FLATS AND PARKING AREA TO THE DEVELOPER TO SELL AS PER THE TE RMS AND CONDITIONS AGREED UPON. THE ASSESSING OFFICER HAS C ONSIDERED THE DEVELOPMENT AGREEMENT ENTERED BY THE ASSESSEE COMPANY WITH THE LAND OWNER, M/S. ECE INDUSTRIES LI MITED WHEREBY IT ACQUIRED DEVELOPMENT RIGHTS OVER THE LAN D SITUATED IN SURVEY NOS. 74 & 75 OF BORABANDA VILLAGE, AND AN OTHER AGREEMENT ENTERED WITH M/S. JANAPRIYA ENGINEER SYND ICATE LIMITED, HYDERABAD ON 21/05/2008 AND CONCLUDED THAT THE PURCHASE AND SALE IS COMPLETE IN THE ABOVE TRANSACT ION AND ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 55 THEREFORE, THE TRANSACTION OF 21/05/2008 RESULTED I N ACCRUAL OF INCOME SUBJECTED THE SAME TO TAX. THE ASSESSING OF FICER HAS BROUGHT THE AGREEMENT DATED 21/05/2008 TO TAX STATI NG THAT THE ASSESSEE IS A COMPANY AND IS FOLLOWING THE MERC ANTILE SYSTEM OF ACCOUNTING AND THE AGREEMENT GRANTING RIG HT TO SELL APARTMENT THAT ARE TO COME UP ON THE SUBJECT LAND H AS RESULTED IN ACCRUAL OF INCOME AS FOLLOWS: TOTAL BUILT UP AREA TO BE AS PER MOU (SQ. FT) 4,90, 098 ADDITIONAL AREA NOT MENTIONED IN THE MOU AS PER PAR A NO. 3 (SQ. FT) 27,920 ----------- TOTAL AREA (SQ. FT) 5,18,018 ====== SALE CONSIDERATION VALUE @ 2000 PER SQ. FT. OF THE ABOVE AREA (2000 X 5,18,018) (RS.) 103,60,36,000 ADD: SALE OF CAR PARKING (576 X 60,000) (RS.) 3,45 ,60,000 ----------------- TOTAL SALE CONSIDERATION VALUE (RS.) 107,05,96,000 LESS: COST OF THE LAND PURCHASED FROM ECE INDUSTRIE S LTD. (RS.) 30,50,36,525 ----------------- TOTAL PROFIT (RS.) 76,55,59,475 ========== 40. NOW THE CONTENTION OF THE DEPARTMENT IS THAT THE AS SESSEE SOLD 5,18,018 SFT AREA TO M/S. JANAPRIYA ENGINEERS SYNDICATE ALONG WITH 576 CAR PARKING AREA. AS PER THE AO, SI NCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, INCOME ARISING OUT OF THE TRANSACTION WITH M/S. JANAPRIYA ENGINEERS SYNDICATE IS TO BE OFFERED TO TAX. ACCORDING TO TH E AO INCOME IS ACCRUED TO THE ASSESSEE AND THE SAME IS TO BE TA XED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. ON THE OTHER HAND, THE CONTENTION OF THE ASSESSEE'S COUNSEL IS THAT THERE IS UNCERTAINTY IN FULFILLING THE CONTRACT AS THERE ARE LITIGATIONS PENDING BEFORE VARIOUS COURTS AND PERFORMANCE OF THE CONTRACT IS D OUBTFUL. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 56 HENCE NO INCOME COULD BE RECOGNISED IN CERTAINTY. BEING SO, RECOGNITION OF REVENUE IS NOT POSSIBLE AND THE ULTI MATE COLLECTION OF SALE PROCEEDS IS DOUBTFUL. IT IS ALS O ON RECORD THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE LAND OWNER I.E., M/S. ECE INDUSTRIES LTD., HAS BEEN CANC ELLED BY LETTER DATED 5.5.2008. FURTHER THE AGREEMENT ENTERED BY T HE ASSESSEE WITH M/S. JANAPRIYA ENGINEERS SYNDICATE IS AS FOLLO WS: '11. THE FIRST PARTY AUTHORIZES THE SECOND PARTY TO DO THE FOLLOWING THINGS: A) TO SELL THE FLATS, TO ENTER INTO AN AGREEMENT OF SA LE WITH PURCHASERS OF FLATS, EITHER THE WHOLE OF SCHEDULED PROPERTY OR PORTION OF IT OR UNDIVIDED SHARE IN THE SCHEDULED P ROPERTY AND ACKNOWLEDGE THEM BY ISSUING RECEIPTS. B) TO ENTER INTO A DEVELOPMENT AGREEMENT WITH ANY DEVELOPER/BUILDER TO DEVELOP THE SCHEDULED PROPERTY BY CONSTRUCTING INDIVIDUAL BUILDINGS OR RESIDENTIAL AP ARTMENTS OR COMMERCIAL APARTMENTS. C) TO ENTER INTO CONTRACT AGREEMENT WITH ANY CONTRACTO R. D) TO SIGN ALL THE APPLICATIONS TO BE SUBMITTED TO THE AP TRANSCO FOR SUPPLY OF ELECTRICITY, TO THE CONCERNED AUTHORITIES FOR PROVIDING DRAINAGE AND WATER SUPPLY ETC., AND PROCESS THE SAID APPLICATIONS. E) TO LOOK AFTER AND PROTECT THE SCHEDULED PROPERTY FR OM ENCROACHERS, LAND GRABBERS AND UNSOCIAL ELEMENTS AN D TO TAKE NECESSARY AND APPROPRIATE ACTION AGAINST THEM BY MAKING APPLICATIONS TO THE CONCERNED AUTHORITIES AN D IF NECESSARY TO APPROACH CIVIL AND CRIMINAL COURTS. F) TO PAY THE TAXES AND REVENUE PAYABLE ON THE SCHEDUL ED PROPERTY TO THE STATE GOVERNMENT, CENTRAL GOVERNMEN T AND LOCAL AUTHORITY. G) TO MAKE USE OF SCHEDULED PROPERTY TO ITS MAXIMUM ADVANTAGE. H) TO DEAL WITH STATE, CENTRAL AND QUASI GOVERNMENT ORGANIZATIONS IN RESPECT TO THE SCHEDULED PROPERTY. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 57 I) TO FILE ANY SUIT OR PROCEEDING IN ANY COURT OR AUTH ORITY TO PROTECT THEIR RIGHT AND TITLE TO THE SCHEDULED PROP ERTY AND FOR THE SAME TO SIGN THE PLAINT VAKALAT AND ALL NECESSA RY APPLICATIONS AND DOCUMENTS ON THEIR BEHALF AND ALSO TO GIVE EVIDENCE AND ENGAGE ANY ADVOCATE OF THEIR CHOICE IN THE SAID SUIT OR PROCEEDING. J) TO DEFEND IF ANY SUIT OR PROCEEDING IS INITIATED BY ANY PERSON CHALLENGING THEIR RIGHT AND TITLE TO THE SCH EDULED PROPERTY AND TO DO ALL THE ACTS NECESSARY TO PROTEC T THEIR PROPERTY. K) TO MORTGAGE THE SCHEDULED PROPERTY TO ANY BANK OR FINANCIAL INSTITUTION TO GET ANY LOAN FOR THE DEVEL OPMENT OF THE SCHEDULED PROPERTY AND EXECUTE ALL THE NECESSAR Y DOCUMENTS FOR THE SAID PURPOSE. L) GENERALLY TO DO ALL THE ACTS DEEDS AND THINGS WHATS OEVER IN RESPECT OF THE SCHEDULED PROPERTY WHICH THE VENDORS WILL DO IN THEIR INTEREST. SCHEDULED PROPERTY: ALL THAT UNDIVIDED SHARE OF LAND ADMEASURING 13,505 .90 SQ METERS OR 16,242.70 SQ YARDS OR OF 20,430.50 SQ MET ERS OR 24,425.80 SQ YARDS ALONG WITH PROPOSED TO BE CONSTR UCTED SUPER BUILT UP AREA OF 3,25,893.71 SQ FT OUT OF 4,90,097. 72 SQ FT OF RESIDENTIAL FLATS AND 382 CAR PARKING IN SY. NO. 74 /P AND 75/P, SITUATED AT FATHENAGAR VILLAGE HYDERABAD (EMPHASIS SUPPLIED).' 41. THIS AGREEMENT HAS ALSO BEEN CANCELLED AND THE ASS ESSEE ENTERED INTO A NEW AGREEMENT ON 25.9.2008 WHICH IS BEFORE FILING THE RETURN OF INCOME. THE AGREEMENT ENTERED ON 25.1.2008 WITH M/S. JANAPRIYA ENGINEERS SYNDICATE IS NO MORE SURVIVING. FURTHER, IT IS ALSO BROUGHT ON RECORD BY THE ASSESS EE THAT THERE WERE VARIOUS LITIGATIONS RELATING TO THE IMPUGNED P ROPERTY IN SY. NOS. 74/P AND 75/P, BORABANDA, FATHENAGAR VILLAGE, ASHOK MARG, HYDERABAD AS FOLLOWS: ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 58 S. NO. WP NO. ORDER EFFECTIVE DATE 1. IA NO. 262/2008 IN OS NO. 126/2008 OF CITY CIVIL COURT. AWARDED INTERIM INJUNCTION RESTRAINING CONSTRUCTION ACTIVITY ON THE SCHEDULED LAND. 30.05.2008 2. IA NO. 1823/2008 IN OS NO. 287/2008 OF CITY CIVIL COURT MAINLY (I) PAYMENT OF RS. 28,00,000, (II) FURNISHING BG FOR THE CHEQUES DISHONOURED AND (III) ASSESSEE COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTION MADE ON THE SCHEDULED LAND AND ANY SALE OF PROPERTY IS SUBJECT TO THE FINAL DECISION OF THE COURT AND SUBJECT TO THE CLEAR RECITAL IN THE PURCHASE DOCUMENTS. 21.08.2008 3. AP HIGH COURT IN MA NO. 1297/2008 DELETION OF CLAUSES (1) & (2) OF THE ABOVE ORDER BUT THE THIRD CLAUSE THAT THE ASSESSEE COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTION ON THE SUBJECT LAND CONTINUED. 27.04.2009 4. THE HONBLE SUPREME COURT OF INDIA IN CIVIL APPEAL NO. 5127-5128 OF 2009. AFFIRMED THE HONBLE HIGH COURT ORDER AND CONTINUED THE CLAUSE NO. (3) THAT THE ASSESSEE- COMPANY SHALL NOT CLAIM EQUITIES OVER THE CONSTRUCTIONS MADE IN THE SUIT PROPERTY AND THEY WOULD BE BOUND BY THE DECISION IN THE SUIT. FURTHER, LIST OF PROSPECTING BUYERS OF THE RESIDENTIAL UNITS TO BE SUBMITTED IN ADVANCE TO THE COMPETENT AUTHORITY URBAN LAND CEILING AND IT MUST BE MADE CLEAR TO THE PROSPECTIVE BUYERS THAT THEIR PURCHASES ARE SUBJECT TO THE RESULT OF THE SUIT BY MAKING A 'SPECIFIC RECITAL' IN THE AGREEMENT OF SALE OF SALE DEED, AS THE CASE MAY BE. 06.08.2009 5. HONBLE CITY CIVIL COURT, HYDERABAD OS NO. 287/2008 THE HONBLE COURT HAS GRANTED RELIEF IN FAVOUR OF THE ASSESSEE-COMPANY. 19.04.2010 6. HONBLE AP HIGH COURT IN CCAMP NO. 359 & 360 OF 2010 IN CCA NO. 96 OF 2010 THE COURT ORDERED THAT THE ASSESSEE-COMPANY ANY EQUITIES OVER THE CONSTRUCTION MADE IN THE SUIT SCHEDULED PROPERTY AND THEY WOULD BE BOUND BY THE DECISION IN THE SUIT. 25.07.2010 42. FURTHER, AS PER THE AR SCHEDULED LAND IN SURVEY NOS . 74 & 75 HAS BECOME A CENTRE OF VERY SERIOUS LITIGATION B EFORE THE DATE OF THE END OF THE RELEVANT PREVIOUS YEAR I.E., 31/03/2008 AND THE LITIGATION HAS CONTINUED EVEN AFTER THE CLO SE OF THE FINANCIAL YEAR BUT BEFORE THE DATE OF FILING OF THE INCOME TAX RETURN BY THE ASSESSEE COMPANY AND CONTINUED TILL T ODAY. PRESENTLY, THE HON'BLE HIGH COURT OF ANDHRA PRADESH VIDE ITS ORDER DATED 25/07/2010 HAS ORDERED THAT THE ASSESSE E COMPANY AND ALSO THE DEVELOPERS M/S. JANAPRIYA ENGI NEERS ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 59 SYNDICATE SHALL NOT CLAIM ANY EQUITIES OVER THE CON STRUCTIONS MADE ON THE LAND SITUATED IN SY. NOS. 74 & 75 OF BO RABANDA VILLAGE AND THEY WOULD BE BOUND BY THE DECISION IN THE PENDING SUIT. THE ASSESSEE COMPANY CANNOT BE SAID T O HAVE EARNED BUSINESS INCOME FROM DEALING IN THE PROJECT PROPOSED ON THE DISPUTED LAND IS UNJUSTIFIED IN VIEW OF THE CONTINUOUS LITIGATION AND RESTRAINING ORDERS AGAINST THE CONST RUCTION AND IT WAS INCAPACITATED IN DEALING WITH THE PROPERTY BY T HE ORDERS OF THE HON'BLE AP HIGH COURT WHEREBY IT HAS ORDERED TH AT THE ASSESSEE COMPANY SHALL NOT CLAIM ANY EQUITIES OVER THE CONSTRUCTIONS MADE ON THE DISPUTED SCHEDULED LAND. (ORDER DATED 25/07/2010) THE AR SUBMITTED THAT THE GOVERN MENT OF ANDHRA PRADESH HAS ISSUED G.O.MS NO. 1534 DATED 20. 12.2008 AND DECLARED THE SUBJECTED DISPUTED LANDS AS EXCESS IVE IN TERMS OF THE PROVISIONS OF URBAN LAND CEILING ACT A ND ORDERED TO TAKE POSSESSION OF THE LAND. IN VIEW OF THE SAID ORDERS THE FUTURE OF THE PROPOSED PROJECT ON THE SUBJECT LAND BECAME UNCERTAIN AND INCOME FROM SUCH A SITUATION CANNOT B E TERMED AS ACCRUED TO THE ASSESSEE AS THERE ARE LOT OF UNCE RTAINTIES INVOLVED IN THE PROJECT AND ITS COMPLETION. IT IS A LSO OBSERVED THAT: (1) IT IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL FLATS AND HOUSES. REVENUE FROM THE CONSTRUCTION IS RECOGNIZED ON THE COMPLETION OF THE PROJECT AND DELIVERY OF THE POSSESSION OF THE RESIDENTIAL UNITS TO THE BUYERS. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 60 (2) THE PROJECT COULD NOT BE COMPLETED DUE TO THE FACT THAT THE LAND SITUATED IN SURVEY NOS. 74 & 75 BORABANDA VILLAGE IN BALANAGAR MANDAL HAS BECOME A CENTRE OF VERY SERIOUS DISPUTES AND SEVERAL SUITS WERE FILED IN THE COURTS. (3) THE HON'BLE AP HIGH COURT HAS ISSUED INTERIM INJUNCTION ORDERS RESTRAINING TO PROCEED CONSTRUCTI ON OR OTHER CIVIL WORK ON THE DISPUTED LAND OVER WHICH THE ASSESSEE ACQUIRED DEVELOPMENT RIGHTS. THE INTERIM ORDERS RESTRAINING THE WORK ON THE LAND WER E IN FORCE AS AT THE LAST DATE OF THE PREVIOUS YEAR RELEVANT YEAR 2008)09 AND SUCH RESTRAINT ORDER HAS CONTINUED SUBSEQUENT TO THE CLOSE OF THE RELEVANT PREVIOUS YEAR. DUE TO THE COURT ORDERS THERE IS LOT OF UNCERTAINTY PREVAILED OVER THE PROGRESS OF THE PROJECT AND ON THE EARNING OF THE INCOME FROM THE PROJECT. (4) THE LAND OWNER HAS CANCELLED THE AGREEMENTS AND FILED CASES INITIALLY IN THE CITY CIVIL COURT AND T HE MATTER HAS TRAVELLED UP TO HON'BLE SUPREME COURT OF INDIA WHICH ORDERED THAT THE ASSESSEE COMPANY SHALL NOT CLAIM ANY EQUITIES OVER THE CONSTRUCTION ON THE SUBJECT LAND AND THEY WOULD BE BOUND BY THE DECISION IN THE SUIT. IT FURTHER ORDERED THAT THIS FACT MUST BE MADE CLEAR TO THE PROSPECTIVE BUYERS THAT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 61 THEIR PURCHASES ARE SUBJECT TO THE RESULT OF THE SU IT BY MAKING A SPECIFIC RECITAL IN THE AGREEMENT OF SALE OR SALE DEED AS THE CASE MAY BE. (5) IN VIEW OF THE ABOVE ORDER OF THE HON'BLE SUPREME COURT, THE ASSESSEE COMPANY IS COMPLETELY INCAPACITATED IN DEALING WITH THE CONSTRUCTION AREA ON THE SUBJECTED DISPUTED LAND AND IT WAS PROHIBITED FROM MAKING THE SALES. (6) THE AGREEMENT ENTERED BY THE ASSESSEE COMPANY GIVING RIGHT TO SELL THE APARTMENTS VIDE AGREEMENT DATED 25/01/2008 HAS BEEN CANCELLED BY THE CONCERNED PARTIES BY A CANCELLATION AGREEMENT DATED 25/09/2008. THE CANCELLATION OF THE AGREEMENT HAS ALSO TAKEN PLACE BEFORE THE DATE OF THE FILING OF THE INCOME TAX RETURN. (7) THE EVENTS OCCURRED AFTER THE DATE OF THE BALANCE SHEET, I.E., 31/03/2008 HAVE ALSO TO BE TAKEN INTO CONSIDERATION IN DETERMINING THE AMOUNT OF REAL INCOME ACCRUED TO THE ASSESSEE COMPANY. IN VIEW OF THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN THE CASE OF LOK HOUSING AND CONSTRUCTIONS LTD VS. ACIT (2012) 27 TAXMANN.COM 15 (MUMBAI)TRIB), CANCELLATION OF AGREEMENTS AND OTHER EVENTS OCCURRED AFTER THE END OF THE PREVIOUS YEAR BUT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 62 BEFORE THE DATE OF FILING THE IT RETURN AND WHICH HAVE DIRECT BEARING ON THE INCOME EARNING CAPACITY OF THE ASSESSEE HAVE TO BE CONSIDERED AND REAL INCOME HAS TO BE DETERMINED ONLY AFTER CONSIDERING SUCH EVENTS. 43. CONSIDERING ALL THE ABOVE FACTS OF THE CASE, IN OUR OPINION, IT IS TOO EARLY TO ASSESS BUSINESS PROFIT OUT OF TH E SALE OF CONSTRUCTED AREA TO M/S. JANAPRIYA ENGINEERS SYNDIC ATE. THE ASSESSEE NEITHER RECEIVED SUBSTANTIAL CONSIDERATION OR ASSETS TO BE SOLD ARE READY FOR HANDING OVER THE POSSESSION T O THE CONCERNED PARTIES SO AS TO TRANSFER THE TITLE IN TH E PROPERTY. TILL SUCH TIME, IT CANNOT BE SAID THAT THE PARTIES INVOL VED IN ARE READY TO PERFORM THE CONTRACT. IN THE PRESENT CASE , NEITHER POSSESSION OF THE PROPERTY HAS BEEN GIVEN TO THE UL TIMATE BUYER OR THE ASSESSEE HAS RECEIVED ANY SUBSTANTIAL CONSID ERATION. WHEN THE PROPERTY IS TO BE SOLD IS NOT READILY AVAI LABLE OR CONSTRUCTED, THE ASSESSEE CANNOT RECOGNISE INCOME W ITH CERTAINTY. THE AGREEMENT ENTERED INTO BY THE ASSES SEE HEREIN IS ONLY FOR SALE OF PIECE OF PROPERTY AND SALE WILL TA KE PLACE ONLY AFTER COMPLETION OF CONSTRUCTION AND AFTER ASSESSEE 'S SHARE OF PROPERTY IS IDENTIFIED. THE PROPOSED SALE AGREEMEN T CANNOT BE PUT INTO ACTION DUE TO VARIOUS LITIGATIONS PENDING WITH VARIOUS COURTS. NOBODY CAN TRANSFER TITLE IN A PROPERTY WH EN THE PROPERTY IS NOT IN EXISTENCE. MORE SO, WHEN THERE IS LITIGATION PENDING ON THE SAME PROPERTY AND NO PROFIT CAN BE ANTICIPATED WHEN THE AGREEMENT ITSELF IS SUBJECT MA TTER OF ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 63 LITIGATION. IT IS NOT POSSIBLE TO BRING THE SAME T O TAX. WE HAVE TO SEE ALL SURROUNDING CIRCUMSTANCES TO DECIDE ACCR UAL OF INCOME TO THE ASSESSEE. LOOKING AT THE PREVAILING CIRCUMSTANCES IN THE PRESENT CASE, IT IS NOT POSSIB LE TO HOLD THAT INCOME HAS ACTUALLY ACCRUED TO THE ASSESSEE. WHEN CONSIDERATION IS NOT DETERMINABLE WITH REASONABLE C ERTAINTY, THE ASSESSEE IS JUSTIFIED IN POSTPONING RECOGNITION OF INCOME AND IT IS APPROPRIATE TO RECOGNISE THE INCOME ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE REALISATION IS POSSIBLE. BEING SO, REVENUE COULD BE RECOGNISED AT THE TIME OF SALE OR HANDING OVER OF POSSESSION OF FLATS TO THE ULTIMATE CUSTOME RS. THE DEPARTMENT CANNOT THRUST UPON THE ASSESSEE SO AS TO TAX THE FUTURE INCOME. 44. IN OUR OPINION, THE ASSESSEE HAS RECOGNISED THE INC OME IN ACCORDANCE WITH THE TRUE TERMS OF THE AGREEMENT AND IF THERE IS ANY INCONSISTENCY IN RECOGNISING THE INCOME THEN ONLY REVENUE AUTHORITIES CAN DISTURB THE SAME. ONCE THE ASSESSEE RECOGNISED THE INCOME IN ACCORDANCE WITH THE AGREEM ENTS, THE AO CANNOT SUBSTITUTE HIS ASSESSMENT TO SAY THAT THE ASSESSEE HAS POSTPONED THE TAX LIABILITY. THERE IS NO BASIC DEVIATION IN THE METHOD FOLLOWED BY THE ASSESSEE REGARDING RECOG NISING OF INCOME. HOWEVER, THE AO WAS OF THE OPINION THAT T HERE IS BASIC FLAW IN THE METHOD FOLLOWED BY THE ASSESSEE T O RECOGNISE THE INCOME. WHEN THERE IS NO DEVIATION IN RECOGNIS ING THE INCOME BY THE ASSESSEE, THE AO CANNOT RECOMPUTE THE PROFIT OF ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 64 THE ASSESSEE BY OBSERVING THAT THERE IS BASIC FLAW IN THE METHOD FOLLOWED BY THE ASSESSEE. 45. IN OUR OPINION, INCOME ARISING OUT OF SALE OF FLATS TO M/S. JANAPRIYA ENGINEERS SYNDICATE IN WHICH CONSTRUCTED PROPERTY WAS SOLD BY THE ASSESSEE, PROFIT ON SUCH TRANSACTIO N IS TO BE ASSESSABLE NOT IN THE YEAR OF AGREEMENT AND IT SHOU LD BE ASSESSABLE PROPORTIONATELY IN THE PREVIOUS YEARS IN WHICH THE CONSTRUCTED AREA WAS SOLD BY THE ASSESSEE OR CONSTR UCTED FLATS WERE HANDED OVER BY THE ASSESSEE TO THE BUYERS. TH IS VIEW OF OURS IS SUPPORTED BY THE FOLLOWING DECISIONS: (A) R. GOPINATH (HUF) VS. ACIT, 133 TTJ (CHENNAI) 595 WHEREIN THE TRIBUNAL CHENNAI BENCH HELD AS UNDER: '9. WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE TRANSACTION OF TRANSFER IS COMPLETE BY APPLYING THE PROVISIONS OF S. 53A OF TR ANSFER OF PROPERTY ACT ON THE DATE WHEN THE POSSESSION OF THE PROPERTY WAS HANDED OVER TO THE DEVELOPER AS PER THE DEVELOP MENT AGREEMENT DT. 1ST SEPT., 2003. SEC. 53A OF THE TRAN SFER OF PROPERTY ACT DOES NOT PROVIDE THE CONDITIONS FOR TR ANSFER BUT IT PROVIDES PROTECTION TO THE TRANSFEREE OF ANY IMMOVA BLE PROPERTY BY A WRITTEN CONTRACT, THE TERMS OF WHICH CONSTITUTE THE TRANSFER AND CAN BE ASCERTAINED WITH REASONABLE CER TAINTY AND THE TRANSFEREE AS PART PERFORMANCE OF THE CONTRACT HAS TAKEN THE POSSESSION OF THE PROPERTY AND HAS PERFORMED OR WIL LING TO PERFORM HIS PART OF CONTRACT, THEN EVEN THE SAID CO NTRACT THOUGH REQUIRED TO BE REGISTERED HAS NOT BEEN REGISTERED A ND THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESC RIBED THEREFORE BY LAW, THE TRANSFEROR IS BARRED FROM ENF ORCING AGAINST THE TRANSFEREE ANY RIGHT IN RESPECT OF THE PROPERTY OTHER THAN THE RIGHT EXPRESSLY PROVIDED BY THE TERMS OF T HE CONTRACT. UNDER THE IT ACT, 1961 BY INSERTING CLS. (V) AND (V I) OF S. 2(47), THE DEFINITION OF THE TERM TRANSFER INCLUDES THE TR ANSACTION WHICH FULFILS THE CONDITIONS PROVIDED UNDER S. 53A OF TRANSFER OF PROPERTY ACT. THEREFORE, S. 53A OF THE IT ACT, 1 961 (SIC- TRANSFER OF PROPERTY ACT) IS BORROWED ONLY WITH RES PECT TO THE TRANSFER OF CAPITAL ASSET AS PROVIDED UNDER S. 2(47 ) OF THE IT ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 65 ACT, 1961 AND THE SAME IS NOT APPLICABLE IN OTHER C ASES WHICH DO NOT FALL UNDER S. 2(47) OF THE IT ACT, 1961. SEC . 45(1) OF THE IT ACT, 1961 DEALS WITH THE PROFIT AND GAIN ARISING FROM THE TRANSFER OF CAPITAL ASSET, WHEREAS S. 45(2) DEALS W ITH THE PROFIT OR GAIN ARISING FROM THE TRANSFER BY WAY OF CONVERS ION OF CAPITAL ASSET INTO STOCK-IN-TRADE AND SHALL BE CHAR GEABLE TO INCOME-TAX IN THE PREVIOUS YEAR IN WHICH SUCH STOCK -IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED. THEREFORE, THE TIME OF CHARGEABILITY TO INCOME-TAX OF CAPITAL GAIN ARISING FROM THE CONVERSION OF CAPITAL ASSET TO STOCK-IN-TRADE IS TH E POINT WHEN THE STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED , WHEREAS THE CHARGEABILITY OF CAPITAL GAIN UNDER S. 45 OF THE IT ACT, 1961 FROM TRANSFER OF CAPITAL ASSET SHALL BE IN THE PREV IOUS YEAR IN WHICH THE TRANSFER TOOK PLACE INCLUDING THE TRANSFE R AS PROVIDED UNDER S. 2(47) OF THE IT ACT, 1961. THE SALE/TRANSF ER OF STOCK-IN- TRADE CANNOT BE EQUATED WITH THE TRANSFER OF CAPITA L ASSET. THE DECISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE LOWER AUTHORITIES ARE WITH RESPECT TO THE TRANSFER OF CAPITAL ASSET UNDER S. 2(47) OF THE IT ACT, 1961 AND NOT IN RESPECT OF STOCK-IN-TRADE. THEREFORE, TH ESE DECISIONS ARE NOT RELEVANT AND APPLICABLE IN THE FACTS OF THE PRESENT CASE. AS FAR AS S. 53A OF THE TRANSFER OF PROPERTY ACT IS CONCERNED, THE SAID SECTION PROVIDES ONLY A PROTECTION TO THE TRANSFEREE ON FULFILMENT OF CERTAIN CONDITIONS PROVIDED THEREIN B UT DOES NOT PROVIDE THAT EVEN ON FULFILMENT OF THAT CONDITION T HE TRANSFER IS COMPLETE. AS PER PROVISION OF S. 53A OF THE TRANSFE R OF PROPERTY ACT WHEN A RIGHT IS CREATED IN FAVOUR OF THE TRANSF EREE WHICH CANNOT BE DEFEATED, OTHERWISE THEN BY THE TERMS AND CONDITIONS EXPRESSLY PROVIDED IN THE CONTRACT ITSELF. 10. FROM THE DEVELOPMENT AGREEMENT DT. 1ST SEPT., 2 003 AS WELL AS THE SUPPLEMENTARY AGREEMENT DT. 23RD DEC., 2003, THE ASSESSEE HANDED OVER THE POSSESSION OF THE PROPERTY FOR CONSTRUCTION OF RESIDENTIAL APARTMENTS BY THE DEVEL OPER. THE ASSESSEE DID NOT RECEIVE ANY CONSIDERATION FOR HAND ING OVER THE POSSESSION OF THE PROPERTY TO THE DEVELOPER BUT AS PER THE AGREEMENT THE ASSESSEE GOT THE RIGHT TO GET THE BUI LT-UP AREA OF 25,130 SQ. FT. AND PROPORTIONATE CAR PARK AS PER SC HS. E AND E1 OF THE AGREEMENT AND THE REST OF THE CONSTRUCTED AR EA WAS TO BE SOLD OUT FOR RECOVERY OF THE COST AND MARGIN OF THE DEVELOPER. FROM THE DEVELOPMENT AGREEMENT, THE POSSESSION WAS HANDED OVER FOR CARRYING OUT THE CONSTRUCTION WORK BY THE DEVELOPER AND THERE IS NO OTHER DOCUMENT EXCEPT THE DEVELOPME NT AGREEMENT WHICH TRANSFERS THE TITLE OF THE PROPERTY TO THE DEVELOPER. IN THE ABSENCE OF THE TRANSFER OF THE TI TLE OF THE PROPERTY AND ANY CONSIDERATION AT THE TIME OF DEVEL OPMENT AGREEMENT, THE HANDING OVER OF THE POSSESSION WAS M ERELY A TEMPORARY MEASURE FOR CARRYING OUT THE CONSTRUCTION WORK BY ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 66 THE DEVELOPER AND THE EXCLUSIVE POSSESSION OF THE P ROPERTY IN LEGAL SENSE REMAINS WITH THE ASSESSEE WHICH WAS FIN ALLY HANDED OVER AT THE TIME OF EXECUTION OF THE SALE DEED OF T HE CONSTRUCTED FLATS BY THE ASSESSEE. ONE CANNOT PRESUME ANY INTEN TION IN EXECUTING THE DOCUMENTS BETWEEN THE PARTIES OTHER T HAN WHAT WAS STATED OR CAN BE INFERRED REASONABLY FROM THE D OCUMENTS ITSELF. A REGARD MUST BE GIVEN TO THE WORDS USED IN THE DOCUMENTS. THE NATURE OF THE TRANSACTION BETWEEN TH E PARTIES BY WAY OF DEVELOPMENT AGREEMENT CANNOT BE SAID TO B E A SALE OF IMMOVABLE PROPERTY WHICH IS STOCK-IN-TRADE OR OTHER WISE TRANSFER AS PROVIDED IN THE TRANSFER OF PROPERTY AC T. WE AGREE WITH THE CONTENTIONS OF THE LEARNED AUTHORIZED REPR ESENTATIVE OF THE ASSESSEE THAT THE MEANING OF THE WORDS, 'OTH ERWISE TRANSFERRED', IN S. 45(2), SHOULD BE ACCORDING TO I TS ORDINARY POPULAR AND NATURAL SENSE, AND IT SHOULD NOT INCLUD E A TRANSACTION REFERRED TO UNDER SUB-CL. (V) OF SUB-S. (47) OF S. 2 OF THE IT ACT, 1961 IN RELATION TO A CAPITAL ASSET. BY NO STRETCH OF IMAGINATION, THE SAID TRANSACTION CAN BE TERMED AS TRANSFER MORE OR LESS AS SALE. WHEN THE LEGAL TITLE AND POSS ESSION OF THE PROPERTY WERE WITH THE ASSESSEE, THEN THE TRANSFER OF THE SAID IS NOT POSSIBLE MERELY BY ALLOWING THE DEVELOPER TO CA RRY OUT THE CONSTRUCTION WORK. 13. DELIVERY OF POSSESSION OF IMMOVABLE PROPERTY CA NNOT BY ITSELF BE TREATED AS EQUIVALENT TO CONVEYANCE OF IM MOVABLE PROPERTY AS HELD BY THE HONBLE APEX COURT IN THE C ASE OF ALAPATI VENKATARAMIAH VS. CIT (SUPRA). UNTIL AND UN LESS THE TITLE OF THE PROPERTY IS PASSED ON TO THE PURCHASER , THERE CANNOT BE A SALE OR TRANSFER OF IMMOVABLE PROPERTY, SINCE IN THE PRESENT CASE THE QUESTION IS WHETHER THE HANDING OV ER OF THE POSSESSION UNDER THE DEVELOPMENT AGREEMENT OF THE P ROPERTY WHICH IS STOCK-IN-TRADE OF THE ASSESSEE CAN BE TREA TED AS A TRANSFER BY APPLYING THE DEFINITION OF TRANSFER IN S. 2(47) OF THE IT ACT, 1961. AS WE HAVE ALREADY STATED EARLIER THA T IN THE CASE OF STOCK-IN-TRADE, THE DEFINITION OF TRANSFER UNDER S. 2(47) OF THE IT ACT, 1961 IS NOT APPLICABLE, THEREFORE, THE CONT EXTUAL OR THE ORDINARY MEANING OF THE WORD TRANSFER IS APPLICABLE IN THE PRESENT CASE. 15. IN THE PRESENT CASE, THE BUSINESS PROFIT ARISES TO THE ASSESSEE ON THE SALE OF THE STOCK-IN-TRADE ONLY WHE N THE CONSTRUCTED APARTMENTS WERE SOLD AND NOT AT THE TIM E WHEN THE DEVELOPMENT AGREEMENT WAS ENTERED INTO. MOREOVER, I N THE DEVELOPMENT AGREEMENT, THE ASSESSEE HAS NOT AGREED FOR SALE OF THE ENTIRE CONSTRUCTED PROPERTY ON THE LAND, THE AS SESSEE HAS AGREED ONLY FOR A PORTION OF THE CONSTRUCTED PROPER TY FOR SALE FOR THE PURPOSE OF RECOVERY OF THE COST OF CONSTRUC TION AND MARGIN OF THE DEVELOPER. THE ASSESSEE HAS EXECUTED ALL THE SALE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 67 DEEDS FOR TRANSFER OF THE CONSTRUCTED APARTMENTS IN FAVOUR OF THE END-USER/PURCHASER, THEREFORE THE TRANSFER OF T HE PROPORTIONATE LAND TOOK PLACE ONLY WHEN THE ASSESSE E TRANSFERRED THE CONSTRUCTION PROPERTY BY WAY OF SAL E DEEDS AND OFFERED THE BUSINESS INCOME WHICH WAS ACCEPTED BY T HE DEPARTMENT. IN ANY CASE, WHEN THE ASSESSEE HAS RETA INED THE PORTION OF THE LAND BEING PROPORTIONATE TO THE CONS TRUCTED AREA TO BE RETAINED BY THE ASSESSEE, THEN THERE IS NO QU ESTION OF TRANSFER OF THE ENTIRE LAND TO THE DEVELOPER. IN VI EW OF THE ABOVE DISCUSSION, WE HOLD THAT THE ORDERS OF THE LOWER AU THORITIES, QUA THIS ISSUE ARE NOT SUSTAINABLE ON THE FACTS AS WELL AS ON LAW. WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES, QUA THIS ISSUE AND DIRECT THE AO TO TAX THE CAPITAL GAIN ARISING FROM THE CONVERSION OF THE LAND AND BUILDING INTO STOCK-IN-T RADE PROPORTIONATELY INTO THE PREVIOUS YEARS IN WHICH TH E CONSTRUCTED PROPERTY WAS SOLD BY THE ASSESSEE OR RE TAINED FOR SELF-USE AND CORRESPONDING BUSINESS INCOME WAS OFFE RED.' (B) B.L. SUBBARAYA VS. DCIT, 9 SOT 297 (BANG) WHEREIN T HE BANGALORE BENCH OF THE TRIBUNAL HELD AS UNDER: '8. THE FACT WHICH IS UNDISPUTED IS THAT THE ENTIRE SETTLEMENT IS STILL A SUBJECT-MATTER OF DISPUTE BEING SUB JUDICE AND THERE IS NO FINALITY ATTAINED EVEN DURING THE YEAR UNDER CONSID ERATION. THIS IS CLEAR FROM THE FOLLOWING FACTS. SUBSEQUENT TO TH E DEED OF SETTLEMENT BETWEEN THE ASSESSEE AND SMT. SUNDARI RAMACHANDRAN ON 9TH AUG., 1997, THE DISPUTES AROSE ON ITS IMPLEMENTATION. THE ASSESSEE FILED A COMPANY PETITI ON AGAINST M/S ELECTRONICS & CONTROLS POWER SYSTEMS (P) LTD., UNDER S. 433 OF THE COMPANIES ACT, 1956, SEEKING WINDING UP FOR ITS FAILURE TO PAY THE DUES TO THE ASSESSEE. INCIDENTAL LY, SUBSEQUENT TO THE DEED OF SETTLEMENT DT. 9TH AUG., 1997, THE B USINESS OF THE PARTNERSHIP FIRM M/S ELECTRONICS & CONTROLS WAS TAK EN OVER BY A PRIVATE LIMITED COMPANY, M/S ELECTRONICS & ELECTR ONICS POWER SYSTEMS (P) LTD. THE SAID WINDING UP PETITION CAME TO BE DISMISSED BY THE HONBLE HIGH COURT OF KARNATAKA ON 2ND MARCH, 2000 ON THE PLEA THAT THERE WAS NO SUM DUE F ROM THE COMPANY INASMUCH AS THE SETTLEMENT WAS BETWEEN THE ASSESSEE AND THE INDIVIDUAL, SMT. SUNDARI RAMACHANDRAN. SUBS EQUENTLY, THE ASSESSEE INSTITUTED A SUIT FOR RECOVERY OF THE AMOUNT IN TERMS OF THE SETTLEMENT BEFORE THE CIVIL COURT AT B ANGALORE IN O.S. NO. 5898/2000, A COPY OF WHICH IS PLACED IN TH E PAPER BOOK FILED BEFORE US. WE ALSO FIND FROM THE PAPER B OOK THAT THE DEFENDANT, SMT. SUNDARI RAMACHANDRAN, HAS DENIED TH E EXISTENCE AND EXECUTION OF THE SAID SETTLEMENT AGRE EMENT DT. 9TH AUG., 1997 AS BEEN CONCOCTED/ FABRICATED. THEREFORE , UNDISPUTEDLY THE ENTIRE SETTLEMENT AGREEMENT DT. 9T H AUG., 1997 ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 68 IS IN JEOPARDY. OF COURSE, THE ASSESSEE HAS WITHDRA WN A SUM OF RS. 23 LAKHS FROM THE FIRM, M/S ELECTRONICS CONTROL S. THEREFORE, HAVING REGARD TO THE BINDING NATURE OF J UDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD. (SUPRA), TO THE PROPO SITION THAT WHERE AN AMOUNT WAS IN DISPUTE, IT COULD NOT BE TRE ATED AS INCOME, WE DO NOT FIND ANY INFIRMITY IN THE CONCLUS ION OF THE CIT(A) THAT A SUM OF RS. 77,00,000 CANNOT BE BROUGH T TO TAX DURING THE YEAR UNDER CONSIDERATION AS THE MATTER H AD NOT ATTAINED FINALITY. HOWEVER, THE CIT(A) WENT WRONG I N NOT APPLYING THE SAME PRINCIPLE TO THE AMOUNT OF RS. 23 LAKHS RECEIVED BY THE ASSESSEE. EVEN THIS AMOUNT OF RS. 2 3 LAKHS IS DISPUTED AND THE RIGHT OF THE ASSESSEE IN THE SAID AMOUNT IS INCHOATE AND THEREFORE, THE SAME ALSO CANNOT BE BRO UGHT TO TAX DURING THE YEAR UNDER CONSIDERATION.' (C) BHAVESH ESTATES (INDIA) (P) LTD. VS. ITO, 1 DTR (MU M) (TRIB) 366 WHEREIN THE MUMBAI 'SMC' BENCH HELD AS UNDER: '2.3 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND ALSO AFTER PERUSING THE MATERIAL AVAILABLE ON RECORD, I AM NOT INCLINED TO CONCUR WITH THE FINDING OF THE CIT(A), BECAUSE THE ASSESSEE HAD ENTERED INTO THE DEVELOPMENT AGREEMENT WITH M/S ARO RA BUILDERS (SUKHMANI CONSTRUCTION). THE FSI ON THE SA ID PLOT WAS REVISED, BUT THE PROJECT COULD NOT BE COMPLETED . THEREFORE, AT THE COST OF THIS HARDSHIP NO INTEREST WAS PAID B Y THE OWNER TO THE ASSESSEE COMPANY ON ITS DEPOSIT AT THE RATE OF 12 PER CENT PER ANNUM OF THE SAME AMOUNT. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAD PAID THE AMOUNT OF RS. 99.90 LAKHS AS ON 31ST MARCH., 2003, BUT NO INTEREST WAS PAID TO THE ASSES SEE BECAUSE THE PROJECT WAS LEGALLY NOT FEASIBLE AND DUE TO LEG AL RESTRICTION THE WHOLE AMOUNT INVESTED MIGHT NOT HAVE BEEN REALI ZED IN THE SAID PROJECT. ACCORDINGLY, THE OWNER DID NOT MAKE A NY PAYMENT TO THE ASSESSEE. UNDER THE FACTS AND CIRCUMSTANCES, THE ASSESSEE CANNOT BE SUBJECTED TO BE TAXED ON NOTIONA L INCOME. THERE IS NOTHING ON RECORD, TO SUGGEST THAT ANY SUC H INTEREST INCOME WAS MATERIALIZED. THE ASSESSEE HAS POINTED O UT THAT BECAUSE OF NON-AVAILABILITY OF FSI ON THE SAID PLOT OF LAND FOR WHICH THE ASSESSEE HAD ENTERED INTO DEVELOPMENT AGR EEMENT WITH M/S ARORA BUILDERS (SUKHMANI CONSTRUCTION), TH E ASSESSEE COMPANY COULD NOT DEVELOP THE SAID PROPERTY IN VIEW OF THE STATUTORY RESTRICTIONS AND, THEREFORE, THE WHOLE PR OJECT HAS BECOME UNVIABLE TO CONTINUE. HENCE, NO INTEREST HAD ACCRUED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. ACCOR DINGLY, THE ADDITION OF RS. 4,99,260 IS DIRECTED TO BE DELETED. ' ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 69 (D) M/S. NEON SOLUTIONS PVT. LTD. VS. ITO IN ITA NOS. 5 032/MUM/2011 AND 6222/MUM/2012 ORDER DATED 30. 04 .2013, THE MUMBAI 'B' BENCH OF THE TRIBUNAL HELD AS UNDER: '5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS REGARDS THE FINDINGS OF THE AO AND THE L D.CIT(A) THAT VARIOUS RESOLUTIONS HAVE BEEN BACK DATED AND THE SA ME CANNOT BE RELIED, IN OUR VIEW IS BASED ON PRESUMPTIONS AND AS SUMPTIONS OF THE LOWER AUTHORITIES AS THE PERUSAL OF THE RECORDS AND THE SUBSEQUENT EVENTS LEADING TO THE AMALGAMATION ESTABLISHES THAT THE DEBENTURE ISSUING COMPANY HAS BEEN UNDER SERIOUS FINANCIAL CR ISIS AND THE IMPUGNED RESOLUTIONS PASSED TO THE EFFECT OF WAIVER OF INTEREST ARE RELIABLE. REGARDING THE REQUIREMENT OF THE RESOLUTI ON TO BE REGISTERED U/S 106 R.W.S. 192 OF THE COMPANIES ACT AS OBSERVED BY THE LD.CIT(A), IT IS PERTINENT TO MENTION THAT THE SAID PROVISIONS ARE NOT APPLICABLE AS THE RESOLUTIONS PASSED BY THE DEBENTU RE ISSUING COMPANY DO NOT FALL UNDER THE RESOLUTIONS PRESCRIBE D BY THE PROVISIONS OF SECTION 192(4) OF THE COMPANIES ACT. ALSO IN SIMILAR SET OF FACTS, THE ITAT IN THE CASE OF RIYA HOLDINGS LTD IN ITA NOS. 1119 TO 1124/MUM/2011, WHERE THE PRESENT ACCOUNT MEMBER IS ALSO ONE OF THE PARTIES TO THE SAID ORDER, HAS DIRECTED THE AO DELETE A SIMILAR AMOUNT OF INTEREST BROUGHT TO TAX. THE RELEVANT PRI NCIPLES SUMMARIZED BY THE ITAT IN THE SAID CASES ON THE BAS IS SEVERAL JUDGMENTS OF THE HIGH COURTS AND SUPREME COURT IS E XTRACTED HEREUNDER: A) THAT MERELY BECAUSE ASSESSEE WAS FOLLOWING MERCA NTILE SYSTEM OF ACCOUNTING, IT COULD NOT BE HELD THAT INCOME HAD ACCRUED TO IT. B) EARNING OF THE INCOME, WHETHER ACTUAL OR NOTIONA L, HAS TO BE SEEN FROM THE VIEWPOINT OF A PRUDENT ASSESSEE. IF IN GIV EN FACTS AND CIRCUMSTANCES THE ASSESSEE DECIDES NOT TO CHARGE IN TEREST IN ORDER TO SAFEGUARD THE PRINCIPAL AMOUNT AND ENSURE ITS RECOV ERY, IT CANNOT BE SAID THAT HE HAS ACTED IN A MANNER IN WHICH NO REAS ONABLE PERSON CAN ACT. C) THE GUIDANCE NOTE ON ACCRUAL OF INCOME ON ACCOUN TING ISSUED BY THE ICAI LAYS DOWN THAT WHERE THE ULTIMATE COLLECTI ON WITH REASONABLE CERTAINTY IS LACKING, THE REVENUE RECOGN ITION IS TO BE POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN TERMS OF THE GUIDANCE NOTE, IT IS APPROPRIATE TO RECOGNIZE REVEN UE IN SUCH CASES ONLY WHEN IT BECOMES REASONABLY CERTAIN THAT ULTIMA TE COLLECTION WILL BE MADE. D) NON-RECOGNITION OF INCOME ON THE GROUND THAT THE INCOME HAD NOT REALLY ACCRUED AS THE REALISABILITY OF THE PRINCIPA L OUTSTANDING ITSELF WAS DOUBTFUL, IS LEGALLY CORRECT UNDER THE MERCANTI LE SYSTEM OF ACCOUNTING, WHEN THE SAME IS IN ACCORDANCE WITH AS- I NOTIFIED BY THE GOVERNMENT E) IT IS ONE OF THE FUNDAMENTAL PRINCIPLES OF ACCOUNTING THAT, AS A MEASURE OF PRUDENCE AND FOLLOWING THE PRINCIPLE OF CONSERVATISM, THE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 70 INCOMES ARE NOT TAKEN INTO ACCOUNT TILL THE POINT O F TIME THAT THERE IS A REASONABLE DEGREE OF CERTAINTY OF ITS REALIZATION W HILE ALL ANTICIPATED LOSSES ARE TAKEN INTO ACCOUNT AS SOON AS THERE IS A POSSIBILITY, HOWSOEVER UNCERTAIN, OF SUCH LOSSES BEING INCURRED. F) THE PROVISIONS OF SECTION 145(1) ARE SUBJECT TO, INTER ALIA, MANDATE OF AS-1 WHICH ALSO PRESCRIBES THAT 'ACCOUNTING POLI CIES ADOPTED BY AN ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRU E AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS, PROFESSION OR VOCATION IN THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES'. IN THE NAME OF COMPLIANCE WIT H SECTION 145(1), IT CANNOT BE OPEN TO ANYONE TO FORCE ADOPTION OF AC COUNTING POLICIES WHICH RESULT IN A DISTORTED VIEW OF THE AFFAIRS OF THE BUSINESS. THEREFORE, EVEN UNDER THE MERCANTILE METHOD OF ACCO UNTING, AND, ON PECULIAR FACTS OF INSTANT CASE, THE ASSESSEE WAS JU STIFIED IN FOLLOWING THE POLICY OF NOT RECOGNIZING THESE INTEREST REVENU ES TILL THE POINT OF TIME WHEN THE UNCERTAINTY TO REALIZE THE REVENUES V ANISHED. ' AS THE PRINCIPLES LAID DOWN IN RECOGNIZING THE INCO ME EQUALLY APPLIES TO THE FACTS OF THE ASSESSEE'S PRESENT CASE, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN BRINGING THE IMPUGNED NOTIONAL INTEREST TO TAX. ACCORDINGLY, WE DELETE THE IMPUGNE D ADDITIONS. THUS, GROUND NO 1 IS ALLOWED.' 46. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINED T O HOLD THAT THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITI ON MADE BY THE AO AS THERE IS NO INCOME ACCRUED TO THE ASSESSEE ON THE BASIS OF AGREEMENT ENTERED BY THE ASSESSEE WITH M/S. JANA PRIYA ENGINEERS SYNDICATE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS CONFIRMED. GROUNDS TAKE N BY THE REVENUE ARE REJECTED AND THE APPEAL IS DISMISSED. ITA NO. 1058/HYD/2010 (ASSESSEE'S APPEAL): 47. THE ISSUE INVOLVED IN ASSESSEE'S APPEAL IS WITH REG ARD TO DISALLOWANCE OF EXPENDITURE INVOKING PROVISIONS OF SECTION 40(A)(IA) OF INCOME)TAX ACT, 1961, DISALLOWANCE OF TRAVELLING EXPENSES AND DISALLOWANCE OF FOREIGN TRAVEL EXPENDI TURE. ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 71 48. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS A COM PANY ENGAGED IN THE BUSINESS OF DEVELOPMENT AND SALE OF REAL ESTATE. THE ASSESSEE COMPANY HAS TAKEN UP A REAL ES TATE DEVELOPMENT PROJECT AT SURVEY NOS. 74/P & 75/P SITU ATED AT BORABANDA, FATHENAGAR VILLAGE, ASHOK MARG, HYDERABA D. IT HAS FILED ITS RETURN FOR AY 2008)09. IN THE ASSESSMENT THE AO HAS MADE THE FOLLOWING DISALLOWANCES/ADDITIONS TO THE T OTAL INCOME. (A) DISALLOWANCE OF EXPENDITURE INVOKING THE PROVISIONS OF SEC. 40(A)(IA). (B) DISALLOWANCE OF TRAVELLING EXPENDITURE. (C) DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE. 49. THE ASSESSEE HAS CHALLENGED THE ABOVE DISALLOWANCES / ADDITIONS BEFORE THE CIT(A) AND COULD NOT OBTAIN AN Y RELIEF. THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST CON FIRMATION OF THE ABOVE DISALLOWANCES/ADDITIONS MADE BY THE AO IN THE ASSESSMENT ORDER. 50. WITH REGARD TO GROUND NO. 1, THE LEARNED AR SUBMITT ED THAT THE ASSESSING OFFICER HAS ERRONEOUSLY INVOKED THE PROVISIONS OF SEC. 40(A)(IA) AND DISALLOWED THE EXPENDITURE IG NORING THE FACT THAT THE PROVISIONS OF SECTION WILL APPLY TO T HE EXPENSES OUTSTANDING AT THE END OF THE PREVIOUS YEAR. IN TH E PRESENT CASE THE AMOUNT OF EXPENDITURE IS ACTUALLY PAID AND IT IS NOT OUTSTANDING AT THE YEAR END. THIS FACT HAS ALSO NOT BEEN CONSIDERED BY THE CIT(A). THE PROVISIONS OF S. 40( A)(IA) ARE DEEMING PROVISIONS AND ARE TO BE STRICTLY INTERPRET ED. THEY ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 72 SHOULD NOT BE PRESSED BEYOND THE PURPOSE FOR WHICH THEY ARE CREATED. THE PROVISIONS OF S. 40(A)(IA) ARE ENACTED WITH AN OBJECTIVE OF CURBING BOGUS EXPENDITURE TO BE ENTERE D IN THE ACCOUNTS WITHOUT INTENTION OF MAKING PAYMENT AND TO REDUCE TAX LIABILITY. THEREFORE, THE PAYMENTS ARE MADE BEF ORE THE YEAR END, SUCH EXPENDITURE CANNOT BE DISALLOWED FOR DEFA ULT IN THE TDS. HE RELIED ON THE FOLLOWING DECISIONS: (A) MERLYN SHIPPING AND TRANSPORTS VS. ACIT (2012) 20 TAXMANN.COM 244 (VIZAG.) (B) RAJAMAHENDRI SHIPPING & OIL FIELDS SERVICES LTD VS. ADDL. CIT (2012) 20 TAXMANN.COM 474 (VIZAG.) (C) K. SRINIVAS NAIDU VS. ACIT (2010) 131 TTJ 17 (HYD)( UO) ITAT, HYDERABAD BENCH)A'. (D) TEJA CONSTRUCTIONS VS. ACIT (2010) 36 DTR (HYD) (TR IB) 220. (E) JAIPUR VIDYUT VITRAN NIGAM LTD VS. DCIT 123 TTJ 888 (HYD). 51. FURTHER, THE AR SUBMITTED THAT THE AO AS WELL AS TH E CIT(A) HAVE IGNORED THE FACT THAT THE EXPENDITURE DISALLOW ED HAS NOT BEEN CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME. THE EXPENDITURE HAS BEEN ADDED TO THE CLOSI NG STOCK OF WORK)IN)PROGRESS. THEREFORE, IT IS UNJUSTIFIED T O DISALLOW THE EXPENDITURE WHICH WAS NOT AT ALL CLAIMED BY THE ASS ESSEE AND THIS IS CONTRARY TO THE LAW. AMOUNTS WHICH WERE NOT CLAIMED AS DEDUCTION CANNOT BE ADDED TO THE TAXABLE INCOME AS A DISALLOWANCE OF EXPENDITURE. HE PRAYED THAT THE BE NCH MAY CONSIDER THE FACTS AND ALLOW THIS GROUND. 52. WITH REGARD TO DISALLOWANCE U/S. 40(A)(IA) OF THE A CT, WE ARE INCLINED TO DIRECT THE AO NOT TO DISALLOW THE E XPENDITURE IF TDS HAS BEEN REMITTED BY THE ASSESSEE BEFORE DUE DA TE OF FILING ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 73 OF THE RETURN OF INCOME AS HELD BY THE HONBLE ANDH RA PRADESH HIGH COURT IN THE CASE OF CIT VS. PEC ELECTRICALS P VT. LTD. IN ITA NO. 263 OF 2013 DATED 12.7.2013. THE HONBLE HIGH COURT HELD AS UNDER: 'WITH REGARD TO THE NEXT QUESTION, THE TRIBUNAL BY FOLLOWING THE DECISION OF THE KOLKATA HIGH COURT IN CIT VS. VIRGI N CREATIONS (GA NO. 3200/2011), WHEREIN IT HAS BEEN HELD THAT T HE AMENDMENT TO THE PROVISIONS OF SECTION 40(A)(IA) IS RETROSPECTIVE IN OPERATION AND CONSEQUENTLY IN RESP ECT OF ANY PAYMENT OF TDS MADE BEFORE THE DUE DATE FOR THE FIL ING OF THE RETURN OF INCOME, THE PROVISIONS OF SECTION 40(A)(I A) CANNOT BE INVOKED. THEREFORE, WE DO NOT FIND ANY REASON TO S EE THAT ANY FURTHER DECISION ON THIS POINT IS REQUIRED BY THIS COURT.' 53. FURTHER, WE ALSO MAKE IT CLEAR THAT IF THE EXPENDIT URE IS NOT DEBITED TO PROFIT AND LOSS A/C., THE SAME COULD NOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO T HE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF OUR ABOV E OBSERVATIONS. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. 54. WITH REGARD TO GROUND NO. 2 REGARDING DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE, THE AR SUBMITTED THAT T HE ASSESSEE HAS CLAIMED RS. 7,11,099 TOWARDS FOREIGN TRAVEL EXP ENDITURE OF THE DIRECTOR OF THE COMPANY. IT WAS EXPLAINED TO TH E ASSESSING OFFICER AND ALSO BEFORE THE CIT(APPEALS) THAT THE D IRECTOR OF THE COMPANY, MR. SAMEER JAIN HAS VISITED GERMANY TO FIN ALIZE IMPORT OF FABRICATED PANELS OF PERI FRAMES FROM GER MANY. THE AO WAS OF THE VIEW THAT THERE IS NO NECESSITY FOR T HE COMPANY TO INCUR THE TRAVEL EXPENDITURE, SINCE THE PROJECT HAS BEEN HANDED OVER TO M/S. JANAPRIYA ENGINEERS SYNDICATE P LTD. THE ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 74 AO AND ALSO THE CIT(A) DISALLOWED THE FOREIGN TRAVE L EXPENDITURE, IGNORING THE FACT THAT THE TECHNOLOGY WILL HELP IN THE CONSTRUCTION BUSINESS OF THE ASSESSEE AND THIS KNOWLEDGE WILL ALSO BE USEFUL IN ALL ITS FUTURE PROJECTS. THE ASSESSING OFFICER IS NOT JUSTIFIED IN DECIDING WHAT IS NECESSARY AND WHA T IS NOT NECESSARY FOR THE BUSINESS AS LONG AS THE EXPENDITU RE IS INCURRED FOR THE PURPOSE OF ITS BUSINESS. HE PRAYED THE BEN CH TO ALLOW THE APPEAL OF THE ASSESSEE. 55. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE EITHER BEFORE THE AO OR BEFOR E THE CIT(A). THEREFORE, THE ADDITION CONFIRMED BY THE C IT(A) IS TO BE SUSTAINED. 56. IN THIS CASE, DIRECTOR OF THE ASSESSEE)COMPANY WENT ON FOREIGN TRAVEL FOR THE PURPOSE OF BUSINESS. THE EX PENDITURE ON THIS COULD WILL BE ALLOWED IF THE SAME IS INCURRED FOR THE PURPOSE OF BUSINESS. BEFORE US, THE LEARNED COUNSEL FOR TH E ASSESSEE PLEADED THAT THE EXPENDITURE IS DIRECTLY RELATED TO ASSESSEE'S BUSINESS. HOWEVER, THE CIT(A) RECORDED HIS FINDING THAT THE ASSESSEE HAD FAILED TO PRODUCE NECESSARY EVIDENCE T O PROVE THAT THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS. IT IS ALSO NOT BROUGHT ON RECORD BY THE LOWER AUTHORITIES THAT THE EXPENDITURE IS IN THE NATURE PERSONAL EXPENSES. HE NCE IN THE INTEREST OF JUSTICE, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION WITH A DIRECTION TO THE ASS ESSEE TO PLACE NECESSARY EVIDENCE TO PROVE THAT THE EXPENDITURE IS INCURRED FOR ITA NOS. 866 & 1058/HYD/10 M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD. ================================== 75 THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER SHA LL PASS A FRESH ORDER ON THIS ISSUE AFTER CONSIDERING THE EVIDENCE PRODUCED BY THE ASSESSEE)COMPANY. THIS ISSUE IS ALLOWED FOR ST ATISTICAL PURPOSES. 57. IN THE RESULT, REVENUE APPEAL IS DISMISSED AND ASSE SSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2014. SD/) (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/) (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 12 TH FEBRUARY, 2014 TPRAO COPY FORWARDED TO: 1. THE DEPUTY CIT, CENTRAL CIRCLE)6, 7 TH FLOOR, AAYAKAR BHAVAN, L.B. STADIUM ROAD, BASHEERBAGH, HYDERABAD)4 2. M/S. S.P. REAL ESTATE DEVELOPERS PVT. LTD., 7)2, 2011 & 2012, EMERALD HOUSE, SD ROAD, SECUNDERABAD. 3. THE CIT(A))I, HYDERABAD. 4. THE CIT (CENTRAL), HYDERABAD. 5. THE DR BENCH 'A', ITAT, HYDERABAD