ACIT, CHENNAI V. M/s. Bullman Properties Pvt. Ltd., CHENNAI

ITA 972/CHNY/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4545 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-07-2013
• Assessment Year: 1999-2000
• Appeal Filed On: 13-04-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB ADL
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Cost of acquisition
• Section: 143(3); 148; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 972/MDS/2007 ASSESSMENT YEAR 1999-2000 ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(2), CHENNAI . VS M/S. BULLMAN PROPERTIES PVT. LTD., 17, MOUNT ROAD, CHENNAI 15. [PAN: AAACB 2222 Q] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P.JACOB, ADL.CIT ASSESSEE BY : SHRI T.N. SEETHARAMAN, ADVOCATE DATE OF HEARING : 03-07-2013 DATE OF PRONOUNCEMENT : 12-08-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-II I, CHENNAI DATED 11-01-2007. I.T.A. NO. 972/MDS/2007 :- 2 -: 2. THE BRIEF FACTS OF THE CASE ARE, THE ASSESSEE IS A PROPERTY DEVELOPER. THE ASSESSEE DEVELOPED RESIDENTIAL FLAT S NAMED LAKE VIEW APARTMENTS CONSISTING OF 106 RESIDENTIA L FLATS. THE LAND ON WHICH THE AFORESAID APARTMENTS WERE DEVELOP ED WAS OWNED BY M/S. M.L. ESTATES PVT. LTD., THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 07-02-1996 WITH M/S. V.G.P. PROP ERTY DEVELOPERS LTD., (HEREIN AFTER REFERRED TO AS VGP ) TO UNDERWRITE THE SALE OF 76 FLATS DEVELOPED BY THE ASSESSEE AT LAKE VIEW APARTMENTS. SUBSEQUENTLY, SUPPLEMENTAL UNDERWRITIN G AGREEMENT WAS EXECUTED BETWEEN THE ASSESSEE AND VGP ON 18-09-1997 REDUCING THE NUMBER OF APARTMENTS FROM 7 6 TO 30. ACCORDING TO SUPPLEMENTARY UNDERWRITING AGREEMENT, VGP (THE UNDERWRITER) AGREED TO ARRANGE BUYERS FOR PURCHASE OF SUPER BUILT- UP AREA ALONG WITH UN-DIVIDED SHARE IN LAND WITH RE SPECT TO 30 APARTMENTS. VGP AGREED TO PAY A TOTAL SUM OF ` 4,03,17,350/- INCLUDING COST OF UN-DIVIDED SHARE IN LAND @ ` 1025/- PER. SQ.FT. FOR A TOTAL SUPER BUILT-UP AREA MEASURING 39,334 SQ. FT . AS PER AGREEMENT, THE AFORESAID AMOUNT WAS TO BE PAID BY V GP TO THE OWNER AND THE BUILDER/ASSESSEE AS FOLLOWS: I.T.A. NO. 972/MDS/2007 :- 3 -: A) ` 3,65,73,100/- PAID ON VARIOUS DATES UNDER ORIGINAL AGREEMENT DATED 09-02-1996 AND APPROPRIATED AS PART CONSIDERATION. ( ` 25.00 LAKHS WAS AGREED TO BE TREATED AS EARNEST MONEY TO BE ADJUSTED AT THE TIME OF PAYMENT OF ENTIRE BALANCE PAYABLE); B) ` 7,00,000/- PAYABLE ON OR BEFORE 15-10-1997; C) ` 7,00,000/- PAYABLE ON OR BEFORE 15-11-1997; D) ` 7,00,000/- PAYABLE ON OR BEFORE 15-12-1997; E) `16 ,44,250/- PAYABLE ON OR BEFORE 30-01-1998; THE ASSESSEE FOLLOWED PROJECT COMPLETION METHOD FOR ACCOUNTING PURPOSES AND AS PER ARS SUBMISSIONS, THE PROJECT WA S COMPLETED IN THE YEAR 1999. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AS SESSMENT YEAR 1999-2000 DECLARING LOSS OF ` 1,50,115/-. THE RETURN OF THE ASSESSEE WAS ON 25-10-1999 PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). DURING THE COURSE OF SCRUTINY FOR THE ASSESSMENT YE AR 2002-03, THE ASSESSING OFFICER OBSERVED THAT THE ACTUAL SALE VALUE OF FLAT FOR THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2002 -03 WAS MUCH HIGHER WHERE AS THE ASSESSEE WAS ONLY ACCOUNTI NG THE I.T.A. NO. 972/MDS/2007 :- 4 -: SALE VALUE RECEIVED IN THE FINANCIAL YEAR 1998-99 R ELEVANT TO ASSESSMENT YEAR 1999-2000 FROM VGP. THE EXCESS OVE R AND ABOVE THE PRICE FIXED IN THE FINANCIAL YEAR 1998-99 WAS CLAIMED BY THE VGP. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS FAR AS THE ASSESSEE IS CONCERNED, THE SALE OF THIRTY FLATS WAS COMPLETED IN FINANCIAL YEAR 1998-99 ITSELF AND THE ASSESSEE O UGHT TO HAVE OFFERED THE PROFIT ON SALE OF THE FLATS IN ASSESSME NT YEAR 1999- 2000 FOR TAXATION. IN THE BACKGROUND OF THESE FACT S, THE ASSESSING OFFICER ISSUED NOTICE U/S. 148 ON 24-03-2 005 TO THE ASSESSEE. THE ASSESSEE RAISED OBJECTIONS ON THE RE -OPENING WHICH WERE REJECTED BY THE ASSESSING OFFICER ON 01- 02-2006. DURING THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE HAD ALSO SOLD ONE FLAT TO MS. HAJIRA SULTANA AND HAD RECEIVE D ` 10,66,000/- AS ADVANCE. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 17-03-2006 PASSED U/S. 143(3) R.W.S. 147 OF THE ACT DETERMINED THE NET PROFIT OF THE ASSESSEE AS ` 1,63,22,315/-, AFTER TAKING INTO CONSIDERATION THE SALE VALUE OF THIRTY FLATS TO VGP ` 3,92,96,838/- AND SALE OF FLAT TO MS. HAJIRA. SULTANA ` 10,66,000/-. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE C IT(APPEALS) I.T.A. NO. 972/MDS/2007 :- 5 -: ALLOWED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 11-01-2007. NOW, THE REVENUE HAS COME IN APPEAL BEFORE US ASSAI LING THE ORDER OF CIT(APPEALS). 3. SHRI SHAJI P. JACOB, APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT DURING THE AY UNDER CONSIDERATION TH E ASSESSEE HAD EARNED PROFIT ON SALE OF THIRTY FLATS IN RESPEC T OF WHICH UNDERWRITING AGREEMENT HAS BEEN EXECUTED BETWEEN TH E ASSESSEE AND VGP. AS PER UNDERWRITING AGREEMENT, T HE ASSESSEE HAS RECEIVED THE ENTIRE CONSIDERATION IN T HE FINANCIAL YEAR 1998-99. THE LD. DR FURTHER SUBMITTED THAT TH E PROJECT WAS COMPLETED IN THE FINANCIAL YEAR 1998-99 RELEVANT TO THE ASSESSMENT YEAR 1999-2000. IN ORDER TO SUPPORT HIS CONTENTIONS, THE DR REFERRED TO LETTER DATED 14-12- 2004 AT PAGE NOS. 1 TO 3 OF THE PAPER BOOK FILED BY HIM. THE D R CONTENDED THAT, SINCE THE ASSESSEE IS FOLLOWING PROJECT COMPL ETION METHOD, THE PROFIT ARISING FROM THE SALE OF APARTMENTS IS L IABLE TO BE TAXED IN THE YEAR OF COMPLETION I.E., ASSESSMENT YEAR 199 9-2000. THE ASSESSEE DID NOT DISCLOSE THE SALE PROCEEDS RECEIVE D FROM VGP IN THE ASSESSMENT YEAR 1999-2000 AND INSTEAD TREATE D THE I.T.A. NO. 972/MDS/2007 :- 6 -: AMOUNT RECEIVED AS ADVANCE IN THE BALANCE SHEET. I N THE SUBSEQUENT YEARS AS AND WHEN THE FLATS WERE SOLD BY VGP, THE AMOUNT OF ADVANCE WAS APPROPRIATED AND TREATED AS S ALE PROCEEDS. THE LD. DR FURTHER SUBMITTED THAT ALTHOU GH THE ASSESSEE CLAIMS THAT IT IS FOLLOWING COMPLETED CONT RACT METHOD FOR RECOGNIZING THE INCOME, THE STAND OF THE ASSESS EE IS CONTRARY AS THE ASSESSEE IS BOOKING INCOME FROM SALES MADE B Y IT DURING THE ASSESSMENT YEAR 2000-2001 ONWARDS THOUGH ACCORD ING TO THEM, MAJORITY OF FLATS WERE UN-SOLD IN THAT YEAR. THE LD. DR VEHEMENTLY ARGUED THAT THE COMPLETED CONTRACT METHO D IS DIRECTLY NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE A SSESSEE IS NOT INTO CONSTRUCTION ACTIVITY. COMPLETED CONTRACT MET HOD IS APPLICABLE TO CONSTRUCTION CONTRACT BUSINESS WHEREI N A SPECIFIC CONTRACT WORK IS UNDERTAKEN BY THE ASSESSEE FOR A S PECIFIED SUM OR A SPECIFIED PROFIT MARGIN WHEREAS IN THE PRESENT CASE, THE ASSESSEE IS A BUILDER/PROMOTER OF REAL ESTATE BUSIN ESS AND IS NOT DOING ANY CONSTRUCTION CONTRACTS. THE LD. DR FURTH ER SUBMITTED THAT THE CIT(APPEALS) HAS ERRED IN CONSIDERING THE COST OF ALL THE FLATS WHERE AS HE IS TAKING THE SALE PRICE OF ONLY THIRTY FLATS TO DETERMINE THE PROFITS. THE CIT(APPEALS) HAS FAILED TO TAKE INTO I.T.A. NO. 972/MDS/2007 :- 7 -: CONSIDERATION UNDERWRITING AGREEMENT. AS PER AGRE EMENT, THE CONTRACT HAD BECOME BINDING ON THE EXCHANGE OF VALI D PROMISES. THE LD. DR PRAYED FOR SETTING ASIDE THE IMPUGNED OR DER OF CIT(APPEALS). 4. ON THE OTHER HAND SHRI T.N. SEETHARAMAN, APPEAR ING ON BEHALF OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(APPEALS). THE LD. AR ADMITTED THE EXECUTION OF THE UNDERWRITING AGREEMENTS DATED 07-02-1996 AND 18-09- 1997. THE LD. AR CONTENDED THAT THE TITLE IN PROPERTY I.E., T HIRTY FLATS WHICH WERE UNDERWRITTEN BY VGP DID NOT PASS AT THE TIME O F EXECUTION OF UNDERWRITING AGREEMENT. THE TITLE IN PROPERTY IS T RANSFERRED ONLY WHEN REGISTERED SALE DEED IS EXECUTED WITH RESPECT TO UN-DIVIDED SHARE IN LAND AND THE BUILT UP AREA OF THE FLATS. AS AND WHEN THE POSSESSION OF THE FLATS WAS HANDED OVER TO THE ALLO TTEES, THE ASSESSEE HAD OFFERED THE PROFIT FOR TAX WHICH HAS B EEN DULY REFLECTED IN THE ASSESSMENT YEARS 2000-2001 TO 2007 -08. THE LD. AR FURTHER SUBMITTED THAT THE TAXABLE EVENT IS NOT THE EXECUTION OF UNDERWRITING AGREEMENT BUT REGISTRATION OF SALE DEE D AFTER SALE OF APARTMENTS. COMPLETION OF THE PROJECT IS NOT RELEV ANT FOR LEVY OF I.T.A. NO. 972/MDS/2007 :- 8 -: TAX ON THE ADVANCE RECEIVED FROM UNDERWRITER. THE AR FURTHER POINTED OUT THAT NO POWER OF ATTORNEY WAS EXECUTED EITHER BY THE OWNER OR THE ASSESSEE (I.E., BUILDER) AT ANY TIME I N FAVOUR OF VGP. ALL SALE DEEDS WERE EXECUTED AND REGISTERED IN FAVO UR OF THE ALLOTTEES BY M.L. ESTATES PVT. LTD., I.E., THE OWNE R OF UN-DIVIDED SHARE OF LAND AND DEEDS OF DECLARATION, INTER-ALIA, HANDING OVER POSSESSION TO THE ALLOTTEES WERE EXECUTED BY THE AS SESSEE. THE POSSESSION OF FLATS WHICH WERE UNDERWRITTEN BY THE VGP WERE NEVER GIVEN TO THE UNDERWRITER, THE POSSESSION WAS DIRECTLY HANDED OVER TO THE ALLOTTEES CONCERNED. THE LD. AR SUBMITTED THAT THE AGREEMENT WITH VGP WAS BASICALLY FOR MARKE TING OF THE THIRTY FLATS. VGP WAS NOT A PURCHASER BUT AN UNDER WRITER, APPOINTED TO IDENTIFY PURCHASERS AND TAKE STEPS FOR THE SALE OF THE FLATS. EVEN AS PER THE PROVISIONS OF SECTION 54 OF THE TRANSFER OF PROPERTY ACT, 1882, NO SALE HAS TAKEN PLACE BETWEEN THE ASSESSEE AND THE UNDERWRITER. ON THE ISSUE OF COMP LETION OF PROJECT, THE AR SUBMITTED THAT THE PROJECT WAS COMP LETED IN THE YEAR 1999. THE ASSESSEE MADE A REQUEST FOR THE ISS UANCE OF COMPLETION CERTIFICATE TO CMDA ON 11-08-1999. THE COMPLETION CERTIFICATE WAS ISSUED BY THE CMDA ON 29-12-1999. THE AR I.T.A. NO. 972/MDS/2007 :- 9 -: POINTED OUT THAT THE DR HAS PLACED RELIANCE ON THE LETTER OF CHARTERED ACCOUNTANT DATED 14-12-2004 WHICH IS AT P G. NOS. 1 TO 3 OF THE PAPER BOOK OF THE REVENUE WHEREIN IT HAS B EEN MENTIONED THAT THE PROJECT WAS COMPLETED IN THE FIN ANCIAL YEAR 1998-99. THE SAID STATEMENT IS AGAINST THE FACTS A ND DOCUMENTS ON RECORD AS IS EVIDENT FROM THE NOTES TO THE ACCOU NTS FOR THE YEAR ENDED 31-03-1999 WHICH ARE AT PAGE NO. 40 OF THE PA PER BOOK OF THE ASSESSEE. IT HAS BEEN CATEGORICALLY MENTIONED IN THE NOTES THAT THE PROJECT LAKE VIEW APARTMENTS IS SHOWN AS WORK-IN- PROGRESS UNDER THE CURRENT ASSET SCHEDULE IN THE BA LANCE SHEET AND THE ADVANCE MONEY RECEIVED IS SHOWN UNDER CURRE NT LIABILITIES. THE AR STRONGLY SUPPORTED THE ORDER OF THE CIT(APPEALS) AND PRAYED FOR THE DISMISSAL OF THE AP PEAL OF THE REVENUE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS DOCUMENTS ON RECOR D. FROM THE SUBMISSIONS MADE BY THE RIVAL PARTIES, THE FOLLOWIN G QUESTIONS EMERGE FOR ADJUDICATION: I.T.A. NO. 972/MDS/2007 :- 10 - : I) WHEN WAS THE PROJECT COMPLETED?; II) WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE FR OM UNDERWRITER IS THE PURCHASE COST OF THE FLATS OR AD VANCE AGAINST THE SALE OF UNDERWRITTEN FLATS?; AND III) WHAT IS THE TAXABLE EVENT AND IN WHICH AY, THE INCOME OF THE ASSESSEE IS LIABLE TO BE TAXED?; 6. THE UN-DISPUTED FACTS OF THE CASE ARE THAT THE A SSESSEE ENTERED INTO AN UNDERWRITING AGREEMENT WITH VGP IN RESPECT OF SALE OF THIRTY FLATS IN THE YEAR 1997. THE ASSESSE E RECEIVED CERTAIN AMOUNT IN THE PHASED MANNER FROM THE UNDER WRITER. THE ASSESSEE SHOWED THE SAID AMOUNT IN THE BALANCE SHEE T AS ADVANCE. 7. A PERUSAL OF THE ORDER OF CIT(APPEALS) SHOWS THA T THE CIT(APPEALS) HAS GIVEN A CATEGORIC FINDING THAT THE PROJECT WAS COMPLETED IN THE FINANCIAL YEAR RELEVANT TO THE AY. 1999-2000. MOREOVER, THE CHARTERED ACCOUNTANT OF THE ASSESSEE VIDE LETTER DATED 14-12-2004 HAS MENTIONED IN HIS LETTER THAT T HE HOUSING PROJECT WAS COMPLETED IN THE FINANCIAL YEAR 1998-99 . THE LD. AR I.T.A. NO. 972/MDS/2007 :- 11 - : HAS CONTENDED THAT, THE ASSESSEE HAD APPLIED FOR IS SUANCE OF COMPLETION CERTIFICATE IN THE MONTH OF AUGUST 1999 AND THE COMPLETION CERTIFICATE WAS ISSUED TO THE ASSESSEE B Y CMDA ON 29-12-1999. IN OUR VIEW, THE PROJECT IS COMPLETED WHEN IT BECOMES HABITABLE AND ALL ACTIVITIES RELATING TO TH E CONSTRUCTION OF THE PROJECT ARE COMPLETED. IT IS THE CHOICE OF THE DEVELOPER WHEN TO APPLY TO THE CONCERNED, AUTHORITY FOR THE ISSUAN CE OF COMPLETION CERTIFICATE. BE THAT AS IT MAY, THE ASSESSEE HAS N OT CHALLENGED THE FINDINGS OF CIT(APPEALS) WITH RESPECT TO YEAR O F COMPLETION OF THE PROJECT. ACCORDINGLY, WE ACCEPT THE YEAR OF CO MPLETION OF PROJECT AS 1998-99. 8. AS REGARDS THE SECOND POINT OF CONTENTION BETWEE N THE REVENUE AND THE ASSESSEE IS CONCERNED, IT WOULD BE NECESSARY TO UNDERSTAND THE NATURE OF AGREEMENT BETWEEN THE P ARTIES. THE TERM UNDERWRITE MEANS TO ASSUME FINANCIAL RESPONS IBILITY TO GUARANTEE THE PURCHASE OF A FULL ISSUE OF STOCKS OR BONDS. AS PER OXFORD ENGLISH DICTIONARY, THE TERM UNDERWRITE ME ANS 1) SIGN AND ACCEPT LIABILITY UNDER (AN INSURANCE POLICY) AC CEPT (A LIABILITY OR RISK) IN THIS WAY, 2) UNDERTAKE TO FINANCE OR OT HERWISE SUPPORT I.T.A. NO. 972/MDS/2007 :- 12 - : OR GUARANTEE (SOMETHING). 3) ENGAGE TO BUY ALL THE UNSOLD SHARES IN (AN ISSUE OF NEW SHARES) AND 4) WRITE BELOW SOME THING ELSE. THE UNDERWRITER GUARANTEES TO TAKE THE RESPONSIBILI TY OF ITS OWN. IN THE INSTANT CASE, A PERUSAL OF THE UNDERWRITING AGREEMENT MAKES IT CLEAR THAT VGP (UNDERWRITER) HAS TO PAY TH E AGREED AMOUNT IN A PHASED MANNER TO THE ASSESSEE BY JANUAR Y 1998. IN LIEU OF THE CONSIDERATION RECEIVED, THE ASSESSEE HAS TO COMPLETE THE APARTMENTS AND HAND OVER THE POSSESSIO N TO THE PROSPECTIVE BUYERS BROUGHT IN BY VGP. IN THE BOOK OF ACCOUNTS, THE ASSESSEE HAS SHOWN THE AMOUNT RECEIVED FROM VGP IN LIEU OF UNDERWRITTEN APARTMENTS AS ADVANCE. THE ASSESSEE I S APPROPRIATING THE AMOUNT SHOWN AS ADVANCE TO SALE I N THE YEAR OF EXECUTION OF SALE DEED. THE ASSESSEE HAS RECEIVED THE AMOUNT MUCH PRIOR TO THE DATE OF EXECUTION OF SALE DEED AN D DELIVERY OF POSSESSION OF PROPERTY. WHETHER THE UNDERWRITER (V GP) IS EVENTUALLY ABLE TO SELL ALL THE FLATS OR NOT WILL I N NO WAY AFFECTS THE CONTRACT ALREADY ENTERED BY IT WITH THE ASSESSEE. T HE RISK, RESPONSIBILITY AND LIABILITY TO SELL THE FLATS UNDE RWRITTEN IS ON THE UNDERWRITER. I.T.A. NO. 972/MDS/2007 :- 13 - : 9. AS PER THE CASE OF THE ASSESSEE, THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD FOR ACCOUNTING. IT IS ON THE COMPLETION OF THE PROJECT THAT THE AMOUNT RECEIVED BY THE ASSE SSEE ON ACCOUNT OF SALE OF THE APARTMENTS IS LIABLE TO BE T AXED. IT IS IN THE YEAR OF COMPLETION THE TOTAL COST OF THE PROJECT IS DETERMINED. THE ASSESSEE HAS RELIED ON EXHIBIT-I SHOWING THE AMOUNT RECEIVED AND THE EXPENDITURE INCURRED ON THE PROJECT. EXHIB IT-I IS REPRODUCED HEREIN BELOW: RECEIPTS 31.03.96 31.03.97 31.03.98 31.03.99 TOTAL ADVANCE RECEIVED FROM VGP PROPERTIES 20,00,000 29,815,790 1,100,000 1,395,000 34,310,790 ADVANCE RECEIVED FROM HAJIRA SU LTANA -- -- -- 1,066,000 1,066,000 TOTAL ADVANCE 2,000,000 29,815,790 1,100,000 2,461,000 35,376,790 PAYMENTS 31.03.96 31.03.97 31.03.98 31.03.99 TOTAL EXPENSES INCURRED FOR LAKE VIEW PROJECT 6,710,823 21,724,722 2,386,250 39,536,827 70,358,622 TOTAL EXPENSES INCURRED 6,710,823 21,724,722 2,386,250 39,536,827 70,358,622 DEFICIT -4,710,823 8,091,068 -1,286,250 -37,075,827 -34,981,832 A PERUSAL OF EXHIBIT-I SHOWS THAT UPTO 31-03-1999 T HE ASSESSEE HAS RECEIVED A TOTAL SUM OF ` 3,53,76,790/-, FROM VGP I.T.A. NO. 972/MDS/2007 :- 14 - : ( ` 3,43,10,790/-) AND MS. HAJIRA SULTANA ( ` 10,66,000/-) AND THE TOTAL EXPENDITURE ON THE PROJECT IS ` 7,03,58,622/-. IN THE P&L A/C, THE COST OF THE PROJECT AS WELL AS THE AMOUNT RECEI VED AGAINST THE SALE OF FLATS ARE TO BE SHOWN. THE AMOUNT RECEIVED BY THE ASSESSEE FROM VGP & MS. HAJIRA SULTANA SHOWN AS ADV ANCE ARE IN FACT SALE PROCEEDS OF FLATS WHICH ARE LIABLE TO BE TAXED IN THE YEAR OF COMPLETION OF THE PROJECT. THE PRICE OF TH E FLATS HAVE ALREADY BEEN DETERMINED VIDE UNDERWRITING AGREEMENT , VGP PAID THE AMOUNT TO ASSESSEE AT AN AGREED PRICE I.E., @ ` 1025/- PER SQUARE FT. IN A PHASED MANNER. EXECUTION OF SALE D EED AND HANDING OVER OF POSSESSION OF FLATS IS A MERE CONSE QUENCE OF UNDERWRITER BRINGING THE PROSPECTIVE BUYERS OF THE FLATS. DEFACTO THE RESPONSIBILITY AND LIABILITY OF SALE OF 30 UNDE RWRITTEN FLATS HAS BEEN PASSED ON TO VGP. THE CONTENTION OF THE LD. C OUNSEL THAT THE ASSESSEE HAS NOT EXECUTED ANY POWER OF ATTORNEY IN FAVOUR OF VGP OR HAS NOT GIVEN THE POSSESSION OF THE FLATS TO VGP HAS GOT NO FORCE. A PERUSAL OF CLAUSE-20 OF THE SUPPLEMENT AL AGREEMENT DATED 18-09-1997 WHICH IS RE-PRODUCED HEREIN BELOW WOULD SHOW THAT THE DISCRETION TO GET THE POWER OF ATTORNEY EX ECUTED, IS WITH I.T.A. NO. 972/MDS/2007 :- 15 - : THE UNDERWRITER AND NOT WITH THE ASSESSEE. THE CLA USE-20 OF THE SUPPLEMENTAL AGREEMENT IS AS UNDER: 20) AFTER RECEIPT OF FULL CONSIDERATION UNDER THIS AGREEMENT THE OWNER AND BUILDER SHALL AT THE OPTION OF THE UNDERW RITER EXECUTE AND IF NECESSARY REGISTER AN IRREVOCABLE PO WER OF ATTORNEY IN FAVOUR OF THE UNDERWRITER OR ITS NOMINEE IMPOWER RING IT TO EXECUTE NECESSARY DOCUMENTATION IN FAVOUR OF THE NO MINEE/S OF THE UNDERWRITER PROVIDED SUCH POWER OF ATTORNEY SHALL C ONTAIN A STIPULATION AS HAVING BEEN RECEIVED BY THE OWNER AN D BUILDER IN EXCESS OF THE CONSIDERATION FIXED UNDER THIS AGR EEMENT. IF VIEWED FROM ANOTHER ANGLE, IF VGP BRINGS ANY BUY ER OF THE FLAT AND REQUESTS ASSESSEE TO EXECUTE SALE DEED IN HIS FAVOUR, THE ASSESSEE IS DUTY BOUND TO GET SALE DEED EXECUTED IN FAVOUR OF THE PROSPECTIVE BUYER AND HANDOVER POSSESSION OF THE FL AT. IN CASE THE ASSESSEE REFUSES TO DO SO, IT SHALL BE BREACH O F CONTRACT BETWEEN THE ASSESSEE AND UNDERWRITER. CLAUSE-18 OF THE SUPPLEMENTAL AGREEMENT (SUPRA) SPECIFICALLY STATES THAT THE UNDERWRITER SHALL HAVE THE RIGHT AT ANY STAGE TO IN SIST THE OWNER AND BUILDER (ASSESSEE) TO ARRANGE FOR EXECUTION AND REGISTRATION OF DOCUMENTS IN FAVOUR OF ITS NOMINEE(S). THE RELEVAN T CLAUSE 18 OF THE AGREEMENT IS REPRODUCED HEREIN BELOW: 18) IT IS SPECIFICALLY AGREED THAT UNTIL FULL PAYMENT I S RECEIVED FROM THE UNDERWRITER THERE SHALL BE NO PRIVITY OF CONTRA CT I.T.A. NO. 972/MDS/2007 :- 16 - : WHATSOEVER BETWEEN THE OWNER AND BUILDER OF THE ONE PART AND THE NOMINEE/S OF THE UNDERWRITER. HOWEVER, THE UNDERWRITER SHALL HAVE THE RIGHT AT ANY STAGE TO IN SILST ON THE OWNER AND BUILDER TO ARRANGE FOR EXECUTION AND REGI STRATION OF DOCUMENTATION IN FAVOUR OF ITS NOMINEE/S IN RESPECT OF APARTMENTS FOR WHICH FULL CONSIDERATION IS SHOWN AS HAVING BEI NG RECEIVED PROVIDED AS CONSIDERATION SHALL BE ADJUSTED FROM TH E AMOUNTS ALREADY PAID BY THE UNDERWRITER AT SUCH TIME LESS T HE EARNEST MONEY DEPOSIT PAID. THUS, FROM THE DOCUMENTS ON RECORD AND THE FACTS OF THE CASE, IT IS EVIDENT THAT THE AMOUNT RECEIVED BY ASSESSEE FRO M UNDERWRITER IS THE SALE PRICE OF THE FLATS. 10. THE THIRD QUESTION IS THE TAXABLE EVENT AND THE AY IN WHICH THE INCOME IS LIABLE TO BE TAXED. THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD. THEREFORE, THE ASSESSEE IS LIAB LE TO BE TAXED IN THE YEAR OF COMPLETION OF THE PROJECT. AS HAS A LREADY BEEN HELD HEREIN ABOVE THAT THE PROJECT OF THE ASSESSEE WAS C OMPLETED IN THE YEAR 1998-99 RELEVANT TO THE AY. 1999-2000, TH E INCOME FROM SALE OF FLATS IS LIABLE TO BE TAXED IN AY. 1999-200 0. THE ASSESSEE HAS RECEIVED A SUM OF ` 3,43,10,790/- FROM VGP AGAINST 30 FLATS AND ONE FLAT WAS SOLD DIRECTLY BY THE ASSESSEE TO M S. HAJIRA SULTANA. AS PER ASSESSEES OWN ADMISSION, ADVANCE AGAINST THE I.T.A. NO. 972/MDS/2007 :- 17 - : SAID FLATS WAS RECEIVED BY THE ASSESSEE ON OR BEFOR E 31-03-1999. THE ALLEGED ADVANCE WHICH IN FACT IS THE SALE PROCE EDS OF THE FLATS, ON COMPLETION OF THE PROJECT HAS TO BE TREAT ED AS SALE CONSIDERATION. THE CONSIDERATION CAN ONLY BE TREAT ED AS ADVANCE TILL THE TIME THE PROJECT IS IN PROGRESS. THE DAY THE PROJECT IS COMPLETED, THE ADVANCE HAS TO BE TREATED AS SALE CO NSIDERATION. IN THE INSTANT CASE, QUA VGP PROJECT IS COMPLETE WI TH RESPECT TO 30 FLATS WHICH HAVE BEEN UNDERWRITTEN. EXECUTION O F SALE DEED IS PURELY CONSEQUENTIAL TO THE AGREEMENT BETWEEN THE V ENDEE AND VENDOR (I.E., ASSESSEE). 11. IN VIEW OF OUR ABOVE FINDINGS, THE IMPUGNED ORD ER IS SET ASIDE AND THE APPEAL OF THE REVENUE IS ALLOWED ACCO RDINGLY. ORDER PRONOUNCED ON MONDAY, THE 12 TH AUGUST, 2013, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (VIKAS AWASTHY) JUDICIAL MEMBER DATED: 12 TH AUGUST, 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR