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2021 (5) TMI 384 - ITAT MUMBAIGain on sale of asset - capital gain or business income - assessee-company is engaged into redevelopment of property in co ownership with two other parties - CIT(A) was of the same opinion as that of the Assessing Officer that the said property was held by the assessee as business asset and not as a capital asset - CIT(A) was of the opinion that percentage completion method has been adopted by the Assessing Officer, which is well recognised method AND rejected the assessee’s claim for deduction by way of recoupment from other co-owners by holding that it was not substantiated - HELD THAT:- We note that as regards the claim of the assessee that it is not a business venture but a capital asset of the assessee, the same is not based upon convincing material. The assessee’s claim is that since inception the assessee has debited all cost of the project as investment and the Revenue has always accepted the same. We find that on the facts and circumstances narrated above the assessee’s plea that it is a capital asset and not a business venture has been rightly rejected by the authorities below. The detail of different agreement referred by the authorities below in their orders referred above duly corroborate this aspect. Computation of gain - whether the Revenue can thrust upon the assessee’s percentage completion method of accounting that also for the first time? - HELD THAT:- We note that it is undisputed fact that since inception the assessee has capitalised cost of redevelopment - We note that completed contract method and percentage complete method in the extant period were duly recognised method of accounting for construction project. In this regard we may gainfully refer to the decision of Hon'ble Supreme Court exposition in the case of CIT Vs. M/s. Bilahari Investment (P) Ltd. [2008 (2) TMI 23 - SUPREME COURT] wherein held percentage completion method and competed contract method are both recognised method of construction project. Also see HYUNDAI HEAVY INDUSTRIES COMPANY LIMITED [2007 (5) TMI 196 - SUPREME COURT]. Percentage complete method and completed contract method were both acceptable method and accounting of construction contract in the impugned period. We note that the assessee has all along treated the said project as capitalised item and debited all the expenses to the capital account. This method has been accepted by the Revenue in the past. It is also undisputed that in the current year project is not at all complete. Redevelopment is still in progress. The assessee has also to recoup expenditure from other co-owners. Agreement to sale has not been registered, possession of the property has not been handed over. In these circumstances, assessee cannot be thrust upon percentage of completion method of accounting by the Assessing Officer. Hence, though we do not agree with the assessee that it is not a business project, we agree that the project is incomplete and in substance if assessee wishes to offer for taxation its gain on completion of project i.e. apply completed contract method the same cannot be rejected. This proposition is duly supported by Hon'ble Supreme Court exposition as above. Also percentage completion method has been made compulsory by subsequent insertion of section 43CB of the Act, which is not applicable to the impugned assessment year. This issue is revenue neutral. As and when the contract/project is complete, the gain would be exigible to tax. Thus the effect is only revenue neutral as revenue shall collect necessary taxation when the project is complete. In such circumstances also Hon'ble Supreme Court decision in the case of Union of India & Ors v Exide Industries & Anr [2020 (4) TMI 792 - SUPREME COURT] is in favour of the assessee. Revenue was not justified in applying percentage completion method and computing gains in the current assessment year.
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