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Issues Involved:
1. Determination of income from the sale of flats in the course of carrying on a business of developing real estates. 2. Addition on account of alleged unaccounted and undisclosed cash received by the assessee from the buyer over and above the sale consideration mentioned in the sale agreement. 3. Disallowance of various expenses and depreciation. Issue-wise Detailed Analysis: 1. Determination of Income from the Sale of Flats: The primary issue revolves around whether the income from the sale of flats should be recognized in the year the possession is handed over or upon the project's completion. The assessee, engaged in developing real estate, follows the project completion method for computing income. However, during a survey operation under section 133A, it was found that the assessee had handed over possession of flats to unit holders and received full consideration, but did not book the income, showing it as advances instead. The Assessing Officer (AO) argued that the income should be recognized in the year possession was given, citing that the project was substantially completed, and the sale of units was effected. The AO relied on the fact that physical possession was handed over, and full payment was received, fulfilling the conditions of transfer under section 53A of the Transfer of Property Act, 1882. The assessee contended that the project was not completed, lacking essential amenities like electricity, water, and sewerage connections, and thus, income should be recognized only upon project completion. The AO rejected this, stating that mere pending litigation with the bank did not affect the fact that the sale was complete upon handing over possession. The CIT(A) upheld the AO's decision, emphasizing that profits should be taxed in the year they accrue, not postponed until project completion. The CIT(A) referenced judicial precedents supporting the assessment of income on a year-to-year basis, even in ongoing projects. The Tribunal agreed with the AO and CIT(A), stating that each flat should be treated as an independent unit, and profits should be recognized when possession is handed over. The Tribunal directed the AO to verify the actual bank liability and adjust the net profit accordingly. 2. Addition on Account of Alleged Unaccounted and Undisclosed Cash: The AO included additional amounts as undisclosed cash received by the assessee over and above the sale consideration mentioned in the agreements. The assessee disputed these additions, pointing out inconsistencies and errors in the AO's calculations, such as including amounts for unconstructed units and amounts returned to buyers. The Tribunal found merit in the assessee's arguments and directed the AO to re-examine and verify the details to accurately assess any undisclosed income. The AO was instructed to provide the assessee an opportunity to present evidence and submissions. 3. Disallowance of Various Expenses and Depreciation: The assessee contested several disallowances made by the AO, including: - Disallowance of traveling expenses under Rule 6D. - Disallowance of depreciation on various assets. - Disallowance of interest payments. The Tribunal noted that these issues are connected to the broader determination of the project's cost, which was already being re-examined. Therefore, these disallowances were also remanded to the AO for fresh adjudication, allowing the assessee to present supporting evidence. Conclusion: The Tribunal's decision partially allowed the assessee's appeals, directing the AO to: 1. Recognize income from the sale of flats in the year possession is handed over, after verifying the actual bank liability. 2. Re-examine and verify alleged undisclosed cash receipts. 3. Reassess disallowances of expenses and depreciation in light of the project's cost determination.
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