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Issues Involved:
1. Deduction of DM fees payable to M/s. GPIL. 2. Assessment of capital gain on the sale of a portion of the land relating to the project Eternia 'B'. Summary: Issue 1: Deduction of DM fees payable to M/s. GPIL The assessee, an individual, owned land in Shivaji Nagar, Pune, and entered into joint venture agreements with M/s. Godrej Properties & Investments Ltd. (M/s. GPIL) for development. The agreements dated 4-9-1998 and 10-6-1999 involved constructing residential and commercial buildings. The assessee claimed a loss of Rs. 15,10,176 from the business of construction and development, following the project completion method of accounting. The Assessing Officer (AO) found discrepancies in the profit and loss accounts and noted that the assessee had debited Rs. 5,30,02,177 as DM fees to M/s. GPIL, which was not reflected in the original return. The AO assessed the profit of Eternia 'B' at Rs. 5,30,02,177 and allowed only 25% deduction of DM fees as per the original agreement. On appeal, the CIT(A) verified the modified agreement and correspondence, concluding that the revised agreement dated 26-2-2001 was valid and the DM fees of Rs. 5,30,02,177 payable to M/s. GPIL was a legitimate charge on the profits of Eternia 'B'. The CIT(A) relied on the Supreme Court decision in CIT v. K.B. Kalikutty [1969] 73 ITR 533, allowing the deduction despite the absence of entries in the books of account. The Revenue's appeal contended that the assessee should have offered the income for taxation based on the completion of each building and that the DM fees claim was invalid without a revised return. The Tribunal found that the assessee had followed the project completion method and that the modified agreement terms were accepted by the department in subsequent years. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. Issue 2: Assessment of capital gain on the sale of a portion of the land relating to the project Eternia 'B' The assessee argued that no capital gain arose as there was no transfer of land to M/s. GPIL, claiming that section 2(47)(iv), (v), and (vi) were not applicable since the land and building were stock-in-trade. The AO, however, noted that the land cost relating to Eternia 'B' was debited and assessed the capital gains at Rs. 1,87,70,701 under section 45(2), as the land was converted into stock-in-trade. The CIT(A) confirmed the AO's view. The Tribunal found no merit in the assessee's contentions, stating that the provisions of section 2(47)(iv), (v), and (vi) were applicable. The Tribunal held that the transfer of land to the developers and subsequently to the buyers of the flats constituted a transfer within the meaning of section 2(47), justifying the capital gains assessment under section 45(2). The Tribunal dismissed the assessee's appeal. Conclusion: Both the appeals of the Revenue and the assessee were dismissed.
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