2007 (9) TMI 677 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the rejection of the project completion method.
2. Estimating the profit from the Chaitanya Tower project.
3. Taxability of the income in the assessment year 2002-03.
4. Determination of taxable income of the Chaitanya Tower project.
5. Charging of interest under sections 234B and 234C.
6. Taxability of the receipt of Rs. 3,12,73,178 related to common amenities and infrastructure facilities.

Detailed Analysis:

1. Sustaining the Rejection of the Project Completion Method:
The assessee objected to the rejection of the project completion method, which had been consistently followed and accepted by the IT Department. The project completion method involves offering the profits of the project for tax only upon the finalization of the entire project. The Department, however, disputed this method, arguing that the income from the Chaitanya Tower project should be assessed in the assessment year 2002-03. The Tribunal found that the project was not complete in the assessment year 2002-03, as only 75% of the project was finished by then, supported by the architect's certificate and the substantial expenditure incurred post-March 31, 2002.

2. Estimating the Profit from the Chaitanya Tower Project:
The AO estimated the net profit from the Chaitanya Tower project at Rs. 19,45,59,276, which the CIT(A) later reduced to Rs. 14,02,44,150. The assessee firm contended that no income should be taxed for the assessment year 2002-03 as the project was not complete. The Tribunal concluded that the project completion method was appropriate and that the income should only be taxed once the project was fully completed in the assessment year 2003-04.

3. Taxability of the Income in the Assessment Year 2002-03:
The Tribunal held that the Chaitanya Tower project was not completed in the assessment year 2002-03. The final occupation certificate was issued on February 25, 2003, and substantial work and expenditure were carried out after March 31, 2002. The Tribunal noted that the Department had accepted the project completion method for the co-developer Orbit, taxing their share of the income in the assessment year 2003-04, and thus could not take a different stance for the assessee firm.

4. Determination of Taxable Income of the Chaitanya Tower Project:
The Tribunal found that the project was a single composite project, and the income should be determined when the project is complete. The Department had accepted the completion of the project in the assessment year 2003-04 for Orbit, and thus, the same should apply to the assessee firm. The Tribunal concluded that the income from the Chaitanya Tower project was not assessable in the assessment year 2002-03.

5. Charging of Interest under Sections 234B and 234C:
The Tribunal held that since the main ground of the assessee was allowed, the issue of charging interest under sections 234B and 234C became consequential. The AO was directed to provide consequential relief to the assessee.

6. Taxability of the Receipt of Rs. 3,12,73,178 Related to Common Amenities and Infrastructure Facilities:
The AO included Rs. 3,12,73,178 in the taxable income for the assessment year 2002-03, which the CIT(A) excluded, stating it related to common amenities and infrastructure not provided by March 31, 2002. The Tribunal, having already decided that the project's income was not taxable in the assessment year 2002-03, held that this amount should be considered in the assessment year 2003-04 when the project was completed by Twinkle.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the income from the Chaitanya Tower project was not assessable in the assessment year 2002-03, and the project was completed in the assessment year 2003-04. The appeal of the Department was disposed of accordingly. The issues related to the charging of interest under sections 234B and 234C and the taxability of the receipt related to common amenities and infrastructure were deemed consequential and did not require further adjudication.