2011 (1) TMI 132 - AT - Income Tax

Deduction u/s 80-IA - sale of plots - It was submitted by the assessee before the Assessing Officer that sale deeds were effected only to facilitate the buyer companies to go ahead with their business plans, obtain credit and other term loan facilities etc. - The assessee had also mentioned that the company is still obliged to complete the required infrastructure even though plot was registered to buyers - It was therefore pleaded before the Assessing Officer, that there was no sale revenue on the sale of plots during the year - Held that the Assessing Officer has not given any logical or valid reasons for rejecting the books of account of the assessee. He considered the matter with a suspicion as to the intention of the assessee in not recognising the revenue in respect of the sale of two plots sold during the year observing that the assessee apparently has done so to get away with deduction under section 80-IA of the Act in the succeeding assessment year, as it fulfilled the conditions for such a deduction in that year only. The sale deeds executed by the assessee would not give rise to any income assessable to tax during the assessment year under consideration, since such income was charged with several obligations which the assessee was to discharge before the delivery of plots to the buyers in terms of the sale deeds itself. - there was no need to recognize the revenue from out of the sale of plots during the year under consideration. - Decided in favor of assessee.

Summary

Issues:
- Recognition of revenue from the sale of plots in a Real Estate business for the assessment year 2005-06.

Detailed Analysis:

Issue 1: Recognition of Revenue
The case involved the appeal by the Revenue against the order of the CIT(A) regarding the recognition of revenue from the sale of plots by the assessee company for the assessment year 2005-06. The assessee, engaged in developing a Biotech Park, had sold two plots during the year but had not recognized the sale consideration as revenue, citing Accounting Standard 9. The Assessing Officer disagreed and taxed the income from the sale of plots. The CIT(A) nullified the Assessing Officer's order, emphasizing the obligations on the assessee to develop the plots and provide common facilities. The Revenue contended that the income had accrued to the assessee and should be taxed. However, the assessee argued that the sale deeds included obligations for infrastructure development, and the revenue should not be recognized until completion of all works. The Tribunal agreed with the assessee, noting that the sale deeds imposed obligations that needed to be fulfilled before recognizing the revenue. The Tribunal upheld the CIT(A)'s order, stating that the assessee was justified in postponing the recognition of income until the delivery of plots after completing the development works. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's revenue recognition was justified based on the obligations outlined in the sale deeds for the development of plots in the Biotech Park, leading to the dismissal of the Revenue's appeal.