9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (5) TMI 384 - AT - Income TaxGain 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.
Issues Involved:
1. Classification of Property as Capital Asset or Business Asset. 2. Applicability of Section 2(47) for determining Capital Gains. 3. Computation of Profits under Percentage Completion Method. 4. Inclusion of Additional Costs in Profit Computation. 5. Allowance of Additional Grounds by CIT(A). 6. Application of Cost Inflation Index for Deduction. Issue-wise Detailed Analysis: 1. Classification of Property as Capital Asset or Business Asset: The assessee contended that the property held was a capital asset and not a business asset. The property, known as Raj Mahal Juhu, was under redevelopment, and the assessee was entitled to three flats. The Assessing Officer (AO) and CIT(A) disagreed, stating that the assessee was engaged in the business of constructing and developing the property. It was noted that the property was held as a business asset and not a capital asset due to the nature of activities involved. 2. Applicability of Section 2(47) for Determining Capital Gains: The assessee argued that no capital gains arose upon entering into agreements to sell three flats as the property was not transferred within the meaning of Section 2(47) of the Act. The AO observed that the assessee's activities indicated a business venture rather than holding the property as an investment. The CIT(A) upheld this view, stating that the profits from the sale of flats constituted income from business and profession. 3. Computation of Profits under Percentage Completion Method: The AO adopted the percentage completion method to compute profits, estimating the project's completion at 63.43%. The assessee challenged this, arguing that the project was incomplete and the property was under development. The CIT(A) upheld the AO's method but granted partial relief by adjusting the cost base, reducing the computed profits. 4. Inclusion of Additional Costs in Profit Computation: The assessee claimed that the cost of construction pending recoupment from other co-owners should be included in the cost base. The CIT(A) rejected this claim for lack of substantiation but adjusted the total estimated expenses to include land costs, thereby reducing the assessed profits from ?4,65,79,478 to ?2,09,95,330. 5. Allowance of Additional Grounds by CIT(A): The Revenue appealed against the CIT(A) allowing additional grounds raised by the assessee, arguing it was not covered under exceptions in Rule 46(A)(1) and the AO was not given a reasonable opportunity to examine the evidence. The CIT(A) directed the AO to verify relevant documents before computing the cost, which was contested by the Revenue. 6. Application of Cost Inflation Index for Deduction: The CIT(A) considered the assessee's alternative ground that 33% of the property should be treated as a capital asset converted to stock-in-trade in 2007-08. The CIT(A) applied the cost inflation index for FY 2003-04 and 2007-08, allowing a deduction of ?1,56,811 from the resultant profit, reducing the taxable income to ?2,08,38,519. Conclusion: The Tribunal concluded that the property was a business asset, not a capital asset. However, it held that the project was incomplete, and the Revenue could not thrust the percentage completion method on the assessee for the first time. The Tribunal set aside the orders of the authorities below, deleted the addition, and held the computation of gains adopting the percentage completion method was not sustainable. The assessee's appeal was partly allowed, and the Revenue's appeal was treated as infructuous.
|
