2021 (12) TMI 799 - AT - Income Tax

Addition of different amounts made towards amount received for sale of Transferable Developmental Rights (TDR) - Income or current liability - why the amount received from sale of TDR should not be treated as income of the assessee in the respective assessment years? - assessee submitted that since it is following percentage completion method for recognizing the revenue from the SRA project and since 25% of the total estimated project is not completed till date, TDR cannot be treated as income but has to be shown as a current liability - whether the amount received by the assessee from sale of TDR granted in respect of the SRA project is taxable in the year of receipt or the assessee s method of revenue recognition following percentage of completion method is acceptable? - HELD THAT - Tribunal in 2019 (3) TMI 1942 - ITAT MUMBAI held that the percentage completion method followed by the assessee is a well recognized method as per ICAI guidelines and judicial precedents - the sale of TDR cannot be considered in isolation of assessee s obligation under the SRA agreement to complete the SRA project. On analyzing the agreement with SRA, the Bench has observed that the assessee was under obligation to complete the project as per the agreement. The Bench has also observed that the TDR was granted to provide finance to the assessee to complete the project. Thus, assessee s income from TDR cannot be considered independently without taking the corresponding expenses, more so, when the TDR receipts are directly linked to the execution of the project. The Bench has held that since income from TDR is inextricably linked to the project and its cost, the cost of building has to be deducted against the income from sale of TDR. Though, the assessee has earned income from sale of TDR, however, no income from the SRA project, as yet, has been offered to tax. It is a fact that while deciding the appeals against the orders passed u/s 263 of the Act in assessment years 2012 13 and 2013 14 the Tribunal 2019 (3) TMI 1942 - ITAT MUMBAI has recorded certain finding touching upon the merits of the issue, which, indeed, are favourable to the assessee. Admittedly, aforesaid order of the Tribunal was not available either before the Assessing Officer or learned Commissioner (Appeals). Therefore, applicability of the aforesaid order of the Tribunal to the facts of the present case needs to be examined. This is so because, the order passed by the Tribunal was in the context, whether the revisionary authority has correctly exercised jurisdiction under section 263 of the Act to revise the assessment orders. In view of the aforesaid, we set aside the impugned order of learned Commissioner (Appeals) and restore the issues back to the Assessing Officer for fresh adjudication - Assessee appeals are allowed for statistical purposes.

Issues Involved:
1. Taxability of the amount received from the sale of Transferable Developmental Rights (TDR).
2. Applicability of the percentage completion method for revenue recognition.
3. Examination of the method of accounting adopted by the assessee.
4. Relevance of the Tribunal's earlier decisions on similar issues.

Analysis:

1. Taxability of the Amount Received from the Sale of TDR:
The primary issue in both appeals was whether the amount received from the sale of TDR should be treated as income in the respective assessment years. The assessee argued that since it follows the percentage completion method for recognizing revenue from the SRA project and the project was not completed to the extent of 25%, the TDR receipts should not be treated as income but shown as a current liability. The AO, however, did not accept this and added the TDR receipts to the assessee's income for the relevant years.

2. Applicability of the Percentage Completion Method for Revenue Recognition:
The assessee contended that the sale of TDR is integrally connected to the SRA project and cannot be considered in isolation. The TDR receipts were used to fund the project, and since the project was not 25% complete, the revenue should not be recognized. The Tribunal had previously accepted this method in the assessee's appeals for the assessment years 2012-13 and 2013-14, holding that the percentage completion method is a recognized method as per ICAI guidelines and judicial precedents.

3. Examination of the Method of Accounting Adopted by the Assessee:
The Tribunal noted that the AO had accepted the percentage completion method in earlier years but the revisionary authority under section 263 of the Act had directed the AO to assess the TDR receipts as income. The Tribunal, however, had held that the method adopted by the assessee was legally permissible and that the TDR receipts could not be considered independently without deducting the corresponding expenses. The Tribunal emphasized that the TDR receipts are directly linked to the execution of the project and should be treated as current liabilities until the project is completed.

4. Relevance of the Tribunal's Earlier Decisions on Similar Issues:
The Tribunal's earlier decisions for the assessment years 2012-13 and 2013-14 were crucial as they had addressed similar issues. The Tribunal had held that the sale of TDR cannot be considered in isolation and must be linked with the assessee's obligation to complete the SRA project. The Tribunal observed that the TDR was granted to provide finance for the project, and thus, the income from TDR should be considered along with the corresponding project costs.

Conclusion:
The Tribunal set aside the impugned order of the learned Commissioner (Appeals) and restored the issues back to the AO for fresh adjudication. The AO was directed to examine the applicability of the Tribunal's earlier order and decide the issue after providing a reasonable opportunity of being heard to the assessee. The appeals were allowed for statistical purposes.

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