2023 (9) TMI 1155 - AT - Income Tax

Income recognition - Addition towards profits/gains earned on transfer of land pertaining to villas as sold - Year of assessment - Assessee argued that entire amount of sale consideration was not disclosed in the turnover, but it reported turnover of only Rs. 2.91 crores - HELD THAT - As we are of the considered opinion that factual verification as to how much of sale consideration that was received during the financial year 2012-13 is necessary. Apart from this, from the sale deeds, the copies of which are found in the paper book filed before us clearly reveal that the construction activity on relevant plots had not reached even the lintels level. Observations of AO that the entire construction work was over and vacant possession of the villas was handed over to the respective buyers is, therefore, factually incorrect. When the sale deeds were available to the AO it is evident from the photos appended to the sale deeds that the construction work is at preliminary level, AO could have verified this fact from the field. It is, therefore, incorrect to conclude that the project work was complete or that the assessee should recognize the entire revenue. Thus we deem it just and necessary to quash the orders of the authorities below and restore the issue to the file of AO to cause enquiry as to the sale consideration that was received during the relevant assessment year and also whether the percentage on recognition of revenue was in-consonance with the percentage of completion of the project as on 31/03/2013. AO will decide the issue as per facts and law, after giving due opportunity of being heard to the assessee.

Summary

Issues involved:
The only issue involved in this appeal is the addition of profits/gains earned by the assessee on the transfer of land pertaining to villas that were sold.

Details of the Judgment:
The assessee, a partnership concern in the business of property development, took land on development basis and started construction of villas. The Assessing Officer noted discrepancies in the income declared by the assessee and added the balance amount to the income. The assessee contended that revenue was recognized based on the Percentage Completion Method.

The CIT(A) found discrepancies in the Assessing Officer's approach and directed the deletion of the addition. The Revenue appealed, arguing that the entire sale consideration should have been disclosed and challenged the deletion of the addition.

The Tribunal observed that factual verification of the sale consideration received was necessary. It noted discrepancies in the dates of cheques mentioned in the sale deeds and directed the Assessing Officer to investigate the actual sale consideration received during the relevant year. The Tribunal also found that the construction work was not completed as claimed by the Assessing Officer and directed a thorough inquiry into the revenue recognition method.

In conclusion, the Tribunal quashed the previous orders and restored the issue to the Assessing Officer for further investigation. The Assessing Officer was directed to determine the actual sale consideration received and verify the percentage of completion of the project before making a decision. The appeal of the Revenue was treated as allowed for statistical purposes.

*Order pronounced in the open court on the 27th day of July, 2023.*