9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (3) TMI 40 - AT - Income TaxAccrual of income - Year in which income is taxable - Receipt of Security Deposit - Addition on account of sale of development rights by the assessee - assessee entered into an agreement known as Agreement cum Nominations Agreement with Emmar MGF Land Ltd. (Emmar), wherein the assessee transferred the development right to Emmar for a consideration - in the opinion of the assessee since the agreement dated 21.07.2006 with Emmar was subject to fulfillment of certain conditions, therefore the consideration being the sale of development rights, was not liable to be taxed in the year under consideration - AO was of the view that since the assessee was following the mercantile system of accounting, therefore even if in the year under consideration, no consideration in monetary terms have been received/passed on sale of such development right, even than it constitute the income of the year in which such agreement is signed - CIT-A held that no income accrued to the assessee of the impugned amount in assessment year under appeal, therefore, addition were deleted - HELD THAT - What was transfer by the assessee was, what it got and not anything which it never acquired or owned. No amount was paid in assessment year under appeal for transfering the development right. The rights assigned through agreement Dated 21.07.2006 was conditional in nature. It was also agreed that all the terms and conditions of the agreement Dated 28.04.2006 shall apply to the assignment agreement also. It was also agreed that what was being paid by EMMAR was a refundable/adjustable security deposit which was to be adjusted only according to terms and conditions mentioned in the agreement. In case EMMAR would not have perform its obligation, the said security deposit would have stood forfeited. Therefore, the fulfillment of the obligation to construct and develop the project within the stipulated time was a condition precedent for the assessee to the satisfaction of the PCL as mentioned in the assignment agreement Dated 21.07.2006. Therefore, the security deposit received by the assessee for conditional transfer could never be treated as an income of the assessee. All the conditions of the original agreement shall have to be satisfied and completed by EMMAR only. Then income would accrue to the assessee. Assessee also explained that it has followed POCM method and in A.Ys. 2009-2010, 2010-2011 and 2011-2012 assessee has recognized the income and offered for taxation. In A.Y. 2009-2010 even the A.O. has accepted the similar explanation of assessee in scrutiny assessment under section 143(3) of the I.T. Act. It is also interesting to note that in A.Y. 2009-2010 the same A.O. passed the same assessment order under section 143(3) of the Act in the case of the assessee on the same day. The A.O. accepted the explanation of assessee after recognizing the income based on both the agreements and accepted the explanation of assessee without making any addition. But, in assessment year under appeal, the same A.O. on the same day took a different view against the assessee which is not permissible in Law. It is well settled Law that Income Tax Authorities shall have to follow the Rule of Consistency. But, in the present case, the A.O. did not do so. - Decided against revenue.
Issues Involved:
1. Whether the income of ?86 crores from the sale of development rights accrued to the assessee in the assessment year 2007-2008. Issue-Wise Detailed Analysis: 1. Accrual of Income from Sale of Development Rights: The primary issue in this case was whether the income of ?86 crores from the sale of development rights accrued to the assessee in the assessment year 2007-2008. The Revenue challenged the deletion of the addition made by the Assessing Officer (A.O.), who had included this amount in the assessee's income for the year. Facts and Agreements: - The assessee entered into a collaboration agreement on 28.04.2006 with Puri Construction Ltd. (PCL) to develop land measuring 19.06 acres. - Subsequently, on 21.07.2006, the assessee entered into an "Agreement cum Nominations Agreement" with EMMAR-MGF Land Ltd. (Emmar), transferring the development rights for ?86 crores. - The A.O. contended that since the assessee followed the mercantile system of accounting, the income accrued at the time of signing the agreement, regardless of the actual receipt of money. Assessee's Argument: - The assessee argued that the consideration of ?86 crores was contingent upon the successful completion of the project and fulfillment of certain conditions, hence no income accrued in the assessment year under appeal. - The agreement required obtaining licenses and permissions from Government Authorities, and the amount was payable only after the project's successful completion. CIT(A)'s Findings: - The CIT(A) held that no income accrued to the assessee in the assessment year under appeal as the consideration was contingent upon the successful completion of the project. - The CIT(A) emphasized that the agreements were inextricably linked and the income would accrue only when both conditions (successful completion and timely completion of the project) were fulfilled. - The CIT(A) relied on the principle that income accrues only when there is a right to receive it, and mere signing of the agreement did not create such a right. Tribunal's Decision: - The Tribunal upheld the CIT(A)'s decision, agreeing that the income of ?86 crores did not accrue to the assessee in the assessment year under appeal. - The Tribunal noted that the agreements were conditional and the right to receive the income was dependent on the successful and timely completion of the project. - The Tribunal found that the A.O.'s view was incorrect as the income would accrue only after fulfilling the conditions stipulated in the agreements. - The Tribunal also observed that the assessee had recognized the income in subsequent years based on the Percentage Completion Method (POCM) and had offered it for taxation accordingly. Conclusion: - The Tribunal dismissed the Revenue's appeal, confirming that the addition of ?86 crores was rightly deleted by the CIT(A) as the income did not accrue to the assessee in the assessment year 2007-2008. - The decision emphasized the importance of the real income concept and the conditions attached to the agreements in determining the accrual of income. Summary: The judgment revolves around the issue of whether the income from the sale of development rights accrued to the assessee in the assessment year 2007-2008. The Tribunal upheld the CIT(A)'s decision that the income did not accrue as the consideration was contingent upon the successful and timely completion of the project. The Tribunal emphasized the principle that income accrues only when there is a right to receive it, and the conditions stipulated in the agreements were not fulfilled in the assessment year under appeal. The appeal of the Revenue was dismissed accordingly.
|
