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TMI Blog2009 (1) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... oping real estates. 3.1-2 The survey operation under section 133A of the Act was carried out at the registered office of the assessee on 7-3-2003. During the survey operation, the statement of Shri Amit Parwal, son of the Director Shri Acharya Arun Dev; Shri Vinay Maheshwari, Accountant; Shri Babulal, employee were recorded, and the documents and the CPU of the computers were impounded. On the basis of the impounded material and having regard to the complexity of the case, the assessee was directed to get its account audited as per provision of section 142(2A) of the Act. The special audit under section 142(2A) was carried out by M/s. G.P. Aggarwal and Company, CAs, and the report of the auditor was submitted by the assessee on 19-9-2003. The copies of the impounded material were handed over to the assessee. The data in the computers were also handed over to the assessee on the hard disk. During the survey operation, the sale agreements with various parties/customers entered into by the assessee were impounded. From the perusal of the impounded documents, the Assessing Officer had taken a view that the assessee had given physical possession of the flats/units to the unit holders d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of the property after making full payment in respect of unit notwithstanding any dispute between the assessee and the bank. The Assessing Officer thereafter stated that the assessee was not showing income on account of sale of units on the pretext of pending litigation with the bank with whom the properties were mortgaged. The Assessing Officer further pointed out that there was no dispute arising between unit holders and the assessee after the possession was given. The Assessing Officer further stated that the assessee had entered into an out of court settlement with the bank and ultimately withdraw its SLP filed before the Supreme Court on 21-5-1996. As per the agreement, the unit holders had to make direct payment to the bank. From the impugned documents, it was also clear that the unit holders made direct payment to the bank and, thereafter, only the physical possession of the units was handed over to the unit holders. 4. The assessee's claim that as the project was not completed, the income was not liable to tax, and it would be offered only in the year of completion of the project, was not accepted by the Assessing Officer by giving the following reasons:-- (i)The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 111 were sold to Vidya Kendra for total consideration of Rs. 1,17,50,000. The assessee stated before the Assessing Officer that though the agreement value for all the units together was of Rs. 1,56,85,021but assessee received finally only Rs. 1,17,50,000. Therefore, the total consideration in respect of the units transferred during the year was, thus, claimed at Rs. 1,88,26,344 by the assessee. The total floor area of the flats sold during the year relevant to the year 1997-98 was worked out at 7,695 sq. feet. The cost of the entire completed project was worked out at Rs. 15,25,83,661 and the entire area of the project was 1,09,108 sq. feet. Therefore, the cost per square foot was worked out at Rs. 1,398 by the assessee. 7. From the details submitted by the assessee, it was noticed by the Assessing Officer that the assessee had included bank liability taken over in respect of this project to the extent of Rs. 3,98,79,040. In the absence of details about the bank liability, the Assessing Officer rejected the assessee's claim of including the amount of Rs. 3,98,79,040 towards the project cost. The Assessing Officer, therefore, worked out the cost per square foot only at Rs. 1,021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer worked out the profit at Rs. 12,32,796 as under:-- Revenue from sale of 3 flats measuring 2,396 sq. ft. Rs. 41,05,600 Less: Amount received on a/c of bank liability Rs. 4,26,488 Less: Cost of construction Rs. 24,46,316 Profit Rs. 12,32,796 13. Being aggrieved with the Assessing Officer's order, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) decided the appeal of different assessment years vide order dated as under:-- Asst. Year Date of order 1997-98 8-3-2006 1998-99 10-3-2006 1999-2000 14-3-2006 2001-02 8-11-2004 2003-04 20-7-2005 14. From the said orders, it is seen that the order for the assessment year 2000-01 was passed by the ld. CIT(A) before passing the orders of other assessment years under consideration. While making the assessment order for the assessment years 1997-98, 1998-99, 1999-2000 and 2002-03, the Assessing Officer has mentioned that the similar addition made by him in the assessment year 2000-01 has been upheld by the ld. CIT(A). It is, thus, clear that the ld. CIT(A)'s orders for the assessment year 2000-01 is the base or initial order made by the ld. CIT(A) on the issue involved in all these appeals. We are, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the same method of accounting of project completion, in compliance with section 145 of the Income-tax Act and also as per Accounting Standard No. 7 of the Institute of Chartered Accountants of India. Growth Centre Project, which was commenced in 1986, was delayed and to gain the confidence of the unit holders, the appellant company gave token possession of some of the units of Growth Centre to its unit holders. The units could not have been used for any purpose as there was no electricity nor drainage facility nor any sanitary fitting nor any firefighting equipment in the building. In the light of this background, the appellant argues that the project had not yet been completed and that even the units were handed over only on paper, and were not fit for use. Moreover, the appellant is consistently following the Project Completion Method of accounting system as per norms of the Institute of Chartered Accountants of India. Accordingly, the appellant argues that no amount is chargeable to tax till the project is completed. 17. Alternatively, the assessee contended before the ld. CIT(A) that if at all the profits are to be charged in the current year, then the amounts owed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he project is fully complete. The taxation statute makes it clear that what it seeks to tax is the profits that have arisen or accrued in the 'previous year'. Now the question which arises is whether the profits in this case can be seen to arise or accrue in the previous year or only in the year the project is completed. The concept of taxation only when the project gets completed is alien to the taxing statute. When profit of the previous year are to be taxed, how could it be a sustainable proposition that profits would only be calculated at the end of the project which as per the appellant's own submissions, is on-going since 1986, and could perhaps at this rate still go on for many years. I find that the Assessing Officer's reliance on Tirath Ram Ahuja (P.) Ltd. [1975] 103 ITR 15 well placed, where the Delhi High Court held on similar facts that - "It is a judicially recognized proposition that in the case of contracts, in order to ascertain, the income one need not wait till the contract is completed, and that it is open to revenue to estimate the profit on the basis of receipts in each year of construction, although the contract is not complete". The Delhi High Court in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy practice, pointed out that the Income-tax Law does not march step by step in the divergent footprints of the accountancy profession. The view of the Russel L.J. was upheld by the House of Lords on appeal. It was observed by Lord Morris of Broth-Y-Gest [1972] 83 ITR 269, 283 - "Whatever merits there may be in the Company's accountancy methods for the purpose of its internal affairs, I am not persuaded that Cross J. and the Court of Appeal were wrong in finding them unacceptable for tax purposes. The accountants may have taken some other view but accountancy practice is not necessarily good law. In BSC Footwear case [1972] 83 ITR 269, the House of Lords had no hesitation in holding that the accounting practice for calculating its profit followed by the assessee and accepted by the revenue for 30 years could not be treated as sanctioned by Law and was not accepted for the purpose of computation of taxable income." 30. From the above, judicial pronouncements, it is clear that the profits which are to be taxed, are the revenues of the previous year and there is no ground for postponing the taxation of that income. If we were to agree to the contention of the appellant, it might g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with the buyers were conditional agreement depending upon the discharge of the dues payable to the bank. 20.1 In the light of the facts pointed out above, it was submitted by the ld. counsel for the assessee that the Assessing Officer as well as ld. CIT(A) were not justified in assessing the income from the said project in the years under consideration on the basis of the fact that the possession of the flats were handed over on paper to the buyers. 20.2 An alternative argument was made by the ld. counsel for the assessee to the effect that assuming but not admitting that the amount received from buyers could be legally booked as sales, the Assessing Officer has wrongly disallowed the deduction of the payment of Rs. 3,44,76,826 as on 31-3-2000 on account of dues payable to the bank on the ground that the payment collected from the buyer and the dues payable to the Bank of India would cancel out each other. He further pointed out that the Assessing Officer has totally ignored the fact that the escalation amount paid by the buyers were included in the sale consideration as would be clear from the copies of the agreements for sales with the unit holders. He, therefore, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the original developer. In the meantime, in September, 1990, the assessee took over development rights from B.D. Developers and became the developer of the same units. In the agreement entered into with B.D. Developers from time to time, it was also agreed that the assessee developer would also pay the bank liability. The construction was then started by the assessee. The liability to the bank was also escalated due to delay in the payment. The settlement with the Bank of India was arrived at on 21-5-1996 whereby sum of Rs. 3.75 crores plus legal expenses were agreed to be payable to the Bank of India by 30-9-1996, in failure of which the settlement would be treated to be null and void. On this settlement entered into with the Bank of India, the Special Leave Petition filed by one Acharya Arun Dev was withdrawn. Till the full payment was made, the Bank refused to remove their charge on the property. Assessee then entered into an agreement with the allottees or buyers that they would pay the escalation amount provided the possession of the flats are handed over to them. As per terms of this agreement, the buyers made direct payment to the Bank of India - "Account owner of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar flat is completed and the possession was actually handed over by the assessee to the buyer. There could be a case where some incidental activities may not have been completed or there may be some further obligation undertaken in the agreement for sale of flat which were to be discharged or performed by the developer. The developer's profit is referable to that part of the development of the project which has been completed. In the present case, it is not necessary that all the flats should be first sold and then the project can be said to have been completed. Each and every flat or unit is to be treated as an independent project, and the profit on that part which has been completed by handing over the possession to the buyer cannot be postponed beyond the date on which the possession was handed over by the developer to the buyer. If any constructed flat is sold and the possession thereof is handed over to the buyer and any obligation may still be discharged by the developer, the profit may very well have to be reported. In the present case, the assessee's contention that the entire project of constructing number of flats is to be treated as a single project and the profit would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain liability were yet to be discharged by the assessee, the assessee would have make reasonable provision, which can be taken into account while determining proportionate cost relating to the flats which has been sold and in respect of which the profit has been booked in the relevant year as so hold by the Hon'ble Supreme Court of India in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, but because for that reason, the profit of the flats, in respect of which the possession was handed over by the assessee to the buyer, cannot be postponed when the assessee was maintaining the books of account on mercantile basis, following project completion method of accounting. 25. In the light of the discussion made above, we, therefore, upheld the order of authorities below in holding that the profit from the flats in respect of which possession were handed over by the assessee on the basis of the documents and papers found during the course of survey, is to be assessed in the respective years in which the possession was handed over by the assessee to the buyer irrespective of the fact whether the certain liability or dues were still payable by the assessee to the bank or any other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee shall submit the working supported by evidences, before the Assessing Officer, who shall then examine and verify and adjudicate the issue de novo as per law and in the light of the observation made above. With regard to the assessee's claim that the cost of flats is to be determined at the rate of Rs. 1,398 per sq. ft. as against the rate of Rs. 1,021adopted by the Assessing Officer, we find that in the assessment, the Assessing Officer has worked out the basic cost at Rs. 1,398 per sq. ft., which was determined after taking into account the payment made to bank, but he reduced the same to Rs. 1,021 per sq. ft. for the reason that the amount collected by the assessee from the buyer towards the liability paid to the bank has already been reduced from the net receipts from the sale of flats. However, in the assessment year 2003-04, the Assessing Officer has taken the total cost of construction at Rs. 15,25,83,661 and taken the total constructed area at Rs. 1,09,108 per sq. ft., and actual cost of construction was determined at Rs. 1,398 per sq. ft. The Assessing Officer has taken the total sale consideration of the unit in that year at Rs. 4,73,42,207. From the said order fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has invited our attention to the following facts pertaining to the assessment year 1997-98:-- (i)That Assessing Officer has included the sum of Rs. 8,32,650 and Rs. 64,66,530 as cash receipts received by the assessee against unit Nos. 49, 50, 51, 52 and 57 though in fact, these units were never constructed and no agreement to sale was executed; (ii)The Assessing Officer has included cash amount of Rs. 10 lakhs over and above Rs. 6,19,916 in respect of unit No. 50 though the special auditor has pointed out that the amount of Rs. 6,19,916 was returned back to the buyer on 16-4-2000; (iii)The Assessing Officer has wrongly included the cash of Rs. 6,43,500 and cheque of Rs. 8,58,000 against unit No. 244 though the fact of the case was that Rs. 12,87,000 was received against the unit as per agreement for sale dated 30-6-2001. It was further pointed out that the authorities below has not considered the report of the special auditor and the submission of the assessee in that regard; (iv)The Assessing Officer has went wrong in working out a figure of Rs. 76,95,000 as unaccounted cash that might have been received by the assessee at the rate of Rs. 1,000 per sq. ft. in res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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