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TMI Blog2014 (7) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ation or assets to be sold are ready for handing over the possession to the concerned parties so as to transfer the title in the property - Till such time, it cannot be said that the parties involved in are ready to perform the contract - neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration - When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale will take place only after completion of construction and after assessee's share of property is identified - The proposed sale agreement cannot be put into action due to various litigations pending with various courts - Nobody can transfer title in a property when the property is not in existence - when there is litigation pending on the same property and no profit can be anticipated when the agreement itself is subject matter of litigation - It is not possible to bring the same to tax - it is not possible to hold that income has actually accrued to the assessee - When consideration is not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leswara Rao ORDER Per Chandra Poojari, AM: The above appeals are cross appeals directed against the order of the CIT(A))I, Hyderabad dated 28.4.2010 for assessment year 2008)09. 2. The Revenue raised grounds of appeal, as follows: 1. The CIT(A) erred in deleting addition made by the AO on the ground that there was a dispute with regard to the right over the land and construction as on 31.03.2008 and that no real income accrued to the assessee. 2. The CIT(A) erred in appreciating the fact that the litigation pending of writ petition No. 7333 in High Court as on 31.03.2008 is not on the title of the property of the assessee company and assessee)company is not a party to the writ petition and hence it has no impact on the accrual of the income to the assessee. 3. The CIT(A) erred in appreciating the fact that the litigation has no impact on the accrual of income to the assessee)company as it follows mercantile system of accounting. 3. The assessee raised the following grounds of appeal: (i) The AO has erred in disallowing the expenditure u/s. 40(a)(ia) mentioning that the expenses attract TDS but in actual these expenses are not expenses for a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 5,00,000 as advance and the balance amount was to be received in instalments. Thus, the total consideration to be received form Janapriya was ₹ 67,47,07,420. As on 31)3)2008, the assessee company received ₹ 7,08,60,500. At the same time, the assessee company had also sold part of its share of plots to outsiders and received advances against them. However, the company had not reflected any sales in its P L account and no income was shown in respect of sale of the flats. When questioned about the same, the assessee submitted that the income on the basis of development agreement was to be taxed as business income. The project was under construction and there was a dispute pending in the court between the assessee)company and ECE Industries Ltd regarding transfer of the land. Therefore, it would offer the business income after settlement of dispute and after construction of the flats. The AO, however, did not accept the argument put forth by the assessee)company. The AO held that the purchase and sale transactions were completed and the income accrued thereon is taxable on due basis since the assessee was following mercantile system of accounting. The AO referred to Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed its interest and intention to construct and develop houses that the owner of the land entered into development agreement with the assessee. As per the said agreement the owner was to receive certain amount from the assessee for development and GPA rights as also reimbursement of cost, charges etc. But the assessee failed to honour its commitment in payment of the said amount. In the meanwhile the assessee had entered into development agreement with Janapriya Engineers Syndicate for developing the said land and as per the said agreement the assessee was entitled to certain built up area and car parking. Out of its own share, the assessee had apparently sold 490097 sft area to Janapriya along with 1382 car parking areas. It is the amount resulting from the transfer of the constructed area as well as the transfer of the parking slots, that the AO has proposed to bring into the tax net as business income of the assessee. The AO in this regard observed that the amount is taxable since the assessee company is following mercantile system of accounting and since the purchase and sale with Janapriya Engineers is already complete. The AO also noted that the municipal approval for constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent 5) were also named as respondents. The Hon'ble High Court had made the following order: Until further orders, the respondent No. 2 is directed to ensure that no construction or civil works whatsoever are carried on by the respondents 4 and 5 till the land to an extent of 56730.57 Sq. meter in Survey No. 74 and 75 in Fathenagar, Sanath Nagar Hyderabad in respect whereof the third respondent had by proceedings No. G1/10571/76/13/78 dated 4-2-2001 granted permission for construction of quarters to weaker sections under section 21 of the Urban Land (Ceiling Regulation) Act 1976 for 8 blocks for 1900 units. The second respondent shall ensure that no construction are carried on notwithstanding the building permission granted by the second respondent in permit No. 144/48 in file No. 8483/TPS/MCH/HO/03. Notice. 7. The CIT(A) observed that in the writ petition referred to above, the second respondent was GHMC and the 4th respondent was ECE Industries. The 5th respondent was Janapriya Engineers Syndicate. From the order of the Hon'ble High Court as above, it is clear that the Hon'ble court has passed injunction directing GHMC to ensure that no construction was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the judgment, while allowing the respondents to go ahead with the construction activities on the ground that if injunction is granted to ECE Industries, it will substantially and irreparably injure and prejudice the defendants (the assessee in the present case). The Hon'ble Supreme Court, however, observed that the defendant/ respondent (the assessee) shall not claim equity over construction made in the suit property and they would be bound by the decision in the suit. In other words, the Hon'ble Supreme Court confirmed the view of the Civil Court with regard the claim of equity and conditional sale. From the litigation as above, it is clear that the ultimate fate of construction and right over the constructed area is still subjudice and it cannot be taken for granted that either the assessee company or M/s. Janapriya Engineers would have an unconditional right over the said construction. It is because the Supreme Court have observed that in case of the suit is decided in favour of ECE Industries the constructed structures may even have to be pulled down in order to hand over the vacant possessions of the land to its rightful owners. Thus, the CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the constructed area and car parking space or its money worth. As the matter is under litigation as stated earlier, there is no certainty that M/s. Janapriya Engineers or the assessee would be the rightful owner of the construction that would come up on the disputed land. Accordingly, the CIT(A) was of the view that the stand of the assessee that there is uncertainty of realisation of income is not without force. As per the Accounting Standard, when consideration is not determinable within a reasonable limit the recognition of revenue is postponed. In such cases, it may be appropriate to recognise revenue only when it reasonably certain that the ultimate collection will be made. The AO proposes to tax the income that will arise in future on the basis that the assessee is following mercantile system of accounting and that approval for construction has been granted by the municipal authorities. As stated earlier as on the last day of the accounting year relevant to the assessment year under consideration, the Hon'ble A.P. High Court had directed the Municipal Corporation who had granted the approval for construction to ensure that no construction activity is carried on eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affected i.e., accrual of income or its receipt, but the substance of the matter is income. If the income does not result at all, there cannot be a tax even though in book keeping an entry is made about a hypothetical income which may not materialise. In the case under consideration, no doubt as per mercantile system of accounting an income may accrue, but going by the fact that the very source of income is in dispute, it cannot be said that there is any real income or determinable income. The assessee in its written submission has countered the observation of the AO that the litigation has no impact on accrual of income. The assessee submitted that litigation in a court of law has a bearing on crystallisation of income or liability. The assessee in this regard relied on the decision of Hon'ble Allahabad High Court in the case of CIT vs. Girijar Udyog Pvt. Ltd (273 ITR 495), wherein it was observed that concept of accrual of income does not create income but only recognises it when there is one. In that case it was held that when there is no chance of recovery of principal amount and the assessee chose not to charge any interest on the same, the AO was not justified in bringing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to do the following things: a) To sell the flats, to enter into an agreement of sale with purchasers of flats, either the whole of scheduled property or portion of it or undivided share in the scheduled property and acknowledge them by issuing receipts. b) To enter into a development agreement with any developer/builder to develop the scheduled property by constructing individual buildings or residential apartments or commercial apartments. c) To enter into contract agreement with any contractor. d) To sign all the applications to be submitted to the AP Transco for supply of electricity, to the concerned authorities for providing drainage and water supply etc., and process the said applications. e) To look after and protect the scheduled property from encroachers, land grabbers and unsocial elements and to take necessary and appropriate action against them by making applications to the concerned authorities and if necessary to approach civil and criminal courts. f) To pay the taxes and revenue payable on the scheduled property to the state government, central government and local authority. g) To make use of scheduled property to its maximum advantage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the seized documents in the case of Janapriya Engineers Syndicate group annexure A/JES/1 page No. 10 contains the additional area given to S.P. Real Estates. The total saleable area as per sanctioned plan and agreement is ₹ 13,67,000. However, total saleable area as per working plan is ₹ 14,58,000. The additional area is 91,000 sft. Out of these, assessee company is entitled to 20% of this area amounting to ₹ 18,200. However, Janapriya Managing Director accepted to allot 25000 sq. feet on this account. The excess area as per the original agreement receivable of 2920 sft is allotted in Pradeep Menon's parents name in Block)4 and the balance 25000 additional area is allotted in Block)1 and Block)4. So, the additional area received of 25000 sq. feet and 2920 sq. feet which is over and above the area mentioned in the MOU was proposed to be taxed in the hands of assessee) company for the A.Y. 2008)09. The assessee)company is requested to explain vide this office letter dated 9)11.2009 why the above additional area received of 27,920 sft should not be taxed. The assessee company submitted that the project is under construction and, therefore, it will be offere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions agreed upon. The Assessing Officer has considered the development agreement entered by the assessee company with the land Owner, M/s. ECE Industries Limited whereby it acquired development rights over the land situated in Survey Nos. 74 75 of Borabanda Village, and another agreement entered with M/s. Janapriya Engineer Syndicate Limited, Hyderabad on 21/05/2008 and concluded that the purchase and sale is complete in the above transaction and therefore, the transaction of 21/05/2008 resulted in accrual of income subjected the same to tax. The Assessing Officer has brought the agreement dated 21/05/2008 to tax stating that the assessee is a company and is following the Mercantile System of accounting and the agreement granting right to sell apartment that are to come up on the subject land has resulted in accrual of income. 17. The AR submitted that in the assessment order the Assessing Officer has brought to tax the value of the transaction as per the agreement dated 25/01/2008 entered by the assessee company with the developer, M/s. Janapriya Engineer Syndicate and stated the following reasons: (a) The assessee is a company and is following Mercantile System of Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iya Engineer Syndicate Limited is a business agreement and this is a business transaction and the provisions of Sec. 2 (47) in relation to transfer of capital asset will not be applicable to the present case. (d) That income will not accrue at the time of entering into development agreement in the case of business transactions. This is an agreement for development of apartments over the subject land and the profits will arise on the completion of the construction and delivery of the possession. Then only income can be subjected to tax. (e) As per the provisions of Accounting Standard (AS)9) and Guidance Note on Recognition of Revenue by Real Estate Developers issued by the Council of ICAI and Para)3 of Guidance Note ) the real estate sales take place in a verity of ways and may be subject to different terms and conditions as specified in the agreement for sale. Accordingly, the point of time at which all significant risks and rewards of ownership can be considered as transferred, is required to be determined on the basis of the terms and conditions of the agreement for sale. (f) That the agreement dated 25/01/2008 is mainly meant for giving rights to deal with the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Limited have filed cases in City Civil Court at Hyderabad praying the Hon'ble Court to grant (i) ₹ 50,00,000/) per month commencing from the month of may 2008 for the unauthorized, illegal occupation and use of the land till the delivery of the possession back to the land owner, (ii) to deliver the possession of the subject land situated in Survey Nos. 74, 75 situated in Borabanda, Fathenagar Village, Hyderabad (iii) and to award costs and other reliefs. (l) That on 30/05/2008 (before the date of filing of the income tax return by the assessee company), the Hon'ble City Civil Court in I.A. 262/08 in OS 126/2008 has awarded ad)interim injunction restraining the assessee company or its agents, servants or any person claiming through or under the assessee company from making any constructions over the subject scheduled property including changing the nature of the same in any manner. (m) That from that day onwards the Court cases filed by the land owner against the assessee company and others claiming under it about the subject land has travelled up to the Hon'ble Supreme Court of India which has approved the orders of the lower court and ordered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parking area. The Hon'ble AP High court has passed the order WP No. 5644 of 2008 on 18/03/2008 which was in force as on 31/03/2008. Consequent to such High Court Order the Developer M/s. Janapriya Engineers Syndicate was restrained from construction and other civil works. (d) That the CIT(A) has stated that ) it is a matter of fact that the inflow of income to the assessee from Janapriya Engineers Syndicate limited depends on the construction of the built)up area and subsequent transfer thereof. The AO while passing the order, relied on the building permission granted by the GHMC and ignored the fact of the Hon'ble High Court passed restraint order for any further construction and therefore, the commissioner is of the view that there could not have been any certainty of inflow of income arising out of the constructed built)up area to be transferred by the Janapriya Engineers to the assessee company. Therefore, the CIT(A) has stated that the purchase and sale of flats could not have reached finality as on 31/03/2008 in view of the injunction of the Hon'ble High Court. (e) That the CIT(A) has also considered the cases filed by the land owner, M/s. ECE Industries aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fathenagar, Balanagar Mandal, Hyderabad vide an agreement dated 17/09/2007 and paid ₹ 13.5 crores and committed to pay ₹ 16.72 crores as per the schedule stated therein and another ₹ 28,36,525/) towards cost of land for which cheques were issued. Subsequently, a Development Agreement Cum General Power of Attorney was entered into by the assessee with the land owner on 21/09/2007 and acquired development rights over the land situated in Survey Nos. 74 75 subject to certain terms and conditions of payment of amounts to the land owner. Basing on the above said Development Agreement Cum General Power of Attorney, the assessee has entered into Development agreement with M/s. Janapriya Engineer Syndicate on 23/09/2007 whereby it is entitled to receive 36% of the built)up area and also the parking area that will come)up on the subject land. Subsequent to this agreement, on 25/01/2008 it agreed to transfer right to sell the flats and parking areas that will come)up in future. The Assessing Officer has treated the development agreement as a transaction giving rise to accrued income of the sale of future property. 21. The AR submitted that entering into development agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the agreement is only a deposit/advance and is not to be treated as sale income till such time that the construction is complete and possession of the built)up area included the parking area were delivered to the purchaser. In the said agreement which was relied on by the Assessing Officer it was clearly agreed Clause)(9) that ) in case Project work i.e., construction activity stops due to any dispute on litigations arising because of any court order or Government order or by involvement of a private party, payment of equated monthly instalments will be stopped for that particular period. After settlement of disputes or litigations, payment of equated monthly instalments will resume. The responsibility of settlement of dispute or litigations regarding land and its boundaries and title lies with first party and the second party shall cooperate with the first Party by bearing costs for such dispute settlement . 24. The AR assessee pleaded the Bench to refer to Page No. 170 of volume 1 (Edition, 2008), Indian Accounting Standards GAAP, Interpretation, Issues and Practical Application authored by Dolphy D'Souza published by Snow White Publication Pvt. Ltd., Mumbai (copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer also misconceived the meaning of the words risks and rewards associated with the development of the property. In the case of any property risks and rewards are deemed to have been transferred, if the title is transferred and possession of the property is given. In the present case of sale of flats, since, they are still to be constructed and not in existence, such transfer of risks and rewards associated with the residential flats cannot take place. A person cannot transfer a title to the property which is not in existence and particularly when such title is not available with him and which is in litigation and dispute. The AO has violated the provisions of the law and the concept of prudence in AS)l, that in view of the uncertainty attached to the future events, profits are not anticipated but recognized only when they arise. It is a well known concept that future income should not be recognized unless the assessee acquires a right to such income and provision must always be made for future liabilities and known losses even though amount cannot be determined with certainty. Therefore, the AO has brought to tax hypothetical income which has not been earned by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 25/01/2008 has become void and ineffective and any income has not accrued. 30. The AR submitted that subsequent cancellation of the agreement has the effect of nullifying the agreement dated 25/01/2008 and in such situation it is unjustified on the part of the Assessing Officer to tax hypothetical income deeming that cancelled agreement has given right to accrual of business income. This is contrary to the concept of taxing only the real income as declared by the Hon'ble Supreme Court in its several decisions. The AR relied on the decision of the Hon'ble Supreme Court in the case of Kedharnath Jute MFG. Co. Ltd. vs. CIT (1971) 82 ITR 363 and Sutlej Cotton Mills Ltd vs. CIT (1979) 116 ITR 1 (SC). The AR submitted that the mercantile system of accounting cannot give rise to income from an agreement which has not acted upon and which was cancelled by the concerned parties. 31. The AR also relied on the judgement of Supreme Court in the case of CIT vs. Shoorji Vallabhdas Co. (1962) 46 ITR 144 wherein the Apex Court held that reduced income as per, the agreement received by the assessee has to be taxed and not the hypothetical income. He also relied on the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from proceedings with further construction and also from alienating the property. The order of the Hon'ble AP High Court has continued beyond the end of the relevant previous year and until 23/04/2008. Therefore, as on the date 31/03/2008 the development work has came to a grinding halt and income has not received or accrued from the construction business. The restraining orders have affected the project work during the relevant previous year as work could not be proceeded on the disputed land. 34. The AR further submitted that the land owners have cancelled the agreement granting development rights dated 17/09/2007 by serving a legal notice dated 05/05/2008. Sri R. Raghunanadan Rao, Advocate of the land owner company has informed the assessee company that due to default in performance of the contract and the non)negotiable conditions of payment stated in agreement dated 17/09/2007 and the subsequent development agreements dated 21/09/2007 have been terminated by the land owner namely, M/s. ECE Industries Limited. Subsequent to the cancellation of the agreement, M/s. ECE Limited has filed a Suit for recovery of possession of the subject land situated in Survey Nos. 74 75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 25/07/2010 has ordered that the assessee company and also the Developers M/s. Janapriya Engineers Syndicate shall not claim any equities over the constructions made on the land situated in Sy. Nos. 74 75 of Borabanda Village and they would be bound by the decision in the pending suit. The assessee company cannot be said to have earned business income from dealing in the project proposed on the disputed land is unjustified in view of the continuous litigation and restraining orders against the construction and it was in capacitated in dealing with the property by the orders of the Hon'ble AP High Court whereby it has ordered that the assessee company shall not claim any equities over the constructions made on the disputed scheduled land. (order dated 25/07/2010) The AR submitted that the Government of Andhra Pradesh has issued G.O.MS No. and declared the subjected disputed lands as excessive in terms of the provisions of Urban Ceiling Act and ordered to take possession of the land. In view of the said orders the future of the proposed project on the subject land became uncertain and income from such a situation cannot be termed as accrued to the assessee as there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come accrued to the assessee company. in view of the decision of the Tribunal Mumbai Bench in the case of Lok Housing and Constructions Ltd vs. ACIT (2012) 27 Taxmann.com 15 (Mumbai)Trib), cancellation of agreements and other events occurred after the end of the previous year but before the date of filing the IT return and which have direct bearing on the income earning capacity of the assessee have to be considered and real income has to be determined only after considering such events. 37. The learned AR relied on the following decisions: (a) CIT vs. Moghal Builders and Planners (2001) 252 ITR 488 (AP) wherein held that income from construction and sale of flats accrues to the assessee on the basis of handing over of possession to the respective buyers and not on the basis of investment made by the assessee. The Hon'ble AP High Court has applied the decision of the Hon'ble Calcutta High Court in the case of Madgul Vidyog's case (1990) 184 ITR 484 (Cal.). (b) CIT vs. Chandigrah Industrial and General Development Corporation Limited (2009) 319 ITR 85 (P H). In this case the assessee has claimed the income must be assessed on receipt basis and not on accrual bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending litigation and uncertainties surrounding the ultimate implementation of the project and realization of sale proceeds and affirm the order of the CIT(A). Further he drew our attention to the following documents: 39. We have heard both the parties and perused the material on record. In this case, the assessee initially entered into Development Agreement with M/s. ECE Industries Ltd. on 17.9.2007 for development of land admeasuring 67824 sqy situated at Sy. Nos. 74/P and 75/P at Borabanda, Fathenagar village, Ashok Marg, Hyderabad for which the assessee was required to pay ₹ 30,50,36,525 to M/s. ECE Industries Ltd. as a consideration for obtaining Development and GPA rights. Out of the above amount, the assessee has actually paid ₹ 13.5 crores and another amount of ₹ 28,36,525 and balance is only ₹ 16.72 crores for which post)dated cheques are issued to M/s. ECE Industries Ltd.. Subsequently, M/s. ECE Industries Limited (the Owner of the land) has executed a registered Development Agreement Cum General Power of Attorney in favour of M/s. Janapriya Engineer Syndicate Limited, Hyderabad for an extent of land ad measuring 43.398 sqy out of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee sold 5,18,018 sft area to M/s. Janapriya Engineers Syndicate along with 576 car parking area. As per the AO, since the assessee is following mercantile system of accounting, income arising out of the transaction with M/s. Janapriya Engineers Syndicate is to be offered to tax. According to the AO income is accrued to the assessee and the same is to be taxed in the assessment year under consideration. On the other hand, the contention of the assessee's counsel is that there is uncertainty in fulfilling the contract as there are litigations pending before various courts and performance of the contract is doubtful. Hence no income could be recognised in certainty. Being so, recognition of revenue is not possible and the ultimate collection of sale proceeds is doubtful. It is also on record that the agreement entered into by the assessee with the land owner i.e., M/s. ECE Industries Ltd., has been cancelled by letter dated 5.5.2008. Further the agreement entered by the assessee with M/s. Janapriya Engineers Syndicate is as follows: 11. The first party authorizes the second party to do the following things: a) To sell the flats, to enter into an agreement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 75/P, situated at Fathenagar village Hyderabad (emphasis supplied). 41. This agreement has also been cancelled and the assessee entered into a new agreement on 25.9.2008 which is before filing the return of income. The agreement entered on 25.1.2008 with M/s. Janapriya Engineers Syndicate is no more surviving. Further, it is also brought on record by the assessee that there were various litigations relating to the impugned property in Sy. Nos. 74/P and 75/P, Borabanda, Fathenagar village, Ashok Marg, Hyderabad as follows:- 42. Further, as per the AR scheduled land in Survey Nos. 74 75 has become a centre of very serious litigation before the date of the end of the relevant previous year i.e., 31/03/2008 and the litigation has continued even after the close of the financial year but before the date of filing of the Income Tax return by the assessee company and continued till today. Presently, the Hon'ble High Court of Andhra Pradesh vide its order dated 25/07/2010 has ordered that the assessee company and also the Developers M/s. Janapriya Engineers Syndicate shall not claim any equities over the constructions made on the land situated in Sy. Nos. 74 75 of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the subject land and they would be bound by the decision in the suit. It further ordered that this fact must be made clear to the prospective buyers that their purchases are subject to the result of the suit by making a specific recital in the agreement of sale or sale deed as the case may be. (5) In view of the above order of the Hon'ble Supreme Court, the assessee company is completely incapacitated in dealing with the construction area on the subjected disputed land and it was prohibited from making the sales. (6) The agreement entered by the assessee company giving right to sell the apartments vide agreement dated 25/01/2008 has been cancelled by the concerned parties by a cancellation agreement dated 25/09/2008. The cancellation of the agreement has also taken place before the date of the filing of the income tax return. (7) The events occurred after the date of the Balance Sheet, i.e., 31/03/2008 have also to be taken into consideration in determining the amount of real income accrued to the assessee company. in view of the decision of the Tribunal Mumbai Bench in the case of Lok Housing and Constructions Ltd vs. ACIT (2012) 27 Taxmann.com 15 (Mumbai)Trib), can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the true terms of the agreement and if there is any inconsistency in recognising the income then only revenue authorities can disturb the same. Once the assessee recognised the income in accordance with the agreements, the AO cannot substitute his assessment to say that the assessee has postponed the tax liability. There is no basic deviation in the method followed by the assessee regarding recognising of income. However, the AO was of the opinion that there is basic flaw in the method followed by the assessee to recognise the income. When there is no deviation in recognising the income by the assessee, the AO cannot recompute the profit of the assessee by observing that there is basic flaw in the method followed by the assessee. 45. In our opinion, income arising out of sale of flats to M/s. Janapriya Engineers Syndicate in which constructed property was sold by the assessee, profit on such transaction is to be assessable not in the year of agreement and it should be assessable proportionately in the previous years in which the constructed area was sold by the assessee or constructed flats were handed over by the assessee to the buyers. This view of ours is suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be in the previous year in which the transfer took place including the transfer as provided under s. 2(47) of the IT Act, 1961. The sale/transfer of stock-intrade cannot be equated with the transfer of capital asset. The decisions relied upon by the learned Departmental Representative as well as the lower authorities are with respect to the transfer of capital asset under s. 2(47) of the IT Act, 1961 and not in respect of stock-in-trade. Therefore, these decisions are not relevant and applicable in the facts of the present case. As far as s. 53A of the Transfer of Property Act is concerned, the said section provides only a protection to the transferee on fulfilment of certain conditions provided therein but does not provide that even on fulfilment of that condition the transfer is complete. As per provision of s. 53A of the Transfer of Property Act when a right is created in favour of the transferee which cannot be defeated, otherwise then by the terms and conditions expressly provided in the contract itself. 10. From the development agreement dt. 1st Sept., 2003 as well as the supplementary agreement dt. 23rd Dec., 2003, the assessee handed over the possession of the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Alapati Venkataramiah vs. CIT (supra). Until and unless the title of the property is passed on to the purchaser, there cannot be a sale or transfer of immovable property, since in the present case the question is whether the handing over of the possession under the development agreement of the property which is stock-in-trade of the assessee can be treated as a transfer by applying the definition of transfer in s. 2(47) of the IT Act, 1961. As we have already stated earlier that in the case of stock-in-trade, the definition of transfer under s. 2(47) of the IT Act, 1961 is not applicable, therefore, the contextual or the ordinary meaning of the word transfer is applicable in the present case. 15. In the present case, the business profit arises to the assessee on the sale of the stock-in-trade only when the constructed apartments were sold and not at the time when the development agreement was entered into. Moreover, in the development agreement, the assessee has not agreed for sale of the entire constructed property on the land, the assessee has agreed only for a portion of the constructed property for sale for the purpose of recovery of the cost of construction an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Bangalore in O.S. No. 5898/2000, a copy of which is placed in the paper book filed before us. We also find from the paper book that the defendant, Smt. Sundari Ramachandran, has denied the existence and execution of the said settlement agreement dt. 9th Aug., 1997 as been concocted/ fabricated. Therefore, undisputedly the entire settlement agreement dt. 9th Aug., 1997 is in jeopardy. Of course, the assessee has withdrawn a sum of ₹ 23 lakhs from the firm, M/s Electronics Controls. Therefore, having regard to the binding nature of judgment of the Hon ble Supreme Court in the case of Hindustan Housing Land Development Trust Ltd. (supra), to the proposition that where an amount was in dispute, it could not be treated as income, we do not find any infirmity in the conclusion of the CIT(A) that a sum of ₹ 77,00,000 cannot be brought to tax during the year under consideration as the matter had not attained finality. However, the CIT(A) went wrong in not applying the same principle to the amount of ₹ 23 lakhs received by the assessee. Even this amount of ₹ 23 lakhs is disputed and the right of the assessee in the said amount is inchoate and therefore, the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious financial crisis and the impugned resolutions passed to the effect of waiver of interest are reliable. Regarding the requirement of the resolution to be registered u/s 106 r.w.s. 192 of the Companies Act as observed by the Ld.CIT(A), it is pertinent to mention that the said provisions are not applicable as the resolutions passed by the debenture issuing company do not fall under the resolutions prescribed by the provisions of section 192(4) of the Companies Act. Also in similar set of facts, the ITAT in the case of Riya Holdings Ltd in ITA Nos. 1119 to 1124/Mum/2011, where the present Account Member is also one of the parties to the said order, has directed the AO delete a similar amount of interest brought to tax. The relevant principles summarized by the ITAT in the said cases on the basis several judgments of the High Courts and Supreme Court is extracted hereunder: A) that merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it. B) earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides not to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. 46. In view of the above discussion, we are inclined to hold that the CIT(A) is justified in deleting the addition made by the AO as there is no income accrued to the assessee on the basis of agreement entered by the assessee with M/s. Janapriya Engineers Syndicate. We do not find any infirmity in the order of the CIT(A) and the same is confirmed. Grounds taken by the Revenue are rejected and the appeal is dismissed. ITA No. 1058/Hyd/2010 (assessee's appeal): 47. The issue involved in assessee's appeal is with regard to disallowance of expenditure invoking provisions of section 40(a)(ia) of Income)tax Act, 1961, disallowance of travelling expenses and disallowance of foreign travel expenditure. 48. The learned AR submitted that the assessee is a company engaged in the business of development and sale of real estate. The assessee company has taken up a real estate development project at Survey Nos. 74/P 75/P situated at Borabanda, Fathenagar Village, Ashok Marg, Hyderabad. It has filed its return for AY 2008)09. In the assessment the AO has made the following disallowances/additions to the total income. (a) Disallowance of expenditure invoking the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, we are inclined to direct the AO not to disallow the expenditure if TDS has been remitted by the assessee before due date of filing of the return of income as held by the Hon ble Andhra Pradesh High Court in the case of CIT vs. PEC Electricals Pvt. Ltd. in ITA No. 263 of 2013 dated 12.7.2013. The Hon ble High Court held as under: With regard to the next question, the Tribunal by following the decision of the Kolkata High Court in CIT vs. Virgin Creations (GA No. 3200/2011), wherein it has been held that the amendment to the provisions of section 40(a)(ia) is retrospective in operation and consequently in respect of any payment of TDS made before the due date for the filing of the return of income, the provisions of section 40(a)(ia) cannot be invoked. Therefore, we do not find any reason to see that any further decision on this point is required by this Court. 53. Further, we also make it clear that if the expenditure is not debited to Profit and Loss A/c., the same could not be disallowed by invoking the provisions of section 40(a)(ia) of the Act. Accordingly, this issue is remitted back to the file of the AO to decide the issue afresh in the light of our above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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