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TMI Blog2015 (11) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... rm has not sold any portion of the constructed area, no hypothetical income can be brought to tax as in fact no real income has accrued to the assessee as per the ratio of decision of Hon’ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. (1998 (12) TMI 4 - SUPREME Court) No infirmity in the order of the CIT(A) qua this issue and upheld the same. Hence, the additions of ₹ 63,52,000.00 made to income of the assessee firm as business profit of the assessee firm made by the assessing officer by estimating profit @15% on 30% of the total cost of work-in-progress is hereby deleted. - Decided in favour of assessee. - ITA NO 4924/Mum/2012 - - - Dated:- 28-9-2015 - Shri Joginder Singh, Judicial Member, and Shri Ramit Kochar, Accountant Member For The Revenue : Shri B. Yadagiri For The Assessee : Shri Hiro Rai ORDER Per Ramit Kochar, Accountant Member This is an appeal filed by the Revenue against the order passed by Commissioner of Income Tax(Appeals)-32,Mumbai (Hereinafter called the CIT(A) ) dated 23.5.2012 for assessment year 2009-10. The Revenue has raised the following Grounds of Appeals filed in the memo of appeal:- 1. On the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern of assessee firm. The said firm Ritesh Exports requested for canceling of the booking in February 2009 and the partners of the assesee firm took decision in the month of May 2009 to cancel the booking and ₹ 20 Lac was refunded by the assessee firm on 15.05.2009 to Ritesh Exports and balance of ₹ 1.65 Crore was credited to the assessee s firm partner s account which was done prior to finalization of the accounts of the assessee firm for the year ending March 2009. The assessee firm has not received any other booking/advance against this project from any other party for which facts are evident in the financial statements for the year ended 31st March 2010 and 31st March 2011. The assessee firm has to give 42% of constructed area to the owners of the land as per agreements with the owners of the land and balance 58% of the constructed area will be retained by the assessee firm . The assessee firm submitted that the partners of the firm has decided not to sell the units of the constructed area belonging to the assessee firm on outright sale basis but rather decided to lease the said units in the premises to earn rental income. Without prejudice, the assessee firm s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence the same. The assessee firm submitted that it has not received any booking till the assessment year 2011-12. The assessee firm also submitted that the total cost as on 31.03.2009 is ₹ 14.11 crores while, without prejudice , even if the advance of ₹ 1.85 crore is considered then it is a meager amount and no profit can be brought to tax. The assessee firm submitted that it is entitled to 58% of the area while 42% of the area belonged to the owners of the land as per agreements with the owners of the land and even if 30% of the project is complete it will tantamount 30% of 58% area constructed which is only 17.5% of the area constructed and hence the area constructed is less than 20%, then as per guidance note issued by ICAI, no revenue can be brought to tax. The CIT(A) held that the revenue is to be booked as per Accounting Standard 9 and guidance notice issued by the Institute of Chartered Accountants of India in 2006 which was issued after considering Accounting Standard 9 issued by ICAI which stipulate in real estate sector, the revenue is to be recognized only when seller has transferred sufficient and significant risks and rewards of ownership in the goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject while 30% of the project is duly completed as on 31.03.2009. He also submitted that assessee firm is entitled for 58% of the area while 42% is to be given to the owners of the land as per agreement entered by the assessing firm with the owners of land and hence the assessing officer has rightly brought to tax the said amount of ₹ 63.52 lacs being 15% of the 30% of the construction which is completed on percentage completion method basis.. 6. The assessee firm on the other hand, relied upon the order of the CIT(A). The assessee firm submitted that the CIT(A) has rightly deleted the addition made as the assessee firm has received ₹ 1.85 crores from its sister concern Ritesh Exports as deposit which was later on refunded in May 2009 to the extent of ₹ 20 lacs while balance amount of ₹ 1.65 crores was credited to the partners account. The assessee firm thus submitted that it has not sold any unit in the said project in the assessment year 2009-10 or even upto the assessment year 2011-12 rather a decision has been taken by the partners of the firm not to sell these constructed area rather it was decided to lease the said units to earn rental income. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of the transaction was changed between the parties. There was a resolution of the assessee-company in this regard and the income from interest did not result at all as the original agreement ceased to be operative ab initio. The entry in the books which was made was about a hypothetical income which did not materialise and the entry was reversed in the next year. Both the Tribunal as well as the High Court have held that since this entry reflected only hypothetical income, it could not be brought to tax as income. Only real income can be brought to tax. ------- ------- ------- In the present case also, the entry which was initially made as interest was reversed the next year because in fact the nature of the transaction was changed and the assessee did not receive any real income. The High Court has, therefore, rightly held this entry as not reflecting the real income of the assessee and, hence, not exigible to income-tax. 8. Thus, we find no infirmity in the order of the CIT(A) qua this issue and upheld the same. Hence, the additions of ₹ 63,52,000.00 made to income of the assessee firm as business profit of the assessee firm made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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