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TMI Blog2006 (7) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... unable to approve of this action of the Assessing Officer. As already noted the decision taken in the initial year to compute the profits of the assessee s business under a particular method has to be given effect to in all the years till the project is completed. Any departure for some of the years fall in between will distort the entire picture. The assessments in such a case may not be fair to the assessee as well as the Department. It is not in dispute that the assessee has shown the entire profits from the construction in the return for the assessment year 1992-93. This is consistent with its stand. In these circumstances, we direct the Assessing Officer to compute the income of the assessee under the project completion method. The entire profits are assessable in the assessment year 1992-93. The Income-tax authorities were not justified in assessing the sale price of ₹ 2,02,24,253 in respect of the 54 flats in the assessment year 1989-90. We direct accordingly and allow the first two grounds filed by the assessee in the appeal for the assessment year 1989-90. Liability to pay the L DO charges - We agree with the points raised by the learned Senior DR on the basis of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the completion of project method of computing its income from the construction business for Income-tax purposes. The other method which is generally adopted in such type of business is the computation of the profits on the basis of the percentage of completion method. In the former method, the expenditure incurred on the construction is debited to work-in-progress account and this account is carried forward from year to year till the year of completion of the project. The profits from the project is offered for taxation in the year of completion. Under the percentage of completion method, the profits are computed on year to year basis depending on the percentage of completion of the project. Under this method the assessment of the profits is not postponed till the year of completion, but is assessed on yearly basis. Both the methods are recognized by accounting standard 7. 4. In the present case the assessee followed the project completion method of computing the profits from the Tolstoy Marg project. It filed returns accordingly for all the years. Upto and including the assessment year 1988-89, the Assessing Officer accepted the assessee s method of computing the profits. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal and has articulated its objection in the first two grounds taken before the Tribunal. It is contended that the Income-tax authorities were not justified in taxing the sale price of the 54 flats in the assessment year 1989-90 on the footing that the project was completed in this year. It is claimed that the profits can be ascertained only when the project is completed as per the method of computation followed by the assessee consistently and accepted by the Income-tax Department upto the assessment year 1988-89 and thereafter in the assessment years 1990-91 and 1991-92 also. It is submitted that only 63 per cent of the construction was completed, going by the fact that 54 out of 86 flats were sold during the year under consideration and therefore, it cannot be said that the project was either complete or even substantially complete. It is pointed out that for the assessment years 1990-91 and 1991-92, the Assessing Officer himself has not followed his method and has accepted the assessee s method and these assessments have become final. The full profits have been declared by the assessee in the assessment year 1992-93 when all the 86 flats were sold and consistent with the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years until the project is completed. During the entire period of construction, the Assessing Officer cannot be permitted to change the method accepted by him in the initial year. Otherwise there will be complete chaos and confusion throwing the computation of profits out of gear. A proper assessment of the assessee s income cannot be made if the Income-tax authorities are permitted to vacillate between the different methods permitted by law for the purpose of computing the profits arising out of the construction business. The assessments made by the Income-tax authorities should also be fair and reasonable to both the assessee and the Department, which may not be the result if different methods of computing the profits in the case of the construction business is adopted by the Income-tax authorities in different years. In the present case initially upto and including the assessment year 1988-89 the Assessing Officer accepted the assessee s method of computing the profits i.e., the project completion method, and completed the assessments on that basis. For the first time in the assessment year 1989-90 he switched to the percentage of completion method presumably because he found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in the year 1936. The lessees sold their rights to one Bakshi Mohan Lal Sasan, who bequeathed the property to his wife, Smt. Saraswati Bakshi, by a Will dated 4-8-1955. Under the Will she had a life interest devolved on their son, Shri D.N. Bakshi. Shri D.N. Bakshi pre-deceased his mother, Smt. Saraswati Bakshi. A family settlement was executed on 31-3-1997. Subsequently the assessee company was incorporated on 15-6-1978 to acquire the land and carry out the construction work including the construction in Tolstoy Marg. On 2-4-1980 the assessee entered into a partnership with Smt. Saraswati Bakshi, Smt. Kamla Bakshi, who was the widow of late Shri D.N. Bakshi and the two sons of late Shri D.N. Bakshi. As per the partnership deed the life interest holder i.e., Smt. Saraswati Bakshi contributed her rights in the property as capital. The remainder interested sons also agreed to invest their interest in the firm as their capital. The company took over the assets and liabilities of the partnership firm when it was dissolved on 22-12-1981, when Smt. Saraswati Bakshi died. The wife and sons of Shri D.N. Bakshi accepted to take certain portions in the built-up area of the building in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion being accorded by the Land Development Officer as required under the conditions of lease of the plot over which the multi-storied building is constructed. We were also referred to the audit report in respect of the account for the year ended 31-3-1986. In this report, in Schedule K it has been stated that the L DO has demanded additional premium and ground rent upto 31-3-1986 along with interest from the assessee and the demand has been disputed by the assessee. It has also been stated by the auditors that during that year the assessee has paid ₹ 9,00,000 to the L DO in respect of the claim. It has further been stated that to the extent the demand has been accepted by the assessee upto 31-3-1986, it has been shown as current liability and the balance has been shown as contingent liability not provided for in the balance sheet till the matter is finally settled. It is submitted on the basis of these facts that the assessee was liable to pay the L DO charges. In the alternative it is contended that if it is held that the assessee is not liable to pay the L DO charges, the corresponding amount of ₹ 90 per sq. ft. collected from the purchasers should be excluded from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and also having regard to the audit report referred to earlier, we are satisfied that it is not the liability of the assessee to pay the L DO charges. The assessee has merely collected the amount of ₹ 90 per sq. ft. from the flat purchasers in order to hand it over to the L DO on behalf of the flat purchasers, but that does not mean that it was the primary liability of the assessee to pay the L DO charges. We agree with the points raised by the learned Senior Departmental Representative on the basis of the agreement entered into between the assessee and the flat purchasers. We accordingly uphold the disallowance of the liability for both the years. However, we find force in the alternative contention of the assessee raised by way of additional ground, which has already been admitted by the Tribunal. The amount has merely been collected by the assessee, but it does not form part of the sale price of the flats. Therefore, we direct exclusion of the amount collected by the assessee at the rate of ₹ 90 per sq. ft. from the flat purchasers for both the years under consideration. The deduction on account of liability to L DO charges has been claimed by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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