ITO-1(1)(1), MUMBAI vs. M/S ARISTO SHELTERS PVT. LTD., MUMBAI

1. These appeals are filed by the revenue against different orders of the Learned Commissioner of Income Tax (Appeals)-2, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 03.01.2019 and 09.05.2019 for the A.Ys.2013-14 and 2014-15 respectively.

2. Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 1931/MUM/2019 for Assessment Year 2013-14 as a lead appeal.

Land TDR Land to be Sr. No. Stages TDR released (Sq. ft.) Sq. Mtr.

5 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd % of Cons. Sr. Cons. TDR TDR to be Items No. (Sq.ft.) released 3. On completion of RCC Work upto 24th slab 31% 34,44,868 (Mesonry Work, Internal & External Plaster will be carried out proportionately with the slab due to aluminum from work system) 4. Building external CPVC Vertical lines 2% 2,22,249 5. On completion Flooring & Internal Plumbing 8% 8,88,998 Work (Except sanitary ware, Drainage, Water, Electricity, Doors, Windows, Painting, Polishings, Lifts, Balance RCC Work etc.) 6. On completion the building & obtaining O.C. 8%- 8,88,998 7. Retention at the time of occupation to be 2% - 2,22,250 released only defect liability period of 2Years is over. Sub - Total (B): TOTAL CONSTRUCTION TDR 100% 1,11,12,477 GRAND TOTAL (A+ B) TOTAL TDR 1,27,98,560

7 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd vide Agreement for Sale dated 5.2.2010 entered into with M/s. Bombay Industrial Corporation purchased land admeasuring approximately 1,56,640 sq. meters situate at CTS No. 619/A, 619/B, 620/A, 621/A, 621/B, 621/C, 623/A1, 623/A2 and 623/B at Village Mahul, Chembur, Mumbai ("said land") for purchase of price of Rs.201 crores with a view to develop the same. ii) The company had given a rehabilitation proposal to the Slum Rehabilitation Authority ("SRA") for development of the said land under provisions of Clause 3.11 read with Clause 3.5 & 3.9 (ii) of Appendix-IV of Development (Control & Regulations) Rule 33(10), by constructing certain number of tenements at its own cost to be handed over the Municipal Corporation of Greater Mumbai ("MCGM"), free of cost, which in turn would allot these tenements to the slum dwellers removed from hutments along water mains of MCGM. In lieu of this our company would get Transferable Development Rights ("TDR") from MCGM. This rehabilitation project was declared as a Vital Public Project by the Government of Maharashtra. iii) By Letter of Intent ("LOP") dated 31.3.2011 issued by SRA, our company is to construct 9002 tenements and other amenities to be handed over to MCGM through SRA free of cost for which following TDR would be allotted to the company:- (A) Land TDR Sq. Meters Sq. Ft 1. Project Affected 89,061.89 9,58,662 People Tenements 2. Buffer Zone Area 28,418.78 3,05,900 3. Amenity Portion 39,160.23 4,21,521 Total 16,86,083 (B) Construction 1,11,12,477 TDR Total 1,27,98,560 iv) Simultaneous with the issue LOI dated 31.3.2011, a multipartite Agreement ("the Agreement") was executed between M/s. Bombay Industrial Corporation (as "Vendors"), our company (as "Developers") and the SRA (as ‘Purchaser') and the SRA (as "Project Implementing Authority") setting out the terms and conditions for development of the said land in accordance with the LOI dated 31.3.2011. Clause (3) and (4) of the Agreement provide for consideration in the form of TDR to be allotted to our company

8 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd described as "Rehabilitation Component and Land Component" respectively for the obligations undertaken by the company in implementing the rehabilitation scheme at the said land v) The aforesaid LOI was amended from time to time by several supplementary LOIS, the last being LOI dated 16.6.2012, which modified the no. of tenements to be constructed by the company to 8,399 and also other amenity tenements as per Clause (21) thereof. vi) Clause (7) of the Agreement provides that the company shall be entitled to the benefit of TDR in the ratio of 1:1 in respect of the Land Component from the SRA, and the SRA will cause the MCGM of issue TDR in the form of Development Right Certificate ("DRC") in the name of the company in stages after the said land is transferred to SRA as specified in the Agreement. Clause (17) of the Agreement provides the time when the company will be entitled to the Land Component of TDR; while clause (18) of the Agreement provides the time when the company will be entitled to the Rehabilitation, Le. Construction Component of TDR. Clause (15) of the Agreement stipulates the compensation to be paid by the company to the SRA in case of default committed by the company in delaying the construction work. vii) The company received the following TDR in respect of the Land Component: Date of Date of Nature of TDR TDR in Sq. TDR in Sq. Release Receipt Meters Ft. 18.5.2011 16.9.2011 PAP Tenements- 17,810.00 1,91,706.84 part 18.6.2012 16.7.2012 Buffer Zone Area 28,418.78 3,05,899.75 26.6.2012 27.7.2012 PAP Tenements - 71,251.89 7,66,955.34 Balance Total 1,17,480.67 12,64,561.93 viii) The company has been consistently following project completion method for recognising revenue from this project. Consequently, all the expenses incurred on this project have been accumulated under the head "Work-in-Progress" till the completion thereof. The sales proceeds realized on sale of TDR during the construction period has been reduced from the cost of WIP, and the balance cost carried forward.

9 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd ix) It is important to state that after 27.07.2012, the company has not received any TDR. The said land being situated near HPCL and BPCL Refineries, they have taken serious objections to our project. Further, Public Interest Litigation involving our project is pending before the Hon'ble Bombay High Court. In view of these facts, the said project is couched in significant uncertainties at the moment. The copies of litigation filed by f) HPCL V/s. The Slum Rehabilitation Authority and Others including us is enclosed and (ii) Public Interest Litigation No. 140 of 2006 filed by Janhit Munch & Others V/s. MCGM, us and others - Volume-I & II enclosed.

11 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd Further, and more importantly, as per Clause (17)(a) we are entitled to only 20% of the total Land TDR on execution of the Agreement, while as per Clause 17(b) & (c), the balance 80% is linked to construction of tenements. This clearly demonstrates that both these components are inseparable and cannot be considered in isolation independent of each other. Therefore, any profit or loss of this project should be recognised only upon completion of the project as a whole when our company fulfils all its obligations under the Agreement. 3.3 Accounting Standard-9 (AS-9) on Revenue Recognition: AS-9 pronounced by the Institute of Chartered Accountants of India lays down the accounting standard for recognising revenue by an enterprise. As per AS-9, revenue in case of sale is to be recognised when significant risks and rewards stand transferred between the parties. Further, the revenue can be recognised only when there is no significant uncertainty about its ultimate collectability. Having regard to the nature of project under execution, it cannot be said that our company has transferred any significant risks of the project to the SRA when land is transferred to it while the construction of tenements, which is the basic obligation, is still in progress. It is only after handing over of the constructed tenements with occupation certificate obtained for the same, that one can say the company has transferred the associated risk and reward of the same to the SRA. Further, the accrual of TDR in the form of DRC is also doubtful until construction is completed as stipulated. The stage-wise allotment of TDR is for the purpose of enabling the developer to raise finance required for the implementation of the project. This is provided in Clause (16) of the Agreement. In any event, recognising revenue at every stage of allotment of TDR would mean adoptionof percentage completion method; while our company follows PCM. It is legally well settled that it is the choice of the assessee to adopt a particular method of accounting; the only requirements are that (a) it should be a recognised method of accounting, and (b) the same method once adopted should be followed consistently. Thus, the method of accounting adopted by our company cannot be rejected, and a new method, i.e. percentage completion method thrust upon us by recognising profit/loss on sale of TDR receivable at different stages of the project.

12 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 3.4 Judicial Precedent supports our stand: i. We would like to submit that our case is saucrely covered by our sister concern's case of M/s. Atithi Builders And Constructors Private Limited (ITA No. 4047 & 4048/Mum/2009) for A.Y. 2004-05 and 2005-06 by Hon'ble Mumbai ITAT-A Bench (the copy of decision is enclosed) where CIT (A)'s decision is confirmed upending Project Completion Method for TDR sales. It was held as follows: "We have heard the rival submissions and perused the relevant material on record. The only issue before us is whether TDRs should be taxed on receipt basis as has been done by the Assessing officer or in the year in which the project is completed. The assessee is admittedly following mercantile system of accounting and the project completion method has been approved by the Ld. CIT(A) as well. The Mumbai Bench of the Tribunal in Chembur Trading Corporation (supra) vide its order dated 21.01.2009 has held that when the assessee is following project completion method, sale proceeds of TDRs should be included in the year in which the project is completed. Similar view has been taken by another Bench of the Tribunal in ITO Vs. Sudhir V.Shetty in copies of these two orders have been placed on record. The Ld. DR, after going through the above orders candidly admitted that the facts and circumstances of the instant appeals were mutatis mutandis similar. In view of these decisions it has become apparent that the sale of TDRs is to be accounted for in the year in which the project is completed and not when the work is going on. As the four assessment years under consideration are the years in which the project was unfinished, naturally the sale of TDRs cannot be included in the income of the assessee. However it is made clear that the sale proceeds of TDRS would be included in the total income of the assessee in the assessment year 2008-2009, subject to the availability of other deductions, as per law. The learned A.R. has stated at Bar that the assessee voluntarily included such amount in the income for the assessment year 2008-2009, assessment of which is still in progress and the assessment order has not yet been passed. We, therefore, hold that the amount of sale of TDRS in the years in question should not be taxed but the same are accounted for in the year of completion of project, that is A.Y. 2008- 09. We, therefore, uphold the impugned order on this issue." ii. The accounting treatment given by our company is also supported by the judgment of the Appellate Tribunal in ACIT vs. Skylark Build [2011] 48 SOT 306 (Mumbai), wherein on identical facts and circumstances of the case, it was held as follows:

13 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd “8…... The assessee has been following project completion method which is an accepted method of accounting in construction business and also recommended as per accounting standard AS-7 of ICAL Therefore, in such cases the income from the project has to be computed in the year of completion. The TDRS received are directly linked to the execution of the project and therefore, before the completion of the project the income from TDR or any other receipt inextricably linked to the project will only go to reduce costs of the project. Therefore, in our view the assessee had rightly set off TDR received against WIP. The addition made by the AO in 2006-07 on account of TDR receipt is not justified………… The cost of the buildings is claimed to be more than income from TDR, full details of which were given to the CIT(A) and therefore, even on this ground no income can be assessed in case of the assessee. In the asst. yr. 2006-07, the project was not complete and there is no dispute about this fact. Therefore, in asst. yr. 2006-07, TDR received has to be set off against WIP and cannot be assessed separately as income. We therefore, confirm order of CITYA) deleting the addition made in asst. yr. 2006-07. The position regarding asst. yr. 2007- 08 is not clear. The AO has not given any finding regarding the year of completion of the project. Though the CIT(A) has held that the project was completed in asst. yr. 2007- 08, he has not given any basis of such finding not any such specific plea was taken by the assessee before CIT(A). This aspect therefore requires verification. The construction of the transit buildings was only a part of the project. The actual year of completion of the project is required to be verified. We therefore, restore this aspect to the file of the AO for fresh order. In case on verification it is found that the project was completed in 2007-08, AO will compute the income from project after taking into account entire expenditure and the receipts from the beginning of the year including the TDRs as directed by CIT(A). However, in case the project is not found complete, the AO will set off TDR receipts against work in progress and no income will be assessed 14 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd on account of TDR receipts separately. We direct accordingly." [Emphasis supplied] 5. In view of above discussion, we respectfully submit that the accounting treatment given by our company to the sales proceeds of Land TDR by deducting the same from the cost of WIP is correct and, therefore, it should be accepted. We, therefore, pray that in our case provisions of section 145(3) should not be invoked. The assessee further submitted that, without prejudice to above, A) your goodself may note that, for Builders & Developers, who follows Project Completion Method, while computing net profit of the particular Project, financial figures of more than one year needs to be considered to arrive at profitability of such Project. Your goodself may note that we have borrowed funds of 90,00,00,000/- from IL&FS TRUST COMPANY LIMITED (ILFS) vide Debenture Subscription Agreement (copy placed as Exhibit-2). The Principal amount of Rs:30,00,00,000/- was repaid in FY 2012- 13. Balance Principal amount of Rs: 60,00,00,000/- and interest of Rs: 64,20,61,040/- was paid in F.Y. 2014-15. We enclose herewith (i) copy of Ledger A/c of ILFS(Exhibit-3): (ii) our Audited Accounts, both for FY 2011-12;2012- 13;2013-14 & 2014-15.(Exhibit-4) B) After debiting interest as referred to in para 4(A) above, we have prepared Profit/Loss A/c of the Chembur Project with Total cost incurred vis a vis Revenue generated from sales of TDR for the period 1-4-2011 to 31-03-2015 per method of accounting denied by your office and also for valuation of closing stock as on 31.03.2015(the copy as Exhibit- 5). The result of the Project period till 31.03.2015 shows net loss of Rs. 24,01, 73,617/- So taxing Income in particular year ignoring total life of the Project would give absurd results. Your goodself may note that Project is at halt due to litigation and stay by H'ble Bombay High court since 17/01/2013 (copies of two documents on litigation and stay are placed as Exhibit-6). These documents were also submitted during the course of assessment proceedings for A.Y. 2012-13. So, in our humble view, Net Profit as stated in your letter can not be assessed as Income for F.Y.12-13 (A.Y.13-14)."

9. After considering the submissions of the assessee, Assessing Officer rejected the same and came to the conclusion that the TDR consists of 15 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 20% of the total TDR on execution of the agreement and balance 80% is linked to the construction of the tenements. Therefore, he is of the opinion that as per the tripartite agreement, the assessee has transferred the land with all its rights acquired on purchase of such land to the SRA. In return, assessee has received TDR from SRA. The cost of Land TDR is the cost of land purchased and expenses incurred on development of land. On acquisition of Land TDR, it can be said to be held as stock in trade and the cost of said TDR is the cost of land and the cost incurred on development of such land. By selling the TDR held as stock in trade, the assessee is acting just like a trader and he proceeded to treat the profit sale of TDR as income of the assessee after adjusting the cost of land and observed as under: - “7.3 As per the multipartite agreement, the assessee got privilege and the right in construction of rehabilitation component. Such construction of buildings in the project commenced as per the direction of the SRA. In lieu of expenses incurred on construction of tenements/building of the project, the assessee will get TDR for sale in open market after commencement of work of construction of building in phased manner. In this process, the assessee is acting like a contractor and not a developer. As such, the assessee is not having any control over commencement of construction, allotment of residential tenements and the completion of whole project. 7.4 As per the multipartite agreement, the assessee has got privilege and right in construction of 9002 tenements. In the said agreement, there is a clause to construct a building by the assessee within 5 years of issue of commencement certificate. The project in question, comprising of 59 buildings for residential tenements and 3 other buildings for amenities. Since the project is so large and there is no time bound completion of the 'whole project, the method followed by the 16 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd assessee itself is questionable. During the course of assessment proceedings the assessee has never come forward with any proposal that when the said project will be completed and when it will offered the income generated from such project. The assessee by claiming that it has followed project completion method and the income will offered after the completion of project raises doubts about the intention of the assessee.

8. Since the assessee failed to determine profit of the business on sale of land TDR, the book result of the assessee are considered not reliable and accordingly stands rejected within the meaning of provisions of section 145(3) of the Act and the assessment is completed in the manner provided u/s 144 of the Act, on discussion hereinbelow.

5. Sale price of land TDR for the year 2,19,52,15,898/- 6. Balance land TDR with the assessee company 4,21,629 sq ft. Cost of balance land TDR Rs. 50,26,28,147/- 7. (421629* 1192.11)

17 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd Accordingly profit on sale of land TDR is determined at Rs.69,88,78,747/- and same is treated as income of the assessee for the AY. 2013-14.”

10. Further, Assessing Officer observed that assessee has debited interest expenses under the head “Financial Expenses” and adjusted in work-in-progress account as under: - Finance expenses: Interest account ₹.62222922/- Interest received on FD ₹.1832412 ₹.,60390507

1. 1. From Director Rs. 10,68,852/- 2. From related parties Rs. 41.02,36,335/- Interest fund available with assessee total Rs.41,13,05,187/- Interest free loan/advances given to director and related parties: B.

1. To Director Rs. 4,57,950/- 2. To Aristo Realtors Pvt. Ltd Rs.167,36,35,000/- 3. Investment in related parties Rs. 18,00,00,000/- 4. Total Rs. 1,85,40,92,950/- 13.4 From the above working, it is seen that the assessee has given interest free loans/investment to related parties over and above interest free fund available with it. 13.5 Thus the assessee has given advances and made investments to related parties from the interest bearing fund meant for business amounting to Rs. 144,27,87,763/- so as to enhance its work in progress and thereby reduce its tax liability.

19 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 13.6 Since, the assessee has utilized its interest bearing business fund amounting to Rs. 144,27,87,763/- for interest free advance to its related parties, the interest paid on interest bearing fund taken from bank (secured) and from other parties (unsecured) amounting to Rs. 6,22,22,922/- is not allowable as business expenses as provided u/s 36(1)(iii) of the IT Act, 1961. 13.7 As regards to the reliance placed on in the case of CIT v/s Reliance Utilities & Power Ltd, the facts of the assessee case to the case relied upon are distinguishable and not identical as discussed in above paras. In the assessee case, advances given to its related parties and investment made is over and above of interest free fund available with the assessee. Hence, the decision relied upon does not help the assessee. 13.8 Considering the above facts, interest paid and debited/claimed against income amounting to Rs. 6,22,22,922/- is disallowed and added back to total income of the assessee. Since the assessee filed inaccurate particulars of income and thereby concealed particulars of income, penalty proceedings u/s 271(1)(c) is hereby initiated.”

22. ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 69.88 Crore made by the AO on account of sale of Transferable Development Right (TDR) received on transfer of land to Slum Rehabilitation Authority (SRA), by holding that the TDR is part of the project work. in-progress; without appreciating the fact that sale of sand to SRA has no nexus with the contract awarded for construction of free homes to Project Affected Persons (PAP) for which TDR is receivable on different stages of construction." 2. "Whether On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of Rs. 6.22 crore made by the AO being the proportionate interest on the interest free loan advanced out of the interest bearing loans, by holding that TDR advances are in the nature of interest free loan without appreciating the fact that the assessee has no adequate free funds available and that no evidences was furnished to prove the nexus of advance out of TDR advance."

25 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd  The aforesaid LOI was amended from time to time by several supplementary LOIS, the last being LOI dated 16.6.2012, which modified the no. of tenements to be constructed by the Respondent to 8,399 and also other amenity tenements as per Clause (21) thereof.  Clause (7) of the Agreement provides that the Respondent shall be entitled to the benefit of TDR in the ratio of 1:1 in respect of the Land Component from the SRA, and the SRA will cause the MCGM of issue TDR in the form of Development Right Certificate ("DRC") in the name of the Respondent in stages after the said land is transferred to SRA as specified in the Agreement. Clause (17) of the Agreement provides the time when the Respondent will be entitled to the Land Component of TDR; while clause (18) of the Agreement provides the time when the Respondent will be entitled to the Rehabilitation, i.e. Construction Component of TDR. Clause (15) of the Agreement stipulates the compensation to be paid by the Respondent to the SRA in case of default committed by the Respondent in the construction work.  The Respondent received the following TDR in respect of the Land Component: Date of Date of Nature of TDR TDR in Sq. TDR in Sq. Release Receipt Meters Ft. 18.5.2011 16.9.2011 PAP Tenements- 17,810.00 1,91,706.84 part 3,05,899.75 18.6.2012 16.7.2012 Buffer Zone Area 28,418.78 26.6.2012 27.7.2012 PAP Tenements- 71,251.89 7,66,955.34 Balance 12,64,561.93 Total 1,17,480.67  The Respondent has been consistently following project completion method for recognizing revenue from this project. Consequently, all the expenses incurred on this project have been accumulated under the head "Work-in- Progress" till the completion thereof. The sales proceeds realized on sale of TDR during the construction period has been reduced from the cost of WIP, and the balance cost carried forward from year to year.  It is important to state that after 27.07.2012, the Respondent has not received any TDR. The said land being situated near HPCL and BPCL Refineries, they have taken serious objections to this project. Further, Public Interest Litigation involving this project is pending before the Hon'ble Bombay High Court. HPCL filed W.P. No.

26 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 2107 of 2013 before Hon'ble Bombay High Court against the SRA, Respondent-assessee and Ors., against sanction of development of this project. Vide Order dated 30.03.2016 passed by Hon'ble High Court this Writ Petition has been clubbed with Notice of Motion No. 19 of 2013 filed by Respondent-assessee in PIL. No. 140 of 2006 pending before the High Court. All these matters are pending. In view of these facts, the said project is couched in significant uncertainties even at present.  In the immediately preceding year, i.e. A.Y.2012-13, the then Ld. AO had rejected the method of accounting employed by the Respondent and after invoking Section 145(3) of the Act, determined business loss of Rs. 38,01,13,034/- as against 'Nil' total income declared by the Respondent. The Respondent had carried the matter in appeal before the Ld. CIT(A)-2, Mumbai, who vide the Order dated 06.02.2017, upheld the Respondent's stand. No further appeal was filed against this order of CIT(A) before the Hon'ble ITAT. Submissions: 1. Project Completion Method (PCM) is a recognized method of accounting: 1.1 PCM is a recognized and scientific method that has stood the test of judicial scrutiny in a number of cases, reference to which has been made in the written submissions filed before the Ld. CIT(A), a copy of which is placed at pp.187-204 of Paper Book (PB) field by Respondent. The assessee has choice of the method of accounting to be followed, which method once adopted, should be consistently followed year after year, which the Respondent has done. 1.2 Assessing Officer can invoke section 145(3) if he is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting referred to in sub- section (1) or accounting standards notified under sub-section (2), have not been regularly followed by the assessee. The Ld. AO has not given any reason to discredit the accounts maintained by the Respondent, which are duly audited by a firm of Chartered Accountants under the provisions of the Companies Act, 1956. Further, no reasons are adduced to show that generally accepted accounting principle were not adopted by the Respondent in preparation of its financial statements. The Ld. AO's only case is that the Respondent ought to have recognized revenue from sale of TDR even though the project did not take off. 1.3 In Respondent's case, PCM is the most appropriate method of accounting because the approach adopted by the Ld. AO has resulted 27 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd in distorted profit/loss from year-to-year as under, even though the project has not yet taken off due to the pending litigation: Assessment Income Income Order declared by computed by u/s.145(3) A.Y. the the Ld.AO r.w.s 144 Respondent Rs. dated 2012-13 NIL (38,01,13,034) 31.03.2015 2013-14 NIL 76,11,02,669 30.03.2016 2014-15 NIL (73,89,32,572) 29.12.2016

2. Land Component of TDR cannot be considered de hors the total project: 2.1 The Ld. AO erred in considering sale of Land TDR as an independent stream of income detached from the above project. Though there are two components of the TDR, namely, the Land TDR and Construction TDR, they both form an integral and inseparable part of the project revenue, which cannot be separated and considered in isolation. Clause (16) of the Agreement (p.87 of PB) provides that the release of TDR in the form of DRC in phases is to facilitate the developer to raise finance and construct tenements within the agreed time limit. The basic and fundamental obligation of the developer is to construct the required number of tenements and other infrastructure amenities as per the Agreement as a part of Rehabilitation Scheme of the SRA. Therefore, revenue from sale of Land TDR can be assessed only upon completion of the project, and not when the project is not yet taken off due to the pending litigation. 2.2 The Agreement dated 30.04.2021 (pp. 78-115 of PB) read as a whole, would show that it was a composite agreement for transfer of the land and construction of tenements/infrastructure facilities on the land. Recital 'B', "C', 'D' and Clause (3), (7), (8) of the Agreement shows this fact. Clause (9)(ii) of the Agreement reads as under- "TDR in respect of the said Land Component which is declared to be part of the approved SRA project in this Agreement;" Clause (12) of the Agreement reads as under- 28 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd "The SRA confirms that this scheme is for erecting of housing stock of rehabilitation tenements for rehabilitation project affected persons affected by vital public purpose project undertaken by Government and/or its agencies. Upon the Developer obtaining the occupation certificate from the SRA after completing all necessary on site infrastructures such as water supply line, electricity supply and drainage line, etc., the Developer shall be entitled to the balance Land TDR…….” Clause (17) of the Agreement provides the time when TDR for the Land Component will be recommended by the SRA in favour of the Respondent, and it is clearly linked to progress in the construction of tenements, and the final 15% TDR will be released only upon completion of construction of tenements and the occupation certificate for the same is issued by the SRA. Recital T' and 'J' of the Conveyance Deed dated 30.4.2011 (pp.71 & 72 of PB) also stipulates that Respondent has agreed to undertake project of construction of tenements comprising certain built-up area sanctioned by SRA in phase in lieu of TDR in respect of the said land and conveyance is made in advance as required by SRA. Thus, conveying this land in favour of SRA was only because such advance conveyance was required by SRA; but it is a part and parcel of the rehabilitation project of construction of tenements for settlement of PAP. Further, the main body of the Conveyance Deed at p.5 onwards (pp.72 -74 of PB) stipulates that the said land has been conveyed in favour of SRA in the consideration of the SRA agreeing and undertaking with Respondent to provide or cause to be provided TDR in the form of DRC in respect of the said land as set out in the Agreement, and that the terms and conditions thereof are binding and form part of this Conveyance. In other words, the transfer of the said land was a part of the overall rehabilitation project undertaken by Respondent and could not be considered in isolation on standalone basis. It is further provided that the said Conveyance is conditional upon and subject to the obligation on the part of the SRA as stipulated in the Agreement and that Respondent is in possession of the said land for and on behalf of the SRA with a right to carry out construction of the tenements and develop the same in accordance with the terms of the Agreement and that the assessee has a special lien on the said land which will not be disturbed, affected and prejudiced by the SRA unless the term of the Agreement are complied with, observed and performed and the SRA shall not convey this land to anybody unless and 29 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd until SRA release all the benefit of TDR under the Agreement (p.74 of PB). 2.3 All the above provisions, stipulations and conditions clearly establish the inextricable, inseparable and organic nexus between the transfer of the said land and construction of tenements. It would be erroneous to consider transfer of the said land as a separate, independent and standalone transaction between Respondent and SRA, de hors the overall composite project undertaken by Respondent. Transfer of the said land to the SRA is only a preliminary step in that direction; and not the end in it. Clause (2) of the Agreement for Sale dated 5.2.2010 [p.139 of PB] entered into by Respondent with Bombay Industrial Corporation shows its clear intention to develop the said land under a scheme of SRA etc. It was never the intention of any of the parties to the Agreement to consider the land transfer as an independent transaction; it is always considered and intended as an integral part of the overall rehabilitation project. 2.4 Further, the Ld. AO also erred in not appreciating that until the end of the year under appeal, Respondent did not receive total TDR of Land Component. The Ld. AO himself has admitted in para (5.3) of the assessment order that till date the Respondent got 75% of the total Land Component TDR. 2.5 Respondent relies upon decision in I.T.O. vs. Chembur Trading Corporation (ITA No. 2593/Mum/2006) [pl refer pp. 9-10 of Compilation of Case Laws), wherein the agreement was a composite agreement for handing over land for Expressway and also for construction of tenements and shops by the assessee on land belonging to it. The entire land was acquired in phases and also consideration in the form of TDR was received in phases. Consideration was received in kind. The funds received on sale of TDR were utilised for construction of tenements and shops. Hon'ble Tribunal held that it was clearly one project and not two projects as they have been treated by the AO. It was held that the AO cannot adopt two methods of accounting in one project to determine the income of the assessee. It observed that in case of construction activity there are two recognised methods of accounting viz. (1) Project Completion Method and (2) Percentage Completion Method. It is stated that the assessee has a right or a privilege to adopt any one of the methods of accounting for determining its profit. In this case, the assessee had been following the project completion method to 30 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd determine the profits of a project for last so many years, but during the year under consideration the AO had dissected the project in two segments and for one segment he applied project completion method and for the remaining segment, he determined the profit on sale of TDR. The method of accounting adopted by the AO was held to be neither prevalent nor recognised by the ICA! or under any law. Hon'ble Tribunal held that the assessee had rightly computed its profit on the basis of the project completion method. Accordingly, it upheld the order of CIT(A) and dismissed the appeal filed by the Revenue. Hon'ble Bombay High Court confirmed the above decision by dismissing the Revenue's appeal CIT vs. M/s. Chembur Trading Corporation (Bombay High Court - IT Appeal No.3179 of 2009) [pl refer p. 1 of Compilation of Case Laws] Reliance is also placed on the following judicial rulings: a) ACIT vs. M/s. Atithi Builders & Constructors P. Ltd. (ITA No. 4047 & 4048/Mum/2009) [pl. refer pp. 14-22 of Compilation of Case Laws] b) CIT vs. Shri. Sudhir V. Shetty (Bombay High Court - IT Appeal No.6159, 6160 & 6161 of 2010) [pl refer pp.2-3 of Compilation of Case Laws] c) ACIT vs. M/s. Videocon Atithi Shelters Pvt. Ltd. (ITA No. 3496- 3499/Mum/2009)[pl refer pp.11-13 of Compilation of Case Laws] d) ACIT vs. Skylark Build [2011] 48 SOT 306 (Mumbai)[pl refer pp.4-8 of Compilation of Case Laws e) M/s. Pushpa Construction Co. vs. ITO (ITA No.193/Mum/2010) [pl refer pp.23-25 of Compilation of Case Laws] 3. Impact of Accounting Standard-9 (AS-9) on Revenue Recognition: AS-9 pronounced by the Institute of Chartered Accountants of India lays down the accounting standard for recognising revenue by an enterprise. As per AS-9, revenue is to be recognised when significant risks and rewards stand transferred between the parties. Further, the revenue can be recognised only when there is no significant uncertainty about its ultimate collectability. Having regard to the nature of the project under execution, it cannot be said that Respondent has transferred any 31 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd significant risks of the project to SRA when land is transferred to it, while construction of tenements, which is the basic obligation, is not even started. On handing over of constructed tenements with occupation certificate one can say Respondent has transferred the associated risk and reward to SRA. Further, accrual of TDR is also doubtful until construction is completed as stipulated. The stage-wise allotment of TDR is for purpose of enabling the developer to raise finance required for the implementation of the project. This is provided in Clause (16) of the Agreement. In view of pending litigation before Hon'ble Bombay High Court, execution of this project is standstill, and therefore, it is now couched with very significant risks as to its ultimate completion and realization of revenue, though Respondent incurred costs (including interest on borrowings) year after year. Therefore, it is submitted that in view of AS-9 also, there is no case for recognition of any revenue from this project at this stage. AY 2013-14: Ground No.2: Submissions: The details of interest-bearing funds and interest-free funds available to Respondent and also its utilization for business purposes and non- business purposes are summarised as under: Available Funds Amount (Rs.) Utilization of Amount (Rs.) Funds I) Interest Free Funds I) Non- Business Purpose i) From Directors 10,68,852 i) To Directors 4,57,950 41,02,36,335 ii) To related parties ii) From related parties 167,36,35,000 iii) TDR Advances 1,56,44,69,461 iii) TDR Advances 20,64,92,400 Total (I) 1,97,57,74,648 Total (I) 1,88,05,85,350 II) Interest Bearing Funds (II) Business Purpose i) From non- related parties 1,03,78,20,098 i) Work in Progress 32,95,87,462 (Secured) ii) From non- related parties 31,38,04,913 ii) Sundry Debtors 31,54,70,092 (unsecured) iii) Fixed Assets 86,25,65,386 iv) Deposits 2,37,80,484 Total (II) 1,35,16,25,011 Total (II) 1,53,14,03,424

Total Funds (I) +(II) Total Funds (I) + (II) 3,32,73,99,659 3,41,19,88,774 32 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd It is submitted that where assessee has both, interest-free as well as interest- bearing funds, which are mixed, then, there is a legal presumption that the assessee has utilised interest-free funds for the purpose of financing non-business purposes. Reliance is placed on decision of Hon'ble Supreme Court in CIT vs. Reliance Industries Ltd. [2019] 410 ITR 466 and Hon'ble Jurisdictional High Court in CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340. It is further submitted that merely because the TDR Advances were received in the course of carrying on business cannot convert them into interest-bearing, when factually, they are not so. The claim of compensation that would be payable on non-delivery of TDR as business expenditure is to be considered on its own merits and the claim of such expenses can alter the fact that the TDR advances are interest free. Thus, TDR advances received are fundamentally interest-free funds available to the Respondent about which there can be no dispute. Reliance is placed on the order of Ld. CIT(A) on this issue. In view of above, the Ld. CIT(A) had correctly, based on the facts and also in law, deleted the disallowance of interest paid of Rs.6,22,22,922/-. Without prejudice to the above, the Respondent further submits that the Ld. AO erred in adding the sum of Rs.6,22,22,922/- being the amount of disallowance of interest paid. The Ld. AO ought to have noted that the Respondent did not claim any deduction for the interest paid during the year under appeal, and the same was added to the WIP of the project. If at all, the disallowance was to be made, then, the same could be deducted from the WIP that is carried forward to the subsequent year. Reliance for this proposition is placed on the decision in Savala Associates vs. ITO [2010] 35 SOT 148 (Mum-Trib). Prayer: The Respondent prays Your Honours to kindly confirm the orders of Ld. CIT(A) and dismiss both the Grounds of Appeal raised by the Appellant-revenue for AY 2013- 14 and sole Ground of Appeal raised by the Appellant-revenue for AY 2014-15.”

33 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 19. Considered the rival submissions and material placed on record, we observe that assessee has entered into an agreement to develop the slum rehabilitation scheme as per which assessee has acquired the land from M/s. Bombay Industrial Corporation and entered into multipartite agreement with SRA and different tenements. No doubt assessee has transferred the land to SRA and surrendered all the rights over the property. However, assessee had a basic obligation to construct the building and receive TDR on the portion of land on which the construction is completed in the ratio of 1:1 on TDR and construction TDR in the ratio of 1:1.33.

35 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 24. Further, we observe that the Coordinate Bench decided the issue in ITO v. Chembur Trading Corporation in ITA.No. 2593/Mum/2006 dated 21.01.2009 for the A.Y. 2000-01 and held as under: - “The Tribunal noted that the agreement was a composite agreement for handing over land for Expressway and also for construction of tenements and shops by the assessee on land belonging to it. The Tribunal also noted that the entire land was acquired in phases and also consideration in the form of TDR was received in phases. Consideration was received in kind. The funds received on sale of TDR were utilised for construction of tenements and shops. The Tribunal held that it was clearly one project and not two projects as they have been treated by the AO. The Tribunal held that the AO cannot adopt two methods of accounting in one project to determine the income of the assessee. It observed that in case of construction activity there are two recognised methods of accounting viz. (1) Project Completion Method and (2) Percentage Completion Method. The Tribunal stated that the assessee has a right or a privilege to adopt any one of the methods of accounting for determining its profit. In the present case, the assessee had been following the project completion method to determine the profits of a project for last so many years, but, during the year under consideration the AO had dissected the project in two segments and for one segment he applied project completion method and for the remaining segment, he determined the profit on sale of TDR. The method of accounting adopted by the AO was held to be neither prevalent nor recognised by the ICAI or under any law. The Tribunal held that the assessee had rightly computed its profit on the basis of the project completion method. Accordingly, it upheld the order of CIT(A) and dismissed the appeal filed by the Revenue.”

36 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd 26. With regard to Ground No. 2, we observe that assessee has utilized the funds to its director and to its related concerns and we observe from the balance sheet submitted by the assessee that assessee has both interest free funds of ₹.1,97,57,74,648/- and interest bearing funds of ₹.1,35,16,25,011/-. From the submissions we observe that assessee had interest bearing funds of ₹.1,35,16,25,011/- and assessee has applied for business purpose in the work-in-progress, sundry debtors, fixed assets and other deposits totaling to ₹.1,53,14,03,424/-. Therefore, assessee has utilized the total interest bearing funds only for the purpose of business purposes to the extent of ₹.1,53,14,03,424/- which is more than interest bearing funds borrowed by the assessee. When there is a mixed funds available to the assessee, there is legal presumption that the assessee has utilized the interest free funds for the purpose of financing non business activities as held in the case of CIT v. Reliance Industries Ltd., [2019] 410 ITR 466. Therefore, we are inclined to accept the findings of the Ld.CIT(A) in deleting the proposed addition of notional interest. Accordingly, the ground raised by the revenue is dismissed.

37 ITA.NO.1931 & 5181/MUM/2019 M/s Aristo Shelters Pvt. Ltd ITA.No. 5181/MUM/2019 (A.Y. 2014-15)