AKSHAR LAND DEVELOPERS PVT LTD, MUMBAI vs. DY. COMMISSIONER OF INCOME TAX WARD 15(1)(1), MUMBAI

This appeal by the assessee is directed against the order dated 27.01.2026 passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as the ‘Ld. CIT(A)’] under section 250 of the Income-tax Act, 1961 (‘the Act’), arising from the assessment order dated 30.03.2016 passed under section 143(3) of the Act for the assessment year 2013-14.

Briefly stated, the assessee is engaged in the business of purchasing, developing and selling immovable properties and construction of buildings. During the year under consideration, it was developing a real estate project known as ‘Elementa’ at Pune. The assessee filed its return of income on 30.09.2013 declaring nil income and followed the project completion method. The closing work-in- progress of the project as on 31.03.2013 was shown at Rs.116,26,09,281.

A survey under section 133A was conducted on 29.10.2013. In the course of survey, the statement of the director, Shri Hari Bachubhai Mujat alias Bharat Patel, was recorded. Referring to the stated estimated project cost of Rs.403 crore and work-in-progress of Rs.116,26,09,281, 2

Before the Ld. CIT(A), the assessee submitted that the project had commenced on 19.12.2011; that it had consistently followed the project completion method; that the same method had been accepted in the earlier and subsequent years; and that the project was ultimately completed in the previous year relevant to A.Y. 2016-17, when the final result of the project was disclosed. It was also contended that the Guidance Note relied upon by the Assessing Officer was not statutorily mandatory for the relevant year and that an ad hoc rate of 8 percent of work-in-progress had no factual foundation. As regards bank interest, the assessee contended that the fixed deposit was maintained as margin/security for the project finance and that the interest had an inextricable nexus with the project. The Ld. CIT(A), however, upheld the rejection of the method of accounting, the estimation of profit and the assessment of interest under the head ‘Income from other sources’.

Before us, the learned Authorised Representative reiterated that the assessee, being a real estate developer, had regularly followed the project completion method and the Department could not selectively substitute the percentage completion method in one assessment year. It was submitted that the ultimate project result stood disclosed in A.Y. 2016-17 and any estimated addition in the year under appeal would result in taxing the same project income twice or in assessing a purely 3

The learned Authorised Representative also filed an application under rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 for admission of additional evidence comprising the State Bank of India sanction letter dated 08.03.2011 and the assessee’s account statement for the period from 17.06.2011 to 31.03.2012. It was explained that the documents demonstrate that the fixed deposit was created and retained as collateral/security pursuant to the terms governing a loan of Rs.27 crore sanctioned for the Elementa project. It was prayed that the documents be admitted and the issue of interest of Rs.2,46,697 be examined afresh. Reliance was placed on Smt. Prabhavati S. Shah v. CIT (1998) 231 ITR 1 (Bom) and CIT v. Mukta Metal Works (2011) 336 ITR 555 (P&H).

The learned Departmental Representative supported the orders of the lower authorities. It was submitted that the level of development had crossed 25 percent and, therefore, the Assessing Officer was justified in applying the percentage completion method so that recognition of revenue was not indefinitely postponed. In respect of the interest issue, it was submitted that the documents now filed were not examined by the Assessing Officer and, if admitted, the matter would require verification by him.

The Hon’ble Supreme Court in CIT v. Bilahari Investment (P.) Ltd. (supra) explained that recognition of income is attainable by several methods of accounting and that both the completed contract method and the percentage completion method are recognized methods. The Court further held that the completed contract method cannot be rejected merely because the Department considers another method preferable; the relevant consideration is whether the method regularly employed results in a proper determination of income. The Hon’ble Delhi High Court in CIT v. Manish Buildwell (P.) Ltd. (supra), while approving the project completion method consistently followed by a developer, observed in substance that the Assessing Officer cannot impose the percentage completion method merely on the ground that it is more appropriate. Similarly, the Hon’ble Punjab and Haryana High Court in CIT v. Hill View Infrastructure (P.) Ltd. (supra) accepted the project completion method where it had been consistently followed and there was no statutory prohibition against it.

The above principles show that consistency cannot be displaced by a bare preference for a different recognized method. At the same time, the method followed must disclose the true project result, and the same income cannot be permitted either to escape assessment or to be assessed twice. In the present case, the addition is not based upon any 5

We also find substance in the assessee’s contention that the final outcome of the Elementa project is material. According to the documents referred to in the appellate proceedings, the project was completed in the previous year relevant to A.Y. 2016-17 and the assessee disclosed the final project result in that year. Whether the whole revenue and cost pertaining to the project were so accounted for, whether that return attained finality, and whether any part of the income now estimated at Rs.9,30,08,742 has already entered the computation for A.Y. 2016-17 require verification from the assessment record. If the income or final result of the very same project has already been offered and accepted on the project completion basis, a separate estimated addition for the year under appeal would produce duplication and cannot be sustained. Tax is chargeable on real income in the correct manner; the machinery of assessment cannot be used to tax the same project profit twice merely by changing the year and method of recognition.

In these circumstances, and since the relevant return, audited accounts, project-wise ledger and assessment/intimation for A.Y. 2016- 17 require factual verification, we set aside the finding of the Ld. CIT(A) on grounds 1 to 5 and restore the issue to the file of the Assessing Officer. The Assessing Officer shall verify the consistent method followed 6

As regards ground 6, the sanction letter and the bank account statement go to the root of the assessee’s claim that the fixed deposit was mandated as margin/security for finance obtained for the project. These documents are relevant for determining whether the deposit and the interest arose from an inextricable business/project nexus. The documents were not examined by either of the lower authorities. Following the principles laid down by the Hon’ble jurisdictional High Court in Smt. Prabhavati S. Shah v. CIT (supra), we are satisfied that their admission is necessary for a just adjudication. The additional evidence is accordingly admitted under rule 29.

Since verification of the loan terms, creation of the fixed deposit, source of funds, period of deposit and accounting treatment is required, the issue relating to interest of Rs.2,46,697 is also restored to the Assessing Officer. The Assessing Officer shall examine the sanction letter, the bank statements and such other supporting material as may be produced. If the fixed deposit was required to be maintained as a condition of the project loan and the interest is found to be inextricably 7

Before parting, we clarify that we have not expressed any concluded opinion on factual verification entrusted to the Assessing Officer. The assessee shall place all relevant returns, audited financial statements, project ledgers, sale details, assessment records and bank documents before the Assessing Officer and shall cooperate in the fresh proceedings. The Assessing Officer shall decide both issues in accordance with law and the directions contained above.

In the result, the appeal of the assessee is allowed for statistical purposes.