ACIT 30(3), MUMBAI vs SURATCHANDRA B. THAKKAR -HUF, MUMBAI

Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL

For Respondent: Mr. Hoshang B. Irani, DR

Hearing: 28/07/2022Pronounced: 12/08/2022

PER OM PRAKASH KANT, AM These three appeals by the assessee are directed against a common order dated 06/04/2018 passed by the Ld. Commissioner

Suratchandra B. Thakkar (HUF) Suratchandra B. Thakkar (HUF) 2 ITA Nos. 4333 to 4335/M/2018 ITA Nos. 4333 to 4335/M/2018

of Income-tax (Appeals) tax (Appeals)-41, Mumbai [in short ‘the Ld. CIT(A) the Ld. CIT(A)’] for assessment year 2006 assessment year 2006-07; 2007-08 and 2008-9 respectively respectively. Since a common issue-in-dispute is involved in all the three appeals, same dispute is involved in all the three appeals, same dispute is involved in all the three appeals, same were heard together and disposed of were heard together and disposed off by way of this consolidated by way of this consolidated order for convenience. order for convenience.

Identical grounds have been raised in all the three assessment Identical grounds have been raised in all the three assessment Identical grounds have been raised in all the three assessment year except difference of amount and t year except difference of amount and therefore for brevity, we are herefore for brevity, we are reproducing the grounds raised by the assessee in IT reproducing the grounds raised by the assessee in IT reproducing the grounds raised by the assessee in ITA No. 4333/Mum/2018 for assessment years 2006 4333/Mum/2018 for assessment years 2006-07, as under: 07, as under:

On the facts and in the circumstances of the case and in law, On the facts and in the circumstances of the case and in law, On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not treating of advances received by the Ld. CIT(A) erred in not treating of advances the Ld. CIT(A) erred in not treating of advances the assessee of the assessee of ₹1,78,68,399/- from flat buyers as income of from flat buyers as income of the assessee for AY 2006 the assessee for AY 2006-07. 3. In assessment year 2007 assessment year 2007-08, deletion of amount of deletion of amount of ₹96,04,258/- and in assessment year 2008 and in assessment year 2008-09 deletion of amount of 09 deletion of amount of ₹2,77,19,807/- has been challenged has been challenged by the Revenue.

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Briefly stated facts of the case are that assessee HUF had Briefly stated facts of the case are that assessee HUF had Briefly stated facts of the case are that assessee HUF had entered into a development agreement with M/s K Raheja entered into a development agreement with M/s K Raheja entered into a development agreement with M/s K Raheja Universal Private Limited (i.e. the developer) for development of (i.e. the developer) for development of residential (i.e. the developer) for development of flats and commercial units on flats and commercial units on certain land at Malad (East), Mumbai Malad (East), Mumbai, which was owned by the assessee along with which was owned by the assessee along with other co other co-owners (i.e. two brothers of Karta of HUF two brothers of Karta of HUF). As per the development agreement, the development agreement, the owners of the land and the developers were to share the sale the owners of the land and the developers were to share the sale the owners of the land and the developers were to share the sale proceeds in the ratio of 45.5% and 54. proceeds in the ratio of 45.5% and 54.5% respectively. The assessee 5% respectively. The assessee was having 1/4th share in the land, and therefore it was entitled to share in the land, and therefore it was entitled to share in the land, and therefore it was entitled to receive 25% of the 45.5% share receivable by the landowners receive 25% of the 45.5% share receivable by the landowners receive 25% of the 45.5% share receivable by the landowners. The project consisted of construction of four towers on the said land, out project consisted of construction of four towers on the said land, out project consisted of construction of four towers on the said land, out of which first two to of which first two towers were completed in previous year wers were completed in previous year corresponding to assessment year 2008 corresponding to assessment year 2008-09, whereas the remaining 09, whereas the remaining two towers were completed in previous year corresponding to two towers were completed in previous year corresponding to two towers were completed in previous year corresponding to assessment year 2009 assessment year 2009-10. The assessee received advance of rupees 10. The assessee received advance of rupees ₹1,78,68,399/-; ₹96,04, 96,04,258/- and ₹2,77,19,807/- against sale of f against sale of flats

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in assessment year 2006 in assessment year 2006-07, 2007-08 and 2008-09 respectively. 09 respectively. However no income was offered by the assessee against the said However no income was offered by the assessee against the said However no income was offered by the assessee against the said advance received on the plea that assessee was following advance received on the plea that assessee was following advance received on the plea that assessee was following Project Completion Method and ent and entire income was declared in assessment ire income was declared in assessment year 2008-09 and 2009 09 and 2009-10, on completion of the project 10, on completion of the projects, receipt of occupation certificate and execution of conveyance deed in favour of occupation certificate and execution of conveyance deed in favour of occupation certificate and execution of conveyance deed in favour of the buyers.

According to the According to the Assessing Officer the entire cost of the entire cost of construction was being met by the developer and the project did not n was being met by the developer and the project did not n was being met by the developer and the project did not require any contribution from the side of the assessee, the advance require any contribution from the side of the assessee, the advance require any contribution from the side of the assessee, the advance received by the assessee became final and certain. The received by the assessee became final and certain. The received by the assessee became final and certain. The Assessing Officer further observed that no work further observed that no work-in-progress was reported progress was reported by the assessee in its books of accounts. In view of the in its books of accounts. In view of the in its books of accounts. In view of the Assessing Officer, there was no risk attached to the there was no risk attached to the assessee and therefore assessee and therefore advances becomes income of the assessee in the year of the receipt. becomes income of the assessee in the year of the receipt. becomes income of the assessee in the year of the receipt.

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The Ld. CIT(A) has summariz A) has summarized the contentions s of the assessee

made before him, for assessment year 2006 for assessment year 2006-07 as under: 07 as under:

“10. On the other hand, the Ld. AR of the appellant has stated that 10. On the other hand, the Ld. AR of the appellant has stated that 10. On the other hand, the Ld. AR of the appellant has stated that the appellant has contributed only land along with his 2 brothers the appellant has contributed only land along with his 2 brothers the appellant has contributed only land along with his 2 brothers (coparceners) while the Developer has contributed (coparceners) while the Developer has contributed all material, all material, labour, administration expenses, stamp duty, registration charges labour, administration expenses, stamp duty, registration charges labour, administration expenses, stamp duty, registration charges and all day to day expenses to construct the building. The appellant and all day to day expenses to construct the building. The appellant and all day to day expenses to construct the building. The appellant received advances from the prospective buyers through the received advances from the prospective buyers through the received advances from the prospective buyers through the Developer in the ratio fixed in the development a Developer in the ratio fixed in the development a Developer in the ratio fixed in the development agreement, amounting to Rs. 1,78,68,399/ amounting to Rs. 1,78,68,399/-, which were related to Tower & II , which were related to Tower & II (or Tower A and B), as shown in the balance sheet towards his (or Tower A and B), as shown in the balance sheet towards his (or Tower A and B), as shown in the balance sheet towards his contribution of cost of land. contribution of cost of land.

11.

During the appellate proceedings, the Ld. AR has highlighted 11. During the appellate proceedings, the Ld. AR has highlighted 11. During the appellate proceedings, the Ld. AR has highlighted certain clauses. from th certain clauses. from the development agreement to put forth his e development agreement to put forth his argument. According to him, as per as per clause no. 41 of the argument. According to him, as per as per clause no. 41 of the argument. According to him, as per as per clause no. 41 of the development agreement, the appellant has given only rights to the development agreement, the appellant has given only rights to the development agreement, the appellant has given only rights to the Developers to develop the property into residential & commercial Developers to develop the property into residential & commercial Developers to develop the property into residential & commercial units without transfe without transferring the right in the land although the right rring the right in the land although the right to sale residential units, to the prospective buyers, is vested with the to sale residential units, to the prospective buyers, is vested with the to sale residential units, to the prospective buyers, is vested with the Developer. Furthermore, as per the clause no. 29 of the development Developer. Furthermore, as per the clause no. 29 of the development Developer. Furthermore, as per the clause no. 29 of the development agreement, the appellant was entitled to receive gross sale proceeds agreement, the appellant was entitled to receive gross sale proceeds agreement, the appellant was entitled to receive gross sale proceeds including interest components for delayed payment from the including interest components for delayed payment from the including interest components for delayed payment from the prospective buyers of flats against sale of his share in the property prospective buyers of flats against sale of his share in the property prospective buyers of flats against sale of his share in the property owned along with his two brothers as coparceners being the land owned along with his two brothers as coparceners being the land owned along with his two brothers as coparceners being the land component. Further as per clause 46 of the development agreeme component. Further as per clause 46 of the development agreeme component. Further as per clause 46 of the development agreement, after completion of the building, it is the responsibility of the after completion of the building, it is the responsibility of the after completion of the building, it is the responsibility of the

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developer to form a co developer to form a co-operative society or a limited company of the operative society or a limited company of the purchasers of the newly constructed building. It is clearly purchasers of the newly constructed building. It is clearly purchasers of the newly constructed building. It is clearly mentioned in the said clause of the agreement that the ap mentioned in the said clause of the agreement that the ap mentioned in the said clause of the agreement that the appellant along with his 2 brothers and the Developer shall jointly convey along with his 2 brothers and the Developer shall jointly convey along with his 2 brothers and the Developer shall jointly convey their respective rights and interest in the said property and the said their respective rights and interest in the said property and the said their respective rights and interest in the said property and the said building in favour of the co building in favour of the co-operative society or limited company to operative society or limited company to be formed by the purchasers of the premises be formed by the purchasers of the premises. This execution of the . This execution of the conveyance deed in favour of the co conveyance deed in favour of the co-operative society or limited operative society or limited company is to be done only after completion of the building, receipt company is to be done only after completion of the building, receipt company is to be done only after completion of the building, receipt of the occupation certificate, after all the residential premises have of the occupation certificate, after all the residential premises have of the occupation certificate, after all the residential premises have been sold and the total sal been sold and the total sale price of all the said premises have been e price of all the said premises have been received.

12.

The Ld. AR has further brought to the notice of the undersigned 12. The Ld. AR has further brought to the notice of the undersigned 12. The Ld. AR has further brought to the notice of the undersigned the notes forming part of the accounts of the appellant which states the notes forming part of the accounts of the appellant which states the notes forming part of the accounts of the appellant which states that the appellant concern, in respect of real estate development that the appellant concern, in respect of real estate development that the appellant concern, in respect of real estate development business, is following consistently the completed building project business, is following consistently the completed building project business, is following consistently the completed building project method of accounting. Under this method the profit on the building method of accounting. Under this method the profit on the building method of accounting. Under this method the profit on the building project is determined only when the building project is completed. project is determined only when the building project is completed. project is determined only when the building project is completed. All the construction, administration, finance and other All the construction, administration, finance and other All the construction, administration, finance and other related expenses allowable directly in the project including land cost are expenses allowable directly in the project including land cost are expenses allowable directly in the project including land cost are carried forward as work in progress to the building project account carried forward as work in progress to the building project account carried forward as work in progress to the building project account till the year of completion of the building. All the advances received till the year of completion of the building. All the advances received till the year of completion of the building. All the advances received against the sale of flats are carried for against the sale of flats are carried forward as advances received ward as advances received from the customers and the same is accounted on the completion of from the customers and the same is accounted on the completion of from the customers and the same is accounted on the completion of the building and handing over of the possession to flat buyer. In this the building and handing over of the possession to flat buyer. In this the building and handing over of the possession to flat buyer. In this regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision in case of Madhuvana Hous in case of Madhuvana Housing Building Cooperative Society v. ACIT ing Building Cooperative Society v. ACIT 76 TTJ 948 wherein it is held that the appellant is entitled to adopt 76 TTJ 948 wherein it is held that the appellant is entitled to adopt 76 TTJ 948 wherein it is held that the appellant is entitled to adopt

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such method of accounting as would give complete picture of true such method of accounting as would give complete picture of true such method of accounting as would give complete picture of true income of the assessee provided the same is regularly employed. The income of the assessee provided the same is regularly employed. The income of the assessee provided the same is regularly employed. The appellant is regularly employing the same method of accounting i.e. regularly employing the same method of accounting i.e. regularly employing the same method of accounting i.e. project completion method to determine complete picture of project completion method to determine complete picture of project completion method to determine complete picture of income.

13, It is also contended that during pendency of construction work, 13, It is also contended that during pendency of construction work, 13, It is also contended that during pendency of construction work, the appellant has received advances against his contribution of l the appellant has received advances against his contribution of l the appellant has received advances against his contribution of land and not against construction of the building, therefore the advance and not against construction of the building, therefore the advance and not against construction of the building, therefore the advance received cannot be treated as income of appellant till the received cannot be treated as income of appellant till the received cannot be treated as income of appellant till the construction is completed or occupation certificate is received from construction is completed or occupation certificate is received from construction is completed or occupation certificate is received from Municipal Authority or possession is handed over or the Municipal Authority or possession is handed over or the Municipal Authority or possession is handed over or the full sale proceeds are received from the purchases. This is imminent because proceeds are received from the purchases. This is imminent because proceeds are received from the purchases. This is imminent because advances received from the flat buyers are refundable in case of advances received from the flat buyers are refundable in case of advances received from the flat buyers are refundable in case of cancellation of booking of flats. Moreover, projects runs for number cancellation of booking of flats. Moreover, projects runs for number cancellation of booking of flats. Moreover, projects runs for number of years and price escalation cannot be denie of years and price escalation cannot be denied. Hence, till the d. Hence, till the construction is complete and possession of the flats are given, construction is complete and possession of the flats are given, construction is complete and possession of the flats are given, determination of correct income is not feasible. As per the clauses of determination of correct income is not feasible. As per the clauses of determination of correct income is not feasible. As per the clauses of the Development agreement, the title of the land is transferred to the Development agreement, the title of the land is transferred to the Development agreement, the title of the land is transferred to the co-operative society or limited operative society or limited company on behalf of the company on behalf of the purchasers only after completion of the project. Only then the purchasers only after completion of the project. Only then the purchasers only after completion of the project. Only then the income arising from the sale of property is taxable in the hands of income arising from the sale of property is taxable in the hands of income arising from the sale of property is taxable in the hands of the appellant i.e. in F.Y. 2007 the appellant i.e. in F.Y. 2007-2008 (A.Y. 2008-09) when the 09) when the appellant offered tax on entire sale p appellant offered tax on entire sale proceeds of land (for Tower & II roceeds of land (for Tower & II or Tower A and B) amounting to Rs. 8,97,11,407/ or Tower A and B) amounting to Rs. 8,97,11,407/- and paid tax and paid tax thereon totalling to Rs. 2,12,30,019/ thereon totalling to Rs. 2,12,30,019/-. It is further explained by the . It is further explained by the Ld. AR that the AO has also cumulatively determined the same Ld. AR that the AO has also cumulatively determined the same Ld. AR that the AO has also cumulatively determined the same receipt of Rs. 8,97,11,407/ receipt of Rs. 8,97,11,407/- for the three years i.e., for A.Y. 2006 or the three years i.e., for A.Y. 2006-07, Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007 Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007 Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007-08, Rs.

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96,04,258/- for Tower & II (Advance) and for A.Y. 2008 for Tower & II (Advance) and for A.Y. 2008 for Tower & II (Advance) and for A.Y. 2008-09, Rs. 6,22,38,750 for Tower & II (Final payment). Thus the amount 6,22,38,750 for Tower & II (Final payment). Thus the amount 6,22,38,750 for Tower & II (Final payment). Thus the amount computed by the AO for thr computed by the AO for three years is the same amount which is ee years is the same amount which is offered for taxation in A.Y. 2008 offered for taxation in A.Y. 2008-09 i.e., Rs. 8,97,11,407/ 09 i.e., Rs. 8,97,11,407/-. There is no variation at all. Once the appellant has already paid tax on total no variation at all. Once the appellant has already paid tax on total no variation at all. Once the appellant has already paid tax on total sale of Rs. 8,97,11,407/ sale of Rs. 8,97,11,407/- in the A.Y. 2008-09, the year in which the 09, the year in which the project is completed, the AO is not justified in taxing the same s completed, the AO is not justified in taxing the same s completed, the AO is not justified in taxing the same amount in the preceding years, when the receipts were in the nature amount in the preceding years, when the receipts were in the nature amount in the preceding years, when the receipts were in the nature of advances. There is no loss to the revenue on account of taxation of advances. There is no loss to the revenue on account of taxation of advances. There is no loss to the revenue on account of taxation as the tax is fully paid on Rs. 8,97,11,407/ as the tax is fully paid on Rs. 8,97,11,407/- in the A.Y. 2008 in the A.Y. 2008-09. Hence, the Ld. AR pleaded that the impugned addition made by the Hence, the Ld. AR pleaded that the impugned addition made by the Hence, the Ld. AR pleaded that the impugned addition made by the AO should be deleted. AO should be deleted.” 7. After considering of the submission of the assessee, the Ld. After considering of the submission of the assessee, the Ld. After considering of the submission of the assessee, the Ld. CIT(A) accepted the income offered by the assessee following CIT(A) accepted the income offered by the assessee following CIT(A) accepted the income offered by the assessee following project completion method. project completion method.

The Ld. DR before us relied on the order of the before us relied on the order of the Assessing before us relied on the order of the Officer and submitted that advance received against sale of the flat and submitted that advance received against sale of the flat and submitted that advance received against sale of the flat should have been assessed in the year of the should have been assessed in the year of the receipt as same became as same became income of the assessee on income of the assessee on receipt of the said advance. of the said advance.

We We have have heard heard arguments of the Ld. Ld. Department Representative and perused the relevant material on record and perused the relevant material on record and perused the relevant material on record

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including the impugned order of the Ld. CIT(A). We find that the Ld. including the impugned order of the Ld. CIT(A). We find that the Ld. including the impugned order of the Ld. CIT(A). We find that the Ld. CIT(A) has summarised the various clauses of the development CIT(A) has summarised the various clauses of the development CIT(A) has summarised the various clauses of the development agreements entered into by the own agreements entered into by the owners of the land and the ers of the land and the developer. The relevant part developer. The relevant part of the impugned order is extracted as of the impugned order is extracted as under:

“15. The above clauses of the agreement reveal that The above clauses of the agreement reveal that

(i) The legal and juridical possession of the land has always (i) The legal and juridical possession of the land has always (i) The legal and juridical possession of the land has always remained with land owners till the remained with land owners till the completion of the buildings and completion of the buildings and conveyance to the association of the flat purchasers. It is specifically conveyance to the association of the flat purchasers. It is specifically conveyance to the association of the flat purchasers. It is specifically mentioned that there is neither sale or transfer or intention to give mentioned that there is neither sale or transfer or intention to give mentioned that there is neither sale or transfer or intention to give possession of the land to the Developer under section 53A of the possession of the land to the Developer under section 53A of the possession of the land to the Developer under section 53A of the Transfer of prop Transfer of property Act, 1882. The Developer is merely given erty Act, 1882. The Developer is merely given license to enter upon the said property for the purpose of license to enter upon the said property for the purpose of license to enter upon the said property for the purpose of development.

(ii) The land owners have the obligation to obtain FSI by way of (ii) The land owners have the obligation to obtain FSI by way of (ii) The land owners have the obligation to obtain FSI by way of TDR of approximately 1,00,157.08 sq.ft. as well as to obtain TDR of approximately 1,00,157.08 sq.ft. as well as to obtain TDR of approximately 1,00,157.08 sq.ft. as well as to obtain permissions permissions for for the the re re development development of of the the land land for for commercial/residential uses at their own cost. commercial/residential uses at their own cost.

(iii) Entire cost of development works in respect of the said property (iii) Entire cost of development works in respect of the said property (iii) Entire cost of development works in respect of the said property is to be borne by the Developer alone without the land owners being is to be borne by the Developer alone without the land owners being is to be borne by the Developer alone without the land owners being required to contribute any amou required to contribute any amount

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(iv) The agreement for sale of flats in the said buildings (iv) The agreement for sale of flats in the said buildings (iv) The agreement for sale of flats in the said buildings will be a tripartite agreement tripartite agreement executed by the land owners and the executed by the land owners and the Developer with the buyers. Developer with the buyers.

(v) Out of the gross sale proceeds, including interest compensation (v) Out of the gross sale proceeds, including interest compensation (v) Out of the gross sale proceeds, including interest compensation charged to the purchasers of f charged to the purchasers of flats/residential premises, the land lats/residential premises, the land owners are entitled to receive and retain 45.5% (in their respective owners are entitled to receive and retain 45.5% (in their respective owners are entitled to receive and retain 45.5% (in their respective shares) being the land component while the remaining 54.5% shall shares) being the land component while the remaining 54.5% shall shares) being the land component while the remaining 54.5% shall belong to the Developer. belong to the Developer.

(vi) As per the arrangement made with the Vijaya Bank, the As per the arrangement made with the Vijaya Bank, the As per the arrangement made with the Vijaya Bank, the proceeds of sale of flats upon receipt in the Escrow account will be sale of flats upon receipt in the Escrow account will be sale of flats upon receipt in the Escrow account will be directly transferred to the directly transferred to the land owners' account in the ratio of land owners' account in the ratio of 45.5% and the Developer @ 54.5%. 45.5% and the Developer @ 54.5%.

(vi) The land owners and the Developer shall jointly convey their (vi) The land owners and the Developer shall jointly convey their (vi) The land owners and the Developer shall jointly convey their respective right title respective right title and interest in the land and the said buildings and interest in the land and the said buildings in favour of a co in favour of a co-operative society or limited company to be formed operative society or limited company to be formed by the purchasers of the premises after completion of the buildings. by the purchasers of the premises after completion of the buildings. by the purchasers of the premises after completion of the buildings.

(vii) Finally, it is mentioned that the development agreement has (vii) Finally, it is mentioned that the development agreement has (vii) Finally, it is mentioned that the development agreement has neither created any relationship of partner or as A.O.P. and/or as er created any relationship of partner or as A.O.P. and/or as er created any relationship of partner or as A.O.P. and/or as Joint venture between the land owners and the Developer. The Joint venture between the land owners and the Developer. The Joint venture between the land owners and the Developer. The relationship between them are that of 'principal to principal' for the relationship between them are that of 'principal to principal' for the relationship between them are that of 'principal to principal' for the purpose of development of the said property. purpose of development of the said property.

16.

Apart from th 16. Apart from that following facts are also important to determine at following facts are also important to determine the issue under consideration the issue under consideration

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1) Occupation certificates from BMC are received on 22/01/2008 1) Occupation certificates from BMC are received on 22/01/2008 1) Occupation certificates from BMC are received on 22/01/2008 for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s 2008-09 and 2009 09 and 2009-10

2) Land is conveyed in favo 2) Land is conveyed in favour of the society after handing over the ur of the society after handing over the -11 possession to the flats buyer i.e. after A.Y. 2009 possession to the flats buyer i.e. after A.Y. 2009-10 & 2010-

3) As declared in the return of income of A.Y. 2004 3) As declared in the return of income of A.Y. 2004-05, the land was 05, the land was converted into "stock in trade" valued at Rs. 7,37,50,000/ converted into "stock in trade" valued at Rs. 7,37,50,000/ converted into "stock in trade" valued at Rs. 7,37,50,000/- and all subsequent yea subsequent years, the appellant has consistently treated the land as has consistently treated the land as its "stock in trade". its "stock in trade".

4) From the return of income of A.Y. 2008 4) From the return of income of A.Y. 2008-09, it is observed that the 09, it is observed that the appellant has offered the sale proceeds of tower no. A and B at Rs. appellant has offered the sale proceeds of tower no. A and B at Rs. appellant has offered the sale proceeds of tower no. A and B at Rs. 8,97,11,470/- under the head business inc under the head business income on the plea that both ome on the plea that both the towers are completed during the year under consideration, the towers are completed during the year under consideration, the towers are completed during the year under consideration, occupancy certificates are received and possessions are handed occupancy certificates are received and possessions are handed occupancy certificates are received and possessions are handed over. Simultaneously, income under the head capital gain on over. Simultaneously, income under the head capital gain on over. Simultaneously, income under the head capital gain on transfer of land u/s 45(2) of the I.T. Act, i transfer of land u/s 45(2) of the I.T. Act, in the ratio of FSI of land n the ratio of FSI of land sold during the year, is also offered and after indexation the same is sold during the year, is also offered and after indexation the same is sold during the year, is also offered and after indexation the same is worked out at long term capital loss of Rs. 5,83,942/ worked out at long term capital loss of Rs. 5,83,942/ worked out at long term capital loss of Rs. 5,83,942/-. In the assessment order u/s 143(3) of A.Y. 2008 assessment order u/s 143(3) of A.Y. 2008-09, the Jt. CIT while 09, the Jt. CIT while accepted the business income off accepted the business income offered for taxation recomputed the ered for taxation recomputed the LTCG u/s 45(2) at Rs. 30,03,122/ LTCG u/s 45(2) at Rs. 30,03,122/- after getting the valuation of the after getting the valuation of the land done by the DVO as on 01.04.1981. land done by the DVO as on 01.04.1981.”

9.1 In background of the above facts, the Ld. CIT(A) in his detailed background of the above facts, the Ld. CIT(A) in his detailed background of the above facts, the Ld. CIT(A) in his detailed

finding held that land in question was not tr finding held that land in question was not transferred to the ansferred to the

developer till completion of the construction and therefore entire developer till completion of the construction and therefore entire developer till completion of the construction and therefore entire

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risk of the project remained with the landowners including the risk of the project remained with the landowners including the risk of the project remained with the landowners including the assessee, therefore, he justified he justified in adoption of completed contract adoption of completed contract method (or Project Completion Method) (or Project Completion Method) followed by the assessee. followed by the assessee. The relevant finding of the Ld. CIT(A) for assessment year 2006 The relevant finding of the Ld. CIT(A) for assessment year 2006 The relevant finding of the Ld. CIT(A) for assessment year 2006-07 is reproduced as under: is reproduced as under:

“17. From the above clauses of the agreement and various facts on 17. From the above clauses of the agreement and various facts on 17. From the above clauses of the agreement and various facts on record, it is clear that the appellant being land owner has record, it is clear that the appellant being land owner has record, it is clear that the appellant being land owner has contributed land as per Joint Development Arrangement but does and as per Joint Development Arrangement but does and as per Joint Development Arrangement but does not transfer the land to the Developer during the year under not transfer the land to the Developer during the year under not transfer the land to the Developer during the year under consideration. The appellant HUF does not have joint control in consideration. The appellant HUF does not have joint control in consideration. The appellant HUF does not have joint control in construction and sale of the project except revenue sharing construction and sale of the project except revenue sharing construction and sale of the project except revenue sharing arrangement in Towers arrangement in Towers I, II, III and IV, ownership in the commercial I, II, III and IV, ownership in the commercial part to be built up by the Developer and execution of the part to be built up by the Developer and execution of the part to be built up by the Developer and execution of the conveyance deeds in favour of the society/ LLP. The HUF is entitled conveyance deeds in favour of the society/ LLP. The HUF is entitled conveyance deeds in favour of the society/ LLP. The HUF is entitled to receive the sale consideration as fixed percentage of sale to receive the sale consideration as fixed percentage of sale to receive the sale consideration as fixed percentage of sale proceeds realized fr proceeds realized from the buyers of the flats. It is also specifically om the buyers of the flats. It is also specifically mentioned in the clause 43 of the agreement that the arrangement mentioned in the clause 43 of the agreement that the arrangement mentioned in the clause 43 of the agreement that the arrangement between land owners and the Developer is not in the nature of between land owners and the Developer is not in the nature of between land owners and the Developer is not in the nature of partnership or joint venture. In such a scenario, the guidance note partnership or joint venture. In such a scenario, the guidance note partnership or joint venture. In such a scenario, the guidance note requiring adoption of percentage of completion methods (PCM) for adoption of percentage of completion methods (PCM) for adoption of percentage of completion methods (PCM) for revenue reorganization in the case of real estate transactions, as reorganization in the case of real estate transactions, as reorganization in the case of real estate transactions, as applicable to the Developer, cannot be applied to the appellant applicable to the Developer, cannot be applied to the appellant applicable to the Developer, cannot be applied to the appellant being land owners. Even the AO is consistent with the view that being land owners. Even the AO is consistent with the view that being land owners. Even the AO is consistent with the view that

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proportionate or completion method is not applicable to the rtionate or completion method is not applicable to the rtionate or completion method is not applicable to the appellant's case. appellant's case.

18.

In my considered opinion, in such a case, the land owner can 18. In my considered opinion, in such a case, the land owner can 18. In my considered opinion, in such a case, the land owner can adopted a suitable revenue recognition criteria having consistency adopted a suitable revenue recognition criteria having consistency adopted a suitable revenue recognition criteria having consistency to year. Based in the accounting policies being followed from year in the accounting policies being followed from year to year. Based on the accounting policies being followed and development on the accounting policies being followed and development on the accounting policies being followed and development agreement entered with the Developer, revenue can be recognised agreement entered with the Developer, revenue can be recognised agreement entered with the Developer, revenue can be recognised once the project is complete and occupation certificates are issued once the project is complete and occupation certificates are issued once the project is complete and occupation certificates are issued by the municipal authorities. However, much will d by the municipal authorities. However, much will depend upon the epend upon the terms and conditions under which the development agreement was terms and conditions under which the development agreement was terms and conditions under which the development agreement was entered into and how the revenue flows. Before further dealing on entered into and how the revenue flows. Before further dealing on entered into and how the revenue flows. Before further dealing on this issue, it needs to be ascertained as to whether the land, in the this issue, it needs to be ascertained as to whether the land, in the this issue, it needs to be ascertained as to whether the land, in the instant case, will constitute a capital as instant case, will constitute a capital asset or a business asset. In set or a business asset. In this regard, the appellant has brought on record that in the return this regard, the appellant has brought on record that in the return this regard, the appellant has brought on record that in the return of income of A.Y. 2004 of income of A.Y. 2004-05, the land was converted into "stock in 05, the land was converted into "stock in trade" and from that time, the appellant has consistently shown it trade" and from that time, the appellant has consistently shown it trade" and from that time, the appellant has consistently shown it as its "stock in trade". In as its "stock in trade". In the return of income for A.Y. 2004 the return of income for A.Y. 2004-05, the relevant remarks for conversion of land, from capital asset to "stock relevant remarks for conversion of land, from capital asset to "stock relevant remarks for conversion of land, from capital asset to "stock in trade" is found to be clearly mentioned. The value of the land in in trade" is found to be clearly mentioned. The value of the land in in trade" is found to be clearly mentioned. The value of the land in the balance sheet is taken at Rs. 7,37,50,000/ the balance sheet is taken at Rs. 7,37,50,000/-. Hence, there is no . Hence, there is no doubt that the land in question is a business asset. Transfer of such that the land in question is a business asset. Transfer of such that the land in question is a business asset. Transfer of such business asset will not be covered within the definition of transfer as business asset will not be covered within the definition of transfer as business asset will not be covered within the definition of transfer as prescribed under section 2(47) of the IT Act. Transferring such prescribed under section 2(47) of the IT Act. Transferring such prescribed under section 2(47) of the IT Act. Transferring such cases of business asset will be governed by the transfer cases of business asset will be governed by the transfer cases of business asset will be governed by the transfer of ownership.of asset as per general law/Transfer of Property Act, ownership.of asset as per general law/Transfer of Property Act, ownership.of asset as per general law/Transfer of Property Act, 1882. In the case of business transactions, any benefit flowing from 1882. In the case of business transactions, any benefit flowing from 1882. In the case of business transactions, any benefit flowing from the business arrangement to any person is taxable as business the business arrangement to any person is taxable as business the business arrangement to any person is taxable as business income as per provision of section 28 of the IT Act. Tran income as per provision of section 28 of the IT Act. Transfer of asset sfer of asset

Suratchandra B. Thakkar (HUF) Suratchandra B. Thakkar (HUF) 14 ITA Nos. 4333 to 4335/M/2018 ITA Nos. 4333 to 4335/M/2018

in such a case may be recognised at the time of execution of sale in such a case may be recognised at the time of execution of sale in such a case may be recognised at the time of execution of sale deed. This would effectively mean adoption of Completed Contract deed. This would effectively mean adoption of Completed Contract deed. This would effectively mean adoption of Completed Contract Method (CCM). In my considered opinion, the year in which Method (CCM). In my considered opinion, the year in which Method (CCM). In my considered opinion, the year in which payment or advanced or part sale consideration is rec payment or advanced or part sale consideration is received by the eived by the land owner cannot be the year in which tax liability is attracted to land owner cannot be the year in which tax liability is attracted to land owner cannot be the year in which tax liability is attracted to the land owner. In the case of CIT vs Motilal C. Patel & Co. (1988) 40 the land owner. In the case of CIT vs Motilal C. Patel & Co. (1988) 40 the land owner. In the case of CIT vs Motilal C. Patel & Co. (1988) 40 Taxman 336 (Guj.), it has been held that unless and until sale Taxman 336 (Guj.), it has been held that unless and until sale Taxman 336 (Guj.), it has been held that unless and until sale transaction of transaction of immovable property is completed by means of pleted by means of registered sale deed, there cannot be earning of any profit. The fact registered sale deed, there cannot be earning of any profit. The fact registered sale deed, there cannot be earning of any profit. The fact that a part of consideration was received prior to such registration, that a part of consideration was received prior to such registration, that a part of consideration was received prior to such registration, in pursuance of agreement to sale, would not make any difference. in pursuance of agreement to sale, would not make any difference. in pursuance of agreement to sale, would not make any difference. Also the fact that the assessee Also the fact that the assessee deals in immovable property would deals in immovable property would not change the position. On the facts of the case the receipts of a not change the position. On the facts of the case the receipts of a not change the position. On the facts of the case the receipts of a part of the agreed sale consideration in a previous year preceding part of the agreed sale consideration in a previous year preceding part of the agreed sale consideration in a previous year preceding to the previous year in which sale deed was registered needs to be to the previous year in which sale deed was registered needs to be to the previous year in which sale deed was registered needs to be considered as a rec considered as a receipt in the latter previous year and the same is eipt in the latter previous year and the same is assessable in the subsequent assessment year. assessable in the subsequent assessment year.

19.

It is further observed from clauses 11, 23 and 46 that the 19. It is further observed from clauses 11, 23 and 46 that the 19. It is further observed from clauses 11, 23 and 46 that the ownership of land was never passed over to the Developer and the ownership of land was never passed over to the Developer and the ownership of land was never passed over to the Developer and the appellant continued to be the leg appellant continued to be the legal and effective owner of the land al and effective owner of the land till the flats in the 4 towers are sold to different buyers. It is till the flats in the 4 towers are sold to different buyers. It is till the flats in the 4 towers are sold to different buyers. It is particularly mentioned in clause 46 that the Developer, upon particularly mentioned in clause 46 that the Developer, upon particularly mentioned in clause 46 that the Developer, upon completion of the buildings shall form a co completion of the buildings shall form a co-operative society/ LLP of operative society/ LLP of the purchasers of the p the purchasers of the premises in the said buildings. The land remises in the said buildings. The land owners, and the Developer shall jointly convey their respective right owners, and the Developer shall jointly convey their respective right owners, and the Developer shall jointly convey their respective right title and interest in the said property and the said buildings in title and interest in the said property and the said buildings in title and interest in the said property and the said buildings in favour of a co favour of a co-operative society or the LLP. Moreover, if the operative society or the LLP. Moreover, if the Developer decides Developer decides to submit the said property to the provisions of to submit the said property to the provisions of

Suratchandra B. Thakkar (HUF) Suratchandra B. Thakkar (HUF) 15 ITA Nos. 4333 to 4335/M/2018 ITA Nos. 4333 to 4335/M/2018

the Maharashtra Apartment ownership Act, 1970, the land owner the Maharashtra Apartment ownership Act, 1970, the land owner the Maharashtra Apartment ownership Act, 1970, the land owner and the Developer shall jointly execute a "Declaration" as per and the Developer shall jointly execute a "Declaration" as per and the Developer shall jointly execute a "Declaration" as per section 2 of the said Act as well as the deeds of apartment in favour section 2 of the said Act as well as the deeds of apartment in favour section 2 of the said Act as well as the deeds of apartment in favour of the respective purchasers. Such conveyance/deeds of apartment ctive purchasers. Such conveyance/deeds of apartment ctive purchasers. Such conveyance/deeds of apartment shall be executed only after the completion of the said buildings and shall be executed only after the completion of the said buildings and shall be executed only after the completion of the said buildings and receipt of occupation certificate and after all the residential flats receipt of occupation certificate and after all the residential flats receipt of occupation certificate and after all the residential flats and premises therein shall have been sold and the total purchas and premises therein shall have been sold and the total purchas and premises therein shall have been sold and the total purchase price of all the said premises have been received. From the above, it price of all the said premises have been received. From the above, it price of all the said premises have been received. From the above, it is very clear that the transfer of land has not taken place from the is very clear that the transfer of land has not taken place from the is very clear that the transfer of land has not taken place from the land owner to the Developer as per definition of transfer under land owner to the Developer as per definition of transfer under land owner to the Developer as per definition of transfer under section 2(47) and there is no incidence of tax till section 2(47) and there is no incidence of tax till the right in the the right in the undivided land is transferred to the flat owners or possession is undivided land is transferred to the flat owners or possession is undivided land is transferred to the flat owners or possession is given to them.

20.

The whole scenario or arrangement can also be looked into from 20. The whole scenario or arrangement can also be looked into from 20. The whole scenario or arrangement can also be looked into from the point of view of joint the point of view of joint-venture between the land owners and the venture between the land owners and the Developers, notwithstan Developers, notwithstanding the fact that the clause 43 of the ding the fact that the clause 43 of the agreement laid down that the agreement is not a partnership agreement laid down that the agreement is not a partnership agreement laid down that the agreement is not a partnership between the parties as contemplated under the partnership Act between the parties as contemplated under the partnership Act between the parties as contemplated under the partnership Act 1932 and/or Joint Venture/Association of Persons between the two and/or Joint Venture/Association of Persons between the two and/or Joint Venture/Association of Persons between the two parties. Such a view point ca parties. Such a view point can be considered in view of clauses 5 and n be considered in view of clauses 5 and 10 of the agreement wherein it is stipulated that the land owners 10 of the agreement wherein it is stipulated that the land owners 10 of the agreement wherein it is stipulated that the land owners bear the obligation at their costs to obtain FSI of other properties bear the obligation at their costs to obtain FSI of other properties bear the obligation at their costs to obtain FSI of other properties by way of TDR of approximately 1,00,157.08 sq.ft. and load the by way of TDR of approximately 1,00,157.08 sq.ft. and load the by way of TDR of approximately 1,00,157.08 sq.ft. and load the same on the prope same on the property under consideration. It is further mentioned rty under consideration. It is further mentioned in the agreement that the land owners shall obtain permissions for in the agreement that the land owners shall obtain permissions for in the agreement that the land owners shall obtain permissions for the re-development of the said property for commercial/residential development of the said property for commercial/residential development of the said property for commercial/residential user under section 22 of the ULC & R Act at their own cost within 60 user under section 22 of the ULC & R Act at their own cost within 60 user under section 22 of the ULC & R Act at their own cost within 60 days of the date of agreement. There are other clauses too, which of the date of agreement. There are other clauses too, which of the date of agreement. There are other clauses too, which

Suratchandra B. Thakkar (HUF) Suratchandra B. Thakkar (HUF) 16 ITA Nos. 4333 to 4335/M/2018 ITA Nos. 4333 to 4335/M/2018

indicate towards the aforesaid view of joint indicate towards the aforesaid view of joint-venture between the venture between the land owner and the Developer. In such a situation, the land owner land owner and the Developer. In such a situation, the land owner land owner and the Developer. In such a situation, the land owner has stepped into the shoes of the Developer and he also shares has stepped into the shoes of the Developer and he also shares has stepped into the shoes of the Developer and he also shares the risks and rewards of the business being managed by the Developer. risks and rewards of the business being managed by the Developer. risks and rewards of the business being managed by the Developer. The revenue recognition criteria of land owner will then be linked The revenue recognition criteria of land owner will then be linked The revenue recognition criteria of land owner will then be linked with the revenue recognition criteria of the Developer. It is now with the revenue recognition criteria of the Developer. It is now with the revenue recognition criteria of the Developer. It is now well-settled that accounting standard 9 together with settled that accounting standard 9 together with the revised the revised Guidance Note 2012 governs the revenue recognition criteria of Guidance Note 2012 governs the revenue recognition criteria of Guidance Note 2012 governs the revenue recognition criteria of Developer and hence the same may be considered as applicable, in Developer and hence the same may be considered as applicable, in Developer and hence the same may be considered as applicable, in the instant case, on the appellant. A brief discussion of the same is the instant case, on the appellant. A brief discussion of the same is the instant case, on the appellant. A brief discussion of the same is being made here in the succeeding paragraphs. being made here in the succeeding paragraphs.

21.

The revised Guidance Note 2012 has recognised that revenue in 21. The revised Guidance Note 2012 has recognised that revenue in 21. The revised Guidance Note 2012 has recognised that revenue in such cases should be recognized when all the following conditions such cases should be recognized when all the following conditions such cases should be recognized when all the following conditions are satisfied:

(i) The seller has transferred to the buyer all significant risks and (i) The seller has transferred to the buyer all significant risks and (i) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller re rewards of ownership and the seller retains no effective control of tains no effective control of the real estate transferred to a degree usually associated with the real estate transferred to a degree usually associated with the real estate transferred to a degree usually associated with ownership.

(ii) At the time of transfer of all significant risks and rewards of (ii) At the time of transfer of all significant risks and rewards of (ii) At the time of transfer of all significant risks and rewards of ownership it is not unreasonable to expect ultimate collection; and ownership it is not unreasonable to expect ultimate collection; and ownership it is not unreasonable to expect ultimate collection; and

(iii) No significant uncertainty exists regarding the amount of the ficant uncertainty exists regarding the amount of the ficant uncertainty exists regarding the amount of the consideration that will be derived. consideration that will be derived.

In the instant case, the land owners and the Developer have not In the instant case, the land owners and the Developer have not In the instant case, the land owners and the Developer have not transferred all significant risk and/or possession of the flats in transferred all significant risk and/or possession of the flats in transferred all significant risk and/or possession of the flats in Tower I & II (or Tower A and B) til Tower I & II (or Tower A and B) till 31/3/2008 as ownership of the 31/3/2008 as ownership of the flats and full control of the building remained with them till the end flats and full control of the building remained with them till the end flats and full control of the building remained with them till the end

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of the that year. Full payment was also not received till 31/3/2008. of the that year. Full payment was also not received till 31/3/2008. of the that year. Full payment was also not received till 31/3/2008. In addition to this, Occupation Certificate (OC) was received from In addition to this, Occupation Certificate (OC) was received from In addition to this, Occupation Certificate (OC) was received from BMC for Tower No BMC for Tower No I &ll (or Tower A and B) on 22nd Jan, 2008 when I &ll (or Tower A and B) on 22nd Jan, 2008 when occupation of the flats were given to the buyers. In view of the occupation of the flats were given to the buyers. In view of the occupation of the flats were given to the buyers. In view of the above, I agree with the Ld. AR that advance payments received in above, I agree with the Ld. AR that advance payments received in above, I agree with the Ld. AR that advance payments received in part during A.Y.s 2006 part during A.Y.s 2006-07 and 2007-08 cannot be treated as sale in 08 cannot be treated as sale in those years. The same has been correctly treated as sale in the year . The same has been correctly treated as sale in the year . The same has been correctly treated as sale in the year of completion i.e., A.Y.2008 of completion i.e., A.Y.2008-09 of Towers and II (or Towers A and B). 09 of Towers and II (or Towers A and B). It is also brought on record that the Towers C & D are completed in It is also brought on record that the Towers C & D are completed in It is also brought on record that the Towers C & D are completed in A.Y 2009-10, OC was received in A.Y 2009 10 (on 24th April, 10, OC was received in A.Y 2009 10 (on 24th April, 2008) 10, OC was received in A.Y 2009 10 (on 24th April, and water & electricity connection were obtained much after the OC and water & electricity connection were obtained much after the OC and water & electricity connection were obtained much after the OC received. Possessions to the buyers were given much after water & received. Possessions to the buyers were given much after water & received. Possessions to the buyers were given much after water & electric connection was done. Hence, all the above mentioned electric connection was done. Hence, all the above mentioned electric connection was done. Hence, all the above mentioned conditions got satisfied in A.YS 2008 conditions got satisfied in A.YS 2008-09 and 2009-10, fo 10, for the four Towers. It is further claimed that the commercial premises got Towers. It is further claimed that the commercial premises got Towers. It is further claimed that the commercial premises got completed in the A.Y 2009 completed in the A.Y 2009- 10, which has remain unsold till date 10, which has remain unsold till date and is lying as stock in trade in the P & L A/c of the assessee. and is lying as stock in trade in the P & L A/c of the assessee. and is lying as stock in trade in the P & L A/c of the assessee.

22.

Identical facts were considered by Hon'ble Gujar 22. Identical facts were considered by Hon'ble Gujarat High Court in at High Court in the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 (Guj.). The facts of that case were the assessee (Guj.). The facts of that case were the assessee-firm was a dealer in firm was a dealer in land, adopting the cash system of accounting. On 14 land, adopting the cash system of accounting. On 14-11 11-1970, it executed an agreement to sell certain number executed an agreement to sell certain number of plots to a co of plots to a co- operative society, who also took over their possession by paying Rs. operative society, who also took over their possession by paying Rs. operative society, who also took over their possession by paying Rs. 5,000/ as an earnest money at the time of agreement and Rs. 5,000/ as an earnest money at the time of agreement and Rs. 5,000/ as an earnest money at the time of agreement and Rs. 2,08,772 as advance towards sale price in December 1970. The 2,08,772 as advance towards sale price in December 1970. The 2,08,772 as advance towards sale price in December 1970. The assessee credited the above aggregate receipts of assessee credited the above aggregate receipts of Rs. 2,13,772 in its Rs. 2,13,772 in its trading account in the calendar year 1970 relevant for the A.Y. trading account in the calendar year 1970 relevant for the A.Y. trading account in the calendar year 1970 relevant for the A.Y. 1972-73. All the formal sale deeds were, however, executed on 73. All the formal sale deeds were, however, executed on 73. All the formal sale deeds were, however, executed on

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different dates between 26 different dates between 26-2-1971 and 26-6-1972 for a total 1972 for a total consideration of Rs. 4,40,939 but the sale transa consideration of Rs. 4,40,939 but the sale transactions with the ctions with the society were completed in the accounting year relevant to the A.Y. society were completed in the accounting year relevant to the A.Y. society were completed in the accounting year relevant to the A.Y. 1972-73. For the A.Y. 1971 73. For the A.Y. 1971-72, the ITO accepted the assessee's 72, the ITO accepted the assessee's declared profit from the aforesaid receipts of Rs. 2,13,772/ declared profit from the aforesaid receipts of Rs. 2,13,772/ declared profit from the aforesaid receipts of Rs. 2,13,772/-. This assessment was set aside under section 263 assessment was set aside under section 263 by the Commissioner of by the Commissioner of Income Tax who held that, since the sale deeds were executed in the Income Tax who held that, since the sale deeds were executed in the Income Tax who held that, since the sale deeds were executed in the next calendar year 1971, the entire profit arising from the sale next calendar year 1971, the entire profit arising from the sale next calendar year 1971, the entire profit arising from the sale transaction would be taxable in the A.Y. 1972 transaction would be taxable in the A.Y. 1972-73. Based on these 73. Based on these sets of facts, Hon'ble High Court sets of facts, Hon'ble High Court held that the assessee would held that the assessee would continue to be continue to be the owner of the purchased land till it is divested of the owner of the purchased land till it is divested of the ownership by completion of the sale transaction by executing a the ownership by completion of the sale transaction by executing a the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such completion that the assessee registered sale deed. It is only on such completion that the assessee registered sale deed. It is only on such completion that the assessee could be said to hav could be said to have earned profit or suffered loss. The relevant e earned profit or suffered loss. The relevant portion of the decision is reproduced hereunder: portion of the decision is reproduced hereunder:

Section 28 imposes a charge on profits of business of previous year. Section 28 imposes a charge on profits of business of previous year. Section 28 imposes a charge on profits of business of previous year. Such profits are real profits ascertained on ordinary principles of Such profits are real profits ascertained on ordinary principles of Such profits are real profits ascertained on ordinary principles of commercial trading and commercial trading and commercial accounting. In the instant case, commercial accounting. In the instant case, the assessee was a dealer in land and the land would be its stock the assessee was a dealer in land and the land would be its stock the assessee was a dealer in land and the land would be its stock-in- trade. Thus, the profits derived from the transactions of its purchase trade. Thus, the profits derived from the transactions of its purchase trade. Thus, the profits derived from the transactions of its purchase and sale would represent business profits chargeable to income and sale would represent business profits chargeable to income and sale would represent business profits chargeable to income-tax. The assessee would continue to be the owner of the purchased land assessee would continue to be the owner of the purchased land assessee would continue to be the owner of the purchased land till it is divested of the ownership by completion of the sale till it is divested of the ownership by completion of the sale till it is divested of the ownership by completion of the sale transaction by executing a registered sale deed. It is only on such transaction by executing a registered sale deed. It is only on such transaction by executing a registered sale deed. It is only on such completion that the assessee could be said to have earned profi completion that the assessee could be said to have earned profi completion that the assessee could be said to have earned profit or suffered loss.

In the instant case, in the previous year relevant to the assessment In the instant case, in the previous year relevant to the assessment In the instant case, in the previous year relevant to the assessment year 1971-72, no sale transaction admittedly took place and the 72, no sale transaction admittedly took place and the 72, no sale transaction admittedly took place and the

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assessee only executed the aforesaid agreement dated 4 assessee only executed the aforesaid agreement dated 4-11 11-1970 to sell certain plots of land to the soc sell certain plots of land to the society. Thus, the said land continued iety. Thus, the said land continued to be its stock to be its stock-in-trade. It is axiomatic that an agreement to sell trade. It is axiomatic that an agreement to sell does not create any interest in favour of the purchaser. It is on does not create any interest in favour of the purchaser. It is on does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating into completion of the transaction of purchase and sale culminating into completion of the transaction of purchase and sale culminating into an extinguishment an extinguishment of the title of the vendor and simultaneous of the title of the vendor and simultaneous creation of the title of the vendee that the assessee earns profit or creation of the title of the vendee that the assessee earns profit or creation of the title of the vendee that the assessee earns profit or suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the character of income or profit only when sale transaction was character of income or profit only when sale transaction was character of income or profit only when sale transaction was completed in a completed in accordance with law.

Doctrine of part performance embodied in section 52A of the Doctrine of part performance embodied in section 52A of the Doctrine of part performance embodied in section 52A of the Transfer of Property Act could not also be brought into aid to treat Transfer of Property Act could not also be brought into aid to treat Transfer of Property Act could not also be brought into aid to treat the said receipt of Rs. 2,13,772 as trading receipt. The agreement in the said receipt of Rs. 2,13,772 as trading receipt. The agreement in the said receipt of Rs. 2,13,772 as trading receipt. The agreement in writing to sell, coupled with parting writing to sell, coupled with parting of possession, would not confer of possession, would not confer any legal title on the purchaser, i.e., the society and take the land any legal title on the purchaser, i.e., the society and take the land any legal title on the purchaser, i.e., the society and take the land out of the assessee's stock out of the assessee's stock-in-trade. The assessee's method of trade. The assessee's method of accounting has no relevance in determining whether receipt of the accounting has no relevance in determining whether receipt of the accounting has no relevance in determining whether receipt of the above nature was trading above nature was trading receipt or income. The method of receipt or income. The method of accounting, whether cash method or mercantile method, would accounting, whether cash method or mercantile method, would accounting, whether cash method or mercantile method, would have bearing only in respect of completed business transaction. have bearing only in respect of completed business transaction. have bearing only in respect of completed business transaction.

23.

There is also merit in the argument of the Ld. AR that there is no There is also merit in the argument of the Ld. AR that there is no There is also merit in the argument of the Ld. AR that there is no loss to the revenue as the loss to the revenue as the appellant has offered full income during appellant has offered full income during the project completion years the project completion years i.e., A.Y.2009-10 & 2010-11 and paid 11 and paid taxes thereon. Income tax rates are same for taxes thereon. Income tax rates are same for all the years under all the years under consideration. find that the AO has cumulatively determined the consideration. find that the AO has cumulatively determined the consideration. find that the AO has cumulatively determined the same receipt of Rs. same receipt of Rs. 8,97,11,407/- for the three years i.e., for A.Y. for the three years i.e., for A.Y. 2006-07 Rs. 1,78,68,399 for Tower & II (advance), for A.Y. 2007 07 Rs. 1,78,68,399 for Tower & II (advance), for A.Y. 2007 07 Rs. 1,78,68,399 for Tower & II (advance), for A.Y. 2007-08 Rs. 96,04,258/ Rs. 96,04,258/- for Tower I & II (advance) and for A.Y. 2008 for Tower I & II (advance) and for A.Y. 2008-09, Rs.

Suratchandra B. Thakkar (HUF) Suratchandra B. Thakkar (HUF) 20 ITA Nos. 4333 to 4335/M/2018 ITA Nos. 4333 to 4335/M/2018

6,22,38,750 for Tower & II ( as full and final settlement amount 6,22,38,750 for Tower & II ( as full and final settlement amount 6,22,38,750 for Tower & II ( as full and final settlement amount against advances received from the Developer in earlier years). t advances received from the Developer in earlier years). t advances received from the Developer in earlier years). Thus the amount computed by the AO for the three years is the same Thus the amount computed by the AO for the three years is the same Thus the amount computed by the AO for the three years is the same that is being offered for taxation in A.Y. 2008 that is being offered for taxation in A.Y. 2008-09 i.e., Rs. 09 i.e., Rs. 8,97,11,407/-. There is no variation at all. . There is no variation at all. 24. Considering the 24. Considering the totality of the facts and the circumstances of the totality of the facts and the circumstances of the issue involved and discussion made in the preceding paragraphs, I issue involved and discussion made in the preceding paragraphs, I issue involved and discussion made in the preceding paragraphs, I donot find any justification for advances of Rs. 1,78,68,399/ donot find any justification for advances of Rs. 1,78,68,399/ donot find any justification for advances of Rs. 1,78,68,399/- being treated as income of the appellant for A.Y.2006 treated as income of the appellant for A.Y.2006-07. Hence, the AO is 07. Hence, the AO is directed to delete the same. Thus, ground of appeal no. 2 is allowed. irected to delete the same. Thus, ground of appeal no. 2 is allowed. irected to delete the same. Thus, ground of appeal no. 2 is allowed.” 9.2 For assessment year 2007 assessment year 2007-08 and 2008-09 the Ld. CIT(A) has 09 the Ld. CIT(A) has followed his finding in assessment year 2006 followed his finding in assessment year 2006-07.

9.3 We further note that that assessee has already paid tax on the We further note that that assessee has already paid tax on the We further note that that assessee has already paid tax on the advance received against the sale of flat in assessment year 2008 e received against the sale of flat in assessment year 2008-09 e received against the sale of flat in assessment year 2008 and 2009-10. The relevant 10. The relevant submission of the assessee reproduced submission of the assessee reproduced by the Ld. CIT(A) in sub Ld. CIT(A) in sub-para 3 (three) of para 37, is extracted as three) of para 37, is extracted as under:

“3. The appellant has already paid tax on total sale of Rs. The appellant has already paid tax on total sale The appellant has already paid tax on total sale 12,94,37,102/ in the A.Y. 2009 12,94,37,102/ in the A.Y. 2009-10, the year in which the project is 10, the year in which the project is completed. There is no loss to the revenue on account of taxation completed. There is no loss to the revenue on account of taxation completed. There is no loss to the revenue on account of taxation point of view as the tax is fully paid on Rs. 12,94,37,102/ point of view as the tax is fully paid on Rs. 12,94,37,102/- in the A.Y.

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2009-10. i.e. Rs. 3,47,27,723/ 10. i.e. Rs. 3,47,27,723/-. The tax rate for the year under ate for the year under consideration as well as for the subsequent year are the same and consideration as well as for the subsequent year are the same and consideration as well as for the subsequent year are the same and therefore no mala fide intention of your assessee to postpone the therefore no mala fide intention of your assessee to postpone the therefore no mala fide intention of your assessee to postpone the accrual of sale of the year to the subsequent year. Therefore there is accrual of sale of the year to the subsequent year. Therefore there is accrual of sale of the year to the subsequent year. Therefore there is no basis or justification in t no basis or justification in the addition made by the A.O.” 9.5 The Ld. CIT(A) has pointed out that the land in question was Ld. CIT(A) has pointed out that the land in question was Ld. CIT(A) has pointed out that the land in question was treated as a stock in trade by the assessee treated as a stock in trade by the assessee in its books of accounts books of accounts and therefore transfer of the same was not lia and therefore transfer of the same was not liable to be taxed as ble to be taxed as capital gain. Hon’ble Supre Hon’ble Supreme Court in the case of Seshasayee Steal Seshasayee Steal Private Ltd 115 Taxman.com 5 115 Taxman.com 5(SC) considered a development considered a development agreement granting permission to start advertising, selling and agreement granting permission to start advertising, selling and agreement granting permission to start advertising, selling and construction and permitted to execuate sale agreement to the tion and permitted to execuate sale agreement to the tion and permitted to execuate sale agreement to the developer. The Hon’ble Supreme Court held that such permission is . The Hon’ble Supreme Court held that such permission is . The Hon’ble Supreme Court held that such permission is not possession under section 53 of the transfer of the property under section 53 of the transfer of the property Act. under section 53 of the transfer of the property We concur with the finding of the Ld. CIT(A) that possession of land We concur with the finding of the Ld. CIT(A) that possession of land We concur with the finding of the Ld. CIT(A) that possession of land has been handed over to the prospective buyers consequent to has been handed over to the prospective buyers consequent to has been handed over to the prospective buyers consequent to the conveyance in favour of in favour of co-operative Society of flat owners. The Ld. operative Society of flat owners. The Ld. CIT(A) has further held that the assessee was regularly following CIT(A) has further held that the assessee was regularly following CIT(A) has further held that the assessee was regularly following

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accounting method of accounting method of Completed Contract Method consistently from consistently from year to year. The Ld. CIT(A) has further observed th . The Ld. CIT(A) has further observed that in the case of . The Ld. CIT(A) has further observed th the developer also Contract Completed Method Contract Completed Method has been has been accepted. The Ld. DR has not controverted any of the above factual finding of The Ld. DR has not controverted any of the above factual finding of The Ld. DR has not controverted any of the above factual finding of Ld. CIT(A).

9.6 In view of the above In view of the above discussion, we do not find any error in the , we do not find any error in the finding of the Ld. CIT(A) finding of the Ld. CIT(A) in upholding the Project Completion Project Completion Method or Completed Contract Method Completed Contract Method followed by the assessee for followed by the assessee for declaring income from the project under reference. The grounds of declaring income from the project under reference. The grounds of declaring income from the project under reference. The grounds of the appeal of the revenue in all the three years are accordingly the appeal of the revenue in all the three years are accordingly the appeal of the revenue in all the three years are accordingly dismissed.

10.

In the result, all the three appeals of the In the result, all the three appeals of the Revenue are In the result, all the three appeals of the dismissed. Order pronounced in the Court on ounced in the Court on 12/08/2022. Sd/- Sd/- (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai;

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Dated: 12/08/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai

ACIT 30(3), MUMBAI vs. SURATCHANDRA B. THAKKAR -HUF, MUMBAI