G.F. REALITY PVT. LTD,MUMBAI vs. INCOME TAX OFFICER 9(3)(4), MUMBAI

O R D E R

PER PAVAN KUMAR GADALE, JM:

1. The assessee has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-16, Mumbai passed u/s 143(3) and 250 of the Act. The assessee has raised the following grounds of appeal:

1. On the facts and circumstances of the case the CIT(A) erred in confirming the addition of Rs.4,15,32,500/- the difference between agreement value and fair market value as per stamp duty reckoned under section 43CA of the Income Tax Act without considering peculated fact of the case particularly GF Reality Pvt Ltd., Mumbai. - 2 -

when Assessee follow project completion method of accounting and in Asst. year 2015-16 is not even started.

2. The Ld. CIT(A) erred in confirming the charging of interest under section 234B, 234C and 234D of the Income Tax Act 1961.

3. The Ld. CIT(A) erred in confirming the initiation of the penalty proceeding under section 271(1)(c) of the Income Tax Act 1961.

4. The Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal

on or before the date of hearing.

2. The brief facts of the case are that the assessee company is engaged in the business as civil contractors and real estate . The assessee has filed the return of income for the A.Y 2015-16 on 30.09.2015 disclosing a total income of Rs. Nil and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and filed the details and the case was discussed. The Assessing Officer(A.O) found that the assessee has GF Reality Pvt Ltd., Mumbai. - 3 - taken a project at Khar and as per the Profit and loss account, the assessee has not disclosed any other income and whereas the assessee has debited indirect expenditure of Rs.1,19,08,837/- and the opening work- in-progress(WIP) of Rs.5,82,07,289/-.During the course of assessment proceedings, the assessee has filed copy of the agreements on 04.09.2017 explaining that the assessee has not sold any property during the year and assessee has received only booking amount pertaining to the flat/shop against the registration of the agreement.The A.O. has issued notice u/s 133(6) of the Act to the Jt.sub-registrar and called for the details of assessees agreements registered.

3. The assessee has submitted the details of agreement registered and the amount received in the F.Y.2014-15 on 9-10-2017. Whereas,the assessee has sold the property as and when the prospective buyer approach and hence the index value of the property is higher than the under construction property/prelaunch property. The assessee has filed the submissions in respect of the seven transactions dealt at Para 4.1 of the assessment order and the assessee has adopted the percentage completion method(PCM). The assessee has GF Reality Pvt Ltd., Mumbai. - 4 - filed a letter dated 13.11.2017 mentioning that it has not sold any flat or shop to any person during the year but only made agreement for the booking of the flat, and as and when the building is completed, the same would be registered with the registering authorities. On perusal of the agreement, the A.O is of the view that the purchaser agrees to purchase from the promoters and the promoters agrees to sell to purchasers and the sale was affected but actually the building has not been completed. The assessee has filed the letter dated 13.11.2017 submitting the details of allotments of flat/shop. Whereas the A.O. was not satisfied with the explanations and is of the opinion the assessee has sold the seven units and out of which one unit is provided as alternate accommodation to the existing tenant and invoked the provisions of Section 43CA of the Act. Finally, the A.O. has made a chart of comparison of fair market value as per stamp duty valuation and the sale consideration as per the agreement and treated the difference as addition u/s 43CA of the Act and assessed the total income of Rs. 4,15,32,500/- and passed the order u/s 143(3) of the Act dated 29.11.2017. GF Reality Pvt Ltd., Mumbai. - 5 -

4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and the findings of the A.O and is of the opinion that the assessee cannot be allowed relief as no evidences has been filed by the assessee to substantiate the claim made before the lower authorities and confirmed the action of the A.O and dismissed the assessee appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal before the Hon’ble Tribunal.

5. At the time of hearing, the ld. AR submitted that the CIT(A) has erred in confirming the action of the A.O. overlooking the material evidences and the information and revenue recognition policy adopted by the assessee. Further the provisions of Sec. 43CA of the Act are not applicable to the assessee as there is no transfer of ownership of the flats but booking amount was received as per the registered agreements.

The assessee is in the line of construction business and has submitted the details of internal accruals of GF Reality Pvt Ltd., Mumbai. - 6 - amounts. The AO has erroneously made the addition based on the difference of fair market value of the flats and agreement value registered though there is no transfer of ownership and the assessee has received the commencement certificate to start the project in April 2017. The Ld. AR substantiated the contentions with the written submissions, copies of registered agreements, judicial decisions and the factual paper book and prayed for allowing the appeal. Contra, the Ld. DR supported the orders of the lower authorities.

6. We heard the rival submissions and perused the material on record. Prima-facie the sole disputed issue is with respect to the addition u/s 43CA of the Act sustained by the CIT(A). The contentions of the Ld.AR are that the provisions are not applicable as the assessee has not sold any property during the year and the project commencement certificate was obtained in April 2017.The Assessee follows Project Completion method(PCM) as per the Accounting Standard (AS) 9 GF Reality Pvt Ltd., Mumbai. - 7 - issued by the Institute of Chartered Accountants of India (ICAl) were the revenue is recognized as and when significant risk and reward of ownership/title is transferred. All sums received for the construction project till such time are treated as advances and disclosed as liability. And all the expenses incurred in the construction are accounted for in the stock in trade and/or block of buildings and are reflected in the balance sheet. Whereas, the project completion method is one of the recognized method consistently followed by assessee and the Ld.AR relied on the fallowing judicial decisions:

GF Reality Pvt Ltd., Mumbai. - 8 -

7. DCIT Vs. Ansal Landmark Township P Ltd ITA No. 2859/Del/2012.

8. Unique Enterprises Vs. ITO (2010-TIOL - 737 - ITAT - MUM

9. Prestige Estate Projects (P) Ltd. vs. Dy.CIT ( (2010) 33 DTR 514 (Bang.)

10. CIT v. Tata Iron & Steel Co. Ltd. [1977] 106 ITR 363 (Bom HC).

12. Sheth Developers P Ltd, Mumbai Vs. ITO ITO Mumbai.

GF Reality Pvt Ltd., Mumbai. - 9 -

The Ld.AR demonstrated the seven registered agreements in the Paper book, and the title being the "Agreement" and not "Sale deed" which was entered by the assessee company with the prospective buyers for the only reason that the allotment letter is not legal document which create right to the buyer. Whereas in the case of sale of property, the assessee would have executed sale deed instead of registering the agreement of receipt of Advance against flat booking. The Provision of Section 43CA of the Act are applicable to all kind of immovable properties being Land or Building or both, held as stock in trade. It may be a residential flat, commercial flat, industrial building or plot, residential plot in a township, GF Reality Pvt Ltd., Mumbai. - 10 - agricultural land whether in rural or urban area etc. Provision of Section 43CA of the Act shall also applicable in case of transfer of ownership of property by any mode. In case, transfer of immovable property takes place without registration of sale deed but by way of execution of sale agreement / Power of Attorney or by way of transfer with the regulatory authority or in any other manner. Whereas, in the present case, the assessee has registered only agreements for receiving advance against the booking of flat based on the pre- launch price and there is no transfer of asset. The Assessee has not sold any flat/ shop to any person during the year. But only made the agreement for booking of the flat and same was registered with the registering state authority.

11. Further it can be stated that provisions of Section 43CA of the cannot be made applicable on year to year basis while recognizing revenue on percentage of completion method as per Guidance note before the "transfer" of property takes place. The Ld.AR emphatically substantiated the submissions with the facts, evidences and judicial decisions filed before the lower authorities and we find the submissions of the Ld.AR are realistic. Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to delete GF Reality Pvt Ltd., Mumbai. - 15 - the addition u/sec43A of the Act and allow the grounds of appeal in favour of the assessee.

Order pronounced in the open Court on 05.08.2022.