ACIT, MUMBAI vs. BAU DEVELOPERS PRIVATE LIMITED, MUMBAI

For the Assessment Year 2018-2019, the Assessee filed return of income on 31/07/2018 which was subsequently revised on 27/03/2019. The case of the Assessee was picked up for regular scrutiny and Assessment Order under Section 143(3) of the Act was passed on 07/04/2021. Subsequently, exercising powers of revision Assessment Year 2018-2019 under Section 263 of the Act, the Learned Principal Commissioner of Income Tax - Mumbai 6, passed Order, dated 11/03/2024, setting aside the aforesaid assessment order as being erroneous in so far as prejudicial to the interest of Revenue and directed the Assessing Officer to make proper enquiry and assess the income for the Assessment Year 2018-2019 afresh after granting the Assessee opportunity of being heard. Therefore, the Assessing Officer issued notice under Section 142(1) of the Act to the Assessee taking note of the fact that the Assessee had disclosed advances of INR.29,57,77,271/- in the financial statements for the relevant previous year which were not recognized as revenue for the Assessment Year 2018-2019. The Assessee was asked to provide the details of the aforesaid advances and explain why same should not be considered as revenue for the Assessment Year 2018-2019 and brought to tax in the hands of the Assessee. In response, to Assessee filed submissions/replies before the Assessing Officer. The relevant extract of submissions, dated 04/03/2025, filed by the Assessee read as under: “Accordingly, we have recognized the revenue in respect of the sale of flats in the project as per the guidance notes issued by the ICAI which prescribes using percentage completion method for recognition of revenue in real estate projects. Further, as per the guidance notes issued by the ICAI the revenue has to be recognized only when significant risks and rewards related to the unit has been transferred. Accordingly the risks and rewards are transferred only when a sale agreement in respect of a particular unit is registered until then the amount received from the customers are recorded as Advance from Customers under the liabilities. Once an agreement has been entered the revenue is recognized in respect of the unit as per the percentage completion method prescribed in the Guidance Notes issued by the ICAI. Revenue in respect of the registered unit is recognized irrespective of the fact whether the payment has been received from the customers or not. Further, vide our submission dated 20/02/2025 we had submitted details of advance from customers of Rs.29.57,77,271/- as on 31/03/2018. In the said submission we had provided flat wise details and the treatment of each amount in the subsequent periods which is reproduced below:

in which Income is Considered Flat No.1004 4,28,685 AAEPO9728P 09.02.2017 Other charges 2018-19 Pratik P. Oza received has been offered for income in FY 2018-19 Flat No.1502 13,59,047 AACPM2199J 29.05.2015 Other charges 2018-19 Pradip B. received has been Mehta. Shaila offered for income in P. Mehta FY 2018-19 xx xx xx xxx xx xx xx xx xx xxx xx xx Flat No.902 1,02,08,742 AACPL5554C 04.01.2019 Agreement entered in 2018-19 Bhavin B. FY 2018-19 and the Luhar & sale has been offered Monica C. in the same year Patel Flat No.904 16,19,830 AEPPA7170Q 31.12.2012 Other charges 2018-19 Kutubuddin & received has been Taher offered for income in Ringwala FY 2020-2021 29.57,77,271 For your goodself's perusal, we hereby submit summarized details of the above table as under:

As mentioned in the above paras as per the Accounting Standard 9 and the guidance notes issued by the ICAI the revenue from real estate transactions are recognized only when significant risks and rewards in respect of a particular project (unit in the present case) are transferred. In real estate projects, significant risks and rewards are considered to be transferred only when an Agreement to Sale is entered with the flat buyer until then the amount received from the buyer towards the flat is shown as Advance under the Liabilities side. This method of accounting is very crucial for real estate transactions as until an Agreement for Sale is entered the buyer always has a right to cancel the flat booking and in such case, the entire amount received from the buyer has to be returned. Accordingly in the case of units up to 25th Floors even though the Occupancy Certificate is received during the period 2017-18 however since the Agreements for Sale are not entered they are still the inventories of the Developer and hence are not offered for sale. Accordingly from the above table we hereby provide details of the units whose agreements for sale are entered in the later periods and sale has been recognized in the same period as well for your reference we also submit copies of Index 2 of these units at Annexure 1.

Further, in the above-mentioned table we have mentioned that in respect of some units other charges were received from the flat buyers Assessment Year 2018-2019 as on 31/03/2018 and the Further, in the above-mentioned table we have mentioned that in respect of some submit that typically a developer collects certain charges from the flat buyers over same had been shown as advance from customers. In this regard, we would like to and above the agreement value of the flats. These charges are payable at the time of handling over the possession of the flat by the developer and accordingly they are offered for tax in the year when possession of the flats are given flat buyers. In the instant case as well we had collected other charges from the flat buyers and the same were shown as advance from customers and accordingly to the flat buyers. the when the possession of these given the other charges so collected were offered for income in that particular year. For your reference, details of the same are reproduced at Annexure 2. Further, advance from customers as: on 31/03/2018 includes advance amounts in respect of which bookings are already cancelled and the said amounts has been returned in the subsequent period. For your reference, we hereby submit the details of advances received whose bookings are cancelled as on 31/03/2018 along with their ledger copies at Annexure 3. Further, advance from customers as on 31/03/2018 includes advance amounts which are later on adjusted against the sale of other units, and the same has been offered for tax in the year when the agreement has been offered. For your reference, we hereby provide the details of amounts shown as advance from customers as on 31/03/2018 but in respect of which agreement for sale are not executed yet and later on the same amounts has been adjusted against the sale of other units along with the ledger copies and copies of Index 2 of new units. Annexure 4” (Emphasis Supplied) 6. From the above it becomes clear that the Assessee furnished the breakup of advances of INR.29,57,77,271/- not offered to tax during the relevant previous year and provided reasons why the same were not recognized as revenue for the relevant previous year. It was explained that the Assessee had been consistently following Accounting Standard 9 and Guidance Note issued by The Institute of Chartered Accountants of India (ICAI) for recognition of revenue from real estate transactions using Percentage Completion Method. The advances under consideration pertaining to units in respect of which significant risk and reward had not been transferred to the buyers and therefore the same Assessment Year 2018-2019 were not recognized as revenue in the year of receipt (and revenue recognition was done in the year of execution of the agreement and consequent transfer of risk & reward). In support the Assessee placed upon the detailed statement mentioning the agreement date of each flat along with value of the agreement and the year in which sale proceeds were offered to tax. To corroborate the same, the Assessee placed before the Assessing Officer the Audited Profit & Loss Account for the Financial Year 2012-2013 to 2020-2021. The Assessee also furnished Occupation Certificate, dated 22/11/2017, and submitted that the Assessee had offered to tax aggregate revenue of INR.160.75 Crores from the project which was more than the revenue of INR.158.21 Crores mentioned in the RERA Registration Certificate.

However, the Assessing Officer rejected the explanation/submissions offered by the Assessee and brought to tax in the hands of the Assessee amount of INR.29,57,77,271/- shown as advance concluding as under:

Being aggrieved by the above addition made by the Assessing Officer, Assessment Year 2018-2019 the Assessee preferred appeal before the Learned CIT(A). In appellate proceedings before the Learned CIT(A), the Assessee reiterated the submissions made before the Assessing Officer. It was clarified by the Assessee that the Occupancy Certificate, dated 22/11/2017 was partial occupancy certificate and that the finding returned by the Assessing Officer that the project was completed during the year was factually incorrect. It was submitted that the Assessee was consistently following the same method of revenue recognition for the project over the years and the revenue recognized in preceding as well as succeeding year was accepted by the Department. Since the advances under consideration were in respect of units where risk and reward had not been transferred by the Assessee to the purchasers, the advances received were not recognized as income. The details of all advances from customers, including their subsequent treatment in later years, was duly submitted during the assessment proceedings along with the supporting documents, such as flat-wise details, cancellation records, adjustments against other units, and copies of relevant agreements. However, the Assessing Officer proceeded to make the additions without appreciating the correct facts.

The above submissions found favour with the Learned CIT(A), as the addition made by the Assessing Officer was deleted by the Learned CIT(A) holding as under:

Accordingly, this appeal is hereby partly allowed.”

We note that the Learned CIT(A) has returned the following findings while granting relief to the Assessee and deleting the additions made Assessment Year 2018-2019 by the Assessing Officer:

We are of the view that the Revenue has failed to controvert the above findings returned by Learned CIT(A). We find that the Assessing Officer had returned a finding that the project was completed during the Assessment Year 2018-2019 relevant previous year by placing heavy reliance upon the Occupancy Certificate, dated 22/11/2017. The Learned CIT(A) overturned by the finding after correctly appreciating the contents of the said Occupancy Certificate dealing with partial completion. There is nothing on record to show that the project was completed during the relevant previous year. In our view, the Assessing Officer had proceeded to make the addition in respect of advanced under consideration on the basis of incorrect understanding of facts. Further, during the course of hearing the Learned Authorised representative for the Assessee had submitted that the entire exercise carried out by the Revenue was revenue- neutral inasmuch all the revenues of the project have already been recognized and offered for tax. Even the advances under consideration were recognized and offered to tax in the subsequent years and that the Assessee had furnished details in respect of the same during the assessment proceedings. It was contended that in such a situation, no addition was warranted. In support, reliance was placed on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd. (358 ITR 295) (Para 32) and the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Nagri Mills Co. Ltd. (33 ITR 181), Pr. CIT vs. Rajendra Sitaram Goel (166 taxmann.com 221) (Para 5 and 6) and Pr. CIT vs. Rohan Projects (113 taxmann.com 339) (Para 8-9) wherein Courts have held that where the rate of tax is uniform, taxability in one year or another should not be a matter of any consequence for the Revenue. We find merit in the aforesaid contentions advanced on behalf of the Assessee. Further, the Learned CIT(A) has recorded that the Assessee had followed consistent method since the inception of the project. Entire project revenues have been offered to tax over the years. For the Assessment Year 2015-2016 the approach adopted by the Assessee was accepted without any additions being made in respect of advances received. This has not been disputed by the Revenue. Even otherwise we find that the decision of the Learned CIT(A) is supported by the decision of the Mumbai Bench Assessment Year 2018-2019 of the Tribunal in the case of DCIT vs. Caval Cade Properties Ltd. (ITA No.4030 & 4273/Mum/2017 dated October 30, 2019) cited on behalf of the Assessee. Therefore, we find no reason to interfere with the order passed by the Learned CIT(A) deleting addition of INR.29,57,77,271/ made by the Assessing Officer.

During the course of hearing, it was contented by Learned Departmental Representative that the Learned CIT(A) had relied upon documents/details furnished by the Assessee without granting the Assessing Officer an opportunity to verify the same. We do not find a merit in the aforesaid submission advance on behalf of the Revenue. We find that the Assessee had filed all the relevant documents and details before Assessing Officer. We have reproduced the relevant extract of the reply, dated 04/03/2025, filed by the Assessee in paragraph 5 above. Perusal of paper book filed by the Assessee [Page No.170 to 414] shows that the relevant information/details on which reliance was placed by the Learned CIT(A) was furnished as annexure to the said letter. Therefore, we reject the contention raised on behalf of the Revenue that sufficient opportunity was not granted to the Assessing Officer to verify the documents/details relied upon by the Learned CIT(A).

In view of the above, all the grounds raised by the Revenue are dismissed.

In result the appeal preferred by the Revenue is dismissed.