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Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee under section 253 of the Income Tax Act (“the Act”) is directed against the order of ld. Commissioner of Income Tax (Appeals)-36, Mumbai dated 15.12.2011 for Assessment Year (AY) 2008-
The assessee has raised the following grounds of appeal:
“1. The Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as "Ld. CIT(A)] erred in passing the order dated 15.12.2011 directing the Ld AO to compute the appellants income on the basis of gross income received upto year end and allowing proportionate expenses against such income.
The Appellant firm which consistently follows project Completion Method of Accounting has treated all the buildings of its project alongwith various amenities provided to the residents. Therefore, the income generated .and expenses incurred for the entire project cannot be bifurcated on the basis total area of flats/ offices for which possession was given. Therefore, the order passed by the Ld. CIT (A) is unjustified.
3. In the order dated 15.12.2011, the Ld CIT has concluded that in the instant case of the appellant, all nine buildings in the project are to be treated as a single project. It was also stated in the order by the Ld CIT that Project Completion Method followed by the Appellant for recognizing Revenue in the books of accounts cannot be regarded as unreasonable. Inspite of accepting the Appellant's method of revenue recognition, the Ld. CIT(A) has directed to compute his income on the basis of proportionate completion of possession given. Therefore, the order of the Ld CIT(A) is incorrect .
4. Merely because the appellant has completed more than half of its project (61 % as on 31.3.2008) does not mean that the project is completed in most aspects and the income should be recognized on the basis of advances/payments received. 5. Calculation of income on the basis of flat sold upto 31.3.2008 defeats the purpose of Project Completion Method wherein the Assessee declares the income of his entire project after substantial completion. The appellant in the instant case had made very little progress over the past two years i.e from 55% in A.Y 2006-07 to 61 % in A.Y 2008-09 and there was significant amount of work that was pending to be performed. Therefore, the Ld CIT's decision to work out taxable income on the basis of amounts received towards possession given and allowing proportionate expenses against the same is incorrect.”
2. Brief facts of the case are that the assessee is a partnership firm engaged in the business of Real Estate Developer/ Builder filed its return of income for relevant AY on 31.07.2008. The assessment was completed on 27.12.2010 under section 143(3) of the Act. The Assessing Officer (AO) while passing the assessment order estimated the income at 12% of work- in-progress and made the addition of Rs. 17,06,54,116/-. On appeal before the ld. CIT(A), the action of AO was confirmed. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard Ld. Authorized Representative (AR) of the assessee and Ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld.AR of the assessee argued that during the relevant period, the assessee undertaken construction work in the premises of M/s Golden Dyes Corporation (India) Private Limited at Thane. The project was started in AY 2003-04. The project consists of nine blocks/building consisting of residential-cum-commercial buildings. The assessee since beginning has been following the ‘Project Completion’ method of accounting and treated all building as its one project. Therefore, the income generated and the expenditure made to entire project cannot be bifurcated on the basis of total area of constructed premises, possession of which was given. The project of the assessee was completed only 60% up to 31.03.2008, on the basis of which income cannot be recognized. It was further argued that the AO estimated the income on adhoc basis which is not justified. The AO was not justified in rejecting the project completion method adopted by assessee. In support of his submission, the ld. AR of the assessee relied upon the decision of Tribunal in Awadhesh Builders vs. ITO (2010) 37 SOT 122(Mum). On the other hand, the ld. DR for the Revenue supported the order of authorities below. It was argued that the assessee has undertaken the construction of nine building consisting of five residential and four commercial building. The assessee has received entire consideration in respect of four residential building and two commercial building. The assessee has not offered income on the ground of project completion method. No measure construction was pending. The AO has made a reasonable estimation of income. In the rejoinder and in alternative argument, the ld. AR of the assessee argued that the AO be directed to set off the income which may be offered by assessee in subsequent year for remaining units.
We have considered the rival submissions of the parties and have gone through the orders of the authorities below. There is no much dispute on so far as completion of various blocks/ building. In our view the unit/ flats, which the possession has been given, is to be considered as have been sold by the assessee. As after giving the possession the title has been passed on the purchaser (transferee). The profit arising therefrom is eligible to be taxed in the year in which the possession was given. Accordingly, we confirm the order passed by ld CIT (A) in respect of those flats/ units. For remaining flats/ units possession of which is not handed over, the AO was not correct in estimating the income. The ld AR for the assessee submitted that the income assessed during this year should be given set-off in the subsequent year in which the assessee had offered income from those flats/ units. We find merit in the submission of ld. AR for the assessee and direct the assessing officer to excluded the income, which has been assessed by him during the year under consideration, to grant the set- off of the income of units/ flats in the subsequent year in which the same is offered by the assessee. With this direction the appeal of the assessee is partly allowed.
In the result, appeal filed by assessee is partly allowed. Order pronounced in the open court on this 10th day of November, 2017.