M/S. GROWTH TECHNO PROJECTS LTD.,NEW DELHI vs. ITO, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘C’: NEW DELHI

BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR US, JUDICIAL MEMBER

ITA Nos.521 TO 526/DEL/2016 [Assessment Years:1997-98 TO 2000-01 & 2002-03 to 2003-04]

M/s Growth Techno Projects Income Tax Officer, Ltd. Vs Ward-12(2), 7A, Doctor Lane, Gole Market, New Delhi New Delhi PAN-AAACG2638P Assessee Revenue

Assessee by Sh. Abhishek Mathur, Adv. Revenue by Mr. Waseem Arshad, CIT-DR

Date of Hearing 20.06.2023 Date of Pronouncement 22.06.2023

ORDER PER SHAMIM YAHYA, AM,

These are appeals filed by the assessee against the common order of

the Ld. CIT(A)-15, New Delhi, dated 12.11.2015 pertaining to Assessment

Years 1997-98, 1998-99, 1999-2000, 2000-01, 20002-03 and 2003-04.

referring to the grounds of appeal raised in ITA No.521/Del/2016, which

reads as under:-

2 ITA Nos.521 to 526/Del/2016

appellant before him in detail in the appellate order passed by him. 2. That the Hon'ble Commissioner of Income Tax (Appeal) has decided the appeal of the appellant on merely suspicious and surmises and decided the appeal of the appellant in an arbitrary manner which is bad in law. 3. That the Hon'ble Commissioner of Income Tax (Appeal) has erred in law as much as on the facts of the case in rejecting the method of determining the cost of construction per sq. feet which has been determined by the appellant on the basis of Audited Statement of Accounts of the company for the year ended 31.3.2003 and accepted and approved in the assessment of the appellant company in assessment year 2003-04 u/sec. 143(3) of the Income Tax Act, 1961. This order has not been challenged by the Revenue Department in the proceeding u/sec.263 of the said Act and has thus attained finality. Assessment year 2003-04 was the year in which the housing project was fully completed by the appellant company. The Hon'ble Commissioner of Income Tax (Appeals) has failed to apply his mind to the finding contained in the appellate order of the Tribunal which has relied on the assessment order for the year 2003-04 and specifically directed that "we therefore, direct the A. O. to ascertain the actual amount of total bank liability and allow deduction proportionately against each flat and then determine net profit. It is submitted that the above directions was in line with the assessment order for the year 2003-04 which has been, as already explained, duly accepted by the department. 4. That on the facts and in the circumstances of the case, the Hon'ble Commissioner of Income Tax (Appeals) has erred in not giving specific finding on the taxability of sales of Units No.236,237,238,239,242,243,246,247,248,251,249 as to when and in which assessment year the same is taxable. This was an issue on which the remand report was specifically called for by the Hon'ble CIT (A) on 12.06.2015 after considering the seized documents and other papers. The remand report was sent by the concerned Assessing officer and the same was placed before the appellant. The appellant filed the reply of the said remand report but inadvertently it has escaped from the kind attention of the learned CIT(A) in considering the same while finalizing the appellate order of the appellant which is bad in law.

3 ITA Nos.521 to 526/Del/2016

the case as culled out from the order of the authorities below, reads as

under:-

4 ITA Nos.521 to 526/Del/2016

2002-03, the assessments were completed u/s 154/143(3) of the Act at Rs.3,83,35,205/- and Rs.29,74,371/- against returned income of (-) Rs.2,34,214/- and NIL. Similarly, assessment u/s 143(3) was completed for A.Y. 2003-04 at Rs.195,51,560/- against the returned income at Rs.NIL. The assessee is engaged in the business of real estates and sale & purchase of flats. The assessee has followed the project compilation method for computing the income for the business of real estates. A survey operation us 133A of the Act was carried out at the registered office of assessee on 07.03.2003 and on the basis of material impounded during survey and having regard to the complexity of the case, special audit u/s 142(2)(a) of the Act was directed which was carried out by M/s G. P. Aggarwal & Company and report was submitted on 19.09.2003. During the assessment proceedings in the case of assessee, A took a view that the assessee had given physical possession of the flats/units to the unit holders during the year under consideration as the documents contained possession letters duly signed by assessee and acknowledged by unit holders. On the other hand, the assessee had shown the amounts received from unit holders as advance and did not book the amounts received as income under the year consideration. However, A concluded that the ingredients of transfer of immovable property were fulfilled in the case of assessee in as much as possession given to unit holders was complete without any condition and the unit holders had taken possession of the property after making full payment in respect of units. The contention of the assessee that there was pending litigation between assessee and bank with whom the properties were mortgaged and as per out of court settlement, it was decided that the unit holders had to make direct payment to the bank, was rejected by AO on the ground that the payments in respect of these units were fully made by unit holders and physical possession was given to them by assessee. The claim of assessee that since the project was not complete, the income was not liable to tax and the same could be offered only in the year of completion of the project, was also not accepted by AO on the ground that assessee company was not a contractor, it was developing its own project for the purpose of sale; the construction of the project was completed substantially and possession was given to unit holders; documentary evidence found during survey also confirmed that the assessee had effected sale of units after receiving

5 ITA Nos.521 to 526/Del/2016

full configuration and mere fact that some of the units were not complete or that there was dispute with the developers and the bank did not detract from the fact that the sale of unit was effected and income accrued to the assessee as the accrual of income on the units sold could not wait for the whole project to be completed and sold.

3.1 Regarding the cost of project, calculation was made by assessee as well as AO on the basis of documents found during survey and details available with the assessee. The assessee worked out the cost of entire completed project at Rs. 15,25,83,661/- and the entire area of the project 109108 sq. feet. Accordingly, the cost per sq. ft was worked out at Rs.1398/-by the assessee. On the other hand, AO noticed that the assessee had included bank liability of Rs.3,98,79,040/- towards the project to which he excluded in absence of any details and worked out the cost per sq. ft at Rs.1021/- only as against Rs.1398/- worked out by assessee. Regarding receipts from the units, it was held by AO that in A.Y. 1997-98, assessee received total consideration against units sold at Rs.1,88,26,344/- which included the receipt on account of bank liability of Rs.13,69,710/- worked out at the rate of Rs.178/- per sq. ft. This rate was worked out by AO on the basis that the assessee had received the total sum of Rs.1,94,55,486/- from subscribers on account of bank liability and total area of the project was 109108 sq. ft, therefore, the rate per sq. ft comes at Rs.178/- only. Thus, after reducing the bank liability from the receipts, net receipts was worked out at Rs.174,55,634/-against Rs.194,55,486/- shown by assessee. After taking into account these figures of cost of project and net receipts, profit from sale of units for the A. Y. 1997-98 was worked out at Rs.96,00,039/- which was added to the total income of assessee by the AO. Similarly, for A.Y. 1998-99, 1999-2000, 2002-03, net profit at Rs.47,02,218/-, Rs.165,94,719/-, Rs.12,32,796/- respectively was worked out and included in the total income of assessee.

3.2 It was further observed by AO on the basis of evidence and material found during the survey proceedings that assessee had received certain amounts in cash over and above the amount mentioned in the sale agreements during all the years. On the basis of these documents, AO estimated the rate of 71000/- per sq. ft and applied it on the areas sold

6 ITA Nos.521 to 526/Del/2016

by assessee during the different years. For A.Y. 1997-98, AO worked out the figure at Rs.76,95,000/- as unaccounted cash on the basis that 7695 sq. ft area was sold by assessee and AO applied Rs.1,000/- per sq. ft on this area and computed the amount received as unaccounted cash. Similarly, other additions on account of traveling expenses under Rule 6D and depreciation were also made in different years.

"22. We have considered rival contention of both the parties and have carefully gone through the orders of the authorities below. We have also gone through the various documents and papers placed in the paper book.

7 ITA Nos.521 to 526/Del/2016

of loan advanced by the bank to the original developer. In the meantime, in September, 1990, the assessee took over development rights from B.D. Developers and became the developer of the same units. In the agreement entered into with B.D. Developers from time to time, it was also agreed that the assessee developer would also pay the bank liability. The construction was then started by the assessee. The liability to the bank was also belated due to delay in the payment. The settlement with the Bank of India was arrived at on 21.05.1996 whereby sum of Rs.3.75 crores plus legal expenses were agreed to be payable to the bank of India by 30.09.1996, in failure of which the settlement would be treated to be null and void. On this settlement entered into with the Bank of India, the Special Leave Petition filed by one Acharya Arun Dev was withdrawn. Till the full payment was made, the Bank refused to remove their charge on the property. Assessee then entered into an agreement with the allottees or buyers that they would pay the escalation amount provided the possession of the flats are handed over to them. As per terms of this agreement, the buyers made direct payment to the Bank of India "Account owner of the land". This amount directly paid to by the buyers to the Bank of India was a part of the consideration mentioned in the agreement. In this process, the total sum of Rs, 3,29,24,752/- between 1996 and 31.03.2000 was collected and the payment was directly made to the bank of India and the same is reflected in the books of account of the assessee as advance payment towards the liability of the bank and is also reflected as increased sale price in the agreement to sale entered into with various unit buyers. It is also submitted that the assessee had earlier also paid a sum of Rs. 15,52,074 to the Bank of India which was duly reflected in the books of account. The total liability of the bank was determined at Rs. 7,39,83,365/- out of this the amount of Rs. 3.29 crore and Rs. 15.52 lakh was adjusted leaving a balance sum of Rs. 3.95 crore payable to the bank. The assessee then again entered into an agreement with the bank on 22.03.2001 whereby assessee agreed to pay sum of

8 ITA Nos.521 to 526/Del/2016

the Rs.80 lakh, against which the assessee paid the sum of Rs.69.50 lakhs to the bank which is stated to be reflected in the books of account. The assessee again paid a sum of Rs.61,28,409/- to the bank, and no due certificate was obtained on 03.02.2003. The assessee, therefore, submitted that the total amount of Rs. 4,14,26,826/- was paid by the assessee to the bank, and thus the same is to be treated as part of the purchase consideration being borne by the assessee. The assessee stated that this amount was ultimately adjusted in the books towards the cost in the financial year 2002-03. It is, thus, seen by us that dispute with the bank was only with regard to the repayment of the loan payable by the assessee. The property was placed as a security for the payment. The non payment of dues to the bank has nothing to do with the question whether the project was completed for the purpose of determining income therefrom to be assessed under the Income-tax Act.

9 ITA Nos.521 to 526/Del/2016

possession was handed over by the developer to the buyer. If any constructed flat is sold and the possession thereof is handed over to the buyer and any obligation may still be discharged by the developer, the profit may very well have to be reported. In the present case, the assessee's contention that the entire project of constructing number of flats is to be treated as a single project and the profit would arise to the assessee only after all the flats are sold is not found to be justified on the facts of the present case. In the business of Development and Construction of property, the question may arise as whether there will be profit for each year when there are no receipts. In case, there is no receipts or sale of a particular flat is not completed, there will be then be no profits. The outlay can be carried forward at cost with the result that the value of the work in progress valued at cost will be equal to the outlay. But when there are receipts or sale of some flat is completed, proportionate profits are bound to be presumed and it may not be correct to avoid accounting profits in that year with reference to such receipts or possession of the flat having been handed over to the buyer. In that case, the whole project may be disjunctive and may be capable of being dissected where, the developer is able to treat the project as discharged in part; handing over part of the constructed portion will then have to be treated as independent project and profit on that part cannot be postponed beyond that date. Where the developer goes on handing over constructed flats on each occasion, when it is handed over, there is a completed sale whether there has been registration of the document or not: Proportionate part the profits in respect of the constructed flats, in respect of which a possession was handed over, will have to be accounted-Whole project may not be completed or there may be some further obligation undertaken in the agreement for sale of flat. In such a case, a reasonable provision can be made for future obligation. The Id. CIT(A) has rightly observed that if we were to agree to the contention of the assessee, it might given rise to a possible mischief where the assessee would never conclude his project by leaving

10 ITA Nos.521 to 526/Del/2016

one flat incomplete indefinitely or by keeping certain liability outstanding indefinitely. The assessee's contention tha Isewerage and water connection were yet to be obtained and the electricity connection connection had yet to be sanctioned cannot he a basis to say that the project was not completed when it has been categorically established on the basis of documents and papers found during the course of survey that the actual physical possession of the flats were handed over by the assessee to the buyers. If this was the case of the assessee that certain liability were yet to be discharged by the assessee the assessee would have make reasonable provision, which can be taken Into account while determining proportionate cost relating to the flats which has been sold and in respect of which the profit has been booked in the relevant year as so hold by the Hon'ble Supreme Court of India in the case of Calcutta Company reported in (1959) 37 IT 1 (SC), but because for that reason; the profit of the flats, in respect of which the possession was handed over by the assessee to the buyer, cannot be postponed when the assessee was maintaining the books of account on mercantile basis, following project completion method of accounting.

11 ITA Nos.521 to 526/Del/2016

disprove or controvert the findings of the A.O. with regard to the fact that the assessee had handed over the possession of the number of flats to the buyers after laking full consideration of the agreed price as detailed by the A in the list incorporated in the assessment order.

12 ITA Nos.521 to 526/Del/2016

1398/- per sq. ft. as against the rate of Rs. 1021/- adopted by the AO, we find that in the assessment, the AO has worked out the basic cost at Rs. 1398/- per sq. ft., which was determined after taking into account the payment made to bank, but he reduced the same to Rs. 1021/- per sq. ft for the reason that the amount collected by the assessee from the buyer towards the liability paid to the bank has already been reduced from the net receipts from the sale of flats. However, in the assessment year 2003-04, the AO has taken the total cost of construction at Rs. 15,25,83,661/- and taken the total constructed area at Rs. 109108/- per sq. ft., and actual cost of construction was determined at Rs. 1398/- per sq. ft. The AO has taken the total sale consideration of the unit in that year at Rs. 4,73,42,207/-. From the said order for the assessment year 2003-04, it is not clear as to whether the amount paid to bank has been included in the total cost of construction determined at Rs.15,25,83,661/- and as to whether the amount collected by the assessee from the buyer Going towards bank liability is at the same time included in the total sale consideration taken at Rs.4,73,42,207/- In the light of the confusion so arising, we, therefore, restore this matter about the working of the profit after ascertaining the total gross receipts collected by the assessee from the buyer including the bank liability directly paid to the bank, net receipts excluding the amount directly paid to the bank by the buyers though included in the consideration amount mentioned in the agreement, the total cost of construction including the bank liability payable by the assessee to the bank and the net cost of construction after excluding the bank liability directly paid by the buyers to the bank. This exercise shall be freshly done by the A after examining all the evidence and details, and after giving an opportunity of being heard to the assessee. As already stated above, the assessee shall submit the working of the total receipts as well as the total cost incurred by the assessee including the bank liability payable to the bank to the AO to enable the AO to examine and verify the same with reference to the bank accounts and other papers available on record and then to

13 ITA Nos.521 to 526/Del/2016

determine the profit from the flats in each year. We order accordingly. Thus, the first issue raised by the assessee is disposed off in the manner as indicated above.

(i) That A.O. has included the sum of Rs. 8,32,650/- and Rs. 64,66,530/- as cash receipts received by the assessee against unit No. 49, 50, 51, 52 and 57 though in fact, these units were never constructed and no agreement to sale was executed;

(ii) The A.O. has included cash amount of Rs. 10 lakhs over and above Rs.6,19,916/- in respect of unit no. 50 though the special auditor has pointed out that the amount of Rs.6,19,9167-was returned back to the buyer on 16.04.2000;

(iii) The A.O. has wrongly included the cash of Rs. 6,43,500/- and cheque of Rs.8,58,000/- against unit no. 244 though the fact of the case was that Rs. 12,87,000/-was received against the unit as per agreement for sale dated 30.06.2001. It was further pointed out that the authorities below has not considered the report of the special auditor and the submission of the assessee in that regard;

14 ITA Nos.521 to 526/Del/2016

(iv) The A.O. has went wrong in working out a figure of Rs. 76,95,000/- as unaccounted cash that might have been received by the assessee at the rate of Rs. 1000/- per sq. ft. in respect of Rs, 7,695/- per sq. ft. area allegedly sold by the assessee during that year. In this connection, it was submitted that this working of the A.O. is purely based on imagination and surmises.

However, assessment for A.Y. 2003-04 was completed u/s 143(3) by AO and appeal has been filed by appellant against the order in normal course.

taken up by the AO and certain additions were made, appeals against

which have been dismissed by the Ld. CIT(A).

CIT(A) has obtained certain remand report and the AO in the remand

report has suggested certain adjustments which have not been carried

15 ITA Nos.521 to 526/Del/2016

out. Hence, he pleaded that the matter should be remitted to the file of

the AO and the assessee will make effort to get the adjustments reported

by the AO in the remand report given effect.

the matter remitted back to the file of the Ld. CIT(A). At this point, the ld.

Counsel for the assessee has made following submissions:-

“Under these circumstances, it is humbly requested that the aforesaid matters be set aside to the file of the Hon’ble Commissioner of Income Tax appeals only with respect to the three issues as mentioned in below:-

litigation before the ITAT in this case. Both parties have agreed that there

are certain adjustments which need to be carried out in all the

Assessment Years with regard to the remand report submitted by the AO

before the Ld. CIT(A). In this view of the matter, as agreed by both

parties, we remand the issue raised in this appeal to the file of the Ld.

CIT(A) to consider the issue afresh in the light of submissions being made

by the ld. Counsel for the assessee hereinabove.

16 ITA Nos.521 to 526/Del/2016

Order pronounced in the open court on 22nd June, 2023.

Sd/- Sd/- [YOGESH KUMAR US] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; 22.06.2023.

f{x~{tÜ? f{x~{tÜ? f{x~{tÜ? f{x~{tÜ? Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi