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28-08-2019, Shankala Realtors, Section 2(47), Tribunal Mumbai

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4 months 2 weeks ago #10674 by amit
Section - 2(47)
Order Date - 28-08-2019
Favouring - Allowed for statistical purposes
Court - Tribunal Mumbai
Appellant - Shankala Realtors Pvt. Ltd.
Respondent - ITO
Citation - 919Taxpundit4
Appeal No. - ITA No. 3827/MUM/2017
Asstt. Year - 2009-10



The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-14, Mumbai [in short ‘CIT(A)’] and arise out of the assessment completed u/s 143 of the Income Tax Act 1961 (the ‘Act ) As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. Facts being identical, we begin with the assessment year (AY) 2009-10 (ITA No. 3827/Mum/2017).

2. The grounds of appeal filed by the assessee read as under:

1. The Ld.CIT(A) erred in facts and law in confirming the addition of Rs.2,59,62,160/-made by the assessing officer by re-computing the income.

2. The Ld.CIT(A) erred in not appreciating the method of accounting adopted by the appellant company, was an accepted method and in consonance with the accounting standards as well as the guidance note of the Institute of Chartered Accountants of India regarding real estate transactions.

3. The Ld.CIT(A) completely misapplied himself and erred in confirming the stand taken by the assessing officer in invoking the provisions of sec. 2(47) which apply to capital asset and not to stock-in-trade.

4. The Ld.CIT(A) erred in appreciating that for two assessment years 2005-06, and 2008-09, in assessment orders framed under section 143(3) the method of accounting adopted by the appellant had been accepted and a deviation there from militated against the principle of consistency.

5. Without prejudice to the above and in the alternative the Ld CIT(A) failed to appreciate that, since the appellant was a company where tax rates were virtually constant there is no revenue loss to the department even if the income was taxed in a year different from that in which it was submitted to tax by the appellant, as the entire income was submitted to tax albeit in different assessment years.

3. Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2009-10 on 24.09.2009 declaring total income of Rs.1,01,56 550/-. The assessee-company is in the business of development of real estate. It follows the mercantile system of accounting. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee has commenced a project of development and construction of building “Sterling Tower” at Mazgaon, Mumbai and it had received an advance of Rs.24,92,42,860/- from the prospective buyers of the flat. However, the assessee had offered the income only in respect of the flat owners with whom agreement has been entered into. The AO observed from the details that in many cases, the assessee had received almost 90% of the agreement, still it had not offered the income for taxation on the pretext that no agreement has been made with the prospective buyer. As per the AO, the assessee had received total advance of Rs.24,92,42,860/- and out of this amount only certain percentage has been recognized as income and the balance was shown under the head ‘Advances’. Before the AO, the assessee submitted that the remaining income was not offered for tax on the reason that no agreement was executed in writing with the person from whom the payment is received and the revenue in respect of the balance advance could not be recognized as passing of risk and rewards by virtue of ownership is an essential condition for revenue recognition as per the accounting standard.

Referring to Accounting Standard (AS)-9 i.e. revenue recognition, the AO observed that for recognition of revenue in case of real estate sales, all the conditions specified in para 10 and 11 of the above accounting standard are to be satisfied.

Considering the facts of the case, the AO noted that when a prospective buyer approaches the appellant for booking the flat, allotment letter is issued to the buyer on receipt of advance money and in some cases, the assessee has taken almost 90% of the total value of the flats and in some cases by installment. Thus the AO came to a finding that all the conditions specified in the above accounting standard are fulfilled. Further referring to Explanation 2 to section 2(47) introduced with retrospective effect from 01.04.1962, the AO stated that the scope and definition of transfer has been drastically enhanced.

Thus the AO held that entering into an agreement and its registration is not necessary for recognition of revenue on advances or on

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