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2013 (8) TMI 555 - ITAT CHENNAITaxable event - Completion of contract - profit on sale of the flats - Year of completion of the residential complex built by a developer - CIT(Appeals) has given a categoric finding that the project was completed in the Financial Year relevant to the AY. 1999-2000 - Chartered Accountant of the assessee vide letter dated 14-12-2004 has mentioned in his letter that the housing project was completed in the Financial Year 1998-99 - Assessee had applied for issuance of Completion Certificate in the month of August 1999 and the Completion Certificate was issued to the assessee by CMDA on 29-12-1999 – Held that:- Project is completed when it becomes habitable and all activities relating to the construction of the project are completed. It is the choice of the developer when to apply to the concerned, authority for the issuance of completion certificate - Year of completion of project as 1998-99. Amount received by the assessee from underwriter is the purchase cost of the flats or advance against the sale of underwritten flats - Held that:- The term 'underwrite' means to assume financial responsibility to guarantee the purchase of a full issue of stocks or bonds - Perusal of the underwriting agreement makes it clear that VGP (underwriter) has to pay the agreed amount in a phased manner to the assessee by January 1998. In lieu of the consideration received, the assessee has to complete the apartments and hand over the possession to the prospective buyers brought in by VGP. In the book of accounts, the assessee has shown the amount received from VGP in lieu of underwritten apartments as advance. The assessee is appropriating the amount shown as advance to sale in the year of execution of sale deed. The assessee has received the amount much prior to the date of execution of sale deed and delivery of possession of property - The risk, responsibility and liability to sell the flats underwritten is on the underwriter. If VGP brings any buyer of the flat and requests assessee to execute sale deed in his favour, the assessee is duty bound to get sale deed executed in favour of the prospective buyer and handover possession of the flat. In case the assessee refuses to do so, it shall be breach of contract between the assessee and underwriter - From the documents on record and the facts of the case, it is evident that the amount received by assessee from underwriter is the sale price of the flats. Taxable event – AY in which the income of the assessee is liable to be taxed – Held that:- The assessee is following project completion method. Therefore, the assessee is liable to be taxed in the year of completion of the project - Project of the assessee was completed in the year 1998-99 relevant to the AY. 1999-2000, the income from sale of flats is liable to be taxed in AY. 1999-2000 – Advance received from VGP which in fact is the sale proceeds of the flats, on completion of the project has to be treated as sale consideration. The consideration can only be treated as advance till the time the project is in progress. The day the project is completed, the advance has to be treated as sale consideration – Decided in favor of Revenue.
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