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2014 (10) TMI 294 - AT - Income TaxAccrual of capital gain - transfer - sale proceeds of plots - Whether that the assessee should have recognized the revenue when the allotment letters were issued to the prospective buyers - Mercantile system followed - Held that:- The sale deeds in respect of the plots of which letter of allotments were given have not been registered, the transaction would not qualify as sale because the risks and rewards are not transferred to the buyers legally, the AO mentioned that there is no provision in the income tax Act saying that registration is compulsory for the purpose of transfer/sale of immovable property - A letter of the allotment is nothing but it is a first stage of acceptance of the offer of the buyer by issuing him to letter - the assessee company has undertaken a project GIRIVAN and as per the facts on record it appears that the GIRIVAN project is the farming or agricultural project - The assessee company acquired the huge land in the Village – Dongargaon/Hotale, Tal. - Mulshi, Distt. – Pune and after developing the infrastructure like road, water provision etc. made the plots and offer the same for sale - On the basis of the survey action u/s. 133A the AO issued the notice u/s 148 to the assessee on the charge that for these six assessment years the assessee has not properly declared the income - the AO has re-casted the entire profit and loss account of the assessee which is merely basis of the allotment letter issued by the assessee to the prospective buyers. Both the authorities have not at all understood the nature of the allotment letter - The allotment letter is issued on company letter head. On perusal of the contents of the allotment letter, it is like a booking letter accepting the offer of the buyer - Nowhere there is mentioned in the allotment letter that the possession of the plot is given to the prospective buyers - The assessee has filed the copy of allotment letter dated 26-07-2002 issued to one Mr. Arun Ramdas Pangarkar - As per the allotment letter said Mr. Arun Ramdas Pangarkar has applied for the allotment of the plot and booking an amount was paid to the assessee company and the assessee agreed to allot him the plot of agricultural land as per the particulars given - It is stated in the allotment letter that the said buyer has inspected the plot and the same is allotted as per his choice. In respect of the private roads there is mentioned in the allotment letter - even the allotment letters were issued when the project was under developed that there were no proper roads but demarcation was done - It appears that the electricity poles and water facility was under progress - The cost of the plot is mentioned as well as administrative and security expenses are mentioned - There is condition that the said person has to use the plot for an agricultural purpose and for construction of his own farm house as per rules and regulations and prospective buyer has to prove that he is agriculturist - It is in clear terms clarified that the assessee company will execute sale deed of the said plot depending upon the buyers agriculture status and claiming the amount towards cost of plot administrative expenses etc. It is also mentioned that the buyer has to become member of GIRIVAN project. The assessee is following consistent method of accounting in respect of the GIRIVAN project recognizing income on execution of sale deed and save these six assessment years the same has been accepted - Allotment letter cannot be said to be conferring the possession on the prospective buyers but it is only accepting the offer of the buyer to sale the specific plot - As per the Transfer of Property Act the title is transferred only on the completion of the terms and conditions agreed between the parties - authorities below have referred to Sec. 2(47) of the Act - the income is computed under the head business hence, the definition is not applicable at all - as the letter of allotment does not disclose nor it is meant for conferring the right of the enjoyment or possession on the date of issue - the method of accounting regularly employed by the assessee cannot be disturbed - The AO did all the exercise merely on the basis of the survey action u/s. 133A which he could have done in normal assessment proceedings u/s. 143(3) by verifying method of accounting adopted by the assessee for recognizing income - the assessee has filed the copies of letters from the buyers of the plots and as per the letters given by the buyers of the plots, the possession of the plot is given only on the execution on the sale deed - both the authorities below have misunderstood the provisions of law nor they have properly appreciated the letter of allotment issued by the assessee to the prospective buyers – thus, the order of the CIT(A) is set aside and the AO is directed to accept the method of accounting regularly followed by the assessee and also to accept the return/loss declared – Decided in favour of assessee.
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