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2017 (4) TMI 911 - ITAT MUMBAIAccrual of income - Taxation of net advance amount received in respect of flat No.701 & 702 for which no permission was there for construction - ownership - Held that:- From the record, we found that the assessee company has under taken the redevelopment project of M/s. Dushyant CHS limited as per the development agreement executed between both the parties dated 18-07-2008. The Assessee Company has to abide with the provisions of law while constructing the new building by way demolishing the old building and getting the building plans approved from MCGM was the essence of contract. Due to non-approval of building plans for the 7th floor of the building the agreements which were executed became not legally enforceable. The purchaser's of flats also disputed making of progress payments since their banks refused to grant housing loan due to non availability of building plan approved for the 7th floor where these 2 flats were situated. Also due to the non approval of the 7th floor of the building by the MCGM an uncertainty came into the agreement and the flats which were agreed to sell were into the question. Since as per the clause no.7 of the agreements for sale the purchaser were entitled to get full refund on demand on developer fails to give possession of the fiats within stipulated time period. It is also not in dispute that as on 30th Sept, 2010, the building plan was approved only upto 6th floor of the building. A complete uncertainty was existed in respect of further approval and construction of 7th floor of the building. The Assessee Company has followed accounting standards issued by lCAI. As per AS-7 revenue was booked on the flats agreed to sale by % completion method. As per the said method revenue was booked up to a 60% of agreement value of respective flats agreed to sell upto 6th floor. However an uncertainly existed pertaining to construction of flats no. 701 and 702 the booking amount received against these 2 flats was kept under head Advance received in the balance sheet. As per the understanding of AS-9 the revenue should be booked when all the following 2 conditions are satisfied. (i) the seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership. (ii) No significant uncertainty exists regarding the amount of consideration that will be derived from the real estate sale. Hence, in case of flat No. 701 and 702 none of the above conditions were satisfied and therefore the stand taken by the assessee company of postponing revenue recognition in respect of these two flats is justified. Also found that the agreement pertaining to the flat no. 701 is duly cancelled by the registered deed of cancellation dated 30-11-2011. The agreement pertaining to the flat No.702 is terminated and the suit for cancellation of agreement is pending in the Bombay City Civil Court. In view of the above facts and circumstances of the case, we do not find any merit in the action of lower authorities for bringing tax net advance amount received in respect of flat No.701 & 702 for which no permission was there for construction. Moreover, assessee itself has offered the said amount in the subsequent year when the plan was approved; there is no reason to tax the very same income double. - Decided in favour of assessee.
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