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2022 (8) TMI 456 - AT - Income TaxAddition being “advances received from customers” and “other liabilities” - CIT-A deleted the addition - HELD THAT:- The matter, is restored to the file of the AO for working the income of the assessee's real estate business in terms of the foregoing. Further, income, we may clarify, is to be considered only to the proportionate extent, inasmuch as only the same could be said to have accrued during the relevant year. The exception may be where the entire money due on a construction has been received from the customers under the agreement, and uniformly so, signifying the passing of the rights to the buyers. The assessee shall in such a case be allowed estimated expenditure on the work yet to be completed. The matter, accordingly, is set aside to the file of the AO for the purpose. AO shall adjudicate taking all the relevant facts and circumstances into account, in accordance with law, issuing definite finding of facts after hearing the assessee, who shall cooperate in the said proceedings, furnishing the materials sought and relevant for deciding the issues arising, as indeed for finalisation of accounts. Receipt shall be a business receipt in his hands, though he has no means of writing his accounts as the right to receive arises, as it appears to us from the entries in the assessee”s accounts, only on the receipt of sale consideration by the assessee, i.e., where and to the extent it is regarded as a sale by the assessee. The land owner has thus no means to either specify the amount to sale; decide the time of sale; and finally, even the extent of its receipt, which is much after the receipt by the assessee; his accounts reflecting credit in no insubstantial sums due to the land owners (who rather than by name are stated in the name of the relevant project). It is all this that raises considerable doubts as to the genuineness of the credit/s; the land sale extending to years. CIT(A), though noting that the land owner is entitled to a part of sale consideration, has not issued any finding in the matter even as he deletes the addition. We have, even ignoring the legal aspect of the transaction, examining it strictly from the stand-point of accountancy and tax perspective, find it untenable from the point of view of confirmation, as indeed from the practical stand-point. It would be a different matter where the land owner and the assessee have entered into a joint venture, agreeing to share the profits of the real estate development. The issue qua the genuineness of these credits, as indeed their true nature, is also, accordingly, restored to the file of the AO for proper verification and determination, followed by adjudication in accordance with law, issuing a clear and definite findings of fact/s, after allowing the assessee a reasonable opportunity of being heard. Needless to add, the conduct as well as evidence produced by the land-owners, including the accounting and tax treatment of the transactions, shall also be examined; the matter being indeterminate. We clarify that we may not construed as having issued any final findings on the merits of the matters restored to the AO for adjudication; our observations being strictly on the basis of the pleadings before us and our examination of the material on record, finding the same as inextricably linked to the accounting of sales and recognition of income, leading us to the conclusion that the issue at hand is indeterminate. Nothing more nothing less. We decide accordingly. Finally, we may advert to the addition in respect of other liabilities, i.e. other than the sums credited to the account of the land owners. We have already clarified no adverse findings by the AO qua this addition, remission to the file of the AO qua the credits in the case of land owners has been on account of the same having been found as inextricably linked to the income arising to the assessee from the business of the real estate development, even if u/s. 68. There is further no basis for addition of sums other than the sums credited to the account of and, thus, received from, the land owners, which is accordingly confirmed for deletion.
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