TMI Blog2014 (10) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... fer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA Nos. 2047 to 2052/PN/2012 - - - Dated:- 17-9-2014 - SHRI G. S. PANNU AND SHRI R.S. PADVEKAR, JJ. For the Appellant : Dr. Prayag Jha, Pratik Jha For the Respondent : Shri Rajesh Damor ORDER Per: R S Padvekar: This batch of six appeals are filed by the assessee challenging the common impugned orders of the Ld. CIT(A)-III, Pune dated 02-03-2012 for the A.Ys. 2003-04 to 2008-09. The assessee has filed the concise grounds in all the appeals which are verbatim as under: (i) The Ld. CIT (A) erred in holding that the A.O. was justified in treating the total amount as per letter of offer of allotment as sale proceeds of plots and bringing the same to income tax in the year of signing of letter of offer of allotment. (ii) The Ld. CIT(A) erred in holding that transfer of plot of land took place at the time of signing of letter of offer of allotment and that execution of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income chargeable to tax had escaped assessment, he, therefore, issued the notices to the assessee u/s. 148 and reopened all the assessments. 2.1 The assessee has undertaken a project namely GIRIVAN at Village Dongargaon/Hotale, Tal. - Mulshi, Distt. Pune. The Assessing Officer has stated that the assessee acquired the lands from farmers or owners and after developing the same and divided into different plots. The prospective buyer visits the site of the project where employees of the assessee apprise the customers of the various aspects of the property. If the visitors/customers are interested in buying plot from the assessee then they fill-up the booking form after choosing the plot of land in the said project GIRIVAN by making the payment of the booking amount. The buyer has to confirm the booking within 10 15 days or else the booking amount would be forfeited. Once the buyer confirmed the booking, a letter of allotment is issued to the buyer and according to the Assessing Officer the said letter of allotment confers right of enjoyment on the buyer over the property. The Assessing Officer has referred to the contents of the letter of offer issued by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the amount of development charges collected from the plot holder was adjusted against common development expenses incurred by the company and shown under current assets in the balance sheet. It was further contended that as per the 'Bombay Tenancy and agricultural Land Act, 1948 and 'Maharashtra Land Revenue Code1 and other land laws no person other than a farmer can purchase or acquire any right, title, interest of whatsoever kind in an agricultural land. Therefore, unless the prospective buyer produces a proof that he is a farmer, the conveyance or sale deed could not be executed in his name which follows that the rights in a land by means of transfer of risks and rewards cannot be transferred to him until that point of time. It was also pointed out that the company received consideration in installments on the basis of letter of offer of allotment and only on receipt of full amount and production of the documents of being an agriculturalist, the sale deed was executed and actual and legal possession was given. The assessee also claimed that the method of revenue recognition consistently being followed by the assessee since the Assessment Year 1990-91 which was also ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recording the sales. To affirm his view, the Assessing Officer has highlighted the sequence of events involving various stages, in respect of plot No.D-47, A-3, belonging to Dr. R.M. Chaturvedi, as under:- Sr.No. Date Details 1. 25/11/2002 Letter of offer of allotment and receipt of entire plot cost 2. 20/12/2002 NOC for development of plot and construction of servant quarters cum store house 3. 10/12/2003 Permission of construction of servant quarters 4. Jan 2004 Construction of servants quarters completed 5. Till date Agreement for sale is not prepared and registered Highlighting the above, the Assessing Officer emphasized that the assessee had handed over the possession and rights over the property to the buyer but never showed the amount received by it as sales. Citing this position and also drawing attention to the statement of Shri Arun De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in the plot of land under consideration. Thus, according to the Assessing Officer, the assessee has relinquished/ sold his rights over that piece of land on receipt of consideration against the plot. Thus, according to the Assessing Officer, those letters of offer of allotment are in the nature of agreements of sale which are not registered. Stressing upon of the fact that the assessee has been following mercantile system of accounting, the Assessing Officer observed that receipt of total consideration is not material but what is material is there was obligation created on the buyer by way of an agreement viz. letter of offer of allotment between the assessee and the buyer and viewed from that perspective, revenue accrued to the assessee. Further, referring to the term 'transfer' as defined in clause (vi) of section 2(47) of the Act, the Assessing Officer asserted that if the transaction has the effect of transferring, or enabling the enjoyment of any immovable property then the same would be considered as the transfer of asset for the purposes of Income Tax Act, 1961. Noting that in the present case, the buyers were enabled the enjoyment of the rights over the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the said property/plots. Thus, holding that the letter of offer of allotments entered into by the assessee and the prospective buyers were in the form of agreements of sale of plots, the Assessing Officer concluded that the assessee has sold the plots in respect of which the letter of offer of allotments were entered into. Observing that the assessee has not considered/declared the amounts received in lieu of such sales in its books of accounts as revenue, the Assessing Officer further held that such amounts received by the assessee in lieu of letter of offer of allotments which are in the form of agreements of sale of plots were sale consideration received by the assessee in the respective years. Such aggregate considerations received by the assessee were then quantified by the Assessing Officer on the basis of letters of allotment for different Assessment Years as under:- Assessment Year Plot cost quantified as per Letter of offer of allotment 2002-03 Rs.87,51,230/- 2004-05 Rs.73,45,173/- 2005-06 Rs.1,64,22,84/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enabling the enjoyment of the immovable property. 8. The assessee challenged all the reframe assessment by the Assessing Officer before the Ld. CIT(A) but without successes. As on principles the Ld. CIT(A) held that the Assessing Officer was justified in treating the total amount as per letter of allotment as a sale proceeds of the plot and bringing the corresponding income to tax in the years/year of signing of the letter of allotment. Ld. CIT(A) directed to verify whether there was a double taxation of the any amount. The reasons and findings of the Ld. CIT(A) for endorsing the view taken by the Assessing Officer are as under: 6. The contentions raised by the Ld. Counsel for the appellant are carefully examined with reference to the facts of the case and the material placed on record. The appellant acquires land from farmers or owners which were then developed into plots of different sizes. The prospective buyers visit the site of the project where employees of the appellant apprise the customers of the various aspects of the property. Interested customers fill-up the booking form after choosing the plot of land by paying the booking amount. The appellant also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (47) are not applicable to the transactions in question. Now the issue that arises is when the income from sale of plots in question, which constitute stock-in-trade in the case of the appellant, is required to be recognized in the profit loss a/c. For deciding the timing of recognition of income from sale of goods, it is necessary to refer to the conditions specified in paragraphs 10 and 11 of Accounting Standard (AS)-9, which read as under: 10. Revenue from sales or service transactions should be recognized when the requirements as to performances set out in paragraphs 11 and 12 are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards or ownership have been transferred to the buyer and the sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to its sanctioned purpose. c. You will not use the plot for poultry, piggery, goat farming, dairy, brick bet, workshop or factory. d. While appointing any care taker or servant on your plot, you will obtain Girivan Project Experience Certificate of the concerned person from company. e. You will not use or allow to use the infrastructural facilities of Girivan Project owned and controlled by company i.e. roads, electricity, water resources, common facility centers, administration set-up etc. for the use, occupancy and enjoyment of any other land in area of Girivan Project or in the vicinity thereof, except the plot allotted to you, 6.1.1 As seen from a copy of the Letter of Allotment furnished by the appellant, the buyers are given the rights to use the allotted plot for an agricultural purpose and for construction of their farm house of course subject to the rules and regulations as mentioned above. During the survey operation, the Assessing Officer conducted enquiries, which revealed that some of the plot owners in the project 'GIRIVAN' had formed an Association which was registered under the Society's Registration Act, 1860 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given full opportunity to have its say on the statement and therefore principles of natural justice have not been violated. The letter of offer of allotment entered into by the appellant and the prospective buyers was in the form of agreement of sale of plots and the appellant has sold the plots in respect of which the letter of offer of allotment was signed. In such a situation, the confirmations from various buyers filed by the appellant that possession was given to them only at the time of execution of sale deed does not carry conviction and it is only an afterthought and these confirmations are contrary to the clause Use and Enjoyment of the said plot' incorporated in the letter of Allotment, which is scanned and reproduced hereunder: USE AND ENJOYMENT OF THE SAID PLOT:-You have to use the said plot for an agricultural purpose and for construction of your own farmhouse as per the rules and regulations. You will not do or carry any activity which is a nuisance or harmful to the Project and/or the other plot-holders. You will develop your said plot and make plantation, cultivation etc. thereupon and will not retain said plot undeveloped or as it is. You are well aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income to a point of time when the possession of the buyer will become exclusive possession after full consideration is paid and sale deed is executed. 6.1.4 Thus, by virtue of letter of allotment, possession of the plot is handed over to the buyers along with rights of enjoyment over the property and it is not correct to say that the appellant retains full and effective control of the ownership of the land at all the times until the Sale Deed is executed and therefore the first criterion laid down in AS-9 for recognition of income from sale of plots in the respective years of allotment is satisfied. b) Transfer of all significant risks and rewards to the buyers: 6.2 Drawing attention to paragraph ll(i) of AS-9, the next contention of the Ld. Counsel is that all significant risks and rewards associated with ownership of the property are not transferred to the buyers at the time of signing of Letter of Offer of Allotment'. According to the appellant, letter of Allotment is not a transferable document and therefore risk and rewards are transferred only when sale deed is executed and hence income from sale of plots Is recognized on execution of sale deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant simultaneously transfers 'all significant risks and rewards' to the prospective buyers when the allotment letter is signed by the parties involved in the said transaction. Therefore, it is difficult to accept the contention of the appellant that 'significant risk and rewards' are not transferred in spite of entering into agreements with the buyers which are legally enforceable contracts. Thus, in the instant case, the transfer of rights in the property at the time of Letter of allotment results in or coincides with the transfer of significant risks and rewards of ownership to the buyer and therefore the revenue from the sale of plots has to be recognized in the year of allotment. c) Expectancy of Ultimate realization: 6.3 As per the Accounting Standard-9, the third important criterion is that the revenue should be recognized when it becomes measurable and the surrounding circumstances give rise to reasonable expectancy of ultimate realization. In the instant case, the sale consideration for sale of plot was fixed and specified in the allotment letter and the revenue from sale of plots was measurable and at the time of signing the Letter of Allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in assessee's hands In the case of the appellant also, dominion over property was passed on to the respective buyers soon after signing the Letter of Allotment and some of the buyers even started constructions on the plot and therefore amounts received by appellant on account of sale of plots could not be held to be mere advances until the sale deed is executed and the same constitute trading receipts in the year of allotment. 6.5 Apropos the claim of the appellant that the Revenue has accepted the method of accounting of revenue recognition followed by the appellant in the scrutiny assessment for the A.Y. 1997-98, it is to be mentioned that the principles of estopel and res-judicata do not apply strictly to the proceedings under the Income-tax Act and the issue can always be examined with reference to the facts supporting it or changed legal position in any subsequent assessment year. This view is supported by the decision of the Bombay High Court in the case of Kotak Mahindra Finance (265 ITR 114). In the case of the present appellant, a survey operation under sec. 133A was carried out in the business premises of the appellant and during the survey operation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of allotment as sale proceeds of plots and bringing the corresponding income to tax in the year(s) of signing letter of offer of allotment and accordingly the action of Assessing Officer in this regard is upheld in principle for all the assessment years under appeal. Now, the assessee is in appeal before us. 9. We have heard the rival submissions of the parties and perused the record. The Ld. Counsel submits that at the time of issuing the allotment letter possession is not given to the buyers but the assessee retains full and effective control possession and the ownership of the land at all the times until the sale deed is executed. He submits that letter of allotment is an acceptance by the assessee to sale plot and unless the assessee makes the full payment and complies with the terms and conditions then only the title in the land is transferred to the buyers. He submits that the exercise done by both the authorities below based on the wrong appreciation of the nature of the allotment letter issued by the assessee to the prospective buyers of the plot. By way of allotment letter the assessee assures the buyer that the plot selected by the buyer will be ultimately s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer has relied on the statement of one Mr. Arun Deshmukh on the issue of handing over the possession. The said alleged statement was recorded behind the back of the assessee and the assessee was not allowed opportunity to cross-examine him even if on specific request. He submits that the sale deed executed in favour of Shri Deshmukh is placed in the Compilation in Marathi at Page Nos. 22 to 29 . He submits that as per the sale deed the possession of the said plot was given to Shri Deshmukh on 11-03-2004 then how it can be said that the possession was given at the time of allotment letter. 10. In respect of the applicability of Sec. 2(47) of the Income-tax Act, he submits that the definition of the transfer is not applicable when the income is assessed under the head income from business or profession but the said definition is specifically applicable when the income is determined under the head Capital Gain and hence, reliance placed by the Assessing Officer is totally misplaced. On the consistency of method of accounting, he submits that law is well settled hence, on the principle of consistency recognition of the revenue may not be disturbed nor there is justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. 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. We do not understand on which basis both the authorities below came to conclusion that the possession was given to the prospective buyers and the assessee should have recognized the revenue or income on the issue of allotment letters. In our understanding the approach of both the authorities below on this particular is totally misplaced. 13. The assessee is following consistent method of accounting in respect of the said GIRIVAN project recognizing income on execution of sale deed and save these six assessment years the same has been accepted. As argued before us and which a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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