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2006 (7) TMI 680

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..... -90 relates to the method of computation of the income from the construction business. We shall first take up this issue for consideration. 3. The assessee commenced construction of multi-storied building at Tolstoy Marg, New Delhi. The assessee purported to follow the completion of project method of computing its income from the construction business for Income-tax purposes. The other method which is generally adopted in such type of business is the computation of the profits on the basis of the percentage of completion method. In the former method, the expenditure incurred on the construction is debited to work-in-progress account and this account is carried forward from year to year till the year of completion of the project. The profits from the project is offered for taxation in the year of completion. Under the percentage of completion method, the profits are computed on year to year basis depending on the percentage of completion of the project. Under this method the assessment of the profits is not postponed till the year of completion, but is assessed on yearly basis. Both the methods are recognized by accounting standard 7. 4. In the present case the assessee followed t .....

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..... was handed over to the purchasers between the period May, 1988 and November, 1988, which fall within the previous year ended 31-3-1989. 8. On appeal the CIT (Appeals) confirmed the assessment and hence the assessee has come in further appeal before the Tribunal and has articulated its objection in the first two grounds taken before the Tribunal. It is contended that the Income-tax authorities were not justified in taxing the sale price of the 54 flats in the assessment year 1989-90 on the footing that the project was completed in this year. It is claimed that the profits can be ascertained only when the project is completed as per the method of computation followed by the assessee consistently and accepted by the Income-tax Department upto the assessment year 1988-89 and thereafter in the assessment years 1990-91 and 1991-92 also. It is submitted that only 63 per cent of the construction was completed, going by the fact that 54 out of 86 flats were sold during the year under consideration and therefore, it cannot be said that the project was either complete or even substantially complete. It is pointed out that for the assessment years 1990-91 and 1991-92, the Assessing Officer hi .....

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..... oing project for a number of years. In such a case, if the Assessing Officer accepts the particular method of computing the profits adopted by the assessee in the initial years of construction, that would in a manner of speaking bind him in all the subsequent years until the project is completed. During the entire period of construction, the Assessing Officer cannot be permitted to change the method accepted by him in the initial year. Otherwise there will be complete chaos and confusion throwing the computation of profits out of gear. A proper assessment of the assessee's income cannot be made if the Income-tax authorities are permitted to vacillate between the different methods permitted by law for the purpose of computing the profits arising out of the construction business. The assessments made by the Income-tax authorities should also be fair and reasonable to both the assessee and the Department, which may not be the result if different methods of computing the profits in the case of the construction business is adopted by the Income-tax authorities in different years. In the present case initially upto and including the assessment year 1988-89 the Assessing Officer accepted .....

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..... 2004. 13. The brief facts in connection with the above issue may be noticed. The land was originally given on lease by the Government of India to Shri Narain Dass Sasan and Shri Hans Raj Sasan jointly. The lease was a perpetual lease and was given in the year 1936. The lessees sold their rights to one Bakshi Mohan Lal Sasan, who bequeathed the property to his wife, Smt. Saraswati Bakshi, by a Will dated 4-8-1955. Under the Will she had a life interest devolved on their son, Shri D.N. Bakshi. Shri D.N. Bakshi pre-deceased his mother, Smt. Saraswati Bakshi. A family settlement was executed on 31-3-1997. Subsequently the assessee company was incorporated on 15-6-1978 to acquire the land and carry out the construction work including the construction in Tolstoy Marg. On 2-4-1980 the assessee entered into a partnership with Smt. Saraswati Bakshi, Smt. Kamla Bakshi, who was the widow of late Shri D.N. Bakshi and the two sons of late Shri D.N. Bakshi. As per the partnership deed the life interest holder i.e., Smt. Saraswati Bakshi contributed her rights in the property as capital. The remainder interested sons also agreed to invest their interest in the firm as their capital. The company .....

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..... the Competent Authority under section 269-AB. Attention is also drawn to clause (2) of the agreement entered into between the assessee and the purchasers, which says that the sale of the flat "will be subject to the requisite permission being accorded by the Land & Development Officer as required under the conditions of lease of the plot over which the multi-storied building is constructed." We were also referred to the audit report in respect of the account for the year ended 31-3-1986. In this report, in Schedule K it has been stated that the L&DO has demanded additional premium and ground rent upto 31-3-1986 along with interest from the assessee and the demand has been disputed by the assessee. It has also been stated by the auditors that during that year the assessee has paid Rs. 9,00,000 to the L&DO in respect of the claim. It has further been stated that to the extent the demand has been accepted by the assessee upto 31-3-1986, it has been shown as current liability and the balance has been shown as contingent liability not provided for in the balance sheet till the matter is finally settled. It is submitted on the basis of these facts that the assessee was liable to pay the .....

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..... n a consideration of all of them especially the clauses in the agreement between the assessee and the flat purchasers and having regard to the conduct of the assessee in including the liability as a contingent liability in the accounts and also having regard to the audit report referred to earlier, we are satisfied that it is not the liability of the assessee to pay the L&DO charges. The assessee has merely collected the amount of Rs. 90 per sq. ft. from the flat purchasers in order to hand it over to the L&DO on behalf of the flat purchasers, but that does not mean that it was the primary liability of the assessee to pay the L&DO charges. We agree with the points raised by the learned Senior Departmental Representative on the basis of the agreement entered into between the assessee and the flat purchasers. We accordingly uphold the disallowance of the liability for both the years. However, we find force in the alternative contention of the assessee raised by way of additional ground, which has already been admitted by the Tribunal. The amount has merely been collected by the assessee, but it does not form part of the sale price of the flats. Therefore, we direct exclusion of the a .....

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