TMI Blog2019 (2) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... n perusal of facts, there is no doubt, whatsoever with regard to completion of project in AY 2008-09. This fact has not been disputed by the AO. Therefore, we are of the considered view that the Ld.CIT(A) was right in coming to the conclusion that the project has been completed in AY 2008-09 and accordingly, the assessee has rightly recognised revenue from the project in the year in which the project has been completed. This being so, as per the provisions of section 45(2), the capital gain derived from conversion of capital asset into stock in trade shall be chargeable to tax in the year in which such stock in trade has been sold. Since these two events, i.e. completion of project and recognition of revenue from the project has taken place in AY 2008-09, the resultant capital gain derived from conversion of capital asset into stock in trade is also taxable in AY 2008-09 - there is no reason to interfere with the findings of the Ld.CIT(A) and hence, we are inclined to uphold the findings of CIT(A) and reject ground taken by the revenue in all appeals. Disallowance of deduction claimed u/s 80IB(10) in respect of housing project - AO has disallowed deduction claimed u/s 80IB(10) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits. We do not find any error or infirmity in the findings of the Ld.CIT(A) and hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue. Chargeability of interest receipt from bank FD - HELD THAT:- Ratio laid down by the Hon’ble Supreme Court in the case of Totgar Cooperative Sales Society Ltd vs ITO [2010 (2) TMI 3 - SUPREME COURT] will squarely apply, where it was held that the Parliament has included specific business profit into the definition of the word ‘income’. Therefore, one is required to give a precious meaning to the words ‘Profits and gains of business or profession’. In the instant case, when we apply the ratio laid down by the Hon’ble Supreme Court in the said case, we find that interest earned on short term FD could not be said to be attributable to the activities of the assessee, mainly carrying on the business of construction and development of flats. Therefore, we are of the considered view that the AO was right in assessing interest earned on FDR under the head ‘Income from other sources’. CIT(A), without appreciating these facts directed the AO to assess interest under the head ‘Income from business or professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 45(2) are hence applicable 2. The Ld.CIT(A) erred in deleting the addition made on account of capital gains. The Ld.CIT(A) erred in holding that the project was completed in Asst.Year 2008-09 and that thi assessee was following project completion method. 3. The Ld.CIT(A) erred in directing that the cost of construction of 26 flats constructed b Bhoomi Developers and handed over to the assessee in lieu of 19,600 sq.ft. given to Bhoomi Developers, be taken for the purpose of computing the Fair Market Value of land converted into stock in trade. Though the Ld.CIT(A) held that the year of conversion of asset into stock in trade is 1994, the Ld.CIT(A) failed to appreciate that the Assessing Officer ha rightly worked the cost of construction at '3007- per sq.ft. which is the rate as in the year 1994. 4. The assessee, in his appeal also has taken more or less common grounds of appeal for all assessment years under appeals. For the sake of brevity, ground of appeal taken for AY 2005-06 in ITA No.1324/Mum/2011 are reproduced hereunder:- 1. Ld. CIT(A) erred in holding that land was converted into stock in trade by the i-^ appellant on 2-2-94 without proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for development of building A-Wing and the balance part was retained by the assessee for construction of building B-Wing. The assessee has started receiving advance from prospective buyers of flats right from AY 2001-02 onwards. But the assessee, neither showed any income in respect of development and sale of flats for AY 2001-02 onwards, nor computed capital gain in respect of conversion of capital asset into stock in trade in terms of section 45(2) of the I.T. Act, 1961. 6. The assessment for AY 2005-06 was taken up for scrutiny. During the course of assessment proceedings, the AO noticed that even though the assessee was developing a housing project and receiving advance from prospective buyers of flat, no income has been offered for taxation and hence, issued a show cause notice asking as to why income shall not be estimated @15% on total work in progress shown in the books of account. In response to show cause notice, assessee, vide his letter dated 17-11-2007 submitted that he was following project completion method for recognition of revenue and accordingly, whatever advance received from the customers, has been shown as liabilities in its books of account. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gain for AY 2005-06, by mistake, the same has not been taxed and accordingly an order u/s 154 dated 23-04-2008 has been passed and taxed capital gain by taking advance received on proportionate basis. Subsequently, on the basis of findings recorded for AY 2005-06, the earlier assessment for AYs 2001-02 to 2004-05 were reopened and the resultant capital gain on conversion of capital asset into stock in trade has been worked out on the basis of advance received from the customers. 7. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its submissions made before the AO to argue that the conversion of capital asset into stock in trade has taken place in AY 1998-99 when the assessee has got plan sanctioned from MCGM but not on the date of application filed for getting IOD. The assessee further contended that he has filed an application on 02-02- 1994 and that the said application has been kept in abeyance which is evident from the fact that the IOD has been issued on 09-01-1997 and also the certificate of commencement was issued on 06-05-1998. The assessee has entered into an agreement with M/s Bhoomi D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed building whereas the AO has taken an estimated amount of ₹ 300 per sq.ft. towards building without any basis. The Ld.CIT(A) further observed that although the AO had sought details from M/s Bhoomi Construction towards cost of construction of building, in view of non receipt of required information, went on to estimate the cost of construction without any basis. Therefore, directed the AO to determine the cost of construction on the basis of cost incurred by the developer to arrive at market value of land and accordingly set aside the issue to the file of the AO to decide the issue afresh. Similarly, the question of taxability of capital gain u/s 45(2) for the land converted into stock in trade was discussed and held that in view of the project completed for AY 2008-09, the capital gain payable as per the provisions of section 45(2) will also come into play at the time when the flats are sold in AY 2008-09. Accordingly, held that long term capital gain computed on conversion of capital asset into stock in trade is taxable in the year in which the revenue from the project has been disclosed in the books of account of the assessee. Since the assessee has shown to have complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the land on 17-08-1998, erred in concluding that conversion of capital asset into stock in trade has taken place on 02-02-1994 when the assessee had filed an application before MCGM for obtaining IOD. The Ld.AR for the assessee further submitted that the assessee, though filed an application before MCGM on 02-02-1994, the land in question was an industrial land upto 12-03-1996 before conversion of land into residential land by the revenue authorities. The MCGM has granted IOD on 09-01-1997 and also permitted to start construction on 06-05-1998. When all these evidences undisputedly prove the fact that the capital asset was not converted into stock in trade before 02-02-1994, the Ld.CIT(A) went on to give a finding that the capital asset was converted into stock in trade on 02-02-1994 without any basis. The Ld.AR further submitted that date of conversion is not the date on which the assessee intended to commence its business, but it will be the date on which the asset becomes capable of being used as stock in trade. In this regard he relied upon the decision of ITAT, Mumbai Benches in the case of Estate of Late NJ Patel vs DCIT (2007) 17 SOT 543. The assessee also relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of IOD and commencement certificate, the business cannot have taken place by merely filing an application for obtaining IOD. We do not find any merit in the argument of the assessee for the reason that the date of conversion of capital asset into stock in trade shall be determined either on the basis of entry passed in the books of account of the assessee or the intention of the assessee to exploit the capital asset into stock in trade for its business purpose. In this case, undisputedly, the assessee has not passed any entry in his books of account for converting its capital asset into stock in trade. But, the assessee intended to develop the impugned land into a stock in trade by filing an application for IOD before MCGM on 02-02-1994 which is the date on which conversion of capital asset into stock in trade said to have taken place. Although the IOD has been issued on 09-01-1997 and commencement certificate has been issued on 05-09-1998, what is relevant to determine the date of conversion is the intention of the assessee to commercially exploit the property which is on 02-02-1994. Though the assessee has relied upon certain judicial precedents including the decision of co-ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 300 per sq.ft. Therefore, we are of the considered view that the Ld.CIT(A) was right in directing the AO to determine the fair market value of the land by taking cost of construction incurred by the developer. Since the developer has submitted requisite details in respect of cost of construction, the AO is directed to adopt the cost of construction incurred by the developer in place of estimated construction cost taken to arrive at fair market value of the land accordingly, the ground taken by the revenue as well as the assessee are rejected. 15. The next question that came up for our consideration from this group of appeals including appeal for AY 2008-09 is year of taxability of long term capital gain as envisaged u/s 45(2) of the Income-tax Act, 1961. The AO has taken date of conversion as 02-02-1994 and then computed long term capital gain by taking ready recknoner rate of constructed flat as on the date of conversion and determined long term capital gain of ₹ 4,54,90,393. According to the AO, although the long term capital gain envisaged u/s 45(2) is payable as and when the assessee has sold the properties, but in this case, the assessee has deliberately postponed r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the considered view that the Ld.CIT(A) was right in coming to the conclusion that the project has been completed in AY 2008-09 and accordingly, the assessee has rightly recognised revenue from the project in the year in which the project has been completed. This being so, as per the provisions of section 45(2), the capital gain derived from conversion of capital asset into stock in trade shall be chargeable to tax in the year in which such stock in trade has been sold. Since these two events, i.e. completion of project and recognition of revenue from the project has taken place in AY 2008-09, the resultant capital gain derived from conversion of capital asset into stock in trade is also taxable in AY 2008-09. Accordingly, we are of the considered view that there is no reason to interfere with the findings of the Ld.CIT(A) and hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue in all appeals. 17. The next issue that came up for our consideration from departmental appeal for AY 2008-09 is disallowance of deduction claimed u/s 80IB(10) in respect of housing project. The AO has disallowed deduction claimed u/s 80IB(10) on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session letter issued to occupants of the building along with certificate of civil engineer dated 14-01-2008 in order to prove that the building has been completed in all respects. Merely for the reason tht OC has not been issued by MCGM, it cannot be said that the building has not been completed within the stipulated time. In this regard, the assessee has relied upon various judicial precedents including the decision of Hon ble Bombay High Court in the case of CIT vs Hindustan Samuh Awas Ltd 62 Taxman.Com.175 (Bom). 19. We have heard both the parties and perused the material available on record. The Ld.CIT(A) has negated the observations made by the AO for denial of deduction u/s 80IB(10). Although, the AO has made observations with regard to the date of commencement of project and also the date of completion of project to deny the benefit, the Ld.CIT(A) gave a categorical finding that the construction of the project has been started on or after 01-10- 1998 and the project has been completed on or before 31-03-2008. The Ld.CIT(A) has taken support from various details filed by the assessee including architect s certificate, as per which A-Wing of the building has commenced on 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not get OC from the Municipal Corporation authorities. However, all other required permissions, including fire fighting clearance and lift operation has been issued by Municipal Corporation after ensuring that the building has been completed and fit for occupation. Therefore, we are of the considered view that merely for the reason that OC was not issued by Municipal Corporation, the AO cannot ignore all other evidences filed by the assessee to prove that the said project has been completed within the stipulated time as per the provisions of section 80IB(10) of the Income-tax Act, 1961. This legal proposition is supported by the decision of Hon ble jurisdictional High Court in the case of CIT vs Hindustan Samuh Awas (supra), where it was held that completion of housing project is a physical act which can be demonstrated on the spot and also through certificate issued by an architect. The Hon ble Gujarat High Court in the case of ITO vs Saket Corporation 234 Taxmn.com 435 (Guj) held that when the building is completed in all respects, obtaining OC is not a mandatory requirement in order to ascertain whether the building was completed or not for the purpose of deduction u/s 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness receipts. According to the assessee, it has parked surplus funds generated from business in order to maximise receipts and reduce construction cost, therefore, there is a direct nexus between interest income and business activity of the assessee and hence, interest earned from FDRs is assessable under the head Income from business or profession . 23. Having heard both the sides, we do not find any merit in the arguments of the assessee for the reason that a particular receipt is assessable under a particular head of income shall be decided on the basis of nature of receipt with reference to the main business activity of the assessee. In this case, the assessee is in the business of development and construction of flats. Although the funds generated from business are sourced to FDRs kept in bank, the interest income earned from FDRs cannot be considered as business receipts when the assessee s main activity is not lending money for interest. The assessee is in the business of real estate development and construction. He had kept surplus funds available with him in the bank in short term FDR in order to earn certain interest income. Therefore, in order to fix a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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