TMI Blog2022 (8) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that the land in question was treated as a stock in trade by the assessee in its books of accounts and therefore transfer of the same was not liable to be taxed as capital gain. Hon ble Supreme Court in the case of Seshasayee Steal Private Ltd [ 2019 (12) TMI 702 - SUPREME COURT] considered a development agreement granting permission to start advertising, selling and construction and permitted to execuate sale agreement to the developer. The Hon ble Supreme Court held that such permission is not possession under section 53 of the transfer of the property Act. We concur with the finding of the Ld. CIT(A) that possession of land has been handed over to the prospective buyers consequent to the conveyance in favour of co-operative Society of flat owners. The Ld. CIT(A) has further held that the assessee was regularly following accounting method of Completed Contract Method consistently from year to year. The Ld. CIT(A) has further observed that in the case of the developer also Contract Completed Method has been accepted. The Ld. DR has not controverted any of the above factual finding of Ld. CIT(A). No error in the finding of the Ld. CIT(A) in upholding the Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding to assessment year 2008-09, whereas the remaining two towers were completed in previous year corresponding to assessment year 2009-10. The assessee received advance of rupees ₹1,78,68,399/-; ₹96,04,258/- and ₹2,77,19,807/- against sale of flats in assessment year 2006-07, 2007-08 and 2008-09 respectively. However no income was offered by the assessee against the said advance received on the plea that assessee was following Project Completion Method and entire income was declared in assessment year 2008-09 and 2009-10, on completion of the projects, receipt of occupation certificate and execution of conveyance deed in favour of the buyers. 5. According to the Assessing Officer the entire cost of construction was being met by the developer and the project did not require any contribution from the side of the assessee, the advance received by the assessee became final and certain. The Assessing Officer further observed that no work-in-progress was reported by the assessee in its books of accounts. In view of the Assessing Officer, there was no risk attached to the assessee and therefore advances becomes income of the assessee in the year of the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been received. 12. The Ld. AR has further brought to the notice of the undersigned the notes forming part of the accounts of the appellant which states that the appellant concern, in respect of real estate development business, is following consistently the completed building project method of accounting. Under this method the profit on the building project is determined only when the building project is completed. All the construction, administration, finance and other related expenses allowable directly in the project including land cost are carried forward as work in progress to the building project account till the year of completion of the building. All the advances received against the sale of flats are carried forward as advances received from the customers and the same is accounted on the completion of the building and handing over of the possession to flat buyer. In this regard, the Ld. AR has relied on the Hon'ble Banglore ITAT decision in case of Madhuvana Housing Building Cooperative Society v. ACIT 76 TTJ 948 wherein it is held that the appellant is entitled to adopt such method of accounting as would give complete picture of true income of the assessee pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned addition made by the AO should be deleted. 7. After considering of the submission of the assessee, the Ld. CIT(A) accepted the income offered by the assessee following project completion method. 8. The Ld. DR before us relied on the order of the Assessing Officer and submitted that advance received against sale of the flat should have been assessed in the year of the receipt as same became income of the assessee on receipt of the said advance. 9. We have heard arguments of the Ld. Department Representative and perused the relevant material on record including the impugned order of the Ld. CIT(A). We find that the Ld. CIT(A) has summarised the various clauses of the development agreements entered into by the owners of the land and the developer. The relevant part of the impugned order is extracted as under: 15. The above clauses of the agreement reveal that (i) The legal and juridical possession of the land has always remained with land owners till the completion of the buildings and conveyance to the association of the flat purchasers. It is specifically mentioned that there is neither sale or transfer or intention to give possession of the land to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd all subsequent years, the appellant has consistently treated the land as its stock in trade . 4) From the return of income of A.Y. 2008-09, it is observed that the appellant has offered the sale proceeds of tower no. A and B at Rs. 8,97,11,470/- under the head business income on the plea that both the towers are completed during the year under consideration, occupancy certificates are received and possessions are handed over. Simultaneously, income under the head capital gain on transfer of land u/s 45(2) of the I.T. Act, in the ratio of FSI of land sold during the year, is also offered and after indexation the same is worked out at long term capital loss of Rs. 5,83,942/-. In the assessment order u/s 143(3) of A.Y. 2008-09, the Jt. CIT while accepted the business income offered for taxation recomputed the LTCG u/s 45(2) at Rs. 30,03,122/- after getting the valuation of the land done by the DVO as on 01.04.1981. 9.1 In background of the above facts, the Ld. CIT(A) in his detailed finding held that land in question was not transferred to the developer till completion of the construction and therefore entire risk of the project remained with the landowners including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts stock in trade . In the return of income for A.Y. 2004-05, the relevant remarks for conversion of land, from capital asset to stock in trade is found to be clearly mentioned. The value of the land in the balance sheet is taken at Rs. 7,37,50,000/-. Hence, there is no doubt that the land in question is a business asset. Transfer of such business asset will not be covered within the definition of transfer as prescribed under section 2(47) of the IT Act. Transferring such cases of business asset will be governed by the transfer of ownership.of asset as per general law/Transfer of Property Act, 1882. In the case of business transactions, any benefit flowing from the business arrangement to any person is taxable as business income as per provision of section 28 of the IT Act. Transfer of asset in such a case may be recognised at the time of execution of sale deed. This would effectively mean adoption of Completed Contract Method (CCM). In my considered opinion, the year in which payment or advanced or part sale consideration is received by the land owner cannot be the year in which tax liability is attracted to the land owner. In the case of CIT vs Motilal C. Patel Co. (1988) 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opers, notwithstanding the fact that the clause 43 of the agreement laid down that the agreement is not a partnership between the parties as contemplated under the partnership Act 1932 and/or Joint Venture/Association of Persons between the two parties. Such a view point can be considered in view of clauses 5 and 10 of the agreement wherein it is stipulated that the land owners bear the obligation at their costs to obtain FSI of other properties by way of TDR of approximately 1,00,157.08 sq.ft. and load the same on the property under consideration. It is further mentioned in the agreement that the land owners shall obtain permissions for the re-development of the said property for commercial/residential user under section 22 of the ULC R Act at their own cost within 60 days of the date of agreement. There are other clauses too, which indicate towards the aforesaid view of joint-venture between the land owner and the Developer. In such a situation, the land owner has stepped into the shoes of the Developer and he also shares the risks and rewards of the business being managed by the Developer. The revenue recognition criteria of land owner will then be linked with the revenue reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were considered by Hon'ble Gujarat High Court in the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 (Guj.). The facts of that case were the assessee-firm was a dealer in land, adopting the cash system of accounting. On 14-11-1970, it executed an agreement to sell certain number of plots to a cooperative society, who also took over their possession by paying Rs. 5,000/ as an earnest money at the time of agreement and Rs. 2,08,772 as advance towards sale price in December 1970. The assessee credited the above aggregate receipts of Rs. 2,13,772 in its trading account in the calendar year 1970 relevant for the A.Y. 1972-73. All the formal sale deeds were, however, executed on different dates between 26-2-1971 and 26-6-1972 for a total consideration of Rs. 4,40,939 but the sale transactions with the society were completed in the accounting year relevant to the A.Y. 1972-73. For the A.Y. 1971-72, the ITO accepted the assessee's declared profit from the aforesaid receipts of Rs. 2,13,772/-. This assessment was set aside under section 263 by the Commissioner of Income Tax who held that, since the sale deeds were executed in the next calendar year 1971, the entire profit ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g whether receipt of the above nature was trading receipt or income. The method of accounting, whether cash method or mercantile method, would have bearing only in respect of completed business transaction. 23. There is also merit in the argument of the Ld. AR that there is no loss to the revenue as the appellant has offered full income during the project completion years i.e., A.Y.2009-10 2010-11 and paid taxes thereon. Income tax rates are same for all the years under consideration. find that the AO has cumulatively determined the same receipt of Rs. 8,97,11,407/- for the three years i.e., for A.Y. 2006-07 Rs. 1,78,68,399 for Tower II (advance), for A.Y. 2007-08 Rs. 96,04,258/- for Tower I II (advance) and for A.Y. 2008-09, Rs. 6,22,38,750 for Tower II ( as full and final settlement amount against advances received from the Developer in earlier years). Thus the amount computed by the AO for the three years is the same that is being offered for taxation in A.Y. 2008-09 i.e., Rs. 8,97,11,407/-. There is no variation at all. 24. Considering the totality of the facts and the circumstances of the issue involved and discussion made in the preceding paragraphs, I donot ..... 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