Accrual of real estate advance income denied where 7th-floor approvals were pending and sale agreements remained uncertain.

Advance received for flats proposed on the 7th floor was not taxable as accrued income where approval existed only up to the 6th floor and further approval had not been obtained. Revenue from real estate sales accrues only when significant risks and rewards pass, effective control is retained no longer, and there is no material uncertainty over consideration. Here, the agreements for flats 701 and 702 were uncertain because of non-approval, disputed payments, cancellation of one agreement, and litigation over the other. The addition treating the advance as current year income was unsustainable and was deleted.

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Issues: Whether the advance received in respect of flats proposed on the 7th floor was taxable in the assessment year when the building plan for that floor had not been approved and the agreements had become uncertain.

Analysis: Revenue from real estate sales is recognized only when the seller transfers the significant risks and rewards of ownership, retains no effective control, and no significant uncertainty exists as to the consideration. On the facts, approval existed only up to the 6th floor, further approval for the 7th floor had not been obtained, and the agreements for flats 701 and 702 were affected by the uncertainty arising from non-approval. The purchasers also disputed payments, and one agreement had already been cancelled while the other was under litigation. In these circumstances, the advance could not be treated as accrued income for the year in question.

Conclusion: The addition made by treating the advance for flats 701 and 702 as current year income was unsustainable and was deleted.

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