Appeal allowed for incomplete project: ITAT directs reassessment of income

The ITAT allowed the appeal for statistical purposes, directing the AO to reassess the case considering that the project was incomplete during the assessment year and payments received were advances. The ITAT disagreed with the AO's approach of taxing the entire profit in the first year of the MOU, remitting the issue for proper verification of income accruing during the assessment year only. The assessee's appeal was allowed, and the AO was instructed to conduct a fresh assessment.

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Issues Involved:
1. Whether the addition of Rs. 63,75,600/- as business income by the AO was justified.
2. Whether the income had accrued or was received by the assessee during the assessment year under consideration.
3. Whether the sum of Rs. 63,75,600/- is chargeable to tax.
4. Whether the income amounting to Rs. 63,75,600/- had accrued to the appellant.
5. Whether the levy of interest u/s 234B amounting to Rs. 14,80,487/- was justified.

Detailed Analysis:

Issue 1: Addition of Rs. 63,75,600/- as Business Income
The AO observed that the assessee had entered into an MOU with SIPL to invest in ongoing projects and had invested Rs. 31,046,400/- during the assessment year. The AO noted that the assessee was promised 18 installments of Rs. 20,79,000/- each, totaling Rs. 3,74,22,000/-. The AO made the addition by considering the difference between the total realization of post-dated cheques and the initial investment as income from investment made. The CIT(A) upheld this addition, reasoning that the right to receive Rs. 3,74,22,000/- had clearly arisen from the MOU and the post-dated cheques issued by SIPL.

Issue 2: Accrual or Receipt of Income During the Assessment Year
The assessee argued that no income had accrued or was received during the assessment year as the project was still under construction, and no flats were sold. The CIT(A) dismissed this argument, stating that the MOU created a right in favor of the appellant to receive the amount, and the issuance of post-dated cheques reinforced this right. The CIT(A) relied on the principle that income accrues when the right to receive it arises, irrespective of actual receipt.

Issue 3: Chargeability of Rs. 63,75,600/- to Tax
The CIT(A) concluded that the sum was chargeable to tax as the right to receive the amount had accrued to the appellant. The CIT(A) referenced the Supreme Court's decision in Morvi Industries Ltd. vs. CIT, which held that the postponement of payment does not affect the accrual of income.

Issue 4: Accrual of Income Amounting to Rs. 63,75,600/-
The CIT(A) determined that the income had accrued to the appellant by virtue of the MOU and the issuance of post-dated cheques. The appellant's argument that the flats were not sold and the project was incomplete was not accepted, as the MOU provided an unconditional right to deposit the cheques.

Issue 5: Levy of Interest u/s 234B
The assessee contested the levy of interest u/s 234B amounting to Rs. 14,80,487/-. The CIT(A) upheld the levy of interest, as it was consequential to the addition made by the AO.

Conclusion:
The ITAT examined the submissions and material on record, noting that the project was not completed during the assessment year and the payments received were considered advances. The ITAT disagreed with the AO's approach of bringing the entire profit to tax in the first year of the MOU's execution. The ITAT remitted the issue back to the AO for proper verification of the project's status and directed that only the income accruing during the assessment year should be taxed. The appeal filed by the assessee was allowed for statistical purposes.

Order:
The appeal filed by the assessee is allowed for statistical purposes. The AO is directed to redo the assessment de novo, verify the project's status, and tax only the income that accrues during the assessment year, providing the assessee with a proper opportunity to be heard.

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