Karnataka HC Confirms No Stock-in-Trade Sale; Upholds Completed Contract Method for 2009-10 Assessment Year

The Karnataka HC dismissed the Revenue's appeal, affirming the ITAT's decision that no sale of stock-in-trade occurred during the relevant assessment year. The Court upheld the assessee's use of the completed contract method of accounting, as accepted by the Revenue, and clarified that the sale of immovable property as stock-in-trade is recognized only upon a registered sale deed. The Court found no substantial question of law for the assessment year 2009-10, disposing of the appeal but leaving the issue open for future consideration.

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The Karnataka High Court considered an appeal filed by the Revenue against the order of the Income-tax Appellate Tribunal in the case of Joint Commissioner of Income Tax (OSD) Vs. M/s. Chaitanya Properties Private Limited. The key issues presented and considered in the judgment are as follows:1. Whether the lands subject to a Joint Development Agreement (JDA) were stock-in-trade of the assessee at the time of entering into the JDA.2. Whether the tax liability arises only when the stock-in-trade is sold.3. Whether the completed contract method of accounting followed by the assessee was acceptable.4. Whether the assessee should adopt the percentage completion method of accounting.5. Whether the Chennai Bench of the ITAT decision regarding the sale of immovable property as stock-in-trade applies to the present case.6. Whether the observations on sale being made only on a registered sale deed would impact future appeals.The Court analyzed the conclusions of the Tribunal, which highlighted that no sale of stock-in-trade had occurred during the relevant assessment year. The Tribunal also noted that the assessee had consistently followed the completed contract method of accounting, which was accepted by the revenue. The Court further considered the Chennai Bench of the ITAT decision, which stated that immovable property held as stock-in-trade is considered sold only upon the execution of a registered sale deed.The Court concluded that since no sale of stock-in-trade had taken place during the relevant assessment year, the observations on the sale being made only on a registered sale deed were not relevant to the issue at hand. The Court disposed of the appeal, leaving the question open for consideration in future cases.The significant holdings of the judgment include the acceptance of the completed contract method of accounting by the revenue and the clarification that the sale of stock-in-trade occurs only when conveyed through a registered sale deed. The Court emphasized that no substantial question of law arose in the present appeal for the assessment year 2009-10, leading to the disposal of the appeal while keeping the question open for future cases.

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