Real estate developer's External Development Charges ruled as advance for common facilities, not taxable income under incomplete project

ITAT Delhi held that External Development Charges collected by real estate developer from flat buyers constituted advance for common facilities, not taxable income, as project remained incomplete and charges were reimbursable without profit element. Regarding addition under Section 43CA for sales below circle rates, ITAT upheld CIT(A)'s decision to complete assessment after verification rather than remanding to AO, as circle rates were unavailable during original assessment. Addition under Section 68 for non-provision of buyers' PAN details was deleted, as mere non-submission of PAN details insufficient for disallowance when other buyer details were provided. Revenue's appeal dismissed on all grounds.

---

---

Issues Involved:
1. Treatment of External Development Charges (EDC) in accounts.
2. Application of Section 43CA of the Income Tax Act for two specific flats.
3. Addition due to non-provision of PAN numbers of certain flat buyers.

Issue-wise Detailed Analysis:

1. Treatment of External Development Charges (EDC) in accounts:
The primary issue revolves around the deletion of the addition of Rs. 1,80,39,139/- made on account of EDC paid to HUDA. The Assessing Officer (AO) argued that the EDC should have been part of the assessee's turnover and routed through the profit and loss account, as per the accounting norms and provisions of Schedule III to the Companies Act, 2013. The AO added the amount to the turnover and returned income of the year, initiating penalty proceedings for under-reporting of income.

The assessee contended that the AO misread the Development Agreement and failed to recognize that the project was ongoing. The method of accounting EDC in the Work In Progress (WIP) Account was consistent with previous years and had been approved by the Department. The EDC was collected from flat buyers and paid to HUDA for various developmental works, and the final balance would be accounted for at the project's closure. The CIT(A) agreed with the assessee and deleted the addition, noting that the EDC was an advance collected for providing common facilities and should not be part of the profit and loss account since the project was not yet completed.

2. Application of Section 43CA of the Income Tax Act for two specific flats:
The second issue pertains to the deletion of the addition made under Section 43CA of the Act, amounting to Rs. 6,29,30,146/-. The AO observed that the sales of 136 flats were below the circle rate, leading to the addition of the difference as unaccounted income. The circle rate chart was not available during the assessment, and the assessment was completed with the available information.

The assessee later provided the circle rates during the appellate proceedings, showing differences only for two flats (B4-304 and A1-801). The CIT(A) directed the AO to apply Section 43CA only for these two flats and consider the assessee's profit-sharing ratio. The Tribunal found no reason to remit the issue back to the AO, as the CIT(A) had already remitted the matter for verification, and the AO could verify the information while giving effect to the CIT(A)'s order.

3. Addition due to non-provision of PAN numbers of certain flat buyers:
The third issue involves the addition of Rs. 7,00,27,585/- due to the non-provision of PAN numbers of certain flat buyers. The AO added the amount, citing unexplained sales due to the absence of mandatory TDS and questioning the creditworthiness, genuineness, and identification of the buyers.

The assessee argued that Section 68 could not be invoked for not mentioning PAN numbers and that the PAN details had been provided twice but ignored by the AO. The CIT(A) verified the material on record and directed the deletion of the addition, noting that the assessee had already submitted the relevant details.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all grounds, dismissing the revenue's appeal. The Tribunal found that the CIT(A) had appropriately addressed the issues, and there was no need to disturb the findings. The appeal filed by the revenue was dismissed, and the order was pronounced in the open court on September 6, 2024.

---