TaxTMI 
TaxTMI 
2013 (8) TMI 555
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....8-09-1997 reducing the number of apartments from 76 to 30. According to supplementary underwriting agreement, VGP (the underwriter) agreed to arrange buyers for purchase of super built- up area along with un-divided share in land with respect to 30 apartments. VGP agreed to pay a total sum of Rs. 4,03,17,350/- including cost of un-divided share in land @ Rs. 1025/- per. sq.ft. for a total super built-up area measuring 39,334 sq. ft. As per agreement, the aforesaid amount was to be paid by VGP to the owner and the builder/assessee as follows: a) Rs. 3,65,73,100/- paid on various dates under original agreement dated 09-02-1996 and appropriated as part consideration. (Rs. 25.00 Lakhs was agreed to be treated as earnest money to be adjusted at the time of payment of entire balance payable); b) Rs. 7,00,000/- payable on or before 15-10-1997; c) Rs. 7,00,000/- payable on or before 15-11-1997; d) Rs. 7,00,000/- payable on or before 15-12-1997; e) Rs. 16,44,250/- payable on or before 30-01-1998; The assessee followed project completion method for accounting purposes and as per ARs submissions, the project was completed in the year 1999. The assessee filed its return of....
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....eferred to letter dated 14-12-2004 at Page Nos. 1 to 3 of the Paper Book filed by him. The DR contended that, since the assessee is following project completion method, the profit arising from the sale of apartments is liable to be taxed in the year of completion i.e., Assessment Year 1999-2000. The assessee did not disclose the sale proceeds received from VGP in the Assessment Year 1999-2000 and instead treated the amount received as advance in the Balance Sheet. In the subsequent years as and when the flats were sold by VGP, the amount of advance was appropriated and treated as sale proceeds. The ld. DR further submitted that although the assessee claims that it is following completed contract method for recognizing the income, the stand of the assessee is contrary as the assessee is booking income from sales made by it during the Assessment Year 2000-2001 onwards though according to them, majority of flats were un-sold in that year. The ld. DR vehemently argued that the completed contract method is directly not applicable in the case of the assessee as the assessee is not into construction activity. Completed contract method is applicable to construction contract business wherei....
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....and take steps for the sale of the flats. Even as per the provisions of Section 54 of the Transfer of Property Act, 1882, no sale has taken place between the assessee and the underwriter. On the issue of completion of project, the AR submitted that the project was completed in the year 1999. The assessee made a request for the issuance of Completion Certificate to CMDA on 11-08-1999. The Completion Certificate was issued by the CMDA on 29-12-1999. The AR pointed out that the DR has placed reliance on the letter of Chartered Accountant dated 14-12-2004 which is at Pg. Nos. 1 to 3 of the Paper Book of the Revenue wherein it has been mentioned that the project was completed in the Financial Year 1998-99. The said statement is against the facts and documents on record as is evident from the notes to the accounts for the year ended 31-03-1999 which are at Page No. 40 of the Paper Book of the assessee. It has been categorically mentioned in the notes that the project 'Lake View Apartments' is shown as work-in- progress under the current asset schedule in the Balance Sheet and the advance money received is shown under current liabilities. The AR strongly supported the order of the CIT(App....
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....t (a liability or risk) in this way, 2) undertake to finance or otherwise support or guarantee (something). 3) Engage to buy all the unsold shares in (an issue of new shares) and 4) write below something else. The underwriter guarantees to take the responsibility of its own. In the instant case, a perusal of the underwriting agreement makes it clear that VGP (underwriter) has to pay the agreed amount in a phased manner to the assessee by January 1998. In lieu of the consideration received, the assessee has to complete the apartments and hand over the possession to the prospective buyers brought in by VGP. In the book of accounts, the assessee has shown the amount received from VGP in lieu of underwritten apartments as advance. The assessee is appropriating the amount shown as advance to sale in the year of execution of sale deed. The assessee has received the amount much prior to the date of execution of sale deed and delivery of possession of property. Whether the underwriter (VGP) is eventually able to sell all the flats or not will in no way affects the contract already entered by it with the assessee. The risk, responsibility and liability to sell the flats underwritten is o....
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....e power of attorney executed, is with the underwriter and not with the assessee. The Clause-20 of the supplemental agreement is as under: "20) After receipt of full consideration under this agreement the OWNER and BUILDER shall at the option of the UNDERWRITER execute and if necessary register an irrevocable power of attorney in favour of the UNDERWRITER or its nominee impowerring it to execute necessary documentation in favour of the nominee/s of the UNDERWRITER provided such power of attorney shall contain a stipulation as having been received by the OWNER and BUILDER in excess of the consideration fixed under this agreement". If viewed from another angle, if VGP brings any buyer of the flat and requests assessee to execute sale deed in his favour, the assessee is duty bound to get sale deed executed in favour of the prospective buyer and handover possession of the flat. In case the assessee refuses to do so, it shall be breach of contract between the assessee and underwriter. Clause-18 of the supplemental agreement (supra) specifically states that the underwriter shall have the right at any stage to insist the owner and builder (assessee) to arrange for execution and regis....