TaxTMI 
TaxTMI 
2014 (10) TMI 294
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....of immovable property does not take place without execution and registration of Sale Deed. (iii) The Ld. CIT(A) erred in holding that the buyer of plot was entitled to alienate any right , title interest or benefits in the said plot in favour of any person without appreciating that the letter of offer of allotment was not transferable. (iv) The Ld. CIT(A) grossly erred in concluding that signing of letter of offer of allotment enabled the buyer to possession and enjoyment of the plot and the plot stood transferred to such buyer ignoring the fact that no such right was transferred to the buyer at that point of time and the letter was only an offer subject to certain conditions fulfillment of which was crucial to transfer of possession and ownership. 2. The issue arising in all these appeals are on the charge by the Assessing Officer that the assessee company is following mercantile system of accounting and therefore, it was required upon the assessee company to recognize sales, on handing over the possession of the plot of land i.e. the date of letter of allotment. In the opinion of the Assessing Officer the assessee company has not rec....
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..... 2.2 The Assessing Officer has further observed that the assessee also collected various amounts from the buyers towards development of plots which included fencing, leveling of the land, rubble filling, bore well drilling, bush cleaning, terracing, and pitching by stones and rubble and provision of access road. It was found that the buyer of the plot also had the liberty to prepare the maps and designs of the development of his plot. The development could be carried out either by the assessee for the buyer or the buyer had the choice of appointing anybody to do the development of his plot. Citing an example, it is highlighted by the Assessing Officer that the impounded material showed that in case of Plot No. D148/149A belonging to one Shri Cllandrakant Mokate, the possession of the property was handed over to him by the assessee and the buyer had also prepared the drawing for the shed that had to be erected on the land. The Assessing Officer emphasized that the plot holder enjoyed the rights over the property immediately after booking amount was paid and the schedule of payment was decided between the assessee and the plot holder. According to the Assessing Officer, when conf....
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....for the A.Y. 1997-98. The assessee is also stated to have furnished letters from certain plot holders stating therein that legal rights over the property were not handed over to the buyers nor the possession has been given to them. 3. Meanwhile, certain enquiries were carried out by the Assessing Officer with the buyers of the plots at the project under reference, namely, Girivan Project. It was found by the Assessing Officer that certain plot owners in the said scheme, numbering about 250, had formed an Association which was registered under the Society's Registration Act, 1860. In response to Summons issued by the Assessing Officer to the said association one Shri Arun Vinayak Deshmukh, Vice President of the said society attended before the Assessing Officer, whose statement was recorded by the Assessing Officer. In his statement, operative part of which is extracted by the Assessing Officer in the assessment order, Shri Deshmukh, explaining the process of acquiring the plot in the project, reportedly stated that the development of the plot was carried out by the assessee company on the respective plots on behalf of the plot holders and the plot holders were also allowed t....
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....ny but would show absurd results. Further, claiming that the booking amount is also inclusive of development of project also. It was contended that even presuming that the booking receipts were to be considered as sales, then corresponding expenses towards project development which was capitalized and not claimed as revenue expenditure, ought to have been allowed. Further, responding to the show cause notice issued by the Assessing Officer, the assessee also questioned the validity of the statement of Shri Arun Deshmukh stating that the same was not supported by any evidence besides claiming that the plot No.D-47/A-3 cited by the Assessing Officer did not belong to Dr. Chaturvedi as cited by the Assessing Officer. 4. The learned Assessing Officer, however, relying on the various documents gathered during the survey and also relying on the statement of Shri Arun Deshmuk stuck concluded that the assessee handed over the possession of the property and rights of effective enjoyment of the said property to the buyers immediately after entering into the letter of offer of allotment and decision of schedule of payment. It is also noted by the Assessing Officer that the assessee has bee....
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....re given have not been registered, the transaction would not qualify as sale because the risks and rewards are not transferred to the buyers legally, the Assessing Officer mentions that there is no provision in the income tax Act saying that registration is compulsory for the purpose of transfer/sale of immovable property. According to him, in such a scenario, the concept of sale of immovable property has to be gathered from section 54 of the transfer of properties Act 1882, according to which the most important and material to the transfer is the intention of the parties. It is emphasized by the Assessing Officer that properties do not necessarily pass on as soon as the Instrument is registered, for, the true test is the intention of the parties, while registration is prima facie a proof of an intention to transfer, but it is no proof of an operative transfer, if there is a condition precedent as to the payment of consideration. In this context, the Assessing Officer has placed reliance on the decision of the Madras High Court in the case of Kasturi (D) Vs. CIT (2001) reported in 251 ITR 532, where the Court held that even in absence of registration where possession is delivered i....
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....07 07-08 08-09 Sales of quantified 87,51,230 73,45,173 1,64,22,842 1,97,96,405 5,35,44,915 4,43,18,258 Add: Closing 85,25,093 86,88,972 89,50,665 86,17,757 99,56,341 1,05,39,518 Less: Opening 82,79,324 85,25,093 86,88,972 89,50,665 86,17,757 99,56,341 Gross Profit 89,96,999 75,09,052 1,66,84,535 1,94,63,497 5,48,83,499 4,49,01,435 Add: Other 35,64,555 53,22,519 37,35,476 64,06,134 61,41,069 88,25,789 Less: Expenses as per P & L A/c 96,97,937 91,49,453 1,04,58,789 1,51,68,786 1,57,40,110 1,45,98,081 Net Profit 28,63,617 36,82,118 99,61,222 1,07,00,846 4,52,84,458 3,91,29,143 The above exercise is done by the Assessing Officer mainly on the two reasons - i. Buyer gets effective possession or right of enjoyment of the property on receipt of Letter of Offer/Allotment. ii. As per provisions Sec. 2(47) of Income Tax Act any transaction which has the effect of transferring or enabling the enjoyment of the immovable property. 8. The assessee challenged all the reframe assessment by the Asse....
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....sing Officer is that all the rights associated with the ownership of the plot were transferred to the buyer at the time of signing the offer of allotment and therefore the revenue from sale of plots has to be recognized in the year of offer of allotment notwithstanding the position that the sale consideration was being received in installments spreading over a period of two to four years. As already mentioned, the company was engaged in the business of acquiring the land, developing the land into plots of different dimensions and selling it to the interested buyers. Therefore, purchase and sale of land during the years is an adventure in nature of trade and the land in question constitutes stock-in-trade and the income there from is business income as admitted by the appellant. In fact, the income from purchase and sale of land was brought to tax under the head 'Income from business' by the Assessing Officer. The provisions of section 2(47) are applicable only in case of capital assets and under section 2(14), capital assets do not include stock-in-trade. Therefore, as submitted by the Ld. Counsel, provisions of section 2(47) are not applicable to the transactions in questi....
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....he facts of the present case are now tested vis-a-vis these criteria laid down in AS-9. a) Effective control of the plots transferred and possession of the plots: 6.1 The contention of the Ld. Counsel for the appellant in this regard is that exclusive possession is not given to the buyers at the time of signing of 'letter of Offer of allotment' of plot and the company retains full and effective control of the ownership of the land at all the times until the Sale Deed is executed. This criterion has to be examined with reference to the terms and conditions of agreement entered between the parties involved in the transaction. It is therefore appropriate to refer to the following terms and conditions of the letter of Offer of allotment as mentioned at page 3 of the assessment order: You have been given permission to use the same, subject to and against the performance of the terms and conditions of this Letter of Offer of Allotment and the rules and regulations of the Project as under:- a. You will use the plot for horticulture, afforestation, plantation, floriculture an....
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....get the possession or enjoyment over the property by virtue of the letter of offer of allotment, Mr. Deshmukh clarified that that the contents of the said letters were drafted by the company and that even the signatures of the buyers were obtained by fraudulent means. The statement of the Vice-President of the plot owners Association clearly shows that the effective possession of the property was handed over to the buyers along with the rights of enjoyment of the property soon after signing the letter of offer of allotment. As regards the claim of not granting of opportunity for cross-examination of Shri Deshmukh, it is to be noted that the right to cross-examination is not an absolute right and the right of hearing does not include a right to crossexamine. Right to cross examine the witness who made adverse report is not an invariable attribute of the requirement of the dictum 'audi alteram partem'. The principles of natural justice do not require formal cross examination. Formal cross examination is a part of procedural justice and is governed by rules of evidence and it is a creation of Court. Therefore, it cannot be laid down as a general proposition of law that the Ass....
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....on given to the buyers under the letter of allotment is not exclusive possession as claimed by the appellant, it is to be noted that the possession need not necessarily be the sole and exclusive possession of the buyer for recognition of income from sale of plots. So long as the buyer is, by virtue of the possession given, enabled to exercise general control over the property and to make use of the property for the intended purpose, the mere fact that the appellant has also the right to enter the property to oversee the development activity in the project or to ensure performance of the terms and conditions of offer of allotment does not take away the rights of the buyer acquired under the letter of allotment. If the contention of the appellant is accepted, there is every possibility of deferring the last installment of a small amount to a distant date, and even if small amount remains to be paid and the buyer fails to pay, leading to a dispute between t parties, the transaction cannot be said to have been effected and the recognition of income from the transaction may be indefinitely postponed. There is a also possibility of the appellant with the connivance of the buyers postponi....
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....furnishing of necessary proof that the buyer is a farmer is a mere formality to comply with the land revenue laws and it has nothing to do with the activities that are carried on by the plot holders on the land nor does it affect the rights already acquired by the buyer. As long as the allotment is in operation and not cancelled, the owners continue to enjoy such rights in the plot allotted. It is common knowledge that risk and rewards are also associated with any agreement executed between the parties. It is only after understanding the whole scheme of property development of the developer; any buyer will enter into an agreement being fully aware of the risk and rewards associated with the agreement and purchase a plot. So long as the buyers abide by the terms of agreement, which are legally enforceable by both the parties, the appellant transfers all 'significant risk and rewards' to the buyers that very moment agreements were signed by both the parties. It is also settled legal position that legal ownership of land and execution of sale deed are not necessary for exploitation of land. The booking and allotment of plot to a buyer, taking possession of the property by the buye....
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....0 and 11 of AS-9 for the recognition of revenue in the year of allotment of plots have been fulfilled in respect of the transactions in question. Further, as rightly pointed out by the Assessing Officer, the appellant has been following the mercantile system of accounting wherein the revenues are to be accounted as and when they accrue and expenses are to be considered as and when the liability to incur the same arises. In accrual system of accounting, receipt of total consideration is not material and what is relevant is right to receive the consideration from sale of property. In the present case, the letters of allotment are in the nature of agreements of sale and the buyers were enabled the enjoyment of the rights over the property by virtue of the letter of allotment. The right to receive the sale consideration has accrued to the appellant soon after signing letter of allotment and therefore income from the transactions ought to have been recognized by the appellant in the respective years of allotment of plots to the buyers. At this juncture, it is relevant to refer to the following observations of Punjab & Haryana High Court in the case of Dhir & Co. Colonisers (P.) Ltd repo....
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....accepted method of recognition of income in the earlier years, the same claim should be allowed in perpetuity without examining whether there is any change in the factual and legal position vis-a-vis the claim in a particular year. In this context, it may be relevant to refer to the following observations of Apex Court in the case of British Paints India Ltd (188 ITR 44) It is not only the right but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and the correct income can be deduced therefrom. It is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. There is no estoppel in these matters, and the officer is not bound by the method followed in the earlier years. Therefore, just because a particular system of accounting had been consistently followed and the correctness of which was not questioned in the earlier years, it is not correct to say that the AO is bound to accept the system of accounting regularly employed by the appellant ev....
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....AN of the assessee had formed an Association by registering the same under the Society's Registration Act, 1860 but nowhere it is a stated or brought on record that in respect of how many plot owners the registered sale deed were executed and possession was given. The Ld. Counsel referred to the Paper Book Compilation more particularly Page No. 83, where the copy of the letter of allotment of one Mr. Arun Pangarkar dated 26-07-2002 is placed. He submits that the letter of allotment is issued on the letter head of assessee company and nowhere it is mentioned in the allotment letter that the buyer has been given the possession. He referred to the said copy of the allotment letter and submits that it is clearly mentioned that the timely payment is essential of the contract. He submits that even if the buyer fails to pay two installments as per letter of allotment the booking of the plot will be cancelled. The allotment letter is nothing, it is one sort of the booking of plot. He referred to the clause where the cost of the plot is mentioned in the allotment letter and schedule of the payment by the buyer. As per allotment letter, he submits that so far as the allotment letter issu....
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....fter developing the infrastructure like road, water provision etc. made the plots and offer the same for sale. On the basis of the survey action u/s. 133A the Assessing Officer issued the notice u/s. 148 to the assessee on the charge that for these six assessment years the assessee has not properly declared the income. We find that the Assessing Officer has re-casted the entire profit and loss account of the assessee which is merely basis of the allotment letter issued by the assessee to the prospective buyers. 12. We have gone through the allotment letter which copy is placed on record. In our opinion both the authorities below have not at all understood the nature of the said allotment letter. The allotment letter is issued on company letter head. On perusal of the contents of the allotment letter, we find that it is like a booking letter accepting the offer of the buyer. Nowhere there is mentioned in the allotment letter that the possession of the plot is given to the prospective buyers. The assessee has filed the copy of allotment letter dated 26-07-2002 issued to one Mr. Arun Ramdas Pangarkar. As per the allotment letter said Mr. Arun Ramdas Pangarkar has applied for the al....