TaxTMI 
TaxTMI 
2021 (5) TMI 384
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....y, to delete the estimated profits of Rs. 2,09,95,330/- assessed under the head profits and gains from business by adopting percentage completion method. Notes: (i) Property means co-ownership of the land and building thereon, know as Raj Mahal Juhu, Mumbai and on redevelopment would consist of 8 Floors and 2 Row Houses plus Parkings, out of which the appellant is entitled for 3 Flats on the 4th to 6th Floor (Each Floor consist of One Flat). (ii) The amount vide "c" is stated at Rs. 2,09,95,330/- after considering the effect of CIT(A) Order instead of Rs. 4,65,79,478/-assessed by the AO. 2. In the facts and circumstances of the case and in law, if the Ground No.l is decided against the appellant, then the CIT (A) ought to have directed the Ld. AO:- (a) that 33% of the appellant's share in the Property is a "capital asset" and accordingly, as per Section 45(2) of the Act the same be considered as converted into stock-in-trade on 7th August, 2007 (i.e. in the year ended 31st March, 2008), whereby the re-development activities had commenced; (b) to assess the difference between the fair market value (on 7th August, 2007) of 33%....
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....that the order of CIT (A) on these grounds be set aside and that of the Assessing Officer be restored. 4. Brief facts of the case are that the assessee Company is engaged in the business of Builders, Contractors, Construction, Engineers, Developers, Designers, Planners, Building Experts and Advisors and others. During the course of assessment proceedings, the Assessing Officer noted from the detail submitted by assessee that it is a co-owner of land and building of property known as "Raj Mahal", Juhu which is being re-developed. It was further claimed by assessee that share on the property was 49.15% of the total build up area. It was also seen that during the year under consideration, assessee has sold 3 flats for a consideration of Rs. 6,75,00,000/-, out of an aggregate consideration of Rs. 25,00,00,000/-, being assessee's share. Further, Assessing Officer noted that the assessee has mentioned that the percentage of the project is completed at 63.43%. The Assessing Officer noted that assessee has claimed that the said flats are its capital assets and due to pending transfer of flats there is no profit or gains which can be chargeable to tax under the head 'Capital Gain....
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....(e) Consequent to above, the assessee became entitled for 3 flats free from any encumbrances. Accordingly, the assessee agreed to sell these 3 flats along with its right, title and interest in the undivided portion land by executing Agreement to Sell dated 31-12-2013.The total consideration in terms of the agreement was Rs. 25 crores and as against the same, it received till the year end Rs. 6.75 crores. (f) The redevelopment of the property was not completed upto 31.03.2014 which Includes the units to be provided to the tenants on settlement of their claims, 3 flats agreed to be sold by the assessee and the other units owned by the co-owners. 7. Thereafter the assessee contended that in the facts of the assessee's case in the absence of organised activity for acquiring properties and selling them for earning profits, the sole transaction of acquiring property for redevelopment, which was held as capital asset, cannot be regarded as business within the meaning of section 2(13) of the Act but would constitute capital asset within the meaning of section 2(14) of the Act. It was further submitted that in the notice it is stated that the assessee along with other shareholde....
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....d that the assessee's obligation to complete the said flats to the extent of bare-bone basis and then handover the possession thereof subject to receipt of full consideration. However, as upto the year-end i.e upto 31.03.2014, the construction of bare-bone structure was still in progress and consideration received is Rs. 6.75 crores as against total consideration of Rs. 25 crores. Further, the assessee is constructing the property not in the capacity as developer but as one of the co-owner and for other co-owners from whom their share of cost is/shall be re-couped. 9.1 Hence, gains on Sale of Flats can be brought to tax only on its transfer which has not happened as upto 31.03.2014. That being so, no income has accrued in the year under reference from entering into the Agreements to Sell of flats. Necessary details and submissions in this regard are also submitted vide our letter dated 10th November, 2016. It may also be noted that as upto 31.03.2016 neither conveyance deed has been executed for the transfer of these flats nor possession has been given to the buyers, as construction work is still in progress and as such upto 31.03.2016 also transfer has not happened. ....
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....ver permanent accommodation to Pushpa Properties Pvt. Ltd. (Tenant) for surrendering tenancy rights. (d) The entire process of redevelopment work i.e. obtaining permissions/ commencement certificate etc., is the responsibility of the assessee company and the cost is also to be borne by assessee. (e) Vide Clause 6 of page 6 of agreement, it can be seen that assessee is developer to the said redevelopment project and the rights to develop have been assigned to assessee as against assessee's claim that it is holding the property as an investment or capital asset and taxes will be offered as and when capital gain arises. (f) Vide Clause 21 of page 12 of agreement, it is seen that assessee has the right over FSI / TDR on the property in lieu of redevelopment of property. It is noteworthy to mention that assessee has an entitlement of the FSI/TDR as a builder fit developer of the property and not as a co-owner of the property. (g) Moreover, on perusal of 'Board Resolution of Directors of Trident Estate Pvt. Ltd. attached to the agreement (which is a part and parcel of agreement), it is seen that Board of Directors have resolved as under: ....
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....erred his 20.34% rights out of 33.33% to Pramod K Goenka and by gift deed. Pramod Goenka gifted his entire share of 20.34% to Bina P. Goenka and Yashvardhan P. Goenka (Co-owners in agreement)." The Assessing Officer observed assessee's affairs are very intricate and it is difficult to pierce the corporate veil. Nevertheless he found this a fit case for piercing of corporate veil. Accordingly the Assessing Officer made the impugned assessment as under :- "In view of the detailed discussion made above, the undersigned is of the firm view that assessee is carrying on business activity by taking up redevelopment project and the proceeds received from sale of 3 flats amounting to Rs. 25,00,00,0007- (being flat No.s 4, 5 & 6 exclusively allotted to assessee in the agreement) are nothing but revenue earned during the course of business activity. Accordingly, the receipts are taxed by adopting the percentage completion method as the percentage of completion of project is shown at 63.43% by assessee and the profit is estimated as under: Computation of income from business or profession: 63.43% of total consideration from 3 flats Rs. 15,85,75,000/- (Rs. 25,0....
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.... Rs. in crores. A. Details of Consideration Receivable on entering into Agreement to Sell dated 31. 12.201 3 1 Total Consideration 25.00 2 Consideration received upto 31.03.2014 6.75 3 % of Sale consideration received 27% B Details of Cost incurred and cost to be incurred for three flats 1 Total Estimated Cost to be incurred including Land Cost 21.69 2 Land Cost included in above 3.88 3 Total Estimated Construction cost, excluding Land Cost (1-2) 17.81 4 Land and Construction Cost incurred as on 31. 03.20 V: 28.16 Less: (a) Cost of construction re-couped from other co-owners (10.50) (b) Cost of construction pending to be re-couped from other co-owners (3.90) 13.76 5 Land Cost incurred as on 31.03.2014 3.88 6 Construction Cost incurred as on 31.03.2014 9.88 7 % completion as on 31.03.2014 including Land Cost (4/1) 63.43% 8 % of completion based on only construction cost incurred (6/3) 55.46% Learned CIT(A) was of the opinion that percentage comp....
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.... the year in which re-development activities had commenced. (b) Consequent to the above, in quantifying the assessment year under reference by applying percentage Completion Method, the fair market value of the appellant's share 33.33% share in the property should be considered as unadmissible deduction. For the purpose the date of conversion should be regarded as 7th August, 2007 whereby the redevelopment activities had commenced. (c) Accordingly, the difference between the fair market value of 33% of the appellant's share in the property and the indexed cost should be brought to tax under the head long term capital gains for the assessment year under reference to the extent of percentage applied in quantifying the profits and gains for the assessment year under reference. Note: Consequent to the above, the Additional ground No. 2 filed by letter dated 12th April, 2018 should be considered as cancelled and the Original Ground of Appeal No.2 should be read as Ground No. 3.3. It is humbly prayed that the reliefs as prayed for hereinabove and/or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of....
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....s complete to the extent of 63.43%, hence, the Assessing Officer has applied percentage complete method and computed the impugned gain to the assessee. 19. Learned CIT(A) principally upheld the action of the Assessing Officer. However, he has granted part relief by directing the Assessing Officer to make adjustment in the cost of the project. 20. We note that as regards the claim of the assessee that it is not a business venture but a capital asset of the assessee, the same is not based upon convincing material. The assessee's claim is that since inception the assessee has debited all cost of the project as investment and the Revenue has always accepted the same. We find that on the facts and circumstances narrated above the assessee's plea that it is a capital asset and not a business venture has been rightly rejected by the authorities below. The detail of different agreement referred by the authorities below in their orders referred above duly corroborate this aspect. 21. Now we come to the issue of computation of gain. We note that it is undisputed fact that since inception the assessee has capitalised cost of redevelopment. In this regard we may gainfully refer to ....
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.... redevelopment along with land cost and capitalised the same in the balance sheet. In the present assessment year the assessee has received Rs. 6.75 crores against proposed sale out of its share of three flats out of total consideration of Rs. 25 crores. The authorities below have not disputed that the project is not complete. Further redevelopment is under progress. Final agreement has not been registered, and possession has not been passed over to the proposed buyers. Redevelopment cost in part is still to be recovered from other co-owners. In these circumstances we have to examine whether the Revenue can thrust upon the assessee's percentage completion method of accounting that also for the first time. We note that completed contract method and percentage complete method in the extant period were duly recognised method of accounting for construction project. In this regard we may gainfully refer to the decision of Hon'ble Supreme Court exposition in the case of CIT Vs. M/s. Bilahari Investment (P) Ltd. (Civil Appeal No. 1625 of 2008 vide order dated 27.2.2008):- "15. Recognition/identification of income under the 1961 Act is attainable by several methods of accou....
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....sing from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards. However, this section was not in existence and applicable in the assessment year 2014-15 which we are concerned with. Thus it is amply clear that percentage complete method and completed contract method were both acceptable method and accounting of construction contract in the impugned period. We note that the assessee has all along treated the said project as capitalised item and debited all the expenses to the capital account. This method has been accepted by the Revenue in the past. It is also undisputed that in the current year project is not at all complete. Redevelopment is still in progress. The assessee has also to recoup expenditure from other co-owners. Agreement to sale has not been registered, possession of the property has not been handed over. In these circumstances, assessee cannot be thrust upon percentage of completion method of accounting by the Assessing Officer. Hence, though we do not agree with the assessee that it is not a business project, we agree that t....