TaxTMI 
TaxTMI 
2023 (6) TMI 255
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....ces u/s.143 (2) and 142(1) of Income-tax Act, 1961 (in short "Act") were issued and served on the assessee along with questionnaire. In response to the notices, AR of the assessee attended and submitted the relevant information as called for. 4. During the assessment proceedings, while verifying the details submitted by the assessee, Assessing Officer observed that in the F.Y.2011-12 assessee has transferred its land purchased at a cost of Rs..201 Crores from M/s. Bombay Industrial Corporation in F.Y.2009-10 to Slum Rehabilitation Authority ("SRA") for a consideration in terms of Transferable Development Rights (TDR) of 16,86,083 sq. ft. The assessee has made a multipartite agreement between M/s Bombay Industrial Corporation, Assessee and SRA on 30.04.2011. As per the agreement, the project is proposed as per Clause 3.11 [under regulation 33(10)] of Development Control Regulation for Greater Mumbai, as per which assessee will convey the land to SRA and then construct tenements for Project Affected People as per Government directive and hand-over the constructed tenements to the Project Implementing Authority, viz. Slum Rehabilitation Authority. Assessing Officer observed that, i....
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.....) 8% 8,88,998 6. On completion the building & obtaining O.C. 8%- 8,88,998 7. Retention at the time of occupation to be released only defect liability period of 2Years is over. 2% - 2,22,250 Sub - Total (B): TOTAL CONSTRUCTION TDR 100% 1,11,12,477 GRAND TOTAL (A+ B) TOTAL TDR 1,27,98,560 7. On verification of Balance Sheet and Profit and Loss account and its schedules filed by the assessee, it was observed by the Assessing Officer that the assessee has not recorded any transactions in Profit and Loss Account and declared Rs..NIL profit of the business. On verification of the balance sheet, it was observed that the assessee has increased its WIP Account for Chembur site by debiting direct expenses such as purchases, labour charges, and by debiting administrative expenses such as financial expenses, selling and distribution expenses. The WIP for the year was declared by the assessee at Rs..21,75,00,546/-. The above said sum of WIP along with brought forward WIP of Rs..23,07,302,814/- has been reduced from the TDR sale declared at Rs..2,19,52,15,898/- and thus the closing WIP was declared at Rs..32,....
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....f MCGM. In lieu of this our company would get Transferable Development Rights ("TDR") from MCGM. This rehabilitation project was declared as a Vital Public Project by the Government of Maharashtra. iii) By Letter of Intent ("LOP") dated 31.3.2011 issued by SRA, our company is to construct 9002 tenements and other amenities to be handed over to MCGM through SRA free of cost for which following TDR would be allotted to the company:- A) LAND TDR Sq.meters Sq. Ft 1. Project Affected People Tenements 89,061.89 9,58,662 1,11,12,477 2. Buffer Zone Area 28,418.78 3,05,900 3. Amenity Portion 39,160.23 4,21,521 Total 16,86,083 (B) Construction TDR Total 1,27,98,560 iv) Simultaneous with the issue LOI dated 31.3.2011, a multipartite Agreement ("the Agreement") was executed between M/s. Bombay Industrial Corporation (as "Vendors"), our company (as "Developers") and the SRA (as 'Purchaser') and the SRA (as "Project Implementin....
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....ance cost carried forward. ix) It is important to state that after 27.07.2012, the company has not received any TDR. The said land being situated near HPCL and BPCL Refineries, they have taken serious objections to our project. Further, Public Interest Litigation involving our project is pending before the Hon'ble Bombay High Court. In view of these facts, the said project is couched in significant uncertainties at the moment. The copies of litigation filed by f) HPCL V/s. The Slum Rehabilitation Authority and Others including us is enclosed and (ii) Public Interest Litigation No. 140 of 2006 filed by Janhit Munch & Others V/s. MCGM, us and others - Volume-I & II enclosed. 2. Issue: In the letter dated 10/02/2016, you have raised the issue of method of accounting qua this project. While our company did not recognise any profit or loss during the year ended 31.3.2013, you have proposed to invoke section 145(3) to compute profit of Rs.52.58 crores, as worked out in the said letter. We seriously object to this proposal on the principles of accounting, among others, for the following reasons: 3. Submissions: 3.1 We have followed correct ....
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....t is still under construction. Even the objective underlying the rehabilitation scheme is to create additional housing stock of rehabilitation tenements, which is to be utilized for rehabilitating project affected persons of vital public projects of the Government or its agencies (please refer Recital Clause (C) of the Agreement]. The arrangement between our company and the SRA is therefore for creating additional tenements for housing for project affected people. Transfer of the said land to the SRA is only a preliminary step in that direction; and not the end in it. Hence, the Land Component of the TDR cannot be separated from the main construction project for measuring any profit or loss from the same. Further, and more importantly, as per Clause (17)(a) we are entitled to only 20% of the total Land TDR on execution of the Agreement, while as per Clause 17(b) & (c), the balance 80% is linked to construction of tenements. This clearly demonstrates that both these components are inseparable and cannot be considered in isolation independent of each other. Therefore, any profit or loss of this project should be recognised only upon completion of the project as a wh....
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....on Method for TDR sales. It was held as follows: "We have heard the rival submissions and perused the relevant material on record. The only issue before us is whether TDRs should be taxed on receipt basis as has been done by the Assessing officer or in the year in which the project is completed. The assessee is admittedly following mercantile system of accounting and the project completion method has been approved by the Ld. CIT(A) as well. The Mumbai Bench of the Tribunal in Chembur Trading Corporation (supra) vide its order dated 21.01.2009 has held that when the assessee is following project completion method, sale proceeds of TDRs should be included in the year in which the project is completed. Similar view has been taken by another Bench of the Tribunal in ITO Vs. Sudhir V.Shetty in ITA No.4687/Mum/2006, copies of these two orders have been placed on record. The Ld. DR, after going through the above orders candidly admitted that the facts and circumstances of the instant appeals were mutatis mutandis similar. In view of these decisions it has become apparent that the sale of TDRs is to be accounted for in the year in which the project is completed and not when ....
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.... is not clear. The AO has not given any finding regarding the year of completion of the project. Though the CIT(A) has held that the project was completed in asst. yr. 2007- 08, he has not given any basis of such finding not any such specific plea was taken by the assessee before CIT(A). This aspect therefore requires verification. The construction of the transit buildings was only a part of the project. The actual year of completion of the project is required to be verified. We therefore, restore this aspect to the file of the AO for fresh order. In case on verification it is found that the project was completed in 2007-08, AO will compute the income from project after taking into account entire expenditure and the receipts from the beginning of the year including the TDRs as directed by CIT(A). However, in case the project is not found complete, the AO will set off TDR receipts against work in progress and no income will be assessed on account of TDR receipts separately. We direct accordingly." [Emphasis supplied] 5. In view of above discussion, we respectfully submit that the accounting treatment given by our company to the sales proceeds of Land TDR by deducting the sa....
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.... In return, assessee has received TDR from SRA. The cost of Land TDR is the cost of land purchased and expenses incurred on development of land. On acquisition of Land TDR, it can be said to be held as stock in trade and the cost of said TDR is the cost of land and the cost incurred on development of such land. By selling the TDR held as stock in trade, the assessee is acting just like a trader and he proceeded to treat the profit sale of TDR as income of the assessee after adjusting the cost of land and observed as under: - "7.3 As per the multipartite agreement, the assessee got privilege and the right in construction of rehabilitation component. Such construction of buildings in the project commenced as per the direction of the SRA. In lieu of expenses incurred on construction of tenements/building of the project, the assessee will get TDR for sale in open market after commencement of work of construction of building in phased manner. In this process, the assessee is acting like a contractor and not a developer. As such, the assessee is not having any control over commencement of construction, allotment of residential tenements and the completion of whole project. ....
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....0/- 3. Cost of 1sq ft and land TDR Rs. 1192.11/- 4. Land TDR sold during the year 10,85,664 sq ft. 5. Sale price of land TDR for the year 2,19,52,15,898/- 6. Balance land TDR with the assessee company 4,21,629 sq ft. 7. Cost of balance land TDR Rs. 50,26,28,147/- (421629* 1192.11) 17 Accordingly profit on sale of land TDR is determined at Rs.69,88,78,747/- and same is treated as income of the assessee for the AY. 2013-14." 10. Further, Assessing Officer observed that assessee has debited interest expenses under the head "Financial Expenses" and adjusted in work-in-progress account as under: - Finance expenses: Interest account Rs..62222922/- Interest received on FD Rs..1832412 Rs..,60390507 11. He observed that interest payments were made to secured loan from bank, convertible debenture and to unsecured loans from parties not related to the assessee. Further, he observed that assessee has utilized the interest bearing fund/business fund for advancing it to its associate concern. The closing balance of advances given to associates concern is as under: - To Director Rs.....
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....ove paras. In the assessee case, advances given to its related parties and investment made is over and above of interest free fund available with the assessee. Hence, the decision relied upon does not help the assessee. 13.8 Considering the above facts, interest paid and debited/claimed against income amounting to Rs. 6,22,22,922/- is disallowed and added back to total income of the assessee. Since the assessee filed inaccurate particulars of income and thereby concealed particulars of income, penalty proceedings u/s 271(1)(c) is hereby initiated." 14. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions before him. After considering the detailed submissions Ld.CIT(A) allowed the appeal of the assessee, observing as under: - "4.3 I have considered the A.O's order and the submissions made by the appellant. I find that the appellant has followed the project completion method which is a recognized method of accounting. Further, the appellant has entered into agreement with Slum Rehabilitation Authority (SRA) to construct certain numbers of residential tenements, balwadis, welfare centres, and other amenities as approved by....
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.... AO was not correct in rejecting the method of accounting followed by the assessee and making an assessment u/s.144 r.w.s 145(3) of the Act. It follows that the profit on sale of TDR is to be assessed in the year of completion of the project. Accordingly, the addition of Rs.69,88,79,747/-, made by the AO by treating the profit on sale of TDR as income for A.Y. 2013-14, is deleted. The AO is directed to compute the income for A.Y.2013-14 by following the project completion method as done by the appellant. Ground No.1, 2, & 3 taken by the appellant are Allowed. .... 5.2. I have considered the AO's order and the submissions of the appellant. The AO has held that the TDR advances was in the nature of business fund and could not be treated as interest free fund mainly on the ground that if the assessee was not able to arrange the TDR, then it has to pay heavy compensation and the same was claimed as a business loss. This view of the AO is not found to be correct since the nature of TDR advance is like any other advance received in the course of business and since interest is not chargeable on such advance, it has rightly been considered as part of interest fr....
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....nds available and that no evidences was furnished to prove the nexus of advance out of TDR advance." 16. At the time of hearing, Ld. DR brought to our notice findings of the Ld.CIT(A) at Page No. 17 of his order and he submitted that assessee has received two types of TDRs as per the Tripartite agreement. Assessee has transferred all the rights over the land to the SRA, accordingly, TDR received on the land has to be recognized as income of the assessee and with regard to TDR received for construction of the property, the assessee is following the of project completion method of accounting, accordingly, it can follow the procedure. Therefore, he submitted that the land TDR received by the assessee which has reached finality i.e. 20% of the TDR amount. Ld. DR submitted that Assessing Officer has treated the entire TDR as income of the assessee. However, Ld.CIT(A) has come up with the proposition that the TDR received by the assessee for land is separate and for construction is separate which itself is not proper. Therefore, he submitted that the above finding of the Ld.CIT(A) is against the accounting principle followed by the assessee. He submitted that TDR are accrued to ....
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....lotted to the Respondent: • Pursuant to the LOI dated 31.3.2011, a Multipartite Agreement ("the Agreement") was executed on 30.4.2011 between M/s. Bombay Industrial Corporation (as "Vendors"), the Respondent (as "Developers") and the SRA (as "Purchaser') and the SRA (as "Project Implementing Authority") setting out the terms and conditions for development of the said land in accordance with the LOI dated 31.3.2011. Clause (3) and (4) of the Agreement provide for consideration in the form of TDR to be allotted to the Respondent described "Rehabilitation Component" and "Land Component" as respectively for the obligations undertaken by the Respondent in implementing the rehabilitation scheme at the said land. • The aforesaid LOI was amended from time to time by several supplementary LOIS, the last being LOI dated 16.6.2012, which modified the no. of tenements to be constructed by the Respondent to 8,399 and also other amenity tenements as per Clause (21) thereof. • Clause (7) of the Agreement provides that the Respondent shall be entitled to the benefit of TDR in the ratio of 1:1 in respect of the Land Component from the SRA, and the SRA will....
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....the Order dated 06.02.2017, upheld the Respondent's stand. No further appeal was filed against this order of CIT(A) before the Hon'ble ITAT. (A) LAND TDR Sq. Meters Sq.Ft Project Affected People Tenements 89,061.89 9,58,662 Buffer Zone Area 28,418.78 3,05,900 Amenity Portion 39,160.23 4,21,521 Total 16,86,083 (B) Construction TDR 1,11,12,477 Total 1,27,98,560 Date of Release Date of Receipt Nature of TDR TDR in Sq. Meters TDR in Sq. Ft. 18.5.2011 16.9.2011 PAP Tenements- part 17,810.00 1,91,706.84 18.6.2012 16.7.2012 Buffer Zone Area 28,418.78 3,05,899.75 26.6.2012 27.7.2012 PAP Tenements- Balance 71,251.89 7,66,955.34 Total 1,17,480.67 12,64,561.93 Submissions: 1. Project Completion Method (PCM) is a recognized meth....
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....RC in phases is to facilitate the developer to raise finance and construct tenements within the agreed time limit. The basic and fundamental obligation of the developer is to construct the required number of tenements and other infrastructure amenities as per the Agreement as a part of Rehabilitation Scheme of the SRA. Therefore, revenue from sale of Land TDR can be assessed only upon completion of the project, and not when the project is not yet taken off due to the pending litigation. 2.2 The Agreement dated 30.04.2021 (pp. 78-115 of PB) read as a whole, would show that it was a composite agreement for transfer of the land and construction of tenements/infrastructure facilities on the land. Recital 'B', "C', 'D' and Clause (3), (7), (8) of the Agreement shows this fact. Clause (9)(ii) of the Agreement reads as under- "TDR in respect of the said Land Component which is declared to be part of the approved SRA project in this Agreement;" Clause (12) of the Agreement reads as under- "The SRA confirms that this scheme is for erecting of housing stock of rehabilitation tenements for rehabilitation project affected persons affected....
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....ed with, observed and performed and the SRA shall not convey this land to anybody unless and 2.3 All the above provisions, stipulations and conditions clearly establish the inextricable, inseparable and organic nexus between the transfer of the said land and construction of tenements. It would be erroneous to consider transfer of the said land as a separate, independent and standalone transaction between Respondent and SRA, de hors the overall composite project undertaken by Respondent. Transfer of the said land to the SRA is only a preliminary step in that direction; and not the end in it. Clause (2) of the Agreement for Sale dated 5.2.2010 [p.139 of PB] entered into by Respondent with Bombay Industrial Corporation shows its clear intention to develop the said land under a scheme of SRA etc. It was never the intention of any of the parties to the Agreement to consider the land transfer as an independent transaction; it is always considered and intended as an integral part of the overall rehabilitation project. 2.4 Further, the Ld. AO also erred in not appreciating that until the end of the year under appeal, Respondent did not receive total TDR of Land Component.....
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....CIT vs. Shri. Sudhir V. Shetty (Bombay High Court - IT Appeal No.6159, 6160 & 6161 of 2010) [pl refer pp.2-3 of Compilation of Case Laws] c) ACIT vs. M/s. Videocon Atithi Shelters Pvt. Ltd. (ITA No. 3496- 3499/Mum/2009)[pl refer pp.11-13 of Compilation of Case Laws] d) ACIT vs. Skylark Build [2011] 48 SOT 306 (Mumbai)[pl refer pp.4-8 of Compilation of Case Laws e) M/s. Pushpa Construction Co. vs. ITO (ITA No.193/Mum/2010) [pl refer pp.23-25 of Compilation of Case Laws] 3. Impact of Accounting Standard-9 (AS-9) on Revenue Recognition: AS-9 pronounced by the Institute of Chartered Accountants of India lays down the accounting standard for recognising revenue by an enterprise. As per AS-9, revenue is to be recognised when significant risks and rewards stand transferred between the parties. Further, the revenue can be recognised only when there is no significant uncertainty about its ultimate collectability. Having regard to the nature of the project under execution, it cannot be said that Respondent has transferred any significant risks of the project to SRA when land is transferred to it, while construction of tenements, which is the basic....
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....on that the assessee has utilised interest-free funds for the purpose of financing non-business purposes. Reliance is placed on decision of Hon'ble Supreme Court in CIT vs. Reliance Industries Ltd. [2019] 410 ITR 466 and Hon'ble Jurisdictional High Court in CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340. It is further submitted that merely because the TDR Advances were received in the course of carrying on business cannot convert them into interest-bearing, when factually, they are not so. The claim of compensation that would be payable on non-delivery of TDR as business expenditure is to be considered on its own merits and the claim of such expenses can alter the fact that the TDR advances are interest free. Thus, TDR advances received are fundamentally interest-free funds available to the Respondent about which there can be no dispute. Reliance is placed on the order of Ld. CIT(A) on this issue. In view of above, the Ld. CIT(A) had correctly, based on the facts and also in law, deleted the disallowance of interest paid of Rs.6,22,22,922/-. Without prejudice to the above, the Respondent further submits that the Ld. AO erred in adding the sum o....
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.... project undertaken and cannot be treated independently of the total project for the computation of the income by relying on the decision of the CIT v. Chembur Trading Corporation (I.T. Appeal No. 3179 of 2009). Accordingly, he gave a direction to the Assessing Officer to accept the method of accounting followed by the assessee. 23. We observe that Hon'ble Jurisdictional High Court in the case of CIT v. Chembur Trading Corporation (supra) has held that in this case method of accounting followed by the assessee is completion of project and has offered the income received on sale of TDR in the subsequent assessment year and the same has been duly assessed. In these circumstances sustaining the addition in the assessment year in question does not arise. 24. Further, we observe that the Coordinate Bench decided the issue in ITO v. Chembur Trading Corporation in ITA.No. 2593/Mum/2006 dated 21.01.2009 for the A.Y. 2000-01 and held as under: - "The Tribunal noted that the agreement was a composite agreement for handing over land for Expressway and also for construction of tenements and shops by the assessee on land belonging to it. The Tribunal also noted that the entir....