TaxTMI 
TaxTMI 
2025 (8) TMI 1413
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....oss appeals ITA Nos. 4296 & 4297/Del/2016 with ITA Nos.4387 & 4388/Del/2016 (for AYs 2012-13 & 2013-14), are directed against the CIT(A), Ghaziabad's twin orders; both dated 12.05.2016 in case no 025/2015-16/GZB for AY 2012-13 and case no. 196/2015-16/GZB in latter assessment year respectively. The latter's appeal ITA No. 7291/Del/2018 (for AY 2015-16) arises against the CIT(A), Ghaziabad's order dated 08.08.2018 in case no. 364733251150118. Relevant proceedings in assessment years 2007-08 to 2009-10 and 2011-12 herein are under section 147 r.w.s. 143(3) and for the latter three assessment years 2012-13, 2013-14 and 2015-16 are under section 143(3) of the Income-tax Act, 1961 (in short "the Act"), respectively. As against this, the latter batch of twelve cases i.e. assessee's and Revenue's six cross appeals each i.e. ITA Nos. 4609 to 4614/Del/2016 and ITA Nos. 4791 to 4796/Del/2016 for assessment years 2007-08 to 2012-13; are directed against the CIT(A), Ghaziabad's common order dated 29.06.2016 in case nos. 341 to 346/2015-16/GZB; respectively, in proceedings under section 221(1) of the Act. Heard both the parties at length. Case files perused. 2. The Revenue's "lead" qua....
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....ritten submissions as under: - Clause No.4.4 of the Original Development Agreements "That at the time of signing this Agreement, the First Party has allowed the Second Party to enter upon the schedule property to carry out measurements, surveys, prepare the scheme of development, preparation of building plans for construction of independent floors/dwelling units/flats/houses/apartments etc. However, the legal possession of the schedule property shall remain with the First Party." Clause 8.6 of the Original Development Agreements "That the Sale Deeds in respect of the independent floors/dwelling units/flats/houses/apartments so marketed/sold shall be got registered in favour of the purchasers/allottees/members/nominees/transferees on or before handing over possession of each unit by the First Party and the Second Party shall signs the same as the Confirming Party. The stamp duty, registration charges, out of pocket expenses etc. shall be borne by the prospective buyers." No authority is needed in support of the proposition that profit on sale of stock in trade u/s 28 of the Act can be assessed in the year of sale irrespective of the advan....
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.... our considered view, such profit cannot be taxed. Unlike in a case of a capital gain which arises on parting the capital asset at the first stage itself, it is a case of business transaction which is completed when the rights so acquired by the assessee are exercised; none can make profits by dealing with himself, as is the settled legal position in the light of the settled legal position in the case of Sir Kikabhai Premchand Vs. CIT [(1953)) 24 ITR 506 (SC)]. It is for this reason that we are unable to uphold the action of the authorities below on the facts of this case. No matter how reasonable is it to assume that the assessee will make these profits, these profits cannot be brought to tax at this stage. That is what the legal position, for the detailed reasons set out above, is. 20. In our considered view, therefore, the authorities below indeed erred in bringing to tax the anticipated business profits on assessee's entering into a development agreement with Menorah Realties Pvt. Ltd in respect of the land held by the assessee as stock in trade. The impugned addition of Rs. 17,28,81,276 is thus deleted. Second, the amount received by the Appellant company....
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....ns the facts are similar to that of the appellant. Third, the amount of refundable/non-refundable security deposit in terms of the Development and Supplementary Development agreements has been duly accounted for as Income in the year of transfer and the non-refundable security deposit has been adjusted in the dues receivable by the appellant company in terms of the clauses of the development and 1 supplementary developments agreements. The same has been stated by the appellant in the written submissions as reproduced below: The Assessing Officer has wrongly interpreted the Clauses in Supplementary Agreements for all the three Projects which were duly accepted by the Developer (PDL) and the appellant Company and was not dislodged by the Assessing Officer and the appellant company has strictly followed all of the amended clauses executed in the Supplementary Development Agreements in respect of the security deposits received by it as referred as under: - a) Exotica Project-Clause No.1(a), 1(b) sub clause (i), (ii), and (iii)- PB Page No. 122-123 and Clause 4(i), (ii) and (iii). b) Regalia Project-Clause No.1 and Clause 4 sub clause (i), (ii) and (i....
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....sis) being followed by them since inception which fact has been duly accepted by the Department till date and even in the Assessment orders under appeal the A.O has clearly mentioned the Method of Accounting as "Mercantile" in all his assessment orders. The appellant has stated as under:- * The Appellant Company right from the inception has been regularly following Mercantile Method of Accounting in respect of its Business Income. * This method has been duly accepted in all the assessments made upto and including the Assessment year 2012-13. * The Appellant being a Company under the provisions of the Companies Act, 1956 to which it is governed it can only follow Mercantile method of accounting. * According to the provision of section 145 of the Act as substituted by Finance Act, 1995 w.e.f. 01-04-1997 an assessee can follow either 'Cash' or 'Mercantile' method of accounting regularly employed by the assessee. As a result thereof 'Mixed' or 'Hybrid system of accounting which an assessee could employ upto assessment year 1996-97 was done away with. * There was no rejection by the Assessing Officer of th....
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.... In support of the above contention reliance is placed on following decisions: (d) (2008) 307 ITR 202 (SC) in the case of Realest Builder and Services Pvt Ltd. Your Honour's kind references is invited last para of the judgment which speaks for itself. PB No.2 - Page no. 126-129 (e) (2013) 219 Taxman 362 (Allahabad) CIT vs. Kisan Cooperative Sugar Factory Ltd. Pilibhit. Your Honour's kind attention is invited to section para 9 and 10 of the order-PB No.2 Page no.130-132 (f) 2012 (5) TMI 148 ITAT Delhi in ITA No. 4085 (Delhi) 4009 dt. 20-04-12 in Dy. CIT Circle 1 (1) vs. Malibu Estates Pvt. Ltd. PB No.2-page 133-145 Method of Accounting Treatment of advance received from customers as sales - Application of AS-7 to construction contractors and to builder or real estate developers. The findings of the Assessing Officer for including the sale proceeds of the plots/floors in respect of which assessee has received advance. However, sale deeds have not been registered in this year. Now, the case of Assessing Officer is that merely on account of non-registration of sale deed, it cannot be construed that transaction has not been completed between t....
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....) 2011-12 Business Income - 3,76,74,480 In the result, appeal of the assessee is partly allowed." 4. We now advert to the basic relevant facts common in all the instant cases. The assessee herein, namely, M/s. Devilal Aluminium Industries Pvt. Ltd. is a company manufacturing aluminium utensils. It admittedly owned and possessed the three land parcels/capital assets herein. It had executed as many development agreements with the above developer, namely, Regalia & Exotica (both dated 28.10.2004) and Sterling projects. We make it clear that Assessment Year 2004-05 does not form subject matter of our adjudication herein. And that it was thereafter in the relevant previous year 2006-07 i.e. 28.09.2006, 26.07.2006 and all followed the corresponding supplementary agreement regarding Regalia (dated 20.09.2006), Exotica (dated 14.06.2007) and Sterling (main agreement dated 26.07.2006); as the case may be, which are sought to be treated as involving "transfer" under section 2(47)(v) of the Act. There is no quarrel between the parties that the assessee had converted these three parcels of land earlier treated as capital asset(s) to stock in trade in financial year 2006-07 relevant....
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....o buttress the point that the said clause 4.4 itself makes it clear that the legal possession of the corresponding parcels of lands continued to be vested with the assessee only and the developer had been assigned a limited permission to enter upon the schedule property(ies) for the purposes of measurements, surveys, preparations of building, plants etc. strictly in tune with the agreement terms. Coming to clause 8.6 at page 36, learned counsel clarifies that since the title and possession of the assessee's land herein continued to be vested exclusively in its name, the developer/second party had to merely act as the confirming party, than the title holder. 10. We have given our thoughtful consideration to the Revenue's and assessee's foregoing vehement contentions. There is indeed no dispute between the parties that such long-term capital gains are assessable on accrual basis only. We reiterate that the sole substantive question before us as framed in the preceding paragraphs is that of applicability of section 2(47)(v) of the Act in the given facts of the case. We are of the considered view that the assessee's foregoing development agreement(s) nowhere amounted to transfer so ....
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....rrel between the parties qua the assessment of assessee's business income in assessment year 2015-16, that does not absolve it from getting assessed qua the corresponding capital gains or business income in assessment years 2007-08 to 2013-14 herein. We find no merit in the Revenue's instant arguments once again as there is no element of "transfer" noticed in the assessee's corresponding development agreements executed in assessment year 2006-07 pertaining to Regalia and Sterling projects and it's advances received in the intervening years could not be held taxable in absence of project completion or reasonable certainty(supra). It would indeed not be out of place to observe here that the instant issue of a development agreement being treated as a transfer in the past had caused genuine hardships and the legislature later on introduced section 45(5A) by the Finance Act, 2017 w.e.f. 01.04.2018 that subject to certain conditions of registration etc., such an agreement would not attract the long-term capital gains till completion of the project. So far as Revenue's endevour to assess the assessee's capital gains herein is concerned, we quote Balbir Singh Maini [2017] 86 taxmann.com 94....
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.... for the first time. 15. We reiterate in this factual backdrop that once it has already come on record that the assessee has been duly assessed in the last assessment year 2015-16 herein, and this date of transfer coming to 17.12.2015 to this clinching effect is not in dispute, the impugned interest u/s 234C read with 2nd proviso thereto, deserves to be restored back to the learned Assessing Officer for his afresh appropriate computation and factual verification in very terms. Ordered accordingly. 16. We make it clear in nutshell that these Revenue's five appeals ITA No. 3851, 3852, 3854, 4296 and 4297/Del/2016 raising the corresponding substantive grounds seeking to assess the assessee having derived the corresponding assessable capital gains or business income, as the case may be, in the impugned intervening assessment years, stand declined in very terms. The assessee's three appeals ITA No. 4387 & 4388/Del/2016 succeed and its last appeal ITA No. 7291/Del/2018 in assessment year 2015-16 is partly allowed, in very terms. 17. We now deal with the assessee's and department's six cross appeals each i.e. ITA Nos. 4609 to 4614/Del/2016 and 4791 to 4796/Del/2016; in assessment....