TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 36
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....nsferred under the JDA and thus income should be recognized in the year of accrual by adopting percentage of completion method. Since the issue in all these seven appeals are common in nature, these are clubbed together heard together and disposed of by this common order for the sake of convenience and brevity. 3. We take up the revenue's appeals in ITA No.779/Bang/2025 as lead case for adjudication and the findings of this appeal shall apply mutatis mutandis to all the other revenue appeals. The revenue has raised the following grounds of appeal in ITA No.779/Bang/2025: I. Whether under the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made by the AO under the head income from Business which was computed based on percentage completion method for income arising from revenue sharing from JDA. II. Whether under the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made by the AO, ignoring the fact that the significant risks and rewards of ownership had already been transferred under the JDA and thus income should be recognized in the year of accrual by adopting per....
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....s also mentioned that the developer promises that the revenue share if the owners (i.e. 29.55% of the realization) shall be calculated based on this condition of developer achieving super built up area of 2.5 times of land comprised in the scheduled property. In case of any shortfall in achieving this super built up area, the same shall be made good by the developer out of its share and the owner shall get the revenue share as if the super built up area is minimum of 2.5 times of the land area. During the course of assessment proceedings, it was found that the developer M/s. Purvankara Projects Ltd was adopting percentage completion method and was reporting revenue from the above mentioned project since the completion of 25% of project. The contention of the AO is that since M/s. Purvankara Projects Ltd had been declaring profit and paying the tax on regular basis, the assessee ought to have recognized the revenue as per the percentage completion method on the similar lines to that of developer. On perusal of the response of the assessee, the AO found that the assessee is adopting project completion method and the assessee's contention that percentage completion method is not appli....
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....ntract (right to terminate the agreement to sell). In other words, the entire business process- development of the property, sale of apartments, transfer of assessee's share of revenue to the assessee's account is irreversible by the assessee similar to that of a business activity of a developer. 9. The other party (Developer) which is developing the land is regular accounting the revenue generated on the development generated from the land as per the percentage completion method under AS-7. 10. There is transfer of significant risks and rewards by way of agreement to sell and agreement to construct signifying the applicability of AS-9. Registration of the sale deed is only a way formalizing the contract and its impact on recognition of revenue and corresponding tax liability is extremely limited in scope. 11. It is to be noted that the revenue/income should be recognized when there is and actual transfer even though the legal title is not transferred. 4.3 The assessee however, submitted that it is only involved in the JDA as a landowner and it is governed by AS-9 i.e. revenue recognition method which would based on transfer of ownership along with sig....
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....ive receipts of the assessee Total % as per income recognition Total % age cumulative receipts of the assessee % age of land cost of Rs. 51,82,89,420 /-based on Column B Cumulative income Income for the year Remarks A B C D E-C.D F 2014-15 12,06,09,916 3,56,99,301 5.97 21,31,248 3,09,41,878 NA NA Since the project completion is less than 25% thus no income to be recognize d this 2015-16 1,58,16,15,207 46,73,67,294 15.26 7,13,20,249 7,90,90,965 NA NA 2016-17 2.76,11,13,838 81,59,09,139 36.16 29,50,32,745 18,74,13,454 10,76,19,920 10,76,19,920 2017-18 4,68,33,43,616 1.38,39,28,039 68.14 94,30,08,565 35,31,62,411 58,98,46,155 48,22,26,864 2018-19 5,73,23,86,770 1,69,39,20,291 97.92 1,65,86,86,748 50,75,09,000 1,15,11,77,748 56,13,31,594 2019-20 6,39,52,48,410 1,88,97,95,905 100 1,88,97,95,905 51,82,89,420 1,37,15,06,485 22,03,28,737 Thus Rs. 10,76,19,291/- was added by the AO as business income of the assessee in the lines of develop....
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....ch & Infrastructure Pvt. Ltd. Vs. DCIT cited (supra) and vehemently submitted that the assessee is offering the income under project completion method in the past and there is no change in the method applied by the assessee. As the assessee in the present case is the landowner and not the contractor/developer, therefore the provisions of AS-7 issued by ICAI does not apply in the case of the assessee. Further, ld.A.R. of the assessee vehemently submitted that even AS-9 issued by ICAI is also not applicable as all the conditions as enumerated are not fulfilled. It is also submitted that till the registered sale deed is not executed, the ownership lies with the landlord only and therefore significant risk and reward is not transferred. It is also submitted that the entire exercise is anyway tax neutral and the entire amount has already been offered in subsequent years. Lastly, the ld.A.R. submitted that merely the developer/contractor has followed the percentage completion method, the AO cannot compel the assessee to follow the same especially when the assessee was following the completion method consistently. 10. We have heard the rival submissions and perused the material availab....
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....property and share the revenue from the sale of development with the owners in the ratio of 29.55% : 70.45% of the Revenue Consideration on receipt and realization of the same from the purchasers of the development. iii) All the lands related costs including up to date property taxes & getting the municipal assessment and khata from the BBMP with respect to lands will be responsibility of the assessee firm. Further, the betterment charges and other charges/fee payable to BBMP or the consultants/liaison person shall be borne by the Assessee land owner. iv) The assessee by way of separate power of attorney permitted the developer a right to enter upon the schedule property for carrying out development and construction thereon. v) The Developer's responsibility is to develop the schedule property by construction of premium residential apartment building at its cost. The plans/design with respect to construction of building, obtaining necessary licenses and sanctioned plan, modification of any plan, Engagement of Architects, engineers, contractors & sub-contractors, Additions & alterations in the construction, Construction of boundary wall, Development of the....
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....xercise the option to exit from the project if the construction activity is not commenced within certain period. 10.1 We take note of the fact that by virtue of agreement to sale entered into with the prospective buyers, the said buyers agreed to pay money periodically over the duration of agreement, which is only a financing arrangement, which enables the assessee and developers to complete the project on time. When the advance amount is paid as per the agreement to sale, it becomes the debt due of the assessee and therefore till the project is completed, there would be no legal right to appropriate the advance money paid by the prospective buyers. Thus, the assessee is declaring the revenue relating to assessee's share arising from transfer of right, title and interest in land held as stock in trade to the ultimate purchasers when risk and reward of ownership is transferred along with the ownership of the land. That is why the agreement for sale as well as sale deed was jointly executed by the land owners and developers. The AO had made addition under head "profits & gains of business or profession" by adopting percentage complete method of revenue recognition as adopted by th....
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.... project is completed. The completion of the revenue recognition process is usually identified when the following conditions are satisfied. a) The seller has transferred to the buyer all significant risk and reward of ownership and the seller retains no effective control of the real estate to a degree usually associated with ownership. b) The seller has effectively handed over possession of the real estate unit to the buyer forming part of the transaction. c) No significant uncertainty exists regarding the amount of consideration that will be derived from the real estate sales; and d) It is not unreasonable to expect ultimate collection of the revenue from the buyer. 10.4 Thus, where the transfer of legal title is a condition precedent to the buyer taking on the significant risk and rewards of ownership and accepting significant completion of the seller's obligation, the revenue should not be recognized till such time legal title is validly transferred to the buyer. The Apex Court in the case of Babasheb DhondibaKute Vs. Radhu Vithoba Barde in SLP(C) No. 29462 of 2019 held that the conveyance by way of sale would take place only at the time of....
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....n a liability till the sale transaction is completed by delivering possession and the sale deed is executed. Accordingly, there is no element of accrual of income in these circumstances as contended by AO. 10.5 In the present case the assessee has declared the revenue from the joint development agreement with M/s. Purvankara Projects Ltd in AY 2020-21 onwards as detailed below: - AY Project Sales Cost Marketing & Other Expenses Profit 2020-21 Purvankara 109,29,65,971/- 17,05,99,478/- 32,07,03,390/- 60,16,63,103/- 2021-22 Purvankara 92,09,30,848/- 13,73,41,513/- 8,64,65,683/- 69,71,23,652/- 2022-23 Purvankara 38,75,13,784/- 5,56,12,110/- 2,78,38,931/- 30,40,62,743/- 2023-24 Purvankara 12,44,38,856/- 1,86,15,052/- 1,18,22,943/- 9,40,00,861/- 10.6 Thus, from the above it is clear that the assessee had offered the income with respect to M/s. Purvankara Projects Ltd in subsequent years and taxing the same income related to the same project in AY 2016-17 would amount to double taxation, which is impermissible in law. Further, we are of the considered opinion that the entire exercise is tax neu....