TaxTMI 
TaxTMI 
2026 (7) TMI 390
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....Ld.CIT(A) erred in deleting additions by accepting, post-survey, post-year estimate revisions in Construction Cost and TDR/Development Rights without cogent, third-party corroboration, contrary to the evidentiary value of survey admissions paired with contemporaneous workings? 2. Whether the CIT(A) was justified in loading the impact of the assessee's GST option exercised on 30.04.2019 (reduced rate/no ITC) into FY 2018-19 POCM estimates, without granular proof that the pending scope as on 31.03.2019 would be executed under the no-ITC regime and at the assumed tax rates? 3. Whether the CIT(A) erred in law in accepting cross-phase allocation of TDR and Development Rights to Phase-1 ("Rosa") on a notional RERA-area basis, thereby depressing Phase-1 profits, without verifying phase-wise purchase and utilisation records, MCGM permissions, and matching with revenue recognition under the Percentage-of-Completion Method (POCM)? 4. Whether the CIT(A) misapplied the ICAI Guidance Note on Accounting for Real Estate Transactions (2012) by treating unsubstantiated assertions- such as a flat 18% GST impact and an unquantified 48 to 39 floor change- as "reliable es....
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....e declared under the POCM method stood substantially reduced, and the long-term capital gains disclosed also differed materially from the figures stated during survey proceedings. The explanation furnished by the assessee for such variance was broadly founded upon :- (i) revision in the development plan from 48 floors to 39 floors resulting in reduction of carpet area; (ii) increase in construction cost due to denial of input tax credit consequent upon opting for the concessional GST regime; and (iii) registration of only 95 flats as against the 176 units anticipated during the course of survey proceedings. The relevant finding of the ld. AO is reproduced as under: "7.1 M/s. Lohitka Properties LLP was formed on 17.09.2014, started developing residential project named 'Montana' located at Mulund (W), Mumbai. The project was developed in a phased manner and Phase-1 consisted of buildings 'Rosa A and B Wing', Phase-2 'Sierra', Phase-3 'Giona A and B' and Phase-4 was yet to be launched (details of the project when the survey was executed). During survey, statement of Shri Ashwin Natwarlal Seth, one of the partners of the LLP was recorded u/s. 13....
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.... here below for ready reference. "Q. 20. It is seen that, you have sold 340 flats out of total 925 flats. It is also seen from the details provided by you that you have registered sale agreement in 98 flats in all the three buildings. Further, it is seen from the details available with the department that you have entered into transactions in respect of sale of the flat of agreement value of Rs. 488 Crores during F.Y. 2018-19, however, you have not shown any income from business or profession despite above mentioned transactions. Kindly Explain?" Ans. Sir, the project 'Montana' has presently three buildings namely Rosa, Sierra and Giona. Till date, we have sold 176 units in building Rosa and out of 176 units, agreements have been registered for 90 units. In building Sierra, we have sold 46 units and out of which agreement has been registered only for 5 units. In building Giona, we have sold 118 units and out of which agreement have been registered only for 4 units. With regard to your query for not recognizing the income for the booking made of Rs. 488 crores during F.Y. 2018-19, I state that the LLP is following the project completion method as per guidan....
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..... 23.96 crores for current financial year. In this regard, I am submitting the computation of aforesaid profit as Annexure I. Therefore, LLP will recognise the income for A.Y. 2019-20 on the basis of the actual figures of construction expenditure incurred and sale agreement registered upto 31.03.2019 and after setting off the carry forward losses of Rs. 10.99 crores approximately. Apart from the above, I would like to submit that the piece of land on which the entire project of Montana was the capital asset of the LLP and subsequently, it has been converted into stock-in-trade. Accordingly, the capital gain on proportionate basis will also arise on sale of flats either in the hands of partners or the LLP. As per working submitted, the component of capital gain in the current financial year 2018-19 would be Rs. 26.07 crores. Considering the fact that initially the land was belonging to M/s Lohitka Properties Put. Ltd. as capital asset and subsequently, this company has been converted into M/s Lohitka Properties LLP, no capital gain would arise in the hands of the company as per the provision of section 47 of the I.T. Act 1961. Therefore, in view of the aforesaid facts right now, I, ....
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....t is disclosed by the appellant in the return of income filed is given below : Particulars (A) (B) (C) (D) Estimates given during the course of Survey Estimates as per the Audited Financials for March 2019 Actual Incurred as on March 2019 Estimates as per Assessment Order for AY 2019-20 Comparison between (B) and (D) [B-D] Land Cost 1,12,69,03,365 98,67,48,367 98,78,88,527 98,78,88,527 (11,40,160) TDR/Development Rights 88,81,56,523 1,03,00,00,000 9,30,33,348 88,81,56,523 14,18,43,77 Construction Cost 1,96,13,63,638 2,13,16,88,634 85,12,34,078 1,96,13,63,638 17,03,24,996 Finance Cost 1,27,48,08,355 85,45,65,163 47,48,56,735 85,45,65,163 - Sales Promotion and Marketing Cost 30,73,24,525 25,00,00,000 16,68,71,986 25,00,00,000 - Total 5,55,85,56,406 5,25,30,02,164 2,57,38,84,674 4,94,19,73,851 31,10,28,313 4.2 The Assessing Officer, however, rejected the explanations furnished by the assessee and proceeded to recompute the business profits as well as long-term....
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.... above) 99,22,291/- Total Income (rounded off u/s. 288A) 21,59,77,540/- 5. In appeal, before the learned CIT(A), the assessee made detailed submissions. The relevant submission of the assessee as noted by the Ld.CIT(A) is reproduced as under: "7.1.3 During the appellate proceedings, the appellant has submitted ground wise written arguments which is already extracted in the pre paragraphs. In summary, the appellant has stated that the difference in the computation of taxable revenue computed by the AO is on account of difference in the estimated 'construction cost' and estimated 'TDR and development rights'. The comparison of estimated cost on the two parameters as returned by the assessee and computed by the AO is given below: Particulars Estimated cost considered while filing the Income tax return Estimated cost considered by AO while passing the order u/s. 143(3) Estimated Construction Cost 213,16,88,634 196,13,63,638 Estimated TDR and Development rights 103,00,00,000 88,81,56,523 7.1.4 The appellant has justified increase in the estimated construction cost on account of its decision to opt for ....
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....tion of non-eligibility of input tax credit on all its purchases as well as services. The appellant has submitted before the AO that, it has opted for the new concession scheme vide letter dated 30.4.2019 submitted to the GST department. The appellant has submitted that the total construction cost projected at the time of survey was Rs. 196,13,63,638/- as against which the projected cost in the return of income filed was Rs. 213,16,88,634/ -. The difference of Rs. 17,03,24,996/- has been attributed to the additional cost on account of GST on all purchases including services @18%. The detailed working explaining the impact of change in the ITC on the project cost is give by the appellant. From the working the appellant is able to explain the additional cost loaded on the estimated cost for completing 'Rosa'. 7.1.6. Regarding change in the estimated cost of TDR & Development rights, the appellant has stated that the working given during the survey, had considered cost of all freely available TDR to 'Rosa'. Subsequently, at the time of finalisation of the return for FY 2018-19, the estimated cost for TDR including freely available TDR and Purchased TDR was all....
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....output GST at a reduced rate but forego the claim of ITC on all its purchases of goods and services. This has resulted in increased cost for 'Rosa'. During Survey, the estimated cost of TDR & Developments were on the basis of carpet area (Original) for 'Rosa' alone, whereas at the time of filing the return of income the appellant has considered the revised carpet area of 'Rosa' as well as carpet area of other buildings namely Sierra, Giona & Blissberg, which has resulted in upward revision of the estimation of the cost of TDR & Development Rights. 7.1.9. Upon review of the case facts, it is evident that the circumstances outlined above-occurring after the survey and prior to filing the Income Tax Return for AY 2019-20 on 10.08.2020-resulted in an upward revision of the estimated construction cost as well as the TDR and development costs. Factors contributing to these revised estimates include the modification of floor count from 48 to 39, adoption of a concessional tax scheme for output GST, and allocation of TDR cost across all 'Montana' buildings based on their respective RERA carpet areas. Additionally, the audited financial statements co....
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....ements (revenue trigger) and the cost base. 7. We have thoughtfully considered the rival submissions and carefully perused the material available on record. The core controversy in the present appeal pertains to reconciliation of the profits projected during the course of survey proceedings vis-à-vis the profits ultimately declared in the return of income under the same POCM framework, together with the correctness of the revised cost estimates adopted by the assessee. The dispute essentially centers around variation in estimated project cost, TDR/development rights allocation, GST implications, and corresponding revenue recognition under the POCM method. 7.1 It is an undisputed position that during the survey proceedings, the assessee had furnished certain projected figures based upon anticipated registrations of flats and estimated project costs. Subsequently, at the stage of filing the return of income, the assessee revised such projections citing intervening developments, including revision in floor plans, change in GST regime, and revised allocation of TDR cost across phases of the project. While the assessee has broadly explained the reasons for such variation, t....