TaxTMI 
TaxTMI 
2026 (8) TMI 447
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.... of cost of other capital assets forming part of the mall, the denial of TDS credit of Rs. 24,96,716/-, and the upholding of the Assessing Officer's action in disturbing the settled method of accounting and revenue recognition consistently followed by the assessee over the years. 2. The assessee is engaged in the business of real estate development. It had constructed a shopping complex with a cinema theatre known as "Milan Mall". As per the original occupation certificate dated 05.05.2007, the mall comprised 24 units, including shops and a theatre with a projector room. Subsequently, pursuant to a project for internal additions and alterations, plans were submitted to the Municipal Corporation of Greater Mumbai ("MCGM") on 21.06.2014 through Nirmeek Associates, engineers and licensed surveyors, for conversion of the mall into commercial premises divided into a substantially larger number of units. As per the said plans, approval was sought for 180 units, comprising 44 shops on the third floor along with the theatre and projector room. Vide letter dated 07.08.2014, MCGM granted approval for the proposal submitted on 21.06.2014. Ultimately, upon completion of the project, the tot....
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.... sheet as advances, and upon completion of the project in assessment year 2017-18, the receipts as per sale agreements executed till that year were credited to the Profit and Loss Account and offered to tax under the head "Business Income". Similarly, the capital gains relating to conversion of the capital asset into stock-in-trade were also offered to tax in the year of recognition of sale, i.e., assessment year 2017-18 onwards, in accordance with the provisions of section 45(2) of the Act. 6. In this context, the assessee placed reliance upon section 45(2) of the Act, which provides that notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion of a capital asset into stock-in-trade shall be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred, and for the purposes of section 48, the fair market value of the asset on the date of such conversion shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. 7. It was further submitted that the assessment for the preceding assessment....
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.... confirmation with the possible stand which otherwise would have been taken. He thus concluded that, without disturbing the concept of computation, the assessee's total income was assessed at Rs. 15,99,97,178/- as had been worked out by the assessee. 12. The Assessing Officer further noted that the assessee had claimed TDS on sale of properties at Rs. 92,45,764/- in the original return filed on 31.10.2017 and in the revised return filed on 06.10.2018. However, in the second revised return it had claimed TDS of Rs. 1,17,56,970/- on sale of properties. It was observed that the excess TDS claim in the second revised return, as well as in the amended computation of income of Rs. 24,96,716/-, pertained to income offered on the sale of property in the subsequent year. The Assessing Officer thus concluded that TDS credit to that extent could not be allowed in the impugned assessment year and, accordingly, disallowed the same, restricting the TDS credit to Rs. 92,45,764/-. 13. The assessment was thus framed under section 143(3) of the Act at the income of Rs. 15,99,97,178/-, after giving credit for taxes paid after due verification and charging interest under sections 234A, 234B, 234....
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.... cost of Rs. 2,58,91,486/- in respect of the cost of other assets aggregating to Rs. 6,03,41,869/-, which were forming part of the mall. 18. The Assessing Officer also considered the fair market value of the mall, being the deemed cost by virtue of section 45(2) of the Act, in respect of only 47 units instead of 114 units as considered by the assessee based on its accounting policy for revenue recognition under the Project Completion Method. 19. The assessee carried the matter in appeal before the learned CIT(A), NFAC, Delhi. It was submitted before the learned CIT(A) that the Assessing Officer had unlawfully disturbed the method of accounting without invoking section 145(3) of the Act and without recording any finding that the accounts were incorrect or incomplete or that true profits could not be deduced therefrom; that the Project Completion Method had been consistently followed by the assessee and accepted by the Department in earlier years, and therefore, in the absence of any finding that such method resulted in distortion of profits, the same could not be rejected; that the interest expenditure had a direct nexus with the business of the assessee, had been consistently....
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....r occupation certificate dated 05.05.2007, and pursuant to the sanctioned plan/alteration approvals obtained from MCGM (plans submitted on 21.06.2014 and approval issued on 07.08.2014, followed by completion/approval correspondences culminating in approval letter dated 27.07.2017), the mall was structurally reorganised into commercial premises consisting of substantially larger number of units (179 units plus one theatre). It was emphasised that such conversion is not disputed as a fact; the dispute is only with regard to the timing and manner of revenue recognition and consequential computations adopted by the Assessing Officer. 23. The learned counsel submitted that the assessee has, as a matter of regular accounting policy, been following the Project Completion Method, under which revenue is recognised upon completion of the project. She submitted that although certain sale agreements were executed starting from A.Y. 2016-17 onwards, the receipts prior to completion were carried to the balance sheet, and only upon completion of the project in A.Y. 2017-18, the receipts relatable to agreements executed up to that year were credited to the Profit and Loss Account and offered to....
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....of the project and the interest cost formed part of project work-in-progress, having been incurred in the earlier period(s) as well, and the same was consistently accepted/allowed in earlier years. She submitted that the Assessing Officer has made an ad hoc or estimated disallowance without any rational working, and without establishing any diversion of borrowed funds for non-business purposes. It was argued that once nexus between borrowing and business purpose is established, the Revenue cannot put itself in the armchair of a businessman to second-guess the commercial expediency. 27. On the issue of computation of capital gains under section 45(2), the learned counsel submitted that the Assessing Officer has disturbed the computation of long-term capital gains by not allowing, on a proportionate basis, (i) the indexed cost pertaining to interest capitalised during F.Y. 2008-09 of Rs. 2,39,84,659/- forming part of the cost of the capital asset, and (ii) the indexed cost pertaining to other assets aggregating to Rs. 6,03,41,869/- (such as common assets like elevators, escalators, air-conditioning installations, etc.) which formed part of the mall and were capitalised in the audi....
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....ers warranting interference by the Tribunal. 31. We have carefully considered the rival submissions, perused the orders of the lower authorities, and examined the entire material placed on record, including the sanctioned plans, occupation certificates, municipal approvals, correspondence exchanged with the Municipal Corporation of Greater Mumbai, financial statements, revised returns and computations, and the judicial precedents cited and reproduced in the record. The controversy before us essentially arises from the Assessing Officer's unilateral rejection of the method of accounting consistently followed by the assessee and the consequential reworking of income under both the heads, viz., "Profits and gains of business" and "Capital gains", accompanied by proportionate disallowance of interest, disturbance of indexed cost computation, selective application of section 45(2), and denial of TDS credit. All these adjustments trace their genesis to a single foundational premise adopted by the Assessing Officer, namely, that revenue ought to have been recognised on the basis of dates of sale agreements, irrespective of the completion of the project, and that the Project Completion ....
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....d to tax in the same year, strictly in conformity with section 45(2) of the Act. This factual treatment is borne out from the financial statements, the computation of income, and the detailed workings placed before the Assessing Officer. 35. Section 45(2) of the Act embodies a specific statutory sequencing. It provides that notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion of a capital asset into stock-in-trade shall be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred, and for the purposes of section 48, the fair market value of the asset on the date of such conversion shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. The assessee has scrupulously adhered to this statutory scheme. The conversion took place in the year ended 31.03.2015. The stock-in-trade was sold in stages. The capital gains were offered to tax in the year of recognition of sale, i.e., assessment year 2017-18 onwards. Thus, the timing of capital gains offered by the assessee is not a matter of d....
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....e was reiterated in CIT v. Bilahari Investment (P.) Ltd. [2008] 299 ITR 1 (SC), wherein the Apex Court held that once a method of accounting has been accepted in the past and is consistently followed, the Department cannot insist on substitution of the existing method unless it records a finding that the method results in distortion of profits. 39. The Hon'ble Punjab and Haryana High Court in CIT v. Punjab Information & Communication Technology Corporation Ltd. [2023] 152 taxmann.com 518 (P&H), in a case where the assessee, engaged in the business of development and sale of industrial plots, was consistently following the Project Completion Method, held that in the absence of any observation by the Assessing Officer that the said method would result in deferment of payment of taxes which were to be assessed annually under the Act, the Project Completion Method followed by the assessee was to be accepted. It was further held that the assessee could follow either the Project Completion Method or the Percentage Completion Method for accounting, and that in the absence of any finding that the method followed would result in distortion of profits, no interference was warranted. The r....
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....ion furnished as an alternate working cannot be elevated to the status of an admission or a voluntary surrender, particularly when the assessee has expressly clarified that it does not represent its stand. To do so is to conflate a hypothetical alternate computation with a binding concession, which is impermissible in law. The Assessing Officer's reliance on such a without-prejudice working to fasten an assessment is contrary to the record and contrary to settled principles governing appreciation of pleadings and alternate submissions. 44. Coming to the proportionate disallowance of interest of Rs. 3,13,30,672/-, the record reveals that the interest cost formed part of the project work-in-progress and had been incurred in earlier period(s) as well. The same had been consistently accepted and allowed in earlier years, including years in which assessments were framed under section 143(3) of the Act. The Assessing Officer has disallowed the interest on an estimated basis, without any rational working, without establishing any nexus between the borrowed funds and any non-business purpose, and without demonstrating any diversion of funds. Once nexus between borrowing and business pur....
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....n of sale agreements and was reflected in the balance sheet. The Assessing Officer ought to have directed verification and grant of credit in accordance with law, rather than denying it on a broad assumption of year-wise mismatch. Denial of credit results in an inequitable mismatch, particularly when the tax has been deducted at source and is duly reflected in the statutory system. The learned CIT(A)'s observation that the assessee had not filed submissions on this issue is also contrary to the material on record. 48. The learned CIT(A) has upheld the action of the Assessing Officer by observing that similar issues had been adjudicated in preceding assessment years wherein the stand of the Assessing Officer was found to be correct, and that there was no reason to deviate therefrom. This reasoning is internally inconsistent. If the doctrine of consistency is to be invoked, it must operate symmetrically and not selectively. The method of accounting and treatment adopted by the assessee had been accepted in earlier years, including assessment year 2015-16, which had reached finality by virtue of the Tribunal's order dated 31.03.2022. The learned CIT(A) has not demonstrated any chan....