By TIOL News Service

MUMBAI, FEB 07, 2018: THE issue is - Whether when the final payment was made and the possession letter was issued to the buyer of the flat in the year of assessment, such income is to be necessarily taxed in the same assessment year. NO IS THE VERDICT.

Facts of the case:

The Assessee carries on business as a contractor and developer. During the scrutiny proceedings for the subject A.Y, the AO found that an amount of Rs.2.43 Crores was shown under the head current liabilities i.e. as advances received from its buyers. The AO however rejected the contention of Assessee that the amounts from M/s. Siddhi Vinayak Securities Pvt. Ltd. and M/s. Manomay Estates Pvt. Ltd. were received as advance at the time of allotment on 14 & 15 March 2007 and that further consideration was received on 1 April 2007, when the possession of the flats was given, thus chargeable to tax in the next A.Y. The AO thereafter added the aggregate amount of Rs.2.14 received from M/s. Siddhi Vinayak Securities Pvt. Ltd and M/s. Manomay Estates Pvt. Ltd. as accrued income in the subject Assessment Year.

On appeal, the Tribunal allowed assessee's contention after examining all the clauses of allotment letter as well as the clauses of the possession letter concluding that the sale of the flats took place only in the subject Assessment Year i.e. on 1 April 2007 i.e. when the possession of the flats was given and the balance amount was paid. The accrual of income took place in the next year. Till then, the amount of Rs.2.15 Crores was only in the nature of advances. The Tribunal also recorded the fact that it was not the case of the Revenue that the possession letter was not genuine. Accordingly, the addition of Rs.2.14 Crores made by AO was deleted.

High Court held that,

++ it is seen from the clauses of the allotment letter and the possession letter referred to by the Tribunal, that the possession of flats was given on receipt of total consideration only on 1 April 2007. It is further seen that only electricity and other charges in respect of the flat being sold to two buyers would be borne by the buyers after the possession of the two flats are handed over to buyers. It does not even remotely suggest that the responsibilities for payment of charges in respect of the said flat was on the buyer from the date of the allotment. This coupled with the fact that the Tribunal records as a matter of fact that there is no dispute about the genuineness of the letter of possession. Moreover, no statement of buyers or other evidence, even circumstantial in nature, was brought on record to indicate that the facts are different from what has been recorded in the possession letter. In the said facts, the view taken by the Tribunal on the self evident terms of allotment and possession letter does not give rise to any substantial question of law;

++ it must be borne in mind that the amount which is being sought to be brought to tax in the subject A.Y 2007-08 has been offered to tax as income by the assessee in the next Assessment Year. It is not the case of Revenue that there are circumstances to indicate that by bringing the said transactions to tax in the next Assessment Year instead of this, there is likely to be a loss to the Revenue. In view of the same, the question as framed does not give rise to any substantial question of law.

(See 2018-TIOL-211-HC-MUM-IT)