By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi, Chartered Accountants
Sections
5, 145 – In case of a developer selling
plots, income in respect of sale of plots can be recognised only in the year in
which conveyance deed executed is registered in favour of the buyers and it in
that year that development expenditure incurred as expenditure or expenditure
likely to be incurred on the plot is to be allowed. This is in consonance with provisions of AS 9
which clearly lays down that matching is required to be done on accrual basis
in respect of income offered to tax.
FACTS
The assessee firm, engaged in the business
of development of property, recognised revenue only in the year in which the
plots were sold and conveyance deed registered. It filed its return of income
declaring total income to be Rs. Nil.
The Assessing Officer (AO), in the course of assessment proceedings was
of the view that revenue should be recognised at every stage of receipt of sale
consideration. He, therefore, rejected
the method of accounting followed by the assessee and assessed the total income
to be Rs. 2,37,37,172.
Aggrieved, the assessee preferred an appeal
to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal
to the Tribunal where it was contended that revenue in respect of sale of plots
can be recognised only when the risk and rewards and ownership of the plots are
transferred to the buyers till such time the revenue cannot be recognised on
sale of plots.
HELD
The Tribunal observed that the assessee has
recognised the income in respect of sale of plots by adopting Completed
Contract Method, whereas, the AO is of the view that income should be offered
to tax received on year to year basis based on the stage of receipt of
consideration, irrespective of the fact that the title in the plots have been
passed on to the buyer or not. It also noted that the plots formed part of
stock-in-trade of the assessee firm and are immovable properties.The title in
immovable property can be passed only in terms of the provisions of the
Transfer of Property Act.
The Tribunal noted the ratio of the decision
of the Karnataka High Court in the case of Wipro Ltd. vs. DCIT [2016] 382
ITR 179 (Kar.) and held that the provisions of section 2(47) of the Act
have no application to the transactions of stock-in-trade. In this case, the
stock-in-trade is immovable property and the title in immovable property can be
transferred or alienated in accordance with the provisions of the Transfer of
Properties Act. The right, title or interest in the immovable property can be
transferred only by way of registering the conveyance deed executed in this
behalf. Even the Accounting Standard 9 dealing with the recognition of income
also lays down that the income in respect of transfer of immovable property can
be recognised only when the risks, rewards and ownership of the property is
transferred to the buyer.
It held that the matter requires a fresh
examination by the AO in the light of the above position of law. The Tribunal
remanded the matter back to the file of the AO with a direction that the income
in respect of sale of plots can be recognised only in the year in which
conveyance deed executed is registered in favour of the buyers and to allow the
development expenditure incurred as expenditure or the expenditure likely to be
incurred on the plots sold as expenditure. It held that this direction also
goes in line with and is in consonance with the provisions of Accounting
Standard 9 which clearly lays down that matching is required to be done on
accrual basis in respect of the income offered to tax and upheld by Hon’ble
Supreme Court in the case of Taparia Tools Ltd. vs. Jt. CIT [2015] 372 ITR
605 (SC).
