Facts:
The assessee, a builder, had
taken up a slum rehabilitation project at Worli, Mumbai. The project
started with the construction of a transit building on land provided by
Municipal Corporation of Greater Mumbai (MCGM) at Worli. In financial
year 2005-06, the MCGM came up with a proposal that if the assessee was
ready to handover possession of transit buildings it would grant TDRs.
In terms of the said scheme, the assessee received TDR measuring 15308
sq.mts. vide certificate No. SRA 526, dated 2-10-2005 and another TDR
measuring 46909 sq.mts. vide certificate No. SR 594, dated 3-6-2006.
These TDR were sold by the assessee for Rs.9,92,04,469 and
Rs.5,55,86,123, respectively. Both the TDRs were sold in the same
financial year in which they were received. Since the project was not
complete and the assessee was following project completion method, the
assessee had reduced these receipts against work-in-progress.
The
Assessing Officer (AO) did not accept the explanation given. He held
that TDR was nothing but FSI granted by SRA which could be used by
recipient for construction of flats/premises in Mumbai. Therefore, the
income had accrued to the assessee on account of TDR which was required
to be shown as income in the year of receipt. The AO rejected the method
followed by the assessee and assessed the amounts received on sale of
TDR as income of the respective years under consideration.
Aggrieved,
the assessee preferred an appeal to the CIT(A) who observed that TDRs
were directly related to the project undertaken by the assessee,
therefore, sale proceeds could be taxed only in the year of completion,
which was A.Y. 2007-08. The CIT(A) also referred to the decision of the
Tribunal in the case of ITO v. Chembur Trading Corporation, (2009) in
ITA No. 2593/Mum./2006, dated 21-1-2009 in which it was held that TDRs
have to be recognised as revenue receipts in the year in which project
was completed. He, accordingly, deleted the addition made by the AO.
Aggrieved, the Revenue filed an appeal to the Tribunal.
Held:
The
approach adopted by the AO for assessing the income from TDR
independently without deducting the expenses incurred is not justified.
The assessee has been following project completion method which is an
accepted method of accounting in construction business and also
recommended as per AS-7 of ICAI. Therefore, in such cases the income
from the project has to be computed in the year of completion. The TDRs
received are directly linked to the execution of the project and
therefore, before the completion of the project the income from TDR or
any other receipt inextricably linked to the project will only go to
reduce the costs of the project. Therefore, the assessee had rightly set
off TDR received against work-in-progress. Even if TDR receipt is
assessed as an independent item, deduction has to be allowed on account
of the expenses incurred. The TDRs have been received in lieu of handing
over of constructed transit buildings and therefore, cost of those
buildings has to be deducted against income from sale of TDR. The cost
of the buildings is claimed to be more than income from TDR, full
details of which were given to the CIT(A) and therefore, even on this
ground no income can be assessed in case of the assessee. For A.Y.
2006-07, there was no dispute that the project was not complete.
The
Tribunal held that for A.Y. 2006-07, the receipts from sale of TDR have
to be reduced from WIP. The Tribunal noted that the AO had not given
any finding about the year of completion of the project. The CIT(A) had
held that the project was completed in A.Y. 2007-08, but had not given
any basis of such finding. The Tribunal restored the matter to the file
of the AO to verify the year of completion of the project and directed
the AO to compute income from project after taking into account entire
expenditure and the receipts from the beginning of the year including
TDRs as directed by the AO, if he comes to the conclusion that the
project was complete. In case he comes to a conclusion that the project
was not complete, then the AO shall set off TDR receipts against WIP and
no income will be assessed on account of TDR receipts separately.
The Tribunal dismissed the appeals filed by the Revenue.
