income from sale of flats accrues for builder
Income from sale of flat for a builder accrues when possession of flat is given and not when allotment letter issued by the builder.
The assessee carries on business as a contractor and developer. During the scrutiny proceedings for the subject Assessment Year, the Assessing Officer found that an amount of Rs 2.43 crores was shown under the head current liabilities i.e. as advances received from it buyers. Assessing Officer observe that an aggregate amount of 2.14 crores was received by the assessee from one Siddhi Vinayak Securities and from Manomay Estates Pvt. Ltd. on 14th and 15th March, 2007 but further consideration was received in the next year on 1st April, 2007 when the possession of flats was given. Thus, income was booked by assessee in the next year. The Assessing Officer added the amounts received as income accruing in AY 2007-08. The CIT(A) ruled in favour of Revenue, however, ITAT ruled in favour of assessee. ITAT held that since the sale of the flats took place only on April 1, 2007, the accrual of income would take place in AY 2008-09 only and till that time, the amount of R 2.14 crores was only in the nature of advances. ITAT had also noted that in the next AY assessee had offered the income of Rs. 2.14 crores on the sale of the flats which was accepted by Revenue.
Before High Court, Revenue contended that the sale of the flats under consideration had taken place on 14th and 15th March, 2007 when they were allotted under allotment letters.
High Court noted that the possession of the flats was given on receipt of total consideration only on 1st April 2007. High Court stated that the relevant Clause of the allotment letter which is been relied upon by the Revenue does not in any manner indicate that the possession was given on 14th/15th March, 2007; that clause only stated that the 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. As per High Court, it did not even remotely suggest Legal Update www.icai.org THE CHARTERED ACCOUNTANT JUNE 2018 112 that the responsibilities for the payment of charges in respect of the said flat were on the buyer from the date of the allotment. High Court further noted that no statement of the 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 dated 1st April, 2007. High Court concluded that the order of ITAT was correct.
Separately, High Court also noted that the concerned amount of 2.14 crores was offered to tax by the assessee in the next Assessment Year. High Court therefore remarked, “It is not the case of the 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”.
High Court held that no substantial question of law arose, and thus ruled the matter in favour of the assessee.