Shivsagar Builders P. Ltd. Vs ACIT (ITAT Delhi)
New Delhi – In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has allowed an appeal by Shivsagar Builders P. Ltd. against the Assistant Commissioner of Income Tax (ACIT), setting aside two major additions to the company’s income. The tribunal ruled that the taxable revenue from a joint development project should be based on the final settlement amount as per agreements and confirmations, not on a higher gross figure. Furthermore, it held that notional rent cannot be charged on properties held as stock-in-trade by a real estate developer.
The case involved two primary disputes: the correct determination of taxable receipts from a commercial project developed with DLF Ltd., and the legality of levying tax on notional rent for a vacant property held as inventory.
Dispute on Taxable Revenue
The first issue centered on the quantum of taxable receipts from a commercial project. The revenue department contended that Shivsagar Builders’ gross taxable receipts were Rs. 103.42 crores. However, the company argued that the actual income that accrued to it was Rs. 89.50 crores.
The company’s position was supported by a supplementary agreement with its development partner, DLF Ltd., dated November 13, 2008. Clause 7 of this agreement stipulated that the developer (DLF) would reimburse the landowner (Shivsagar Builders) for proportionate revenue proceeds after adjusting for a range of expenses. These included costs related to advertising, marketing, stamp duty, rebates, brokerage, and service tax, among others.
Crucially, during remand proceedings, the Assessing Officer had sought an independent confirmation from DLF under Section 133(6) of the Income Tax Act, 1961. In its response, DLF explicitly clarified that Rs. 89.50 crores was agreed upon as the “full and final settlement towards revenue share.” An additional amount of Rs. 63.55 crores was paid separately as compensation for project delays. DLF also confirmed that the difference amount of Rs. 13.92 crores, which was the point of contention, had been duly offered to tax in its own financial statements using the Percentage of Completion Method (POCM).
The ITAT observed that these agreements, supported by the direct confirmation from DLF, constituted strong evidence. The tribunal noted that the revenue department failed to produce any contrary evidence to dispute these facts. Consequently, the ITAT concluded that the income that actually accrued to Shivsagar Builders was Rs. 89.50 crores. The tribunal stated, “we are of the opinion sum taxable is Rs. 89.50 crores and not at Rs. 103.42 crores as taxed in the impugned orders… addition so made is not in accordance with law and therefore, is deleted.”
