Builder to pay tax based on completion stage if significant risk and reward are transferred to buyer
Case Law Details
M/s. A.N. Build well Pvt. Ltd. Vs. DCIT (ITAT Delhi)
In the present case, the assessee is following Mercantile system of accounting therefore, the assessee was required to disclose the profit which accrued corresponding to the part of the work of the project executed by the assessee. The Assessing Officer was required to examine the agreement to sale for units and record whether any specified area of plot of land was allocated to the customers and significant risk relating to the said plot like price risk, any regulatory risk (related to state government or any local authority) was transferred by the assessee. He was also required to examine whether there was any restriction on the buyer to sale or transfer his interest in the property to a third person till complete sale consideration is paid. In our opinion, if the significant risk and reward are transferred to the buyer, the amounts received from the buyer to the extent of stage of completion of the project has accrued to the assessee and it should be subject to tax in terms of section 5 of the Act. Before us, the percentage of work completed by the assessee on the project, is not available and, thus, we are unable to compute the revenue recognized from the project.
In view of the above facts and circumstances, we feel it appropriate to set aside the order of lower authorities on the issue in dispute raised in both the appeals and restore the matter to the file of the Assessing Officer for deciding afresh in view of observation made by us above. The assessee shall be afforded adequate opportunity of being heard. Accordingly, the grounds raised in both the appeals are allowed for statistical purposes.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
These cross appeals of the assessee and the Revenue are directed against order dated 11/01/2013 of Ld. Commissioner of Income-tax (Appeals)-IV, New Delhi [in short ‘the Ld. CIT-(A)’] for assessment year 2009-10.
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