Case Law Details
RELEVANT PARAGRAPHS:
24. The first question arises in these appeals is whether the assessee is bound to account for the profits on the sale of flats in respect of which possession was handed over by the assessee to the buyer, and the amount of consideration was also realized and was also paid directly to the bank. In this case, the ultimate registration of the sale document in favour of the buyer is not relevant. What is relevant is whether the construction of a particular flat is completed and the possession was actually handed over by the assessee to the buyer. There could be a case where some incidental activities may not have been completed or there may be some further obligation undertaken in the agreement for sale of flat which were to be discharged or performed by the developers. The developer’s profit is referable to that part of the development of the project which has been completed. In the present case, it is not necessary that all the flats should be first sold and then the project can be said to have been completed. Each and every flat or unit is to be treated as an independent project the profit on that part which has been completed by handing over the possession to the buyer cannot be postponed beyond the date on which the possession was handed over by the developer to the buyer. If any constructed flat is sold and the possession thereof is handed over to the buyer and any obligation may still be discharged by the developer, the profit may very well have to be reported. In the present case, the assessee’s contention that the entire project of constructing number of flats is to be treated as a single project and the profit would arise to the assessee only after all the flats are sold is not found to be justified on the facts of the present case. In the business of Development and Construction of property, the question may arise as whether there will be profit for each year when there are no receipts. In case, there is no receipts or sale of a particular flat is not completed, there will be then be no profits. The outlay can be carried forward at cost with the result that the value of the work in progress valued at cost will be equal to the outlay. But when there are receipts or sale of some flat is completed, proportionate profits are bound to be presumed and it may not be correct to avoid accounting profits in that year with reference to such receipts or possession of the flat having been handed over to the buyer. In that case, the whole project may be disjunctive and may be capable of being dissected where the developer is able to treat the project as discharged in part: handing over part of the constructed portion will then have to be treated as independent project and profit on that part cannot be postponed beyond that date. Where the developer goes on handing over constructed flats on each occasion, when it is handed over, there is a completed sale whether there has been registration of the document or not. Proportionate part the profits in respect of the constructed flats, in respect of which a possession was handed over, will have to be accounted. Whole project may not be completed or there may be some further obligation undertaken in the agreement for sale of flat. In
such a case, a reasonable provision can be made for future obligation. The Id. CIT(A) has rightly observed that if we were to agree to the contention of the assessee, it might given rise to a possible mischief where the assessee would never conclude his project by leaving one flat incomplete indefinitely or by keeping certain liability outstanding indefinitely. The assessee’s contention that sewerage and water connection were yet to be obtained and the electricity connection had yet to be sanctioned cannot be a basis to say that the project was not completed when it has been categorically established on the basis of documents and papers found during the course of survey that the actual physical possession of the flats were handed over by the assessee to the buyers. If this was the case of the assessee that certain liability were yet to be discharged by the assessee, the assessee would have make reasonable provision, which can be taken into account while determining proportionate cost relating to the flats which has been sold and in respect of which in profit has been booked in the relevant year as so hold by the Hon’ble Supreme Conn of India in the case of Calcutta Company reported in (1959) 37 ITR 1 (SC) but because for that reason, the profit of the flats, in respect of which the possession was handed over by the assessee to the buyer, cannot be postponed when the assessee was maintaining the books of account on mercantile basis, following project completion method of accounting.
25. In the light of the discussion made above, we. therefore, upheld the order of authorities below in holding that the profit from the flats in respect of which possession were handed over by the assessee on the basis of the documents and papers found during the course of survey, is to be assessed in the respective years in which the possession was handed over by the assessee to the buyer irrespective of the fact whether the certain liability or dues were still payable by the assessee to the bank or any other person in respect of any liability undertaken by the assessee. We therefore, uphold the order of authorities below in including the profit from the respective flats, details thereof is incorporated in the chart given in the body of assessment order of the assessment years under consideration. No contrary material except a verbal submission has been brought by the Id. counsel for the assessee to disprove or controvert the findings of the A.O. with regard to the fact that the assessee had handed over the possession of the number of flats to the buyers after taking full consideration of the agreed price as detailed by the A.O. in the list incorporated in the assessment order.
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