Skyline Developers Vs ITO (ITAT Pune)
ITAT Pune: Notional Income from Joint Development Agreement Not Taxable in Absence of Real Accrual – 80IB(10) Disallowance Set Aside
The Pune Bench of the ITAT partly allowed the appeal of Skyline Developers for AY 2006-07, holding that income merely recorded on a notional basis due to an erroneous accounting entry cannot be brought to tax when no real income had accrued during the year. While the Tribunal upheld the validity of reassessment proceedings under sections 147/148—since the original return was processed under section 143(1) and a wrong claim of deduction under section 80IB(10) had been made—it granted relief on merits.
The Tribunal noted that the Joint Development Agreement (JDA) with Brahma Builders was executed on 21.03.2006, just seven days before the end of the financial year, and that the housing project itself commenced only on 03.03.2007 and was completed in later years. During AY 2006-07, there was no approval of the housing project, no construction activity, and no sale of flats. Nevertheless, based on incorrect professional advice, the assessee credited stamp duty valuation of ₹11.33 crore as turnover, computed profits thereon, and claimed deduction under section 80IB(10).
Applying the “real income” principle, the ITAT held that taxation must be based on actual accrual or receipt and not on hypothetical or notional entries. The Tribunal also took note of the fact that the impugned notional income was subsequently squared up in the books and that the actual project income was offered to tax in AYs 2009-10 and 2010-11, where deduction under section 80IB(10) was allowed by the Tribunal itself in earlier rounds. Taxing the same amount again in AY 2006-07 would therefore lead to clear double taxation.
Accordingly, the ITAT deleted the disallowance/addition made under section 80IB(10), set aside the findings of the CIT(A) on merits, and allowed the assessee’s appeal to that extent, while sustaining the reopening.
FULL TEXT OF THE ORDER OF ITAT PUNE
