Itxa/452/2016 Of Ace Real Estate And Developers v. Asstt.commissioner Of Income Tax Circle 1(1) Pune

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.452 OF 2016 Acc Real Estate & Developers … Appellant V/s. Asstt. Commissioner of Income Tax… Respondent --- Mr.Rohan Deshpande i/by Mr. Mihir Naniwadekar for theAppellant.Mr.Sham Walve for the Respondent. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : NOVEMBER 19, 2018. P.C. : 1.Assessee has filed this appeal against the judgment of theIncome Tax Appellate Tribunal dated 24[th] July, 2015. 2.Following questions are presented for our consideration. “I.Whether on the facts and in the circumstancesof the case, the ITAT erred in holding that theassessee-appellant could not have followed cashsystem of accounting for Hadapsar project, withoutappreciating that the method of accounting followed by the assessee was fully permissible inlaw? II.Whether on the facts and circumstances ofthe case, the ITAT ought to have held that theamount of Rs.10 crore did not accrue in AY 2007-08 in view of the facts that:(a) the relevanttransactions could be completed only after therepeal of the Urban Land Ceiling Act, which repealtook place after the relevant year ;(b) s.2(47) reliedon by the AO was admittedly not applicable as thepresent case was not one of transfer of capitalassets; and (c) under the relevant agreements, theamount of Rs.10 crore did not at all fall due in theprevious year relevant to AY 2007-08?” 3.Brief facts are as under:- Appellant-assessee is the partnership firm. The issuepertains to the Assessment Year 2007-08. 4.The assessee is engaged in the business of land development. As part of the business the assessee has enteredinto an agreement for development of land with the ownersthereof, ad-measuring 31 acres situated at Hadapsar, for totalconsideration of Rs.4.75 crores on 29[th] November, 2004.Thereafter, on 12[th] October, 2006 assessee executed a Deed ofAssignment assigning all its rights and interest in respect of thesaid land in favour of one M/s Sahastrajeet Reality Private Limited for consideration of Rs.12.44 crores. 5.For the Assessment Year 2007-08 the assessee offered asum of Rs.2.44 crores by way of tax, crediting such sum to itsprofit and loss account. The balance of Rs.10 crores wasreceived during the period relevant to the Assessment Year2008-09 and 2009-10 and was offered to the tax as its businessincome. The assessee contended that for the said project theassessee had followed the cash system and offered the incometo tax on actual receipt basis. 6.The return of the assessee for the said Assessment Year2007-08 was taken in scrutiny by Assessment Officer. He taxedthe entire income during the said year on accrual basis. Assesseechallenged the order before the Commissioner(A). Such appealwas dismissed. After which appeal of the assessee was alsodismissed by the Tribunal. 7.In this context, the above noted questions have been raisedby the assessee in the present tax appeal. Learned counsel for Priya Soparkar 428 itxa 452-16-o the assesee argued that there is no prohibition for the assesseefollowing mercantile system or project completion system inone project and the cash method of accounting in the another.Learned counsel further argued that the land in question waswithin the purview of Urban Land Ceiling Act. Such Act wasabolished in the State of Maharashtra only with effect from 29[th]November, 2007. On the date of assignment, therefore, no rightsaccrued in favour of assignee. It was, therefore, that once theUrban Land Ceiling Act was abolished, the parties executed a saledeed in favour of the purchaser in which the assessee was theconfirming party. Learned counsel further submitted that in anycase the entire income was offered to tax though in later years. Priya Soparkar 428 itxa 452-16-o the assesee argued that there is no prohibition for the assesseefollowing mercantile system or project completion system inone project and the cash method of accounting in the another.Learned counsel further argued that the land in question waswithin the purview of Urban Land Ceiling Act. Such Act wasabolished in the State of Maharashtra only with effect from 29[th]November, 2007. On the date of assignment, therefore, no rightsaccrued in favour of assignee. It was, therefore, that once theUrban Land Ceiling Act was abolished, the parties executed a saledeed in favour of the purchaser in which the assessee was theconfirming party. Learned counsel further submitted that in anycase the entire income was offered to tax though in later years. 8.On the other hand, the learned counsel for the Revenuecontended that Tribunal has given cogent reasons. The assesseecannot take advantage of its own wrong by claiming that thetransaction of the assignment was invalid and that no incomeaccrued to the assessee by virtue of such arrangement. 9.It is undisputed that the assessee except for the project in 528 itxa 452-16-o question had been following the mercantile system of accounting.The Tribunal has recorded that the assessee has been regularlyfollowing mercantile system of accounting and that there hasbeen no change in the method of accounting. Further, for therest of the projects also the assessee made no change in itsaccounting system. In other words, it was only for the limitedpurpose of the present project that the assessee adopted thecash system. 10.Sub-section 1 of Section 145 of the Income Tax Act, 1961provides that income payable under the head “profit and lossaccount of business” and income from other source shall subjectto the provisions of Sub-section 2 be computed in accordancewith either cash or mercantile system of accounting regularlyemployed by the assessee. In terms of this provision, therefore,the choice of the assessee would be either of following mercantileor cash system of accounting. The assessee, however, cannotchoose to follow mercantile system for all other projects andmake a departure only for one of the projects by changing thesystem of accounting. The Tribunal, therefore, correctly held this issue against the assessee. 11.We, therefore, hold that the assessee was bound to followthe mercantile system of accounting and offer the income to taxon the basis of accrual and not actual receipts. The assessee,however, argued that the assignment under which such accrualarose itself was invalid and therefore, it cannot be stated thataccrual of income crystallized till the Urban Land Ceiling Actwas repealed and sale deed was executed. There are many short-comings of this contention of the assessee. Firstly, the assesseehad claimed to have acquiesced certain rights in the property inquestion by way of assignment. Further, even when the UrbanLand Ceiling Act was still in forced, such rights the assesseedesired to pass on to the assignee for which the deed ofassignment was executed. The assessee had never questionedsuch deeds. In fact, once ULC Act was repealed, such arrangementwas finalised. 12.Further, whatever be the nature of the agreement andaccrual of rights in favour of the purchaser of the land or the Priya Soparkar assignor or the assignee the assessee never argued that its rightto receive the consideration was under jeopardy. Under theassignment agreement itself there was specific mention oftransfer of rights in the property in lieu of which the assigneewould pay agreed sum to the assessee. 13.In the result, Tax Appeal dismissed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)….