By TIOL News Service

NEW DELHI, NOV 03, 2018: THE ISSUE IS - Whether as income from transfer of development rights would arise in year in which conditions of the agreement are fulfilled, advance received can not be treated as income of assessee if approval from various authorities for completion of the agreement is yet to be received - YES IS THE VERDICT.

Facts of the case

The assessee company, engaged in the business of real estate development, had filed return for relevant AY. During assessment, AO observed that there was an increase of Rs. 3.52 crores in the Head "Advances Received" against development rights in the balance-sheet of the assessee company. The assessee was asked to furnish the details regarding advances received. The assessee submitted reply with which AO was not satisfied. The AO held that increase of Rs. 3.52 crores in the Head "Advances Received" was income and cost of the land purchased during the year of Rs.2,89,40,361/- should be deducted from this income of Rs.3.52 crores. Thus, addition of Rs.62,59,639/- was made by the AO to the income of the assessee on account of development rights received during the year. On appeal, CIT(A), upheld the order of AO.

Tribunal held that,

++ assessee-company rightly contended that income from transfer of development rights would accrue as per I.T. Act when assessee-company would receive approval for construction for specified FAR area from GDA. Unless and until it does not receive the approval from GDA, income would not accrue to the assessee-company. The assessee- company also rightly contended that as per the agreements, transfer of development rights is only a transfer in vacuum because the Town Planning Scheme may be required for construction of roads and other public facilities for public at large and in that situation, assessee-company may not be able to complete the development work in property in question. Therefore, it was a conditional agreement depending upon the approval taken from various authorities for completion of the agreement. The agreements also contain the penalty clause, in case, the project is not completed, the assessee-company has to comply with all its obligations till the approval from GDA is received for construction of specified FAR area. Therefore, income would accrue to the assessee-company only on satisfying the conditions of the agreement. The assessee-company rightly offered the amounts for taxation in AYs 2010-2011, 2013- 2014, 2014-2015 on such basis. The CIT(A) has followed his Order for A.Y. 2008-2009 for dismissing the appeal of assessee-company and no other independent reasons have been given. Since the Order of the CIT(A) for AY 2008-2009 have been set aside by the Tribunal, therefore, nothing survives in favour of the Revenue. In the result, ground of the appeal of the assessee is allowed.

(See 2018-TIOL-2013-ITAT-DEL)