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Section 145 makes it mandatory on the part of the assessee to follow either cash or mercantile system of accounting. Recognizing the revenue by developer (i.e., assessee) only when the sale deeds would be registered in favour of the buyers could not be regarded to be either cash or mercantile system of accounting. This method was neither project completion method nor percentage of completion method, thus, this was not a recognized method to recognize revenue under AS-7 too.

Facts :

a) Assessee was engaged in the business of real estate activities, such as construction of residential-cum-commercial project, developing of plots, etc. It had completed development work of plots on 31.3.2009, but it did not show the sale proceeds in the profit and loss account even after receiving 70-80% of the sale proceeds.

b) The Assessing Officer ('AO') was of the view that development had already been completed, therefore, he re-computed the profit relating to these projects.

c) Assessee contended that he was following project completion method as per AS-7 and it was showing the sales when the registration of the sale deed would be carried out.

d) On appeal, the CIT(A) deleted the additions on the ground that the AO had changed the profit recognition method from project completion to percentage completion. The aggrieved revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of revenue as under:

1) The CIT(A) had agreed with assessee's contention that he was following the project completion method but assessee was not recognizing the revenue on the basis of the project completion method.

2) Registration of the sale deed represents only the transfer of the title in favour of the buyer once development work on the plots had been completed.

3) Assessee was recognizing the revenue only when the sale deeds would be registered in favour of the buyers. Under AS-7 this was not a recognized method of recognizing the revenue. This method of revenue recognition followed by assessee was neither project completion method nor percentage of completion method.

4) Section 145 makes it mandatory on the part of the Assessee to follow either cash or mercantile system of accounting regularly. This method of recognizing the revenue when the sale deeds would be registered in favour of the buyers could not be regarded as either cash or mercantile system of accounting.

5) Thus, the method adopted by the assessee was not in compliance with the ingredients as laid down under Section 145. Consequently, the order of AO was to be restored – ACIT. v. Alcon Developers (2015) 54taxmann.com 54 (Panaji - Trib.)

Tagged in: Section 145
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CBDT has ordered an Income Tax department investigation against a number of real estate developers who were recently shown by an investigative portal to be willing to accept alleged black money in property transactions.

The apex authority of the I-T department has asked its investigation units across the country to furnish to it reports of any action or probe conducted against the groups named by the portal in the past and in case such an action has not been done, the Central Board of Direct Taxes has ordered the same to be initiated.

“The CBDT has asked the investigation units of the I-T department that all these reports should reach it by the first fortnight of December,” a senior official said.

The investigation done by portal Cobrapost.com included many developers from the national capital region and those from other parts of the country including Mumbai. While releasing the transcripts and video recordings of its investigation at a press conference here, the portal said that executives from these companies, including some CEOs and CMDs, were ready to accept anywhere between 10-80 per cent of the property value in black money. These 35 real estate companies under scanner are spread across the national capital, Uttar Pradesh, Haryana, Rajasthan, West Bengal, Andhra Pradesh, Maharashtra and Karnataka.

While some companies had out rightly rejected the allegations that they accept black money in their property transactions, a few others had said that they have already taken action against the concerned executives.

The portal said that most of these executives expressed willingness to accept money abroad through hawala channels, including in Dubai, Bangkok, Singapore and the US. The findings of this investigation, named ‘Operation Black Ninja’, have come at a time when the government is making all efforts to bring back unaccounted money stashed by citizens abroad.
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Section 56 (Amended): Tax on Purchase of Immovable Property at insufficient consideration



Applicability: Individual or HUF


Crux of the Section: Purchase of immovable property by individual or HUF for inadequate consideration (Consideration minus Stamp duty value > 50,000) taxable in the hands of the recipient under “Income from other Sources”.



i) If consideration is less than stamp duty value by an amount exceeding Rs.50,000.



i) Since this section is applicable only on HUF and Individuals the Immovable Property can be purchased on the name of other assessee i.e. Private Limited Company.


Section 43CA – Application of Stamp Duty Valuation of assets other than Capital Assets


Crux of the Section: Seller of Land or building or both, which is held as stock in trade have to pay tax on (stamp duty value – consideration).


Applicability: All assessee



i) If consideration is less than stamp duty value arising on account of transfer of an asset being land or building or both (not being a capital asset) shall be substituted by the valuation done by stamp valuation authorities.

Source: http://www.indiantaxupdates.com

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  • 1. UNION BUDGET 2013-14 -DIRECT TAX Prepared By- Arvind Rathi (Article Assistant) Sandesh Mundra & Associates.
  • 2. SURCHARGE A surcharge of 10 % on persons whose taxable income exceeded 1 cr Rs.Applicable to individuals, HUFs , firms and entities.Increase of the surcharge from 5 % to 10 % on the domestic companies,whose taxable income exceeded 10 cr Rs.In case of the foreign companies, there would be an increase of surcharge from 2 % to 5 %. Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.
  • 3. RELIEF & WELFARE MEASURES Rebate of Rs 2000 for individuals having total income up to Rs 5 lakh. Raising the limit of percentage of eligible premium for life insurance policies of person with disability or disease. Deduction for contribution to health schemes similar to CGHS. One hundred percent deduction for donation to National Children’s Fund. Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.
  • 4. SECURITIES TRANSACTION TAXS.NO NATURE OF PAYABLE BY EXISTING PROPOSED TAXABLE ST RATES(IN %) RATES(IN %)1. Delivery based Purchaser 0.1 Nil purchase of units of an equity oriented fund entered into in a recognised stock exchange.2. Delivery based sale Seller 0.1 0.001 of units of an equity oriented fund entered into in a recognised stock exchange.3. Sale of a futures in Seller 0.017 0.01 securities.4. Sale of a unitof an Seller 0.25 0.001 equity oriented fund the mutual Prepared By- Arvind Rathi fund. (Article Assistant),Sandesh Mundra & Associates.
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TDS on the value of property – (Old wine in new bottle) – Applicable from June 01, 2013

In union budget 2012 also, our honorable finance minister introduced the provision of deducting 1% TDS on the value of property. However later on, that provision was withdrawn due to its complexity in mechanism.

Now the provision has been brought back -

TDS at the rate of 1% shall be charged on the value of transfer of immovable property where the consideration exceeds Rs 50 lakh. However, agricultural land will be exempt.

Although the provision has been introduced to keep a check on under reporting of transactions in the real state sector, but one really does not know what purpose would be solved by way of introduction of this levy.

Some areas to ponder upon

1. Whether even the individuals selling the properties, will now be required to obtain the TAN numbers for the purpose of meeting the singular TDS compliance of deducting and paying the service tax.

2. Whether the value that is being talked of is the actual transaction value or the stamp duty value as mentioned in Section 50C of the Income Tax Act.

3. Will the seller be given a NIL rate certificate by the department in advance, if he plans to invest in the some tax saving provisions say Section 54 / 54EC etc.

4. Point of taxation would be the date of agreement / date of sale deed / date on which payments have been made, should also be cleared. That is the point at which the TDS is required to be deducted by the buyer.

5. What does one mean by agricultural land? Is it necessary that some agricultural activity should have been carried on the land to get the exemption?

All these issues need some clarification!

Lets wait and watch, whether this time the provision is able to see the light at the end of the tunnel or it would again be buried in the tunnel itself.

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