Karnataka High Court

Pr.Commissioner vs M/S Esteem Classic on 22 March, 2021

Author: Alok Aradhe Kamal

                             1



 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

      DATED THIS THE 22ND DAY OF MARCH 2021

                        PRESENT

       THE HON'BLE MR. JUSTICE ALOK ARADHE

                          AND

       THE HON'BLE MR. JUSTICE M.G.S. KAMAL

               I.T.A. NO.842 OF 2018
                  CONNECTED WITH
               I.T.A. NO.843 OF 2018
               I.T.A. NO.844 OF 2018


IN I.A.No.842 OF 2018
BETWEEN:

1.   Pr. Commissioner
     Income Tax - 6
     BMTC Complex
     Koramangala
     Bangalore.

2.   Deputy Commissioner
     of Income-Tax
     Central Circle - 1[4]
     Bengaluru.
                                       ... Appellants

(By Sri. Sanmathi E.I. - Advocate)
                              2



AND:
M/s. Esteem Classic
Unit Nos.32, 33 & 34
3rd floor, SNS Chambers
Sadashivanagar
Bengaluru
PAN.AACFE2663F.

                                          ... Respondent
(By Sri. A. Shankar - Sr. Counsel for
    Sri. Lava M - Advocate)

     This I.T.A. is filed under Section 260-A of Income
Tax Act 1961, arising out of order dated 02.05.2018
passed in ITA Nos.1053/Bang/016, for the Assessment
year 2010-2011, praying to decide the foregoing
question of law and / or such other questions of law as
may be formulated by the Hon'ble Court as deemed fit;
set aside the appellate order dated 02.05.2018 passed
by the Income Tax Appellate Tribunal, 'A' Bench,
Bangalore      in    appeal   proceedings    in    I.T.A.
No.1053/Bang/2016 for Assessment Year:2010-11, as
sought for in this appeal.


IN I.A.No.843 OF 2018
BETWEEN:

1.     Pr. Commissioner
       Income Tax - 6
       BMTC Complex
       Koramangala
       Bangalore.

2.     Deputy Commissioner
       of Income-Tax
                              3



     Central Circle - 1[4]
     Bengaluru.
                                           ... Appellants
(By Sri. Sanmathi E.I. - Advocate)
AND:

M/s. Esteem Classic
Unit Nos.32, 33 & 34
3rd floor, SNS Chambers
Sadashivanagar
Bengaluru
PAN.AACFE2663F.
                                          ... Respondent

(By Sri. A. Shankar - Sr. Counsel for
    Sri. Lava M - Advocate)

     This I.T.A. is filed under Section 260-A of Income
Tax Act 1961, arising out of order dated 02.05.2018
passed in ITA Nos.1054/Bang/016, for the Assessment
year 2011-2012, praying to decide the foregoing
question of law and / or such other questions of law as
may be formulated by the Hon'ble Court as deemed fit;
set aside the appellate order dated 02.05.2018 passed
by the Income Tax Appellate Tribunal, 'A' Bench,
Bangalore      in    appeal   proceedings    in    I.T.A.
No.1054/Bang/2016 for Assessment Year:2011-12, as
sought for in this appeal.


IN I.A.No.844 OF 2018
BETWEEN:

1.   Pr. Commissioner
     Income Tax - 6
     BMTC Complex
     Koramangala
     Bangalore.
                                4




2.     Deputy Commissioner
       of Income-Tax
       Central Circle - 1[4]
       Bengaluru.
                                           ... Appellants
(By Sri. Sanmathi E.I. - Advocate)

AND:

M/s. Esteem Classic
Unit Nos.32, 33 & 34
3rd floor, SNS Chambers
Sadashivanagar
Bengaluru
PAN.AACFE2663F.

                                          ... Respondent
(By Sri. A. Shankar - Sr. Counsel for
    Sri. Lava M - Advocate)

     This I.T.A. is filed under Section 260-A of Income
Tax Act 1961, arising out of order dated 02.05.2018
passed in ITA Nos.1055/Bang/016, for the Assessment
year 2012-2013, praying to decide the foregoing
question of law and / or such other questions of law as
may be formulated by the Hon'ble Court as deemed fit;
set aside the appellate order dated 02.05.2018 passed
by the Income Tax Appellate Tribunal, 'A' Bench,
Bangalore      in    appeal   proceedings    in    I.T.A.
No.1055/Bang/2016 for Assessment Year:2012-13, as
sought for in this appeal.


    These I.T.As' coming on for Hearing, this day
ALOK ARADHE J., delivered the following:
                                 5



                          JUDGMENT

These appeals under Section 260A of the Income

Tax Act, 1961 (hereinafter referred to as the Act for

short) have been filed by the Revenue in respect of the

Assessment years 2010-2011, 2011-2012 and 2012-

2013. ITA No.842/2018 pertains to Assessment year

2010-2011 whereas ITA No.843/2018 pertains to

Assessment year 2011-2012 and ITA No.844/2013

pertains to Assessment year 2012-2013.

2. The appeals emanate from a common order

passed by the Income Tax Appellate Tribunal dated

02.05.2018. The appeals are therefore heard

analogously and decided by this common judgment.

The appeals were admitted by a bench of this Court vide

order dated 02.01.2020 on the following substantial

questions of law:

"i) Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that assessing authority is not right in observing that assessee was

required to apply Accounting Standard AS-7 on the ground that it does not apply to real estate developers whereas in the instant case, assessee has received significant advances and also project is complete around 97% and as such, the date of completion of registration becomes insignificant as it is a mere tactic to postpone payment of income tax which is due for taxation for period under consideration?

ii) Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that the tax effect is neutral / revenue neutral proposition whereas it is against the real income theory of 'pay as you earn' and further it is not tax neutral because the assessee gets 'such fund' which ought to have been deposited as tax, at his disposal and also interest calculated on such fund?

iii) Whether on the facts and in the circumstances of the case, the Tribunal is justified in setting aside addition made by assessing authority under the head income from business by adopting percentage of

project completion method as against project completion method, which is contrary to Accounting Standards AS-7 and Section 145 of the Act?"

3. Facts leading to filing of these appeals briefly

stated are that the assessee is a registered partnership

firm carrying on the business of constructions and

developers in the name and style of 'M/s. Esteem

Classic'. The assessee commenced development of a

housing project on a piece of land bearing Sy.no.147/A,

Municipal No.25/2, in Industrial Suburb, I Stage,

Rajajinagar, Bengaluru. The Housing Project of the

assessee is popularly known as 'Esteem Classic'. The

assessee purchased the land and started developing the

land. The assessee had completed the work of

construction of 71 flats and sold the same in the year

ending 31.03.2012. The assessee sold 22 flats during

the year ending 31.03.2013 and 21 flats during the

period ending 31.03.2014. The assessee followed the

completed contract method of recognizing the revenue

as per Accounting Standard-9. In accordance with the

aforesaid method of computation, the income for the

Assessment year 2010-2011 to 2012-2013 and 2013-

2014 and 2014-2015 was completed and was declared.

4. The Assessing Officer accepted the income

return filed for the assessment year 2013-2014 and

2014-2015. However, the Assessing Officer passed an

order under Section 143(3) read with Section 153-A of

the Act on 31.03.2014 for the Assessment years 2010-

2011, 2011-2012 and 2012-2013. In the Assessment

order, the Assessing Officer had adopted the percentage

completion method holding that the assessee ought to

have followed the same in accordance with the

Accounting Standard-7.

The assessee thereupon filed appeals before the

Commissioner of Income Tax (Appeals) in respect of

Assessment year 2010-2011, 2011-2012, 2012-2013.

The Commissioner of Income Tax (Appeals), by a

common order dated 30.03.2016, dismissed the appeals

preferred by the assessee. Being aggrieved, the

assessee filed appeal before the Income Tax Appellate

Tribunal. The Tribunal, by a common order dated

02.05.2018, interalia held that the issues raised by the

assessee with regard to validity of the addition made in

the proceeding under Section 153-A of the Act, are not

required to be taken into consideration. Being aggrieved

by the order of the Tribunal, the revenue has filed these

appeals.

5. Learned counsel for the Revenue submitted that

the Tribunal erred in law in holding that accounting

standard, namely Accounting Standard-7 is not

applicable to the assessee on the ground that it does not

apply to real estate developers even when assessee has

received significant advances and also project is

completed upto 97% and as such, the date of

completion of registration becomes insignificant, as it is

a tactic to postpone the payment of income tax which is

due for taxation for the period under consideration. It is

further submitted that the Tribunal held that the tax

effect is neutral / revenue neutral and the aforesaid

finding is contrary to law. It is further submitted that

the assessee has not shown his income, which indicates

that this is a tactic to postpone the payment of tax. It is

also submitted that the Assessing Authority had

correctly adopted the project completion method.

6. On the other hand, learned Senior counsel for

the assessee submits that the substantial questions of

law involved in these appeals are no longer res integra

and same are covered by the following decisions:

i) CIT vs. PRESTIGE ESTATE PROJECTS (P) LTD.

(2020) 116 TAXMANN.COM 554 (KAR)

ii) CIT vs. BANJARA DEVELOPERS &

CONSTRUCTIONS P. LTD. (2020) 117 TAXMANN.COM

747 (KAR)

iii) CIT vs. S.N. BUILDERS & DEVELOPERS IN ITA

No.393 OF 2014 DATED 07.01.2021 (KAR)

iv) CIT vs. S.N. BUILDERS & DEVELOPERS IN ITA

No.739 OF 2018 DATED 20.01.2021 (KAR)

v) DCIT vs. VARUN DEVELOPERS IN ITA No.198 OF

2014 DATED 08.02.2021.

7. It is further submitted that since the assessee

has adopted one of the two methods which is

permissible in law, the same does not impact the overall

revenue of the Department, as the amount which could

not be subjected to tax in the Assessment year 2010-

2011 and 2011-2012 if any, would be taxed in the

subsequent years, i.e., in the Assessment year 2012-

2013. It is also pointed out that no portion of project is

completed in Assessment year 2010-2011 and

Assessment year 2011-2012 and therefore, no revenue

has been realized.

It is further submitted that the aforesaid

transaction is revenue neutral and the contention of the

Revenue that the assessee should follow percentage

completion method is without any specific provision, for

the same is not in accordance with law. In support of

the aforesaid submissions, reliance has been placed on

the decisions of:

i) CIT vs. EXCEL INDUSTRIES (2013)

358 ITR 295 (SC)

ii) CIT vs. BILAHARI INVESTMENTS

(2008) 299 ITR 1 (SC)

It is also pointed out that the completed contract

method of computation has been accepted by the

Revenue for the subsequent Assessment years 2013-

2014 and 2014-2015.

8. We have considered the submissions made on

both sides and have perused the afore-mentioned

decisions carefully. On perusal of the afore-mentioned

decisions referred to supra rendered by this court in the

case of PRESTIGE ESTATE PROJECTS, BANJARA

DEVELOPERS & CONSTRUCTIONS (P) LTD., VARUN

DEVELOPERS, S.N. BUILDERS & DEVELOPERS IN ITA

393/2014 AND ITA 739/2018 as well as the decisions of

the Hon'ble Supreme Court in EXCEL INDUSTRIES and in

BILAHARI INVESTMENTS supra and taking into account

the fact that the Revenue itself has recognized the