ITAT Mumbai Remands Developer's Tax Dispute To Assessing Officer Over Revised Income, Project Cost Estimates

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has remanded to the Assessing Officer a tax dispute involving Lohitka Properties LLP's revised income computation for its “Montana” real estate project.

The Tribunal held that the assessee's revised estimates and the Revenue's objections require detailed factual verification.

A bench of Judicial Member Anikesh Banerjee and Accountant Member Om Prakash Kant observed: “Neither the approach adopted by the Assessing Officer in outrightly rejecting the revised estimates nor the acceptance thereof by the learned CIT(A) without exhaustive verification fully sub-serves the ends of justice. The matter, therefore, warrants comprehensive factual verification so as to ascertain the correctness of the computation of profits under the POCM method adopted by the assessee.”

The dispute arose after a survey at Lohitka Properties LLP, a real estate developer constructing the “Montana” residential project in Mulund, Mumbai.

During the survey, one of the partners projected business income of ₹23.96 crore and long-term capital gains of  ₹26.07 crore in relation to the “Rosa” building project. However, in the return of income, the assessee declared substantially lower income under the Percentage Completion Method.

The assessee attributed the revision to a reduction in the building plan from 48 floors to 39 floors. It also cited increased construction costs after opting for the concessional GST regime without input tax credit. The assessee further said only 95 flats were ultimately registered instead of the 176 units anticipated during the survey.

The Assessing Officer rejected the revised estimates. He recomputed business profits and long-term capital gains, making additions towards differential income.

On appeal, the Commissioner of Income Tax (Appeals) accepted the assessee's explanation and deleted the additions. The appellate authority held that the revised estimates were supported by post-survey developments. It also held that the Assessing Officer had failed to disprove them.

Before the Tribunal, the Revenue argued that the revised estimates had not been properly verified. It specifically questioned the actual GST impact, phase-wise allocation of transfer of development rights (TDR), cost implications of the floor-plan revision, and consistency of revenue recognition.

Accepting this contention, the Tribunal held that these issues were factual in nature. It said they required a fresh examination.

The tribunal directed the Assessing Officer to verify vendor-wise GST impact on construction cost. It also directed verification of phase-wise purchase and utilisation of TDR/development rights, quantified cost implications of the revised floor plan, and consistency between revenue recognition and registered agreements.

The Revenue's appeals for assessment years 2019-20 and 2020-21 were allowed for statistical purposes.

For Assessee: Dr. K. Shivaram & Shri Rahul Hakani

For Revenue: Surendra Mohan, (SR. DR) Deputy Commissioner of Income Tax (Central Circle)-1(2) v. Lohitka Properties LLP(Virtually Appeared)