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4. Whether the undisclosed transfer charge/s received by the respondent from sale of space to its buyers was not liable to be added to its income @ 3.6% during the relevant year?

5. Whether the amount of Rs.3,82,94,536/- recoverable by the respondent for payment of stamp duty including the electrification charges for spaces sold out was not liable to be added back to its income being revenue in nature as held by the ITAT?

11. Question No.5 relates to the addition of Rs.3,82,94,536/- being stamp duty and electrification charges recoverable by the assessee. This issue is dealt with in paragraph 7 of the assessment order. The Assessing Officer stated that the seized documents revealed that the assessee was charging registration charges @ 7% and was showing the same as loans and advances recoverable from the customers. According to him this was a wrong method of accounting. A similar procedure was found to have been adopted by the assessee in respect of electrification charges which were charged @ 15% and shown to be recoverable as loans and advances. According to the assessing officer these were not items of revenue expenditure since they related to the flats/space and formed part of the cost thereof and therefore they were not adjustable against the revenue of the assessee. According to the assessing officer these items of expenditure could be capitalized and added as part of the work in progress. On these facts he called upon the assessee to explain why the registration and electrification charges collected from customers cannot be added as revenue receipts. The assessee submitted that according to the system of accounting followed, the registration and electrification charges were not included either in the cost of land or in the work in progress or as cost of the project and they were rightly shown to be recoverable from the buyers. It was also explained that in case there is any surplus of the registration and electrification charges collected from the customers over the amounts paid to the State Government, the surplus would be shown as income in the year of receipt. The assessing officer rejected the explanation on the ground that revenue receipts and capital expenditure cannot be adjusted against each other. He, therefore, added the amount of Rs.3,82,94,536/- as the assessee's income.

d) When the registration and electrification charges are recovered from the buyer later they are duly recorded in the books of accounts. This is at the time of handing over possession or execution of sale deeds. Neither the payment of the registration and electrification charges nor the recovery thereof from the buyers is shown in the profit and loss account and thus there is no revenue effect.

e) The finding of the AO that the capital expenditure has been adjusted against revenue receipts is not factually correct since no such adjustment has been made in the books of accounts.

13. On the above factual findings, the CIT (A) deleted the addition of Rs.3,82,94,536/-.

14. On appeal by the Revenue to the Tribunal it was held that the assessee could have adopted two ways of recording the transaction - either by crediting the amount received from the buyers in the cost of the project account and claiming the payment of the registration and electrification charges as an expense on the debit side or to make an entry in such a manner that the amount is shown as recoverable from the buyers, credit the account with recoveries made from the buyers and if there is any surplus of the recoveries over and above the amount shown as recoverable, offer the same for income tax. The Tribunal held that the assessee has adopted the second of these two methods and both the methods were acceptable. It was also found by the Tribunal that when the assessee paid the registration and electrification charges they were not claimed as deduction in the profit and loss account. On these findings of fact the Tribunal agreed with the CIT(A) that the amount cannot be added.