ITAT Mumbai Validates Project Completion Method for Integrated Real Estate Developments; Quashes Additions on CSR and GST Interest

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently delivered a comprehensive ruling addressing several highly debated issues in corporate taxation, particularly for the real estate sector. In the matter of DCIT Vs Sashwat Construwell Pvt. Ltd., the Tribunal dismissed the Revenue's appeal, thereby upholding the order passed by the Commissioner of Income Tax (Appeals). The core of the dispute revolved around the timing of revenue recognition under the project completion method, the deductibility of Corporate Social Responsibility (CSR) contributions, and the nature of interest paid on delayed indirect tax remittances.

This decision provides significant clarity for real estate developers undertaking multi-phase projects and reaffirms established judicial principles regarding statutory disallowances.

Background of the Dispute

The assessee, engaged in the business of real estate development and construction, took up a residential project named "Bhoomi Celestia" located in Malad West, Mumbai. The development was executed pursuant to a Memorandum of Understanding (MoU) with the landowner, American Springs and Pressing Works Pvt. Ltd.

Under the terms of this joint development arrangement, the revenue and saleable area were to be shared between the parties. The assessee was entitled to a 49% share of the saleable area, while the remaining 51% was allocated to the landowner. The project was designed to include three distinct residential towers: Tower A, Tower A1, and Tower B.

Crucially, the entire development was initiated based on a single, consolidated Commencement Certificate issued by the municipal authorities on 06.07.2010. While the project faced initial regulatory delays and effectively commenced construction in the financial year 2016-17, Tower B was eventually completed during the Assessment Year (AY) 2022-23, receiving its Occupancy Certificate in December 2021.

For the relevant AY 2022-23, the assessee filed its return declaring a total income of Rs. 99,93,740/- under the normal provisions of the Income Tax Act 1961, alongside a book profit of Rs. 1,13,36,555/- calculated under Section 115JB. Since the tax liability under normal provisions exceeded the Minimum Alternate Tax (MAT) liability, the final computation was based on the normal provisions.