DCIT - 11(1)(1), MUMBAI vs. RUSTOMJEE REALTY PVT. LTD., MUMBAI

Rustomjee group . 3 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017

"1. On the facts and in the circumstances of the case and in law, the Ld. On the facts and in the circumstances of the case and in law, the Ld. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of expenses of Rs. 4,97,38,505/- CIT (A) erred in deleting the disallowance of expenses of Rs. 4,97,38,505 CIT (A) erred in deleting the disallowance of expenses of Rs. 4,97,38,505 added to the total work-in- progress of the project without appreciating the fact added to the total work progress of the project without appreciating the fact that the assessee failed to establish the nexus between revenue offered and the failed to establish the nexus between revenue offered and the failed to establish the nexus between revenue offered and the expenses claimed and closing work- in- progress. Further, the assessee failed to expenses claimed and closing work progress. Further, the assessee failed to substantiate with documentary evidence the direct nexus between the borrowed substantiate with documentary evidence the direct nexus between the borrowed substantiate with documentary evidence the direct nexus between the borrowed funds and the project undertaken which is required to be established as the funds and the project undertaken whi ch is required to be established as the Finance cost debited by the assessee was incurred on borrowed funds which Finance cost debited by the assessee was incurred on borrowed funds which Finance cost debited by the assessee was incurred on borrowed funds which must be meant for specific projects and are directly attributable to the must be meant for specific projects and are directly attributable to the must be meant for specific projects and are directly attributable to the individual/specific projects." individual/specific projects." , facts of the case are that the assessee company 4. Briefly stated, facts re that the assessee company was engaged in the business of constructing, purchasing, acquiring, was engaged in the business of constructing, purchasing, acquiring, was engaged in the business of constructing, purchasing, acquiring, managing and developing real estate projects. For the year under managing and developing real estate projects. For the year under managing and developing real estate projects. For the year under consideration, the assessee filed consideration, the assessee filed return of income on 20/07/2013 on 20/07/2013 declaring loss of ₹3,83,15,6 3,83,15,655/-. The return of income filed by the . The return of income filed by the assessee was selected for scrutiny and statutory notices under the assessee was selected for scrutiny and statutory notice assessee was selected for scrutiny and statutory notice Income-tax Act,1961 (in short ‘the Act’) ,1961 (in short ‘the Act’) were issued and complied issued and complied with. During the course of assessment proceedings, the Assessing with. During the course of assessment proceedings, the Assessing with. During the course of assessment proceedings, the Assessing construction receipt aggregating to ₹7,28,00,816/- Officer noticed construction receipt aggregating to construction receipt aggregating to and other receipts aggregating to ₹97,26,533/- and other receipts aggregating to on account of dividend and miscellaneous income. After debiting various dividend and miscellaneous income. After debiting various dividend and miscellaneous income. After debiting various expenses such as construction cost, administrative cost, etc. the expenses such as construction cost, administrative cost, etc. the expenses such as construction cost, administrative cost, etc. the oss in the return of income at ₹3,83,15,655/-. assessee reported loss in the return of income at oss in the return of income at As far as profit from the projects i.e. real estate/construction As far as profit from the projects i.e. real estate/construction As far as profit from the projects i.e. real estate/construction project is concerned, the assessee was following percentage project is concerned, the assessee was following percentage project is concerned, the assessee was following percentage completion method. completion method. While working out the loss, the assessee While working out the loss, the assessee ₹4,39,48,540/- debited interest interest of of and and other other expenses expenses of of ₹57,92,865/- to P&L Account and claimed the same as revenue to P&L Account and claimed the same as revenue to P&L Account and claimed the same as revenue

Rustomjee group . 4 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017 expenditure, whereas according to the Assessing Officer, the whereas according to the Assessing Officer, the whereas according to the Assessing Officer, the interest and other expenses were related interest and other expenses were related directly to to the project cost and, therefore, same should hav and, therefore, same should have been included in the ‘work e been included in the ‘work-in- progress’(WIP) of relevant projects. progress’(WIP) of relevant projects. It was submitted by the It was submitted by the assessee that project during the year had been completed upto 95% assessee that project during the year had been completed upto 95% assessee that project during the year had been completed upto 95% and, therefore, all the expenses were debited to the P&L Account and, therefore, all the expenses were debited to the P&L Account and, therefore, all the expenses were debited to the P&L Account and adding to the WIP was not j and adding to the WIP was not justified. The assessee assessee relied on the Accounting Standard Accounting Standard-7 (As-7) to support the claim of finance 7) to support the claim of finance i.e. interest and other expenses as revenue expenses. The Ld.AO and other expenses as revenue expenses. The Ld.AO and other expenses as revenue expenses. The Ld.AO rejected the contention of the assessee and removed the said rejected the contention of the assessee and removed the said rejected the contention of the assessee and removed the said expenses from P&L Account and in expenses from P&L Account and included the same into the WIP of cluded the same into the WIP of the project. The relevant finding of the Assessing Officer is the project. The relevant finding of the Assessing Officer is the project. The relevant finding of the Assessing Officer is reproduced as under: reproduced as under:- “3.4 The submissions made by the assessee has been carefully perused and 3.4 The submissions made by the assessee has been carefully perused and 3.4 The submissions made by the assessee has been carefully perused and considered. However, the same is not acceptable. It may be mentioned here that considered. However, the same is not acceptable. It may be mention considered. However, the same is not acceptable. It may be mention inspite of providing two show causes i.e. two opportunities, the assesse has not inspite of providing two show causes i.e. two opportunities, the assesse has not inspite of providing two show causes i.e. two opportunities, the assesse has not submitted the details of interest expenditure based on the projects and submitted the details of interest expenditure based on the projects and submitted the details of interest expenditure based on the projects and completion of individual project. The assesse has heavily relied on AS - 7 issued completion of individual project. The assesse has heavily relied on AS completion of individual project. The assesse has heavily relied on AS by ICAI for "Constructions Contracts". The asssessee has submitted that in Para for "Constructions Contracts". The asssessee has submitted that in Para for "Constructions Contracts". The asssessee has submitted that in Para 15 of the AS – 7, nowhere it is mentioned about inclusion of finance cost into the 7, nowhere it is mentioned about inclusion of finance cost into the 7, nowhere it is mentioned about inclusion of finance cost into the Cost of Construction. Hence the same shall not be part of the WIP and is Cost of Construction. Hence the same shall not be part of the WIP and is Cost of Construction. Hence the same shall not be part of the WIP and is allowable as revenue expenditure. In the same manner, the assessee company allowable as revenue expend iture. In the same manner, the assessee company has relied heavily on Para 19 of AS-7 that the General & Administration Cost has relied heavily on Para 19 of AS 7 that the General & Administration Cost and Selling Cost are to be excluded from the Construction Cost since these and Selling Cost are to be excluded from the Construction Cost since these and Selling Cost are to be excluded from the Construction Cost since these costs/expenses cannot be attributed to contract activity or cannot be allocated to costs/expenses cannot be attributed to contract activit y or cannot be allocated to a contract. In this regard para 15 and para 19 of AS 7 are discussed as under:- a contract. In this regard para 15 and para 19 of AS 7 are discussed as under: a contract. In this regard para 15 and para 19 of AS 7 are discussed as under: Para 15 of the AS Para 15 of the AS-7 states that Contract Costs should comprise: Contract Costs should comprise: (a) Costs that relate directly to the specific contract Costs that relate directly to the specific contract (b) Costs that are attributable to contract activity in general and can be Costs that are attributable to contract activity in general and can be Costs that are attributable to contract activity in general and can be allocated to the contract; and allocated to the contract; and Rustomjee group . 5 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017

(c) Such other costs as are specifically chargeable to customer under the terms of Such other costs as are specifically chargeable to customer under the terms of Such other costs as are specifically chargeable to customer under the terms of the contract;” 3.5. As per the above para, the cost has been treated on As per the above para, the cost has been treated on As per the above para, the cost has been treated on the basis of attribution of the cost the project. Further Para 16 & 17 which deals with the attribution of the cost the project. Further Para 16 & 17 which deals with the attribution of the cost the project. Further Para 16 & 17 which deals with the costs as mentioned in (a) and (b) above are inclusive definitions and includes costs as mentioned in (a) and (b) above are inclusive definitions and includes costs as mentioned in (a) and (b) above are inclusive definitions and includes the costs mentioned there in are an example and it by no meaning can exclude the costs mentioned there in are an example and it by no meaning can exclude the costs mentioned there in are an example and it by no meaning can exclude the other costs which are directly attributable to the construction cost. It may be er costs which are directly attributable to the construction cost. It may be er costs which are directly attributable to the construction cost. It may be noted that the Finance Cos as debited by the assessee company is on borrowed noted that the Finance Cos as debited by the assessee company is on borrowed noted that the Finance Cos as debited by the assessee company is on borrowed fund, which are sanctioned on the basis of specific projects. In other words, fund, which are sanctioned on the basis of specific projects. In other words, fund, which are sanctioned on the basis of specific projects. In other words, these borrowings are in nature of Project Funds and not general Term Loans / these borrowings are in nature of Project Funds and not general Term Loans / CCs / ODs. There is direct nexus between the borrowed fund and the projects CCs / ODs. There is direct nexus between the borrowed fund and the projects CCs / ODs. There is direct nexus between the borrowed fund and the projects undertaken. Thus, the interest on respective project Fund can be attributed to undertaken. Thus, the interest on respective project Fund can be attributed to undertaken. Thus, the interest on respective project Fund can be attributed to the respective project on actual basis. Once the interest is attributable the respective project on actual basis. Once the interest is attributable to the project, the same is to be allowed as business expenditure in ratio of the project, the same is to be allowed as business expenditure in ratio of the project, the same is to be allowed as business expenditure in ratio of the revenue offered from the project and WIP at the end of the year. revenue offered from the project and WIP at the end of the year. 3.6 In respect of assessee's In respect of assessee's claim of other Expenses of Rs. 57,92,965/ aim of other Expenses of Rs. 57,92,965/- debited to Profit & Loss Account, the assesse has relied on Para 19 of the AS. It debited to Profit & Loss Account, the assesse has relied on Para 19 of the AS. It debited to Profit & Loss Account, the assesse has relied on Para 19 of the AS. It is to be noted that The para 19 starts with "Costs that cannot be attributable is to be noted that The para 19 starts with "Costs that cannot be attributable is to be noted that The para 19 starts with "Costs that cannot be attributable ........'. So the general admin costs as referred in Para 19 is with reference to the ........'. So the general admin costs as referred in Para 19 is with reference to the General Admin expenses that are not directly attributable to the construction dmin expenses that are not directly attributable to the construction dmin expenses that are not directly attributable to the construction project. If these expenses are directly attributable to the construction contract, project. If these expenses are directly attributable to the construction contract, project. If these expenses are directly attributable to the construction contract, the question of applicability of Para 19 does not arise. It is to be noted that the the question of applicability of Para 19 does not arise. It is to be noted that the the question of applicability of Para 19 does not arise. It is to be noted that the assessee company is one of the reputed construction company in Mumbai. The assessee company is one of the reputed construction company in Mumbai. The expenses incurred in this business are based on the specific project. It is expenses incurred in this business are based on the specific project. It is expenses incurred in this business are based on the specific project. It is observed that under the head of "General / Other Expenses', the assesse has observed that under the head of "General / Other Expenses', the assesse has observed that under the head of "General / Other Expenses', the assesse has debited Professional Fees / Technical Fees. These fees are also directly debited Professional Fees / Technical Fees. These fees are also directly attributable to the projects. It may further be noted that the Income Tax Act, 1961 attributable to the projects. It may further be noted that the Income Tax Act, 1961 attributable to the projects. It may further be noted that the Income Tax Act, 1961 does not have any specific accounting standard in relation to construction does not have any specific accounting standard in relation to construction does not have any specific accounting standard in relation to construction contracts. Hence the claim of the expenses is governed by the provisions of contracts. Hence the claim of the expenses is governed by the provisions contracts. Hence the claim of the expenses is governed by the provisions Section 29 to 43B of the Act, which are based on the principle of matching Section 29 to 43B of the Act, which are based on the principle of matching Section 29 to 43B of the Act, which are based on the principle of matching concept of income and expenditure. The Section 37(1) of the Act itself restricts concept of income and expenditure. The Section 37(1) of the Act itself restricts concept of income and expenditure. The Section 37(1) of the Act itself restricts the claim of the expenses in relation to income offered in that particular year. the claim of the expenses in relation to income offered in that particular year. the claim of the expenses in relation to income offered in that particular year. Any expenses attributable to the future income are to be capitalized and are to ributable to the future income are to be capitalized and are to ributable to the future income are to be capitalized and are to be allowed in year, in which this future income is offered for taxation. be allowed in year, in which this future income is offered for taxation. be allowed in year, in which this future income is offered for taxation. 3.7 From above, it is concluded that the finance cost, selling and marketing From above, it is concluded that the finance cost, selling and marketing From above, it is concluded that the finance cost, selling and marketing expenses and general expenses are to be allowed as revenue expenditure to expenses and general expenses are to be a llowed as revenue expenditure to the extent of attribution to the revenue offered. In this regard, reliance has been the extent of attribution to the revenue offered. In this regard, reliance has been the extent of attribution to the revenue offered. In this regard, reliance has been placed on the principles laid down in case of S.K. Estates (P.) Ltd. vsACIT, placed on the principles laid down in case of S.K. Estates (P.) Ltd. vsACIT, 1997 60 ITD 621 Mum. ITD 621 Mum. 3.8 It is to be noted that the assess It is to be noted that the assessee company was provided two opportunities company was provided two opportunities by way of show cause, one wide order sheet recording and other by Show by way of show cause, one wide order sheet recording and other by Show by way of show cause, one wide order sheet recording and other by Show

Rustomjee group . 6 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017 Cause notice dated 9.03.2015 so as to justify the claim of finance cost, Selling 9.03.2015 so as to justify the claim of finance cost, Selling 9.03.2015 so as to justify the claim of finance cost, Selling and Marketing expenses and general expenses as revenue expenditure. Despite and Marketing expenses and general expenses as revenue expenditure. Despite various opportunities, the assessee company has made general claims and has various opportunities, the assessee company has made general claims and has various opportunities, the assessee company has made general claims and has not justified its claim as treating interest expenses and other expenses as not justified its claim as treating interest expenses and other expenses as not justified its claim as treating interest expenses and other expenses as revenue expenditure. Th The assesse has neither submitted projectwise break up of ectwise break up of above expenses nor has furnished any details of the ratio in which the revenue e expenses nor has furnished any details of the ratio in which the revenue e expenses nor has furnished any details of the ratio in which the revenue has been offered to tax and WIP at the end of the year. In the absence of the has been offered to tax and WIP at the end of the year. In the absence of the has been offered to tax and WIP at the end of the year. In the absence of the details and as per the provisions of Section 37 of the Act, interest of details and as per the provisions of Section 37 of the Act, interest of details and as per the provisions of Section 37 of the Act, interest of , and other Expenses of ₹57,92,965/- aggregating to Rs.4,39,48,540/-, and other Exp aggregating to Rs.4,97,38,505/- attributable to the capital is transferred to attributable to the capital is transferred to the capital WIP and the capital WIP and the total income of the assessee stands increased to that extent. By claiming such the total income of the assessee stands increased to that extent. By claiming such the total income of the assessee stands increased to that extent. By claiming such inadmissible expenses, the assessee has not only concealed its income but has inadmissible expenses, the assessee has not only con cealed its income but has also filed inaccurate particulars thereof. Penalty proceedings u/s. 271(l)(c) of the I.T. also filed inaccurate particulars thereof. Penalty proceedings u/s. 271(l)(c) of the I.T. also filed inaccurate particulars thereof. Penalty proceedings u/s. 271(l)(c) of the I.T. Act, 1961 are initiated separately for the default committed by the assessee within Act, 1961 are initiated separately for the default committed by the assessee within Act, 1961 are initiated separately for the default committed by the assessee within the meaning of that section.” the meaning of that section.”

Rustomjee group . 7 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017 from this, the Appellant also submitted the breakup of Revenue recognized for from this, the Appellant also submitted the breakup of Revenue recognized for from this, the Appellant also submitted the breakup of Revenue recognized for 4 years, sample copies of invoices; break up of costs for 4 years, value of sale 4 years, sample copies of invoices; break up o f costs for 4 years, value of sale deeds executed and documents to support expenses. However, the A.O. documents to support expenses. However, the A.O. reiterated his earlier stand in Remand proceedings as well. reiterated his earlier stand in Remand proceedings as well. I have also perused detailed submissions dated 29.11.2016 and find that the I have also perused detailed submissions dated 29.11.2016 and find that the I have also perused detailed submissions dated 29.11.2016 and find that the treatment given by the Appellant is in conformity with the AS 7 & AS 16. I, by the Appellant is in conformity with the AS 7 & AS 16. I, by the Appellant is in conformity with the AS 7 & AS 16. I, therefore, find that the disallowance made by the A.O. is against the said therefore, find that the disallowance made by the A.O. is against the said therefore, find that the disallowance made by the A.O. is against the said Accounting Standards. Moreover, the documentary evidences produced during Accounting Standards. Moreover, the documentary evidences produced during Accounting Standards. Moreover, the documentary evidences produced during the Remand Proceedings also advances the case of the Appellant. After the Remand Proceedings also advances the case o f the Appellant. After considering stage of completion, facts of the case and the case laws relied considering stage of completion, facts of the case and the case laws relied considering stage of completion, facts of the case and the case laws relied upon by the Appellant, all favouring the treatment adopted by the Appellant upon by the Appellant, all favouring the treatment adopted by the Appellant upon by the Appellant, all favouring the treatment adopted by the Appellant for Construction Accounting. Moreover, by capitalization there is no loss or for Construction Accounting. Moreover, by capitalization there is no loss or for Construction Accounting. Moreover, by capitalization there is no loss or profit to the Revenue. Accordingly, the disallowance made by the A.O. of Rs. it to the Revenue. Accordingly, the disallowance made by the A.O. of Rs. it to the Revenue. Accordingly, the disallowance made by the A.O. of Rs. 4,97,38,505/- is deleted. is deleted. Accordingly, this Ground of Appeal is allowed.” Accordingly, this Ground of Appeal is allowed.”

6. Before us, the Ld. Before us, the Ld. Counsel of the assessee filed a paper book Counsel of the assessee filed a paper book containing pages 1 to 31. containing pages 1 to 31.

Rustomjee group . 8 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017 project in proportion of the project completed. The Ld.CIT(A), roject in proportion of the project completed. The Ld.CIT(A), roject in proportion of the project completed. The Ld.CIT(A), however, has reversed the finding of the Ld.AO. however, has reversed the finding of the Ld.AO.

Rustomjee group . 10 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017 Account. The gross profit from project is then credited to P The gross profit from project is then credited to P The gross profit from project is then credited to P&L Account and the expenses in the nature of Administration and Account and the expenses in the nature of Administration and Account and the expenses in the nature of Administration and General, General, General, which which which are are are not not not specific specific specific to to to project project project like directors’ like like directors’ directors’ remuneration, office expenses are debited in P&L Account and then remuneration, office expenses are debited in P&L Account and then remuneration, office expenses are debited in P&L Account and then net profit / loss is computed as per net profit / loss is computed as per accounting principles. But in accounting principles. But in the case, assessee is seeking to debit whole of interest and other the case, assessee is seeking to debit whole of interest and other the case, assessee is seeking to debit whole of interest and other expenses to profit & loss account. expenses to profit & loss account. The interest and other expenses, The interest and other expenses, which are directly related to the project should not be included in which are directly related to the project should not be included in which are directly related to the project should not be included in Project cost and balance should be debited to P&L account. In the Project cost and balance should be debited to P&L a Project cost and balance should be debited to P&L a facts and circumstances of the case, we feel it appropriate to restore facts and circumstances of the case, we feel it appropriate to restore facts and circumstances of the case, we feel it appropriate to restore this issue back to the file of the Ld. CIT(A) for determining the this issue back to the file of the Ld. CIT(A) for determining the this issue back to the file of the Ld. CIT(A) for determining the quantum of interest and other expenses related directly to the quantum of interest and other expenses related directly to the quantum of interest and other expenses related directly to the project. The assessee is directed to co The assessee is directed to co-operate and provide all the perate and provide all the details of the finance and other expenses alongwith ledgers and details of the finance and other expenses alongwith ledgers and details of the finance and other expenses alongwith ledgers and vouchers. It is needless to mention that assessee shall be afforded vouchers. It is needless to mention that assessee shall be afforded vouchers. It is needless to mention that assessee shall be afforded adequate opportunity of being heard. adequate opportunity of being heard. Ground No.1 of the Revenue Ground No.1 of the Revenue is allowed for statistical purpo is allowed for statistical purpose.

, the Appellant has agitated the disallowance of Under this Ground of Appeal, the Appellant has agitated the disallowance of Under this Ground of Appeal, the Appellant has agitated the disallowance of expenses amounting to Rs. 10,10,59,304/-. I have carefully considered the expenses amounting to Rs. 10,10,59,304/ . I have carefully considered the submissions of the Appellant vis-a-vis assessment order. On perusal of the submissions of the Appellant vis vis assessment order. On perusal of the same, I find that the A.O. has disallowed expenses amounting to Rs. same, I find that the A.O. has disallowed expenses amounting to Rs. 10,10,59,304/- by holding that the same are required to be added to the WIP by holding that the same are required to be added to the WIP by holding that the same are required to be added to the WIP of the Project. On the other hand, I find that the Appellant is following of the Project. On the other hand, I find that the Appellant is following of the Project. On the other hand, I find that the Appellant is following Percentage Completion Method for purpose of Accounting. It is further Percentage Completion Method for purpose of Accounting. It is further Percentage Completion Method for purpose of Accounting. It is further contended by the Appellant that the Project is on the verge of completion and contended by the Appellant that the Project is on the verge of completion and contended by the Appellant that the Project is on the verge of completion and therefore adding the impugned expenses to the WIP would not be justified in therefore adding the impugned expenses to the WIP would not be justified in therefore adding the impugned expenses to the WIP would not be justified in such circumstances. In fact, the Appellant vehemently contended that the such circumstances. In fact, the Appellant vehemently contended that the such circumstances. In fact, the Appellant vehemently contended that the Accounting Standard of ICAI supports their case. The Appellant further Accounting Standard of ICAI supports their case. The Appellant further submitted that in such a scenario that the administrative expenses need to be submitted that in such a scenario that the administrative expenses need to be submitted that in such a scenario that the administrative expenses need to be charged off to Profit & Loss Account. I also find that the Appellant submitted charged off to Profit & Loss Account. I also find that the Appellant submitted charged off to Profit & Loss Account. I also find that the Appellant submitted guidance note on completion method issued by ICAI while presenting their guidance note on completion method issued by ICAI while presenting their case during proceedings. Apart from this, the Appellant also submitted the case during proceedings. Apart from this, the Appellant also submitted the case during proceedings. Apart from this, the Appellant also submitted the breakup of Revenue recognized for 4 years, sample copies of invoices; break breakup of Revenue recognized for 4 years, sample copies of invoices; break breakup of Revenue recognized for 4 years, sample copies of invoices; break up of costs for 4 years, value of sale deeds executed and documents to support up of costs for 4 years, value of sale deeds executed and documents to support up of costs for 4 years, value of sale deeds executed and documents to support expenses. However, the A.O. reiterated his earlier stand in Remand However, the A.O. reiterated his earlier stand in Remand However, the A.O. reiterated his earlier stand in Remand proceedings as well. I have also perused detailed submissions dated 23.05.2017 and find that the I have also perused detailed submissions dated 23.05.2017 and find that the I have also perused detailed submissions dated 23.05.2017 and find that the treatment given by the Appellant is in conformity with the AS 7 & AS 16. I, treatment given by the Appellant is in conformity with the AS 7 & AS 16. I, treatment given by the Appellant is in conformity with the AS 7 & AS 16. I, therefore, find that the disallowance made by the A.O. is against the said therefore, find that the disallowance made by the A.O. is against the said

Rustomjee group . 12 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017

Accounting Standards. Moreover, the documentary evidences produced during Accounting Standards. Moreover, the documentary evidences produced during Accounting Standards. Moreover, the documentary evidences produced during the Remand Proceedings also advances the case of the Appellant, After the Remand Proceedings also advances the case of the Appellant, After the Remand Proceedings also advances the case of the Appellant, After considering stage of completion, facts of the case and the cas considering stage of completion, facts of the case and the case laws relied considering stage of completion, facts of the case and the cas upon by the Appellant, all favoring the treatment adopted by the Appellant for upon by the Appellant, all favoring the treatment adopted by the Appellant for upon by the Appellant, all favoring the treatment adopted by the Appellant for Construction Accounting. Moreover, by capitalization there is no loss or Construction Accounting. Moreover, by capitalization there is no loss or Construction Accounting. Moreover, by capitalization there is no loss or profit to the Revenue. Accordingly, the disallowance made by the A.O. of profit to the Revenue. Accordingly, the disallowance made by the A.O. of profit to the Revenue. Accordingly, the disallowance made by the A.O. of ₹10,10,59304/- is deleted. Accordingly, is deleted. Accordingly, this Ground of Appeal is allowed.” this Ground of Appeal is allowed.”

12. We have heard rival submissions of the parties on the issue in We have heard rival submissions of the parties on the issue in We have heard rival submissions of the parties on the issue in dispute and perused relevant materials on record. We find that the dispute and perused relevant materials on record. We find that the dispute and perused relevant materials on record. We find that the facts mentioned by the Ld. facts mentioned by the Ld. CIT(A) are perverse. Actually, t CIT(A) are perverse. Actually, the Ld. CIT(A) repeated the facts of Rustomjee Buildcon Pvt Ltd. Since the CIT(A) repeated the facts of Rustomjee Buildcon Pvt Ltd. Since the CIT(A) repeated the facts of Rustomjee Buildcon Pvt Ltd. Since the decision arrived at by the Ld.CIT(A) is decision arrived at by the Ld.CIT(A) is based on based on incorrect facts, ignorance of the facts of the instant case, same being perverse on ignorance of the facts of the instant case, same being perverse on ignorance of the facts of the instant case, same being perverse on facts, is set aside and matter is restored is set aside and matter is restored back to the file of the to the file of the Ld.CIT(A) for deciding afresh keeping in view correct facts of the for deciding afresh keeping in view correct facts of the for deciding afresh keeping in view correct facts of the case.

13. The ground of A.Y. 2013 The ground of A.Y. 2013-14 in M/s Rustomjee Construction in M/s Rustomjee Construction Pvt. Ltd is as under:- - "1. On the facts and in the circumstances of the case and in law, the id. On the facts and in the circumstances of the case and in law, the id. On the facts and in the circumstances of the case and in law, the id. CIT (A) erred in not appreciating the fact that the assessee had failed CIT (A) erred in not appreciating the fact that the assessee had failed CIT (A) erred in not appreciating the fact that the assessee had failed to establish the nexus between revenue offered and the expenses to establish the nexus between revenue offered and the expenses to establish the nexus between revenue offered and the expenses claimed and and and expenses claimed and closing work closing work-in- progress. Since, the assessee does not establish the nexus of income offered the assessee does not establish the nexus of income offered the assessee does not establish the nexus of income offered and expenses claimed as revenue expenditure, the treatment of and expenses claimed as revenue expenditure, the treatment of and expenses claimed as revenue expenditure, the treatment of expenses debited in P&L A/c as capital expenditure by the AO is expenses debited in P&L A/c as capital expenditure by the AO is expenses debited in P&L A/c as capital expenditure by the AO is the I. T. Act." correct, justifiable and as per the provisions of correct, justifiable and as per the provisions of the I. T. Act."

14. In this case also, there is a perversity of facts assumed by the In this case also, there is a perversity of facts assumed by the In this case also, there is a perversity of facts assumed by the Ld. CIT(A). The finding of the Ld. CIT(A). The finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under:-

“Decision

Rustomjee group . 13 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017

Ground No. 2: Under this Ground of Appeal

, the Appellant has agitated the disallowance Under this Ground of Appeal, the Appellant has agitated the disallowanc Under this Ground of Appeal, the Appellant has agitated the disallowanc of expenses amounting to Rs. 34,996,200/-. I have carefully considered th of expenses amounting to Rs. 34,996,200/ . I have carefully considered the submissions of the Appellant vis-a-vis assessment order. On perusal of th submissions of the Appellant vis vis assessment order. On perusal of the same, I find that the A.O. has disallowed expenses amounting to Rs same, I find that the A.O. has disallowed expenses amounting to Rs same, I find that the A.O. has disallowed expenses amounting to Rs 34,996,200/- by holding that the same are required to be added to the W1I by holding that the same are required to be added to the W1I by holding that the same are required to be added to the W1I of the Project. On the other hand, I find that the Appellant is following of the Project. On the other hand, I find that the Appellant is followi of the Project. On the other hand, I find that the Appellant is followi Percentage Completion Method for purpose of Accounting. It is furth Percentage Completion Method for purpose of Accounting. It is further contended by the Appellant that the Project is on the verge of completion contended by the Appellant that the Project is on the verge of completi contended by the Appellant that the Project is on the verge of completi and therefore adding the impugned expenses to the WIP would not be and therefore adding the impugned expenses to the WIP would not be and therefore adding the impugned expenses to the WIP would not be justified in such circumstances. In fact, the Appellant vehemently justified in such circumstances. In fact, the Appellant vehement justified in such circumstances. In fact, the Appellant vehement contended that the Accounting Standard of ICAI supports their case. The nded that the Accounting Standard of ICAI supports their case. The nded that the Accounting Standard of ICAI supports their case. The Appellant further submitted that in such a scenario that the administrative Appellant further submitted that in such a scenario that the administrative Appellant further submitted that in such a scenario that the administrative expenses need to be charged off to Profit & Loss Account. I also find that expenses need to be charged off to Profit & Loss Account. I also find tha expenses need to be charged off to Profit & Loss Account. I also find tha the Appellant submitted guidance note on completion method issued b the Appellant submitted guidance note on completion method issued b ICAI while presenting their case during proceedings. Apart from this, the while presenting their case during proceedings. Apart from this, the while presenting their case during proceedings. Apart from this, the Appellant also submitted the breakup of Revenue recognized for 4 years, Appellant also submitted the breakup of Revenue recognized for 4 years, Appellant also submitted the breakup of Revenue recognized for 4 years, sample copies of invoices; break up of costs for 4 years, value of sale deeds sample copies of invoices; break up of costs for 4 years, value of sale deeds sample copies of invoices; break up of costs for 4 years, value of sale deeds executed and documents to support expenses. However, the A.O. reiterated ecuted and documents to support expenses. However, the A.O. reiterated ecuted and documents to support expenses. However, the A.O. reiterated his earlier stand in Remand proceedings as well. his earlier stand in Remand proceedings as well. I have also perused detailed submissions dated 23.05.2017 and find that the I have also perused detailed submissions dated 23.05.2017 and find that the I have also perused detailed submissions dated 23.05.2017 and find that the treatment given by the Appellant is in conformity with the AS 7 & AS 16. I, treatment given by the Appellant is in conformity with the A S 7 & AS 16. I, therefore, find that the disallowance made by the A.O. is against the said therefore, find that the disallowance made by the A.O. is against the said therefore, find that the disallowance made by the A.O. is against the said Accounting Standards. Moreover, the documentary evidences produced Accounting Standards. Moreover, the documentary evidences produced Accounting Standards. Moreover, the documentary evidences produced during the Remand Proceedings also advances the case of the Appellant during the Remand Proceedings also advances the case of the Appellant during the Remand Proceedings also advances the case of the Appellant After considering stage of completion, facts of the case and the case laws After considering stage of c ompletion, facts of the case and the case laws relied upon by the Appellant, all favoring the treatment adopted by the relied upon by the Appellant, all favoring the treatment adopted by the relied upon by the Appellant, all favoring the treatment adopted by the Appellant for Construction Accounting. Moreover, by capitalization there is Appellant for Construction Accounting. Moreover, by capitalization there is Appellant for Construction Accounting. Moreover, by capitalization there is no loss or profit to the Revenue. Accordingly, the disallowance made by the no loss or profit to the Revenue. Accordingly, the disallowan no loss or profit to the Revenue. Accordingly, the disallowan A.O. of Rs. 34,996,200/- is deleted. Accordingly, this Ground of Appeal is A.O. of Rs. 34,996,200/ this Ground of Appeal is allowed.”

15. The Ld. CIT(A) in his finding in his finding has mentioned of relying on of relying on the remand report from the Assessing Officer whereas no such remand remand report from the Assessing Officer whereas no such remand remand report from the Assessing Officer whereas no such remand report was called for by report was called for by the Ld.CIT(A). This fact has been accepted the Ld.CIT(A). This fact has been accepted by the Ld. Counsel of the assessee also Counsel of the assessee also. Therefore, the decision has , the decision has Rustomjee group . 14 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017 been arrived at by the Ld. been arrived at by the Ld. CIT(A) on assuming wrong facts. CIT(A) on assuming wrong facts. Hence, the same is set aside and matter is sent back to the Ld.CIT(A) for the same is set aside and matter is sent back to the Ld.CIT(A) for the same is set aside and matter is sent back to the Ld.CIT(A) for deciding afresh.

16. As far as appeal in the case of M/s Rustomjee Realty Pvt Ltd As far as appeal in the case of M/s Rustomjee Realty Pvt Ltd As far as appeal in the case of M/s Rustomjee Realty Pvt Ltd for A.Ys. 2012-13 2013 13 2013-14 are concerned, findings of Ld. of Ld. CIT(A) are identical to the case of M/s Rustomjee Construction Pvt Ltd in A.Ys identical to the case of M/s Rustomjee Construction Pvt Ltd in A.Ys identical to the case of M/s Rustomjee Construction Pvt Ltd in A.Ys 2012-13 and 2013-14. Therefore, following our 14. Therefore, following our finding finding in the case of Rustomjee Construction P Ltd for A.Y. 2012 of Rustomjee Construction P Ltd for A.Y. 2012-13 & 2013 13 & 2013-14, the decision of Ld.CIT(A) being perverse on facts, same are set aside decision of Ld.CIT(A) being perverse on facts, same are set aside decision of Ld.CIT(A) being perverse on facts, same are set aside and matter in these appeals are restored back to the file of the and matter in these appeals are restored back to the file of the and matter in these appeals are restored back to the file of the Ld.CIT(A) for deciding afresh following o Ld.CIT(A) for deciding afresh following our findings in the case of ur findings in the case of M/s Rustomjee Construction Pvt Ltd. M/s Rustomjee Construction Pvt Ltd.

Rustomjee group . 15 ITAs 3981, 6305, 6282, 6281 & 3982 3981, 6305, 6282, 6281 & 3982/Mum/2017