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Facts
The assessee filed a return of income claiming a total loss. The Assessing Officer disallowed indirect expenses for administration and business promotion, stating that no income was offered to tax. The CIT(A) deleted this addition, following a previous tribunal order in the assessee's own case.
Held
The Tribunal held that the CIT(A) was justified in deleting the addition. The assessee's treatment of indirect costs as period costs, consistent with the ICAI guidance note, was found to be in order, especially as the project had not yet commenced and revenue recognition criteria were not met.
Key Issues
Whether indirect expenses claimed as period costs are allowable when revenue recognition criteria have not been met, and whether ICDS prevails over accounting standards in such cases.
Sections Cited
145(2)
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Before: Shri S.S. Viswanethra Ravi & Shri S.R. Raghunatha
Year: 2017-18 The Deputy Commissioner of Vs. Casa Grande Homes Private Limited, New No. 111, Old No. 59, 6th Floor, Income Tax, Central Circle 1(3), Thiruvanmiyur, Chennai 600 041. Chennai. [PAN:AAGCC1182Q] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Ms. Gouthami Manivasagam, JCIT ��थ� की ओर से/Respondent by : Shri G. Reddi Prakash, CA सुनवाई की तारीख/ Date of hearing : 17.09.2025 घोषणा की तारीख /Date of Pronouncement : 29.10.2025 आदेश /O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order dated 12.02.2025 passed by the ld. Commissioner of Income Tax (Appeals) – 18, Chennai for the assessment year 2017-18.
We find that this appeal is filed with a delay of 44 days. The DCIT Central Circle 1(3)(I/c), Chennai filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the Appellant-Revenue are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
The Appellant-Revenue raised 3 grounds of appeal amongst which, the only issue emanates for our consideration as to whether the ld. CIT(A) is justified in deleting the addition made by following the order of this Tribunal in assessee’s own case for earlier AY 2016-17.
Brief facts relating to the case are that the assessee filed the return of income for the A.Y. 2017-18 on 27.10.2017 claiming a total loss of ₹.7,20,53,668/-. The case was selected for scrutiny and considering the submissions of the assessee in response to the statutory notices, the Assessing Officer noted that the assessee has incurred indirect expenditure of ₹. 7,20,71,557/- for the purpose of administration and business promotion. The assessee has not offered any income from operation as it had claimed that it had not yet satisfied the criteria for recognizing revenue as per Percentage of Completion Method prescribed in the 'Guidance Note on Accounting for Real Estate Transactions' issued by ICAI. As the expenses which are claimed by the assessee are not directly related to development and construction costs of the project, the assessee has debited the same to statement of profit and loss and claimed in the return of income. The Assessing Officer has disallowed the said expenses on the ground that corresponding income from project is not offered to tax in the A.Y. 2017-18. On appeal, by following the order of this Tribunal in assessee’s own case, the ld. CIT(A) deleted the addition made on the disallowance of indirect costs being selling and professional costs. Aggrieved, the Revenue is in appeal before ITAT.
The ld. DR Ms. Gouthami Manivasagam, JCIT submits that the assessee’s real estate development activity falls within the ambit of ICDS- III as classified by the CBDT vide circular No. 10/2017, but, however, the ld. CIT(A) failed to apply ICDS-III and instead relied on the ICAI Guidance Note, which is subordinate to ICDS for tax purposes under section 145(2) of the Act. The ld. DR relied on the decision of the Hon’ble High Court of Delhi in the case of DLF v. CIT [2019] 416 ITR 358 (Del) and submits that where ICDS conflicts with accounting standards, ICDS prevails for income computation. She vehemently argued that when no revenue was recognized, the indirect expenses attributable to the project cannot be claimed as revenue expenditure, but, must be capitalized to align with ICDS-III’s cost allocation principles. She further submits that the ld. CIT(A) failed to consider that the order of the ITAT in dated 06.07.2022 in assessee’s own case for AY 2016- 17 has not been accepted and further appeal has been filed before the Hon’ble High Court of Madras and the same was dismissed on account of law tax effect without adjudicating the issue on merits. The ld. DR prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer is restored.
The ld. AR Shri G. Reddi Prakash, CA submits that the principles laid down in guidance note as well as ICDS were one and the same and to support his argument, placed reliance on the decision of the Hon’ble High Court of Delhi in the case of CIT v. Dhumketu Builders and Development Ltd. 368 ITR 680 (Del). He submits that identical issue on similar facts and circumstances was in appeal before this Tribunal in assessee’s own case for AY 2016-17, wherein, the Tribunal decided the issue against the Revenue, which has been followed in the impugned order and prayed to confirm the order passed by the ld. CIT(A).
Heard both the parties and perused the material available on record. We note that the assessee had claimed indirect expenses being sales promotion, advertisement, professional costs, etc. as expenditure while no revenue was recognized in the books of account. However, the Assessing Officer disallowed the claim of the assessee on the ground that no income was offered from the project. The ld. CIT(A) noted that identical issue on similar facts and circumstances was in appeal before this Tribunal in assessee’s own case for AY 2016-17 and reproduced the decision of ITAT in para 5.3 at pages 10 & 11 of the impugned order. Since the issue involved in the present is identical to the issue involved in the AY 2016-17 and by following the same, the ld. CIT(A) deleted the addition made on the disallowance of indirect costs being selling and professional costs and allowed the ground raised by the assessee. Upon perusal of the order of the ITAT in assessee’s own case for AY 2016-17, the Tribunal has observed that the assessee is following percentage of completion method of accounting to recognize the revenue under the project and since the project has not been commenced, the assessee has capitalized the direct costs, but, however, indirect costs which are in the nature of selling costs and professional costs could not be attributed to any specific project and it is a period cost. The applicable guidance note issued by ICAI mandate the assessee to claim the same as period cost and the assessee has followed the same treatment. The action of the assessee is in consonance with the mandatory guidance note and therefore, the same could not be faulted with. Considering the above findings of the Tribunal in assessee’s own case for AY 2016-17, we note that the ld. CIT(A) has rightly followed the order of this Tribunal and deleted the addition made by the Assessing Officer. Thus, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the grounds raised by the Appellant-Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 29th October, 2025 at Chennai.