M/S. UNITECH REALTY PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER:

This appeal is preferred by the assessee against order dated 05.05.2016 passed by the Learned Commissioner of Income Tax (Appeals)-22, New Delhi {CIT(A)} for Assessment Year 2011-12.

2.0 The brief facts of the case are as that during the year under consideration, the assessee was engaged in the business of M/s Unitech Reality Pvt. Ltd. vs. DCIT Real Estate Development. The return of income was filed declaring total income of Rs. 41,12,96,510/- The case was selected for scrutiny. During the course of assessment proceedings, apart from other two issues, the Assessing Officer (AO) noted that the assessee had incurred expenditure of Rs.60,84,530/- on account of completed projects- (Uniworld Garden-1). The assessee was asked to furnish justification for allowability of such expenditure related to completed projects. It was the assessee’s contention that since some of the work of the project Uniworld Garden-1could not be completed within the year ending 31st March, 2009 (the year in which the project was treated as complete by the AO), the remaining work as per the agreement with the customers could only be completed during the year under consideration. However, the Assessing Officer did not accept the assessee’s contention and noted that since the Uniworld Garden-1 project was completed in Assessment Year 2009-10, there was no scope for allowability of any other expenditure or loss in the current year from the said project. Accordingly, an amount of Rs.60,84,530/- was added to the income of the assessee.

M/s Unitech Reality Pvt. Ltd. vs. DCIT 2.1 Apart from this, it was also noticed that the assessee had advanced interest free advances to the holding company M/s Unitech Ltd. The Assessing Officer was of the opinion that non- charging of interest on the sum advanced by the assessee company to its holding company was a colorable device to reduce its income and consequently its taxes. The Assessing Officer proceeded to make an addition of Rs.15,14,28,410/- towards interest foregone i.e. @ 15%. The AO also proceeded to tax interest on FDRs under “Income from other sources” although the assessee had shown the same under “Income from Business”. The assessment was completed at an income of Rs.57,28,82,530/- .

2.2 Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the various additions. The assessee’s appeal was partly allowed by the Ld. CIT (A). The Ld. CIT (A) confirmed the disallowance of Rs.60,84,530/- pertaining to Uniworld Garden-1 project. The Ld. CIT (A) also directed the deletion of notional interest of Rs.15.14,28,410/- on account of interest free advance given to the holding company. However, the Ld. CIT (A) directed that since the assessee company had free

M/s Unitech Reality Pvt. Ltd. vs. DCIT reserves of 39.30 crores, the holding company would be liable to tax as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 (hereinafter called ‘the Act’.) in the hands of the holding company with respect to the interest free advances. The Ld. CIT (A) also upheld the Assessing Officer view that interest on FDRs should be taxed under the head of income from other sources.

2.3 Now, the assessee is before this Tribunal challenging the order of the Ld. First Appellate Authority by raising the following grounds of appeal:

“1) That order made u/s 250 of the Income Tax Act dated 05/05/2016 by the learned CIT (Appeals)-22 is erroneous in nature as he has confirmed some of the additions made by the Ld. AO which were arbitrary and uncalled for.

2) That the disallowance a sum of Rs 60,84,530/- out of expenses relating to Uniworld Garden- (UG-1) is against the principles of equity and natural justice because if the project is mainly completed on completion contract method, it doesn’t mean that residual expenses related with that project can’t be accounted for in the ensuing year. Even the matching principles of accounting as stated by the Ld CIT (A) in his appellate order never mandatorily require that residual and incidental expenses of the project which was mainly completed in the immediately preceding year can’t be accounted for in the immediately succeeding year. 3) That treatment of interest on FD as business income is unjust and uncalled for as FDR’s were made for M/s Unitech Reality Pvt. Ltd. vs. DCIT procurement of bank guarantees which were incidental to business objectives and it was never the luxury to park the surplus funds in the banks. Since the FDR’s were made for furtherance and smooth running of the day to day business of the assessee company therefore interest on FDR’s might have been treated as business income and not as income from other sources.

In the light of above said facts, it is prayed that the additions upheld by the Ld. CIT (A)-22 may kindly be set aside.”

3.0 At the outset, the Ld. Authorized Representative submitted that the Ground No.3 challenging the treatment of interest on FDRs as income from other sources was not being pressed. Accordingly, this ground is dismissed as not having being pressed.

3.1 With respect to Ground No.2, the Ld. Authorized Representative submitted that the disallowance of Rs.60,84,530/- being expenses relating to the Uniworld Garden-1 project was against the principal of equity and natural justice because even if the project had been completed on completion contract method, it did not mean that the residual and incidental expenses related to the project cannot be accounted for in the succeeding year. It was submitted that, undisputedly, the assessee is following the M/s Unitech Reality Pvt. Ltd. vs. DCIT completed contract method but the impugned expenditure was general in nature and did not impact the recognition of Revenue in Assessment Year 2010-11. It was submitted that since, it was in the nature of general expenditure, such expenditure had to be recorded only when it was actually incurred as it could not have been factored earlier when the project was completed. The Ld. Authorized Representative submitted that the case laws relied upon the Ld. First Appellate Authority while confirming the addition was misapplication of law. The Ld. Authorized Representative also relied on numerous judicial precedents to buttress the claim that the disallowance expenditure had been incorrectly upheld by the Ld. CIT (A).

4.0 Per contra, the Ld. Sr. Departmental Representative (DR) placed reliance on the concurrent findings of both the Lower Authorities i.e. the Assessing Officer and the Ld. CIT (A) and vehemently argued that the disallowance had been rightly made because as per the assessee’s own admittance and facts on records, the assessee was following completed contract method and, therefore, expenditure which had been incurred subsequent to the M/s Unitech Reality Pvt. Ltd. vs. DCIT completion of the project could not be allowed under the method of accounting being followed by the assessee.

5.0 We have heard the rival submissions and have also perused the material on record as well as the orders of the Lower Authorities. A perusal of the assessment order shows that the sole ground for disallowance of the impugned expenditure by the Assessing Officer was the reason that since the concerned project had been completed in Assessment Year 2010-11 itself, any expenditure incurred on the said project subsequent to its completion could not be allowed. The Ld. CIT (A), while upholding the disallowance placed reliance on the judgment of the Hon’ble Bombay High Court in the case of Taparia Tools Ltd. vs. Joint Commissioner of Income Tax, reported in [2003] 260 ITR 102 (Bombay) and held that the impugned expenditure could not be allowed as the receipts from the concerned project had already been offered to tax in the earlier assessment year. However, we find that the Hon’ble Delhi High Court in the case of Gopal Das Estates & Housing Pvt. Ltd. vs. CIT reported in [2019] 103 Taxmann.com 334

M/s Unitech Reality Pvt. Ltd. vs. DCIT (Delhi) has held that in the case of an assessee following completed contract method, the expenditure incurred subsequent to the completion of the project had to be allowed as Revenue expenditure.

In this case, the assessee was engaged in construction and sale of commercial space and followed completed contract method of accounting. When the project was still under construction, interest expenditure was capitalized and once the project was completed, the said expenditure was claimed as Revenue expenditure. This was disputed by the Department. The Hon’ble Delhi High Court held that for the assessee following the completed contract method, the expenditure incurred subsequent to the completion of the project had to be allowed only as Revenue expenditure.

5.1 It is not in dispute that this expenditure has been incurred by the assessee. Also it remains undisputed that the expenditure was incurred for the purposes of the business of the assessee. Therefore, it is our considered opinion that even though the assessee has been following the completed contract method of accounting, the assessee’s claim for allowance of expenditure pertaining to the project Uniworld Garden-1 deserves to be allowed

M/s Unitech Reality Pvt. Ltd. vs. DCIT during the year under consideration, notwithstanding the fact that the project had already been completed in the immediately preceding assessment year. For this, we draw support from the judgment with the Hon’ble Delhi High Court in the case of Gopal Das vs. CIT (supra) as mentioned in the preceding paragraph.

Accordingly, the order of the Ld. CIT (A) on the issue is set aside and the Assessing Officer is directed to delete the disallowance.

5.2 Ground No.1 of the assessee’s appeal is general in nature not requiring any specific adjudication.

6.0 In the final result, the appeal of the assessee stands partly allowed. Order pronounced on 31/08/2020.