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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER BENCH and 1972/Del/2011 CO no 165/del/2011 M/s. Piyush Colonizers Limited AY 2008-09 1. These are the cross appeals filed by the Assessee as well as the ld Assessing Officer against the order of the ld CIT (A)-I, Ludhiana dated 21.08.2011 for AY 2008-09 and CO filed by assessee. 2. The assessee has raised the following grounds of appeal in ITA No. 1644/Del/2011 for the Assessment Year 2008-09:- “1. 0n the facts and circumstances of the case the Ld. CIT(A) has erred in law and on facts in upholding disallowance of Rs. 1,85,92,817/- out of total disallowance of indirect expenditure of Rs. 9,56,65,810/- claimed by the appellant as revenue/ period expenditure.
2. On the facts and circumstance of the case , the Ld. CIT (A) erred in law and on facts in confirming disallowance of Rs.1,85,95,917/- made by assessing officer after having held that all the indirect expenditure are allowable as period cost.
3. On the facts and circumstances of the case , the Ld. CIT(A) has erred in law and on facts in upholding the addition of Rs. 22,02,640/- on account of disallowance of processing fee of loan taken by the appellant by holding that the same should be capitalized to the project coast as work in progress.
4. On the facts and circumstances of the case , the Ld. CIT (A) has erred in law and on facts in disallowing the commission expenses of Rs. 1,63,90,177/- by holding the same as project specific expenses.
5. On the facts and circumstances of the case, the Ltd. C.I.T. (A) has erred in law and on facts in confirming disallowance of Rs. 22,02,640/-on account of processing fee and Rs. 1,63,90,177/- on account of commission after having upheld the legal position that the indirect expenses are period cost and therefore allowable in the year in which the same are incurred . 6. On the facts and circumstances of the case , the Ltd. C.I.T. (A) has erred in law and on facts in dismissing the ground of the appellant that the A.O. has erred in law and on facts in not treating the surrender of Rs. 9 Crores as voluntary and treating the same as income from undisclosed source.” 3. The ld Assessing Officer has raised the following ground of appeal in Assessment Year 2008-09:- “1. The Ld. CIT(A) has erred both in law and on facts of the case in considering expenses such as establishment expenses, finance charges, sales and marketing expenses and other expenses as “indirect expenses” or “costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract”, though each and every expenditure incurred by the assessee, in view of the entire gamut of business activity of the assessee, are wholly and exclusively expenses incurred in the generation of its exclusively singular source of revenue - development and sale of real estate property.
2. The Ld. CIT (A)-I has erred both in law and on facts of the case in allowing the so-called “indirect expenses”, even though the expenses were only to be allowed in a proportionate manner within the ambit of the principles of percentage completion method, which the assessee has itself relied on for recognizing its revenues.
3. The Appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off.
4. It is prayed that the order of the Commissioner of Income- tax (Appeals) be set-aside and that of the A.O. be restored.”
4. The brief facts of the case show that search and seizure operation was carried out on 16.01.2008. Survey was also conducted in some of the premises of the group. The search was titled as “Search on Piyush Group of Companies”. During the search certain documents were impounded and cash of Rs. 38.78 lakhs and jewellery of Rs. 70.84 lakhs were found. The Assessee filed returned of income in response to notice u/s 142(1) on 30.09.2008 showing income of Rs. 107013905/-. During the course of assessment proceedings Assessee revised its return of income on Page | 3 27.08.2009 declaring income of Rs. 17013910/- as against the return in original income of Rs. 107013905/-. The above revision was on account of double disclosure made by the Assessee of Rs. 9 crores.
During the course of assessment proceedings it was noted that Assessee recognizes revenue on percentage completion basis. The ld Assessing Officer noted that Assessee has shown income from the project of Rs. 127007573/- and other income of Rs. 102140867/-. The Assessee has claimed expenditure of Rs. 21.23 crores which includes other expenditure, cost of revenue, cost of land, finance charges and sales and marketing expenditure. The ld Assessing Officer noted that Assessee has shown sales of Rs. 127007573/- and cost of sales is Rs. 101841337/-. Therefore, according to ld Assessing Officer no other expenditure should be allowed against this income as further deduction. According to ld Assessing Officer the Assessee has claimed expenditure of Rs. 11.05 crores against other income of Rs. 10.21 crores. It was further noted that amount of miscellaneous income of Rs. 10.21 crores includes Rs. 9 crore surrendered during the search. Thus according to him the assessee has expenditure of Rs. 11.05 crores to negate the surrendered income. Thus, Assessee was questioned about the allowability of that expenditure. The Assessee explained that expenses that are not related to the particular project such as marketing expenses and financial expenses are not carried to „work in progress‟ but are shown in the profit and loss account. The assessee further submitted that profit of Rs. 2.51 crores and other income of Rs. 10.21 crores which includes Rs. 9 crores as surrendered income has already been shown in the profit and loss account and return of income. The ld AO rejected the contentions of the assessee and held that all these expenditure should be proportionately capitalized as work in progress. Consequently, he also held that all expenses on account of advertisement, interest and commission shall be capitalized wholly to the project and further 90% of the expenses will be capitalized to the project and balance 1/10 would be allowed against the profit during the year. Consequently, he determined the total taxable income of the Assessee Rs. 11.26 crores. Further, the disclosure of Rs. 9 crores was not treated by the AO as not voluntary and considered the same as undisclosed income.
Consequently, assessment order u/s 143(3) read with 153A of the Act was passed on 29.12.2009.
6. The assessee aggrieved with the order preferred the appeal before the ld CIT (A). The learned CIT issue expenditure is revenue expenditure and out of disallowance of 95665810/– the disallowances restricted to INR 1 8592817 – being the directly identifiable expenditure on account of processing fees of Messer‟s India Bulls loan and commission expenditure relating to Palwal and corporate Park. Thus he deleted the disallowance of INR 7 7072993/–. Thus the learned assessing officer is aggrieved with the deletion of the disallowance and assessee with confirmation of the disallowance of 18592817/–. Thus both the parties are in appeal before us 7. Despite notice to the assessee none appeared. These appeals are filed in 2011. The first hearing was fixed on 06/06/2011 where request of the assessee the matter was adjourned. Further, on 26/08/2014 at the request of the assessee the matters were adjourned. On 05/02/2015 at the request of the assessee, matters were adjourned. Continuously thereafter on more than 12 occasions the matters were adjourned at the request of the assessee. Subsequently 15/04/2019 and on the date of hearing on 16/07/2019 none appeared on behalf of the assessee. This conduct of the assessee shows that it is not interested in prosecuting this appeal. On the last two dates, neither the adjournment application is the time of hearing or later on. Keeping the appeal is pending waiting for the assessee to respond at his sweet will is a great injustice done to the other party. Therefore, we are forced to proceed these matters to decide on the facts of the case and information available on record.
The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that that learned CIT – A has deleted the disallowance of INR 7 7072993 merely based on the guidelines of IC a holding that indirect expenses being. Cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses especially when the assessing officer himself has accepted and assessed the revenue booked by the appellant during the year under consideration stop she submitted that the total project cost is required to be capitalized as work in progress. Thus, she argued that the order of the learned assessing officer may be restored.
We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer based on the sales of INR 127,000,000 and the cost of sales of INR 101,800,000 has held that no other expenses should be allowed to the assessee irrespective of the nature. The assessing officer further alleged that assessee has shown other expenditure in the profit and loss account only to negate the surrendered income of INR 90,000,000. The AO was also of the view that for the year ended on 31/3/2007 the assessee was recognizing the revenue only if the actual cost of 30% of the total estimated project cost is incurred and no project of the company has achieved this percentage till 31/3/2008 and therefore the all the expenditures are required to be capitalized. AO further held that in the preceding year and 90% of the various indirect expenditure was capitalized 23-project expenditure. Thus the AO computed the taxable income by allowing the expenditure of cost of sales of INR 101,800,000 and further only 10% of the total other indirect expenditure of INR 131,400,000 thereby making the total addition of INR 95,600,000 on account of tax excess claim of indirect expenditure. For this, the learned assessing officer has heavily relied upon the fact that appellant has changed its accounting policy in the year under consideration for recognizing the revenue and further the indirect expenses should have been capitalized as per policy followed in the year ended on 31/03/2007. On appeal before the learned CIT – A he considered the whole issue as under:- “4.3 I have considered the submissions of the AR. The assessee is engaged in the business of real estate development and construction activities. In the asstt order, the AO has noted that as per P&L a/c of assessee company, it has followed percentage completion method of revenue reorganization and has shown total revenue of Rs. 12,70,07,573/- and other income of Rs. 10,21,40,867/-. Against the above income, the assessee has claimed total expenses of Rs. 21,23,67,484/-. The AO has further observed that against the total sales of Rs. 12,70,07,573/-, the cost of sales have been shown at Rs. 10,18,41,337/- which includes cost of land sold and cost of revenue. Accordingly, the AO has mentioned that the rest of expenses of Rs. 11,05,26,147/- (Rs. 21,23,67,484 - Rs. 10,18,41,337/-) have been claimed against the other income of Rs. 10,21,40,867/- and the same should not be allowed. The AO has further observed that the assessee had shown misc. income of Rs. 9,01,64,093/- ( included under the Page | 6
head “other income of Rs. 10,21,40,867/-) which includes Rs. 9 crores surrendered during the course of search operation and as such assessee has claimed the above expenditure of Rs. 11,05,26,147/- to negate the surrendered income. The AO has also noted that the project expenses of Rs. 2,09,25,355/- have been added to the inventory by the assessee. The assessee had furnished detailed replies during the course of asstt proceedings in support of method of accounting adopted by it and the expenses claimed. After considering the replies submitted by the appellant, AO has made a net addition of Rs. 9,56,65,810/- ( Rs. 11,26,79,720 - Rs. 1,70,13,910/-) on account of excess claim of indirect expenses primarily and, inter-alia, for the following reasons given in asstt order: (i) There is change in accounting policy followed by assessee as it had not been following the percentage completion method subject to 30% condition of completion compared to total cost of project. (ii) There are various projects like Bhiwadi, Palwal, Corporate and other, operational during the year. (iii) Separate books of accounts and consolidated books of accounts of various divisions have not been produced. (iv) Since, no project of the company till 31-3-2008 has competed 30% of the projected cost therefore, all expenses are to be capitalized till date and to be percentage wise charged to cost of sales. (v) In the preceding year ending 31-3-2007, 90% of various indirect expenses were capitalized to pre-project expenses and the assessee has not been following the same practice during the year under consideration. (vi) It is not clear as to why even though no project is there at Palwal and Corporate Park and even Bhiwadi has not started fully how manufacturing and financial expenses relate to Head Office. (vii) Interest paid on default allotment amounting to Rs. 1,38,93,208/- was due to the reason of delay/default of various projects at different places and therefore, comes under operation on that percentage completion method. (viii) Assured return is form of deposits taken even before completion of projects and relates to projects which have not taken off as on 31-3-2008. (ix) Commission on booking of Rs. 3,33,60,108/- relates to all flats at various places and the same should be fully capitalized for mv projects at Palwal and Corporate Park as the same have not been started. Further for Bhewadi project according to AO it should be capitalized and later on to be allowed percentage wise. In accordance with the above observations and comments, the AO has held that the indirect expenses should be capitalized to determine the true profitability of assessee for the year ending 31-3-2008 as per the accounting policies followed by the appellant in the last year. However, from the facts of the case and submissions of Id. AR and as per various details on record, I Page | 7 am unable to uphold the action of the AO. The undisputed fact of case of the appellant is that it has followed the percentage completion method for recognizing the revenue which is prescribed under accounting standard (AS 7) of the ICAI. This method of accounting for the revenue has been consistently followed by the appellant. The change made by the appellant during the year under consideration is the change in the accounting policy relating to achievement of the bench mark percentage fixed by the management of appellant company for recognizing the revenue as per AS7. In the preceding year i.e. year ending 31-3-2007, the appellant had mentioned that revenue would be recognized subject to actual cost being 30% or more of the projected cost whereas in the present year, the appellant has decided that the bench mark percentage should be 10% and since in the present year the actual cost achieved is 10.22% of the projected cost, the appellant has been duly disclosed by the appellant in its notes to accounts recognized the revenue. The above change in accounting policy forming parts of financial statement. The Id. AR in his written submission has drawn my attention to the provisions of section AS-1 of ICAI which permit the change in accounting policy. The following judicial decisions in this regard referred to by the AR duly support the case of the appellant. a. Indian Oiltanking Ltd. V/s TTO, Mumbai 120 TTJ 61 (Mum-Trib) b. Dy. CIT V/s Conwood Agencies Pvt. Ltd. 2 SOT 573 (Mum) c. MKB (Asia) (P) Ltd. V/s CIT 167 Taxman 256 (Gau) d. DCIT V/s IT C Hotels Ltd. 82 TTJ 652 (Ban-Trib)
On a perusal of facts of present case and the above judgments, I find that books of accounts in the appellant case are duly audited and there is no qualification made by the Chartered Accountant. The change in accounting policy for recognizing the revenue is duly disclosed. There is no change in the method of accounting followed by the appellant. The change in accounting policy has resulted in early reorganization of revenue and the financial effect of such change has been duly incorporated in the financial statements of the appellant. Accordingly, there can be no justification for the AO for not accepting such change and more so when the resulting revenue has been recognized by the appellant to the tune of Rs. 12.70 crores which has been duly accepted and assessed by the AO. Therefore, under such circumstances, the AO has erred in adopting the one sided approach of accepting the revenue arising due to change in accounting policy made by the appellant and on the other hand disallowing the expenses. The AO has also referred to the change in method of accounting the indirect expenses in the present year as compared to the year ending 31-3-2007 and has mentioned that same Page | 8 practice of capitalizing 90% of various indirect expenses should have been followed by the appellant. However, against the above observations of the AO, the Id. AR has brought my attention to die notes to the accounts appearing in the balance sheet of the assessee for the year ending 31-3-2007 wherein following specific note was given: "Indirect costs are treated as 'Period Costs' and are charged to the Profit & Loss Account in the year incurred. However, in the present year since the company is in the process of the development of its First Project, the Administrative and Indirect Expenses have also been allocated to the 'Project in Progress‟ at a ratio determined by the Management." Thus, it is evident from the above that the appellant company had consistently considered the indirect cost as period cost to be treated as venue in nature. It was only a specific exception made by the appellant in the year ending 31-3-2007 that the 90% of indirect cost was capitalized to the work in progress. This position has not been contradicted by the AO and therefore, I agree with the Id. Counsel for the appellant that the indirect expenditures ( being revenue in nature) are allowable as period cost and there is on deviation in this respect as compared to the accounting practice followed in the earlier years. In fact, the deviation was there in the year ending 31-3-2007 by way of specific disclosure made by the appellant The Id. AR in his written submissions has also relied on the provisions of AS7 and has successfully argued that the indirect and administrative cost that are not attributable or allocable to a particular contract are to be excluded from contract cost. I am also in agreement with the submissions of the counsel that in any business which has commenced its operation, all revenue nature expenditure is to be allowed as such after the commencement of the business. It is also not disputed by the AO that the contract cost relating to direct cost of construction including the cost of land has been claimed proportionate to the revenue recognized. The Id. AR has also in his written submissions given a description of various heads of indirect expenditure being Establishment expenses i. e. personal cost relating to administrative employees of the appellant, Finance Charges: being the interest and bank charges, Sales and Marketing expenses: being the expenses on account of commission, advertisement, sales promotion etc and other expenses comprising legal and professional fees, rent, housekeeping, telephone, printing stationary, car running and conveyance etc. During the course of hearing, Id. AR was again specifically asked to given the break up and project-wise details of above indirect expenses. The Id. AR filed further submissions vide letter dated 6-1- -2011 which is as under: “With regard to the captioned subject and further to our appeal submissions dated 15.12.2010, your goodself had required to provide the break-up of the various indirect Page | 9 expenses and to specify the project-wise details for the same. In this regard, it is clarified that as per our detailed submissions made earlier, all the expenses disallowed by the Assessing Officer are indirect expenditure and is in the nature of general administrative expenses not identifiable to a specific project and accordingly allowable as period costs in the year in which they are incurred. This is duly supported by the provisions of Accounting Standard 7 and the accounting policy followed by the Appellant. It is further submitted as under:
1. 1. The establishment expenses are all in the nature of the personnel expenses of the administrative employees of the Appellant Company and therefore are not relatable/allocable to any project.
2. Regarding finance charges, we have already given our detailed submissions that these expenses are allowable U/s 36(iv) of the Act read with the judgment of the Mumbai Tribunal in 106 TTJ 874. We had also explained that the finance charges also include interest on default allotment paid to the customers of the company for failure to deliver the flats in time and assured return i.e. the interest paid to the customers on their booking amount and is a marketing expenditure to retain the customers. Furthermore, it is submitted that these expenses can have no direct relation to the project since the amount received from customers are in the bank accounts of the company which is used as per the requirement of the company and cannot be restricted or limited to a specific project. Thus, since the user of the funds it for the direct working requirements of the company then under such circumstances interest being an indirect expenditure has to be allowed as a deduction U/s 36(l)(iii) of the Act. Then there are expenses on account of processing fee and charges of the various loans availed by the company. In this regard we wish to clarify that the break-up of the processing fee and loan processing charges is as under: SI Project Processing Fee Loan Processing (In') Charges In' i. Bhiwadi 1,68,000 5,61,800 ii. Palwal Nil Nil iii. Corporate Park 22,02,640 Nil Total 23,70,640 5,61,800 The major expense of Rs. 22.02 Lacs in respect of processing fee is the processing fee of the loan from M/s India Bulls. The remaining are the routine expenses of the loan of the Bhiwadi Project.
Other than the above there are routine expenses on account of interest paid to banks and financial institutions for the general loans availed by the Appellant Company. Also there are routine expenses on account of interest on car loan and bank charges which are not relatable to a specific project.
Regarding sales and marketing expenses, these are the expenses for the promotion of the business of the Appellant Company as a whole and the advertisements in various „Medias‟ and also expenditure on commission to the brokers/dealers responsible for sale of the various properties in the different projects of the appellant. The sales and marketing expenses like advertisements, press conferences, and sale promotion are incurred at the corporate level without any specific relations/allocations to any of the projects of the company. As desired, the commission on booking for the various projects is as under: i. Bhiwadi Rs. 1,69,69,931 ii. Palwal Rs. 33,63,614 iii. Corporate Park Rs. 1,30,26,563 Total Rs. 33,63,614
Regarding the other expenses, as per our earlier submissions we again invite your kind attention to the Schedule 18 of the Financial Statement specific reference to Page 13 of the Paper Book from where it is abundantly clear that these are routine general nature expenses. It is again submitted before your goodself that all indirect expenditure as stated above are allowable as period cost since these are the indirect expenditure and there is no justification of loading the cost of the project with such expenses, which would give a distorted picture of the contract revenue/profit. We hope that the above clarifies the matter to your satisfaction.” I have considered also the above submissions of the AR. On perusal of the facts of the case, and submissions of ld AR and after considering the accounting principles and guidelines of ICAI and provisions of the Act I am in principle in agreement with the legal position that the indirect expenses being period cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses specially when AO himself has accepted and assessed the revenue booked by appellant during the year under consideration. Even as per provisions of AS7 of the ICAI, the administrative and general expenses not allocable or attributable to a specific contract are not to be considered as part of the contract costs, therefore, these expenses cannot be loaded to contract cost. The finance cost Page | 11
being interest expenditure and bank charges etc are also allowable as a direction in view of specific provisions of section 36(l)(iii) of Act r.w. judgment of Hon‟ble Mumbai Tribunal in the case of K. Raheja (P) Ltd 106 TTJ 874. However, under the head of Finance Cost, the appellant has claimed an amount of Rs. 22,02,640/- being the processing fee of the loan availed by the appellant from M/s. India Bulls for the project at corporate part. The appellant has itself stated in his written submissions that the interest expenditure pertaining to above loan being directly recognized with the project has been capitalized under work in progress. Therefore, there is no justification to claim the processing fee of this loan as an indirect expenditure as per the policy followed by the appellant itself. Further, although sales and marketing expenses are allowable indirect expenditures being a period cost, however, the commission expenses incurred on the broker for booking the flats in the various properties is according to me a directly identifiable expense of the specific project for which commission is paid to the dealer. The relevant expenditure in respect of appellant‟s project located at Palwal and Corporate Park (the projects for which revenue is yet to be recognized) is Rs. 1,63,90,177/- and the same cannot be equated with other indirect expenditure and is accordingly liable to be disallowed. Although the AO has mentioned that the project wise expenditure details is not being maintained by the appellant but on perusal of written replies submitted during the course of asstt proceedings I fmd that appellant has duly furnished the details of all the expenses and further more the contention of the appellant that the project at Bhiwadi has completed more than 10% of the projected cost has also been accepted by the AO. In this regard, a reference may be made to assessee‟s replies dated 17-9-2009, 24-9- 2009, 7-10-2009, 11-12-2009 and 16-12-2009 available at pages No. 70 to84 as revenue expenditure and out of total disallowance of Rs. 9,56,65,810/-, the disallowance is restricted to Rs. 1,85,92,817/- being the directly identifiable expenditure on account of processing fee of M/s India Bulls loan and commission expenditure relating to Palwal and Corporate Park and balance disallowance of Rs. 7,70,72,993/- is deleted.”
Therefore, he held that the indirect expenditure claimed by the appellant are allowable as revenue expenditure and out of the total disallowance of Rs. 95665810/- he restricted the disallowance to Rs. 18592817/-. Thus, he deleted the disallowance of Rs. 77072993/-. The learned CIT – A has identified each of the expenditure and isolated the expenditure based on the principle that the indirect expenses being period cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses when the assessing officer himself has accepted and assess the revenue booked by the appellant during the year under consideration. He further referred to the accounting standard 7 issued by the Inst of chartered accountants of India wherein it has been stated that administrative and general expenses are not allocable or attributable to a specific contract and are to be considered as part of the contract cost and there should these expenses cannot be loaded to a particular contract. With respect to the allowability of the interest expenditure, the reliance was placed on the coordinate bench decision. He further held that sales and marketing expenditure are allowable indirect expenditure being a period cost but the commission expenses incurred for booking of the flats on various property is directly identifiable expenses of the specific project for which commission is paid to the dealer. In view of this we do not find any infirmity in the order of the learned CIT – A. Accordingly appeal of the assessee contesting the confirmation of the disallowance of INR 1 8592817/– is dismissed. Accordingly, ground numbers 1 – 5 of the appeal are dismissed and findings of the learned CIT – AR confirmed.
Now we come to ground number 6 of the appeal against not treating the surrender of INR 90,000,000 is voluntary in treating the same as income from undisclosed sources. This ground is premature, as it does not have any consequence on the determination of the total income of the assessee. The learned CIT – A has correctly decided this ground as per para number 5.2 of his order. Thus the finding of the learned CIT – A is confirmed on the ground number 6 of the appeal of the assessee is dismissed.
Accordingly ITA number 1644/del/2011 filed by the assessee is dismissed.
CO number 165/del/2011 filed by the assessee for assessment year 2008 – 09 in ITA number 1972/del/2011 filed by the learned AO Challenges on the similar ground additions confirmed by the learned CIT – A. As we have dismissed the appeal of the assessee on the similar grounds, the cross objection filed by the assessee is also dismissed for the reasons given while deciding the appeal of the assessee in ITA number 1644/del/2011.
In ITA number 1972/del/2011, the learned Asst Commissioner of income tax has challenged the finding of the learned CIT – A by raising two substantive grounds of the appeal on the issue decided in ground number 1 to 5 of the appeal of the assessee. As we have upheld the order of the learned CIT – A wherein he has deleted the addition to the extent of INR 7 7072993/–, the appeal filed by the learned assessing officer is also dismissed for the similar reasons. Accordingly, ground number 1 and 2 of the appeal of the learned assessing officer are dismissed.
Accordingly, for assessment year 2008 – 09 appeal filed by the learned assessing officer in ITA number 1972/del/2011, the cross objection filed by the assessee in CO number 165/del/2011 and appeal filed by the assessee in ITA number 1644/del/2011 are dismissed.
ITA No 1971/del/2011 (By AO) Co No 164/Del/2011 AY 2008-09 In Case of Piyush Build well India Limited
The facts in this case show that assessee is a company engaged in the business of realistic development and different projects of real estates undertaken. For assessment year 2008 – 09 it filed its return of income in response to notice u/s 142 (1) declaring nil income on 30/9/2008. The facts in this case are identical to the facts in the case of Piyush Colonizers Limited. The assessment u/s 143 (3) was passed on 29/12/2009 under section 143 (3) read with section 153A of the income tax act determining the total income of the assessee at INR 105117940/– wherein an addition of INR 1 8432854/– was made on account of the various expenditure with respect to bank guarantee charges related to the project, bank interest, advertisement, fees, legal and professional charges, web designing charges amounting in all INR 2 23332727/– was allowed by the learned assessing officer to the extent of only 21% amounting to INR 4 899873/– and therefore it was held by the learned assessing officer that the balance expenditure of INR 1 8432854/– should have been capitalized to the work in progress account. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned Commissioner of income tax central circle – 1, New Delhi who passed an order on 30/3/2012 deleting the above disallowance based on the decision rendered by him in case of Piyush colonizers limited. Therefore, on this issue revenue has filed an appeal in ITA number 1971/del/2011.
The second issue involved in this appeal is the claim of deduction u/s 80 IB of the income tax act. During the year under consideration the assessee has shown income from business and profession of INR 8 4755266/– and income from other sources at INR 1 929819/–. The assessee has claimed deduction u/s 80 IB of the income tax act on account of the activity of the assessee other than infrastructure development. During the course of assessment proceedings, it was noted that Assessee Company has built to size of flats that is 1164 ft² and 1446 ft² respectively. The assessee company is claiming that it is not exceeding 1500 ft² is area of the residential unit. Claim of the assessee was rejected by the learned assessing officer holding that the site of the project of the assessee is situated within 25 km from municipal limits of Delhi. Therefore the claim of deduction u/s 80 IB amounting to INR 8 6685089/– is not allowable. The assessee preferred an appeal before the learned CIT – A. The learned CIT – A held that the residential unit must have a maximum built up area of 1000 ft² if it is situated within the city of Delhi on within 25 km from the Minister limits of the cities. Therefore, he rejected the argument of the assessee. However, he accepted the assessee must get the proportionate deduction based on the decision of the coordinate bench in 30 SOT 155. He held that appellant is eligible for benefit of proportionate deduction after considering the area of residential units having a built up area of less than 1000 ft². However in view of the contradicting facts stated by the appellant in its written submissions before him and in the assessment order he directed the learned assessing officer to verify the factual position regarding the area of residential units having a built up area up to 1000 ft² and grant the benefit of proportionate deduction accordingly. Therefore, against this order of the learned CIT – A assessee is in appeal in ITA number 2067/del/2012 and assessee has filed across objection in CO number 164/del/2011.
The revenue has raised the following grounds of appeal in for the Assessment Year 2008-09:-
“1. The Ld. CIT(A) has erred both in law and on facts of the case in considering expenses such as advertisement expenses, business promotion expenses, commission on booking expenses, legal and professional expenses, postage expenses, printing projects expenses, project development expenses and rent & fuel expenses as “indirect expenses” or “costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract”, though each and every expenditure incurred by the assessee, in view of the entire gamut of business activity of the assessee, are wholly and exclusively expenses incurred in the generation of its exclusively singular source of revenue - development and sale of real estate property.
The Ld. CIT(A)-I has erred both in law and on facts of the case in allowing the so called “indirect expenses” fully, even though the expenses were only to be allowed in a proportionate manner within the ambit of the principles of percentage completion method, which the assessee has itself relied on for recognizing its revenues.
3. The Ld. CIT(A) has erred both in law and on facts of the case in allowing proportionate deduction u/s 80IB after considering the area of residential units having built-up area of less than 1000 sq.
4. The Appellant craves leave to add or amend the grounds of appeal
on or before the appeal is heard and disposed off.
5. It is prayed that the order of the Commissioner of Income- tax(Appeals) be set-aside and that of the A.O. be restored.”
19. The assessee has raised the following grounds of appeal in Cross Objection No. 164/Del/2011 for the Assessment Year 2008-09:- “1. That on the facts and circumstances of the case, the Ld. C.I.T (A) has rightly allowed costs as period costs to be charged to the profit and loss account for the period in which these are incurred.
2. That, on the facts and circumstances of the case, Ld. C.I.T.(A) has rightly allowed indirect expense as period expenses as the revenue arising to the appellant from Real Estate Project is being recognized as per percentage of completion method as prescribed under the Accounting Standard -7 of the Institute of Chartered Accountants of India (ICAI ).
3. That on the facts and circumstance of the case, the Ld. C.I.T. (A) has erred in disallowing a part of the deduction claimed amounting to Rs. 8,66,85,089/-.
4. That the Ld. C.I.T.(A) has erred in law and on facts in disallowing deduction u/s 80-IB in respect of area of residential units having built up area more than 1000 sq. ft. within the municipal limits of Faridabad.
5. That the C.I.T(A) has erred in law and on facts in disallowing a part of deduction 80-IB ignoring the fact that there could not be discrimination in allowance of deduction u/s 80-IB I respect of two projects of two different assessee located within municipal limits of Faridabad.
That, the C.I T.(A) has erred in law and on facts in disallowing a part of deduction claimed u/s 80IB of the Act, ignoring the fact that it was a beneficial section and was to be interpreted liberally to advance the purpose for which it was enacted.” 20. The assessee has raised the following grounds of appeal in for the Assessment Year 2008-09:- “1. The order of the ld CIT(A) is bad in law and against the facts and circumstances of the case.
2. That the ld CIT(A) has erred in not allowing the claim u/s 80-IB of the Income Tax Act.
3. That the ld CIT(A) erred in rejecting the claim of the appellant in regard to deduction u/s 80IB in respect of three bedroom flats and in holding that the territorial limit prescribed u/s 80IB should not be taken from the municipal limit of Faridabad.”
21. The learned departmental representative submitted that the facts in the case of ground number 1 and 2 appeal of the assessing Officer and ground number 1 – 3 of the cross objections of the assessee are identical to the facts of the case of Piyush Colonizers Limited. Whereas with respect to ground number three of the appeal of the learned assessing officer it was submitted that proportionate grant of deduction to the assessee is now covered by the decision of the honourable Bombay High Court. On the ground number 4 – 6 of the cross objections of the assessee and appeal of the assessee he heavily relied upon the decision of the learned assessing officer and the learned CIT – A.
22. We have carefully considered the rival contention and perused the orders of the lower authorities. On the appreciation of the facts we find that ground number 1 and 2 of the appeal of the assessing Officer on ground number 1 and 3 of the cross objection of the assessee are identical to the facts of the case of produce colonizers limited decided by us in this common order. We have already dismissed arguments of the revenue as well as the submissions of the assessee before lower authorities holding that there is no infirmity in the order of the learned CIT – A. Accordingly we also dismiss ground number 1 and 2 of the appeal of the assessing officer and ground number 1 and 3 of the cross objections of the assessee.
23. With respect to the claim of deduction u/s 80 IB of The Income Tax Act the learned CIT – A has held that assessee has placed contradicting facts about the size of the flats and therefore the learned CIT – A directed the learned Page | 17 assessing officer to verify the factual position regarding the area of residential unit having a built-up area of up to 1000 ft² and grant the benefit of proportionate deduction accordingly. According to us, the learned CIT – A has valid reason to direct the learned assessing officer to verify the fact. It is not in dispute that assessee has given written submission that built-up area of the residential unit is 1164 and 144 6 ft². This fact has been reproduced by the learned CIT – A in paragraph number 5.2 of his order. Thus, we do not find any infirmity in the direction of the learned CIT – A to the assessing officer. Further, the direction for granting the proportionate deduction is also based on the several judicial precedents. In any case the order passed by the learned assessing officer u/s 250 of the income tax act giving effect to the order of the learned CIT – A passed on 30/3/2012 the learned assessing officer computed the same disallowance of INR 8 6685089/– and thus the original disallowance made by the learned assessing officer stands. In view of this, the grievance of the learned assessing officer as per ground number 3 of his appeal is not sustainable. Accordingly, ground number 3 of the appeal of the learned assessing officer is dismissed. On this issue, also the assessee has preferred ground number 3, 4, 5 and 6 of its appeal. For the reasons given by us, we do not find any reason to interfere with the order of the learned CIT – A and hence ground number 3 – 6 of the appeal of the assessee are dismissed.
Accordingly ITA number 1971/del/2011 filed by the learned assessing officer and CO number 164/del/2011 filed by the assessee for assessment year 2008 – 09 are dismissed.
Now we come to the appeal of the assessee in ITA number 2067/del/2012 for assessment year 2008 – 09 wherein the assessee has challenged the action of the learned CIT – A in not allowing the claim of assessee u/s 80 IB of the income tax act and further holding that the territorial limit prescribed u/s 80 IB should not be taken from the municipal limit of Faridabad. The assessee is also aggrieved in rejecting the claim of the appellant with respect to deduction u/s 80 IB in respect of 3 bedroom flats. As we have already appellant the action of the learned CIT – A in the appeal of the learned assessing officer, we do not have any reason to interfere with the order of the learned CIT – A while deciding the interconnected ground of appeal filed