DCIT, NEW DELHI vs. M/S ILD MILLENNIUM PVT. LTD., NEW DELHI

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ITA 1259/DEL/2016Status: DisposedITAT Delhi29 November 2018AY 2012-137 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The CIT(A) correctly distinguished the case from the cited precedent and noted that the same income was added twice. The Tribunal upheld the CIT(A)'s decision, finding no illegality.

What were the facts?

The assessee, engaged in construction, declared a loss, claiming expenses incurred during the ongoing project. The AO sought to capitalize these expenses and tax other income, treating the company as pre-operative.

What were the issues?

Whether expenses incurred during the pre-operative phase of a construction project should be capitalized or allowed as a deduction. Whether income from other sources was wrongly taxed twice.

Which sections of the Income-tax Act were involved?

Section 2(22)(e),Section 4,Section 14A,Section 37(1),Section 43B,Section 45,Section 70,Section 71,Section 72,Section 73,Section 74,Section 76,Section 77,Section 78,Section 79,Section 80A,Section 80AB,Section 80AC,Section 80AD,Section 80B,Section 80C,Section 80CCC,Section 80CCD,Section 80CCG,Section 80D,Section 80DD,Section 80DDB,Section 80E,Section 80EEA,Section 80EEB,Section 80G,Section 80GG,Section 80GGA,Section 80GGC,Section 80HHC,Section 80HHD,Section 80HHH,Section 80-I,Section 80-IA,Section 80-IB,Section 80-IC,Section 80-ID,Section 80-IE,Section 80J,Section 80JJAA,Section 80LA,Section 80P,Section 80QQB,Section 80RRB,Section 80TTA,Section 80TTB,Section 90,Section 91,Section 92,Section 92A,Section 92C,Section 92D,Section 92E,Section 92F,Section 94,Section 115A,Section 115AB,Section 115AC,Section 115AD,Section 115B,Section 115BA,Section 115BB,Section 115BBA,Section 115BBB,Section 115BBC,Section 115BBD,Section 115BBE,Section 115BBF,Section 115BBG,Section 115BBH,Section 115BBI,Section 115BBJ,Section 115BK,Section 115BL,Section 115BM,Section 115BN,Section 115BP,Section 115BQ,Section 115BR,Section 115BS,Section 115BT,Section 115BU,Section 115BV,Section 115BW,Section 115BX,Section 115BY,Section 115BZ,Section 115BZA,Section 115BZAA,Section 115BZAB,Section 115BZAC,Section 115BZAD,Section 115BZAJ,Section 139,Section 143(3),Section 147,Section 148,Section 149,Section 150,Section 151,Section 153,Section 153A,Section 153B,Section 153C,Section 154,Section 155,Section 158BD,Section 158BE,Section 158BF,Section 158BG,Section 158BH,Section 158BI,Section 158BJ,Section 158BK,Section 158BL,Section 158BM,Section 158BN,Section 158BO,Section 158BP,Section 158BQ,Section 158BR,Section 158BS,Section 158BT,Section 158BU,Section 158BV,Section 158BW,Section 158BX,Section 158BY,Section 158BZ,Section 158BZA,Section 158BZAA,Section 158BZAB,Section 158BZAC,Section 158BZAD,Section 158BZAJ,Section 158C,Section 158CA,Section 158CB,Section 158CC,Section 158CD,Section 158CE,Section 158CF,Section 158CG,Section 158CH,Section 158CI,Section 158CJ,Section 158CK,Section 158CL,Section 158CM,Section 158CN,Section 158CO,Section 158CP,Section 158CQ,Section 158CR,Section 158CS,Section 158CT,Section 158CU,Section 158CV,Section 158CW,Section 158CX,Section 158CY,Section 158CZ,Section 158CZA,Section 158CZAA,Section 158CZAB,Section 158CZAC,Section 158CZAD,Section 158CZAJ,Section 158D,Section 158DA,Section 158DB,Section 158DC,Section 158DD,Section 158DE,Section 158DF,Section 158DG,Section 158DH,Section 158DI,Section 158DJ,Section 158DK,Section 158DL,Section 158DM,Section 158DN,Section 158DO,Section 158DP,Section 158DQ,Section 158DR,Section 158DS,Section 158DT,Section 158DU,Section 158DV,Section 158DW,Section 158DX,Section 158DY,Section 158DZ,Section 158DZA,Section 158DZAA,Section 158DZAB,Section 158DZAC,Section 158DZAD,Section 158DZAJ,Section 158E,Section 158EA,Section 158EB,Section 158EC,Section 158ED,Section 158EE,Section 158EF,Section 158EG,Section 158EH,Section 158EI,Section 158EJ,Section 158EK,Section 158EL,Section 158EM,Section 158EN,Section 158EO,Section 158EP,Section 158EQ,Section 158ER,Section 158ES,Section 158ET,Section 158EU,Section 158EV,Section 158EW,Section 158EX,Section 158EY,Section 158EZ,Section 158EZA,Section 158EZAA,Section 158EZAB,Section 158EZAC,Section 158EZAD,Section 158EZAJ,Section 158F,Section 158FA,Section 158FB,Section 158FC,Section 158FD,Section 158FE,Section 158FF,Section 158FG,Section 158FH,Section 158FI,Section 158FJ,Section 158FK,Section 158FL,Section 158FM,Section 158FN,Section 158FO,Section 158FP,Section 158FQ,Section 158FR,Section 158FS,Section 158FT,Section 158FU,Section 158FV,Section 158FW,Section 158FX,Section 158FY,Section 158FZ,Section 158FZA,Section 158FZAA,Section 158FZAB,Section 158FZAC,Section 158FZAD,Section 158FZAJ,Section 158G,Section 158GA,Section 158GB,Section 158GC,Section 158GD,Section 158GE,Section 158GF,Section 158GG,Section 158GH,Section 158GI,Section 158GJ,Section 158GK,Section 158GL,Section 158GM,Section 158GN,Section 158GO,Section 158GP,Section 158GQ,Section 158GR,Section 158GS,Section 158GT,Section 158GU,Section 158GV,Section 158GW,Section 158GX,Section 158GY,Section 158GZ,Section 158GZA,Section 158GZAA,Section 158GZAB,Section 158GZAC,Section 158GZAD,Section 158GZAJ,Section 158H,Section 158HA,Section 158HB,Section 158HC,Section 158HD,Section 158HE,Section 158HF,Section 158HG,Section 158HH,Section 158HI,Section 158HJ,Section 158HK,Section 158HL,Section 158HM,Section 158HN,Section 158HO,Section 158HP,Section 158HQ,Section 158HR,Section 158HS,Section 158HT,Section 158HU,Section 158HV,Section 158HW,Section 158HX,Section 158HY,Section 158HZ,Section 158HZA,Section 158HZAA,Section 158HZAB,Section 158HZAC,Section 158HZAD,Section 158HZAJ,Section 158I,Section 158IA,Section 158IB,Section 158IC,Section 158ID,Section 158IE,Section 158IF,Section 158IG,Section 158IH,Section 158II,Section 158IJ,Section 158IK,Section 158IL,Section 158IM,Section 158IN,Section 158IO,Section 158IP,Section 158IQ,Section 158IR,Section 158IS,Section 158IT,Section 158IU,Section 158IV,Section 158IW,Section 158IX,Section 158IY,Section 158IZ,Section 158IZA,Section 158IZAA,Section 158IZAB,Section 158IZAC,Section 158IZAD,Section 158IZA J,Section 158J,Section 158JA,Section 158JB,Section 158JC,Section 158JD,Section 158JE,Section 158JF,Section 158JG,Section 158JH,Section 158JI,Section 158JJ,Section 158JK,Section 158JL,Section 158JM,Section 158JN,Section 158JO,Section 158JP,Section 158JQ,Section 158JR,Section 158JS,Section 158JT,Section 158JU,Section 158JV,Section 158JW,Section 158JX,Section 158JY,Section 158JZ,Section 158JZA,Section 158JZAA,Section 158JZAB,Section 158JZAC,Section 158JZAD,Section 158JZAJ,Section 158K,Section 158KA,Section 158KB,Section 158KC,Section 158KD,Section 158KE,Section 158KF,Section 158KG,Section 158KH,Section 158KI,Section 158KJ,Section 158KK,Section 158KL,Section 158KM,Section 158KN,Section 158KO,Section 158KP,Section 158KQ,Section 158KR,Section 158KS,Section 158KT,Section 158KU,Section 158KV,Section 158KW,Section 158KX,Section 158KY,Section 158KZ,Section 158KZA,Section 158KZAA,Section 158KZAB,Section 158KZAC,Section 158KZAD,Section 158KZAJ,Section 158L,Section 158LA,Section 158LB,Section 158LC,Section 158LD,Section 158LE,Section 158LF,Section 158LG,Section 158LH,Section 158LI,Section 158LJ,Section 158LK,Section 158LL,Section 158LM,Section 158LN,Section 158LO,Section 158LP,Section 158LQ,Section 158LR,Section 158LS,Section 158LT,Section 158LU,Section 158LV,Section 158LW,Section 158LX,Section 158LY,Section 158LZ,Section 158LZA,Section 158LZAA,Section 158LZAB,Section 158LZAC,Section 158LZAD,Section 158LZAJ,Section 158M,Section 158MA,Section 158MB,Section 158MC,Section 158MD,Section 158ME,Section 158MF,Section 158MG,Section 158MH,Section 158MI,Section 158MJ,Section 158MK,Section 158ML,Section 158MM,Section 158MN,Section 158MO,Section 158MP,Section 158MQ,Section 158MR,Section 158MS,Section 158MT,Section 158MU,Section 158MV,Section 158MW,Section 158MX,Section 158MY,Section 158MZ,Section 158MZA,Section 158MZAA,Section 158MZAB,Section 158MZAC,Section 158MZAD,Section 158MZAJ,Section 158N,Section 158NA,Section 158NB,Section 158NC,Section 158ND,Section 158NE,Section 158NF,Section 158NG,Section 158NH,Section 158NI,Section 158NJ,Section 158NK,Section 158NL,Section 158NM,Section 158NN,Section 158NO,Section 158NP,Section 158NQ,Section 158NR,Section 158NS,Section 158NT,Section 158NU,Section 158NV,Section 158NW,Section 158NX,Section 158NY,Section 158NZ,Section 158NZA,Section 158NZAA,Section 158NZAB,Section 158NZAC,Section 158NZAD,Section 158NZAJ,Section 158O,Section 158OA,Section 158OB,Section 158OC,Section 158OD,Section 158OE,Section 158OF,Section 158OG,Section 158OH,Section 158OI,Section 158OJ,Section 158OK,Section 158OL,Section 158OM,Section 158ON,Section 158OO,Section 158OP,Section 158OQ,Section 158OR,Section 158OS,Section 158OT,Section 158OU,Section 158OV,Section 158OW,Section 158OX,Section 158OY,Section 158OZ,Section 158OZA,Section 158OZAA,Section 158OZAB,Section 158OZAC,Section 158OZAD,Section 158OZAJ,Section 158P,Section 158PA,Section 158PB,Section 158PC,Section 158PD,Section 158PE,Section 158PF,Section 158PG,Section 158PH,Section 158PI,Section 158PJ,Section 158PK,Section 158PL,Section 158PM,Section 158PN,Section 158PO,Section 158PP,Section 158PQ,Section 158PR,Section 158PS,Section 158PT,Section 158PU,Section 158PV,Section 158PW,Section 158PX,Section 158PY,Section 158PZ,Section 158PZA,Section 158PZAA,Section 158PZAB,Section 158PZAC,Section 158PZAD,Section 158PZAJ,Section 158Q,Section 158QA,Section 158QB,Section 158QC,Section 158QD,Section 158QE,Section 158QF,Section 158QG,Section 158QH,Section 158QI,Section 158QJ,Section 158QK,Section 158QL,Section 158QM,Section 158QN,Section 158QO,Section 158QP,Section 158QQ,Section 158QR,Section 158QS,Section 158QT,Section 158QU,Section 158QV,Section 158QW,Section 158QX,Section 158QY,Section 158QZ,Section 158QZA,Section 158QZAA,Section 158QZAB,Section 158QZAC,Section 158QZAD,Section 158QZAJ,Section 158R,Section 158RA,Section 158RB,Section 158RC,Section 158RD,Section 158RE,Section 158RF,Section 158RG,Section 158RH,Section 158RI,Section 158RJ,Section 158RK,Section 158RL,Section 158RM,Section 158RN,Section 158RO,Section 158RP,Section 158RQ,Section 158RR,Section 158RS,Section 158RT,Section 158RU,Section 158RV,Section 158RW,Section 158RX,Section 158RY,Section 158RZ,Section 158RZA,Section 158RZAA,Section 158RZAB,Section 158RZAC,Section 158RZAD,Section 158RZAJ,Section 158S,Section 158SA,Section 158SB,Section 158SC,Section 158SD,Section 158SE,Section 158SF,Section 158SG,Section 158SH,Section 158SI,Section 158SJ,Section 158SK,Section 158SL,Section 158SM,Section 158SN,Section 158SO,Section 158SP,Section 158SQ,Section 158SR,Section 158SS,Section 158ST,Section 158SU,Section 158SV,Section 158SW,Section 158SX,Section 158SY,Section 158SZ,Section 158SZA,Section 158SZAA,Section 158SZAB,Section 158SZAC,Section 158SZAD,Section 158SZAJ,Section 158T,Section 158TA,Section 158TB,Section 158TC,Section 158TD,Section 158TE,Section 158TF,Section 158TG,Section 158TH,Section 158TI,Section 158TJ,Section 158TK,Section 158TL,Section 158TM,Section 158TN,Section 158TO,Section 158TP,Section 158TQ,Section 158TR,Section 158TS,Section 158TT,Section 158TU,Section 158TV,Section 158TW,Section 158TX,Section 158TY,Section 158TZ,Section 158TZA,Section 158TZAA,Section 158TZAB,Section 158TZAC,Section 158TZAD,Section 158TZAJ,Section 158U,Section 158UA,Section 158UB,Section 158UC,Section 158UD,Section 158UE,Section 158UF,Section 158UG,Section 158UH,Section 158UI,Section 158UJ,Section 158UK,Section 158UL,Section 158UM,Section 158UN,Section 158UO,Section 158UP,Section 158UQ,Section 158UR,Section 158US,Section 158UT,Section 158UU,Section 158UV,Section 158UW,Section 158UX,Section 158UY,Section 158UZ,Section 158UZA,Section 158UZAA,Section 158UZAB,Section 158UZAC,Section 158UZAD,Section 158UZAJ,Section 158V,Section 158VA,Section 158VB,Section 158VC,Section 158VD,Section 158VE,Section 158VF,Section 158VG,Section 158VH,Section 158VI,Section 158VJ,Section 158VK,Section 158VL,Section 158VM,Section 158VN,Section 158VO,Section 158VP,Section 158VQ,Section 158VR,Section 158VS,Section 158VT,Section 158VU,Section 158VV,Section 158VW,Section 158VX,Section 158VY,Section 158VZ,Section 158VZA,Section 158VZAA,Section 158VZAB,Section 158VZAC,Section 158VZAD,Section 158VZAJ,Section 158W,Section 158WA,Section 158WB,Section 158WC,Section 158WD,Section 158WE,Section 158WF,Section 158WG,Section 158WH,Section 158WI,Section 158WJ,Section 158WK,Section 158WL,Section 158WM,Section 158WN,Section 158WO,Section 158WP,Section 158WQ,Section 158WR,Section 158WS,Section 158WT,Section 158WU,Section 158WV,Section 158WW,Section 158WX,Section 158WY,Section 158WZ,Section 158WZA,Section 158WZAA,Section 158WZAB,Section 158WZAC,Section 158WZAD,Section 158WZAJ,Section 158X,Section 158XA,Section 158XB,Section 158XC,Section 158XD,Section 158XE,Section 158XF,Section 158XG,Section 158XH,Section 158XI,Section 158XJ,Section 158XK,Section 158XL,Section 158XM,Section 158XN,Section 158XO,Section 158XP,Section 158XQ,Section 158XR,Section 158XS,Section 158XT,Section 158XU,Section 158XV,Section 158XW,Section 158XX,Section 158XY,Section 158XZ,Section 158XZA,Section 158XZAA,Section 158XZAB,Section 158XZAC,Section 158XZAD,Section 158XZAJ,Section 158Y,Section 158YA,Section 158YB,Section 158YC,Section 158YD,Section 158YE,Section 158YF,Section 158YG,Section 158YH,Section 158YI,Section 158YJ,Section 158YK,Section 158YL,Section 158YM,Section 158YN,Section 158YO,Section 158YP,Section 158YQ,Section 158YR,Section 158YS,Section 158YT,Section 158YU,Section 158YV,Section 158YW,Section 158YX,Section 158YY,Section 158YZ,Section 158YZA,Section 158YZAA,Section 158YZAB,Section 158YZAC,Section 158YZAD,Section 158YZAJ,Section 158Z,Section 158ZA,Section 158ZB,Section 158ZC,Section 158ZD,Section 158ZE,Section 158ZF,Section 158ZG,Section 158ZH,Section 158ZI,Section 158ZJ,Section 158ZK,Section 158ZL,Section 158ZM,Section 158ZN,Section 158ZO,Section 158ZP,Section 158ZQ,Section 158ZR,Section 158ZS,Section 158ZT,Section 158ZU,Section 158ZV,Section 158ZW,Section 158ZX,Section 158ZY,Section 158ZZ,Section 158ZZA,Section 158ZZAA,Section 158ZZAB,Section 158ZZAC,Section 158ZZAD,Section 158ZZAJ

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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI

Before: SHRI PRASHANT MAHARISHI & SHRI K.NARASIMHA CHARY

For Respondent: Shri Surender Pal, Sr. DR
Hearing: 27.11.2018Pronounced: 29.11.2018

ORDER PER K. NARASIMHA CHARY, JM Challenging the order dated 23.12.2015 in Appeal No. 598/2014-15, passed by the Learned Commissioner of Income Tax (Appeals)-4, New Delhi (Ld. CIT(A)), revenue preferred this appeal.

1.

2 2. Brief facts of the case are that the assessee is engaged in the construction of residential group housing project which is underway during the year under consideration. They have filed their return of income on 28.9.2012 declaring a total loss of Rs.1,82,92,104/-. During scrutiny, learned AO noticed that in the profit and loss account for the year, the assessee had debited expenses amounting to Rs.2,86,23,313/- against income of Rs.1,03,96,618/- shown as other income. Such other income was earned on account of interest income on deposits and others, amount forfeited on cancellation, booking transfer charges and miscellaneous income. While computing the taxable income under the heqad “Business and Profession”, the assessee computed business loss of Rs.2,81,61,440/- and the income from other sources at Rs.1,00,39,829/- which resulted in the net loss of Rs.1,82,92,104/-, as such, in the return of income, the assessee had shown the total loss of Rs.1,82,92,104/-.

3.

Learned AO observed that the assessee company was required to be considered being engaged in pre-operative phase and expenses claimed in the profit and loss account should be capitalized to the cost of project and income from other sources should be taxed accordingly. Learned AO placed reliance on the judgment of the Hon’ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT (1997) 227 ITR 172 (SC). It was submitted by the assessee before the learned AO that the assessee company is currently undertaking only construction of the projects which are still in progress; that certain amounts relating to projects have also been capitalized by the assessee which fact is evident from the schedule of financial statement for the year under consideration; and that no sale was booked in the current financial year as well as in the last three years because the condition for 3 recognizing the sales/revenue as per applicable accounting standards were not fulfilled.

4.

Learned AO drew the conclusion that the assessee company is in pre operative stage of business and business has not been set up and, therefore, the Income-tax Act, 1961 does not provide any deduction of expenses which are incurred in the pre operative stage. He, therefore, proceeded to disallow the expenses claimed in the profit and loss account to the tune of Rs.2,86,23,313/- and brought to tax the other income amounting to Rs.1,03,96,618/-.

5.

Aggrieved by such an addition, assessee preferred an appeal. It was submitted before the first appellate authority that the assessee is in the business of construction and building activities whereas in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), the assessee was engaged in construction of a factory for the purpose of manufacturing. It was further submitted before the learned CIT(A) that the total cost of the project was Rs.410 crores and the bookings for residential flats were totaled into Rs.73 crores till Assessment Year 2012-13. The assessee has been maintaining its accounts on percentage of completion method in terms of AS-7 and the sales have to be considered in the profit and loss account only when the total sales exceeds 25% of the project. It was further submitted that the learned AO wrongly added Rs.1,03,96,618/- twice under the head “Income from non speculative business” and again under the head “Income from other sources”.

6.

Learned AO considered all the submissions made by the assessee in the light of recording and held that the ratio of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra) has no application to the case of the assessee inasmuch as the assessee’s were operating in two different domains; and that inasmuch as the 4 sales have not reached 25% of the project, the assessee had not booked the sales in the years till the current financial year since the condition for recognizing the sales/revenue was not fulfilled as per the applicable accounting standards. Learned CIT(A) further returned a finding to the effect that on going through para 3 on page 2 of the assessment order, it is clear that the AO had added the same amount of Rs.1,03,96,618/- twice. Learned CIT(A), therefore, allowed the appeal and deleted the additions.

7.

Revenue is, therefore, in this appeal challenging the impugned order on the grounds that the assessee company is currently undertaking construction of projects which are still in progress and that certain amounts relating to such projects were also capitalized by the assessee which fact is evident from the schedule of the financial statements. Further neither any computation for arriving at sales being below 25% was filed by the assessee or by the tax auditors, nor the figures of cost of project saleable area etc. were furnished.

8.

It is submitted by the learned DR that the learned CIT(A) should have followed the decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). He heavily placed reliance on the assessment order and submitted that nowhere in the return of income or in the tax audit report the figures relating to the total cost of the project was mentioned and the assessee also did not bring it to the notice of the AO about the same. It is further submitted that the assessee never claimed before the AO that the sales were booked in accordance with AS-7 and there is no mention to such a fact in the return of income.

9.

None appeared for the assessee. We have gone through the record. In the assessment order at para 5, learned AO recorded that it was submitted by the assessee that they are currently engaged in construction of projects which are in 5 progress, certain amounts relating to such projects were capitalized but no sales were booked in the financial years till the current financial year in view of the fact that the conditions for recognizing the sales/revenue were not fulfilled as per applicable accounting standards. When it is mentioned by the assessee by letter dated 27.1.2015, there cannot be any denial of the fact that the assessee followed the usual practice of booking the sales in accordance with AS-7. Nothing prevented the learned AO from ascertaining the cost of the project when the assessee submitted before the learned AO that the value of the work in progress was about Rs.95 crores being part of the balance sheet. It, therefore, goes without saying that the balance sheet of the assessee was before the learned AO wherefrom it could be gathered that the value of the work in progress was Rs.95 crores. It could also be inferred that the assessee was booking the sales in AS-7 as is the usual practice of builders.

10. In these circumstances, learned CIT(A) rightly took cognizance of these facts and held that inasmuch as the assessee company is maintaining its accounts on percentage of completion method (AS-7), the sales could be considered in the profit and loss account only when the total sales exceeds 25% of the project. Learned CIT(A) rightly distinguished the facts of the assessee in this case and the case of Tuticorin Alkali Chemicals & Fertilizers Ltd (supra). Further the assessment order clearly speaks that the sum of Rs.1,0396,618/- was considered twice.

10.

For the above reasons, we do not find any illegality or irregularity in the order of the learned CIT(A) and consequently, do not find any merit in this appeal. Appeal is liable to be dismissed and is accordingly dismissed.

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