DCIT CC 4(3) CEN RG 4, MUMBAI vs. KUKREJA CONSTRUCTION CO, MUMBAI

The present appeal has been preferred by the Revenue against the order dated 27.08.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

The short facts of the case are that the assessee is a partnership firm engaged in business of civil construction and real estate development. It filed the return of income for the year under consideration on 24.09.12. The Assessing Officer (hereinafter referred to as the AO) has restricted the deduction claim under 2 M/s. Kukreja Construction Co. section 80IB amounting to Rs.10,79,38,834/- as against Rs.12,05,36,264/- claimed by the assessee. The AO has dealt this issue in para 7 of the assessment order. The AO has recomputed the deduction as under: Sr. Particulars Sai Deep Lav Kush Blue Bell Total No. A Deduction u/s 85168326 12551476 22816462 120536264 80IB claimed as per return of income B Less : Indirect 8573074 1250493 2425553 12249120 Expenses allocable to eligible units C Less: Other 238010 30270 80030 238010 income not eligible for deduction u/s 80IB Revised 76357242 1127-713 20310879 107938834 deduction u/s 80IB [A-(B- C)]

Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has partly allowed the claim by observing as under: “9. I have carefully considered the issue. It is a fact that the appellant is engaged in construction of various projects during the year, which are in different stages of completion, some are complete and finished and some are under various stages of construction. Then the issue is as to what should be a reasonable criteria to allocate indirect expenses, among various projects. The most natural presumption of apportioning the indirect expenses would be in proportion to the respective WIPs of the projects, which gives an idea about the direct costs incurred in different projects in that particular year. However, the AO has apportioned the indirect expenses in the ratio of turnover/sales of different projects during the year. However, I am of the view that applying indirect expenses in proportion to respective turnover/sales would create a very skewed position, as there will be 3 M/s. Kukreja Construction Co. projects which were completed in earlier years and only sales of left over flats happened in this year therefore negligible indirect expenses will be involved. But if indirect expenses are allocated to these projects in the ratio of sales, relatively higher proportion of indirect expenses will come to such projects, which will be irrational. As against this, the projects under construction, where no sales took place , will involve significant indirect expenses but will get nil allocation of such expenses which will not be proper , as most of such expenditure is relating to projects under construction .. It is relevant to mention over here that indirect expenses are in nature of Architecural fees, supervision charges , security expenses, water electricity charges , staff welfare etc. which will have more relevance to the ongoing projects than the completed projects . Therefore completed projects will have negligible or very small element of indirect expenses . In light of the above discussion a more rational approach would be to apportion such expenses in ratio of direct expenditure. It is in these circumstances that the Hon. Tribunal vide their order dated 29/6/2010 in assessee's own case for A.Y. 2005-06 has held that indirect expenses should be apportioned In proportion to the cost incurred on various projects during the year as represented by "work in progress" in the different projects. The AO has made no case in the assessment order that apportionment of indirect expenses in the ratio of respective turnover or sales would be logically more sound. Therefore, respectfully following the ratio of the said decision of the ITAT, the A0 is directed to apportion the indirect expenses in the ratio of respective direct expenses of different projects of the appellant. If the indirect expenditure of Rs.2,11,46,827/- as per assessment order is apportioned in the ratio of direct expenses , the position works out to as under :-

We have heard the rival contentions of both the parties. We find that the Ld. CIT(A) has relied upon the decision of ITAT in the 4 M/s. Kukreja Construction Co. own case of the assessee for A.Y. 2005-06 and has held that indirect expenses should be apportioned and apportioned to the cost incurred on various projects during the year represented by work in progress in different projects. Therefore, we dismiss the departmental appeal on this ground.

Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has allowed the claim by observing as under: “18. Respectfully following the finding of my Ld. Predecessor, I hold that the expenditure in nature of electric meter charges and water meter charges are part and parcel of completed and habitable flat and is therefore part of the construction activity of the assessee. Consequently the appellant is eligible for deduction u/s 80IB(10) in respect of such expenses. I also would like to add that these expenses are slightly on different footing from water expenses and electricity expenses as considered in the case of M/s Tolaram and company, as followed by the assessee. This leaves 'other income' only from legal

We have heard the rival contentions of both the parties. We find that the issue in controversy is covered by the decision of Tribunal in the case of assessee’s sister concern namely Tola Ram & Co. wherein the similar issue has been considered by the Ld. CIT(A) and the appeal has been allowed. No contrary decision was brought by the Ld. D.R. Therefore, respectfully following the same, we dismiss the departmental appeal.

In the result, the appeal of the Revenue is dismissed.