M/S CHAITANYA PROPERTIES PRIVATE LIMITED,BANGALORE vs. DCIT, BANGALORE

Facts apropos are that assessee a property developer and contractor had filed its return of income declaring nil income. Assessee was following completed contract method for computing its income. It had during the relevant previous year claimed an expenditure of Rs.575,45,866/-. AO noted that the above amount included professional charges of Rs.3,57,52,872/-. When explanation of the assessee was sought, it was stated by the assessee that such amount was paid to M/s. Prestige Estates Projects Ltd, in pursuance to joint development agreement entered with them to develop a residential and commercial complex called Prestige Shantiniketan. As per the assessee, the sum of Rs.3,51,73,740/- out of the total professional charges of Rs.3,57,52,872/- comprised of brokerage, documentation and booking collection charges collected by the said developer for assessee’s share in the project. AO was of the opinion that assessee having not declared any income from the project Prestige Shantiniketan, expenditure claimed by it ought have gone into the work-in- progress. As per the AO assessee was following project completion method and therefore expenditure incurred for Prestige Shantiniketan should enter the work-in-progress till such time the project was complete. He therefore held that out of the total claim of professional charges, a sum of Rs.3,51,73,714/- was not allowable. An addition was made accordingly.

In its appeal before the CIT (A), argument of the assessee was that the expenditure claimed by it was towards development of its business arranging sales on behalf of the assessee. As per the assessee, it was a revenue expenditure. CIT (A) after going through the submission of the assessee found that assessee had made a similar claim in assessment year 2005-06. As per the CIT (A), for the said year the issue had reached the Tribunal and this Tribunal in its order in ITA.1141 & 1183/Bang/2008, dt.31.03.2010, held that by virtue of AS-7 laid down by ICAI, assessee would be entitled to set off expenditure only in the year when revenue was realised from the work-in-progress. He thus confirmed the order of AO.

Now before us, Ld. AR assailing the order lower authorities submitted that even if the assessee was following the completed contract method only direct cost was to be allocated to the work-in-progress. According to him, payments made to M/s. Prestige Estates Projects Ltd, was in the nature of administration and selling expenditure and this could not be considered as work-in-progress. In so far as the decision of coordinate bench for A. Y. 2005-06 was concerned, Ld. AR submitted that it was a claim of advertisement expenditure and not similar to the claim for the impugned assessment year.

Per contra, Ld DR supported the orders of authorities below.

We have perused the orders and heard the rival contentions. What was held by this Tribunal in assessee’s own case for A. Y. 2005-06 is reproduced hereunder :

There is no dispute that assessee was following project completion method. Tribunal has clearly held that when project completion method is followed, expenditure could be claimed only in the year in which revenue is realised from the work-in-progress. It is not disputed by the assessee that no income was returned from the project ‘Prestige Shantiniketan’ during the relevant previous year. Therefore, the expenditure incurred by the assessee during the relevant previous year on the said project would only go to increase its work-in-progress and cannot be charged to the profit and loss account. Nothing was brought on record by the assessee to show that these were purely in the nature of general administrative expenditure and ITA.1365/Bang/2015 Page - 6 not connected to the specific project of Prestige Shantiniketan. I am of the opinion that the lower authorities were justified in making the disallowance. No interference is called for.

In the result, appeal of the assessee stands dismissed.