DLF LIMITED,DELHI vs. NATIONAL FACELESS ASSESSMENT CENTRE, DELHI

ORDER

PER MANISH AGARWAL, AM :

2. Since the issues involved in all these cross appeals filed by both the parties are common therefore, all these cross appeals are taken together and decided through a common order. (AY 2019-20) M/s DLF Ltd 3. We first take the appeal filed by the Revenue in for AY 2019-20.

4. Brief facts of the case are that the assessee was incorporated under the Companies Act, 1956 and since inception is engaged in the business of real estate development including working in the field of colonization and township developments in and around Delhi NCR besides projects spread across India. The assessee e-filed its return of income on 31.10.2019 declaring loss of Rs. 55,33,78,55,356/-. The return of income was subsequently revised on 30.09.2020 at a loss of Rs.55,33,78,55,356/-. The case of assessee was selected for complete scrutiny and notice u/s 143(2) was issued on 31.3.2019 followed by the notices issued u/s 142(1) asking the assessee to file various details which were duly replied. Thereafter, the Assessment order was passed on 30.9.2021 u/s 143(3) r.w.s. 144B of the Act wherein following additions/ disallowances were made:- 1. Disallowance of adjustment claimed towards one-time Adoption of Indian Accounting Standard (Ind-AS') 115: Rs.50,49,59,76,000/- 2. Disallowance of delayed payment of employee contribution to PF Rs. 53,74,605/- 3. Disallowance u/s 14A read with Rule 8D of Rs. 98,99,04,701/- 4. Reclassification of Income from house property Rs. 22,33,67,403/- 5. Disallowance out of Aircraft and Helicopter expenses Rs. 3,17,34,000/-

5. Besides the AO while computing the total income at page 50 of its order inadvertently taken the loss at Rs. 55,32,91,87,098/- as against the correct returned loss of Rs. 55,33,78,55,356/-, thereby ignoring the Long-term capital loss amounting to Rs. 86,68,259/-.

6. Against such order, assessee preferred an appeal before the ld. CIT(A) who vide impugned order, allowed part relief to the assessee, Page | 3 wherein the ld. CIT(A) has deleted major additions/disallowance by following the orders of coordinate bench of Tribunal in the case of the assessee itself for earlier assessment years.

1. “Whether on the facts & circumstances of the case and in law, the Ld. NFAC has erred in allowing the Principal claim of deduction of Rs. 6,09,185.90 lacs ignoring that the assessee had to follow consistency in method of accounting i.e. POCM for the year under consideration and accordingly, the AO has rightly rejected the change in method of accounting and made additions accordingly? 2. Whether on the facts & circumstances of the case and in law, the Ld. NFAC has erred in allowing the principal claim of deduction of Rs. 6,09,185.90 lacs ignoring that the assessee had to follow consistency in method of accounting i.e. POCM for the year under consideration and accordingly, the AO has rightly rejected the change in method of accounting and made additions accordingly 3. Whether on the facts and circumstances of the case the CIT(A) was justified in accepting the claim of the assessee for reduction amounting to Rs. 6,09,185.90 lacs without any evidence and completely against the provisions of Income Tax Act, 1961 as earlier year losses can be set off only in accordance with the provisions of the Act and not as an adhoc claim in subsequent years.

4. Whether the CIT(A) was justified in allowing the assessee the change in accounting completely in contravention to law laid down by the Hon'ble Supreme Court (Sanjeev Woollen Mills vs Commissioner of income Tax (2005) 149 Taxman 431 (SC)/2005 279 ITR 434 (SC)/(2005) 199 CTR 441(SC))24- 11- 2005) & CIT, Udaipur vs Hindustan Zine Ltd (2007) 161 Taxman 162 (SC)/(2007) 291 ITR 391 (SC)/(2007) 210 CTR 282 (SC)(18-05-2007) that assessee has to follow consistently one method of accounting. Page | 4

5. Whether the CIT(A) was justified in allowing a method of accounting to the assessee which is in contravention to the provisions of section 145 of the Income Tax Act read with Rules.

6. Whether CIT(A) was justified in accepting an accounting standard which is in contravention to the method prescribed in the Income Tax Act, 1961.

7. Whether CIT(A) was justified in allowing the assessee to adopt an accounting standard which was not even notified by the Government (Ind AS got effective from 01.04.2018 only).

8. Whether CIT(A) was justified in allowing the assessee a deduction for which Revenue was not even disclosed during the year.

9. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs. 98,99,40,701/ made by the AO on account of disallowance of expenses related to exempted income u/s 14A r.w. Rule 8D of the Act ignoring that the AO has categorically held that the assessee has made disallowance of expenses u/s 14A on estimate basis and no working has been submitted as per the provision of Rule 8D r.w.s. 14A of the Act? 10. Whether the Ld. NFAC under the facts and circumstances of the case and in law is justified in deleting the addition of account of reclassification of Income from house property amounting to Rs 22,33,67,403/-.

11. Whether the Ld. NFAC under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 3,17,34,000/- made by the A0 on account of disallowance of expenses of Helicopter and Aircraft which were not related to business of assessee.

12. Whether the Ld. NFAC under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 25,59,300/- made by the AO on account of disallowance u/s 40(a) (ia) of Income Tax Act, 1961.

13. Whether on the facts and circumstances of the case the CIT(A) was justified in allowing the alternate claim of the assessee

amounting to Rs. 123721.27 lacs in case the principal claim is disallowed. 14. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

8. Grounds of appeal No. 1 to 8 and 13 are in respect to the deletion of disallowance of Rs. 6,09,185.90 lacs made by AO towards adjustments claimed by the assessee for change in the method of computing the income of real estate business from Percentage of Completion Method (POCM) to Completed Contract Method (CCM).

9. Assessee claim deduction of Rs. 60,91,85,90,000/- towards Impact due to adoption of Ind-As 115 w.e.f. 01.04.2018 as per which the assessee must compute its income as per Completed Contract Method. In this regard, project wise working was submitted before the AO which is reproduced at page 13 of Assessment order. Assessee claimed that in preceding assessment years, it has offered income by following POCM which comes to Rs.10,80,140.42 lakhs and the cumulative margin as per Ind AS 115 worked out at Rs.4,70,954.52, lakhs and the difference of Rs.6,09,185.90 lakhs being the excess margin which was already offered to tax in earlier years stood debited in retained earnings and claimed the difference between margin as per Ind AS 115 as at 31.03.2018 as adjustment out of current year profits in the computation of income. The AO observed that as per section 43CB of the Act inserted by Finance Act, 2018 w.e.f. 01.04.2017, computation of income from construction and service contracts shall be determined by following POCM in accordance with the income computation and disclosure standards notified under sub section (2) of section 145 of the Act. The AO further observed that in preceding assessment years assessee computed its income on POCM bases. Accordingly, the AO rejected the claim of the assessee and disallowed Rs. 5049,59,76,000/- i.e. the net amount after reducing the alternate claim of the assessee of Rs 1,04,226.14 Lakh for the excess margin recorded during the year due to change in method of accounting for computing the income from POCM to CCM out of total claim of deduction of Rs. 6091,85,90,000/- made by assessee and further hold that the deduction of Rs. Rs 1,04,226.14 Lakh would be allowable to assessee in case the claim of Rs. 6091,85,90,000/- is denied in any further proceedings.

10. Before us, the ld. CIT DR for the Revenue vehemently supported the order of the AO and submits that as per the POCM method of accounting, the revenue of a project is recognized based upon the percentage completion achieved at the end of the financial year. The total income under normal provision of the Act is computed as per provisions of the Act whereas the Book Profit u/s 115JB of the Act is computed according to Accounting Standard and any deduction from net profit as per Profit & loss account can be claimed only as per provisions of the Act. There is no provision for claiming deduction in the Act with regard to Page | 7 adjustment due to adoption of Ind AS 115 and change in method of accounting for real estate business. As per ld. CIT DR, the AO observed that the assessee failed to produce any details to explain that the books prepared as per Accounting standard (Ind AS 115) which is required to be claimed as deduction for computation of total income under normal provisions of the Act. Therefore, AO asked the assessee to furnish computation of income as per from POCM.

11. Ld. CIT DR for the Revenue argued that the assessee claimed deduction towards the Impact of adoption of Ind As 115 of Rs.60,91,85,90,000/- out of the income of current year by stating that the same was offered for tax in preceding assessment years. This claim is computed by applying CCM in preceding assessment years and thus claimed the deduction for reversal of excess revenue booked in earlier years in respect of projects under execution upto 01.04.2018. Ld. CIT DR further drew our attention to the alternate claim made by the assessee as per which excess margin recorded during the year under appeal due to change in method of accounting was worked out at Rs. 1,04,226.14 lakhs and requested that the same was accepted by the AO being double taxation. She therefore, requested that the disallowance of net claim of Rs.50,49,59,76,000/- as made by AO deserves to be confirmed.

12. On the other hand, ld. AR for the assessee submits that the ld. CIT(A) after considering the submissions and past history of the assessee allowed the claim made by the assessee towards the adjustments as computed due to change in method of accounting from POCM to CCM for real estate business. He further placed reliance on the written submission filed before ld. CIT(A) wherein detailed arguments were made alongwith judicial pronouncements relied upon and requested to consider the same while deciding the issue. For sake of convenience, same are reproduced as under: “In respect of principal claim of Rs. 6,09,185.90 lakh representing reversal of margin on account of mandatory adoption of Ind-AS 115 (CCM) vis-à-vis Ind-AS POCM a) In support of the principal claim of the Appellant which is consequent to the mandatory adoption of Ind-AS 115 (CCM) from FY 2018-19 onwards, the Appellant humbly submits the same should be allowed for the reasons discussed below: - Section 145 is a mandatory provision and when complied with by the taxpayer, the tax department must accept the method of accounting regularly applied by the taxpayer. Further, section 43CB of the Act is not applicable to the Appellant and there is no specific ICDS applicable for real estate companies. - A taxpayer is allowed to change accounting policy on a bona fide basis and change in accounting method to comply with legal requirements has to be accepted by the tax authorities. Merely because a change in accounting policy/ method is leading to reduction of taxable income, the AO cannot reject the same as the method of accounting has not been changed by the Appellant with a view to save taxes but to follow a mandatory change in law. - CCM is a recognized method of accounting for recognizing revenue from real estate contracts - The method of recognizing revenue followed (i.e., CCM) is eventually revenue neutral and represents a true and fair view of the state of affairs and income of the Appellant - The changed method of accounting should not lead to double taxation b) The detailed submissions, in support of each of the above-mentioned arguments are discussed in the ensuing paragraphs:

A. Section 145 is a mandatory provision and when complied with by the taxpayer, the tax department cannot object to the method of accounting regularly applied by the taxpayer 1. The Appellant is a company incorporated under the provisions of the Companies Act, 1956 (replaced by Companies Act, 2013 subsequently). The Appellant is required to prepare and present its financial statements as per the provisions of the Companies Act, 2013.

2. Section 129 of the Companies Act, 2013 (corresponding to section 211(2) of the erstwhile Companies Act, 1956) provides that “The financial statements shall give a true and fair view of the state of affairs of the company or companies comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III”.

3. Further, proviso to section 129 of the Companies Act, 2013 (corresponding to sub-section (3A) of section 211 of the erstwhile Companies Act, 1956) further provides that that the items contained in such financial statements shall be in accordance with the accounting standards.

6. Reference can be made to the decision of the Supreme Court in the case of J.K Industries Ltd. V. UOI: 297 ITR 176 (refer Page 61- 172 of PaperBook Vol-2), wherein the issue before for adjudication before the Court was whether Accounting Standard 22 (AS 22) on "Accounting for taxes on income" insofar as the same related to deferred taxation was inconsistent with and ultra-vires the provisions of the Companies Act, 1956, the Income- tax Act, 1961 and the Constitution of India. The Supreme Court while upholding the vires of the accounting standard and holding the same mandatory of compliance, observed as under: “6. The core of accountancy is book-keeping. The rules of book- keeping are clear. For example, the value of a fixed asset mentioned in a balance sheet is based on cost which may involve subjective estimation of the amount to be apportioned. Similarly, the quantum of depreciation is again an estimate, which can vary depending on the persons preparing the accounts as to when and at what stage he wants to record the depreciation. Accounting Standards are an attempt to overcome some of these deficiencies of accountancy. Accounting Standards involve codification of fundamental accounting rules, rules which explain and standardize the application of the fundamental rules to a variety of uncertain situations like retirement, contingencies, intangibles, consolidation, merger etc. Accounting Standards basically attempt to reduce the subjectivity and lay down rules so as to arrive at the best possible estimates The object of Accounting Standards is to evolve methods by which 'accounting income' is determined. The object behind the Accounting Standards is to evolve methods by which accounting income is determined, made more transparent and leave less and less room for subjective selection of methods and provide for more attention to the quality of estimates used in arriving at accounting income." (emphasis supplied) 7. The Appellant, pursuant to Ind-AS 115 being notified and made mandatory of compliance thereby, changed the hitherto followed accounting method of recognizing revenue, arising from the sale of real estate units, from Ind-AS Percentage of Completion Method (‘POCM’) to CCM and the audited financial statements for the year ended March 31, 2019, were prepared having regard to the changed accounting method.

8. In cases of contracts under execution during the relevant previous year, where the Appellant Company has adopted CCM, the revenue, costs and profits earlier recognized in respect of under construction projects as on 01 April 2018 were derecognized and charged to retained earnings account as on 1st April 2018.

9. The Appellant has been regularly following CCM for recognizing revenue which is in conformity with the provisions of section 145 of the Act. Section 145 of the Act, inter alia, provides that income chargeable under the head "Profits and gains of business or profession" be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

10. The relevant extracts of section 145 of the Act are reproduced hereunder: “Method of accounting. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income.” (emphasis supplied) Accordingly, in terms of section 145 of the Act, taxable income for the purposes of the Act is determined according to the method of accounting which is regularly followed by the assessee.

12. The determination of income under the head "profits and gains of business or profession" has to be as per the consistent and regularly followed method of accounting maintained in accordance with the applicable accounting standards. The Supreme Court authoritatively emphasized the aforesaid proposition of law in the decisions of Metal Box Company of India Limited v. Their Workmen: 73 ITR 53(SC), (refer Page 191-213 of Paper Book Vol-2), Bharat Earth Movers vs. CIT: 245 ITR 428(SC) (refer Page 214- 219 of Paper Book Vol-2)and CIT vs. Woodward Governor India (P.) Ltd.: 312 ITR 254 (SC). (refer Page 172-190 of Paper Book Vol-2) 13. The only exception which has been carved out under the provisions of section 145(1) is under sub-section (2), under which Income Computational and Disclosure Standards (‘ICDS’) have been notified.

14. The Central Government has notified ICDS vide powers granted under section 145(2) of the Act. However, none of the ICDS or the provisions of Act prescribe any specific methodology for computation of income in case of assessees engaged in the real estate business. The same finds force from Circular 10 of 2017 issued by CBDT (Reply to Question No. 12), wherein, it has been clarified to this effect. A copy of the said circular is enclosed as Exhibit/Annexure- 4(please refer page 47 to 54 of paper book volume 1) for your reference. Question 12 of the said circular is reproduced hereunder: “Q:12: Since there is no specific scope exclusion for real estate developers and Build - Operate - Transfer (BOT) projects from ICDS IV on Revenue Recognition, please clarify whether ICDS III and ICDS IV should be applied by real estate developers and BOT operators. Also, whether ICDS applicable for lease. A:12: At present there is no specific ICDS notified for real estate developers, BOT projects and leases. Therefore, relevant provisions of the Act and ICDS shall apply to these transactions as may be applicable.” (emphasis supplied) 15. While CBDT had introduced a draft ICDS on Real Estate Transactions in May 2017, the same has not yet been implemented. 16. In the absence of any particular methodology, the assessee was under an obligation to compute its taxable income in accordance with the method of accounting regularly employed which is in accordance with the requirements of section 145(1) of the Act, viz. CCM. 17. Thus, with regards to the Ld. AO’s contention in paragraph 4.4(vii) and 4.7(ii) of the assessment order wherein, the Ld. AO has mentioned that “Ind As has been prescribed for preparation of books of account. However, total income has to be computed according to the provisions of the Act and ICDS. There is no provision in the Act for a claim of deduction in respect of such profit/income which has already been offered on the basis of provision of the Act as applicable for the relevant assessment year. Accordingly, the assessee has applied Ind AS 115 as applicable for the year under consideration to the earlier year in which Ind As 115 was not applicable. Therefore, such claim of deduction is not as per provisions of the Act.”, it is respectfully submitted that in the absence of any particular methodology prescribed under ICDS, the Appellant has computed its taxable income in accordance with the Page | 13

method of accounting regularly employed basis accounting standards which is in accordance with the requirements of section 145(1) of the Act. Accordingly, there is no conflict of any of the provisions of the Act with the method adopted by the Appellant for computation of its income. B. Section 43CB of the Act is not applicable to the Appellant and there is no specific ICDS applicable for real estate companies.

20. A perusal of section 43CB would show that the same is applicable for recognition of profits and gains arising from, inter alia, construction contract, which has to be determined on the basis of percentage of completion method in accordance with ICDS III, notified under sub-section (2) of section 145 of the Act.

21. The Appellant humbly submits that ICDS III relating to “construction contracts” provides that the same should be applied in determination of income for a construction contract of a contractor. The term "construction contract" is defined in para 2(1) of the said Standard as under: “(a) "Construction contract" is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use and includes : (i) contract for the rendering of services which are directly related to the construction of the asset, for example, those for the services of project managers and architects; (ii) contract for destruction or restoration of assets, and the restoration of the environment following the demolition of assets.” However, a ‘real estate project’ is defined under section 2(zn) of 22. The Real Estate (Regulation and Development) Act, 2016 as “the development of a building or building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto”.

24. Such a demarcation between companies engaged in the business of construction and companies engaged in the business of real estate has also been accepted by the ICAI.

“Merely, because a transaction is liable to service tax it will not ipso facto mean that it is a service transaction as contemplated under this ICDS. For example, a real estate developer developing a property on his own account and not as a contractor will not be covered by this ICDS, since the predominant aspect of the transaction as understood under the Act is of sale of immovable property. Considering this, provisions of ICDS will not apply to recognition of the revenue by a developer of real estate. Also, the CBDT has issued a separate draft ICDS on Real Estate Transactions. Pending notification of such ICDS, revenue in such cases will have to be recognized based on the method of accounting followed, general accounting principles and various judicial pronouncements on the issue” (emphasis supplied) 27. In view of the above, the Appellant humbly submits that real estate business carried on by the Appellant is not akin to construction contract executed by a contractor. Accordingly, ICDS III not being applicable to real estate contracts, section 43CB of the Act is not attracted to the facts of the case of the Appellant.

29. In the absence of any specific ICDS applicable to real estate companies, the taxable income/ profits of the Appellant have been determined as per the provisions of the Act in as much as the Appellant has recognized revenue and determined profits and gains of its business on the basis of the method of accounting regularly employed by it as mandated under section 145(1) of the Act.

9. In this background what is required to be considered is whether the books of accounts could be rejected by the AO merely for the reason that recourse to the Guidance Note was taken by the assessee. In this regard, we would be required to examine the provisions of s. 145 of the IT Act. Sec. 145 of the IT Act adverts to the method of accounting followed by an assessee. Sub-s. (1) of s. 145 provides that income chargeable under the head "profits and gains of business or profession" or "income from other sources" shall be computed either on cash basis or on mercantile system, whichever method being regularly employed by the assessee. This provision is, however, subject to the Central Government notifying AS in respect of any class of assessee or class of income. Sub-s. (3) of s. 145, empowers the AOs to disregard the books of accounts submitted by the assessee only if he is not satisfied with the correctness or completeness of the accounts of the assessee or, the method of accounting employed by the assessee or on account of AS notified under sub-s. (2), not being particularly followed by the assessee. In this particular case, the AO has disregarded, in substance, the method of accounting followed by the assessee qua lease rentals without basing it on the grounds provided in s. 145 of the IT Act. The fact that the assessee justified its method of accounting, by taking recourse to the Guidance Note issued by the ICAI in that behalf, was disregarded, on what we would term as, a disjointed reading of the provisions of the said Guidance Note. Both the AO as well as the CIT(A) have adverted to para 2 of the Guidance Note to come to, what we consider an erroneous conclusion in as much as they have held that in determining as to whether deduction on account of lease equalization charges ought to be allowed or not, what has to be borne in mind is ultimately the provisions of the IT Act. In our view, such an observation in para 2 of the Guidance Note is really saying the obvious. Therefore, even if this Guidance Note was silent on this aspect the provisions of the IT Act would undoubtedly still apply. Thus, as to what is the impact of provision of para 2 of the Guidance Note will be considered by us as we progress further with our judgment.

9.1 However, what is important at this stage is to first address ourselves to the aspect as to whether the AO could have disregarded the method of accounting followed by the assessee in respect of lease rentals. In our view, the AO could not have done so, as the method of accounting was based on a guideline commended for adoption by a professional body such as the ICAI. The Guidance Note reflects the best practices adopted by accountants the world over. The fact that, at the relevant point in time, it was not mandatory to adopt the methodology professed by the Guidance Note issued by the ICAI, is irrelevant, for the reason that, as long as there was a disclosure of the change in Accounting Policy in the accounts, which had a backing of a professional body such as the ICAI, it could not be discarded by the AO. This is specially so, since the ICAI is, recognized as the body vested with the authority to recommend ASs for ultimate prescription by the Central Government in consultation by the National Advisory Committee of Accounting Standards, for presentation of financial statements.…………….. 10. ……………... The change in accounting policy, as noticed by us above, had the imprimatur of a duly recognized professional body, i.e., the ICAI. Therefore, notwithstanding the fact that the opinion of the ICAI was expressed in a Guidance Note which had not attained a mandatory status, would not, in our view, provide a basis to the AO to disregard the books of accounts of the assessee and in effect method of accounting for leases, followed by the assessee.” (emphasis supplied)

The above proposition is also fortified by the following decisions:  Prakash Leasing Ltd. Vs DCIT [2012] 208 Taxman 464 (2013)(Karnataka) (refer Page 297-309 of Paper Book Vol-2)  Commissioner of Income Tax and others Vs Pact Securities and Financial Services and others reported in (2015), 374 ITR 681 (AP) (refer Page 310-319 of Paper Book Vol-2)  In the case of CIT v. Insilco Ltd [2009] 179 Taxman 55 [Delhi HC], (refer Page 320-332 of Paper Book Vol-2)where pursuant to the change in Accounting Standard - 2, the assessee capitalized the cost of spares and claimed depreciation on the said capitalized value, the jurisdictional

Delhi High Court observed that the assessee was obliged to capitalize the entire cost of spares in consonance with the mandatory provisions of AS-2 and AS-10 and that there was no merit in the submissions of the revenue that the accounting treatment in accordance with the Accounting Standards had no relevance for the purposes of the Act. The relevant extract of the judgment is as under: “16.5 It is to be noted that these Accounting Standards are mandatory in nature and applied to accounts prepared after 1- 4-1999. In that sense the submission of the assessee has to be accepted that the change in the accounting policy had been brought about by virtue of the issuance of the revised accounting standards issued by the Council of the ICAI, which was, applicable for the assessment year under consideration. Furthermore, the provisions of subsections (3A), (3B) and (3C) of section 211 of the Companies Act, 1956, clearly provide that every profit and loss account and balance sheet of a company shall comply with the Accounting Standards prescribed. …….. Therefore, we have no difficulty in accepting the submissions of the learned counsel for the assessee that it was obliged to capitalize the entire cost of spares in consonance with the mandatory provisions of Accounting Standards (AS) 2 and (AS) 10. 16.6 It is not disputed that the assessee is maintaining the accounts based on a mercantile system. Under sub- section (1) of section 145 of the Act the assessee's income which is chargeable under the head "Profits and gains of business or profession" is required to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. 16.7 As indicated above the assessee has been maintaining a mercantile system of accounting, therefore, the treatment of emergency spares in accordance with the revised Accounting Standards (AS) 2 and (AS) 10 would be in consonance with the mercantile system of accounting which under the Act the revenue is required to look at for computing income of the assessee chargeable under the head "Profits and gains" from business. The submission of the learned counsel for the revenue that the accounting treatment to be meted out to a transaction in accordance with the Accounting Standard has no relevance for the purposes of the Income-tax Act, 1961 is a submission which does not commend to us.” (emphasis supplied)  Kerala High Court in the case of Forest Industries Travancore Ltd vs CIT: 51 ITR 329 (Kerala HC) (refer Page 333-337 of Paper Book Vol-2)held as follows: “That the assessee was entitled to change his method of valuation of stock in this manner even though the revenue may be affected adversely by such change. It is a concession given to the assessee based on the well- recognised usage of the trade, and the principle underlying that concession is in no way violated when the assessee changes his method of valuation from cost to market value when the latter is less than the cost price, provided the change is bona fide and the new system is continued in subsequent years.” (emphasis supplied)  The Calcutta High Court in the case of Snow-White Food Products Co. Ltd vs CIT [1983] 141 ITR 861 (refer Page 338-344 of Paper Book Vol-2)observed if one regular method of accounting is substituted by another regular method, it shall be considered as bonafide.

In the case of Bata India Ltd. v. DCIT [2019] 111 b) taxmann.com 453 (Kolkata Tribunal), (refer Page 345-383 of Paper Book Vol-2) the Kolkata Tribunal held that transitional liabilities of gratuity and leave encashment as per provisions of AS-15, which were disclosed in notes appended to accounts should be adjusted while computing book profit under section 115JB under the Act. The relevant extracts of the decision are reproduced as under: “We note that AS-15 is mandatory for the assessee company to make the compliance with effect from 07.12.2006 therefore, the assessee company has to make provision in the books of accounts by following the AS-15 for transitional liability towards gratuity and leave salary. We note that from the aforesaid decisions referred to herein above, it follows that the net profit as per the profit and loss account prepared in accordance with Part II of Schedule VI to the Companies Act, 1956 is the starting point for computation of book profit under section 115JB of the Act. Where the profit and loss account is not strictly drawn up in accordance with Part II of Schedule VI to the Companies Act, 1956, the same is first to be adjusted to bring the same in line with the relevant provisions of the Companies Act; thereafter the adjustments enumerated in various clause of Explanation 1 to section 115JB of the Act are to be carried out. In that view of the matter, where the adjustment is of the kind to align the net profit as per the profit and loss account in accordance with Part II of Schedule VI to the Companies Act, 1956, the same has to be carried out, notwithstanding that such adjustment may not be within the scope of various clauses of Explanation 1 to the said section. As indicated in the accounting standard, in either case, the objective is to indicate the effect of such items on the current profit or loss. The fact that the assessee adopted the alternative approach of showing such items in the statement of profit and loss after determination of current net profit or loss, does not mean that these items are not to be taken into account in computing net profit as envisaged in section 115JB of the said Act. Profit and loss account and Balance Sheet should be read together with notes to accounts to compute the book profit under section 115JB of the Act. Notes to accounts are part of Profit and loss account and Balance Sheet. The liability towards leave encashment and gratuity has to be considered to determine net profit as the information was disclosed in the Notes appended to accounts, which have been held to be part of the accounts of the assessee-company. Notes to accounts explain the figures of Profit and loss account and Balance Sheet and off balance sheet items, therefore these are part of Profit and loss account and Balance Sheet. Therefore, the 'Transitional Liability' provided in book of accounts and adjusted against Opening General Reserve as per Para 143 to 145 of AS-15 (Revised 2005), towards leave liability Rs. 85,34,000/- and towards gratuity liability Rs.3,32,38,000/- done by an outside actuary under mandatory AS-15 (Revised 2005) on employee benefits issued by ICAI, should be reduced from current year's profit for computation of Book Profit u/s 115JB of the Act. Therefore, considering the facts and circumstances narrated above and the case laws and judicial citations relied upon by the assessee, we note that notes to accounts are part of financial statements (Profit & Page | 24

Loss account and Balance Sheet, cash flow statement etc,) therefore the computation of book profit under section 115JB of the Act should be done taking into account the figures mentioned in the notes to accounts. Hence, we direct the assessing officer to allow deduction in respect of transitional provisions of leave liability of Rs. 85,34,000/- and gratuity liability of Rs. 3,32,38,000/- while assessing book profit u/s 115JB of the Income Tax Act.” (emphasis supplied) c) The Appellant also wishes to place reliance on the following judgments, wherein, it has been held that an assessee is permitted to change its accounting policies, provided the same is bonafide – i. CIT vs Mapin Publishing Pvt Ltd. (2014) (42 taxmann.com 191) (refer Page 384-389 of Paper Book Vol-2) Molmould Corporation vs. CIT (1993) (71 Taxman 47) ii. (Bombay) (refer Page 390-395 of Paper Book Vol-2) d) The changed method of recognition of revenue adopted in the assessment year 2019-20, viz, CCM (Ind-AS 115) was followed by us in the succeeding years as well. The income for the assessment years 2020- 21 and 2021-22 was determined following the changed method. Since the changed method was not accepted in the year of change, viz, assessment year 2019- 20, the appellant had made an alternate claim in assessment for the assessment year 2020-21 and 2021-22 of an amount of Rs.1,73,176.18 lakh and Rs. 1,51,096.81 lakh respectively, representing income that had already suffered tax upto assessment year 2016-17 (under IGAAP POCM) and offered for tax again in assessment year 2020-21 and 2021-22 (following CCM). e) The Assessing Officer, in the completed assessments for the assessment years 2020-21 and 2021-22, accepted the computation of income under the head “profits and gains of business or profession” in terms of the changed method of accounting, i.e., CCM but refused to allow the alternate claim. f) The consequence of the decision taken by the Assessing Officer in the assessment for assessments years 2020-21 and 2021-22 is that the Revenue has accepted the changed method in the asstt.years succeeding the year of change while rejecting the changed method in the year of change. The flip flop attitude adopted by the Revenue would lead to distortion in the manner of recognizing income from real estate projects being executed Page | 25 by the Appellant and will also be contrary to the mandate of section 145 of the Act. g) Support may be drawn from the decision of the apex Court in the case of Shasun Chemicals and Drugs Ltd. v. CIT [2016] 388 ITR 1 (SC) (refer Page 396-404 of Paper Book Vol-2)wherein it was held that deduction under section 35D of the Act available for amortization of expenses over a period of time, could not be denied in the later years once the Revenue had accepted, admitted and allowed the claim in the initial years including the year in which expenditure was incurred. h) It is reiterated, at the cost of repetition, that the income under the head “profits and gains of business or profession” has to be computed as per the consistent and regularly followed method of accounting. The approach of the Revenue in rejecting the change from Ind AS POCM to CCM in the assessment year 2019-20 and accepting the changed method (CCM) in the assessment year 2020-21and 2021-22 deviates from the above well accepted principle of law, statutorily enshrined in section 145 of the Act. Reliance is placed on the decision of the Supreme Court in the i) case of Apollo Tyres Ltd. v. CIT [2002] 298 ITR 273/122 taxman 562 (SC) (refer Page 405-415 of Paper Book Vol-2), wherein while determining net profit, arrears of depreciation computed from time to time the asset(s) worked extra shift and provided in the books were held to be necessary charge on profits in the year of debit to the profit and loss account and allowable as such, while computing taxable income under the section 115J of the Act. CCM is a recognized method of accounting for recognizing D. revenue from real estate contracts 39. The Appellant wishes to submit that the Indian courts have accepted CCM as a recognized method of accounting for recognizing revenue from real estate contracts.

40. Reliance is placed on the case of CIT vs. Bilahari Investment Pvt. Ltd. 299 ITR 1 (SC) (refer Page 416-423 of Paper Book Vol-2), wherein the Hon’ble Supreme Court approved the assessee's basis of computing taxable income adopting the said method, despite the fact that recognition of entire income stood deferred till completion of the contract. In that case, the Apex Court had the occasion to consider the POCM and CCM methods of accounting. Dwelling on the completed contract method, the Supreme Court noted that under the said method,

revenue is not recognized until the contract is completed and costs are accumulated during the course of the contract; the profit and loss is established in the last accounting period and transferred to the profit and loss account; the said method determines results only when the contract is completed and leads to objective assessment of the results of the contract. With respect to Percentage of Completion method, it was observed that POCM tries to attain periodic recognition of income in order to reflect current performance; the amount of revenue recognized under this method is determined by reference to the stage of completion and can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. It was ultimately held that recognition/identification of income under the Act is attainable by several methods of accounting; the same result could be attained by any one of the accounting methods and the completed contract method is one of such methods. In the case of CIT v. Manish Buildwell (P.) Ltd. [2011] 16 41. taxmann.com 27 (Delhi) (refer Page 424-440 of Paper Book Vol- 2), wherein the assessee was engaged in the business of development of real estate projects, the Assessing Officer made certain addition to its returned income on the ground that assessee was adopting the completed contract method which was not proper and the profits of business should be computed on the basis of percentage of completion method. On appeal, the CIT(A) deleted the said addition and inter-alia held that project completed method or CCM is a well-recognized method of accounting and is the only method suitable for any developer who has to deliver a completed product to the buyer. The aforesaid decision of the CIT(A) was upheld by the ITAT.On further appeal, the Hon’ble Delhi High Court, placing reliance on the decision of Apex Court in the case of Bilahari Investment Pvt. Ltd. (supra.) upheld the above observation of the CIT(A) and the ITAT. The relevant extracts of the aforesaid decision of Delhi High Court are reproduced as under:

“8. It is well settled that the project completion method is one of the recognized methods of accounting. ….. 9. After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Page | 27

Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method.” (emphasis supplied) 42. Reliance may also be placed on the decision of the Karnataka High Court in the case of CIT v. Varun Developers [2021] 126 taxmann.com 235 (Karnataka) (refer Page 441-444 of Paper Book Vol-2), wherein while adjudicating on the method of accounting acceptable to compute and offer to tax income from housing project, the Hon'ble Court observed that since either method of accounting, i.e., project completion method or percentage completion method finally lead to same results in terms of profits, and hence the same was revenue neutral for the assessment year in question, the assessee was to be allowed to adopt project completion method. The relevant extracts of the said judgment are reproduced hereunder: “6. So far as fourth substantial question of law is concerned, it is pertinent to note that under section 145(1) of the Act, the income chargeable under the head Profits and Gains of Business shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The general provision is subject to accounting standards that the Central Government may notify. The assessee is a builder and developer and not a construction contractor simplicitor. Accounting Standard 7, titled construction contracts is applicable only in case of contractors and does not apply to the case of developers and builders which is evident from opinion rendered by expert advisory committee of ICAI. It is pertinent to note that the assessee had offered the income for Assessment Year 2007-08 and no income from the project was offered for the Assessment Year 2007-08 on the basis of project completion method and that either method of accounting finally lead to the same results in terms of profits and therefore, revenue neutral. In view of preceding analysis, the fourth substantial question of law is also answered against the revenue and in favour of the assessee.” (emphasis supplied)

completion method of accounting and had been consistently following it over years, it was not open to the revenue to reject such method because, according to Assessing Officer, percentage completion method was preferable. The relevant extract of the said judgment is reproduced hereunder: “8. We find that the revenue has accepted the Project Completion Method in respect of Gym View Project of the respondent- assessee. Further as recorded by Commissioner in his order dated 27 March 2012, the respondent-assessee has offered to tax the income earned on Link Corner Project by following the Project Completion Method in respect of subsequent assessment year i.e. A.Y. 2008-09. It is a settled position of law that where the revenue has accepted a particular method of accounting over several years, the same is not to be lightly substituted unless the revenue is able to show that the same distorts the profit for a particular year. As held by the Apex Court in United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601, the choice of method of accounting is of the assessee. The respondent- assessee has chosen/adopted the Project Completion Method of accounting and has been consistently following it over the years. It is not open to the revenue to reject a method because according to the Assessing Officer another method is prefereable. In view of the above settled position, no fault can be found with the impugned order of the Tribunal. Moreover, the most appropriate method of accounting to correctly reflect the true financial statement is a matter of opinion and debate. Issues of debate are not amenable to Revisional jurisdiction under Section 264 of the Act.” (emphasis supplied) 48. In the case of CIT v. Principal Officer, Hill View Infrastructure (P.) Ltd. [2017] 81 taxmann.com 58 (Punjab & Haryana), (refer Page 470-474 of Paper Book Vol-2) the High Court of Punjab and Haryana observed that where assessee company had been consistently following project completion method to compute profits in real estate business, Assessing Officer could not apply percentage completion method. In the above case, where the assessee had been consistently following method of booking of revenue on the completion of construction of the flat when full payment had been made to it by the person concerned and possession was delivered to him, Assessing Officer rejected the above method of accounting adopted Page | 33 by the assessee on the ground that neither Accounting standard 9 (AS 9) nor Accounting Standard 7 (AS 7) issued by the Institute of Chartered Accountants of India has been recognized by the Act and in such circumstances, there was no guidance or strict procedure for adopting a particular accounting standard under the Act and it depends upon facts and circumstances of each case. However, CIT(A), placing reliance on the decision of Bilahari Investment (P) Ltd. (supra) and Manish Buildwell (P) Ltd (supra) accepted the appeal of the assessee. The said order of the CIT(A) was further affirmed by the Tribunal by observing that project completion method and percentage completion method are accepted methods of accounting and the assessee has option to adopt any one of them.

On further appeal preferred by the Revenue, the Hon’ble High Court of Punjab & Haryana upheld the orders of CIT(A) and Tribunal by observing as under: “9. The assessee-respondent had been consistently following one of the recognized methods of accountancy, i.e. project completion method, for computation of its income. In the absence of any prohibition or restriction under the Act for doing so, it cannot be held that the approach of the CIT(A) and the Tribunal was erroneous or illegal in any manner so as to call for interference by this Court. No substantial question of law arises. Consequently, finding no merit in these appeals, the same are dismissed.” (emphasis supplied) Reliance is also placed on the decision of CIT v. Punjab 49. Information & Communication Technology Corporation Ltd. [2023] 152 taxmann.com 518 (Punjab and Haryana) (refer Page 475-481 of Paper Book Vol-2) wherein the assessee being engaged in the business of development and sale of industrial plots and sheds, submitted that it was following project completion method, therefore, excess receipts qua expenses would be accounted for by it in subsequent years, i.e., in the year of completion. The Punjab and Haryana High Court observed that since the same method was followed consistently by the assessee during the subsequent assessment years, and further the exercise was revenue neutral, principle of consistency was to be applied and the assessee was justified in following project completion method instead of percentage completion method as adopted by the Assessing Officer.

The relevant extract of the above decision is reproduced hereunder: “10. On applying the principles of law as enunciated in the cases cited above to the present case, it emerges that admittedly and undisputedly the respondent-assessee company was applying “project completion method”. The observations made by the assessing authority that such method could not be accepted, had no basis.…..

11. On perusal of the entire record, it is explicit that in the instant case, no observation had been recorded by the assessing officer that the project completion method as followed by the assessee would result in deferment of the payment of taxes which are to be assessed annually under the Act. Hence in our opinion, the assessee could follow either project completion method or percentage completion method and the CIT (A) and the Tribunal had rightly considered that the method of accounting followed by the assessee was consistent and the addition made by the assessing officer was not in accordance with the same and hence was not correct and committed no error in giving direction to delete the same. Therefore, the findings recorded by the authorities below on this point do not warrant any interference and are affirmed.” (emphasis supplied) In the case of CIT v. Bhageeratha Engineering Ltd. [2021] 129 50. taxmann.com 436 (Kerala) (refer Page 482-490 of Paper Book Vol-2), The High Court of Kerala accepting the completed contract method of accounting, observed as under: (i) The Act does not stipulate adherence to one particular accounting standard to be followed by a particular set of assessees, depending upon the nature of business the assessee do; (ii) There is no prohibition under the Act to change from one particular accounting standard to another accounting standard by the assessee, however, the change should be bona fide and the change is not a casual departure from the regular method which has hitherto been adopted by the assessee with a view to avoiding or evading income-tax; (iii) The completed contract method is one of such methods adopted to recognise the revenue and profit associated with the project only after the project has been completed.

53. In the case of ACIT v. Heeral Constructions (P.) Ltd. [2004] 4 SOT 848 (Chennai) (refer Page 498-501 of Paper Book Vol-2), the assessee was engaged in the business of construction, sale, lease and letting of residential and commercial buildings and was following completed contract method for the purposes of contracts. The Assessing officer rejected such method of accounting and computed profit on each individual sale of flat even though the project had not been completed. On appeal, the Chennai Tribunal held that project completion method adopted by the assessee was correct and recognized method of accounting. The relevant extract of the said judgment is reproduced as under: “8. Considering the facts and circumstances of the case and the judicial decisions of the Apex Court and various High Courts, we are of the opinion that the project- completion method of accounting in respect of civil construction projects adopted by the assessee is the correct and recognized method of accounting, since the Assessing Officer had neither pointed any defects either in the books of account or in the method of accounting, nor that from this adopted method, the true profit or income derived by the respondent assessee could not be deduced. In view of all the findings and precedents relied upon, we uphold the order of the learned CIT(A) and dismiss the appeals of the Revenue.

9. In the result, all the three appeals filed by the Revenue stand dismissed” (emphasis supplied) 54. In the case of Paras Bulidtech India (P) Ltd. 382 ITR 630 (Delhi) (refer Page 502-508 of Paper Book Vol-2), the question arose during assessment proceedings whether POCM (as per AS-7) should be applied to the assessee’s case. It was submitted by the assessee that POCM was not applicable to it as it was a developer and not a contractor. The AO did not accept the assessee’s contention and, by applying POCM, he made an addition of Rs. 1.56 Cr. In appeal, CIT(A) deleted the addition. In Revenue’s appeal against the order of CIT(A), the ITAT reversed the order dated 2nd July 2010 of the CIT (A) and accepted the plea of the Revenue that the percentage completion method would apply since the assessee had transferred risks and rewards to the buyers even prior to commencement of construction activities. In the assessee’s appeal against the order of ITAT, the Hon’ble Delhi High Court reversed the order of the ITAT by relying on the decision of Hon’ble Supreme Court in the case of CIT vs Bilhari Investment (P) Ltd. (supra). The relevant portion of the order of Delhi High Court is reproduced below:- “21. In the present case, there was therefore no good reason for the ITAT to have reversed the finding of the CIT (A). The only reason given in the impugned order of the ITAT is that ‘risks and rewards' of ownership were transferred to the buyers who had paid the booking advance amounts and in some cases these rights were transferred to third parties. However, this does not in any manner affect the treatment of the said amounts in the books of the Assessee. As noted hereinbefore, the expenses of construction were not debited to the P & L account of the Assessee. It was shown as cost of construction or block of buildings. It is only as and when a conveyance deed was executed or possession delivered that the receipt was shown as income. The eThe explanation added by way of Notes to the Accounts was not taken note of by the ITAT when it came to the conclusion that the percentage completion method should apply to the Assessee. 22. The other aspect that appears to have escaped the attention of the ITAT is that the Assessee offered to tax in the subsequent FY the amounts received and therefore there was no actual loss to the revenue. In similar circumstances, the Supreme Court in CIT v. Excel Industries Limited 2013 ITR 295 (SC) observed that the dispute if any raised at the Page | 37 instance of the Revenue would be at best academic. The stand of the Assessee in the present case also finds support in the decision of the Gujarat High Court in CIT-IV v. Shivalik Buildwell (P) Ltd. (2013) 40 taxmmann.com 219 (Gujarat). It was held that the Assessee in that case, who was a developer, was entitled to book the amount received as booking advance as income on transfer of the property. Till then the advance booking amounts could not be treated as his trading receipt. The High Court recognized that the Assessee in that case was entitled to apply the project completion method in terms of the applicable AS.

23. This Court too has by order dated 7th January 2015 in ITA 111/2014 (CIT v. SABH Infrastructure Ltd.) held likewise, after noticing the decisions of the Supreme Court in CIT v. Bilahari Investment P. Ltd. (supra) and the order dated 15th November 2011 in of 2011(CIT v. Manish Buildwell Pvt. Ltd.).

“5. The CIT(A) has deleted the addition for the reasons given in paragraph 4.3 of his order. He has, interalia, observed that the revenue earned by the assessee from software and consultancy services was recognized on delivery of goods/services, that as per the existing scheme, M/s. Satyam Education Services Limited was assigned the responsibility to 'sign off on completion of the project in the case of all customers, that the assessee-company was following the AS 9 prescribed by the Institute which was in conformity with the provisions of section 145(2) of the Act. The assessee was regularly following the 'project completion method, which is a recognized method. The completion of each project is determined by 'sign off. There, is nothing on record to show that there was any inconsistency in this regard. The CIT(A) found that the deferred income amounting to Rs.39,68,208 was carried forward and was duly taken into account in the next assessment year. In the circumstances, therefore, we see no reason to interfere with the conclusions reached by the CIT(A). The ground no. 4 is, accordingly rejected.” (emphasis supplied) 57. In view of the above judicial decisions, the Appellant submits that the changed method of accounting, viz. CCM is a recognized method of accounting for revenue recognition and computation of income of the Appellant. The method of recognizing revenue followed (i.e., CCM) is E. eventually revenue neutral and represents a true and fair view of the state of affairs and income of the Appellant 58. The Appellant wishes to submit that it has principally followed a particular method of recognizing revenue which is eventually revenue neutral and represents true and fair view of the state of affairs and income of the Appellant as entire contract revenues and contracts costs would ultimately be offered for tax at the time of sale of the built-up units i.e. at the time of handing over of the possession to the customers, as per CCM consistently followed by the Appellant.

60. In this regard, the Appellant wishes to place reliance on the decision of Bilahari Investment (P.) Ltd. (supra.) wherein, the Apex Court, while adjudicating on the acceptability of a change adopted by appellant in the method of accounting, accepted the contentions of appellant that the change adopted by appellant in the method of accounting should be permitted since the same is revenue neutral, i.e. it does not lead to any loss to the exchequer. Relevant extracts of the judgement are provided hereunder –

“Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. ….. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from completed contract method to deferred revenue expenditure, is revenue neutral. Therefore we do not wish to interfere with the impugned judgment of the High Court.” (emphasis supplied) 61. Further, the Appellant wishes to place reliance on the following judicial decisions wherein the courts have accepted the claims of the assessee on the ground that the method of accounting followed by assessee is revenue neutral. a) In the case of Excel Industries Ltd. 358 ITR 295 (SC) (refer Page 552- 559 of Paper Book Vol-2), where the assessee maintained its accounts on mercantile basis and claimed deduction under the head ‘advance license benefit’ receivable and ‘duty entitlement passbook benefit’ receivable but the AO did not accept the assessee’s claim on the ground that the taxability of benefits was covered by section 28(iv) of the Act, the Hon’ble Supreme Court inter alia held as under: “32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue Page | 41 with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.” (emphasis supplied) b) In the decision rendered by the Supreme Court in the case of CIT vs. Realest Builders and Services Ltd.: 307 ITR 202 (SC) (refer Page 560- 562 of Paper Book Vol-2), the apex Court was concerned with the short issue as to whether income accrued to the assessee on the registration of the sale deed in favour in the third party (plot purchaser) or whether it accrued at the time of execution of the tripartite agreement?

The plea of the Revenue was that income accrued on the date of execution of the tripartite agreement when the assessee received full consideration of the plot and not in the year in which the sale deed stood executed. The assessee contended that in the absence of any transfer of right, title and interest upto the date of execution of conveyance, there was no accrual of income at the time of execution of the tripartite agreement. The Supreme Court dismissed the appeal of the Revenue, holding that unless it could be demonstrated that by following a particular method of accounting, any loss was caused to the Revenue on account of underestimation of income, any particular method of accounting followed by the assessee was presumed to be tax neutral. The relevant excerpts of the decision of the apex Court are as follows:

“6. Under section 145, it is always open to the department to insist on the change in the method of accounting followed by the assessee over the years if the impugned method of accounting results in underestimation of profits/net income

7. ………… In cases where the Department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting was warranted on the ground that profit is being underestimated under the impugned method of accounting………. Otherwise, the presumption would be that the entire exercise is revenue neutral” (emphasis supplied) Reliance may also be placed on the decision of the Karnataka c) High Court in the case of CIT v. Varun Developers (supra.) wherein it was held that since either method of accounting, i.e., project completion method of accounting and percentage completion method of accounting finally lead to same results in terms of profits and therefore revenue neutral for assessment year in question, assessee was to be allowed to adopt project completion method. d) In the case of Housing & Urban Development Corporation Ltd. v. ACIT [2020] 115 taxmann.com 166 (refer Page 563- 584 of Paper Book Vol-2), wherein, the appellant following mercantile system of accounting in respect of revenue recognition of application fees, front end fees, administrative fees and processing fees for loans from date of signing of loan agreement to date of realisation changed its accounting policy as per observation of CAG and recognized aforementioned fees as on date of its realization instead of date of signing of loan agreement, since no income accrued at point of mere execution of agreement and, financial impact was factored in subsequent year, the Hon’ble Delhi Court observed that no addition was to be made on account of such change in accounting policy as it is revenue neutral. The relevant extracts are reproduced as under: “31. We also find merit in the submissions of the appellant that the change in accounting policy is a result of the audit objection raised by CAG on 10th October, 2006. The appellant has claimed deduction in profits in the computation of the total income, and added it as income in the subsequent assessment year, which has been accepted by the AO. The change is, thus, revenue neutral. ….

2), where assessee followed a consistent accounting policy to show unearned revenue as current liability in its books of account and offered it for tax as and when services were rendered, the Delhi High court observed that the said transaction in effect being revenue neutral would not affect revenue’s interest. The relevant extract of the said decision is reproduced as under: “9.7 As would be noticed, in this case as well, it is not as if the petitioner/assessee is not offering unearned revenue for tax; it is only on account of accounting policy followed consistently that unearned revenue is offered for tax in the year in which services are rendered and/or goods are sold. Thus, the transaction, in effect, being revenue neutral, it does not affect the interest of revenue.” (emphasis supplied) Reliance may also be placed on the decision of the Hon’ble f) Delhi High Court in the case of CIT v. Triveni Engg. & Industries Ltd. [2011] 196 Taxman 94 (Delhi HC) (refer Page 596-603 of Paper Book Vol-2), wherein in the case of an assessee engaged, inter alia, in manufacture and sale of sugar plants, turbines etc and project related activities in the field of setting up of sugar plants, water treatment plants and mini hydel power project and recognizing revenue under the project completion method, it was observed that when admittedly, expenditure incurred by assessee on project was admissible deduction and only dispute was regarding year of allowability of expenditure, considering that assessee was a company assessed at uniform rate of tax, entire exercise of seeking to disturb year of allowability of expenditure would, in any case, be revenue neutral. Accordingly, the appeal was to be dismissed. The relevant extract of the judgment is as under: “11. After considering the submissions, the counsel on the either side, in the given facts, we are of the prima facie view that arguments of the learned counsel for the assessee to prevail. The learned counsel for the Revenue may be correct in stating the proposition of law, generally. No doubt, unless the expenditure is actually incurred or it is accrued in the relevant year, it would not be allowed as deduction. Such a liability has to be in praesenti. However at the same time, in the given scenario where in relation to the project works Page | 44 undertaken by the assessee, completed contract method of accounting is followed, which is consistent with the Accounting Standards and these accounting standards also lay down the norms indicating the particular point of time when the provisions for all known liabilities and losses has to be made, the making of such a provision by the assessee appears to be justified more so when the assessee had recognized gain as well on such project during this year itself. This appears to be in consonance with principle of matching cost and revenue as well. However, in the projected scenario of this case after taking stock of the entire situation, we are of the opinion that it is not necessary to conclusively answer the aforesaid questions formulated. It is because of the reason that we find that the entire exercise is revenue neutral. It may be pointed out that it is a matter of record that against the provision of Rs. 139 lakhs, the assessee had to actually incur expenditure of Rs. 218.03 lakhs, i.e., more than the provision made. It is undisputed that the expenditure incurred by the assessee on the project is admissible deduction. The only dispute that the Revenue seeks to raise is regarding the year of allowability of expenditure. Considering that the assessee is a company assessed at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure is, in any case, revenue neutral. …… 14. In such circumstances, we are of the view that insofar as present appeal is concerned, substantial questions of law that need to be answered does not arise. We, therefore, dismiss this appeal on this ground alone.” (emphasis supplied) Further, The Hon’ble Delhi High Court also reiterated the observations made by Justice Tendolkar in the case of CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom.) (refer Page 604-606 of Paper Book Vol-2), which reads as under: “We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income- tax Act, raise disputes as to the year in The which the deduction should be allowed. question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of the character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.” (emphasis supplied) 62. Accordingly, in view of the above, since the contract value is finite and the total income of the Appellant would remain same over the life of project, the Appellant believes that there would be no loss to the exchequer over the life of a project on account of adopting a different accounting method. Hence, the principal claim should be allowed in AY 2019-20.

66. It is a cardinal principle of law that an income cannot be taxed twice. In view thereof, a reduction/adjustment should be allowed to the Appellant in AY 2019-20 towards the IND-AS 115 transition adjustment. Such view finds support from the judgement of the Hon’ble Supreme Court in the case of Laxmipat Singhania vs. CIT (1969) (72 ITR 291) (refer Page 607-611 of Paper Book Vol- 2), wherein, the Hon’ble Court observed as follows – “It is a fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. Again, it is not open to the ITO, if income has accrued to the assessee, and is liable to be included in the total income of a particular year, to ignore the accrual and thereafter to tax it as income of another year on the basis of receipt. It does not confer any option on the Income-tax Officer to tax either the deemed income in the hands of the shareholder on the footing that it has accrued at the date of distribution under section 23A(1), or at the date of actual receipt of the share under section 23A(4). A provision which prevents double taxation in respect of the same income, once at the stage of deemed receipt, and another at the stage of actual receipt, cannot be converted into an enactment enabling taxation at the stage of receipt, if for any reason the income is not taxed in the year in which it was by express injunction of law required to be assessed under the provisions of the statute.” (Emphasis supplied) In the case of CIT v. Bikaner Trading Co [1989] 45 Taxman 201 67. (Calcutta) (refer Page 612-614 of Paper Book Vol-2), the Calcutta HC upheld the order of the tribunal that there should not be double deduction of double taxation of the same amount as a result of change in method of accounting. The relevant extract of the Page | 47 judgment are reproduced as under: “5. The Tribunal came to the conclusion that in view of the judgment of the Bombay High Court in Sarupchand v. CIT [1936] 4 ITR 420 , bona fide change in the method of accounting employed by the assessee should be allowed by the ITO and that it was open to him to see that there was no loss of the revenue. The Tribunal, therefore, confirmed the order of the AAC with the observations that there should not be double deduction or double taxation of the same amount as a result of the change in the method of accounting. The Tribunal thereafter restored the case back to the file of the ITO with the direction to allow the change in the method of accounting by imposing necessary conditions in the light of the observations of the Tribunal.” (emphasis supplied) 68. Reliance is also placed on the following judicial decisions wherein the courts have held that double taxation of the same income is impermissible: a) Interglobe Enterprises (P.) Ltd. v. PCIT [2023] 148 taxmann.com 121 (Delhi HC) (refer Page 615-619 of Paper Book Vol-2) b) PCIT v. Dipak Govindbhai Dalwadi [2023] 147 taxmann.com 393 (Gujarat HC) (refer Page 620-623 of Paper Book Vol-2) c) Smt. Ganigara Rekha Venugopal v. ACIT [2023] 149 taxmann.com 186 (Bangalore Tribunal) (refer Page 624-627 of Paper Book Vol-2) In nutshell, the following principles in respect of change in the method of accounting emerge from the various judicial pronouncements cited above:- 1. “Income of an assessee under the head ‘profits and gains of business or profession’ has to be determined as per the method of accounting consistently and regularly followed by the assessee.

2. The choice of method of accounting is left to the assessee and he is free to choose any method of accounting which is recognised and sanctioned by commercial practice.

4. The AO is duty bound to accept the change in the method of accounting provided the same is bonafide and the changed method is consistently followed thereafter.

5. Change in the method of accounting necessitated on account of introduction/adoption of mandatory accounting standard(s) has to be regarded as bonafide.

7. The AO is not entitled to reject the changed method of accounting merely because the same leads to deduction in the taxable income in the year of change. The facts of the appellant’s case, as discussed in the earlier paragraphs, are covered by the ratio/principles of the various judicial pronouncements cited above. Therefore, once it is established that change to CCM during the pervious year relevant to the assessment year 2019-20, on account of mandatory adoption of Ind-AS 115 was bonafide, it follows as a necessary corollary that the excess revenue of Rs. 6,09,185.90 lakhs recognised in the earlier years in respect of pending contracts needed to be reversed while computing taxable income for the assessment year 2019-20. If the appellant is not granted this deduction in the A.Y. 2019-20, the same would lead to double taxation of income, as the margin already booked in the earlier years, now reversed and claimed, would be recorded again in future years by the appellant. Inconsistent approach of department in accepting the method of accounting during assessments: a) The Appellant wishes to draw your goodself’s attention to the fact that while the Ld. AO/NFAC has denied the principal claim of the Appellant on account of mandatory transition from Ind-AS POCM to CCM vide the assessment order for AY 2019-20, the second alternate claim of the Appellant, representing the excess revenue recorded in books of accounts on account of Ind-AS as compared to the erstwhile method under IGAAP POCM, has been allowed as deduction with a view to avoid double taxation of same income. b) The allowance of second alternate claim by the Ld.AO/NFAC essentially implies that the Ld. AO/NFAC acknowledges and accepts that there is excess booking of revenue/ margins by virtue of changed accounting method which the Appellant is Page | 49

mandatorily required to follow and, therefore, an adjustment to the that extent has been allowed. As a corollary to this, revenue booked as per IGAAP POCM methodology which was hitherto being followed prior to the FY 2016-17, has been accepted. c) However, for the assessment for AY 2020-21 and AY 2021-22 i.e., the immediately succeeding assessment years, the Appellant’s claim for allowing alternate claim to the extent of excess revenue booked as per changed method of accounting has not been accepted. The Appellant has followed the changed methodology of revenue recognition in the subsequent years as well, which formed basis for determining total taxable income. The starting point of income computation, which is profit as per Profit and loss account has been accepted, thereby accepting the CCM methodology (under Ind-AS 115) for revenue recognition. d) It is respectfully submitted that the fact that AO/NFAC have accepted the changed methodology for AY 20-21 and AY 21-22 signifies that changed method of revenue recognition is an accepted methodology and, therefore, the same ought to have been accepted in the year of change as well.”

In this regard, reliance is placed on the following judicial pronouncements.

18. In the case of the assessee, revenue recognized by following CCM in the subsequent assessment years is accepted by the AO himself and rejected the alternate claim made by the assessee. Contrary to this in the year under appeal i.e. in AY 2019-20, the AO has rejected the computation of income from real estate projects as per CCM and allowed the alternate claim. This flip flop attitude adopted by the Revenue lead to distortion in the manner of recognizing income from real estate projects being executed by the assessee and is contrary to the mandate of section 145 of the Act. The ld. CIT(A) while allowing the claim of the assessee of computing the income as per CCM has made following observations in para 7.5 of its order: “7.5 I have perused the findings of the AO, submissions made by the appellant from time to time and the material placed on record. The appellant company has debited a sum of Rs. 6,09,185.90 lakhs in the retained earnings representing reversal of excess revenues (net of cost) booked in the earlier years in respect of projects under execution as on 01- 04-2018 on account of change in the method of accounting from POCM to CCM. In the return of income for the assessment year under consideration, this one-time claim of Rs. 6,09,185.90 lakh was made in schedule-BP. During the course of assessment proceedings, the AO issued notice dated 26.07.2021 and show-cause notice (SCN) dated 24.09.2021 asking the appellant company to justify the allowability of the said claim. The appellant filed written submissions on allowability of this claim vide letters dated 22.09.2021 and 27.09.2021. In these submissions, it was broadly stated as under:- 1.1.1. Income of an assessee under the head “profits and gains of business or profession” has to be determined as per the method of accounting consistently and regularly followed by the assessee; 1.1.2. The reversal of excess revenues (net of cost) is the necessary consequence / concomitant of change in the method of accounting from POCM to CCM, which is in essence a bonafide change, during the relevant previous year and hence claimed under the provisions of the Act; 1.1.1 The claim made by the appellant is in accordance with section 145 of the Act and the change in the method of accounting necessitated on account of introduction / adoption of CCM has to be regarded as bona-fide 2. Section 43CB has no applicability to real estate business; 1.1.1. None of notified Income Computation and Disclosure Standard (‘ICDS’) is applicable to the appellant, as it is engaged in real estate business;

1.1.1. CCM, as a method of accounting, has been accepted by the Indian Courts; 1.1.1. There is no escapement of income and in case the claim is not granted in the year under consideration, it shall lead to double taxation of the same income in subsequent years. 1.1.1. The appellant also filed, without prejudice, alternate claim of Rs. 1,23,721.27 lakhs vide letter dated 27.09.2021 stating that it should be allowed to claim deduction in respect of the excess income which has been booked in A.Y. 2019-20 on account of CCM vis-à-vis Ind-AS POCM. The appellant also made without prejudice, second alternate claim contingent upon and consequent to the outcome of proceedings for A.Y. 2017-18, 2018-19 and 2019-20 which cumulated to Rs. 10,42,26,14,000 (Rs 10,41,07,91,000, i.e., CCM vis-à-vis IGAAP POCM and Rs.1,18,23,000, i.e. Adjustment in relation to transaction cost in respect of loans and/ or debentures). The AO rejected the contention of the appellant and disallowed the claim of Rs. 6,09,185.90 lakhs. However, he allowed the alternate claim of Rs. 1,04,226.14 lakhs and accordingly, made a net disallowance of Rs. 5,04,959.76 lakhs (6,09,185.90 lakhs- Rs. 1,04,226.14 lakhs). 7.5.1 The reasoning given by the AO for not allowing the principal claim of the appellant is summarized below:- • Provisions of section 43CB of the Act are applicable in respect of profits and gains arising from construction contracts from A.Y. 2017- 18 onwards and the assessee was obliged to compute taxable income under Percentage of Completion Method (‘POCM’) • The deduction claimed is not justified as per the provisions of the Act • Working of income from real estate projects for the year under consideration on the basis of POCM not furnished by the assessee • No submission has been furnished to explain that profit reported in books as per Ind AS is higher than profit computed as per POCM and therefore deduction on account of adoption of Ind AS is required to be made in this case. 7.5.2 It is noticed that the appellant company, being in the business of real estate development, was regularly following the POCM-IGAAP for Page | 55 recognition of revenue from the projects. In view of the notification dated 16.02.2015 issued by the Ministry of Corporate Affairs, Govt. of India, Ind- AS were to be mandatorily adopted by listed companies and hence were made applicable for A.Y. 2016-17. Therefore, from A.Y. 2017-18 onwards, the appellant started recognising revenue as per IndAS POCM. Subsequently, in view of notification dated 28.03.2018 issued by the Ministry of Corporate Affairs notifying Ind-AS 115 as per which w.e.f. 01.04.2018, revenue from contracts with customers is recognised when control of goods and services is transferred to the customers at an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Accordingly, the appellant changed the method of accounting from Ind-AS POCM to CCM (as per Ind- As 115) from A.Y. 2019-20 onwards. Thus, it is seen that pursuant to Ind- AS 115 being notified and made mandatory for compliance, the appellant change the earlier method of recognizing revenue from Ind-AS POCM to CCM and the audited accounts for the financial year 2018-19 were prepared having regard to the change method of accounting notified by the Ministry of Corporate Affairs. In this case, it is not a case where the appellant had suo-moto adopted the new accounting method, i.e., CCM for revenue recognition. On the other hand, the appellant was obliged to adopt the new accounting method to comply with the statute. Therefore, the change in the method of accounting adopted by the AO cannot be said to be not bonafide. This change in the method of accounting was also certified by the statutory auditor in the audit report for F.Y. 2018-19. It is seen that the appellant has, in conformity with the provisions of section 145 of the Act, been consistently following the CCM for recognizing the revenue. In this regard, the relevant extracts of section 145 are reproduced below:- “Method of accounting. 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income.” The courts have held that income from business or profession has to be computed as per the consistent and regularly followed method of accounting, provided, it is in accordance with the applicable accounting standards. The only exception is provided in sub-section(2) of section 145 under which Income Computational and Disclosure Standards (ICDS) have Page | 56 been prescribed. Although the Central Government has notified ICDS, the same do not provide method for computation of income in respect of real estate developers. Therefore, it can be said that in the absence of any particular method prescribed under ICDS, the computation of income made by the appellant is in accordance with the requirements of section 145(1). Therefore, the method of accounting followed by the appellant is not in any way violative of the provisions of the Act. 7.5.3 As regards the AO’s contention that section 43CB is applicable to the appellant and hence it was obliged to compute taxable income under POCM and not under CCM, it may be mentioned here that section 43CB came into force vide Finance Act, 2018 w.e.f. A.Y. 2017-18. The relevant extract of this section is reproduced below:- “43CB. (1) The profits and gains arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145.” Section 43CB was inserted in the Act in order to provide legal sanction to ICDS III and ICDS IV. The legislative intent behind introducing this section can be seen from the reading of the “Memorandum explaining the provisions of Finance Bill, 2018”, which provides as under: “Amendments in relation to notified Income Computation and Disclosure Standards. At present, section 145 of the Act empowers the Central government to notify Income Computation and Disclosure Standards (ICDS). In pursuance the central government has notified ten such standards effective from 1st April 2017 relating to Assessment year 2017-18 In order to bring certainty in the wake of recent judicial pronouncements on the issue of applicability of ICDS, it is proposed to – (iv) insert a new section 43CB in the Act to provide that profits arising from a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method except for certain service contracts, and that the contract revenue shall include retention money, and contract cost shall not be reduced by incidental interest, dividend and capital gains.

Recent judicial pronouncements have raised doubts on the legitimacy of the notified ICDS. However, a large number of taxpayers have already complied with the provisions of ICDS for computing income for assessment year 2017-18. In order to regularise the compliance with the notified ICDS by a large number taxpayers so as to prevent any further inconvenience to them, it is proposed to bring the amendments retrospectively with effect from 1st April, 2017 i.e. the date on which the ICDS was made effective and will, accordingly, apply in relation to assessment year 2017-18 and subsequent assessment years.” A reading of section 43CB shows that it is applicable to a construction contract or contract for rendering services. There is a difference between a construction contract and Real Estate Contract. Generally, real estate firms deal in land and finished construction, whether it be commercial or residential. On the other hand, a construction firm does not deal in land dealings or buying and selling of assets. Instead, it builds for clients on the clients’ property. In a construction contract, the contractor executes the contract for and on behalf of the contractee, whereas the real estate developer conceives, develops and implements the project for and on his own behalf. In this regard, it will also be relevant to refer to Accounting Standard (AS) 7 which prescribes the accounting treatment of revenue and costs associated with construction projects. Construction Contract has been defined in para 2(1) of AS7 as under:- “(a)"Construction contract" is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.” In para 4 of AS-7, it has also been mentioned that construction includes (i) contract for the rendering of services which are directly related to the construction of the asset, for example, those for the services of project managers and architects; and (ii) contract for destruction or restoration of assets, and the restoration of the environment following the demolition of assets.” A perusal of section 43CB shows that it is applicable for recognition of profits and gains arising from, inter-alia, construction contracts, which has to be determined on the basis of percentage of completion method in according with the Income Computation and Disclosure Standard III notified u/s 145(2) of the Act. ICDS III relating to ‘Construction Contracts’ provides that the same should be applied in determination of income of a construction contract. The CBDT has also clarified in the FAQ issued on Page | 58

23.3.2017 vide Circular No 10/2017 (Reply to Question No. 12) that ICDS III is not applicable to Real Estate Developers. In this regard, Question 12 of FAQs and its reply is reproduced hereunder: “Q:12: Since there is no specific scope exclusion for real estate developers and Build – Operate – Transfer (BOT) projects from ICDS IV on Revenue Recognition, please clarify whether ICDS III and ICDS IV should be applied by real estate developers and BOT operators. Also, whether ICDS applicable for lease. A:12: At present there is no specific ICDS notified for real estate developers, BOT projects and leases. Therefore, relevant provisions of the Act and ICDS shall apply to these transactions as may be applicable.” Since the provisions of section 43CB have no applicability to real estate business and no specific ICDS has been prescribed for computation, the appellant was mandated, under section 145(1) of the Act, to follow the method of accounting prescribed under section 133 read with section 129 of the Companies Act, 2013 and as recommended by the Institute of Chartered Accountants of India. In the absence of any ICDS applicable to real estate contracts and section 43CB of the Act not being applicable thereto, the taxable income of the appellant, who is a real estate developer, has to be determined in accordance with the method of accounting regularly and consistently followed, including the changed method, where the change in the method of accounting is bonafide and consistently followed thereafter. Accordingly, the income of the appellant has necessarily to be computed as per CCM followed in the relevant previous year, on mandatory adoption of Ind AS 115 as also followed in the succeeding years. Therefore, in my view the method adopted by the appellant is not in conflict with any of the provisions of the Act. 7.5.4 The appellant also referred to the various judicial pronouncements for the proposition that an assessee is entitled to change his method of accounting provided the same is bonafide and is constantly followed thereafter. In such cases, it is not open to the revenue authorities to question the change in the method of accounting. In the present case, the appellant had not suo-moto adopted Ind-AS and GN-Ind-AS governing revenue recognition. Rather, the appellant was obliged to adopt the new accounting method to be compliant with the statute. The appellant was mandated under section 145(1) of the Act to follow the method of accounting prescribed under section 129 read with section 133 of the Companies Act, 2013 and as recommended by ICAI. Accordingly, the change in accounting policy adopted by the appellant and consistently followed in subsequent years should be considered as bonafide. Therefore, in such cases, I am of the view that due to change in the circumstances, because of changes in the statute, the Page | 59 change in accounting policy should be treated as bona-fide. I have also taken note of the following judicial pronouncements where the mandatory change in the method of accounting was considered bonafide and the consequent deduction was allowed while computing business income under the Act:- In the case of CIT V. Virtual Soft Systems Limited [2012] (a) 18 taxmann.com 119/205 Taxman 257/341 ITR 593 [Delhi HC] (affirmed by Supreme Court in the case of CIT vs. Virtual Soft Systems Ltd: 404 ITR 409 (SC), the method of accounting for lease followed by the assessee on the basis of guidelines of ICAI was accepted. The relevant extracts of the decision are reproduced as under: “8.1 The foremost aspect which, thus arises for consideration in this case is: whether the method of accounting employed by the assessee to determine the real income evidently derived from lease of assets, could be given a go-by. In determining its income and its presentation, the assessee took recourse to the Guidance Note, issued by the ICAI, on accounting for leases. The ICAI’s publication on the subject indicates that the Guidance Note on accounting of leases was issued by it, for the first time, in 1988, which was, then revised in 1995……………. In this background what is required to be considered is whether the books of accounts could be rejected by the AO merely for the reason that recourse to the Guidance Note was taken by the assessee. In this regard, we would be required to examine the provisions of S. 145 of the IT Act. Sec. 145 of the IT Act adverts to the method of accounting followed by an assessee. Sub-s. (1) of S. 145 provides that income chargeable under the head "profits and gains of business or profession" or "income from other sources" shall be computed either on cash basis or on mercantile system, whichever method being regularly employed by the assessee. This provision is, however, subject to the Central Government notifying AS in respect of any class of assessee or class of income.s. (1) of s. 145 provides that income chargeable under the head "profits and gains of business or profession" or "income from other sources" shall be computed either on cash basis or on mercantile system, whichever method being regularly Page | 60 employed by the assessee. This provision is, however, subject to the Central Government notifying AS in respect of any class of assessee or class of income. Sub-s. (3) of s. 145, empowers the AOs to disregard the books of accounts submitted by the assessee only if he is not satisfied with the correctness or completeness of the accounts of the assessee or, the method of accounting employed by the assessee or on account of AS notified under sub-s. (2), not being particularly followed by the assessee. In this particular case, the AO has disregarded, in substance, the method of accounting followed by the assessee qua lease rentals without basing it on the grounds provided in s. 145 of the IT Act. The fact that the assessee justified its method of accounting, by taking recourse to the Guidance Note issued by the ICAI in that behalf, was disregarded, on what we would term as, a disjointed reading of the provisions of the said Guidance Note. Both the AO as well as the CIT(A) have adverted to para 2 of the Guidance Note to come to, what we consider an erroneous conclusion in as much as they have held that in determining as to whether deduction on account of lease equalization charges ought to be allowed or not, what has to be borne in mind is ultimately the provisions of the IT Act. In our view, such an observation in para 2 of the Guidance Note is really saying the obvious. Therefore, even if this Guidance Note was silent on this aspect the provisions of the IT Act would undoubtedly still apply. Thus, as to what is the impact of provision of para 2 of the Guidance Note will be considered by us as we progress further with our judgment. 9.1 However, what is important at this stage is to first aaddress ourselves to the aspect as to whether the AO could have disregarded the method of accounting followed by the assessee in respect of lease rentals. In our view, the AO could not have done so, as the method of accounting was based on a guideline commended for adoption by a professional body such as the ICAI. The Guidance Note reflects the best practices adopted by accountants the world over. The fact that, at the relevant point in time, it was not mandatory to adopt the methodology professed by the Guidance Note issued by the ICAI, is irrelevant, for the Page | 61 reason that, as long as there was a disclosure of the change in Accounting Policy in the accounts, which had a backing of a professional body such as the ICAI, it could not be discarded by the AO. This is specially so, since the ICAI is, recognized as the body vested with the authority to recommend ASs for ultimate prescription by the Central Government in consultation by the National Advisory Committee of Accounting Standards, for presentation of financial statements.…………….. 10. ……………... The change in accounting policy, as noticed by us above, had the imprimatur of a duly recognized professional body, i.e., the ICAI. Therefore, notwithstanding the fact that the opinion of the ICAI was expressed in a Guidance Note which had not attained a mandatory status, would not, in our view, provide a basis to the AO to disregard the books of accounts of the assessee and in effect method of accounting for leases, followed by the assessee.” The above judgment has also been referred to in the following decisions:- Prakash Leasing Ltd. Vs DCIT [2012] 208 Taxman 464. In (i) this case, the Karnataka High Court considered the question regarding deduction of lease equalisation charges from lease receipts wherein it was contended by the assessee that it was entitled to claim deduction of such lease equalisation taking recourse to the guidance note issued by ICAI while accounting for lease transaction. The High Court considered several judgements, including the judgement of Delhi High Court in Virtual Soft System Ltd (supra) and in para 12 observed as under:- “…However, when the law, as amended subsequent to the aforesaid judgment of the Apex Court, expressly provided that the Central Government may notify in the Official Gazette from time to time the accounting standards to be followed by any class of assessees or in respect of any class of income, the assessment orders to be passed under the Act by the authorities have to be in conformity with the accounting standards notified by the Central Government…. (ii) In the case of Commissioner of Income Tax and others vs Pact Securities and Financial Services and others reported in Page | 62

(2015), 374 ITR 681 (AP), the assessee had claimed a deduction of Rs. 48,56,224/- by way of “lease equalisation charges” from the lease rental income. It was submitted on behalf of the assessee that the treatment in the accounts had been given as per the “guidance note” on accounting for lease issued by ICAI. The question before the High Court was whether the assessee could take recourse to the “guidance note” qua accounting for lease determination of its income and whether the deduction as claimed by the assessee sought to be allowed. The High Court decided the issue in favour of the assessee. The relevant portion of the order is reproduced below:- “Therefore, in our opinion, notwithstanding the fact that the opinion of the Institute of Chartered Accountants of India was expressed in the guidance note, which had not attained a mandatory status, would not, in our view, be a ground to discard the books of account of the assessee or method of accounting for lease followed by the assessee and disallowing the assessee to deduct the lease equalisation charges from the lease rental income” (b) In the case of CIT v. Insilco Ltd [2009] 179 Taxman 55 [Delhi HC], where pursuant to the change in Accounting Standard - 2, the assessee capitalized the cost of spares and claimed depreciation on the said capitalized value, the jurisdictional Delhi High Court observed that the assessee was obliged to capitalize the entire cost of spares in consonance with the mandatory provisions of AS-2 and AS- 10 and that there was no merit in the submissions of the revenue that the accounting treatment in accordance with the Accounting Standards had no relevance for the purposes of the Act. The relevant extract of the judgment is as under: “16.5 It is to be noted that these Accounting Standards are mandatory in nature and applied to accounts prepared after 1-4-1999. In that sense the submission of the assessee has to be accepted that the change in the accounting policy had been brought about by virtue of the issuance of the revised accounting standards issued by the Council of the ICAI, which was, applicable for the assessment year under consideration. Furthermore, the provisions of subsections (3A), (3B) and (3C) of section 211 of the Companies Act, 1956, clearly provide that every profit and loss account and balance sheet of a company shall comply with the Accounting Standards prescribed. ……..

Therefore, we have no difficulty in accepting the submissions of the learned counsel for the assessee that it was obliged to capitalize the entire cost of spares in consonance with the mandatory provisions of Accounting Standards (AS) 2 and (AS) 10. 16.6 It is not disputed that the assessee is maintaining the accounts based on a mercantile system. Under sub- section (1) of section 145 of the Act the assessee's income which is chargeable under the head "Profits and gains of business or profession" is required to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. 16.7 “As indicated above the assessee has been maintaining a mercantile system of accounting, therefore, the treatment of emergency spares in accordance with the revised Accounting Standards (AS) 2 and (AS) 10 would be in consonance with the mercantile system of accounting which under the Act the revenue is required to look at for computing income of the assessee chargeable under the head "Profits and gains" from business. The submission of the learned counsel for the revenue that the accounting treatment to be meted out to a transaction in accordance with the Accounting Standard has no relevance for the purposes of the Income-tax Act, 1961 is a submission which does not commend to us.” 7.5.5 Further, it is a matter of record that the CCM was followed by the appellant in the succeeding years in A.Y. 2020-21 and 2021-22 and the income for these years was computed following the changed method i.e. CCM. This computation was accepted by the AO while completing assessments for these two years. But the alternate claims of Rs. 1,73,176.18 lakh and Rs. 1,51,096.81 lakhs for A.Y. 2020-21 and 2021- 22 respectively made by the appellant representing income that had already been taxed up to A.Y. 2016-17 under IGAAP-POCM and was offered to tax again in A.Y. 2020-21 and 2021-22 following CCM was not accepted by the AO. This shows that while the AO accepted the changed method in the A.Y. 2020-21 & 2021- 22 (i.e. the assessment years following A.Y. 2019-20 i.e, the year of change) but rejected the changed method in the year of change i.e. assessment year under consideration. This approach of the AO is against the well-established principle of law enshrined in section 145 of the Act as per which the income from business or profession has to be completed as per the consistent and regularly followed method of accounting.

7.5.6 In view of the above facts and judicial precedents, there is no denying the fact that the appellant had to mandatorily prepare its financial statements for F.Y. 2016-17 as per Ind-AS to comply with the statue and the same resulted in a change in the accounting policies governing revenue recognition. In such case, the AO was not justified in disregarding the method of accounting for revenue recognition adopted by the appellant in the assessment year under consideration as the appellant was obliged to do so due to changes in the statute. It is not the AO’s case that the change in the method of accounting in the assessment year under consideration was malafide. It is also a matter of record, not controverted by the AO, that the changed method of accounting was consistently followed by the appellant in the subsequent years. Therefore, there seems to be no conflict of any of the provisions of the Act with the method adopted by the appellant for computation of income. 7.5.7 Further, it is to be noted that the changed method of accounting, i.e. CCM, is a recognized method of accounting for recognition of revenue and computation of income of an assessee engaged in the development of real estate projects. In this regard, I have perused the various case laws cited by the appellant in its written submissions. I find that the Hon’ble Supreme Court as well as various High Courts have taken the view that Project Completion Method (PCM) or CCM is one of the recognized methods of accounting for recognizing revenue from real estate contracts. In the case of CIT vs Bilahari Investment Pvt Ltd 299 ITR 1(SC), the Hon’ble Supreme Court considered POCM and CCM and it was noted that while under CCM, the revenue is recognized on the completion of the project and profit/loss is determined in the last accounting period in which the project is completed, under the POCM, there is periodic recognition of income depending on the stage of completion of the project. The Apex Court finally observed that income can be recognized by several methods of accounting, and different accounting methods ultimately lead to the same result, the CCM being one of such methods. The Hon’ble Delhi High Court in the case of CIT vs Manish Buildwell Private Limited (2011) 16 taxmann.com 27 (Del.), by relying on the decision of Hon’ble Supreme Court in the case of Bilahari Investment Pvt Ltd. (supra), upheld the findings of CIT(A) and ITAT, wherein, the addition made by the AO on the ground that CCM adopted by the assessee was not proper, was deleted. The relevant extracts of the aforesaid decision of Delhi High Court are reproduced as under:

“8. It is well settled that the project completion method is one of the recognized methods of accounting. …..

9. After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee Page | 65 would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standards 7 (AS7) issued by the Institute of Chartered Accountants of India also recognize the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method.” Further, in the case of CIT vs Prestige Estate Projects Pvt ltd 440 ITR 343(Kar.) cited by the appellant, the AO did not accept the CCM followed by the assessee on the ground that provisions of Accounting Standard AS-7 issued by Institute of Chartered Accountants of India were to be followed and thereby Percentage Completion Method was held to be the recognized procedure to be adopted. The Tribunal observed that AO could not reject the accounts under section 145(3) on the ground that the assessee had not followed the percentage completion method and held as under: “3.18 It is true that AS-7 has not been specified by the Central Government under section 145(2) of the IT Act. Hence, the AO could not have rejected the accounts under section 145(3) on the ground that the assessee has not followed the prescribed method of accounting. As per section 145(1), income is to be computed in accordance with system of accounting regularly employed by the assessee. The assessee was employing regularly the project completion method and the project completion method is an accepted method of accounting…. 3.25 Hence, it is held that in case the revised AS-7 is to be upheld then the opening inventories are also valued as per the revised AS 7 though we are holding that revised AS-7 is not applicable in the case of the assessee. Also, on principle of consistency, the Revenue should have accepted the method of accounting adopted by the assessee as the same was being followed for the last so many years. When the guidance note provided that revised AS-7 is applicable to real estate developers, the assessee has itself changed the method of accounting. Hence, we direct the AO to accept the projection completion method of accounting for the year under reference.” On further appeal, The High Court of Karnataka placing reliance on CIT vs Bilahari Investment (P.) Ltd. (supra.) upheld the decision of the Tribunal. In the case of Paras Buildtech India (P) Ltd. 382 ITR 630(Del.), the AO made addition of Rs. 1.56 cores to the assessee’s income rejecting the assessee’s contention that POCM was not applicable to it as it was a Page | 66 developer and not a contactor. The addition was deleted by the CIT(A) and in the Revenue’s appeal against the order of CIT(A), ITAT reversed the order of the CIT (A) and accepted the plea of the Revenue that the percentage completion method would apply since the a ssessee had transferred risks and rewards to the buyers even prior to commencem ent of construction activities. In the assessee’s appeal against the order of ITAT, the Hon’ble Delhi High Court reversed the order of the ITAT by relying on the decision of Hon’ble Supreme Court in the case of CIT vs Bilhari Investment (P) Ltd. (supra). Following this decision of Delhi High Court, ITAT Delhi vide its order dated 16.08.2023 in (A.Y. 2014-15) in the case of Dy CIT vs Dwarkadhis Buildwell Pvt Ltd. deleted the addition of Rs. 8.42 crores made by the AO by applying POCM. In view the facts and judicial precedents cited above, I am inclined to agree with the contention of the appellant that CCM is a recognized method of accounting for revenue recognition and computation of income of the appellant. 7.5.8 As regards the correctness of the principal claim of Rs. 6,091.86 cr, the same has been justified through a certificate dated 20.09.2021 issued by the statutory auditor of the appellant company, a copy of which was filed at page 1 to 14 of paper book Volume 1 of submissions dated 30.09.2023. This is on account of reversal of excess margins already offered to tax under Ind-AS POCM upto 31.03.2018. From the perusal of year-wise statement of margins in respect of ongoing projects already offered to tax upto 31.03.2018 as per Attachment-4(page 89 of the paper book it is seen that the appellant had recorded margins of Rs. 10,801.40 lakhs in the books of account in respect of ongoing projects upto 31.03.2018. In order to substantiate that the cumulative margins of Rs. 10,801.40 lakhs under Ind- AS POCM in respect of ongoing projects upto 31.03.2018, have been offered to tax upto A.Y. 2018-19, the appellant filed relevant extract of assessment order for A.Y. 2018- 19 as per attachment 5 of its submissions dated 20.11.2023, wherein project-wise details of revenue offered to tax have been given. The summary of the CCM adjustment of Rs. 6,091.86 cr was given as under:- Cumulative margin under Cumulative margin under Cumulative net Ind-AS POCM till 31 Ind-AS 115 (CCM) till 31 margin reversal March 2018 [A] March 2018 [B] [C=B-A] 1,080,140.42 470,954.52 609,185.90

Thus it is seen that the principal claim of Rs. 6,091.86 cr has been worked out by the appellant on the basis of recognized principles and as per applicable accounting standards and has been duly vetted by the auditors. 7.5.9 I also find that the method of recognising revenue followed by the appellant is eventually revenue-neutral and represents true and fair view of the state of affairs and income of the appellant. Since the appellant has been consistently following CCM after the assessment year under consideration, when the built-up units are finally handed over to the customers, the entire contract revenue and contract cost shall be recognized and the net revenue will be taxable in that year as per the CCM. Therefore, there does not appear to be any possibility of distortion of profits because ultimately the entire profit arising from the project over the lifetime of the project will get taxed. The overall profit margin during the life cycle of a project as per POCM and as per CCM remains the same and only the difference in sale consideration (on account of adoption of Ind-AS 115) has been spread over a number of years impacting the overall workings. In this regard, I have also taken note of the various judicial precedents cited by the appellant including the judgment of the Hon’ble Supreme Court in the case of CIT v. Bilahari Investment (P.) Ltd. [2008] 168 Taxman 95 (SC), wherein, the Apex Court, while adjudicating on the acceptability of a change adopted by the assessee in the method of accounting, accepted the contention of assessee that the change adopted by him in the method of accounting should be permitted since the same is revenue neutral, i.e. it does not lead to any loss to the exchequer. I have also considered the various judgments mentioned in para 58 of the appellant’s submissions wherein it was observed that no addition to the income was called for on account of change in the method of accounting if the same was found to be revenue-neutral. The appellant has further submitted that the one-time adjustment of Rs. 6,091.86 cr claimed by the appellant towards reversal of revenue of earlier years upto F.Y. 2017-18 impacts the revenue/margin recorded in the books of account for the subsequent years starting from 01.04.2018 because higher margins have been recorded in subsequent years by virtue of CCM as basis of revenue recognition. Accordingly, one- time adjustment claimed by the appellant is off-set in each subsequent year on account of unwinding of the revenue reversed earlier. From the perusal of the chart submitted by the appellant in para 1.13 of its submissions dated 20.11.2013 giving the cumulative impact of revenue of subsequent years recorded in the books of account as per Ind-AS vis-à-vis CCM, it is seen that from assessment years 2019-20 to 2023-24, the excess revenue booked on account of CCM is Rs. 5,127.42 cr. This is the difference between the margin for the entire period (A.Y. 2019-20 to 2023- 24) if Ind-AS POCM was continuously adopted (Rs. 3,253.42cr) and margin for the same period as per CCM (Rs. 8,380.84 cr). Thus, out of one-time adjustment of Rs. 6,091.86 cr claimed by the appellant in A.Y. 2019-20 on account of reversal of revenue due to mandatory change in the method of Page | 68 revenue recognition, margin/ revenue to the extent of Rs. 5,127.43 cr has already been off-set on account of higher revenue/margins in respect of ongoing projects upto A.Y. 2023-24. Thus, only an amount of Rs.964.43 cr (Rs. 6,091.86 cr - Rs. 5,127.43 cr) remains to be recognized as revenue till assessment year 2023-24. Accordingly, the one-time adjustment of Rs. 6,091.86 cr on account of reversal of revenue will be off-set in subsequent years and hence the change in the method of accounting adopted by the appellant in the assessment year 2019-20 ultimately will not have any impact on revenue and, therefore, it is revenue-neutral. Thus, once it is found that the method followed by the appellant because of mandatory adoption of Ind-AS 115 is revenue-neutral, no adverse view in this regard can be taken. 7.5.10 It may also be noted here that the appellant, having opted for concessional tax rate u/s 115BAA A.Y. 2020-21 onwards prior to which the effective rate of tax was 35%, the excess margin accounted for in its books of account in earlier years as per POCM has already been offered to tax @35%. In case the reversal of revenue in assessment year 2019-20 is not allowed, the said margins would again be taxed in the subsequent assessment years. 7.5.11 Further, I am inclined to agree with the submissions of the appellant that due to statuary requirement of adoption of Ind-AS 115, the appellant had to mandatorily change the method of recognizing the revenue from Ind-As POCM to CCM (under Ind-AS 115) since inception in respect of the projects which were under implementation and are yet to the completed. That being so, the revenue hitherto recognized under POCM followed upto assessment year 2018-19, which under CCM would be recognised as revenue in the subsequent year has to be reversed in A.Y. 2019-20 to avoid the situation of double taxation. In order words, if the appellant is not granted deduction of the adjustment amounting to Rs. 6,091.86 cr during A.Y. 2019-20, the same would lead to double taxation of income, as the margin already booked in earlier years, now reversed and claimed, would be recorded again in future years by it. It is a fundamental law of taxation that unless otherwise expressly provided, an income cannot be taxed twice, and that only “real” income (and not notional) can be subject to tax. Laxmipat Singhania vs CIT (1968) 72 ITR 291 (SC). 7.5.12 In view of the above discussions, I am of the considered view that change in the method accounting to CCM in the assessment year 2019-20 due to mandatory adoption of Ind-AS 115 was bonafide and hence the excess revenue of Rs. 6,09,185.90 lakhs recognized in the earlier years in respect of the projects which were under implementation and are yet to completed needs to be reversed and the appellant deserves to be allowed Page | 69 deduction of the adjustment of Rs. 6,09,185.90 lakhs in the assessment year 2019-20, otherwise the same would amount to double taxation of income as the gross margins already booked would be again booked by the appellant in future years. Therefore, the principal claim of Rs. 6,09,185.90 lakhs is directed to be allowed to the appellant company. But since the alternate claim of the appellant amounting to Rs. 1,04,226.14 lakhs has been allowed by the AO while disallowing the principal claim of Rs. 6,09,185.90 lakhs and net addition of Rs. 5,04,959.76 lakhs has been made, the appellant will not be entitled to the alternate claim of Rs. 1,04,226.14 lakhs. 7.5.13 In ground no. 3.5, the appellant has claimed that the AO did not allow its alternate claim to the tune of Rs. 1,23,721.27 lakhs. Since the principal claim of the appellant has been allowed as above in this order, this ground of appeal becomes infructuous. However, if at later stage principal claim is denied to the assessee, then assessee is eligible for alternate claim. This ground of appeal is, therefore, dismissed.

19. Before us, the revenue has failed to controvert the above findings of ld. CIT(A) wherein the ld. CIT(A) has followed the decisions of Hon’ble Supreme Court in the case of CIT v. Bilahari Investment (P.) Ltd. (supra) and of Jurisdictional High Court in the case of Paras Buildtech India (P) Ltd. 382 ITR 630(Del.) and in the case of Dy CIT vs Dwarkadhis Buildwell Pvt Ltd and other cases of various Hon’ble High Courts as stated supra.

23. Ground of appeal No.9 is in respect to the deletion of addition of Rs. 98,99,40,701/ made by the AO on account of expenses related to exempted income u/s 14A r.w. Rule 8D of the Act.

24. Before us, ld. CIT DR vehemently supported the order of AO and submitted that assessee has earned exempt income in the shape of dividend and LTCG from sale of mutual funds totalling to Rs. 36,51,94,230/- and disallowed a sum of Rs. 98,99,04,701/- after reducing the amount of Rs. 15,31,072/- suo-moto disallowed by the assessee. Ld. CIT DR submits that assessee has made disallowance of expenses u/s 14A on estimate basis and no working was submitted for the computation of such amount in terms of the provision of Rule 8D r.w.s 14A of the Act. Ld. CIT DR stated that the ld. CIT(A) has deleted the disallowance by ignoring the fact that as per CBDT circular No. 5/2014 dt.11.2.2014 it is clarified that the disallowance out of expenditures for earning exempt income should be made even when no exempt income is earned. Therefore, Page | 72 it is prayed that the disallowance as computed by the AO by following the procedure as per Rule 8D of the Act be restored.

25. On the other hand, ld. AR submits that the issue is squarely covered by the decisions of the coordinate bench in the case of assessee itself in preceding assessment years and such orders is followed by ld. CIT(A) for deleting the disallowance. He thus, prayed that the order of ld. CIT(A) on this issue be confirmed.

“iii) “As regards deletion of disallowance of expenses u/s. 14A read with Rule 8D(2)(ii) & (iii) made by the Assessing Officer is concerned. Upon AO’s addition, Ld. CIT(A) deleted the addition by concluding as under:-

“8.3.2 It may further be mentioned here that the issue of disallowance of expenses u/s 14A r.w. Rule 8D has been decided by CIT(A) as well as ITAT in favour of the appellant in the various assessment years in its own case. The Hon’ble ITAT ‘B’ Bench Delhi vide its latest order-dated 19.07.2023 in the appellant’s own case in 2238/Del/201.9 and 5919/Del/2019 for AY 2014-15 to 2016-17 respectively has decided the issue in its favour by relying on the orders of ITAT Delhi in the appellant’s own case in for AY.2010-11 and ITA No. 4159/Del/2015 and also referring to the decision of the Hon’ble Delhi High Court in Maxopp Investment Ltd.(supra), upholding the order of CIT(A) and rejecting the ground of appeal raised by the Revenue. The relevant para of the ITAT’s order is reproduced below:- “ The issue has been considered in case of assessee in assessment year 2010-11 vide ITA no. 4187/Del/2015 order dated 29.09.2020 and it has been further followed in A.Y. 2011-12 vide ITA no. 4159/Del/2015. The Ld. CIT(A) has considered the fact that assessee had made his own disallowance for which Assessing Officer has not recorded his satisfaction about disallowance so made by the appellant and relying judgment of Hon’ble Delhi High Court in Maxopp Investment Ltd. vs CIT247 CTR 162(Del), benefited the assessee. As the same being settled proposition of law requires no interference. The ground is rejected.” 8.3.3 Since there is no change in the facts and circumstances on the issue in the assessment year under consideration as compared to earlier years, I have no hesitation in following the detailed reasoning given by CIT(A) in the earlier assessment years. Accordingly, it is held that the addition of Rs. 87,56,26,373/- u/s. 14A r.w. Rule 8D made by the AO is not justified and the same is deleted.” In view of the aforesaid finding, we find that Ld. CIT(A) has given a correct finding and as submitted by the Ld. AR for the assessee that the instant issue is squarely covered in favour of the assessee vide ITAT order for AY 8 2010-11 to 2016-17 wherein the disallowance was deleted on the ground of non-recording of satisfaction in terms of section 14(2), hence, respectfully following the said precedent in assessee’s own case, we uphold the action of the Ld. CIT(A) and reject the Ground No. 3 raised by the Revenue.”

28. In Ground of appeal No. 10, revenue has challenged the action of ld. CIT(A) in deleting the addition of account of reclassification of Income from house property of Rs. 22,33,67,403/-.

at Rs.296,83,00,792/-. However, the assessee has in its return of income reported taxable income in respect of rental income received during the year at Rs.64,39,06,926/- under the head Business Income and Rs. 210,10,26,463/- under the head “Income from house property”, totalling to Rs.274,49,33,389/-. Accordingly, it is held that income to the extent of Rs.22,33,67,403/- in respect of rental income earned/ received during the year under consideration has been understated by the assessee company by including it as Income from House Property instead of Business Income. Therefore, an addition of Rs.22,33,67,403/- is made to the total income of the assessee.”

30. The ld. CIT DR prayed for the restoration of addition made by the AO by reclassification of the income declared by the assessee as Income from House property and she prayed accordingly.

32. Heard the parties and perused the material available on record. From the records and submissions of the assessee and order of ld. CIT(A), it is seen that this issue is raised by the revenue since 2006-07 where the same was allowed in favour of assessee by the ld. CIT(A) and such orders of CIT(A) stood confirmed by the coordinate bench of Tribunal. Lastly in AY 2018-19, the coordinate bench of Tribunal in dealt this issue and dismissed the ground of appeal raised by the revenue by placing reliance on the earlier order of Tribunal. Relevant observations of the coordinate bench as contained in para (iv) at pages 9-12 of the order are reproduced as under: iv) “As regards deletion of addition on account of reclassification of Income from house property to income from business and profession made by the AO is concerned. Upon AO’s addition, Ld. CIT(A) deleted the addition by concluding as under:- “9.3.1 The issue regarding classification of income under the head ‘income from house property’ or ‘income from business and profession’ came up before the appellate authorities in respect of ‘DLF Centre’ belonging to DLF Universal Limited in the assessment year 1996-97. This property was also held by the company as stock- in-trade. The ITAT, Delhi, while discussing other addition of depreciation in respect of ‘DLF Centre’, confirmed the stand of the assessee of offering the rental income from ‘DLF Centre’ under the head ‘Income from House Property’ by observing that the income would have been taxable as business income if the property would have been let out along with any machinery, plant or furniture.

Therefore, the issue of reclassification of income from properties has been adjudicated in favor of the appellant in A.Y. 1996-97 vide ITAT’s order dated 06.06.2008 in and 3522/Del/2000 for 1996-97. The relevant Paras of the ITAT order are reproduced below:- “24.3 From the above facts and the case law relied upon both by the revenue and the assessee, It is clear that there was no letting of any machinery, plant or furniture belonging to the assessee. Once this finding of fact is not controverted, then there can be only one conclusion that letting of building which has certain amenities for which no separate charges are being recovered by the assessee would be liable to tax under the “income from, house property”. Before parting, we would also like to deal with the alternate submission by the counsel of the assessee Mr. Pradeep Dinodia that in case this is taxed as “income from other sources”, then deduction of depreciation and annual repairs would still have to be allowed to the assessee. This would, in fact, make the whole exercise of revenue to change the head of income as purely academic as there would be very marginal difference between the allowance of depreciation and repairs and a notional allowance of 20% in the year under review. We agree with the assessee’s counsel that there is no gain to the revenue in any case by shifting the head of income from one to the other. ” “24.4 Further, the A.O. in prior years has himself taxed the rental income of DLF Centre as “income from house property” and no changes in the facts and circumstances of the case are discernible in the year under review. ” “24.5 Having considered all the facts and circumstances of the case, the orders of the A.O. as well as the CIT (Appeal) and the arguments both of the learned CIT DR and the AR of the assessee, we are of the considered opinion that the CIT (Appeal) is correct in holding that the income from DLF Centre should be held under the head “Income from house property” and does not call for any interference. The revenue’s appeal on this ground is dismissed. ” 9.3.2 It may be mentioned here that the. appeals filed by the Revenue for A.Y. 1996-97 and 1997-98 were dismissed by Hon’ble Delhi High Court vide its order dated 05.09.2017 in and 18.05.2017 in ITA No. 407/2009. The AO has observed that the Hon’ble ITAT in the above referred case for A.Y. 1996-97 did not deal with the issue of reclassification of income from properties. This observation of the AO, in the light of facts Page | 79 stated above, is factually incorrect. Applying the same ratio as that of ‘DLF Centre’ which was also held as stock-in-trade, the other properties held as stock-in-trade from which rental income is being derived are to be assessed under the head Income from house property’. In the assessment years 201617 also, the same issue was decided in favor of the appellant in its own case by CIT(A)-34, Delhi, vide his order dated 30.04.2019 in appeal no. 186/18-19. The observations of CIT(A) are reproduced below:- “11.4 I have considered the facts of the case, finding of the AO and submission of the appellant. It is noted that the Assessing Officer has made the addition of Rs.24,34,94,843/- by treating part of the rental income from the property shown as stock in trade as "business income" as against "income from the house property" shown by the assessee, by following the earlier years assessment orders. It was submitted by the appellant that this issue is covered in favour of the assessee by the orders of CIT(A) in the preceding years from 2006-07 to 2015-16. It was further submitted that the ground is covered in its favour by the order of ITAT in A. Y. 1996-97. The issue has been examined by my predecessor in the A.Y. 2009-10. For the sake of brevity, his detailed observations on this issue are reproduced as under:- “I have considered the submission of the appellant and observation of the ASSESSING OFFICER and decision of Hon’ble ITAT for A.Y. 1996-97 in appellant’s own case and decision of the Hon’ble CIT(A)- XVIII for A.Y. 2006- 07 and my own decisions in appellant’s own case for A.Y. 2007-08 and 2008-09. It is seen that the issue in this ground is covered in favour of the appellant by the order of Hon’ble ITAT in appellant’s own case for AY 1996-97 of the appellant has received income from the properties owned by it and such properties are reflecting in balance sheet as stock in trade. The appellant has furnished the receipt of house tax payment with respect to above said properties during the course of assessment proceedings which established that said properties belong to appellant and owned by it. It is noticed that the Assessing Officer has made the addition by reclassifying the income by relying upon the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. (supra). However, there is no dispute on the facts noted above. Taking into consideration the order of Hon’ble ITAT in the appellant’s own case for earlier years and Page | 80 the decision in CIT vs. National & Grindlays Bank Limited (supra) and CIT (A)’s order for the immediately preceding years relevant to AY 2006-07, 2007-08 & 2008-09 in appellant’s own case the income received from the properties owned by the appellant and shown in the balance sheet is to be assessed as income from house property. ASSESSING OFFICER is directed to treat the income from such properties as income from “house property” and allow deduction under section24(a) of the IT Act. Hence, the addition made by the ASSESSING OFFICER of Rs. 13,82,35,746/- is deleted. In this regard, reliance is placed on the judgment of Hon’ble Kolkata High Court in the case of Azimganj Estate Pvt. Ltd. vs. CIT [2013] 352 ITR 82 (Cal):- Income from house property- lncome from business - Construction Business- Rental Income from unsold Flats- Assessable as Income from house Property- Income Tax Act- ss, 14, 22. The facts ofAheJ0ove cited judicial pronouncements are identical with the facts of appellant's case, therefore, ratio of the said judgment is squarely applicable in the facts of the appellant’s case. Hence, the addition made on account of disallowance on deduction under section 24(a) of the IT Act u/as not justified and same is deleted." 11.5 It is noted that the facts and circumstances of the present case, in this year, are similar and identical to the facts in the preceding years. Accordingly, I tend to follow the detailed reasoning given by my predecessor in the appellate order for the A.Y. 2009-10. Accordingly, the addition made by the Assessing Officer at Rs.24,34,94,843/- on account of reclassification of "income from the house property” to "business income" is not sustainable and it is hereby deleted. While disposing of the appeal, CIT(A), in para 11.4, of his order also dealt with the judgment of Hon’ble Gujarat High Court in CIT vs Neha Builders 296ITR 661, which has also been referred by the AO in the impugned order. Recently, ITAT Delhi, vide its order dated 19.07.2023 in 2238/Del/2019 and 5919/Del/2019 has also decided the issue in favour of the appellant and dismissed the ground of appeal raised by the Revenue. Since the facts and circumstances this year are the same as in the earlier assessment years referred above on this issue, I have no hesitation in holding that the AO was not justified in reclassifying ‘income from house property’ to ‘income from business or profession’ and thereby making addition of Rs. 21,27,10,118/-. Accordingly, the addition of Rs. 21,27,10,118/- made by the AO is deleted.” In view of the aforesaid finding, we find that Ld. CIT(A) has given a correct finding and as submitted by the Ld. AR for the assessee that the instant issue is squarely covered in favour of the assessee vide ITAT order dated 11.3.2016 for AY 2006-07 which has been followed in all the subsequent years upto 2016-17, hence, respectfully following the said precedent in assessee’s own case, we uphold the action of the Ld. CIT(A) and reject the Ground No. 4 raised by the Revenue.”

33. Admittedly, there is no change in the facts and circumstances of the case and the AO has followed the observations made in earlier years for making additions and ld. CIT(A) has followed the orders of Tribunal deleting the same, thus we find no error in the order of ld. CIT(A) who has followed the orders of coordinate bench of Tribunal and of jurisdictional high court in the case of assessee. Thus, by respectfully following the judgement of hon’ble jurisdictional high court and of the co-ordinate bench of the Tribunal on this issue, we confirmed the order of ld. CIT(A) and dismissed the ground of appeal No. 10 raised by the revenue.

35. Heard the arguments put forth by both the parties. At the outset it is seen that disallowance of similar nature by making Page | 82 similar allegations were also made in the preceding assessment years, where such disallowances were deleted by ld. CIT(A) and such orders were upheld by the coordinate bench of Tribunal. Before us, ld. AR for the assessee filed a chart according to which, disallowance of similar nature were firstly made in AY 2010-11 and the same stood continued toil AY 2018-19 and in all such years, disallowance so made were deleted by the ld. CIT(A) and further confirmed by the ITAT. In AY 2018-19, the coordinate bench has referred the findings of ld. CIT(A) who followed the order of tribunal in AY 2010-11 & 2011-12. The relevant observations of the coordinate bench in para V) of the order in dt. 6.11.24 are reproduced as under: v) “As regards deletion of disallowance on account of Helicopter and Aircraft expenses made by the AO, treating them as not incurred wholly and 12 exclusively for business purchase holding them personal in nature is concerned. Upon AO’s addition, Ld. CIT(A) deleted the addition by concluding as under:- “10.3.3 It may be pointed out here that similar expenses had been incurred by the appellant in the earlier years also and the same were allowed by the AO upto assessment for A.Y. 2009-10. Similar disallowance out of these expenses in A.Y. 2010-11 to 2016-17 made by the AO has been deleted by CIT(A) and the appeals filed by the department before the ITAT, Delhi have been dismissed. Recently, ITAT Delhi vide its order dated 19.07.2023 in 2238/Del/2019 and 5919/Del/2019 for A.Y. 2014- 15 to 2016-17 respectively , by following the orders for the assessment years 2010-11 and 2011-12 has decided the issue against the Revenue. The relevant portion of the ITAT’s order is reproduced below:- “The issue arises out of addition made by the Ld. AO on account of personal nature expenses attributed to the use of helicopter and aircraft expenses treating them as hot incurred wholly & exclusively for business purpose. Ld. CIT(A) taking into account the nature of business activity of the assessee considered the observations of Ld. Page | 83 AO not sustainable and further holding that if any expenditure is identified as personal expenditure incurred on the directors and other employees it would fall within the meaning perquisite and is taxed accordingly. In asssessee’s own case for A. Y. 2010-11 (supra) the issue has been considered and decided in favour of the assessee…..This has been followed subsequently in assesssee’s own case for A.Y. 2010-11 and 2011-12(supra). In the light of aforesaid, following aforesaid, the ground has no substance, the same is decided against the Revenue.” 10.3.4 The facts of this year in respect of this addition are exactly similar to the facts in the earlier years where the addition made by the AO has been deleted by the CIT(A) and ITAT. Therefore, in the assessment year 2017-18 also, similar addition of Rs. 3,98,74,706/- made by the AO on estimated basis following earlier years orders, which have not stood the test of appeal, is not sustainable and hence the same is deleted.” In view of the aforesaid finding, we find that Ld. CIT(A) has given a correct finding and as submitted by the Ld. AR for the assessee that the instant issue is squarely covered in favour of the assessee vide ITAT order dated 29.09.2020 for AY 2010-11 which has been followed in all the subsequent years upto 2016-17, hence, respectfully following the said precedent in assessee’s own case, we uphold the action of the Ld. CIT(A) and reject the Ground No. 5 raised by the Revenue.”

36. As is evident from the observations of ld. CIT(A), the facts and circumstances as existed in preceding assessment years are the same as existed in the year before us, and the revenue has failed to controvert such findings of ld. CIT(A) therefore, we find no infirmity in the order of ld. CIT(A) which is hereby upheld on this issue. Accordingly, Ground of appeal No. 11 taken by the revenue is dismissed.

38. Briefly stated the facts are that during the year assessee paid EDC of Rs. 85.31 lakh to Director Town & Country Planning, Haryana, Chandigarh (“DTCP”) and debited said EDC to value of inventory and not claimed any expenses in the Profit & loss account out of such inventory. Assessee claimed that no TDS is required to be deducted on payment of EDC made to DTCP as DTCP is a department of State Government of Haryana. However, the AO observed that EDC paid to DTCP has character of income and therefore TDS is required to be deducted on such payment made to DTCP and accordingly Rs.25,59,300/- being 30% of total EDC paid at Rs. 85.31 lakh is disallowed in terms of section 40(a)(ia) of the Act and value of inventory is computed as Rs.11,35,700.64 lakhs as against the value of inventory declared by the assessee at Rs. 11,35,726.23 lakhs. In first appeal, ld. CIT(A) has deleted the disallowance by placing reliance on the judgement of Hon’ble Delhi High Court in the case of group company. Against the said order this ground of appeal is raised by the assessee.

39. Before us, ld. CIT DR submits that the payment was made against the work and thus is in the nature of contractual payment and thus TDS is required to be made. In this regard, ld. CIT DR placed reliance on the recent judgement of Hon’ble Jurisdictional High Court in the case of Puri Constructions Pvt. Ltd. Vs. Adl. Page | 85 CIT reported in (2024) 159 Taxmann.com 444(Delhi). It is further submitted by ld. CIT DR that in the aforesaid order, Hon’ble High Court has discussed all the judgements relied by ld. CIT(A) for deleting the disallowance and after considering all these judgements has reached to the conclusion that the payment made towards EDC is liable for TDS in terms of the provisions of section 194C of the Act. It is thus prayed by the ld. AR that the deletion made by ld. CIT(A) deserves to be restored.

40. Per contra, ld. AR vehemently supported the order of ld. CIT(A) and submits that this issue has already been decided in favour of the assessee in one of its group company by the Hon’ble Delhi High Court. Ld. AR further submits that the AO has failed to point out any specific section which casts obligation to deduct tax at source on the payments under question. He further submits that that not all payments, even if they are in the nature of income, attract TDS provisions. Only if such payment falls within the ambit of specific sections in Chapter XVII -B, it is liable to tax deduction at source. Ld. AR stated that in the state of Haryana, the DTCP acts as a nodal department of Government of Haryana and is responsible to regulate the use of land in order to prevent ill planned urbanization in or around the towns in the State of Haryana and also governs the grant of license to a colonizer / developer upon terms set out in the license agreement. DTCP, being a department of State Government of Haryana, has entrusted upon HUDA [now known as Haryana Shehri Vikas Pradhikaran, (“HSVP”)] to carry out the external Page | 86 development work as directed by DTCP. Under these circumstances, as a practice, DTCP directs colonizers / developers to pay the proportionate amount of EDC, as decided, determined and recoverable by DTCP to pay the same in the name of HUDA (which is a local authority as per the provisions of Section 3 of The Haryana Urban Development Authority Act, 1977) which effectively is a payment to DTCP in discharge of legal obligation under the said Act.

41. It is submitted by ld. AR that the payment of EDC charges to HUDA are covered under the provisions of Section 196 of the Act, being payment to Government and accordingly does not warrant disallowance under section 40(a)(ia) of the Act. Further these payments are not covered under any other provisions of tax deduction at source. Ld. AR further placed reliance on the submission made before ld. CIT(A) wherein all the provisions of relevant Acts are discussed and stated that after considering the same, and further by following the judgements of Hon’ble Delhi High Court , the ld. CIT(A) has deleted the disallowance.

42. In the alternative, it is submitted that the AO himself has accepted the fact that no amount of expenses out of inventory where these EDC charges were debited was claimed in the Profit & Loss account, and when no expenses was claimed by the assessee, provision of section 40(a)(ia) of the Act could not be invoked. He thus prayed for the confirmation of the order of ld. CIT(A).

43. Heard the parties and perused the material available on record. In the instant case, the AO invoked the provisions of section 40(a)(ia) of the Act and made the disallowance out of the payment made towards EDC to HUDCO without payment of TDS. The Hon’ble Jurisdictional High Court in the case of Puri Construction (supra) held that the payment made to HIDA for EDC is liable to TDS.

44. Since in the case of Puri Construction (supra) the Hon’ble jurisdictional high Court has reached to this conclusion after due consideration of various judgement including those relied upon by the assessee and also followed by ld. CIT(A) while deleting the disallowance, thus in our considered view the AO has rightly invoked the provisions of section 40(a)(ia) of the Act.

49. Heard the parties. It is seen that ld. CIT(A) in para 7.5.12 of his order has allowed the principal claim of the assessee of Rs. 6,09,185.90 lakhs towards the income already offered for tax under POCM while computing the income from real estate business on CCM method in the year under appeal, thus the alternate claim of the assessee of Rs 1,04,226.14 Lakh for the excess margin recorded during the year due to change in method of accounting for computing the income from POCM to CCM was not allowed. However, the ld. CIT(A) further observed that in case the principal claim is denied the assessee is entitled for alternate claim. As we have already confirmed the principal claim of the assessee of Rs. 6,09,185.90 lakhs however, we are in agreement with the observations made by ld. CIT(A) that in case the principal claim of the assessee is subsequently withdrawn, the assessee should be allowed the alternate claim of excess margin recorded due to change in method of accounting for computing the income from POCM to CCM otherwise it would be resulted into double taxation. With these observations we find no error in the order of ld. CIT(A) which is hereby upheld.

ITA No. 676/Del/2024 (Assessee’s Appeal)

(Revenue’s Appeal) [Assessment Year : 2020-21]

51. These are the cross appeals filed by the assessee and revenue against the order of ld. CIT(A), NFAC dt. 18.12.2023 for AY 2020- 21. Since both the appeals are related to same assessment year, they are taken together and disposed off by a common order.

52. The revenue has raised following grounds of appeal in its appeal:

1. “Whether the Ld. NFAC under the facts and circumstances of the case and in law is justified in deleting the addition of Rs. 120,31,72,591/ made by the AO on account of disallowance expenses related to exempted income u/s 14A r.w Rule BD of the Act.

2. Whether the Ld. NFAC under the facts and circumstances of the case and in law is justified in deleting the addition of account of reclassification of Income from house property amounting to Rs. 38,54,86,372/-.

3. Whether the Ld. NFAC under the facts and circumstances of the case and in law was Justified in deleting the addition of Rs. 2,28,70,130/- made by the AO on account of disallowance of expenses of Helicopter and Aircraft which were not related to business of assessee.

4. Whether on the facts and circumstances of the case the CIT(A) was justified in allowing the alternate claim of the assessee amounting to Rs. 173176.18 lacs in case the principal claim is disallowed.

5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

1. “That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition of Rs.1,24,45,443/- on account of disallowance of gratuity expenses actually paid during the year.

2. That the Ld. CIT (A) erred on facts and in confirming the disallowance made by the AO without appreciating that the Appellant had provided evidences in support of actual payment of gratuity.

3. That learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the addition on account of denial of deduction of an amount of Rs. 26,81,38,319/- claimed under the head 'any other amount allowable as deduction' towards notional rental income on account of Ind-AS adjustment. 4. That on the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the AO in treating an amount of Rs. 26,81,38,319, as notional rent under section 23 of the Act without appreciating the fact that such income was merely a book entry on account of Ind-AS adjustment as per the principles of Indian Accounting Standard ('Ind AS'), and that it is trite law that only real income is to be assessed to tax the Act and notional income cannot be subject to tax. 5. That the adjustment being in respect of security deposits and in absence of any income element, the addition made by the assessing officer and so upheld by the CIT(A) is misconceived and without any basis. 6. That the appellant craves leave to add, alter, amend, substitute, withdraw and/or vary any grounds of appeal at or before the time of hearing.”

55. Ground of appeal No.1 taken by the revenue is in respect to the deletion of addition of Rs. 120,31,72,591/- made by the AO on account of expenses related to exempted income u/s 14A r.w. Rule 8D of the Act.

56. Heard the parties and perused the material available on record. The facts and circumstances existed in the year under appeal and the observations and allegations made by AO while making addition of Rs. 120,31,72,591/- are the same, as were made in the assessment order passed for AY 2019-20. Further the ld. CIT(A) also followed the orders of preceding assessment years for deleting the additions made.

59. Heard both the parties and perused the material available on records. It is seen that the facts and circumstances as existed in the year under appeal and the observations and allegations made by Page | 94 the AO while making the additions are the same, as were made in the assessment order passed for AY 2019-20. Further, Ld. CIT(A) also made similar observations as were made in AY 2019-20 while deleting the additions/disallowances.

62. Heard the parties and considered the arguments put forth by them. It is seen that the facts and circumstances and the observations and allegations made by AO while making disallowance are the same, as were made in the assessment order for AY 2019-20.

63. Admittedly, when there is no change in the circumstances, thus, by following the observations made by us while confirming the order of ld. CIT(A), deleting the disallowance made by AO in revenue’s appeal in herein above, the order of ld. CIT(A) for the present assessment year deleing the disallowance of Rs. 2,28,70,130/- is hereby confirmed. Accordingly, Ground of appeal No. 3 taken by the revenue in the present appeal for AY 2020-21 is dismissed.

64. Last Ground of appeal No.4 taken by the revenue is with regard the allowability of alternate claim of Rs. 1,73,176.18 Lakhs made by the assessee before the ld. CIT(A) which though become infructuous as the principal claim was allowed by the AO itself. However, the ld. CIT(A) in para 12.3.3. of his order observed that the assessee is entitled for alternate claim in case the principal claim is not allowed at any stage to the assessee. Against such observations, revenue is in appeal before us.

65. As observed above, in the year under appeal, assessee has computed the income from real estate business by following CCM which has been accepted by the AO. Further in AY 2019-20 and in present assessment year, we have already allowed the principal claim of the assessee towards the adjustment for the margins already offered for tax in preceding years as pe POCM by allowing the computation of income from real estate business under CCM, thus, the issue of alternate claim in the year appeal become Page | 96 academic and thus, not required to be adjudicated. However, we are in agreement with the observations made by ld. CIT(A) that in case the principal claim of the assessee is subsequently withdrawn, the assessee should be allowed the alternate claim of excess margin recorded for the present year due to change in method of accounting for computing the income from POCM to CCM otherwise it would be resulted into double taxation. With these observations we find no error in the order of ld. CIT(A) which is hereby upheld.

[AY 2020-21] [DLF Ltd.-Assessee’s appeal]

69. Before us ld. AR for the assessee submits that though before the AO, no details could be filed however, before ld. CIT(A) detailed submission alongwith all the relevant details of the payments made towards gratuity were filed but the ld. CIT(A) without appreciating the same, confirmed the disallowance made by AO. Ld. AR further Page | 97 placed reliance on the submission filed on this issue, which reads as under:

“It is submitted that vide notice dated 19.03.2022 u/s 142(1), the Assessing Officer required the assessee to furnish detailed note on amount claimed under the head “Any other amount allowable as deduction” in Schedule BP of ITR Form. Amongst various other items, amount claimed under the head “Any other amount allowable as deduction” in Schedule BP of ITR Form includes Rs.1,24,45,443/- actually paid by the company towards gratuity expense during AY 2020-21. In response to the notice dated 19.03.2022 u/s 142(1), the assessee vide its reply dated 22.03.2023, submitted that during the year under consideration, the Assessee has paid an amount of Rs. 1,24,45,443/- towards gratuity. Considering that the amount of such expense was actually paid in the FY 2019-20, deduction of such expense has been considered while computing taxable income of AY 2020-21. It is further submitted that, in the absence of any specific clause in the Tax audit report (‘TAR’) to report amount paid in relation to Gratuity, the said amount has not been disclosed separately in TAR. However, the same forms part of Attachment 1 to the TAR of AY 2020- 21. We are enclosing herewith relevant extract of Tax Audit Report, attachment to Tax Audit Report and relevant extract of financial statements of FY 2019- 20 showing the details of amount of gratuity paid during the year at page Nos. 1 to 4. On perusal of the same, it may kindly be noted that during the year under appeal, the Appellant had paid a total amount of Rs.7,65,56,810/- (including Rs.1,24,45,443/-) towards gratuity expenses. However, at the time of furnishing the income-tax return (‘ITR’) of AY 2020-21, inadvertently, only a sum of Rs.1,24,45,443/- was claimed by the Appellant (forming part of deduction claimed under item no. 33 of schedule BP of the ITR form of AY 2020-21). Accordingly, a sum of Rs. 6,41,11,367 was inadvertently missed to be claimed by the Appellant in the income-tax return of AY 2020-21. A summary of the above is mentioned hereunder:

S.No. Particulars Amount Remarks (Rs.) 1. Gratuity paid to group entities in 1,24,45,443 - respect of transferred employees during AY 2020-21, claimed in the income-tax return of AY 2020-21 but disallowed by the Ld. AO in the assessment order dated 28 September 2022.

It is evident from the above, that during the year under appeal, the Appellant had actually paid a total sum of Rs. 7,65,56,810 towards gratuity Further, it is respectfully submitted that after filing reply dated 22.03.2022, the Assessing Officer has not raised any further query on this issue. Even in the show cause notice cum draft assessment order dated 22.09.2022, no addition / disallowance on this issue was proposed. It is only after the receipt of Assessment Order dated 28.09.2022, the assessee came to know that the AO has disallowed gratuity payment expenses of Rs.1,24,45,443/-. This action of the AO is totally against the principles of natural justice. In this regard, the assessee relies upon the judgement of the Apex Court in the case of A.K.Kraipak –vs- Union of India (1969) 2 SCC 262, wherein it is observed that the aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. The said rules are means to an end and not an end in themselves and though it is not possible to make an exhaustive catalogue of such rules however it can be readily said that there are two basic maxims of natural justice namely “audi alteram partem” and “nemo judex in re sua”. In the present facts of the case we are concerned with the maxim audi alterm partem which again may have many facets two of them (a) notice of the case to be met; and (b) opportunity to explain. Their Lordships have cautioned that these rules cannot be sacrificed at the altar of the administrative convenience or celebrity. The appellant also wishes to rely upon the following judicial pronouncements on the principle of natural justice: a) The Hon’ble Supreme Court in its five judges’ bench in the case of Dhakeshwari Cotton Mills Ltd Vs CIT reported in 26 ITR 775 had a benchmark judgement on the principle of natural justice, an extract of which is as follows: “In India there is no statute laying down the minimum procedure which administrative agencies must follow while exercising decision-making powers. In a welfare state like India, the role and jurisdiction of administrative agencies is increasing at a rapid pace. Therefore, in absence of statutory provision the importance of judicial decision of Supreme Court having the binding effect of law under Article 141 of Indian Constitution becomes extremely relevant. This article reviews judgement of Dhakeshwari Cotton Mills which is a five judge bench decision of Supreme Court of India in which three basic components of 'audi alteram partem' or rule of fair hearing viz., right to present the case and evidence, right to know the evidence and right to rebut adverse evidence have been explained in detail. It then reviews the impact of the decision in development of principles of natural justice in India”. b) C.B Gautam v. UOI (1993) 199 ITR 530 (SC) “Violation of the principle of natural justice may lead to violation of Fundamental rights of equality guaranteed by Article 14 or 21 of the Constitution of India” c) R.B Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement Commission (1969) 176 ITR 169 (SC) “Order passed in violation of principle of natural justice is void and nullity.” d) Kishanchand Chellaram v. CIT (1980) 125 ITR 713 (SC) “Authorities cannot use the statement without giving an opportunity of cross examination” e) Sona Builders vs Union of India (2001) 251ITR 197-SC In this case, where the assessee was given only three days to respond, the court held that there had been a gross breach of the principles of natural justice, and therefore, the order of the authority had to be quashed. f) Rajesh Kumar v. DCIT [2006] 157 Taxman 168 (SC) “It is an authority for the proposition when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, prin-ciples of naturaljustice are required to be followed. In such an event, although no express provision is laid down in this behalf compliance of principles of natural justice would be implicit. In case of denial of principles of naturaljustice in a statute, the same may also be held ultra vires article 14 of the Constitution.” g) Sahara India (Firm) v. CIT [2008] 169 Taxman 328 (SC) “The upshot of the entire discussion is that the exercise of power under section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre- decisional hearing to an assessee and in the absence of any express provision in section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of naturaljustice is to be read into the said provision.” h) New Delhi Television Ltd. v. DCIT [2020] 116 taxmann.com 151 (SC) “we are clearly of the view that the notice and reasons given thereafter do not conform to the principles of natural justice and the assessee did not get a proper and adequate opportunity to reply to the allegations which are now being relied upon by the revenue.” i) Calcutta High Court in Rajiv Kumar Adukta Vs CIT 251 ITR 518, 519 has observed that: The principles of natural justice require that an assessee be informed with reason before being affected with civil consequence. The same Calcutta High Court in Narayan Chandra Vaidya Vs CIT 20 ITR 287 has observed that natural justice requires that before charging a person with financial liability, he should be informed of the materials on which the charge was going to be imposed and given an opportunity to rebut the effect of the materials, if he can. Similar view has been expressed by the Hon’ble Supreme Court in Dhakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775 and in C. Vasantlal & Co. Vs CIT 45 ITR 206. j) M/s Green Power Realtors (P) Ltd. v. DCIT, Circle 11(2) (2013)34 taxmann.com 27 (Madras), Hon’ble High Court stated that “It requires under law that the assessee should be heard in the matter before concluding the proceedings and, therefore, the revenue authority is bound to offer an opportunity of being heard with law, before proceeding to pass an order. Hence, impugned order passed by the respondent cannot be sustained and the same is liable to be set aside.” k) CIT v. Ashwani Gupta (2010)191 Taxman 51(Delhi) The facts were that the CIT(A) deleted the entire addition made in assessment completed u/s 158B on the ground that the AO had passed the assessment order in violation of principles of natural justice. The Tribunal after referring to the decision of Delhi High Court in the case of CIT v. SMC Share Brokers Ltd. (2007)288 ITR 345(Delhi) came to the conclusion that there was no infirmity in the order of the CIT(A). Hon’ble Delhi High Court answered the following question of law in the affirmative: “Whether since there was a violation of principles of natural justice, it would be fatal to proceedings and, therefore, there was no reason to interfere with the impugned order- Held, yes.” l) Sadan Electric Stores vs. CIT(C), Kanpur (2013) 36 taxmann.com 286(Allahabad) Whether since lower authorities had violated the principles of natural justice without granting opportunity of hearing to the assessee, impugned order was to be set aside- Held, Yes (in favour of the assessee).

TLG India (P.) Ltd. vs. Dy. CIT(2019) 421ITR 418(Bom.) In this case, the court held that mere ritualistic giving of hearing and reproducing the submissions made without understanding the party’s case would not satisfy the test of natural justice. It is not open to the Authority to ignore the evidence/submissions made by the party as it is not the object of quasi-judicial authority to confirm their prima face view, but the object is to find the correct facts and thereafter apply the law to those facts and take a decision in terms thereof. The principles of natural justice demand that a show-cause notice should be issued, and an opportunity of hearing should be afforded to the person concerned before an order under the said Rule is made, notwithstanding the fact that the said Rule does not contain any express provision for the affected party being given an opportunity of being heard. Without prejudice to the above, we enclose herewith the details of payments along with the sample payment vouchers, statements of full and final settlement of employees and the corresponding bank statements evidencing the payment of Rs. 7,65,56,810/- towards gratuity during AY 2020-21 at page 1 to 34 of the paper book. In view of the above submissions, your honour will kindly appreciate that the addition made by the Assessing Officer is contrary to facts, provisions of law, and principle of natural justice. Therefore, the disallowance on this account deserves to be deleted.

[AY 2021-22] [DLF Ltd.-Revenue’s appeal] 80. In this appeal, the Revenue has taken following grounds of appeal:- 1. “Whether the Ld. NFAC under the facts and circumstances of the case and in law is justified in deleting the addition of Rs. 182,46,61,275/- made by the AD on account of disallowance expenses related to exempted income u/s 14A r.w Rule BD of the Act.

2. Whether the Ld. NFAC under the facts and circumstances of the case and in law was justified in deleting the addition of Rs. 96,12,797/- made by the AO on account of disallowance of expenses of Helicopter and Aircraft which were not related to business of assessee.

3. Whether the Ld. NFAC has erred in deleting the addition of Rs.5,11,38,654/- made by the AD on account of disallowance of club expenses under the facts and circumstances of the case.

4. Whether on the facts and circumstances of the case the CIT(A) was justified in allowing the alternate claim of the assessee amounting to Rs. 151096.81 lacs in case the principal claim is disallowed.

5. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

82. Heard the parties and perused the material available on record. The facts and circumstances as existed in the year under Page | 108 appeal and the observations and allegations made by AO while making addition of Rs. 182,46,61,275/- are the same, as were made in the assessment order passed for AY 2019-20 and AY 2020- 21. Further the ld. CIT(A) also followed the orders of preceding assessment years for deleting the additions made.

85. Heard the parties and considered the arguments put forth by them. It is seen that the facts and circumstances and the observations and allegations made by AO while making disallowance are the same, as were made in the assessment order for AY 2019-20.] Page | 109

88. Heard the parties. As observed above, in the year under appeal, assessee has computed the income from real estate business by following CCM which has been accepted by the AO but disallowed the alternate claim of deduction of excess margin recorded in present year due to change in method of accounting for computing the income from POCM to CCM. In this regard, we are in agreement with the observations made by ld. CIT(A) that in case the principal claim of the assessee is subsequently withdrawn at any stage, the assessee should be allowed the alternate claim of excess margin recorded for the present year due to change in method of accounting for computing the income from POCM to CCM otherwise it would be resulted into double taxation. With these observations we find no error in the order of ld. CIT(A) which is hereby upheld.

(i) that the expenditure must bear in nexus with the business carried out by the assessee; (ii) that the expenditure was not incurred for the benefit of employees/Directors;

(iii) that the expenditure enhanced the image of the assessee or its products as the membership could be used to advertise the products of the assessee; and (iv) that the expenditure resulted in benefit of enduring nature.

9.3 “I have considered the findings of the AO, submission made by the appellant and have perused the material on record. There is no denying the fact that membership to club provides directors and executives of company better contact and association with persons in good position which is likely to improve its business relations and prospects. The membership of club and expenses incurred in the clubs for club services and facilities gives an opportunity to the employees of the company to interact with their customers and development of relationship with clients in order to promote the business of the company. Therefore, there is commercial expediency in incurring such expenses. The expenses incurred in these clubs obviously were not with the object of providing personal relaxation to the directors and employees of the company but to promote Page | 114 the business of the company. Such expenses cannot be regarded as having been incurred for the personal benefit of the directors/employees of the appellant company. In my view these expenses were incurred by the appellant in the normal course of its business with a view to promote its business. The AO has not pin-pointed even a single expenditure out of these expenses which can be regarded as having been incurred for providing personal benefit to the directors/employees of the company. The various judicial pronouncements cited by the appellant including the decision of the Hon'ble Supreme Court in the case of CIT vs United Glass Mfg. Co. Ltd. (Supra) support the appellant's contention that these expenses, having been incurred in the regular course of business for the purpose of business development, are allowable as business expenditure u/s 37(1) of the Act. Further, it is seen that similar expenses incurred by the appellant in the earlier assessment year were allowed as business expenditure by the AO in the assessments completed u/s 143(3) of the Act. Although the doctrine of res-judicata does not apply to income-tax proceeding, since each assessment year is independent of the other, but where an issue had been decided consistently in a particular manner for earlier assessment years, for the sake of consistency the same view should continue to prevail for subsequent years unless there is material change in the facts. In this regard, the relevant observation of the Hon'ble Supreme Court in the case of Radhasoami Satsang vs CIT [1992] 60 Taxman 248 (SC) are reproduce below:- "On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter-and if there was no change it was in support of the assessee we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12. In view of the above facts, various judicial pronouncements and the claim of similar club expenses having been allowed in the earlier assessment years and there being no material change in the facts this year vis-à-vis earlier years on this issue, following the rule of consistency, the AO was not justified in making the impugned addition. Accordingly, the addition of Rs. 5,11,38,654/- made by the AO in respect of club expenses is deleted. (Ground Allowed)