M/s Chaitanya Properties Private Limited, Bangalore V. DCIT, Bangalore

ITA 1365/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0243 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V CHANDRASHEKAR
• Keywords: Revenue expenditure

Judgement Text

ITA.1365/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.1365/BANG/2015 (ASSESSMENT YEAR : 2007- 08) M/S. CHAITANYA PROPERTIES P. LTD, NO.17, SANKEY ROAD, BENGALURU 560 020 .. APPELLA NT PAN : AACCC5900A V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(2), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. V. CHANDRASHEKAR, ADVOCATE REVENUE BY : SMT. SWAPNA DAS, JCIT HEARD ON : 20.06.2016 PRONOUNCED ON :30.06.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE, IT HAS TAKEN ALT OGETHER EIGHT GROUNDS. GRIEVANCE RAISED THROUGH THESE GROUNDS ASSAILS THE DISALLOWANCE OF PROFESSIONAL CHARGES OF RS.3,51,73,740/- MADE BY TH E AO AND CONFIRMED BY THE CIT (A). ITA.1365/BANG/2015 PAGE - 2 02. FACTS APROPOS ARE THAT ASSESSEE A PROPERTY DEVE LOPER AND CONTRACTOR HAD FILED ITS RETURN OF INCOME DECLARING NIL INCOME . ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD FOR COMPUTING I TS INCOME. IT HAD DURING THE RELEVANT PREVIOUS YEAR CLAIMED AN EXPEND ITURE OF RS.575,45,866/-. AO NOTED THAT THE ABOVE AMOUNT IN CLUDED PROFESSIONAL CHARGES OF RS.3,57,52,872/-. WHEN EXPLANATION OF T HE ASSESSEE WAS SOUGHT, IT WAS STATED BY THE ASSESSEE THAT SUCH AMOUNT WAS PAID TO M/S. PRESTIGE ESTATES PROJECTS LTD, IN PURSUANCE TO JOINT DEVELO PMENT AGREEMENT ENTERED WITH THEM TO DEVELOP A RESIDENTIAL AND COMMERCIAL C OMPLEX CALLED PRESTIGE SHANTINIKETAN. AS PER THE ASSESSEE, THE SUM OF RS. 3,51,73,740/- OUT OF THE TOTAL PROFESSIONAL CHARGES OF RS.3,57,52,872/- COMP RISED OF BROKERAGE, DOCUMENTATION AND BOOKING COLLECTION CHARGES COLLEC TED BY THE SAID DEVELOPER FOR ASSESSEES SHARE IN THE PROJECT. AO WAS OF THE OPINION THAT ASSESSEE HAVING NOT DECLARED ANY INCOME FROM THE PR OJECT PRESTIGE SHANTINIKETAN, EXPENDITURE CLAIMED BY IT OUGHT HAVE GONE INTO THE WORK-IN- PROGRESS. AS PER THE AO ASSESSEE WAS FOLLOWING PRO JECT COMPLETION METHOD AND THEREFORE EXPENDITURE INCURRED FOR PREST IGE SHANTINIKETAN SHOULD ENTER THE WORK-IN-PROGRESS TILL SUCH TIME TH E PROJECT WAS COMPLETE. HE THEREFORE HELD THAT OUT OF THE TOTAL CLAIM OF PR OFESSIONAL CHARGES, A SUM OF RS.3,51,73,714/- WAS NOT ALLOWABLE. AN ADDITION WAS MADE ACCORDINGLY. ITA.1365/BANG/2015 PAGE - 3 03. IN ITS APPEAL BEFORE THE CIT (A), ARGUMENT OF T HE ASSESSEE WAS THAT THE EXPENDITURE CLAIMED BY IT WAS TOWARDS DEVELOPME NT OF ITS BUSINESS ARRANGING SALES ON BEHALF OF THE ASSESSEE. AS PER THE ASSESSEE, IT WAS A REVENUE EXPENDITURE. CIT (A) AFTER GOING THROUGH T HE SUBMISSION OF THE ASSESSEE FOUND THAT ASSESSEE HAD MADE A SIMILAR CLA IM IN ASSESSMENT YEAR 2005-06. AS PER THE CIT (A), FOR THE SAID YEAR THE ISSUE HAD REACHED THE TRIBUNAL AND THIS TRIBUNAL IN ITS ORDER IN ITA.1141 & 1183/BANG/2008, DT.31.03.2010, HELD THAT BY VIRTUE OF AS-7 LAID DOW N BY ICAI, ASSESSEE WOULD BE ENTITLED TO SET OFF EXPENDITURE ONLY IN TH E YEAR WHEN REVENUE WAS REALISED FROM THE WORK-IN-PROGRESS. HE THUS CONFIR MED THE ORDER OF AO. 04. NOW BEFORE US, LD. AR ASSAILING THE ORDER LOWER AUTHORITIES SUBMITTED THAT EVEN IF THE ASSESSEE WAS FOLLOWING T HE COMPLETED CONTRACT METHOD ONLY DIRECT COST WAS TO BE ALLOCATED TO THE WORK-IN-PROGRESS. ACCORDING TO HIM, PAYMENTS MADE TO M/S. PRESTIGE ES TATES PROJECTS LTD, WAS IN THE NATURE OF ADMINISTRATION AND SELLING EXP ENDITURE AND THIS COULD NOT BE CONSIDERED AS WORK-IN-PROGRESS. IN SO FAR A S THE DECISION OF COORDINATE BENCH FOR A. Y. 2005-06 WAS CONCERNED, L D. AR SUBMITTED THAT IT WAS A CLAIM OF ADVERTISEMENT EXPENDITURE AND NOT SIMILAR TO THE CLAIM FOR THE IMPUGNED ASSESSMENT YEAR. ITA.1365/BANG/2015 PAGE - 4 05. PER CONTRA, LD DR SUPPORTED THE ORDERS OF AUTHO RITIES BELOW. 06. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. WHAT WAS HELD BY THIS TRIBUNAL IN ASSESSEES OWN CASE FO R A. Y. 2005-06 IS REPRODUCED HEREUNDER : 9.2.5. THE AO HAS RIGHTLY OBSERVED THAT THE INCOME FROM CONSTRUCTION CONTRACTS DISCLOSED IN ITS RETURN OF I NCOME CONSISTS OF MANAGEMENT DEVELOPMENT FEES ARISING FROM EXECUTION OF A TURN KEY CIVIL CONTRACT FOR CONSTRUCTION OF A CAMPUS ON BEHA LF OF M/S. TESCO WHICH WAS EXECUTED DURING THE COURSE OF THE Y EAR. THE PAYMENT OF RS.37.5 CRORES IS NOT ATTRIBUTABLE TO TH IS INCOME. THIS EXPENDITURE IS ATTRIBUTABLE TO THE PROJECT SHANTHIN IKETAN SINCE IT WAS INCURRED TO PERFECT THE TITLE OF THE LAND ON WH ICH THIS PROJECT WAS TO BE IMPLEMENTED. ON ACCOUNTING SUCH PROJECTS, THE PROJECTS COST METHOD HAS TO BE FOLLOWED AS LAID DOWN IN THE ACCOUNTING STANDARDS 7 BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA. BEING SO, THIS EXPENDITURE OF RS.37.5 CRORES (VIZ., NET AMOUNT RS.14,27,65,043) HAS TO BE ADDED TO THE WORK IN PRO GRESS OF THE PROJECT AS RIGHTLY FOUND BY THE AO. THE REVISED (20 02) AS 7; RELATES TO CONSTRUCTION CONTRACTS; ISSUED BY THE CO UNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND CAM E INTO EFFECT IN RESPECT OF ALL CONTRACTS ENTERED INTO DURING ACCOUN TING PERIODS ON OR AFTER 1.4.2003. THE PRIMARY OBJECT OF AS 7 IS TH E ALLOCATION OF CONTRACT REVENUE AND CONTRACT COSTS TO THE ACCOUNTI NG PERIODS IN WHICH CONSTRUCTION WORK IS PERFORMED. THIS STATEMEN TS OF ACCOUNTING STANDARDS USES THE RECOGNITION CRITERIA ESTABLISHED IN THE FRAME WORK OF THE PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS TO DETERMINE WHEN CONTRACT REV ENUE AND CONTRACT COSTS SHOULD BE RECOGNIZED AS REVENUE AND EXPENSES IN THE STATEMENT OF PROFIT & LOSS. FURTHER AS 7 COVERS THE CONTRACTS FOR THE RENDERING OF SERVICES WHICH ARE DIRECTLY RE LATED TO THE CONSTRUCTION OF AN ASSET I.E., THOSE FOR THE SERVIC ES OR PROJECT MANAGERS ETC. AS IN THE CASE ON HAND. AS 7 STIPULAT E THAT ANY CLAIM FROM THIRD PARTIES COULD BE INCLUDED IN THE COST OF THE PROJECT IF IT ITA.1365/BANG/2015 PAGE - 5 IS ATTRIBUTABLE TO THE PROJECT. THEREFORE THE AMOUN T OF RS.14.27 CRORES PAID FOR THE RELEASE OF THE LAND FROM LEGAL COMPLEXITIES, ON WHICH THE PROJECT SHANTHINIKETAN WAS TO BE EXECUTED , WILL DEFINITELY FORM PART OF THE COST OF THE PROJECT SHA NTHINIKETAN AND IT IS HAS TO BE RECOGNIZED AS SUCH. THIS EXPENDITURE O F RS.14.27 CRORES CANNOT BE WRITTEN OFF AGAINST PROFIT DERIVED FROM OTHER CONTRACTS AS THE ASSESSEE HAS CLAIMED. NEEDLESS TO MENTION THAT AS 7 IS MANDATORY IN RESPECT OF FINANCIAL STATEMENTS A UDITED U/S. 44AB OF THE INCOME-TAX ACT, 1961, AS PRESCRIBED BY THE COUNCIL OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. 9.2.6. WELL, TO PUT IT IN A NUT-SHELL, WE REAFFIRM THE AOS STAND THAT, THE ASSESSEE IS ENTITLED TO SET OFF THE EXPEN DITURE IN THE YEAR IN WHICH REVENUE IS REALIZED FROM THE WORK-IN-PROGRESS . IN ESSENCE, THE FINDING OF THE AO IS IN ORDER WHICH REQUIRES NO INTERFERENCE. IT IS ORDERED ACCORDINGLY. 07. THERE IS NO DISPUTE THAT ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD. TRIBUNAL HAS CLEARLY HELD THAT WHEN PROJEC T COMPLETION METHOD IS FOLLOWED, EXPENDITURE COULD BE CLAIMED ONLY IN THE YEAR IN WHICH REVENUE IS REALISED FROM THE WORK-IN-PROGRESS. IT IS NOT D ISPUTED BY THE ASSESSEE THAT NO INCOME WAS RETURNED FROM THE PROJECT PRESTIGE S HANTINIKETAN DURING THE RELEVANT PREVIOUS YEAR. THEREFORE, THE EXPENDI TURE INCURRED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR ON THE S AID PROJECT WOULD ONLY GO TO INCREASE ITS WORK-IN-PROGRESS AND CANNOT BE C HARGED TO THE PROFIT AND LOSS ACCOUNT. NOTHING WAS BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT THESE WERE PURELY IN THE NATURE OF GENERAL ADMINIST RATIVE EXPENDITURE AND ITA.1365/BANG/2015 PAGE - 6 NOT CONNECTED TO THE SPECIFIC PROJECT OF PRESTIGE S HANTINIKETAN. I AM OF THE OPINION THAT THE LOWER AUTHORITIES WERE JUSTIFIED I N MAKING THE DISALLOWANCE. NO INTERFERENCE IS CALLED FOR. 08. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF JUNE, 2016. SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR