Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore V. M/s Indibuild Homes Pvt Ltd , Bangalore

ITA 184/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3663 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-10-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 01-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PRIYADARSHI MISHRA
• Keywords: Business expenditure; Tax effect; Set aside
• Section: 32; 6

Judgement Text

ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.86/BANG/2019 ASSESSMENT YEAR: 2015-16 M/S. INDIABUILD HOMES PVT. LTD. NO.6/A, 2 ND FLOOR, KABRA EXCELSIOR 7 TH CROSS, 1 ST BLOCK, KORAMANGALA BANGALORE 560 034 PAN NO : AACCI5152L VS. ITO WARD-3(1)(1) BANGALORE APPELLANT RESPONDENT ITA NO.184/BANG/2019 ASSESSMENT YEAR: 2015-16 DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-3(1)(1) BANGALORE VS. M/S. INDIABUILD HOMES PVT. LTD. NO.6/A, 2 ND FLOOR, KABRA EXCELSIOR 7 TH CROSS, 1 ST BLOCK, KORAMANGALA BANGALORE 560 034 APPELLANT RESPONDENT APPELLANT BY : SHRI SIDDESH S. GADDI, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF HEARING : 06.10.2021 DATE OF PRONOUNCEMENT : 11.10.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 27.11.2018 PASSED BY LD. CIT(A)-3, BENGALURU AND TH EY RELATE TO THE ASSESSMENT YEAR 2015-16. ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE PAGE 2 OF 7 2. THE EFFECTIVE GROUNDS OF APPEAL URGED BY THE ASSESSEE READ AS UNDER: 2. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT DEP RECIATION TO THE EXTENT OF RS.17,90,945/- IS RELATING TO PROJECT AND THEREFORE NOT ALLOWABLE UNDERSECTION 32 OF THE INCOME-TAX ACT, 19 61; [TAX EFFECT RS. 5,53,402/ - ] 3. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT STAFF WELFARE EXPENSES (UNDER EMPLOYEE BENEFIT EXPENSES) OF RS. 3 ,70,148 IS PROPORTIONATELY RELATING TO PROJECT AND THEREFORE N OT DEDUCTABLE; [TAX EFFECT RS. 1,14,376/-] 4. THE LEARNED CIT(A) HAS ERRED IN DISALLOWING EXPENSE S CLAIMED UNDER 'OTHER EXPENSE' TO THE TUNE OF RS. 34,16,699/ - BY STATING THAT THE SAME ARE RELATABLE TO THE PROJECT AND THEREFORE CAP ITAL IN NATURE; [TAX EFFECT RS. 10,55,760/-] 5. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT TH E EXPENSES AS RELATABLE TO PROJECT EXPENSES ARE ALREADY CAPITALIZ ED BY THE APPELLANT. [COMMON GROUND WITH TOTAL TAX EFFECT OF RS. 17,23,5 38/-]) 3. THE EFFECTIVE GROUNDS URGED BY THE REVENUE READ AS UNDER: 2. THE LD CIT(A) ERRED IN ALLOWING THE EXPENDITUR E CLAIMED BY THE ASSESSEE WHEN THE BUSINESS OF THE AP PELLANT HAD NOT COMMENCED AND THE ASSESSEE WAS NOT ELIGIBLE FOR SET OFF OF BUSINESS LOSS AGAINST INCOME FROM OTHER SOURCES. 3. THE LD.CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY NOT FOLLOWING THE DECISION OF THE HON'B LE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD WHEREIN THE HON'BLE SC HAS CLEARLY LAID DOWN THE LAW THAT: A. BEFORE THE COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE, INCOME EARNED IN THE FORM OF INTEREST ON DEPOSITS MADE WITH BANKS OUT OF THE FUNDS BORROWED FROM BANKS AND FINANCIAL INSTITUTIONS WHICH WAS NOT IMMEDIATELY REQUIRED OR THE PURPOSE OF SETTING UP O F THE BUSINESS SHOULD BE ASSESSED TO TAX UNDER THE HEAD I NCOME FROM OTHER SOURCES' ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE PAGE 3 OF 7 B SIMILARLY, NO EXPENDITURE CAN BE CLAIMED UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' DURING THE PERIOD PRIOR TO THE COMMENCEMENT OF THE BUSINES S: AND C ANY EXPENDITURE INCURRED INCLUDING THE INTEREST O N FUNDS BORROWED FOR THE PURPOSE OF SETTING UP OF THE BUSINESS'/ PURCHASE OF PLANT AND MACHINERY ETC., CA NNOT BE SET-OFF AGAINST INTEREST INCOME UNDER THE HEAD ' OTHER SOURCES'. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE D EVELOPMENT. IT FILED ITS RETURN OF INCOME DECLARING LOSS OF RS.4,1 4,82,994/-. IT INCLUDED INTEREST INCOME OF RS.1,25,06,325/-. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT IT IS PROMOTING A PROJECT IN WHITE FIELD AREA IN BANGALOR E. IT WAS SUBMITTED THAT THE REVENUE FROM THIS PROJECT IS REC OGNIZED IN ACCORDANCE WITH THE PROVISIONS OF ACCOUNTING STANDA RD-9 OF REVENUE RECOGNITION ISSUED BY ICAI UNDER PERCENTAG E COMPLETION METHOD. ON EXAMINATION OF THE FINANCIAL STATEMENT S AND REPLY OF THE ASSESSEE, THE A.O. NOTICED THAT THE ASSESSEE HA S PURCHASED LAND AND STARTED BOOKING ADVANCES FROM CUSTOMERS. HOWEV ER, THE ASSESSEE HAS NOT RECOGNIZED ANY INCOME ON PERCENTAG E COMPLETION METHOD, BUT IT HAS CLAIMED CERTAIN EXPENSES AND DEC LARED BUSINESS LOSS. ACCORDINGLY, THE A.O. TOOK THE VIEW THAT THE BUSINESS ACTIVITY OF THE ASSESSEE HAS NOT COMMENCED AND HENCE LOSS CL AIMED BY THE ASSESSEE CANNOT BE ALLOWED. ACCORDINGLY, THE A.O. DISALLOWED THE CLAIM OF BUSINESS LOSS AND ASSESSED INTEREST INCOME OF RS.1,25,40,420/-. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) HEL D THAT THE BUSINESS ACTIVITIES OF THE ASSESSEE HAD ALREADY COM MENCED AND HENCE IT IS ELIGIBLE TO CLAIM DEDUCTION OF BUSINESS EXPENSES. THE LD. ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE PAGE 4 OF 7 CIT(A) NOTICED THAT THE ASSESSEE HAS ACCUMULATED PR OJECT RELATED EXPENDITURE AND SHOWN THE SAME AS WORK IN PROGRESS. THE ASSESSEE HAS ALSO CLAIMED CERTAIN EXPENDITURE, APPARENTLY FO R THE REASON THAT IT IS NOT SPECIFIC EXPENSES RELATED TO THE PROJECT, AND DECLARED BUSINESS LOSS. ON ANALYSIS OF THE EXPENDITURE CLAI MED IN THE PROFIT AND LOSS ACCOUNT, THE LD. CIT(A) TOOK THE VIEW THAT SOME OF THE EXPENDITURE SHOULD BE ALLOCATED TO THE PROJECT. ACCORDINGLY, THE LD. CIT(A) ALLOCATED CERTAIN EXPENDITURE TO THE PRO JECT ACCOUNT. 6. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN HOLDING THAT THE BUSINESS OF THE ASSESSEE HAS COMME NCED. THE ASSESSEE HAS FILED APPEAL CHALLENGING THE ALLOCATIO N OF EXPENDITURE TO THE PROJECT ACCOUNT. 7. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAD PUR CHASED LAND IN THE FINANCIAL YEAR 2010-11 AND STARTED DEVELOPIN G THE LAND. THE EXPENDITURE INCURRED ON CONSTRUCTION ACTIVITIES HAS BEEN SHOWN AS WORK IN PROGRESS IN THE BOOKS OF ACCOUNTS. HENCE , THE BUSINESS OF THE ASSESSEE HAS ALREADY COMMENCED WHEN THE LAND WA S ACQUIRED AND HENCE THE DECISION RENDERED BY THE LD. CIT(A) O N THIS ISSUE DOES NOT CALL FOR ANY INTERFERENCE. THE LD. A.R. F URTHER SUBMITTED THAT THE REVENUE RECEIVED BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION WAS AROUND 17% ONLY AND HENCE ACCORDI NG TO THE ACCOUNTING STANDARD-7 & 9 ISSUED BY ICAI, NO REVENU E NEEDS TO BE RECOGNIZED UNDER PERCENTAGE COMPLETION METHOD, IF T HE RECEIPTS ARE LESS THAN 25% ON ESTIMATED CONSTRUCTION AND DEVELOP MENT COST. THE LD. A.R. FURTHER SUBMITTED THAT THE LD. CIT(A) DID NOT CONSIDER ACCOUNTING STADARD-2, 7 AND 9 WHILE ALLOCATING SOME OF THE EXPENDITURE TO THE PROJECT ACCOUNT. THE LD. A.R. S UBMITTED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IN THE P&L ACCO UNT DO NOT SPECIFICALLY RELATE TO PROJECT UNDERTAKEN BY THE AS SESSEE AND HENCE ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE PAGE 5 OF 7 LD. CIT(A) WAS NOT JUSTIFIED IN ALLOCATING PART OF EXPENDITURE TO THE PROJECT ACCOUNT, SINCE THE SAME IS NOT IN ACCORDANC E WITH THE ACCOUNTING STANDARDS ISSUED BY ICAI. 8. THE LD. D.R., ON THE CONTRARY, SUPPORTED THE ORD ER PASSED BY LD. CIT(A). THE LD. D.R. SUBMITTED THAT THE ASSESS EE HAS NOT PROVED THAT THE BUSINESS OF THE ASSESSEE HAS BEEN C OMMENCED AND HENCE THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING T HAT THE BUSINESS OF THE ASSESSEE HAS COMMENCED. 9. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. THE ONLY ISSUE URGED BY THE REVENUE IS WHETHER THE ASSE SSEE HAS COMMENCED HIS BUSINESS OR NOT? WE NOTICE THAT THE LD. CIT(A) HAS ADDRESSED THE ISSUE IN THE FOLLOWING MANNER:- 4.1 DURING APPELLATE PROCEEDINGS THE APPELLANT HAS MADE DETAILED SUBMISSIONS, WHICH ARE IN SUBSTANCE SAME A S MADE BEFORE THE AO. THE APPELLANT HAS ARGUED THAT ITS BU SINESS HAD ALREADY COMMENCED AS IT HAD ACQUIRED LAND AND THE S AME WAS REGISTERED IN ITS NAME IN FY 2010-11. THE LAND WAS PART OF ITS INVENTORY IN ITS BOOKS OF ACCOUNT. THE APPELLANT SU BMITTED THAT THE CONSTRUCTION ACTIVITIES HAD ALSO STARTED AND THERE WAS WORK IN PROGRESS (WIP) TO THE EXTENT OF RS 71,01,11,630/- A S ON 31.03.2015. THE APPELLANT SUBMITTED THAT THE CONSTR UCTION COSTS ALREADY INCURRED CONSTITUTED 17.06% OF ITS ESTIMATE D COST OF CONSTRUCTION. THE APPELLANT SUBMITTED THAT ONLY ROU TINE ADMINISTRATIVE EXPENSES HAD BEEN DEBITED TO THE P&L ACCOUNT AND THE CONSTRUCTION/PROJECT RELATED EXPENSES HAD BEEN CAPITALIZED. 4.2 THE SUBMISSIONS OF THE APPELLANT HAVE DULY BEEN CONSIDERED_ AS PER APPELLANT ITS BUSINESS ACTIVITIES HAD ALREAD Y COMMENCED AND HE HAD ALREADY PURCHASED LAND. THE WIP SHOWS EX PENSES INCURRED ON VARIOUS CONSTRUCTION RELATED ACTIVITIES INCLUDING EXPENSES RELATED TO VARIOUS APPROVALS FROM THE RELE VANT AUTHORITIES. THE APPELLANT HAD PAID MONEY TO THE LA ND OWNERS AS WELL AS SPENT MONEY TOWARDS CONSTRUCTION ACTIVITIES . A PERUSAL OF THE FINANCIALS OF THE APPELLANT SHOWS THAT THERE WA S WORK IN PROGRESS OF RS 71,01,11,630/- AS ON 31.03.2015 AND RS.48,69,47,520/- AS ON 31.3.2014. THIS INCLUDES M ONEY PAID TO THE LAND OWNERS AS WELL AS MONEY SPENT ON CONSTRUCT ION ACTIVITIES. ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE PAGE 6 OF 7 4.3 SO IT COULD NOT BE SAID THAT THERE WAS NO COMME NCEMENT OF THE BUSINESS OF THE APPELLANT. 10. A PERUSAL OF THE ORDER PASSED BY LD. CIT(A) WOU LD SHOW THAT THE ASSESSEE HAS ACQUIRED THE LAND IN FINANCIAL YEA R 2010-11 AND DECLARED THE SAME AS ITS INVENTORY. THE ASSESSEE I S IN THE REAL ESTATE BUSINESS AND IT HAS COMMENCED A PROJECT OF C ONSTRUCTION OF BUILDING BY PURCHASING LAND. THE LD. CIT(A) HAS AL SO NOTICED THAT THE ASSESSEE HAS INCURRED A SUM OF RS.71.01 CRORES AS ON 31.3.2015 ON ITS CONSTRUCTION ACTIVITIES. SINCE TH E ASSESSEE HAS PURCHASED THE LAND AS ITS STOCK IN TRADE IN FINANCI AL YEAR 2010-11 ITSELF AND ALSO INCURRED ON CONSTRUCTION ACTIVITIES , IN OUR VIEW, THE A.O. WAS NOT CORRECT IN HOLDING THAT THE ASSESSEE H AS NOT COMMENCED ITS BUSINESS ACTIVITY EVEN IN THE YEAR RE LEVANT TO ASSESSMENT YEAR 2015-16. ACCORDINGLY, WE ARE OF TH E VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESS EE HAS ALREADY COMMENCED ITS BUSINESS. ACCORDINGLY, WE REJECT THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD. 11. SO FAR AS THE GROUNDS URGED BY THE ASSESSEE, WH ICH RELATE TO ALLOCATION OF VARIOUS EXPENSES TO THE PROJECT ACCOU NT, IT IS THE SUBMISSION OF THE LD. A.R. THAT THE LD. CIT(A) HAS ALLOCATED A PORTION OF EXPENSES TO THE PROJECT ACCOUNT WITHOUT CONSIDERING THE ACCOUNTING STANDARDS ISSUED BY THE ICAI. ACCORDING LY, WE ARE OF THE VIEW THAT ALLOCATION OF EXPENSES TO PROJECT ACC OUNT MADE BY THE LD. CIT(A) REQUIRES FRESH EXAMINATION AT HIS END BY DULY CONSIDERING THE ACCOUNTING STANDARDS ISSUED BY ICAI. ACCORDING LY, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND RE STORE THEM TO HIS FILE FOR EXAMINING IT AFRESH DULY CONSIDERING THE A PPLICABLE ACCOUNTING STANDARDS. ITA NOS.86&184/BANG/2019 M/S. INDIABUILD HOMES PVT. LTD., BANGALORE PAGE 7 OF 7 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCT, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 11 TH OCT, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.