ITO Non Corporate Ward 13(4), CHENNAI V. Guru Homes, CHENNAI

ITA 1922/CHNY/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7790 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-08-2021
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA
• Assessee Lawyers: N R KRISHNAMOORTHY
• Keywords: Corroborative evidences; Revised return; Revenue expenditure; Capital expenditure
• Section: 40A(3); 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.1922/CHNY/2018 ( / ASSESSMENT YEAR: 2008-09) THE INCOME TAX OFFICER, NON-CORPORATE WARD-13(4) CHENNAI VS M/S. GURU HOMES, 5, PERIYARSALAI, THIRU NAGAR, ASHOK NAGAR CHENNAI-600 083. PAN: AAHFG 0077A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MS. ANITA, ADDL.CIT /RESPONDENT BY : MR.N.R.KRISHNAMOORTHY, FCA /DATE OF HEARING : 25.08.2021 /DATE OF PRONOUNCEMENT : 01.09.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER PASSED BY THE LEARNED CIT(A)-14, CHENNAI DATE D 26.03.2018 AND PERTAINS TO ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE LEARNED CIT(A) IS NOT CORRECT IN DELETING T HE DISALLOWANCE OF EXCESS CLAIM OF DEVELOPMENT EXPENSE S OF RS. 2,78,20,552/- MADE BY THE ASSESSING OFFICER. 2.2 THE LEARNED CIT(A) ERRED IN ALLOWING DEDUCTION U/S 8OLB(10) THOUGH ASSESSEE DID NOT MAKE ANY SUCH CLAIM BEFORE THE ASSESSING OFFICER. 2 ITA NO.1922/CHNY/2018 2.3 THE LEARNED CIT(A) ERRED IN HIS DECISION TO ALL OW DEVELOPMENT EXPENSES FULLY DURING THE YEAR ON THE B ASIS THAT ASSESSEE WAS GRANTED DEDUCTION U/S 8OLB(10) FOR ASS ESSMENT YEARS 2009-10 AND 2010-11 IGNORING THE FACT THAT EA CH ASSESSMENT YEAR IS DIFFERENT AND ASSESSEE HAS NOT C LAIMED SUCH DEDUCTION FOR THE ASSESSMENT YEAR 2008-09. 2.4 THE LEARNED CIT(A) FAILED TO NOTE THAT ASSESSM ENT YEAR 2008-09 IS THE FIRST YEAR IN WHICH ASSESSEE CLAIMED DEDUCTION OF ENTIRE DEVELOPMENT EXPENSES AS DEDUCTION AND THERE IS NO CONSISTENCY IN APPROACH BY ASSESSEE. FURTHER, CIT(A ) IGNORED THE FACT THAT ASSESSING OFFICER HAS POINTED OUT THE DEFICIENCY / INADEQUACY IN THE METHOD FOLLOWED BY ASSESSEE AS LA ND COST IS BEING APPORTIONED ON THE BASIS OF EXTENT OF SALES W HEREAS DEVELOPMENT EXPENSES IS CLAIMED FULLY IN ONE YEAR, WHICH IS AGAINST THE MATCHING PRINCIPLE AS HELD BY THE APEX COURT IN THE CASE OF CALCUTTA CO.LTD (37 ITR 1). 2.5 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E FACTS THAT THE ASSESSING OFFICER NEVER TREATED THE EXCESS CLAI M OF DEVELOPMENT EXPENSES AS CAPITAL EXPENDITURE BUT ALL OCATED SUCH REVENUE EXPENDITURE ON MATCHING PRINCIPLE CONC EPT AND BALANCE WAS TREATED AS CLOSING WIP. 3.1 THE LEARNED CIT(A) IS NOT CORRECT IN DELETING 2 0% OF CONTRACT EXPENSES INCURRED BY CASH OF RS. 55.13,307/- (20% O F RS.2,75,66,537/-) 3.2 THE LEARNED CIT(A) IS NOT CORRECT IN DELETING T HE DISALLOWANCE OF CONTRACT EXPENSES INCURRED BY CASH SINCE, THE SUPPORTING DOCUMENTS FOR CLAIM OF EXPENDITURE UNDER THE HEADS SITE EXPENSES, EARTH FILLING CHARGES AND SAND INCLUDES OF RS. 2,75,66,537 WERE NOT PROPER AND THE ASSESSING O FFICER POINTED OUT DEFECTS IN THE VOUCHERS WHICH RESULTED IN THE ESTIMATED DISALLOWANCE. 3.3 THE LEARNED CIT(A) FAILED TO CONSIDER THE FACT THAT THE EXPENDITURE WAS INCURRED IN CASH AND MERE PRODUCTIO N OF VOUCHERS IN SUPPORT OF THE CLAIM FOR DEDUCTION OF T HE EXPENDITURE WOULD NOT PROVE THE CLAIM MADE BY THE A SSESSEE AND IT IS THE DUTY OF THE ASSESSEE TO PROVE PAYMENT ESPECIALLY WHEN THE GENUINENESS OF PAYMENTS ARE IN DOUBT. 3.4 THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE RATIO OF THE FOLLOWING DECISIONS: CIT VS CHANDRAVILAS HOTEL (GUJ) 164 ITR 102 3 ITA NO.1922/CHNY/2018 CIT VS MODI STONE LTD. (DEL) 203 TAXMAN 123 LATE GY AN CHAND JAM THROUGH L/H MANISH CHAND JAM VS CIT (RAJ) 86 DTR 81 PRAGATI ENGINEERING CORPORATION VS ITO (ITAT , LUCKNOW-TM) 137 LTD 4.1 THE LEARNED CIT(A) IS NOT CORRECT IN GRANTING C LAIM OF DEDUCTION U/S 8OIB(10) OF THE INCOME-TAX ACT, SINCE THE ASSESSEE HAS NOT MADE ANY SUCH CLAIM IN THE ORIGINA L OR REVISED RETURN OF INCOME. 4.2 THE LEARNED CIT(A) FAILED TO NOTE THAT THE IMPU GNED ASSESSMENT WAS MADE U/S.143(3) R.W.S. 147 AND RE-OP ENING OF ASSESSMENT U/S 147 IS FOR THE BENEFIT OF DEPARTMENT AND ASSESSEE CANNOT MAKE FRESH CLAIM AS HELD BY THE APE X COURT IN THE CASE OF CIT VS SUN ENGINEERING WORKS (P) LTD. ( 198 ITR 297) 4.3 THE LEARNED CIT(A) ERRED IN GRANTING CLAIM OF D EDUCTION U/S 801B(10) OF THE INCOME-TAX ACT, WITHOUT GIVING OPPO RTUNITIES TO THE ASSESSING OFFICER BY REMANDING THE MATTER UNDER RULE 46A OF IT RULES,1962. 4.4 THE LEARNED CIT(A) FAILED TO NOTE THAT AS PER M ANDATORY PROVISIONS IN SEC.801B(10) OF THE ACT IF THE ASSESS EE HAD NOT FILED FORM 1OCCB R.W. RULE 18BBB, THAT ITSELF IS A REASON FOR REJECTION OF THE CLAIM U/S 801B(10) R.W.S. 8OLB(13) AND 801A(7). 4.5 THE LEARNED CIT(A) FAILED TO NOTE THAT AS PER S EC. 8OAC AS APPLICABLE FORM ASSESSMENT YEAR 2006-07, DEDUCTION U/S 801B(10) IS AVAILABLE ONLY IF ASSESSEE FURNISHES RE TURN BEFORE THE DUE DATE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, IS ENGAGED IN THE BUSINESS OF CON STRUCTION OF FLATS FILED ITS RETURN OF INCOME FOR ASSESSMENT Y EAR 2008-09 ON 30.06.2009 DECLARING TOTAL INCOME OF RS.65,847/-. T HE ASSESSMENT HAS BEEN SUBSEQUENTLY REOPENED U/S.147 OF THE INCOME TAX ACT, 1961, FOR THE REASONS RECORDED AS PER WHICH 4 ITA NO.1922/CHNY/2018 INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT ON ACCOUNT OF EXCESS CLAIM OF DEVELOPMENT COST FOR THE ASSES SMENT YEAR 2008-09 AND HENCE, NOTICE U/S.148 OF THE ACT, DATED 26.04.2012 WAS SERVED ON THE ASSESSEE. IN RESPONSE, THE ASSESS EE SUBMITTED THAT RETURN OF INCOME FILED ON 30.06.2009 MAY BE TREATED AS RETURN OF INCOME FILED IN RESPONSE TO NO TICE ISSUED U/S.148 OF THE ACT. THEREAFTER, CASE HAS BEEN TAKEN UP FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DE VELOPED HOUSING PROJECT CALLED GURU PARADISE AND HAS DE BITED ENTIRE DEVELOPMENT COST OF RS.3,37,75,000/- TOWARDS CONS TRUCTION OF 112 FLATS, EVEN THOUGH, THESE FLATS WERE SOLD DURIN G THREE FINANCIAL YEARS. HE FURTHER NOTED THAT THE ASSESSEE HAS RECEIVED TOTAL SALE CONSIDERATION FOR TRANSFER OF 1 12 FLATS FOR THREE ASSESSMENT YEARS STARTING FROM 2008-09 TO 20 10-11, HOWEVER, CLAIMED ENTIRE COST OF DEVELOPMENT FOR ASS ESSMENT YEAR 2008-09. THEREFORE, OPINED THAT THE ASSESSEE HAS CLAIMED EXCESS DEVELOPMENT COST OF RS.2,78,20,552/- FOR ASSESSMENT YEAR 2008-09 AND HENCE, CALLED UPON TH E ASSESSEE TO EXPLAIN AS TO WHY EXCESS DEVELOPMENT CO ST SHALL 5 ITA NO.1922/CHNY/2018 NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE STATED THAT IT HAS STARTED DEVELOPMENT OF HOUSING PROJECT DURING FINA NCIAL YEAR 2006-07 AND HAD INCURRED TOTAL DEVELOPMENT EXPENSE S OF RS,3,37,75,000/-. HOWEVER, REVENUE FROM PROJECT HAS BEEN RECOGNIZED BY FOLLOWING PRESCRIBED METHOD OF RECOG NITION OF REVENUE AS PER WHICH, EXCESS CONSTRUCTION COST INC URRED FOR EARLIER HAS BEEN SHOWN UNDER THE HEAD CLOSING WORK -IN- PROGRESS. THE ASSESSING OFFICER, HOWEVER, WAS NOT C ONVINCED WITH EXPLANATION FURNISHED BY THE ASSESSEE AND ACCO RDING TO HIM, THE ASSESSEE HAS RECEIVED CONSTRUCTION RECEIPT S FOR THREE ASSESSMENT YEARS, WHEREAS DEVELOPMENT COST HAS BEE N BOOKED FOR ASSESSMENT YEAR 2008-09 ALONE. THEREFORE , APPORTIONED CONSTRUCTION COST ON THE BASIS OF SALE CONSIDERATION RECEIVED FOR EACH ASSESSMENT YEARS AND WORKED OUT EXCESS DEVELOPMENT COST OF RS.2,78,20,552/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. SIMILARLY, THE ASSES SING OFFICER HAS MADE AD-HOC DISALLOWANCE OF 20% OF VARIOUS EXPE NSES INCLUDING SITE EXPENSES, EARTH FILLING CHARGES, SA ND PURCHASES , REPAIRS ETC. ON THE GROUND THAT SAID EXPENSES HAS BEEN INCURRED IN CASH AND NO SUPPORTING EVIDENCES HAS BE EN 6 ITA NO.1922/CHNY/2018 PRODUCED. THE ASSESSING OFFICER FURTHER NOTED THAT ALTHOUGH THE ASSESSEE HAS PRODUCED SELF-GENERATING VOUCHERS, BUT ON VERIFICATION OF VOUCHERS, IT WAS NOTICED THAT ALL C ASH PAYMENT VOUCHERS HAVE BEEN PREPARED IN SUCH A WAY THAT EACH VOUCHER WAS TO THE TUNE OF LESS THAN RS.20,000/-,SO AS TO E SCAPE FROM THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT(A). BEFO RE THE LEARNED CIT(A), THE ASSESSEE HAS REITERATED ITS SUB MISSIONS MADE BEFORE THE ASSESSING OFFICER AND ARGUED THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD FO R RECOGNITION OF REVENUE FROM SALE OF FLATS AND ACCORDINGLY, SAL E CONSIDERATION HAS BEEN RECOGNIZED AS AND WHEN FLAT S ARE SOLD. HOWEVER, CONSTRUCTION EXPENSES HAS BEEN DEBITED INT O PROFIT AND LOSS ACCOUNT, AS AND WHEN SAID EXPENDITURE WAS INCURRED, BUT SAME HAS BEEN RECOGNIZED UNDER THE HEAD CLOSING WORK-IN- PROGRESS. THEREFORE, THERE IS NO ERROR IN THE REVEN UE RECOGNITION METHOD ADOPTED BY THE ASSESSEE FOR SALE OF FLATS. T HEREFORE, THE ASSESSING OFFICER WAS ERRED IN DISALLOWING CONS TRUCTION EXPENSES ON THE BASIS OF SALE CONSIDERATION RECEIV ED FOR THREE 7 ITA NO.1922/CHNY/2018 ASSESSMENT YEARS WITHOUT UNDERSTANDING ACCOUNTING P OLICIES PRESCRIBED FOR RECOGNITION OF REVENUE IN THE CASE O F CONSTRUCTION CONTRACT. THE ASSESSEE HAS ALSO TAKEN AN ALTERNATI VE PLEA IN LIGHT OF PROVISIONS OF SECTION 80IB(10) OF THE ACT AND SUBMITTED THAT WHEN THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S.80IB(10), THEN THERE IS NO QUESTION OF INFLATION OF EXPENDITU RE TO REDUCE PROFIT, BECAUSE THERE IS NO POINT IN REDUCING PROF IT WHEN THE ASSESSEE IS ELIGIBLE FOR 100% DEDUCTION TOWARDS PRO FIT DERIVED FROM HOUSING PROJECT U/S.80IB(10) OF THE ACT. THE ASSESSEE HAS CHALLENGED ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS AD-HOC DISALLOWANCE OF 20% EXPENSES ON THE GROUND THAT ALL EXPENDITURE INCURRED UNDER THE HEAD SITE EXPENSES , EARTH FILLING CHARGES AND SAND PURCHASES ARE SUPPORTED BY NECESS ARY EVIDENCES AND THE ASSESSEE HAS NOT PAID CASH AGAIN ST PURCHASES IN EXCESS OF RS.20,000/- PRESCRIBED U/S .40A(3) OF THE ACT. 5. THE LEARNED CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO TAKEN NOTE OF VARIOUS FACTS HELD THAT ASSESSEES CLAIM OF DEVELOPMENT EXP ENDITURE FOR ASSESSMENT YEAR 2008-09 IS CORRECT, AS PER METHOD OF 8 ITA NO.1922/CHNY/2018 ACCOUNTING AND PRINCIPLES OF CONSISTENCY. THE LEAR NED CIT(A) FURTHER NOTED THAT IT IS PERTINENT TO NOTE THAT THE RE IS NO REVENUE LOSS IN ASSESSEES CASE, BECAUSE THE ASSESSEE IS EL IGIBLE FOR DEDUCTION U/S.80IB(10) TOWARDS 100% PROFIT DERIVED FROM HOUSING PROJECT. SINCE THERE WAS NO PROFIT FOR YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT CLAIMED DEDUCT ION U/S.80IB(10) OF THE ACT, OTHERWISE, THE ASSESSEE WO ULD HAVE CLAIMED DEDUCTION AND IN SUCH CASE, EVEN IF THE ASS ESSING OFFICER HAS DISALLOWED CERTAIN EXPENSES, THE ASSESS EE WOULD HAVE ENTITLED FOR DEDUCTION FOR PROFIT DERIVED FR OM RELEVANT ASSESSMENT YEAR, ACCORDINGLY, DELETED ADDITIONS MA DE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF EXCESS C LAIM OF DEVELOPMENT EXPENSES. AS REGARDS, DISALLOWANCE OF C ONTRACT EXPENSES INCURRED IN CASH, THE LEARNED CIT(A) OBSER VED THAT THE ASSESSING OFFICER SHOULD NOT HAVE MADE AD-HOC DISALLOWANCE OF EXPENSES WITHOUT POINTING OUT ANY S PECIFIC DEFECTS IN SUPPORTING EVIDENCES FILED BY THE ASSESS EE. IN ABSENCE OF ANY SPECIFIC OBSERVATION REGARDING INCOR RECTNESS IN BILLS AND VOUCHERS SUBMITTED IN SUPPORT OF EXPENDI TURE, AD-HOC DISALLOWANCE CANNOT BE MADE. HE FURTHER NOTED THAT WHEN THE 9 ITA NO.1922/CHNY/2018 ASSESSING OFFICER HAS ACCEPTED CLAIM OF DEDUCTION U/S.80IB(10) FOR SUBSEQUENT ASSESSMENT YEAR 2009-10 AND 2010-11, THERE IS NO REASON FOR THE ASSESSEE TO IN FLATE CONSTRUCTION EXPENSES, WHEN IT IS ELIGIBLE FOR DEDU CTION FOR THE IMPUGNED ASSESSMENT YEAR ALSO. ACCORDINGLY, DELETE D ADDITIONS MADE BY THE ASSESSING OFFICER. AS REGARD S, ADDITIONAL GROUND TAKEN BY THE ASSESSEE CLAIMING A LTERNATIVE PLEA FOR DEDUCTION U/S.80IB(10), THE LEARNED CIT(A) NOTED THAT ALTHOUGH THE ASSESSEE IS ENTITLED FOR DEDUCTION U/ S.80IB(10) OF THE ACT, IN RESPECT OF PROFIT DERIVED FROM HOUSING PROJECT, BUT BECAUSE THERE IS NO PROFIT FOR YEAR UNDER CONSIDER ATION ON ACCOUNT OF DELETION OF ADDITIONS MADE BY THE ASSESS ING OFFICER TOWARDS DISALLOWANCE OF DEVELOPMENT EXPENSES AND AD -HOC DISALLOWANCE OF CONSTRUCTION EXPENSES, THERE IS NO REQUIREMENT FOR ALLOWING DEDUCTION U/S.80IB(10), AS THERE IS N O TAXABLE INCOME FOR THE YEAR UNDER CONSIDERATION, BUT IN PRI NCIPLE, ACCEPTED FACT THAT THE ASSESSEE IS ELIGIBLE FOR DED UCTION U/S.80IB(10) OF THE I.T.ACT, 1961. AGGRIEVED BY THE LEARNED CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 10 ITA NO.1922/CHNY/2018 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 1 TO 2.5 OF REVENUE APPEAL IS DELETION O F DISALLOWANCE OF EXCESS CLAIM OF DEVELOPMENT EXPENSE OF RS.2,78,20,552/-. THE LEARNED DR FOR THE REVENUE SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN DELETING DISA LLOWANCE OF EXCESS CLAIM OF DEVELOPMENT EXPENSES, WITHOUT APPRE CIATING FACT THAT ASSESSEE HAS CLAIMED ENTIRE DEVELOPMENT E XPENSES IN THE IMPUGNED ASSESSMENT YEARS, EVEN THOUGH IT HAS R ECOGNIZED REVENUE FROM SALE OF FLATS FOR THREE ASSESSMENT YEA RS INCLUDING IMPUGNED ASSESSMENT YEAR. THE LEARNED DR FURTHER S UBMITTED THAT THE LEARNED CIT(A) FAILED TO NOTE THAT ASSESSM ENT YEAR 2008-09 IS THE FIRST YEAR IN WHICH ASSESSEE CLAIME D DEDUCTION OF ENTIRE DEVELOPMENT EXPENSES AS DEDUCTION AND TH ERE IS NO CONSISTENCY IN APPROACH FOLLOWED FOR RECOGNITION OF REVENUE. THEREFORE, THE LEARNED CIT(A) IS INCORRECT IN OBSER VING THAT THE ASSESSEE HAS CONSISTENTLY FOLLOWED THIS METHOD OF A CCOUNTING FOR RECOGNITION OF REVENUE. THE DR FURTHER REFERRIN G TO DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CALCUTT A COMPANY LTD. (37 ITR 1) SUBMITTED THAT WHEN THE ASSESSEE H AS APPORTIONED COST OF LAND ON THE BASIS OF EXTENT OF SALES FAILED TO 11 ITA NO.1922/CHNY/2018 APPORTION DEVELOPMENT EXPENSES BUT HAS CLAIMED IN O NE YEAR AGAINST PRINCIPLES OF MATCHING CONCEPT OF ACCOUNTI NG. THE DR FURTHER SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN ALLOWING DEVELOPMENT EXPENSES FULLY DURING THE YEAR ON THE GROUND THAT ASSESSEE WAS GRANTED DEDUCTION U/S.80IB(10) OF THE ACT FOR THE ASSESSMENT YEAR 2009-10 AND 2010-11 IGNORING FACT THAT EACH ASSESSMENT YEAR IS DIFFERENT AND THE ASSESSEE HAS N OT CLAIMED SUCH DEDUCTION FOR ASSESSMENT YEAR 2008-09. 7. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER HA ND, STRONGLY SUPPORTING ORDER OF THE LEARNED CIT(A) SUB MITTED THAT THE LEARNED CIT(A) HAS APPRISED THE FACTS IN RIGHT PERSPECTIVE IN LIGHT OF SUBMISSION OF THE ASSESSEE THAT IT HAS FOL LOWED PROJECT COMPLETION METHOD FOR RECOGNITION OF REVENUE, AS PE R WHICH, ALTHOUGH, ENTIRE EXPENDITURE HAS BEEN ESTIMATED BUT , REVENUE HAS BEEN RECOGNIZED ON THE BASIS OF ADVANCES RECEI VED FROM CUSTOMERS. THE AR FURTHER SUBMITTED THAT WHEN THE A SSESSEE IS HAVING BENEFIT OF DEDUCTION FOR 100% PROFIT DERIVED FROM HOUSING PROJECT, QUESTION OF INFLATION OF EXPENDITU RE TO REDUCE PROFIT DOES NOT ARISE, BECAUSE, IF THE ASSESSEE IN FLATES EXPENDITURE IT WILL LOOSE BENEFIT OF DEDUCTION AVA ILABLE TOWARDS 12 ITA NO.1922/CHNY/2018 PROFIT. THEREFORE, THE LEARNED CIT(A) AFTER APPRISI NG FACTS HAS RIGHTLY DELETED ADDITIONS MADE BY THE ASSESSING OFF ICER AND HIS ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS DEVELOPED A HOUSING PROJECT CALLED GURU PARADISE AND STARTED INCURRING DEVELOPMENT EXPENSES FROM ASSESSMENT YEAR 2007-08 ONWARDS. THE ASSESSEE HAS INCURRED TOTAL EXPENDITURE OF RS.3,37,75,000/- FOR ENTIRE PROJECT. THE SAID EXPENDITURE HAS BEEN INCURRED IN TWO FINAN CIAL YEARS, OUT OF WHICH A SUM OF RS.1,88,38,982/- WAS INCURRE D FOR FINANCIAL YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007- 08 AND FURTHER, A SUM OF RS.1,49,36,017/- WAS IN CURRED IN FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT Y EAR 2008- 09. THE ASSESSEE IS FOLLOWING PROJECT COMPLETION M ETHOD FOR RECOGNITION OF REVENUE, AS PER WHICH, REVENUE FROM SALE OF FLATS IS RECOGNIZED ONLY WHEN FLATS ARE SOLD TO CUSTOMER S. FURTHER, IN PROJECT COMPLETION METHOD OF ACCOUNTING ALL CONSTRU CTION EXPENSES ARE BOOKED AS AND WHEN SAID EXPENDITURE IS INCURRED. HOWEVER, SAME WILL BE RECOGNIZED UNDER C LOSING 13 ITA NO.1922/CHNY/2018 WORK-IN-PROGRESS, TILL SUCH TIME ASSESSEE RECOGNIZE S REVENUE FROM SALES. THE ASSESSING OFFICER HAS NOT DISPUTED THESE FACTS. IN FACT, THE ASSESSING OFFICER HAS ACCEPTED FACT T HAT ASSESSEE HAS FOLLOWED PROJECT COMPLETION METHOD. HOWEVER, HE HAS APPORTIONED DEVELOPMENT EXPENSES ON THE BASIS OF SA LES REVENUE FOR THREE YEARS AND DISALLOWED A SUM OF RS.2,78,20,552/- BY REALLOCATING EXPENSES INCURRED FOR ASSESSMENT YEAR 2008-09 ON THE BASIS OF SALE REVENU E. 9. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO R EASONS GIVEN BY THE ASSESSING OFFICER IN LIGHT OF ARGUMEN TS ADVANCED BY THE LEARNED A.R FOR THE ASSESSEE AND WE DO NOT OURSELVES SUBSCRIBE TO REASONS GIVEN BY THE ASSESSING OFFICE R FOR ALLOCATION OF EXPENSES ON THE BASIS OF SALES REVENU E, BECAUSE THE METHOD FOLLOWED BY THE ASSESSING OFFICER TO AL LOCATE EXPENSES FOR EACH ASSESSMENT YEAR ON THE BASIS OF SALES REVENUE IS CONTRARY TO ACCOUNTING STANDARD ISSUED BY THE ICAI FOR RECOGNITION OF REVENUE FROM CONSTRUCTION CONTRA CTS. FURTHER, AS PER ACCOUNTING STANDARD, AN ASSESSEE, AT ITS O PTION CAN FOLLOW PERCENTAGE COMPLETION METHOD OR PROJECT COM PLETION METHOD FOR RECOGNITION OF REVENUE. IN PROJECT COMP LETION 14 ITA NO.1922/CHNY/2018 METHOD, REVENUE WILL BE RECOGNIZED WHEN SALES TAKEN PLACE, BUT WHEN IT COMES ACCOUNTING FOR EXPENSES, ALL EXP ENSES INCURRED FOR DEVELOPMENT OF PROJECT IS DEBITED INT O PROFIT & LOSS ACCOUNT UNDER RESPECTIVE HEAD OF ACCOUNT AS AND W HEN SAID EXPENDITURE WAS INCURRED. HOWEVER, SAME IS SHOWN UN DER HEAD CLOSING WORK-IN-PROGRESS (STOCK-IN-TRADE), TILL REV ENUE IS RECOGNIZED FROM PROJECT. IN THIS CASE, THERE IS NO DISPUTE THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD FOR RECOGNITION OF REVENUE. THE ASSESSEE HAS INCURRED TOTAL DEVELOP MENT EXPENSES IN TWO FINANCIAL YEARS INCLUDING IMPUGNE D ASSESSMENT YEAR 2008-09. HOWEVER, REVENUE FROM PROJ ECT HAS BEEN RECOGNIZED IN THREE ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 2008-09. THEREFORE, WE ARE OF THE C ONSIDERED VIEW THAT METHOD OF ACCOUNTING FOLLOWED BY THE AS SESSEE TO RECOGNIZE REVENUE FROM SALES AND ACCOUNTING OF DEVE LOPMENT EXPENSES IS IN ACCORDANCE WITH PRESCRIBED ACCOUNTIN G METHOD SUGGESTED BY THE ICAI AND SUCH METHOD HAS BEEN CONS ISTENTLY FOLLOWED BY THE ASSESSEE. HENCE, THE ASSESSING OFF ICERS ACTION OF ALLOCATING EXPENDITURE ON THE BASIS OF SA LES REVENUE IS CONTRARY TO PRESCRIBED METHOD FOR ACCOUNTING OF CON STRUCTION 15 ITA NO.1922/CHNY/2018 CONTRACTS AND HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS ERRED IN REALLOCATION OF EX PENSES ON THE BASIS OF REVENUE AND WORKING OUT EXCESS DEVELOPMENT COST WITHOUT ANY BASIS. THE LEARNED CIT(A), AFTER CONSID ERING RELEVANT FACTS HAS RIGHTLY DELETED ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF EXCESS DEVELOPMENT EXPENSES. ANOTHER IMPORTANT ASPECT CONS IDERED BY THE LEARNED CIT(A) IS ELIGIBILITY OF ASSESSEE FO R DEDUCTION U/S.80IB(10) OF THE INCOME TAX ACT, 1961. THE LEARN ED CIT(A) HAS RECORDED CATEGORICAL FINDING THAT WHEN THE ASS ESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IB(10) OF THE ACT, IN RESPECT OF 100% PROFIT DERIVED FROM HOUSING PROJECT, THERE IS NO QUESTION OF INFLATION OF EXPENDITURE TO REDUCE PROFIT, BECA USE IT ADVERSELY IMPACT BENEFIT OF DEDUCTION TO THE ASSESSEE. THEREF ORE, ON THIS COUNT ALSO REASONS GIVEN BY THE ASSESSING OFFICER THAT ASSESSEE HAS INFLATED EXPENDITURE FOR IMPUGNED ASS ESSMENT YEAR IS NOT SUPPORTED BY ANY EVIDENCE. 10. IN THIS VIEW OF THE MATTER AND CONSIDERING FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LEARNED CIT(A) 16 ITA NO.1922/CHNY/2018 TO DELETE ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF EXCESS DEVELOPMENT EXPENSES. HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) A ND REJECT GROUNDS TAKEN BY THE REVENUE. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.3 OF REVENUE APPEAL IS AD-HOC DISALLOWAN CE OF VARIOUS EXPENSES ON THE GROUND THAT SAID EXPENSES I NCURRED IN CASH AND NOT FURTHER, SUPPORTED BY NECESSARY BILL S AND VOUCHERS. THE ASSESSING OFFICER HAS DISALLOWED 20% OF CONTRACT EXPENSES LIKE SITE EXPENSES, EARTH FILLING CHARGES AND SAND PURCHASES ON THE GROUND THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN CASH. ACCORDING TO THE ASSESSING OF FICER, ALTHOUGH, THE ASSESSEE HAS PRODUCED CERTAIN BILLS A ND VOUCHERS TO SUPPORT THE EXPENDITURE, BUT ON VERIFICATION OF VOUCHERS, HE WAS OF THE OPINION THAT THE ASSESSEE HAS PREPARED V OUCHERS IN SUCH A WAY THAT EACH PAYMENT WAS SHOWN LESS THAN RS.20,000/- TO ESCAPE FROM THE PROVISIONS OF SECTIO N 40A(3) OF THE ACT. IT WAS EXPLANATION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT IT HAS INCURRED EXPENSES IN CASH, BUT EACH PAYMENT IS NOT IN EXCESS OF PRESCRIBED LIMIT PROVIDED 17 ITA NO.1922/CHNY/2018 UNDER SECTION 40A(3) OF THE ACT. THE ASSESSEE FURTH ER CONTENDED THAT ALL EXPENSES HAVE BEEN INCURRED FOR DEVELOPMENT OF HOUSING PROJECT, WHICH IS SUPPORTED BY BILLS AND VOUCHERS. 12. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA L AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT LEARNED CIT(A) HAS RECORDED CA TEGORICAL FINDING THAT ASSESSING OFFICER HAS MADE AD-HOC DIS ALLOWANCE OF 20% OF CONSTRUCTION EXPENSES WITHOUT POINTING O UT ANY SPECIFIC DEFECTS IN BILLS AND VOUCHERS SUBMITTED BY THE ASSESSEE. IT IS A WELL SETTLED PRINCIPLE OF LAW B Y VARIOUS DECISIONS OF COURTS AND TRIBUNALS THAT AD-HOC DIS ALLOWANCE OF EXPENSES CANNOT BE MADE, UNLESS THE ASSESSING OFFI CER POINTS OUT SPECIFIC DEFECTS IN SUPPORTING EVIDENCES FILE D BY THE ASSESSEE. IN THIS CASE, THERE IS NO OBSERVATION RE GARDING DEFECTS IN BILLS AND VOUCHERS SUBMITTED BY THE ASS ESSEE IN RESPECT OF EXPENSES. ALTHOUGH, THE ASSESSING OFFIC ER CLAIMS THAT MOST OF EXPENDITURE IS INCURRED IN CASH, BUT H E HIMSELF ADMITTED FACT THAT EACH PAYMENT IS LESS THAN RS.20, 000/- PRESCRIBED U/S.40A(3) OF THE ACT. THEREFORE, WE AR E OF THE 18 ITA NO.1922/CHNY/2018 CONSIDERED VIEW THAT ONCE THE ASSESSING OFFICER H AVING ACCEPTED FACT THAT CASH PAYMENTS FOR PURCHASES DOE S NOT EXCEED PRESCRIBED LIMIT PROVIDED UNDER THE ACT, TH EN ERRED IN MAKING 20% AD-HOC DISALLOWANCE OF EXPENSES. THE L EARNED CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIGHTL Y DELETED ADDITIONS MADE BY THE ASSESSING OFFICER AND HENCE , WE ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) A ND REJECT GROUND TAKEN BY THE REVENUE. 13. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION F ROM GROUND NO.4 OF REVENUE APPEAL, I.E ADDITIONAL GROUN D TAKEN BY THE ASSESSEE MAKING ALTERNATIVE PLEA FOR DEDUCTION U/S.80IB(10) OF THE INCOME TAX ACT, 1961. WE FIND THAT ALTHOUGH THE REVENUE HAS CHALLENGED FINDINGS OF TH E LEARNED CIT(A) TOWARDS DEDUCTION U/S.80IB(10) OF THE INCO ME TAX ACT, 1961, BUT FACT REMAINS THAT THE LEARNED CIT(A) HAS RECORDED CATEGORICAL FINDING THAT EVEN THOUGH THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.80IB(10), BUT BECAUSE THERE IS NO TAXABLE IN CONSEQUENCE TO DELETION OF ADDITIONS MADE BY THE AS SESSING OFFICER TOWARDS DISALLOWANCE OF DEVELOPMENT EXPENS ES AND AD-HOC DISALLOWANCE OF CONSTRUCTION EXPENSES, HE HA S NOT 19 ITA NO.1922/CHNY/2018 ALLOWED ADDITIONAL GROUND RAISED BY THE ASSESSEE MAKING A CLAIM FOR DEDUCTION U/S.80IB(10) OF THE ACT. HOW EVER, HE HAS CATEGORICALLY STATED THAT THE ASSESSEE HAS SATISFIE D CONDITIONS PRESCRIBED U/S.80IB(10) OF THE ACT, TO BE ELIGIBLE FOR DEDUCTION TOWARDS PROFIT DERIVED FROM HOUSING PROJECT. THEREF ORE, WE ARE OF THE CONSIDERED VIEW THAT GROUNDS TAKEN BY THE R EVENUE CHALLENGING FINDINGS OF THE LEARNED CIT(A) IN ALLO WING CLAIM OF THE ASSESSEE TOWARDS DEDUCTION U/S.80IB(10) OF TH E ACT, IN PRINCIPLE, IS MERELY ACADEMIC IN NATURE AND DOES N OT REQUIRE ANY SPECIFIC ADJUDICATION. HENCE, GROUND TAKEN BY T HE REVENUE IS REJECTED. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST SEPTEMBER , 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) ( G. MANJUNATHA ) # & / JUDICIAL MEMBER & / ACCOUNTANT MEMBER # /CHENNAI, ) / DATED 1 ST SEPTEMBER, 2021 DS +, -, /COPY TO: 1. APPELLANT 2. RESPONDENT 3. . () /CIT(A) 4. . /CIT 5. , 2 /DR 6. /GF .