ALLIANCE MALL DEVELOPERS CO., MUMBAI V. DCIT, CC -2(3), MUMBAI

ITA 2742/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3157 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MICHAEL GERALDLD
• Assessee Lawyers: RUSHABH MEHTA LD
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Capital expenditure; Rule 8D
• Section: 14A; 48; 13; 145; 144

Judgement Text

ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.2742/MUM/2018 ( / ASSESSMENT YEAR : 2013-14 ) & ./ I.T.A. NO.2743/MUM/2018 ( / ASSESSMENT YEAR : 2014-15 ) ALLIANCE MALL DEVELOPERS CO. PVT. LTD. 105/106, PROVOGUE HOUSE OFF. NEW LINK ROAD ANDHERI (W), MUMBAI- 400 053. / VS. D CIT - CENTRAL CIRCLE - 2(3) 803, 8 TH FLOOR, PRATISHTHA BHAVAN, OLD CGO BUILDING M.K. ROAD, MUMBAI-400 020. &' ./ ./PAN/GIR NO. AAGCA-5970-N ( ') /APPELLANT ) : ( *+') / RESPONDENT ) ASSE SSEE BY : SHRI RUSHABH MEHTA -LD.AR REVENUE BY : SHRI MICHAEL GERALD-LD. DR / DATE OF HEARING : 20/02/2020 / DATE OF PRONOUNCEMENT : 12/03/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YEA RS [IN SHORT REFERRED TO AS AY] 2013-14 AND 2014-15 CONTEST CO MMON APPELLATE ORDER ON CERTAIN COMMON GROUNDS OF APPEAL. THEREFOR E, THE APPEALS WERE HEARD TOGETHER AND ARE NOW BEING DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE & BREVITY. ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 2 ITA NO.2742/MUM/2018, AY 2013-14 2.1 AGGRIEVED BY THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)-48, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO. CIT(A)-48/IT-133 & 192/DCCC-2(3)/2016-17 DATED 28/0 3/2018, THE ASSESSEE IS UNDER APPEAL BEFORE US WITH FOLLOWING G ROUNDS: - 1.(A) THE LEARNED COMMISSIONER OF INCOME TAX {APPEA LS} - 48, MUMBAI ('THE ID. CIT(A)-48') ERRED IN FACTS AND LAW IN SUSTAINING TH E DISALLOWANCE OF RS.1,44,29,341/- MADE BY THE LEARNED ASSESSING OFFICER, WITHOUT APPR ECIATING THAT THE REVENUE EXPENSES SO CLAIMED ARE ALLOWABLE AS DEDUCTION IN T HE YEAR UNDER CONSIDERATION AS THE BUSINESS OF THE ASSESSEE IS ALREADY COMMENCED I N EARLIER YEARS. (B) THE ID. CIT(A) - 48 ERRED IN FACTS AND LAW IN D EVIATING IN HER VIEW IN SPITE OF THE FACT THAT THE HON'BLE ITAT HAD ALLOWED SUCH EXPENDI TURE IN AY 2012-13 UNDER THE SAME SET OF FACTS AND CIRCUMSTANCES. 2.(A) WITHOUT PREJUDICE TO 1 ABOVE, THE ID. CIT(A)- 48 ERRED IN FACTS AND LAW IN NOT DIRECTING THE ID. ASSESSING OFFICER TO INCLUDE THE EXPENSES DISALLOWED AMOUNTING TO RS.1,44,29,341/- IN 'PROJECT COST' / 'CAPITAL WORK- IN-PROGRESS 1 . (B) WITHOUT PREJUDICE TO ABOVE, THE ID. CIT(A)-48 E RRED IN FACTS AND LAW IN NOT EVEN GRANTING DEPRECIATION ON THE EXPENSES TREATED AS IN TANGIBLE ASSETS. 3. THE ID. CIT(A) ERRED IN FACTS AND LAW IN NOT A DJUDICATING OR DELETING THE ALTERNATE DISALLOWANCE OF RS.17,38,143/- MADE U/S. 14A READ W ITH RULE 8D OF THE ACT BY THE ID. ASSESSING OFFICER. 4. YOUR APPELLANT PRAYS THAT- (A) THE DISALLOWANCE OF RS.1,44,29,341/- BE DELETED ; (B) WITHOUT PREJUDICE TO 4(A) ABOVE, THE DISALLOWAN CE OF EXPENDITURE AMOUNTING TO RS. 1,44,29,341/- BE TREATED AS PART OF PROJECT COS T; (C) WITHOUT PREJUDICE TO 4(A) AND 4(B) ABOVE, DEPRE CIATION MAY BE ALLOWED ON THE EXPENSES TREATED AS INTANGIBLE ASSETS; (D) THE DISALLOWANCE OF RS. 17,38,143/- MADE U/S. 1 4A BE DELETED; (E) SUCH OTHER RELIEF, AS MAY BE DEEMED FIT IN THE MATTER, BE GRANTED. 5. EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPEN DENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE IMPUGNED ORDER IS COMMON ORDER FOR AYS 2013-14 & 2014-15 AND THEREFORE, THE GRIEVANCE OF THE ASSESSEE IN BOTH TH E YEARS IS SIMILAR. 2.2 ALTHOUGH THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE (AR), AT THE OUTSET, SUBMITTED THAT ISSUES ARE SQUARELY COVE RED IN ASSESSEES FAVOUR BY THE DECISION OF THIS TRIBUNAL IN CROSS-AP PEALS FOR AY 2012-13 IN ASSESSEES OWN CASE AS WELL AS ASSESSEES GROUP CON CERN NAMELY M/S ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 3 HAGWWOD COMMERCIAL DEVELOPERS PRIVATE LTD., ITA NOS.1306/MUM/2015 & ORS., COMMON ORDER DATED 08/02/ 2017 BUT LD. DR SUBMITTED THAT THE SAID CASE LAW HAS BEEN FOUND BY LD. CIT(A) TO BE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION. 2.3 WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS ADVA NCED BY BOTH THE REPRESENTATIVE AND PERUSED RELEVANT MATERIAL ON REC ORD INCLUDING THE DOCUMENTS PLACED ON THE PAPER-BOOK. WE HAVE ALSO GO NE THROUGH THE CITED ORDER OF TRIBUNAL IN ASSESSEES OWN CASE AS W ELL AS ITS GROUP CONCERN VIDE COMMON ORDER DATED 08/02/2017. OUR ADJ UDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCE EDING PARAGRAPHS. 3.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT COR PORATE ASSESSEE STATED TO BE ENGAGED AS BUILDER AND DEVELOPER, WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S.143(3) ON 23/03/2016 WHEREI N INCOME OF THE ASSESSEE WAS DETERMINED AT RS.220.80 LACS AFTER CER TAIN DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.76.51 LACS E-FILED BY THE ASSESSEE ON 26/09/2013. 3.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE DEBITED ADMINISTRATIVE EXPENDITURE OF RS.158.95 LAC S IN THE PROFIT & LOSS ACCOUNT, WHICH WERE BROADLY AS FOLLOWS: - NO . ITEMS AMOUNT (RS.) 1. ADVERTISEMENT AND BUSINESS PROMOTION RS.106.84 L ACS 2. LEGAL & PROFESSIONAL FEES RS.45.08 LACS 3. TRAVELLING EXPENSES RS.4.13 LACS 4. OTHER MISC. EXP. LIKE RATES AND TAXES, PRINTING, COMMUNICATION, AUDITORS REMUNERATION AND MISC. EXPENSES RS.2.90 LACS TOTAL RS.158.95 LACS THE LD. AO PROCEEDED TO TREAT THE SAME AS CAPITAL E XPENDITURE. THE ASSESSEE SUBMITTED THAT EXPENSES DIRECTLY RELATED T O THE PROJECTS WERE ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 4 ALREADY CLASSIFIED UNDER WORK-IN-PROGRESS AND THE B ALANCE COMMON EXPENSES WERE DEBITED TO THE PROFIT & LOSS ACCOUNT. IT WAS EXPLAINED THAT THE ASSESSEE WAS DEVELOPING A MALL AND A RESID ENTIAL PROJECT AT COIMBATORE. THE COST OF LAND, CONSTRUCTION EXPENSES AND OTHER DIRECT EXPENSES RELATING TO THE PROJECT WERE ACCUMULATED U NDER THE HEAD WORK- IN-PROGRESS AND THE BALANCE EXPENSES BEING IN THE N ATURE OF PERIOD COST WERE DEBITED TO PROFIT & LOSS ACCOUNT. THESE EXPENS ES WERE NOT INCURRED DIRECTLY IN RELATION TO THE PROJECTS. A PL EA WAS RAISED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE ACCOUNTING STANDARDS AS PRESCRIBED BY SEC. 145 OF THE ACT. FURTHER, THE AFO RESAID ACCOUNTING TREATMENT, IN THE BOOKS OF ACCOUNTS, WAS STATED TO BE AS PER ACCOUNTING STANDARD-7 AS WELL AS ACCOUNTING STANDARD-2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IN THE ABOVE BACKGROUND, IT WAS SUBMITTED THAT THE EXPENSES WERE INCURRED TOWARDS D AY-TO-DAY ACTIVITIES OF THE ASSESSEE. RELIANCE WAS PLACED ON THE JUDGMEN T OF HONBLE GUWAHATI HIGH COURT RENDERED IN MKB (ASIA) PRIVATE LIMITED VS CIT [2006 167 TAXMAN 256] TO SUPPORT THE SUBMISSIONS. 3.3 HOWEVER, LD.AO, REFERRING TO ASSESSEES ANNUAL ACCOUNTS, OPINED THAT THE ASSESSEE WAS NOT A BUILDER OR DEVELOPER BU T ACTUALLY CONSTRUCTING A CAPITAL ASSET AND THEREFORE, THE PRO JECT RELATED EXPENDITURE WERE ACCUMULATED UNDER THE HEAD CAPITAL WORK-IN-PROGRESS. THE ASSESSEE WAS SHOWING THE SAME AS CAPITAL WORK-I N-PROGRESS AND NOT AS WORK-IN-PROGRESS FORMING PART OF INVENTORY O R STOCK-IN-TRADE. IT WAS ALSO CONCLUDED THAT THE BUSINESS WAS NEITHER SE T-UP NOR COMMENCED DURING THE YEAR AND THEREFORE, THE EXPEND ITURE WOULD FALL ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 5 UNDER THE HEAD PRE-OPERATIVE EXPENSES. IT WAS ALSO OBSERVED THAT THE CLAIM WOULD FALL ON ACCOUNT OF MATCHING CONCEPT SINCE THE ASSESSEE WAS NOT SHOWING ANY BUSINESS INCOME DURING THE YEAR BUT WAS CLAIMING THE EXPENDITURE AND THEREFORE, THE ASSESSEE COULD CLAIM EXPENDITURE ONLY WHEN THE INCOME WAS OFFERED OUT OF BUSINESS. FINALL Y, THE AFORESAID EXPENDITURE OF RS.158.94 LACS WAS DISALLOWED. SINCE , THE ASSESSEE, IN ITS COMPUTATION OF INCOME, HAD ALREADY DISALLOWED E XPENDITURE OF RS.24.94 LACS, THE BALANCE AMOUNT I.E. RS.134 LACS WAS PROPOSED TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE. 3.4 THE LD. AO, IN THE ALTERNATIVE, PROPOSED DISALL OWANCE U/S 14A IN VIEW OF THE FACT THAT THE ASSESSEE WAS HAVING YEAR- END INVESTMENTS OF RS.4550.75 LACS. ALTHOUGH THE ASSESSEE SUBMITTED TH AT IT ALREADY MADE AN ESTIMATED DISALLOWANCE OF RS.0.75 LACS, HOWEVER, DISREGARDING THE SAME, LD. AO COMPUTED THE SAME AT RS.18.13 LACS, BE ING 0.5% OF AVERAGE INVESTMENTS AS PER RULE 8D(2)(III). SINCE P ART OF THE EXPENSES WERE DEBITED IN PROFIT & LOSS ACCOUNT AND PART WERE DEBITED IN CAPITAL WORK-IN-PROGRESS, LD. AO OPINED THAT 50% OF THIS DI SALLOWANCE WOULD SUFFICE. HOWEVER, SINCE, ENTIRE EXPENDITURE OF RS.1 58.94 LACS WAS ALREADY DISALLOWED, SEPARATE DISALLOWANCE U/S 14A W AS NOT MADE WHILE COMPUTING THE INCOME OF THE ASSESSEE. 4.1 BEFORE LD. CIT(A), ALTHOUGH THE ASSESSEE RELIED ON THE CITED ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2012 -13, BUT LD. CIT(A), AT PARA 6.1 OF THE IMPUGNED ORDER, OBSERVED THAT TR IBUNAL HAS ADJUDICATED ONLY ON THE BASIS OF ISSUE WHETHER BUSI NESS WAS SET UP OR NOT. IT HAS GIVEN A FINDING THAT THE BUSINESS WAS A CTUALLY SET UP AND ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 6 THESE EXPENSES CLAIMED WERE NOT PRE-CONSTRUCTION EX PENSES. HOWEVER, NO FINDING HAS BEEN GIVEN ON THE MAIN ARGUMENT OF L D. AO THE PROJECT EXPENSES WERE ALL PART OF CAPITAL WORK-IN-PROGRESS. THERE WAS NO FINDING TO THE CONTRARY BY TRIBUNAL REGARDING THE ACTUAL NA TURE OF EXPENSES CLAIMED AND WHETHER THEY HAVE TO BE PART OF CAPITAL WORK-IN-PROGRESS. NO FINDING WAS STATED TO BE RENDERED ON MATCHING PR INCIPLE AS POINTED OUT BY LD. AO. 4.2 THE ASSESSEE REITERATED THAT IT WAS DEVELOPING A MALL AND WOULD EARN INCOME FROM LETTING OUT OF SHOPS. FOR RESIDENT IAL PROJECTS, THOUGH ADVANCES ARE RECEIVED BUT WORK HAD NOT STARTED. HOW EVER, A CONCLUSION WAS DRAWN THAT THE ASSESSEE WAS CONSTRUCTING ONLY A CAPITAL ASSET AND THEREFORE, ALL THE EXPENSES INCURRED WERE FOR CAPIT AL WORK-IN-PROGRESS AND ARE CAPITAL EXPENSES. 4.3 PRECEDING FURTHER, LD. CIT(A) OBSERVED THAT MAJ OR EXPENSES CLAIMED AS ADVERTISEMENT AND BUSINESS PROMOTION WERE BRAND MANAGEMENT FEES PAID TO AND ENTITY NAMELY M/S PROZONE CAPITAL SHOPPING CENTRE LTD. THE PERUSAL OF NATURE OF EXPENDITURE WOULD ESTABLISH THAT THE SAME WERE FOR PROMOTION OF BRAND . 4.4 FINALLY, THE ACTION OF LD. AO WAS UPHELD BY OBS ERVING THAT THE EXPENDITURE WAS CAPITAL-IN-NATURE TO SET UP THE BUS INESS OF THE ASSESSEE AND FOR LONG TERM BENEFIT OF THE PROJECT. THE EXPEN DITURE BEING CAPITAL EXPENDITURE WOULD NOT BE ALLOWABLE U/S 37(1). THIS WAS FURTHER SUPPORTED BY THE FACT THAT THE BASIC PRINCIPLE OF MATCHING CO NCEPT WAS NOT FOLLOWED BY THE ASSESSEE. ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 7 4.5 THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE SHOULD BE ALLOWED AS PROJECT COST WAS ALSO DENIED IN VIEW OF THE FACT THAT BRAND BUILDING SHOULD BE INTANGIBLE ASSIST FOR THE ASSESS EE AND THEREFORE THE SAME SHOULD NOT BE PART OF WORK-IN-PROGRESS WHICH U NDISPUTEDLY WAS STOCK-IN-TRADE AND HENCE, SHOULD CONSIST ONLY OF RE VENUE EXPENSES. AGGRIEVED, THE ASSESSEE IS UNDER FURTHER APPEAL BEF ORE US. 5. UPON CAREFUL CONSIDERATION OF FACTUAL MATRIX AS ENUMERATED HEREINABOVE, THE UNDISPUTED POSITION THAT EMERGES I S THAT ALL THE DIRECT EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS PROJEC T WERE CAPITALIZED IN THE BOOKS OF ACCOUNTS WHEREAS THE PERIOD COST WAS C HARGED TO PROFIT & LOSS ACCOUNT. THE ASSESSEE WAS CONSISTENTLY FOLLOWI NG THE SAME METHOD OF ACCOUNTING WHICH IS EVIDENT FROM PERUSAL OF FINANCIAL STATEMENTS, AS PLACED ON RECORD. THE SAID ACCOUNTIN G TREATMENT, IN OUR OPINION, WAS IN ACCORDANCE WITH ACCOUNTING STANDARD-7 [AS-7] TITLED AS CONSTRUCTION COST ISSUED BY ICAI, WHICH READ AS FOLLOWS: - CONTRACT COSTS 15. CONTRACT COSTS SHOULD COMPRISE: (A) COSTS THAT RELATE DIRECTLY TO THE SPECIFIC CONT RACT; (B) COSTS THAT ARE ATTRIBUTABLE TO CONTRACT ACTIVIT Y IN GENERAL AND CAN BE ALLOCATED TO THE CONTRACT; AND (C) SUCH OTHER COSTS AS ARE SPECIFICALLY CHARGEABLE TO THE CUSTOMER UNDER THE TERMS OF THE CONTRACT. 16. COSTS THAT RELATE DIRECTLY TO A SPECIFIC CONTRA CT INCLUDE: (A) SITE LABOUR COSTS, INCLUDING SITE SUPERVISION; (B) COSTS OF MATERIALS USED IN CONSTRUCTION; (C) DEPRECIATION OF PLANT AND EQUIPMENT USED ON THE CONTRACT; (D) COSTS OF MOVING PLANT, EQUIPMENT AND MATERIALS TO AND FROM THE CONTRACT SITE; (E) COSTS OF HIRING PLANT AND EQUIPMENT; (F) COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT I S DIRECTLY RELATED TO THE CONTRACT; (G) THE ESTIMATED COSTS OF RECTIFICATION AND GUARAN TEE WORK, INCLUDING EXPECTED WARRANTY COSTS; AND (H) CLAIMS FROM THIRD PARTIES. ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 8 THESE COSTS MAY BE REDUCED BY ANY INCIDENTAL INCOME THAT IS NOT INCLUDED IN CONTRACT REVENUE, FOR EXAMPLE INCOME FROM THE SALE OF SURPLUS MATERIALS AND THE DISPOSAL OF PLANT AND EQUIPMENT AT THE END OF THE C ONTRACT. 17. COSTS THAT MAY BE ATTRIBUTABLE TO CONTRACT ACTI VITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC CONTRACTS INCLUDE: (A) INSURANCE; (B) COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT I S NOT DIRECTLY RELATED TO A SPECIFIC CONTRACT; AND (C) CONSTRUCTION OVERHEADS. SUCH COSTS ARE ALLOCATED USING METHODS THAT ARE SYS TEMATIC AND RATIONAL AND ARE APPLIED CONSISTENTLY TO ALL COSTS HAVING SIMILAR CH ARACTERISTICS. THE ALLOCATION IS BASED ON THE NORMAL LEVEL OF CONSTRUCTION ACTIVITY. CONSTRUCTION OVERHEADS INCLUDE COSTS SUCH AS THE PREPARATION AND PROCESSING OF CON STRUCTION PERSONNEL PAYROLL. COSTS THAT MAY BE ATTRIBUTABLE TO CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC CONTRACTS ALSO INCLUDE BORROWING COSTS AS PER ACCOUNTING STANDARD (AS) 16, BORROWING COSTS. 18. COSTS THAT ARE SPECIFICALLY CHARGEABLE TO THE C USTOMER UNDER THE TERMS OF THE CONTRACT MAY INCLUDE SOME GENERAL ADMINISTRATION CO STS AND DEVELOPMENT COSTS FOR WHICH REIMBURSEMENT IS SPECIFIED IN THE TERMS OF TH E CONTRACT. 19. COSTS THAT CANNOT BE ATTRIBUTED TO CONTRACT ACT IVITY OR CANNOT BE ALLOCATED TO A CONTRACT ARE EXCLUDED FROM THE COSTS OF A CONSTRUCT ION CONTRACT. SUCH COSTS INCLUDE: (A) GENERAL ADMINISTRATION COSTS FOR WHICH REIMBURS EMENT IS NOT SPECIFIED IN THE CONTRACT; (B) SELLING COSTS; (C) RESEARCH AND DEVELOPMENT COSTS FOR WHICH REIMBU RSEMENT IS NOT SPECIFIED IN THE CONTRACT; AND (D) DEPRECIATION OF IDLE PLANT AND EQUIPMENT THAT I S NOT USED ON A PARTICULAR CONTRACT. 20. CONTRACT COSTS INCLUDE THE COSTS ATTRIBUTABLE T O A CONTRACT FOR THE PERIOD FROM THE DATE OF SECURING THE CONTRACT TO THE FINAL COMPLETI ON OF THE CONTRACT. HOWEVER, COSTS THAT RELATE DIRECTLY TO A CONTRACT AND WHICH ARE IN CURRED IN SECURING THE CONTRACT ARE ALSO INCLUDED AS PART OF THE CONTRACT COSTS IF THEY CAN BE SEPARATELY IDENTIFIED AND MEASURED RELIABLY AND IT IS PROBABLE THAT THE CONTR ACT WILL BE OBTAINED. WHEN COSTS INCURRED IN SECURING A CONTRACT ARE RECOGNISED AS A N EXPENSE IN THE PERIOD IN WHICH THEY ARE INCURRED, THEY ARE NOT INCLUDED IN CONTRAC T COSTS WHEN THE CONTRACT IS OBTAINED IN A SUBSEQUENT PERIOD. UPON PERUSAL OF CLAUSE-19, WE FIND THAT GENERAL ADMINISTRATION COSTS AND SELLING COSTS ARE GENERALLY NOT CONSIDERED A PART OF CONTRACT CO ST UNLESS THEY ARE CONTRACT SPECIFIC. APPLYING THE SAME TO TH E FACT OF THE CASE, WE FIND THAT THE ASSESSEE HAS DEBITED EXPENDITURE OF S UCH A NATURE ONLY IN THE PROFIT & LOSS ACCOUNT. THESES EXPENDITURE WAS N OT PROJECT SPECIFIC AND ALLOWABLE AS PERIOD COST. NOTHING ON RECORD EST ABLISHES THAT THERE ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 9 WAS ANY CHANGE IN AFORESAID METHOD OF ACCOUNTING BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 6. QUA METHOD OF ACCOUNTING, THE HONBLE GUWAHATI H IGH COURT IN MKB (ASIA) PRIVATE LIMITED VS CIT [SUPRA] OBSERVED AS UNDER: - 7. LEARNED COUNSEL FOR THE APPELLANT HAS PRODUCED B EFORE US THE TEXT OF ACCOUNTING STANDARDS AS-7 ISSUED BY THE ICAI. IT SHOWS THAT TH IS SYSTEM WAS INTRODUCED IN THE YEAR 1983 AND IT WAS MADE MANDATORY IN THE YEAR 199 0. THERE IS NO DISPUTE AT THE BAR THAT THIS ACCOUNTING SYSTEM IS AN APPROVED SYST EM OF MAINTENANCE OF ACCOUNTS APPLICABLE TO CONSTRUCTION WORKS CONTRACT. SRI BHUY AN, LEARNED COUNSEL FOR THE RESPONDENTS, HAS SUBMITTED THAT THE QUESTION RAISED IS MORE OR LESS ACADEMIC AS IN THE LONG RUN, THE ASSESSEE IS NOT AFFECTED AS THE L IABILITY OF TAX ON THE INCOME OF THE TOTAL WORKS CONTRACT REMAINS THE SAME AND THE QUEST ION IS AT WHAT STAGE THE TAX IS TO BE PAID. MR. JOSHI WAS FAIR ENOUGH TO SUBMIT THAT I T IS NOT A QUESTION OF ADDITIONAL LIABILITY OF TAX, BUT THE QUESTION IS WHETHER THE I T DEPARTMENT CAN FORCE THE ASSESSEE TO ADOPT A PARTICULAR SYSTEM OF ACCOUNTING, OR WHET HER THE ASSESSEE HAS THE OPTION. WHILE GOING THROUGH AS-7, WE FIND THE EXECUTOR OF T HE WORKS CONTRACT IS REQUIRED TO PAY INCOME-TAX EVEN ON THE PART COMPLETION OF THE W ORK ALSO, BUT A FORMULA HAS BEEN PROVIDED FOR THE PURPOSE REGARDING VALUATION, ETC., KEEPING IN MIND THE ULTIMATE PAYMENT TO BE RECEIVED AGAINST THE ENTIRE WORK. 8. IN THE PRESENT CASE, THE FACTUAL PART IS NOT UND ER DISPUTE AND HENCE WE WOULD CONFINE TO THE QUESTION RAISED. 9. A SIMILAR QUESTION HAD ARISEN IN THE CASE OF CIT VS. DOOM DOOMA INDIA LTD. (1994) 117 CTR (GAU) 156 : (1993) 200 ITR 496 (GAU), WHERE IN THE QUESTION OF VALUATION OF STOCK AROSE AS A RESULT OF THE ACCOUNTING SYSTEM. R EFERRING TO THE PROVISION OF S. 145 OF THE ACT, THIS COURT HELD: IT IS FOR THE ASSESSEE TO ADOPT ANY RECOGNIZED MET HOD OF ACCOUNTING FOR HIS BUSINESS. THE INCOME SHALL BE COMPUTED IN ACCORDANC E WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IN O THER WORDS, IT IS OPEN TO THE ASSESSEE TO OPT FOR SUCH METHOD OF ACCOUNTING AS HE DEEMS REASONABLE AND APPROPRIATE. HE MAY OPT TO ADOPT THE MANUFACTURING COST PRICE METHOD OR THE MARKET PRICE METHOD PROVIDED THE METHOD IS FOLLOWED IN REG ARD TO BOTH THE OPENING STOCK AND THE CLOSING STOCK. IT IS NOT OPEN TO HIM TO ADO PT ONE METHOD FOR VALUING THE OPENING STOCK AND A DIFFERENT METHOD OF VALUING THE CLOSING STOCK SO AS TO INTENTIONALLY SUPPRESS THE INCOME DERIVED OR DERIVA BLE IN THE PARTICULAR PREVIOUS YEAR. EVEN WHERE AN ASSESSEE HAS ADOPTED A PARTICULAR MET HOD FOR A PERIOD OF YEARS, THERE IS NO PROVISION OF LAW WHICH PREVENTS HIM FRO M CHANGING TO ANY OTHER METHOD, PROVIDED THE CHANGEOVER IS NOT MADE IN THE SAME ASS ESSMENT YEAR. THE PROVISO TO SUB-S.(1) EMPOWERS THE AO TO COMPUTE THE INCOME ON SUCH BASIS AND IN SUCH MANNER AS HE DETERMINES IF THE ACCOUNTS ARE CORRECT AND COMPLETE BUT THE METHOD ADOPTED IS SUCH THAT, IN HIS OPINION, THE IN COME CANNOT PROPERLY BE DEDUCED THEREFROM. THE JURISDICTION CAN BE INVOKED WHERE HE IS OF THE OPINION THAT THE INCOME CANNOT PROPERLY BE DEDUCED THEREFROM. HE CANNOT EXE RCISE THE JURISDICTION MERELY ON THE GROUND THAT THE METHOD ADOPTED, WHICH IS OTHERW ISE REGULAR OR FAIR, IS DETRIMENTAL TO THE REVENUE OR ADVANTAGEOUS TO THE ASSESSEE. IF THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR THE COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE NO METHOD OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE AO MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN S. 144 . 10. IN SUPPORT OF THE ABOVE FINDINGS, THIS COURT H AD PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE APEX COURT: ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 10 (1) CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (S C); (2) INVESTMENT LTD. VS. CIT (1970) 77 ITR 533 (SC); AND (3) A.L.A. FIRM VS. CIT (1991) 93 CTR (SC) 133 : (1 991) 189 ITR 285 (SC). 11. WE MAY RECAPITULATE THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME COURT IN INVESTMENT LTD. VS. CIT(SUPRA) : A TAXPAYER IS FREE TO EMPLOY, FOR THE PURPOSE OF HIS TRADE, HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PURPOSE TO VALUE HIS STOCK-IN-TRADE EITHER AT COST OR AT MARKET PRICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL A UTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING A CCOUNT OR OF VALUATION. THE METHOD OF ACCOUNTING REGULARLY EMPLOYED MAY BE DISC ARDED ONLY IF IN THE OPINION OF THE TAXING AUTHORITIES INCOME OF THE TRADE CANNOT BE PROPERLY DEDUCED THEREFROM. VALUATION OF STOCK AT COST IS ONE OF THE RECOGNIZED METHODS. NO INFERENCE MAY, THEREFORE, ARISE FROM THE EMPLOYMENT BY THE COMPANY OF THE METHOD OF VALUING STOCK AT COST, THAT THE STOCK VALUED WAS NOT STOCK-IN-TRA DE. 12. AS STATED ABOVE, THE ACCOUNTING SYSTEM AS-7 IS AN APPROVED SYSTEM OF ACCOUNTING BY THE ICAI AND AS SUCH THE AUTHENTICITY OF THE SAID ACCOUNTING SYSTEM IS NOT UNDER CHALLENGE. THE ASSESSEE FIRM/APPELLANT BE ING A PRIVATE LIMITED COMPANY WAS MAINTAINING ITS ACCOUNTS FOLLOWING THE SAID SYS TEM AND THE ACCOUNTS WERE DULY AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT, MAINTE NANCE OF THE ACCOUNTS AS WELL AS THE VALUATION OF WORK-IN-PROGRESS WILL NOT PREJUDIC E EITHER SIDE. ADMITTEDLY, THE PARTICULAR WORK CONTRACT WAS NOT COMPLETED AND IT C OMES UNDER THE CATEGORY OF WORK- IN-PROGRESS. THERE IS ALSO NO DISPUTE THAT THE ULTI MATE LIABILITY OF THE ASSESSEE AS REGARDS TAX WILL BE DEPENDENT UPON THE TOTAL (FIXED ) AMOUNT RECEIVED BY THE ASSESSEE AGAINST THE PARTICULAR WORK CONTRACT. 13. WE, THEREFORE, HOLD THAT THE IT AUTHORITY HAS N O OPTION/JURISDICTION TO MEDDLE IN THE MATTER EITHER BY DIRECTING THE ASSESSEE TO MAIN TAIN ITS ACCOUNTS IN A PARTICULAR MANNER OR ADOPT A DIFFERENT METHOD FOR VALUING THE WORK-IN-PROGRESS. WE REITERATE THE DECISION IN DOOM DOOMA INDIA LTD.(SUPRA) AND HOLD T HAT AN ASSESSEE HAS AS THE OPTION/LIBERTY TO ADOPT ANY RECOGNIZED METHOD OF AC COUNTING FOR HIS BUSINESS AND THE INCOME SHALL BE COMPUTED IN ACCORDANCE WITH SUCH RE GULARLY MAINTAINED ACCOUNTING SYSTEM. IT WAS HELD THAT AS-7 AS AN APPROVED SYSTEM OF ACCO UNTING AND REGULAR ACCOUNTING METHODOLOGY ADOPTED BY THE ASSESSEE COUL D NOT BE DISREGARDED BY THE DEPARTMENT. 7. ON THE BASIS OF ABOVE DISCUSSION, IT COULD BE O BSERVED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING A PARTICULAR ME THOD OF ACCOUNTING WHICH WAS IN ACCORDANCE WITH ACCOUNTING STANDARD ISSUED BY ICAI AND WHICH IS WELL ACCEPTED BY HIGHER COURTS . THEREFORE, THERE BEING NO CHANGE IN FACT, THE SAID METHODOLOGY COULD NOT BE R EJECTED BY THE REVENUE. ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 11 8. MOST IMPORTANTLY, THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2012- 13 HAD HELD THAT IT WAS NOT NECESSARY THAT THE BUSI NESS HAD ACTUALLY COMMENCED FOR CLAIMING OF EXPENSES BUT THE RELEVANT FACT WAS THAT THE BUSINESS WAS SET UP OR NOT. IT IS QUITE EVIDENT FRO M THE FINANCIAL STATEMENTS, THAT THE ASSESSEE HAD ALREADY SET UP IT S BUSINESS AND WAS UNDERTAKING VARIOUS PROJECTS, THE EXPENDITURE OF WH ICH WAS BEING ACCUMULATED UNDER THE HEAD CAPITAL WORK-IN-PROGRESS . THEREFORE, THE OBSERVATION OF LD. CIT(A) THAT THE BUSINESS WAS NOT SET UP COULD NOT BE SUSTAINED. 9. KEEPING IN VIEW THE ENTIRETY OF FACTS AND CIRCUM STANCES, THE DISALLOWANCE AS CONFIRMED BY LD. CIT(A) COULD NOT B E SUSTAINED IN THE EYES OF LAW. BY DELETING THE SAME, WE ALLOW GROUND NO.1 WHICH MAKES GROUND NO. 2 INFRUCTUOUS. 10. THE ONLY SURVIVING ISSUE IS DISALLOWANCE U/S 14 A SINCE LD. AO HAS, IN THE ALTERNATIVE, PROPOSED DISALLOWANCE U/S 14A I N TERMS OF RULE 8D(2)(III). WE FIND THAT NO ADJUDICATION HAS BEEN R ENDERED BY LD. FIRST APPELLATE AUTHORITY, IN THIS REGARD SINCE THE SAME WAS TERMED AS ACADEMIC IN NATURE. HOWEVER, GOING BY THE FACTUAL M ATRIX, WE FIND THAT THE ASSESSEE HAS ALREADY OFFERED SUO-MOTO DISALLOWA NCE OF RS.0.75 LACS AGAINST THE EXEMPT INCOME AND LD. AO WITHOUT C ONSIDERING THE BASIS OF DISALLOWANCE, HAS PROCEEDED TO APPLY RULE 8D. WE FIND THAT THE ISSUE OF DISALLOWANCE U/S 14A FOR AY 2012-13 HAS AL READY BEEN SENT BACK BY THE TRIBUNAL TO LD.AO FOR FRESH ADJUDICATIO N. THEREFORE, WITH A VIEW OF ENABLE THE REVENUE TO TAKE CONSISTENT STAND IN THE MATTER, THE MATTER OF DISALLOWANCE U/S 14A WOULD STAND REMITTED BACK TO THE FILE OF ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 12 LD. AO ON SIMILAR LINES. GROUND NO.3 STAND ALLOWED FOR STATISTICAL PURPOSES. THE OTHER GROUNDS WOULD REQUIRE NO SPECIF IC ADJUDICATION. THE APPEAL STANDS PARTLY ALLOWED. ITA NO.2743/MUM/2018, AY 2014-15 11. FACTS ARE PARI-MATERIA THE SAME IN THIS YEAR EX CEPT FOR THE FACT THAT NO DISALLOWANCE HAS BEEN PROPOSED BY LD. AO U/S 14A . THE IMPUGNED IS COMMON ORDER AND THE ASSESSEE IS UNDER APPEAL WITH SIMILAR GROUNDS OF APPEAL. THEREFORE, TAKING THE SAME VIEW, BY DELETIN G THE ADDITIONS OF INDIRECT EXPENDITURE, GROUND NO.1 OF THE APPEAL STA ND ALLOWED. GROUND NO. 2 BECOMES INFRUCTUOUS. THE OTHER GROUNDS WOULD REQUIRE NO SPECIFIC ADJUDICATION. THE APPEAL STANDS PARTLY ALLOWED. CONCLUSION 12. BOTH THE APPEALS STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2020. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 12/03/2020 SR.PS, JAISY VARGHESE !'! / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT 3. 2 ( ) / THE CIT(A) 4. 2 / CIT CONCERNED 5. 34*-5 , 5 , / DR, ITAT, MUMBAI 6. 4678 / GUARD FILE ITA NO.2742-43/MUM/2018 ALLIANCE MALL DEVELOPERS CO. PRIVATE LIMITED ASSESSMENT YEARS :2013-14 & 14-15 13 / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.