PRATEEK INFRAPROJECTS INDIA PVT. LTD., NEW DELHI V. ACIT, CIRCLE-08, NEW DELHI

ITA 3129/DEL/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9062 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2015-2016
• Appeal Filed On: 10-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAURAV PUNDIR
• Keywords: Corroborative evidences; Revenue expenditure
• Section: 143(3); 201; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI F BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI MAHAVIR PRASAD, JUDICIAL M EMBER ITA NO. 3129/DEL/2019 [A.Y 2015-16] M/S PRATEEK INFRAPROJECTS INDIA PVT LTD. VS. TH E A.C.I.T. G 50, L.G.F. LAJPAT NAGAR - III CENTRAL CIRCL E 08 NEW DELHI PAN: AADCT 7056 R [APPELLANT] [RESP ONDENT] ASSESSEE BY : SHRI SANJAY AGARWAL , CA, MS. APOORVA BHARDWAJ, CA REVENUE BY : SHRI GAURAV PUNDIR, SR. DR DATE OF HEARING : 15.07.2021 DATE OF PRONOUNCEMENT : 03.08.2021 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-24, NEW DELHI DATED 11.03.2019 PERTAINING T O A.Y 2015-16 . 2 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FAC TS, WHILE CONFIRMING THE ADDITION MADE BY THE ID. AO AMOUNTIN G TO RS. 1,25,72,260/- ON ACCOUNT OF INTEREST ON LOAN PAID W ITHOUT APPRECIATING THE SUBMISSIONS OF THE ASSESSEE. AS SU CH, THE ADDITION OF RS. 1,25,72,260/- MAY PLEASE BE DELETED. 2. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS, WHILE NOT APPRECIATING THE FACT THAT THE ID. AO DID NOT ALLOW THE INTEREST ON LOAN OF RS. 1,25,72,260/- AS COST OF PROJECT IN THE PROFIT AND LOSS ACCOUNT EVEN AFTER DISALLOWING THE SAME FROM THE HE AD FINANCE COST CONSIDERING THE SAME AS PROJECT COST. THAT THE VERY REASON OF THE ID. AO TO DISALLOW THE SAME FROM FINANCE COST HEAD WAS FOR CONSIDERING IT AS COST OF PROJECT. THAT HAD THE ID. AO ALLOWED THE CONSEQUENT EFFECT OF HIS OWN ACTIONS, THEN THERE WI LL BE NO CHANGE IN PROFITS OF THE ASSESSEE. AS SUCH, THE ADDITION OF R S. 1,25,72,260/- MAY PLEASE BE DELETED. - 42,73,310.00 3. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS, WHILE CONFIRMING THE ADDITION MADE BY THE ID. A.O AMOUNTI NG TO RS.3,61,56,783/- AFTER RE-COMPUTING THE PERCENTAGE OF COMPLETION WITHOUT PROPERLY APPRECIATING THE SUBMISSIONS OF AS SESSEE. AS SUCH, THE ADDITION OF RS. 3,61,56,783/- MAY PLEASE BE DELETED.....1,22,89,690.00. 3 4. THAT THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS, WHILE CONFIRMING THE INCLUSION OF COST OF LAND FOR THE PU RPOSE OF COMPUTATION UNDER PERCENTAGE OF COMPLETION METHOD ( POCM) WITHOUT APPRECIATING THAT THE METHOD OF POCM AS FOLLOWED BY ASSESSEE HAS BEEN CONSISTENTLY FOLLOWED AND THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTION (REVISED 2012) IS ONLY RECO MMENDATORY IN NATURE. THAT THE ID. AO HAD ONLY DISPUTED THE PERCE NTAGE OF THE REVENUE IN THE CONCERNED YEAR RATHER THAN THE TOTAL REVENUE RECOGNIZABLE BY THE ASSESSEE IN RESPECT OF THE PROJ ECT. THAT THE ID. CIT(A) AS WELL AS ID. AO HAS FAILED TO APPRECIATE T HAT THE ASSESSEE HAS CONSIDERED THE PROPORTIONATE REVENUE OF THE TOT AL REVENUE IN SUCCEEDING FINANCIAL YEARS AS WELL. AS SUCH, THE AD DITION OF RS. 3,61,56,783/- MAY PLEASE BE DELETED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE D EVELOPMENT SINCE ITS INCEPTION. DURING THE YEAR UNDER CONSIDERATION , THE APPELLANT COMPANY WAS CARRYING OUT ONE PROJECT, NAMELY, PRATE EK EDIFICE. FOR THE PURPOSE OF REVENUE RECOGNITION, THE APPELLANT C OMPANY FOLLOWED PERCENTAGE COMPLETION METHOD [POCM], DULY CONSIDERI NG THE PROVISIONS OF ACCOUNTING STANDARDS 7 AND 9. AS A MATTER OF GENERAL PRACTICE, THE APPELLANT COMPANY DID NOT CONSIDER THE COST OF LAND FOR CALCULATING THE PERCENTAGE OF COMPLETION OF PROJECT UNDER CONSI DERATION. 4 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER OBSERVED THAT THOUGH THE ASSESSEE IS FOLLOWING POCM, THEN IT HAS TO RECOGNISE ITS REVENUE AS PER POCM ME THOD ONLY, WHICH IS IN LINE WITH THE GUIDANCE NOTE ON ACCOUNTING FOR RE AL ESTATE TRANSACTIONS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE CANNOT JUST FOLLOW SOME PART OF THE GUIDANCE NOTE AS PER I TS CONVENIENCE. WITH THESE OBSERVATIONS, THE ASSESSING OFFICER REJE CTED THE CONTENTION OF THE ASSESSEE THAT THE COST OF PROJECT FOR POCM I S NOT ACCEPTABLE. 5. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASS ESSEE STARTED RECOGNITION OF REVENUE FROM A.Y 2014-15 ONLY. ACCO RDING TO THE ASSESSING OFFICER, AS PER THE POCM, THE ASSESSEES PROJECT WAS NOT ELIGIBLE TO RECOGNISE ANY REVENUE IN A.Y 2014-15. THE REVENUE RECOGNITION BY THE ASSESSEE IN A.YS 2014-15 AND 201 5-16 CAN BE UNDERSTOOD FROM THE FOLLOWING CHART: 5 A.\. REVENUE FROM COST OF PROJECT - GROSS PERCENTAGE PROJECT GROSS PROFIT OPERATION CHANGE IN PROFIT OF TOTAL ELIGIBILITY FOR BY POCM (RS.) INVENTORIES AS SHOWN BY CONSTRUCTIO N REVENUE AS PER THE (RS.) ASSESSEE (RS.) COST INCURRED RECOGNITION AS PER POCM GUIDANCE NOTE (WHEN % OF TOTAL CONSTRUCTION COST INCURRED IS MORE THAN 25%) GUIDANCE NOTE 2012 2014- 15 55,55,66,809.00 47,47,34,730.68 8,08,32,078.32 18.26% NO 0 2015- 16 72,88,84,744.5 62,81,73,659.98 10,07,11,084.52 37.09% YES 21,76,99,946/ TOTAL (TILL 31.03.2 015) 128,44,51,553.50 110,29,08,390.66 18,15,43,163 21,76,99,946/ 6. AS THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT AS PER THE POCM, ASSESSEES PROJECT WAS NOT ELIGIBLE TO RECOGN ISE ANY REVENUE IN A.Y 2014-15, THE ASSESSEE SHOULD HAVE RECOGNISED GR OSS PROFIT OF RS. 21,76,99,946/- IN A.Y 2015-16 ONLY, WHEREAS AS PER THE COMPUTATION OF THE ASSESSEE, IT HAS RECOGNISED GROSS PROFIT OF RS. 18,15,43,163/-. AFTER GIVING CREDIT OF THE SAME, THE ASSESSING OFFI CER ADDED THE DIFFERENCE BETWEEN THE PROFIT SHOWN BY THE ASSESSEE AND PROFIT COMPUTED AS PER POCM AMOUNTING TO RS. 3,61,56,783/- . 7. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 6 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHE MENTLY STATED THAT THE GUIDANCE NOTES ARE PRIMARILY DESIGNED TO P ROVIDE GUIDANCE AND HENCE THE GUIDANCE NOTES ARE RECOMMENDATORY IN NATURE. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE AS SESSEE IS NOT REQUIRED UNDER LAW TO MANDATORILY FOLLOW GUIDANCE NOTES ON A CCOUNTING FOR REAL ESTATE TRANSACTIONS. IT IS THE SAY OF THE LD. COUN SEL FOR THE ASSESSEE THAT BY MAKING ADDITION, THE ASSESSING OFFICER HAS MADE THE ASSESSEE SUBJECT OF DOUBLE TAXATION OF SAME INCOME IN DIFFER ENT F.YS. 9. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THA T THE ASSESSEE HAS CONSIDERED THE ALLEGED PROFIT IN THE SUBSEQUENT A.Y S. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE DETAILED CHART OF REVENUE RECOGNITION. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT THE ASSESSING OFFICER, IN F.Y. 2016-17 RELEVANT TO A.Y 2017-18, A CCEPTED THE RETURNED INCOME UNDER SCRUTINY ASSESSMENT ORDER FRA MED U/S 143(3) OF THE ACT. 10. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER. 7 11. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE ASSESSEE R ECOGNISED REVENUE IN A.Y 2014-15 WHEN THE PROJECT WAS COMPLETED ONLY 18. 26% AND AS PER THE ACCOUNTING PRINCIPLES READ WITH GUIDANCE NOTES UNDER POCM, REVENUE HAS TO BE RECOGNISED AFTER COMPLETION OF 25 % OF THE PROJECT. REVENUE RECOGNITION CAN BE UNDERSTOOD FROM THE FOLL OWING CHART: 12. IN OUR CONSIDERED OPINION, THE ACTION OF THE AS SESSEE COMPANY ON THE REVENUE REPORTED BY IT ON ITS PROJECT PRATEEK E DIFICE HAS NOT CAUSED ANY LOSS TO THE REVENUE AND THE ENTIRE EXERC ISE IS REVENUE NEUTRAL AS THE ASSESSEE HAS ALREADY OFFERED COMPLET E AMOUNT OF TAX IN THE SUBSEQUENT F.Y., AND SUCH COMPLETION WAS BEFORE PASSING OF IMPUGNED ASSESSMENT ORDER, WHICH IS DATED 29.12.201 7. THESE FACTS CLEARLY SHOW THAT THE ASSESSING OFFICER WAS WELL AW ARE OF THE REVENUE 8 RECOGNISED BY THE ASSESSEE FROM THE ENTIRE PROJECT AND THE TAXES PAID BY IT. 13. IT WOULD BE PERTINENT TO CONSIDER THE FOLLOWING DECISIONS OF THE HON'BLE SUPREME COURT AND THE HIGH COURT OF DELHI: CIT VS TRIVENI ENGG. & INDUSTRIES LTD. [201'1] 336 ITR 374 (DELHI HIGH COURT), 'IN THE PROJECTED SCENARIO ,F THE INSTANT CASE, 'TH E ENTIRE EXERCISE WAS REVENUE NEUTRAL. LT WAS A MATTER OF RECORD THAT AGAINST THE PROVISION OF RS. 1.39 LAKHS, THE ASSESSEE HAD TO AC TUALLY INCUR EXPENDITURE OF RS. 28.03 LAKHS, I.E., MORE THAN THE PROVISION MADE. IT WAS UNDISPUTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE PROJECT WAS ADMISSIBLE DEDUCTION. THE ONLY D ISPUTE THAT THE REVENUE SOUGHT TO RAISE WAS REGARDING THE YEAR OF A LLOWABILITY OF EXPENDITURE. CONSIDERING THAT THE ASSESSEE, WAS A C OMPANY ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXERCIS E OF SEEKING TO DISTURB THE YEAR OF ALLOWABILITY OF EXPENDITURE WOU LD, IN ANY CASE, BE REVENUE NEUTRAL.' 9 CIT VS BILAHARI INVESTMENT (P.) LTD. [2008] 299 ITR L (SC) 'IN THE PAST, THE DEPARTMENT HAD ACCEPTED THE COMPL ETED CONTRACT METHOD AND BECAUSE OF SUCH ACCEPTANCE, THE ASSESSEE HAD FOLLOWED THE SAME METHOD OF ACCOUNTING, PARTICULARLY IN THE CONTEXT OF CHIT DISCOUNT. EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING WHICH THE DEPARTMEN T HAS EARLIER ACCEPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPAR TMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RES ULTS IN DISTORTION OF PROFITS, THAT THE DEPARTMENT CAN INSI ST 0N SUBSTITUTION OF THE EXISTING METHOD. FURTHER, IN TH E INSTANT CASE, IT WAS FOUND FROM THE VARIOUS STATEMENTS PRODUCED THAT THE ENTIRE EXERCISE, ARISING OUT OF CHANGE OF METHOD FROM COMP LETED CONTRACT METHOD TO DEFERRED REVENUE EXPENDITURE WAS REVENUE NEUTRAL. ' 14. AFTER CAREFULLY PERUSING THE DOCUMENTARY EVIDEN CES BROUGHT TO OUR NOTICE, WE FIND THAT THE UNDISPUTED POSITION TH AT EMERGES IS THAT THE ASSESSEE IS FOLLOWING CONSISTENT METHOD OF ACCO UNTING TO RECOGNISE REVENUE UNDER THE PROJECT. NO DOUBT, THE ASSESSEE HAS NOT INCLUDED COST OF LAND FOR COMPUTATION OF PROFIT UNDER POCM, BUT BEFORE COMPLETION OF PROJECT, THE ENTIRE REVENUE HAS BEEN OFFERED FOR TAXATION WHICH ALSO INCLUDED THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE IMPUGNED ADDITION. CONSIDERING THE FACTS OF THE CA SE IN TOTALITY, WE 10 DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION . THIS GROUND IS ACCORDINGLY ALLOWED. 15. NEXT GRIEVANCE RELATED TO THE ADDITION OF RS. 1 ,25,72,260/- BEING INTEREST ON LOAN. 16. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED AN AMOUNT OF RS. 1,25,72,260/- ON ACCOUNT OF INTEREST EXPENSES IN ITS PROFIT AND LOSS ACCOUNT OVER AND ABOVE THE ABOVE THE COST OF THE PR OJECT. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT AS PE R THE GUIDANCE NOTES ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS, THE INT EREST EXPENDITURE IS PART OF BORROWING COST WHICH, IN TURN, IS PART OF T OTAL PROJECT COST. THE ASSESSEE WAS ASKED TO FURNISH CLARIFICATION AS TO W HY THE INTEREST EXPENSES BE NOT ADDED TO THE PROJECT COST. 17. IN ITS REPLY, THE ASSESSEE STATED THAT IT HAS B ORROWED LOAN FROM SISTER CONCERN FOR GENERAL PURPOSES AND PAID INTERE ST TO THEM. IT WAS EXPLAINED THAT SINCE THESE EXPENSES DO NOT DIRECTLY RELATE TO THE 11 ONGOING PROJECT OF THE ASSESSEE, THE SAME HAS NOT B EEN CONSIDERED AS COST OF THE PROJECT. 18. SINCE NO DETAILS WERE PROVIDED BY THE ASSESSEE IN SUPPORT OF ITS CONTENTION, THE ASSESSING OFFICER DISALLOWED THE CL AIM OF RS. 1,25,72,260/- 19. THE ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 20. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS TH E SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THOUGH THE ASSESSING OFFICER HAS CONSIDERED THE INTEREST CLAIM BY THE ASSESSEE AS PA RT OF THE PROJECT COST, BUT TOTAL INTEREST EXPENDITURE HAS NOT BEEN C ONSIDERED IN TOTAL ESTIMATED COST OF PROJECT AND, THEREFORE, IT HAS RE SULTED IN ADDITION OF RS. 1,22,00,768/-. 21. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN TED THAT THE ASSESSING OFFICER DID NOT PROVIDED ANY FINAL SHOW C AUSE NOTICE WHILE ARRIVING AT FINAL AMOUNT OF ADDITION TO BE MADE. 12 22. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER. 23. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT VID E NOTICE DATED 09.11.2017, THE ASSESSEE WAS ASKED TO FURNISH CLARI FICATION IN RESPECT OF CLAIM OF INTEREST. IT IS ALSO NOT IN DISPUTE TH AT VIDE LETTER DATED 27.11.2017, THE ASSESSEE HAS SIMPLY STATED THAT IT HAS BORROWED LOAN FROM PRATEEK INFRATECH PVT LTD AND M/S PRATEEK BUIL DTECH INDIA PVT LTD FOR GENERAL PURPOSES. NO SUPPORTING EVIDENCES WERE FURNISHED BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. 24. VIDE NOTICE DATED 20.12.2017, THE ASSESSING OFF ICER ONCE AGAIN ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM WITH SUPPOR TING EVIDENCES. IN REPONSE TO THIS NOTICE, VIDE REPLY DATED 26.12.2017 , THE ASSESSEE ONCE AGAIN REITERATED WHAT HAS BEEN STATED BY IT VIDE RE PLY DATED 27.11.2017. 25. EVEN BEFORE US, NO DETAILS/DOCUMENTARY EVIDENCE S REGARDING CLAIM OF INTEREST EXPENSES AS REVENUE EXPENDITURE H AS BEEN FURNISHED. 13 THEREFORE, THE ACTION OF THE ASSESSING OFFICER IS F OUND TO BE CORRECT. RS. 1,25,72,260/- SHALL REMAIN ADDED IN TOTAL PROJE CT COST. HOWEVER, IN ALL FAIRNESS, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THIS ENHANCED PROJECT COST IN TOTAL ESTIMATED COST OF PR OJECT. WITH THESE OBSERVATIONS, THIS GROUND IS DISMISSED. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 3129/DEL/2019 IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 03.08. 2021. SD/- SD/- [MAHAVIR PRASAD] [ N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 03 RD AUGUST, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 14 DATE OF DICTATION ATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER