DCIT, New Delhi V. M/s. Omni Farms Pvt. Ltd., New Delhi

ITA 3564/DEL/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6717 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Capital asset; Income from undisclosed sources; TDS
• Section: 142(1); 40(a)(ia); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.3564/DEL/2016 ASSESSMENT YEAR: 2012-13 DCIT CENTRAL CIRCLE-28, ROOM NO. 317, ARA CENTRE, JHANDEWALAN EXTN. NEW DELHI VS. OMNI FARMS PVT. LTD. 201-212, 2 ND FLOOR, SPENDOR FORUM, JASOLA NEW DELHI PAN : AAACO5916C PAN : (APPELLANT) (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 23.03.2016 PASSED BY CIT(A)-29, NEW DELHI FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.1,64,90,841/-, SHOWN AS PENDING REFUNDS TO CUSTO MER AND TREATED AS UNACCOUNTED INCOME BY THE AO, WITHOUT APPRECIATI NG THE FACT THAT AS PER THE AGREEMENT WITH THE BUYERS WHENEVER THE REQU EST FOR THE CANCELLATION IS RECEIVED THE EARNEST MONEY IS FORFE ITED THUS THE ABOVE AMOUNT HAS ACCRUED TO THE ASSESSEE THE MOMENT THE R EQUEST FOR CANCELLATION IS RECEIVED. APPELLANT BY SH. SANJAY KUMAR, CA RESPONDENT BY SHRI P.S. THUINGALENG, SR. DR DATE OF HEARING 11.09.2019 DATE OF PRONOUNCEMENT 30.10.2019 2 ITA NO.3564/DEL/2016 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THA T THE ABOVE ADDITION WAS MADE BY THE AO WITHOUT ANY COGENT REASON AND ON SURMISE AND CONJECTURES. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.2,60,45,450/- MADE ON ACCOUNT OF ADVERTISEMENT A ND BROKERAGE COMMISSION BY HOLDING THAT THE ABOVE EXPENDITURE IS INDIRECT EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE ABOVE EXPENSES WERE CORRECTLY CAPITALIZED BY THE AO AS THE ASSESSEE HAD DISCLOSED NIL TURNOVER. 4. THAT THE ORDER OF THE CIT(A) IS PERVERSE, ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALT ER OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPER. THE RETURN OF IN COME WAS FILED BY THE ASSESSEE ON 25.09.2012 DECLARING LOSS OF RS. 1,57,3 9,641/-. THE CASE WAS SELECTED AND NOTICE U/S 143(2) WAS ISSUED TO THE AS SESSEE COMPANY ON 08.08.2013 AND SERVED BY POST. IN RESPONSE TO WHICH ASSESSEE FILED A REPLY ON 30.08.2013. NOTICES U/S 143(2) AND 142(1) ALONGW ITH QUESTIONNAIRE WERE ISSUED ON 13.10.2014. IN RESPONSE TO THE STATUTORY NOTICES, CHARTERED ACCOUNTANT AND AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE ATTENDED THE PROCEEDINGS AND FILED THE DETAILS. THE ASSESSING OF FICER ASSESSED THE INCOME AT RS. 2,67,96,650/- BY MAKING FOLLOWING ADDITIONS :- S. NO. PARTICULARS AMOUNT 1. ON ACCOUNT OF REFUND ON CANCELLATION OF THE ALLOTMENT, TREATED AS UNACCOUNTED INCOME RS. 1,64,90,841/- 2. ON ACCOUNT OF ADVERTISEMENT AND BROKERAGE & COMMISSION RS. 2,60,45,450/- 3 ITA NO.3564/DEL/2016 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 5. AS REGARDS TO GROUND NO. 1 AND 2, THE LD. DR SUB MITTED THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,64,9 0,841/- SHOWN AS PENDING REFUNDS TO CUSTOMER AND TREATED AS UNACCOUNTED INCO ME BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THAT AS PER T HE AGREEMENT WITH THE BUYERS WHENEVER THE REQUEST FOR THE CANCELLATION IS RECEIVED, THE EARNEST MONEY IS FORFEITED. THUS THE SAID AMOUNT HAS ACCRUE D TO THE ASSESSEE THE MOMENT THE REQUEST FOR CANCELLATION IS RECEIVED. T HEREFORE, THE LD. DR SUBMITTED THAT THE CIT(A) WAS NOT RIGHT IN DELETING THIS ADDITION. 6. THE LD. AR AS REGARDS TO GROUND NO. 1 AND 2 SUBM ITTED THAT ALL THE DETAILS OF CURRENT LIABILITIES, PROJECT RECEIPTS RE LATING TO PAYMENT IN RESPECT OF PLAN AND IN RESPECT OF FLAT AS WELL AS THE AGREEMEN TS WERE FURNISHED BEFORE THE ASSESSING OFFICER AND THEREFORE THE CIT(A) RIGH TLY ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. WHILE DECIDING THE ISSUE IN RE SPECT OF GROUND NOS. 1 AND 2 HEREIN, THE CIT(A) HELD AS UNDER: 7. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF TH E APPELLANT AND HAVE CONSIDERED THE FACTS AND EVIDENCES ON RECORD. I HAVE ALSO PERUSED THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT O RDER AND THE DETAILS PROVIDED DURING THE ASSESSMENT AND APPELLAT E PROCEEDINGS. 8. IT HAS BEEN SUBMITTED BY THE APPELLANT DURING AS SESSMENT 4 ITA NO.3564/DEL/2016 PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS THAT T HOUGH AS PER THE TERMS OF THE 'ALLOTMENT CERTIFICATE AND AGREEMENT', APPELLANT IS ENTITLED TO FORFEIT THE EARNEST MONEY RECEIVED FROM THE CUST OMERS HOWEVER, WHOLE OF THE EARNEST MONEY IS NOT FORFEITED IN ALL THE CASES, IN ORDER TO AVOID UNNECESSARY LITIGATION OR TO CONTINUE WITH A FAIR BUSINESS PRACTICE AS PER POLICY DECISION. IN FACT IT IS FOUND THAT TH E APPELLANT HAS ALSO GIVEN INTEREST ON SOME DEPOSITS WHILE CANCELLING TH E ALLOTMENT. AS AND WHEN THE REQUEST FOR CANCELLATION OF ALLOTMENT IS A CCEPTED BY THE APPELLANT AND IN THE EVENT OF FORFEITURE OF ANY DEP OSIT, IT IS SHOWN AS INCOME WHEN SUCH REQUEST IS ACCEPTED AND ACCOUNTS A RE CLEARED. THE APPELLANT SUBMITTED THE DETAILS OF OTHER OPERATING INCOME, WHEREIN SUCH INCOME TOWARDS AMOUNT FORFEITED ON CANCELLATION WAS STATED TO HAVE BEEN SHOWN AND CREDITED. THE APPELLANT PROVIDED THE DETAILS OF PAYMENTS MADE WITH RESPECT TO THE AMOUNTS REFUNDED TO THE CUSTOMERS SUBSEQUENTLY WITH THE INTEREST, ALONGWITH THE BANK STATEMENT AND DEMONSTRATED THAT THESE SUMS HAVE BEEN PAID TO THE RESPECTIVE CUSTOMERS WHO HAVE CANCELLED THEIR BOOKINGS. THEY H AVE ALSO CLAIMED THAT TAX HAS BEEN DEDUCTED AT SOURCE ON SUCH PAYMEN T WHEREVER APPLICABLE. 8.1 THE AO MADE ADDITION ON ACCOUNT OF REFUND DUE B Y TREATING IT AS UNACCOUNTED INCOME OF THE APPELLANT. HOWEVER, THE A O FAILED TO SUBSTANTIATE THAT HOW SUCH INCOME IS NOT ACCOUNTED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THE AO HIMSELF HAS RECOG NIZED THAT THESE AMOUNTS ARE THE REFUND DUE TO THE CUSTOMERS FOR WHI CH THE DETAILS HAVE BEEN PROVIDED BY THE APPELLANT. FURTHER, IT IS A MA TTER OF RECORD THAT UPTO THE YEAR ENDING 31.03.2012, A TOTAL OF RS.75,2 3,20,847/- HAS BEEN RECEIVED BY THE APPELLANT FROM VARIOUS CUSTOME RS AS BOOKING ADVANCE, HOWEVER NO RECEIPT HAS BEEN SHOWN ON THIS ACCOUNT AS INCOME BECAUSE THE PROJECT WAS AT A INITIAL STAGES. THE SA ID RECEIPTS INCLUDED THE AMOUNT OF RS.1,64,90,841/- , WHICH RELATES TO T HE CUSTOMERS WHO HAVE REQUESTED FOR CANCELLATION OF ALLOTMENT AND TH E SAME HAS BEEN REFUNDED LATER ON, THOUGH RECOGNIZED BY THE APPELLA NT AS ON 31.03.2012. 8.2 THIS CLEARLY TRANSPIRES THAT THE SAID AMOUNT RECOGN IZED AS DUE FOR REFUNDS TOWARDS CANCELLATION OF BOOKING ARE THE PART OF RECEIPT INCLUDED IN APPELLANT'S FULL RECEIPTS AND CANNOT BE TERMED AS UNACCOUNTED INCOME OF THE APPELLANT. THEREFORE, IN TERMS OF THE AGREEMENT, THE FORFEITED AMOUNT TOWARDS EARNEST MON EY CAN ONLY BE SUBJECTED TO TAX AS LIABILITY HAS CEASED TO EXIST I N THE HANDS OF APPELLANT AND THE SAME HAS BEEN SHOWN BY THE APPELL ANT AS INCOME UNDER THE HEAD OTHER OPERATING INCOME. THEREFORE, B EING DULY ACCOUNTED, WHERE THE SOURCE OF SAID RECEIPTS ARE PR OPERLY EXPLAINED AS 5 ITA NO.3564/DEL/2016 BOOKING FROM VARIOUS CUSTOMERS, THIS CANNOT BE DISA LLOWED AS UNACCOUNTED INCOME OF THE APPELLANT. 8.3 IT IS FURTHER NOTICED THAT THE SAID CANCELLATION CH ARGES ARE PAID/REFUNDED SUBSEQUENTLY WHEN THE ACCOUNTS ARE DU LY CLEARED. THE CONTENTION OF THE APPELLANT THAT EVEN THOUGH IT IS RECOGNIZED, THE SAME HAS BEEN PAID LATER ON IS DULY FOUND EXPLAINED, WHI CH IS DEMONSTRATED TO HAVE BEEN PAID THROUGH BANKING CHANNELS. 8.4 FURTHER, DURING ASSESSMENT PROCEEDINGS, THE APPELL ANT PROVIDED DETAILED DLY BEFORE THE AO SUBMITTING THE DETAILS O F BOOKING ACCOUNT SUBJECT TO ICELLATION AND FORFEITURE OF EARNEST MON EY RECEIVED, WHICH HAS NOT BEEN CONSIDERED BY THE AO DURING THE ASSESSMENT PROCEEDINGS AND CONCLUDED THAT THIS IS UNEXPLAINED INCOME OF THE AP PELLANT, EVEN WITHOUT POINTING OUT ANY DEFECT OR ANY DOUBT ON THE AUDITED BOOKS OF ACCOUNTS. THE ADDITIONS ARE MADE WITHOUT ANY COGENT REASONING AND ON SURMISES AND CONJECTURES. AO HAS NOT BROUGHT ANYTHI NG ON RECORD TO SUBSTANTIATE THAT THIS IS UNACCOUNTED INCOME OR UNE XPLAINED CASH CREDIT IN THE HANDS OF THE APPELLANT. 8.5 IN ANY CASE, ON PERUSAL OF THE SUBMISSIONS OF THE A PPELLANT AND GOING THROUGH THE CLAUSE OF AGREEMENT AND THE INCOM E RECOGNIZED BY THE APPELLANT ON CANCELLATION OF UNIT DURING THE YE AR UNDER APPEAL AND SUBSEQUENT REPAYMENTS OF CANCELLATION AMOUNT THROUG H BANKING CHANNELS, IT CANNOT BE SAID THAT THE MOMENT A REQUE ST IS MADE BY CUSTOMER FOR CANCELLATION OF BOOKING, THE AMOUNT PA ID BY IT TOWARDS THE EARNEST MONEY DEPOSIT SHALL STAND FORFEITED, IMMEDI ATELY, AS THE ACCEPTANCE OF SUCH REQUEST BY THE COMPANY IS ALSO O NE OF THE CONDITION AND THE FORFEITURE IS BEING ACCOUNTED FOR, WHEN ALL OTHER FORMALITIES ARE COMPLETED AND ACCOUNTS ARE CLEARED .THIS MAY TAKE S OME TIME. IT IS ALSO OBSERVED THAT IN VARIOUS CASES EVEN THOUGH THERE IS A FORFEITURE CLAUSE IN THE AGREEMENT, THE COURTS HAVE HELD THAT THE AMO UNTS CANNOT BE FORFEITED FROM THE CUSTOMERS MERELY ON THE PRESENCE OF SUCH CLAUSE IN THE AGREEMENT, BEING ONEROUS OR ONE SIDED IN NATURE . THE COURTS HAVE EVEN DIRECTED THE BUILDERS TO PAY INTEREST ON SUCH DEPOSITS. THE PROPOSED REAL ESTATE REGULATORY BILL HAS ALSO TAKEN CARE OF THIS ISSUE. 8.6 IN THE PRESENT CASE, REQUEST FOR CANCELLATION OF BO OKING WERE PENDING ACCEPTANCE BY THE APPELLANT FROM 7 CUSTOMER S ONLY AS ON 31.03.2012, AMOUNTING TO RS.8,60,824/- AND THE REQU EST WAS ACCEPTED IN THE SUBSEQUENT PERIOD AND REFUNDS WERE ISSUED TH ROUGH CHEQUE. SIMILARLY, REGARDING REST OF 43 CASES FROM WHOM AGG REGATE SUM OF RS.1,56,30,017/- WAS RECEIVED UPTO 31.03.2012, BOTH REQUEST FOR CANCELLATION AS WELL AS REFUND WAS MADE IN SUBSEQUE NT PERIOD AND ACCORDINGLY, THIS CANNOT BE TREATED AS INCOME OF TH E APPELLANT FOR THE YEAR UNDER APPEAL. EVEN IF FOR ARGUMENT SAKE IT IS CONSIDERED THAT THIS 6 ITA NO.3564/DEL/2016 AMOUNT WAS RECOGNIZED BY APPELLANT AS REFUNDABLE ON 31.03.2012, THE SAME CANNOT BE TREATED AS UNEXPLAINED INCOME OF THE APPELLANT BECAUSE THE SAME IS SHOWN AS LIABILITY, AND IN THE EVENT OF REPAYMENT, IT IS TO BE REDUCED FROM THE ADVANCE FROM CUSTOMERS .THE SOURCE OF SUCH RECEIPTS ARE DULY EXPLAINED AND SUBSEQUENTLY REPAID THROUGH BANKING CHANNELS. WHENEVER THE AMOUNT HAS BEEN FORFEITED, T HE SAME IS RECOGNIZED AND DISCLOSED AS INCOME BY THE APPELLANT . THEREFORE, IN ANY CASE, NO ADDITIONS CAN BE MADE ON THIS ISSUE. 8.7 ACCORDINGLY, IN VIEW OF THE DISCUSSIONS IN THE FOR EGOING PARAGRAPHS AND LOOKING TO THE FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW IT IS HELD THAT THE ADDITION OF RS.1,64,90,8 41/-, MADE BY THE AO TREATING THE REFUND DUE TO THE CUSTOMER AS UNACCOUN TED INCOME OF THE APPELLANT DESERVES TO BE DELETED. THEREFORE, THE IM PUGNED ADDITION IS DIRECTED TO BE DELETED AND APPELLANT GETS A RELIEF OF RS.1,64,90,841/-. THIS GROUND OF APPEAL IS ALLOWED. IT IS PERTINENT TO NOTE THAT THE FACT THAT REQUEST FOR CANCELLATION OF BOOKING WERE PENDING IN RESPECT OF ACCEPTANCE BY THE ASSESS EE FROM 7 CUSTOMERS ONLY AS ON 31.03.2012 WHICH AMOUNTED TO RS.8,60,824 /- AND THE REQUEST WAS ACCEPTED IN THE SUBSEQUENT PERIOD AND REFUNDS W ERE ISSUED THROUGH CHEQUE. REGARDING REST OF 43 CASES FROM WHOM AGGREG ATE SUM OF RS.1,56,30,017/- WAS RECEIVED UPTO 31.03.2012, BOTH REQUEST FOR CANCELLATION AS WELL AS REFUND WAS MADE IN SUBSEQUE NT PERIOD. THIS FACTS WERE NOT DISPUTED BY THE REVENUE AT ANY POINT OF TI ME, THEREFORE, THE CIT(A) RIGHTLY HELD THAT THIS CANNOT BE TREATED AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER APPEAL. THE CIT(A) HAS GIVEN A DETAILED FINDING, THEREFORE, THERE IS NO NEED TO INTERFERE. GROUND NOS. 1 AND 2 ARE DI SMISSED. 8. AS REGARDS GROUND NO. 3, THE LD. DR SUBMITTED TH AT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,60,45,450/- MADE ON ACCOUNT OF ADVERTISEMENT AND BROKERAGE COMMISSION BY HOLDING T HAT THE ABOVE 7 ITA NO.3564/DEL/2016 EXPENDITURE IS INDIRECT EXPENDITURE WITHOUT APPRECI ATING THE FACT THAT THE ABOVE EXPENSES WERE CORRECTLY CAPITALIZED BY THE AS SESSING OFFICER AS THE ASSESSEE HAD DISCLOSED NIL TURNOVER. 9. AS REGARDS TO GROUND NO. 3 THE LD. AR SUBMITTED THAT THE ASSESSEE HAS JUSTIFIED THE CLAIM OF SELLING EXPENSES AS REVE NUE EXPENDITURE IN RESPECT OF ADVERTISEMENT, BROKERAGE AND COMMISSION. THE LD. AR FURTHER SUBMITTED THAT SELLING EXPENSES CANNOT FORM PART OF COST OF I NVENTORIES AS MANDATED BY ACCOUNTING STANDARD 2 (AS-2). BOTH OF THESE EXPENDI TURES ARE OF REVENUE IN NATURE AND NOT DIRECTLY RELATED TO THE DEVELOPMENT OF THE PROJECT. INCURRING OF SELLING EXPENSES DOES NOT RESULT IN THE CREATION OF ANY IDENTIFIABLE CAPITAL ASSET ON THE PROJECT OR OTHERWISE. ONCE THE BUSINES S IS SETUP, ALL EXPENSES OF REVENUE NATURE INCURRED FOR THE PURPOSES OF BUSINES S ARE ALLOWABLE IN THE YEAR IN WHICH IT HAS INCURRED. ADVERTISEMENT EXPEND ITURE AS WELL AS EXPENDITURE ON BROKERAGE & COMMISSION ARE OF REVENU E IN NATURE AND CANNOT BE DISALLOWED MERELY BECAUSE SALES DID NOT TAKE PLA CE DURING THE YEAR. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE DELH I HIGH COURT IN CASE OF CIT VS. DLF UNIVERSAL LTD. [2015] 378 ITR 197 (DEL. ) AND TAPARI TOOLS LTD. VS. JCIT [2015] 372 ITR 605 (SC). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER: 10. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE APPELLANT AND HAVE CONSIDERED THE FACTS AND EVIDENCES ON RECORD. I HAVE ALSO PERUSED 8 ITA NO.3564/DEL/2016 THE CASE LAWS RELIED UPON BY THE APPELLANT AS WELL AS ACCOUNTING STANDARDS ISSUED BY THE ICAI. 10.1 THE FACTS BORNE FROM THE RECORDS ARE THAT THE APPELLANT HAS INCURRED A SUM OF RS.1,18,03,591/- ON ACCOUNT OF AD VERTISEMENT, TO SELL ITS ONLY PROJECT NAMELY ELDECO SAUBHAGYAM AND ALSO PAID BROKERAGE AMOUNTING TO RS.1,42,41,859/- TO VARIOUS PROPERTY B ROKERS FOR OBTAINING ADVANCE FROM BOOKING OF PROPERTIES. DURING THE PERI OD UNDER CONSIDERATION, APPROXIMATELY RS.75 CRORES HAVE BEEN RECEIVED AS BOOKING, HOWEVER SINCE THE PROJECT IS ON A PRELIMIN ARY STAGE FOR THE YEAR UNDER CONSIDERATION, NO SALES REVENUE WAS RECOGNIZE D FROM THE SAID PROJECT, AS PER THE PRESCRIBED AS-9, ISSUED BY ICAI . THE REVENUE FROM THE SAID PROJECT STATED TO HAVE BEEN RECOGNIZED FIR ST TIME DURING THE PERIOD RELEVANT TO AY 2014- 15. THE AO HAS NOT DISP UTED THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT HOWE VER DISALLOWANCE WAS MADE DUE TO THE REASON THAT APPELLANT HAS CAPIT ALIZED ALL DIRECT EXPENSES RELATED TO THE PROJECT AND THERE WAS NO RE VENUE/TURNOVER SHOWN BY THE APPELLANT DURING THE YEAR. AO HAS NOT DISPUTED THE SAID EXPENDITURE PER SE. 10.2 WHILE DISALLOWING, THE AO HAS NOT CONSIDERED THE FA CT THAT DURING THE YEAR, SUBSTANTIAL AMOUNT HAS BEEN RECEIVED AS A DVANCE FOR BOOKING FROM CUSTOMERS, IN WHICH THE ROLE OF BROKERS AND AD VERTISEMENTS CANNOT BE DENIED. THE SALES REVENUE HAS NOT BEEN SHOWN IN THE PROFIT AND LOSS ACCOUNT, FOLLOWING THE PROJECT COMPLETION METHOD AN D IN ACCORDANCE WITH THE ACCOUNTING STANDARDS AND ACCOUNTING POLICY EMPLOYED BY THE COMPANY WHICH IS ACCEPTED. 10.3 THE APPELLANT CONTENDED THAT THESE SELLING EXPENSE S DOES NOT ADD OR ENHANCE THE VALUE OF PROJECT AS PER AS-2, AN D IT IS TO BE FOLLOWED STATUTORILY IN VIEW OF THE PROVISIONS OF SECTION 21 1(3C) OF THE COMPANIES ACT, WHICH CLEARLY STATES THAT ALL SELLING AND DIST RIBUTION COST SHOULD NOT FORM PART OF COST OF INVENTORY AND TO BE RECOGNIZED AS EXPENSE FOR THE PERIOD IT HAS BEEN INCURRED. 10.4 THE BUSINESS OF THE APPELLANT HAS ALREADY COMMENCED AND IT IS A TRITE LAW THAT ONCE THE BUSINESS IS SET UP, THE APP ELLANT IS ENTITLED FOR CLAIM OF SUCH EXPENSES, WHICH IS REVENUE IN NATURE. FURTHER, FOR CLAIMING EXPENSES, IT IS NOT NECESSARY THAT INCOME SHOULD BE EARNED, AS HELD IN THE CASE OF CIT VS. MADAN LAI JAIN (1982) 1 36 ITR 409 (DEL) WHEREIN RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDERA MOODY 115 ITR 519, IT WAS HELD AS UNDER :- 6WHERE AN ASSESSEE HAS INCURRED EXPENSES IN 9 ITA NO.3564/DEL/2016 ORDER TO ACQUIRE A SOURCE OF INCOME BUT THERE IS NO INCOME FROM THAT PARTICULAR SOURCE THEN THE INCOME SHOULD BE TA KEN AS NIL AND THE ASSESSEE SHOULD BE GIVEN SUCH DEDUCTION AS WOULD BE ALLOWABLE TO HIM HAD THERE BEEN A POSITIVE INCOME .' 10.5 THEREFORE, THOUGH THERE IS NO SALES REVENUE HOWEVER THE BUSINESS HAS ALREADY COMMENCED, THE EXPENDITURE CLAIMED BEIN G REVENUE IN NATURE IS NOT LIABLE FOR DISALLOWANCE. 10.6 IT IS IMPORTANT TO UNDERSTAND WHETHER THESE EXPENS ES CAN BE SAID TO BE DIRECTLY RELATED TO THE SOLE PROJECT UND ERTAKEN BY THE APPELLANT AND HAS ENHANCED THE VALUE OF THE PROJECT . AS PER AS-2, THE SELLING EXPENSES CANNOT FORM PART OF THE COST OF IN VENTORY. FURTHER, SELLING COST SHOULD NOT BE CONSIDERED AS PART OF CO NSTRUCTION COST OR DEVELOPMENT COST. THUS, SELLING EXPENSES CANNOT BE TERMED AS DIRECT EXPENSES RELATING TO PROJECT OF THE APPELLANT COMPA NY AND AS SUCH THE IMPUGNED EXPENDITURE ON ADVERTISEMENT AND COMMISSIO N/BROKERAGE DOES NOT ADD TO THE VALUE OF THE PROJECT. RELYING U PON THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. SPICE DISTRIBUTION LTD. (SUPRA) AND CIT VS. DLF UNIVERSAL LTD. (SUPRA), THE EXPENDITURE INCURRED IN HELD TO BE THE INDIRECT EXP ENSES, BEING REVENUE IN NATURE AND LOOKING TO THE FACT THAT THE BUSINESS HAS ALREADY BEEN COMMENCED AND SUBSTANTIAL BOOKING HAS BEEN MADE DUE TO SUCH ADVERTISEMENTS AND BROKERAGE, THESE EXPENDITURE ARE ALLOWABLE FOR THE YEAR UNDER APPEAL AND ACCORDINGLY THE ADDITION IS D IRECTED TO BE DELETED. 10.7 HERE IT IS ALSO TO BE POINTED OUT THAT AO HAS MADE DISALLOWANCE ON THE BASIS OF NO INCOME SHOWN IN THE PROFIT AND L OSS ACCOUNT TOWARDS THIS PROJECT, HOWEVER HE HAS NOT DOUBTED THE INCURR ING OF EXPENSES. ON THE OTHER HAND, THE APPELLANT HAS PROVIDED THE DETA ILS OF SUCH EXPENDITURE AND ALSO DEMONSTRATED THAT THE TAX HAS BEEN DEDUCTED AT SOURCE ON SUCH PAYMENTS. WHILE GIVING EFFECT TO THI S APPELLATE ORDER, THE AO IS DIRECTED TO VERIFY THE DETAILS OF PAYMENTS MA DE VIS--VIS THE TAX DEDUCTED AT SOURCE AND IN CASE OF ANY VIOLATION TOW ARDS TDS IS NOTICED, THE DISALLOWANCE TO BE MADE AS PER THE PROVISIONS O F SECTION 40(A)(IA) OF THE ACT. ACCORDINGLY, THE SAID RELIEF ALLOWED TO TH E APPELLANT WILL BE RESTRICTED TO THE EXTENT OF DISALLOWANCE ATTRACTED AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WITH THESE REMARKS THE APPEAL OF APPELLANT IS PARTLY ALLOWED. 10 ITA NO.3564/DEL/2016 FROM THE PERUSAL OF THE RECORDS, IT CAN BE SEEN THA T THE CIT(A) RIGHTLY HELD THAT THE ASSESSING OFFICER DID NOT DOUBT THE INCURR ING OF EXPENSES. THE FACT REMAINS THAT THE ASSESSEE PROVIDED THE DETAILS OF S UCH EXPENDITURE AND ALSO DEMONSTRATED THAT THE TAX WAS DEDUCTED AT SOURCE ON SUCH PAYMENTS. THEREFORE, THE CIT(A) RIGHTLY DIRECTED THE ASSESSIN G OFFICER TO VERIFY THE DETAILS OF PAYMENTS MADE VIS--VIS THE TAX DEDUCTED AT SOURCE AND FURTHER DIRECTED THAT IN CASE OF ANY VIOLATION TOWARDS TDS IS NOTICED, THE DISALLOWANCE TO BE MADE AS PER THE PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT. THUS, THE CIT(A) RIGHTLY RESTRICTED THE CLAIM TO TH E EXTENT OF DISALLOWANCE ATTRACTED AS PER THE PROVISIONS OF SECTION 40(A)(IA ) OF THE ACT. THE CIT(A) HAS RIGHTLY GIVEN A DETAILED FINDING AND THERE IS NO NE ED TO INTERFERE WITH THE SAME. GROUND NO. 3 IS DISMISSED. 11. IN RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2019. SD/- SD/- ( N.K. BILLAIYA ) ( SUCHITRA KAMBLE ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH OCTOBER, 2019. *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 11 ITA NO.3564/DEL/2016 SL. NO. PARTICULARS DATE 1. DATE OF DICTATION: 23/10/2019 2. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFORE THE DICTATING MEMBER: 23/10/2019 3. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFORE THE OTHER MEMBER: 4. DATE ON WHICH THE APPROVED DRAFT OF ORDER COMES TO THE SR. PS/PS: 5. DATE OF WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT: 6. DATE ON WHICH THE FINAL ORDER RECEIVED AFTER HAVING BEEN SINGED/PRONOUNCED BY THE MEMBERS: 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT: 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9. DATE ON WHICH FILES GOES TO THE HEAD CLERK: 10. DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 11. DATE OF DISPATCH OF ORDER: