ACIT, New Delhi V. M/s. T.G. Buildwell PVt. Ltd., New Delhi

ITA 4095/DEL/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69691 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 03-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure

Judgement Text

ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `I NEW DELHI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.4095/DEL/2013 ASSESSMENT YEAR : 2009-10 ASST.COMMISSIONER OF INCOME TAX, VS M/S T.G. B UILDWELL PVT. LTD., CIRCLE 16(1), NEW DELHI. KHASRA NO. 646-653, MAIN CHHATARPUR MANDIR ROAD, CHHATARPUR, NEW DELHI-110030 (PAN: AACCT7956L) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI KEYUR PATEL, SR. DR RESPONDENT BY : NONE O R D E R PER CHANDRAMOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (A)-19, NEW DELHI DATED 26.06.2013 IN APPEAL NO. 211/11-12 FOR AY 200 9-10. 2. THE SOLE GROUND RAISED BY THE REVENUE IN TH IS APPEAL READS AS UNDER:- 1. LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN ALLOWING THE PROJECT EXPENSES CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 2 3. BRIEFLY STATED, THE FACTS GIVING RISE TO THI S APPEAL ARE THAT THE ASSESSING OFFICER SELECTED THE CASE FOR SCRUTINY AN D STATUTORY NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT) WAS ISSUED AND SERVED ON THE ASSESSEE. DURING THE ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPAN Y HAS SHOWN RECEIPTS TO THE TUNE OF RS.65,66,199 AND THE ASSESSEE HAS CL AIMED EXPENDITURE OF RS.5,01,19,431/- DURING THE YEAR. THE ASSESSING OF FICER REJECTED THE EXPLANATION OFFERED BY THE ASSESSEE BY HOLDING THAT ALL EXPENDITURES INCURRED BY THE ASSESSEE SHOULD BE INCLUDED IN PROJ ECT WORK IN PROGRESS AND, THEREFORE, THE ASSESSING OFFICER DISALLOWED TH E LOSS AMOUNTING TO RS.4,31,66,001/- AND ADDED BACK TO THE PROJECT WORK IN PROGRESS. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE C OMMISSIONER OF INCOME TAX(A) WHICH WAS ALLOWED ON THE GROUND PERTA INING TO THE ISSUE INVOLVED IN THIS APPEAL. NOW, THE REVENUE IS BEFOR E THIS TRIBUNAL IN THE SECOND APPEAL WITH THE SOLE GROUND AS MENTIONED HER EINABOVE. 4. APROPOS SOLE GROUND OF THE REVENUE, THE LD. D R SUBMITTED THAT SINCE THE PROJECT OF THE ASSESSEE WAS IN THE INITIAL STAG E, THE ASSESSEE COMPANY SHOULD HAVE CAPITALIZED THE PREOPERATIVE EXPENSES C LAIMED. THE DR FURTHER POINTED OUT THAT THE ASSESSING OFFICER RIGH TLY OBSERVED THAT WHEN THE ASSESSEE HIMSELF OFFERED ADVERTISEMENT COST AMO UNTING TO ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 3 RS.32,026,589/- FOR INCLUDING UNDER PROJECT WORK IN PROGRESS AND THE ASSESSEE COMPANY WAS IN THE INITIAL STAGE AND NO RE VENUE HAD BEEN RECOGNIZED DURING THE YEAR, THEN ALL EXPENDITURES I NCURRED BY THE ASSESSEE SHOULD BE INCLUDED IN PROJECT WORK IN PROG RESS. THEREFORE, THE ASSESSING OFFICER RIGHTLY DISALLOWED THE LOSS SHOWN BY THE ASSESSEE. THE DR FURTHER CONTENDED THAT THE COMMISSIONER OF INCOM E TAX(A) GRANTED RELIEF TO THE ASSESSEE IGNORING THE ACCOUNTING STAN DARD PRESCRIBED FOR THE CONSTRUCTION AND DEVELOPMENT COMPANIES FOR REAL EST ATE TRANSACTION. THEREFORE, THE COMMISSIONER OF INCOME TAX(A) WAS NO T JUSTIFIED IN GRANTING RELIEF FOR THE ASSESSEE. THE DR PRAYED TO SET ASIDE THE IMPUGNED ORDER BY RESTORING THAT OF THE ASSESSING OFFICER. 5. WHEN THE CASE WAS CALLED FOR HEARING, NEITHER THE ASSESSEE NOR HIS REPRESENTATIVE APPEARED BEFORE THIS TRIBUNAL. ON C AREFUL PERUSAL OF ENTIRE RECORD OF APPEAL PLACED BEFORE US, WE FIND IT APPRO PRIATE TO DECIDE THE APPEAL AFTER HEARING THE DR AND WE PROCEED TO DECID E THE APPEAL ON MERITS IN THE ABSENCE OF ASSESSEE AND HIS REPRESENT ATIVE. 6. AFTER CAREFUL CONSIDERATION OF THE ARGUMENTS OF LD. DR AND CAREFUL PERUSAL OF RECORD, WE OBSERVE THAT THE ASSESSING OF FICER MADE ADDITION WITH FOLLOWING OBSERVATIONS:- 4.3 THE REPLY FILED BY THE ASSESSEE IS NOT FOUND TENABLE. MOREOVER, THE ASSESSEE HIMSELF OFFERED ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 4 EXPENDITURE CLAIMED AS ADVERTISEMENT COST AMOUNTING TO RS.3,20,26,589/- FOR INCLUDING UNDER PROJECT WORK I N PROGRESS. AS THE ASSESSEE COMPANY IS INITIAL STAGE , AND NO REVENUE HAS BEEN RECOGNIZED DURING THE YEAR, ALL TH E EXPENDITURES INCURRED BY THE ASSESSEE SHOULD BE INC LUDED IN PROJECT WORK IN PROGRESS. THEREFORE, THE LOSS A MOUNTING TO RS.4,31,66,001/- IS BEING DISALLOWED AND ADDED B ACK TO THE PROJECT WORK IN PROGRESS. HOWEVER, THE INCOME DECLARED AS BANK INTEREST IS ASSESSED AS INCOME FRO M OTHER SOURCES AND TAXED ACCORDINGLY. 7. DURING THE FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX(A) ALLOWED RELIEF FOR THE ASSESSEE WITH FOLLOWI NG OBSERVATIONS AND FINDINGS:- 3.5 THE APPELLANT HAS ARGUED THAT IN THE ASSTT. OR DER, THE A.O. HAS NOT BEEN ABLE TO REBUT THE APPELLANT'S DETAILED REASONING AND HAS ONLY OBSERVED THAT THE REPLY FILED BY THE ASSESSEE IS NOT FOUND TENABLE'. REGARD ING THE A.O.'S OBSERVATION THAT AS THE ASSESSEE COMPANY IS IN INITIAL STAGE, AND NO REVENUE HAS BEEN RECOGNIZED D URING THE YEAR, ALL THE EXPENDITURES INCURRED BY THE ASSE SSEE SHOULD BE INCLUDED IN PROJECT WORK IN PROGRESS', TH E APPELLANT HAS STATED THAT THE APPELLANT COMPANY WAS INCORPORATED ON 26.10.07 WITH THE OBJECT OF ACTING AS BUILDERS AND COLONISERS. THE APPELLANT ENTERED INTO AN AGREEMENT ON 5.11.07 FOR THE PURCHASE OF LAND WITH M/S WELLWORTH HOMES P. LTD. WHICH HAD A LICENSE ISSUED ON 14.2.07 UNDER THE HARYANA DEVELOPMENT AND REGULATIO N OF URBAN AREA ACT, BY THE DIRECTOR, TOWN AND COUNTR Y PLANNING, HARYANA, FOR SETTING UP OF A GROUP HOUSIN G PROJECT. IT WAS STATED THAT THE APPELLANT LAUNCHED THE GROUP HOUSING PROJECT IN DECEMBER 2007 AND ACCEPTED BOOKINGS FROM THE CUSTOMERS. THE APPELLANT HAS ARGU ED THAT IN VIEW OF THESE FACTS, BUSINESS HAD BEEN SETU P AND BUSINESS ACTIVITY HAD ALREADY COMMENCED, WHEN THE AGREEMENT TO PURCHASE LAND WAS MADE IN NOVEMBER ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 5 2007. THE APPELLANT STATED THEY HAVE MAINTAINED THE IR ACCOUNTS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT AND THE ACCOUNTIN G STANDARDS. IT WAS STATED THAT SINCE THE APPELLANT'S BUSINESS IS TO CARRY ON BUSINESS IN REAL ESTATE AND DEVELOPMENT OF HOUSING PROJECTS, THE PROJECTS ARE I TS INVENTORIES. IT WAS ARGUED THAT ACCOUNTING STANDARD AS 2 AND NOT AS 7 IS APPLICABLE AND AS PER PARA 13 OF TH IS ACCOUNTING STANDARD, THE COST OF INVENTORIES WILL N OT INCLUDE THE ADMINISTRATIVE OVERHEADS AND SELLING AN D DISTRIBUTION COSTS, AND SUCH EXPENSES ARE TO BE RECOGNISED IN THE PERIOD IN WHICH THEY ARE INCURRED . 3.6 THE APPELLANT FURTHER ARGUED THAT AS 7 IS NO T APPLICABLE. IT WAS STATED THAT AS PER THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS, THE POI NT OF TIME AT WHICH ALL SIGNIFICANT RISKS AND REWARD OF OWNERSHIP CAN BE CONSIDERED AS TRANSFERRED, IS REQU IRED TO BE DETERMINED ON THE BASIS OF THE TERMS AND COND ITIONS OF THE AGREEMENT FOR SALE. THE APPELLANT STATED THA T IN HIS CASE, 25% OF CONSTRUCTION COST AND DEVELOPMENT COST S HAVE NOT BEEN INCURRED AND REST OF THE CONDITIONS REGARDING 25% OF SALES AND 10% OF REALIZATION OF REVENUE HAVE ALSO NOT BEEN FULFILLED. FURTHER AS PE R PARA 32 OF AS-7, THE PROJECT IS IN THE EARLY STAGES AND OUTCOME OF THE CONTRACT CANNOT BE ESTIMATED RELIABLY, THERE FORE NO REVENUE CAN BE RECOGNISED. THE APPELLANT STATED THA T IN HIS CASE, THE RIGHT AND OWNERSHIP IS RETAINED WITH THE COMPANY AND IT DOES NOT TRANSFER ANY LEGAL RIGHT OR TITLE TO THE APARTMENT AND THE AGREEMENT IS MERELY FOR ALLOTMENT OF A SPECIFIED APARTMENT SUBJECT TO FULFI LMENT OF SPECIFIED CONDITIONS. THE APPELLANT POINTED OUT THA T AS PER PARA 8 OF THE AGREEMENT, TIMELY PAYMENT OF INSTALMENTS IS THE ESSENCE OF THE AGREEMENT, FALLIN G WHICH THE ALLOTMENT IS LIABLE TO BE CANCELLED. THE APPELL ANT STATED THAT THE COMPANY IS IN NO WAY ACTING AS A CONTRACTOR TO THE ALLOTTEE IN RESPECT OF THE APARTM ENT ALLOTTED. THE APPELLANT ARGUED THAT THE EXPENSES CL AIMED RELATED TO THE OPERATING EXPENSES WHICH ARE NOT REL ATED TO ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 6 THE PROJECT IN PROGRESS AND THESE ARE TO BE ALLOWED AS REVENUE EXPENSES. 3.7 REGARDING THE A.O.'S OBSERVATION THAT 'THE A SSESSEE HIMSELF OFFERED EXPENDITURE CLAIMED AS ADVERTISE MENT COST AMOUNTING TO RS. 3,20,26, 589/- FOR INCLUD ING UNDER PROJECT WORK IN PROGRESS', THE APPELLANT STAT ED THAT SUCH OFFER WAS MADE UNDER COMPULSION AND MISUNDERSTANDING. THE APPELLANT ARGUED THAT THE ALLOWABILITY OF EXPENSES IS TO BE DETERMINED ON THE BASIS OF LEGAL PRINCIPLES AND ACCOUNTING STANDARDS AND NO T ON THE BASIS OF ANY OFFER UNDER COMPULSION AND MISUNDERSTANDING. IN THIS REGARD, THE APPELLANT REF ERRED TO JUDICIAL DECISIONS AND STATED THAT AS PER CBDT CIRCULAR NO. 14(XL-35) OF 1955 DATED 11.4.1955, THE DEPARTMENT IS NOT TO TAKE ADVANTAGE OF ASSESSEE'S MISUNDERSTANDING BUT IS REQUIRED TO COMPUTE THE TAX AS PER LAW. THE APPELLANT HAS ARGUED THAT THEY HAVE MAINTAINED THEIR ACCOUNTS IN ACCORDANCE WITH GENERA LLY ACCEPTED ACCOUNTING PRINCIPLES, AND HAVE FULLY COMP LIED WITH THE REQUIREMENTS OF THE COMPANIES ACT AND THE ACCOUNTING STANDARDS. THE APPELLANT POINTED OUT THA T THEIR CASE WAS FULLY SUPPORTED BY THE JUDICIAL DECI SIONS CITED. 3.8 IT IS SIGNIFICANT THAT THE APPELLANT COMPANY WAS INCORPORATED ON 26.10.07 AND ENTERED INTO AN AGREEM ENT ON 5.11.07 FOR THE PURCHASE OF LAND WITH M/S WELLWO RTH HOMES P. LTD. WHICH HAD A LICENSE ISSUED ON 14.2.07 BY THE DIRECTOR, TOWN AND COUNTRY PLANNING, HARYANA, F OR SETTING UP OF A GROUP HOUSING PROJECT. THE APPELLAN T HAS CORRECTLY ARGUED THAT IN VIEW OF THESE FACTS, BUSIN ESS HAD ALREADY BEEN SETUP AND BUSINESS ACTIVITY HAD ALREAD Y COMMENCED, THEREFORE, THE EXPENSES WERE ALLOWABLE REVENUE EXPENDITURE. THE APPELLANT HAS POINTED OUT THEY HAVE MAINTAINED THEIR ACCOUNTS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES A CT AND THE ACCOUNTING STANDARDS. THE A.O. HAS NOT BROU GHT ANY MATERIAL ON RECORD TO CONTROVERT THE APPELLANT' S ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 7 CLAIMS. CONSIDERING THE FACTS AND JUDICIAL DECISION S ON THIS SUBJECT, THE APPELLANT'S CLAIM IS JUSTIFIED AN D THE DECISION OF THE A.O. TO INCLUDE THE ENTIRE EXPENDIT URE IN PROJECT WORK-IN-PROGRESS, AND DISALLOW THE LOSS CLA IMED, IS NOT SUSTAINABLE IN LAW AND IS THEREFORE DELETED. THE GROUND IS ALLOWED. 8. ON SPECIFIC QUERY FROM THE BENCH, LD. DR FAIR LY ACCEPTED THAT THE NEWLY EMERGED ACCOUNTING STANDARD PRESCRIBED FOR RE AL ESTATE AND DEVELOPMENT COMPANIES IS APPLICABLE FROM THE YEAR 2 012-13 ONWARDS. IN THE PRESENT CASE, THE ASSESSING OFFICER HELD THAT S INCE THE PROJECT WAS IN THE INITIAL STAGE, THE ASSESSEE COMPANY SHOULD HAVE CAPITALIZED THE EXPENDITURE CLAIMED. PER CONTRA, THE COMMISSIONER OF INCOME TAX(A) NOTICED THAT THE COMPANY WAS INCORPORATED ON 26.10. 2007 AND ENTERED INTO AN AGREEMENT ON PURCHASE OF LAND ON 5.11.2007. THE COMMISSIONER OF INCOME TAX(A) RIGHTLY OBSERVED THAT IN VIEW OF T HESE FACTS, BUSINESS OF THE ASSESSEE COMPANY HAD ALREADY BEEN SET UP AND TH E BUSINESS ACTIVITY HAD ALREADY COMMENCED, THEREFORE, THE EXPENSES WERE ALLOWABLE AS REVENUE EXPENDITURE. FROM THE ASSESSMENT ORDER, WE HAVE ALREADY NOTICED THAT THE ASSESSEE ITSELF OFFERED EXPENDITUR E CLAIMED AS ADVERTISEMENT COST AMOUNTING TO RS. 32,026,589 FOR INCLUDING UNDER PROJECT WORK IN PROGRESS WHICH SHOW THAT THE ASSESS EE WAS CAREFUL ABOUT THE ALLOCATION OF THE COST OF ADVERTISEMENT TO THE RESPECTIVE PROJECT AND WHICH WAS OFFERED TO BE ADDED TO THE COST OF PROJEC T WORK IN PROGRESS. ITA NO. 4095/DEL/2013 ASSTT. YEAR: 2009-10 8 UNDER THESE CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT THE ASSESSING OFFICER MADE DISALLOWANCE AND ADDITION ON WRONG PRE MISE WHICH WAS DELETED BY THE COMMISSIONER OF INCOME TAX(A) ON THE BASIS OF JUSTIFIED AND COGENT REASONS. WE ARE UNABLE TO SEE ANY PERVE RSITY, AMBIGUITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE FINDIN GS OF THE COMMISSIONER OF INCOME TAX(A) IN THE IMPUGNED ORDER. ACCORDINGL Y, SOLE GROUND OF THE REVENUE, BEING DEVOID OF MERITS, IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.12.20 13. SD/- SD/- (PRAMOD KUMAR) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 26TH DECEMBER 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR