ACIT 3(2)(2), MUMBAI V. PALACE GARDENS CHENNAI SEZ PVT. LTD., MUMBAI

ITA 5205/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5640 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 17-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR RAILD DR
• Assessee Lawyers: CHETAN KARIA LD
• Keywords: Revised return; Capital expenditure
• Section: 143(3)

Judgement Text

ITA.NO.5205/MUM/2016 PALACE GARDENS CHENNAI SEZ PRIVATE LIMITED ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.5205/MUM/2016 ( ASSESSMENT YEAR: 2012-13) ASSISTANT COMMISSIONER OF INCOME TAX -3(2)(2) ROOM NO.674, 6 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 VS. PALA C E GARDENS CHENNAI SEZ PRIVATE LIMITED 514, DALAMAL TOWERS, 211 FPJ MARG, NARIMAN POINT MUMBAI- 400 021 ! ' PAN/GIR NO. AACCB-9379-C ( !# APPELLANT ) : ( $%!# RESPONDENT ) ASSESSEE BY : CHETAN KARIA, LD.AR REVENUE BY : SAURABH KUMAR RAI,LD.DR & DATE OF HEARING : 29/06/2018 '() / DATE OF PRONOUNCEMENT : 04 /07/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-8 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-8/IT-201/15-16 DATED 16/05/2016 BY RAISING THE FOLLOWING SOLE EFFECTIVE GROUNDS OF APPEAL: WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) WAS RIGHT IN ALLOWING THE EXPENSES OF RS.3,08,64,906/- UNDER VAR IOUS HEADS AS REVENUE ITA.NO.5205/MUM/2016 PALACE GARDENS CHENNAI SEZ PRIVATE LIMITED ASSESSMENT YEAR-2012-13 2 EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE AS HELD BY THE AO IGNORING THE FACTS THAT THE ASSESSEE HAD ONLY ONE PROJECT IN HAND AT CHENNA I AND WAS FOLLOWING PROJECT COMPLETION METHOD OF REVENUE RECOGNITION. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-3(2)(2), MUMBAI [ AO] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 23/03/2015 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.6.96 LACS AFTER CERTA IN DISALLOWANCES AS AGAINST REVISED RETURNED LOSS OF RS.365.91 LACS E -FILED BY THE ASSESSEE FOR THE IMPUGNED AY. AS EVIDENT FROM GROUNDS OF APP EAL, THE SOLE DISPUTE INVOLVED UNDER APPEAL IS RELATED WITH EXPEN DITURE AS CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT, WHICH IN THE OPINION OF LD. AO, WERE REQUIRED TO BE CAPITALIZED KEEPING IN VIEW THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. 2. DURING IMPUGNED AY, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE WAS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT . IT UNDERTOOK ONLY ONE PROJECT DURING THE YEAR WHICH WA S NOT COMPLETED. ACCORDINGLY, IT CAPITALIZED VARIOUS EXPENSES WHICH, INTER-ALIA , INCLUDED PROFESSIONAL FEES, TECHNICAL EXPENSES, INSURANCE & CIVIL WORK UNDER THE HEAD CAPITAL WORK-IN-PROGRESS WHICH WAS REFLECTED IN THE BALANCE SHEET. AT THE SAME TIME, IT CLAIMED CERTAIN EXPENSES VIZ. FINANCE COST, MARKETING SERVICE COST, SALES COMMISSION, LEGAL, PR OFESSION AND OTHER FEES IN THE PROFIT & LOSS ACCOUNT. IT WAS NOTED THAT THE ASSESSEE REFLECTED RECEIPT OF ADVANCES AGAINST THE PROJECTS AT RS.18.7 0 CRORES AND REFLECTED CLOSING WIP AT RS.17.95 CRORES. THE LD. AO, OBSERVING THAT THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD, DISALLOWED THESE EXPENSES AS CLAIMED BY THE ASSESSEE IN PROFIT & LOS S ACCOUNT. AS A ITA.NO.5205/MUM/2016 PALACE GARDENS CHENNAI SEZ PRIVATE LIMITED ASSESSMENT YEAR-2012-13 3 LOGICAL CONSEQUENCE, THE CAPITALIZATION THEREOF WAS ALLOWED TO THE ASSESSEE. THE BREAK-UP OF THE DISALLOWED EXPENDITUR E WAS AS FOLLOWS:- SR.NO. NATURE OF EXPENSES AMOUNT (RS . ) 1 INTEREST EXPENSES (PROCESSING FEES) 41,79,911 2 MARKETING SERVICE COST 1,65,65,618 3 SALES COMMISSION 90,67,159 4 LEGAL, PROFESSIONAL AND OTHER FEES 10,52,218 TOTAL 3,08,64,906 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 16/05/2016 WHE REIN LD. CIT(A) CONCURRED WITH THE STAND OF THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS:- 5.1.1 THIS GROUND PERTAINS TO DISALLOWANCE OF BU SINESS EXPENSES OF RS.3,08,64,906/- AND CAPITALIZING IT TO WIP. I FIND THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE AT PARA 7 OF HIS ORDER. THE ASSESSING OF FICER HELD THAT AS STATED ABOVE, IN THE PRECEDING PARAS AS THE ASSESSEE HAS ONLY ONE PR OJECT IN HAND AND THE ADVANCES RECEIVED BY THE ASSESSEE IN THE BUSINESS IS WHOLLY RECEIVED FROM ONE PROJECT AND THE ASSESSEE ADOPTED THE METHOD OF ACCOUNTING TO AR RIVE AT PROFIT AT THE COMPLETION OF THE PROJECT, HENCE ALL THE EXPENSES RELATING ARE TOWARDS THE PROJECT WHICH ARE ELABORATELY DISCUSSED HEREIN ABOVE. THEREFORE, THE TOTAL EXPENSES OF RS.3,08,64,906/- IS CAPITALIZED TO THE WIP ACCOUNT AND REDUCED FROM THE PROFIT AND LOSS ACCOUNT. THESE EXPENSES WOULD BE ALLOWABLE IN THE YEAR OF COMPLETION OF THE PROJECT. 5.1.2 I FIND THAT THE ISSUE AT HAND IS SQUARELY C OVERED BY THE DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF APPELLANTS GROUP CONCERN M/S HIRANANDANI PALACE GARDENS PVT. LTD IN ITA NO.4579/M/2013 FOR A .Y.2009-10 WHEREIN THE HONBLE ITAT HAS HELD THAT THE ASSESSEE, THUS, HAS FOLLOWED THE ACCOUNTING METHO D WHICH HAS BEEN CONSISTENTLY FOLLOWED BY IT AND WHICH IS AS PER RECOGNIZED PRINCIPL ES OF ACCOUNTING. IN VIEW OF THE ABOVE DISCUSSION OF THE MATTER AND FOLLOWING THE ABOVE DECISIO N OF TRIBUNAL (I.E. LODHA PALAZZO VS. ACIT, ITA NO.2298/M/2012 DATED 10.12.2014.) FOR THE SAKE OF CONSISTENCY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 5.1.3 THEREFORE, IN VIEW OF THE FACTS AND CIRCUMS TANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF JURISDICTION TRIBUNAL IN THE CASE OF HIRANANDANI PALACE GARDENS PVT. LTD. CITED SUPRA, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXPENSES OF RS.3,08,64,906/- TO BE DEBITED FROM PRO FIT & LOSS ACCOUNT. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. AGGRIEVED, THE REVENUES APPEAL IS IN FURTHER APPEA L BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR], SH. SAURABH KUMAR RAI RELIED ON THE FINDING OF THE LD. AO AND SUBMITTED T HAT THE ASSESSEE ITA.NO.5205/MUM/2016 PALACE GARDENS CHENNAI SEZ PRIVATE LIMITED ASSESSMENT YEAR-2012-13 4 WAS FOLLOWING COMPLETED CONTRACT METHOD OF ACCOUNTING AND THEREFORE, ALL THE EXPENDITURES WERE TO BE CAPITALIZED SINCE THE P ROJECT WAS NOT COMPLETED DURING THE YEAR. PER CONTRA, LD. AUHTORIZED REPRESENTATIVE FOR ASSESSEE [AR] SHRI. CHETAN KARIA, DRAWING OUR ATTENTION TO THE FINANCIAL STATEMENTS OF THE ASSESSEE, CONTROVERTED THE FINDING OF THE LD. AO THAT THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT OF ACCOUNTING. THE REVENUE, UPON CONFRONTATION OF THE AFORESAID CO NTENTION BY THE BENCH, PLACED ON RECORD LETTER DATED 06/04/2018 ISS UED BY LD. AO, IN THIS REGARD. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. AFTER DUE CONSIDERATION OF THE FACTUAL MATRIX, WE FIND THAT THE REVENUE IS UNABLE TO CONTROVERT THE FACT T HAT THE ASSESSEE WAS FOLLOWING PERCENTAGE OF COMPLETION METHOD WHICH IS EVIDENT FROM THE AFORESAID REPORT OF LD. AO AND THE SAME IS EXTRACTE D BELOW:- 1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS SUBMITTED AUDIT REPORT. ON VERIFICATION OF THE AUDIT REPORT, THE ACCOUNTING POLICES IS DISCLOSED AT PARA 2.7, PAGE 13 WHICH IS REPRODUCED AS UNDER:- 2.7 REVENUE RECOGNITION REVENUE IS RECOGNIZED TO THE EXTENT THAT IT IS PROBABL E THAT THE ECONOMIC BENEFIT WILL FLOW TO THE COMPANY AND THE REVENUE CAN BE RELIABLE MEASURED. INCOME FROM REAL ESTATE SALES IS RECOGNIZED ON TRANSFE R OF ALL SIGNIFICANT RISKS AND REWARDS OF OWNERSHIP TO THE BUYERS AND IT IS NOT UNREA SONABLE TO EXPECT ULTIMATE COLLECTION AND NO SIGNIFICANT UNCERTAINTY EXISTS REGARDIN G THE AMOUNT OF THE CONSIDERATION. HOWEVER IF, AT THE TIME OF TRANSFER SUBS TANTIAL ACTS ARE YET TO BE PERFORMED UNDER THE CONTRACT, REVENUE IS RECOGNIZED ON PROPORTIONATE BASIS AS THE ACTS ARE PERFORMED. I.E. ON THE PERCENTAGE OF COMPLETI ON BASIS. DETERMINATION OF REVENUE UNDER THE PERCENTAGE OF COMP LETION METHOD NECESSARY INVOLVES MAKING ESTIMATES THE COMPANY, SOME OF WHICH ARE OF A TECHNICAL NATURE, CONCERNING, WHERE RELEVANT, THE PERCENTAGE OF COMPLETI ON, COSTS TO COMPLETION, THE EXPECTED REVENUES FROM THE PROJECT / ACTIVITY AND THE F ORESEEABLE LOSSES TO COMPLETION. THE ESTIMATES OF COSTS ARE PERIODICALLY REV IEWED BY THE MANAGEMENT AND THE EFFECT OF CHANGES IN ESTIMATES IS RECOGNIZED IN THE PERIOD SUCH CHANGES ARE RECOGNIZED. WHEN THE TOTAL PROJECT COST IS ESTIMATED T O EXCEED TOTAL REVENUES FROM THE PROJECT, THE LOSS IS RECOGNIZED IMMEDIATELY. 2. ON VERIFICATION OF RECORD, IT IS NOTICED THAT TH E AY 2012-13, IS THE FIRST YEARS WHEREIN THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T.ACT, 1961. THE ROI FOR A.Y.2007-08 TO A.Y.2011-12 IS ENCLOSED HERE WITH FOR YOUR KIDN PERUSAL. ITA.NO.5205/MUM/2016 PALACE GARDENS CHENNAI SEZ PRIVATE LIMITED ASSESSMENT YEAR-2012-13 5 NOTHING ON RECORD SUGGEST THAT THERE WAS ANY CHANGE IN THE ACCOUNTING POLICIES ADOPTED BY THE ASSESSEE AND FURTHER, THE G ENUINENESS OF THE EXPENDITURE IS NOT UNDER DISPUTE SINCE LD. AO HAS A LREADY ALLOWED THE CAPITALIZATION OF THESE EXPENSES. ON THE ABOVE FACT S AND CIRCUMSTANCES, WE FIND THAT THE STAND OF LD. CIT(A) ON PLACING REL IANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF OTHER GROUP CONCERNS, ON SIMILAR FACTUAL MATRIX, WAS QUITE APPROPRIATE AND LOGICAL. THE REVE NUE IS UNABLE TO CONTROVERT THESE DECISIONS BY ANY BINDING JUDICIAL PRECEDENTS. THEREFORE, FINDING NO INFIRMITY IN THE ORDER OF LD. FIRST APPE LLATE AUTHORITY, WE DISMISS THE REVENUES APPEAL. 6. RESULTANTLY, THE REVENUES APPEAL STAND DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH JULY, 2018 SD/- SD/- (SAKTIJIT DEY) (MA NOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04.07.2018 SR.PS:-THIRUMALESH 2 COPYOFTHEORDERFORWARDEDTO: 1. 34567 2 THE APPELLANT 2. ;<67 2 THE RESPONDENT 3. @ ABC345D 2 THE CITCAD 4. @ AB 2 CIT CONCERNED 5. JKLM5 ;BNO @ 345P 3NO@Q 2 DR ITAT MUMBAI 6. MSTU 2 GUARD FILE '# $ %'&/ BY ORDER (/%)'*+,-'& CDY.2ASSTT.REGISTRARD *&-.*/0&12 /ITAT2MUMBAI