ACIT, CIRCLE- 2(2), NEW DELHI V. ANTHEM INFRASTRUCTURE PVT. LTD., NEW DELHI

ITA 5676/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2509 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 05-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Assessee Lawyers: AMIT GOEL
• Keywords: Depreciation; Business expenditure; Revenue expenditure
• Section: 143(3); 14A; 143(1); 13; 22; 145; 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI G.S.PANNU, PRESIDENT & SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 ACIT, CIRCLE-2(2), NEW DELHI. VS ANTHEM INFRASTRUCTURE PVT.LTD., 501, SACHDEVA TOWER, KARKARDOOMA, NEW DELHI-110092. PAN-AAICA7355D APPELLANT RESPONDENT APPELLANT BY SH. SATPAL GULATI, CIT DR RESPONDENT BY SH. AMIT GOEL, CA & SH.NIPUN MITTAL, CA DATE OF HEARING 14.10.2021 DATE OF PRONOUNCEMENT 29 .10.2021 ORDER PER KUL BHARAT, JM : THIS APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2014-15 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-I, NEW DELHI DATED 19.06.2017. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.15,65,60,883/-MADE BY THE AO TOWARDS NOT RECOGNIZATION OF REVENUE AS PER AS-9, AS THE ASSESSEE HAD VIOLATED T HE LAW BY NOT FOLLOWING PERCENTAGE OF COMPLETION METHOD (POCM) AS PRESCRIBE D BY ICAI IN AS-7. 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS.1,63,15,044/- MADE BY THE AO ON ACCOUNT OF BR OKERAGE EXPENSES. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.9,85,667/-MADE BY THE AO ON ACCOUNT OF INTERE ST FREE ADVANCE GIVEN TO GROUP COMPANIES. ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 2 4. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. IN THE YEAR UNDER APP EAL, THE ASSESSEE WAS ENGAGED IN DEVELOPING A RESIDENTIAL HOUSING PROJECT NAMELY FRENCH APARTMENTS AT NOIDA EXTENSION. THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.09.2014 DECLARING NIL INCOME WITH LOSS OF RS.2, 58,52,776/-. THE CASE OF ASSESSEE WAS TAKEN UP FOR THE SCRUTINY ASSESSMENT A ND THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS FRAMED ON 30.12.206, ASSESSING THE TOTAL INCOME AT RS.14,80,79,34 0/- AGAINST THE LOSS OF RS.2,58,52,776/-. THE ASSESSING OFFICER MADE ADDIT ION ON ACCOUNT OF NON- RECOGNIZING THE REVENUE ON THE BASIS OF PERCENTAGE OF COMPLETION METHOD (POCM). FURTHER, THE ASSESSING OFFICER DISALLOWE D BROKERAGE EXPENSES OF RS.1,63,15,044/-, DISALLOWANCE OF INTEREST EXPENSES OF RS.9,85,667/- AND THE DISALLOWANCE MADE BY INVOKING THE PROVISION OF SECT ION 14A OF RS.70,520/-. 3. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED A PPEAL BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS AND MATERIAL PLACED BEFORE HIM, PARTLY ALLOWED THE APPEAL. THEREBY, LD.CIT(A) DELETED THE ADDITION OF RS.15,65,60,883/- MADE ON ACCOUNT OF APPLYING POCM, OF RS.1,63,15,044/- MADE ON ACCOUNT OF DISALLOWANCE OF BROKERAGE OF RS. 9,85,667/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES AND CO NFIRMED THE ADDITION OF RS.70,520/- AS MADE BY MAKING DISALLOWANCE U/S 14A OF THE ACT. ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 3 4. THE FIRST GROUND OF REVENUES APPEAL IS IN RESPE CT OF ADDITION MADE ON ACCOUNT OF RECOGNITION OF REVENUE ON THE BASIS OF P OCM OF THE PROJECT. 5. LD.CIT DR, SHRI SATPAL GULATI SUPPORTED THE ASSE SSMENT ORDER AND SUBMITTED THAT LD.CIT(A) COMMITTED AN ERROR FOR NOT SUSTAINING THE IMPUGNED ADDITION. HE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF HOUSING PROJECTS. THEREFORE, AS PER ACCOUNTING STANDARDS AS PRESCRIBED BY ICAI, THE ASSESSEE WAS REQUIRED TO RE COGNIZE THE REVENUE ON THE BASIS OF POCM. 6. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE OP POSED THE SUBMISSIONS OF LD.CIT DR. HE SUBMITTED THAT THE LAW IS WELL SE TTLED THAT NO ADDITION CAN BE MADE, MERELY ON THE BASIS THAT THE ASSESSEE IS NOT FOLLOWING A PARTICULAR METHOD OF ACCOUNTING. THE ASSESSEE HAD BEEN CONSIS TENTLY FOLLOWING THE SAME METHOD WHICH WAS EVEN ACCEPTED BY THE REVENUE. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD, SUGGESTING THAT THE METHOD APPLIED BY THE ASSESSEE, THE CORRECT FIGURE OF PROFIT WOULD NOT BE DEDUCED. HE SUBMITTED THAT THE REVENUE HAS ACCEPTED THIS METHOD IN EARLIER YEA RS. THEREFORE, NO FAULT CAN BE FOUND WITH FINDING OF LD.CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORDS. THE GRIEVANCE OF THE REVENUE BEFORE US THAT LD. CIT(A) COMMITTED GROSS ERROR IN DELETING THE ADDITION AS MADE BY THE ASSESSING OFFICER. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE OUGHT TO HAVE RECOGNIZED REVENUE ON THE PRINCIPLES OF POCM. THE LD. CIT(A) DECIDED THE ISS UE BY OBSERVING AS UNDER:- ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 4 DECISION: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT A ND OBSERVATIONS OF THE ASSESSING OFFICER MADE IN THE ASSESSMENT ORDER. IT IS SEEN THAT APPELLANT IS CONSTRUCTING A PROJECT KNOWN AS 'FRENCH APARTMENTS' AT NOIDA EXTENSION. THE APPELLANT COMPANY STARTED THIS PROJECT IN F.Y. 2010-11. FOR RECOGNIZING REVENUE FROM THIS PROJECT, THE APPELLAN T COMPANY IS FOLLOWING PROJECT COMPLETION METHOD AS PER AS-9. HOWEVER, IN THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER HAS HELD THAT ACCOUN TING POLICY FOLLOWED BY THE APPELLANT IS NOT ACCEPTABLE AS IT IS PRESCRIBED BY THE ICAI AND HAS APPLIED THE PERCENTAGE OF COMPLETION METHOD (POCM) FOR RECOGNIZING THE REVENUE. THE ISSUE IN THE APPEAL IS WHETHER IT IS M ANDATORY FOR THE APPELLANT TO FOLLOW THE POCM METHOD. AS PER THE OBS ERVATION OF THE ASSESSING OFFICER, IT IS MANDATORY FOR THE APPELLAN T TO FOLLOW POCM, WHEREAS AS PER THE SUBMISSION OF THE APPELLANT IT I S NOT MANDATORY. THE ASSESSING OFFICER WHILE HOLDING THAT POCM IS MANDAT ORY FOR THE APPELLANT HAS PLACED RELIANCE ON THE GUIDANCE NOTE ON REVENUE RECOGNITION FOR REAL ESTATE TRANSACTIONS ISSUE BY CAI IN MAY 2012. THE A R OF THE APPELLANT SUBMITTED BEFORE ME THAT TAXABLE INCOME HAS TO BE C OMPUTED AS PER THE PROVISION OF INCOME TAX ACT / RULES AND NOT ACCORDI NG TO THE GUIDANCE NOTE ISSUED BY ICAI. THE PROJECTION COMPLETION MET HOD IS A RECOGNIZED METHOD OF ACCOUNTING FOR COMPUTING THE TAXABLE INCO ME AS PER PROVISIONS OF INCOME TAX ACT. THE PROVISIONS OF SECTION 145 OF IN COME TAX ACT, 1961 STATES AS UNDER: '145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURC ES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED I N ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME 2 [INCOME COMPUTATION AND DISCLOSURE S TANDARDS] TO BE ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 5 FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) 3[ HAS NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, OR INCOME HAS N OT BEEN COMPUTED IN ACCORDANCE WITH THE STANDARDS NOTIFIED UNDER SUBSECTION (2)], THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144.]' AS PER AFORESAID PROVISIONS OF SECTION 145, IT IS A PPARENT THAT INCOME OF THE ASSESSEE HAS TO BE COMPUTED AS PER METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IT IS PROVIDED IN SUB-SEC TION (3) THAT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORREC TNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING HAS NOT BEEN REGULARLY FOLLOWED OR THE INCOME HAS NOT BEEN COMPUTED IN ACCORDANCE WITH THE STANDARDS NOTIFIED UNDER SUB-SE CTION (2), THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144 OF THE I.T. ACT. IN THE PRESENT CASE, T HE ASSESSING OFFICER HAS DISREGARDED THE APPELLANT'S REGULARLY FOLLOWED METH OD OF ACCOUNTING OF PROJECT COMPLETION METHOD AND HAS APPLIED PERCENTAG E OF COMPLETION METHOD FOR RECOGNIZING REVENUE. HOWEVER, WHILE DOI NG SO, THE ASSESSING OFFICER HAS NOT INVOKED THE PROVISIONS OF SECTION 1 44 OF THE I.T. ACT WHICH IS MANDATORY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT. IT IS SEEN THAT ASSESSING OFFICER HAS FRAMED THE ASSESSMENT U/S 143(3) OF THE I.T. ACT WITHOUT REJECTING THE BOOKS OF ACCOUNTS. IT IS OBSERVED FRO M THE ASSESSMENT ORDER THAT ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFI CIENCY WITH REFERENCE TO COMPUTATION OF INCOME AND DISCLOSURE OF ACCOUNTING STANDARDS NOTIFIED BY CBDT. IT IS SEEN THAT THE APPELLANT HAS BEEN FOLLOW ING THE PROJECT COMPLETION METHOD SINCE ITS INCEPTION FROM AY. 2011 -12 AND HAS RECOGNIZED REVENUE IN ACCORDANCE WITH AS-9 OF THE I CAI. IT IS ALSO OBSERVED ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 6 THAT THIS METHOD OF ACCOUNTING FOLLOWED BY THE APPE LLANT HAS BEEN ACCEPTED IN THE PAST ASSESSMENTS INCLUDING THE ASSE SSMENT MADE U/S 143(3) FOR AY. 2012-13. WHILE REJECTING THE APPELLA NT'S PROJECT COMPLETION METHOD, THE ASSESSING OFFICER HAS NOT POINTED OUT A S TO HOW THE METHOD OF ACCOUNTING FOLLOWED BY APPELLANT WAS NOT IN ACCORDA NCE TO THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 1961. IT WAS NOT JUSTIFIED ON THE PART OF THE ASSESSING OFFICER TO DISREGARD THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT WITHOUT POINTING OUT ANY DEFECTS AND VIOLATION OF PROVISIONS OF SECTION 145 OF THE ACT. IT IS SEEN TH AT AS PER THE PROVISIONS OF SECTION 145, IT IS NOT MANDATORY FOR THE APPELLANT TO FOLLOW POCM WHICH IS EVIDENT FROM THE FACT THAT THE CBDT HAS ISSUED DRAF T INCOME COMPUTATION AND DISCLOSURE STANDARD (ICDS) OF REAL ESTATE TRANS ACTIONS IN MAY 2017 FOR DISCUSSION WHEREIN IT HAS BEEN PROPOSED TO PROV IDE FOR RECOGNITION OF REVENUE IN REAL ESTATE TRANSACTION BASED ON PERCENT AGE OF COMPLETION METHOD. THIS ICDS PROPOSAL IS ONLY AT DISCUSSION ST AGE AND HAS NOT BEEN FINALIZED AS YET, THEREFORE, IT IS NOT MANDATORY FO R THE APPELLANT TO FOLLOW PERCENTAGE OF COMPLETION METHOD IN AY. 2014-15. IT IS ALSO SEEN THAT SECTION 145 HAS NOT PRESCRIBED ANY SUCH CONDITIONS FOR RECOGNIZING THE REVENUE IN THE REAL ESTATE TRANSACTIONS. HAD THE PE RCENTAGE OF COMPLETION METHOD BEEN MANDATORY EARLIER, THERE WOULD HAVE BEE N NO NEED FOR THE CBDT FOR RELEASING THE DRAFT OF ICDS IN MAY 2017. T HIS IMPLIES THAT POCM IS NOT MANDATORY FOR THE ASSESSMENT YEARS PRIOR TO 2017-18. IN VIEW OF THESE FACTS, IT IS HELD THAT OBSERVATION OF THE ASS ESSING OFFICER WITH REGARD TO POCM IN THE CASE OF APPELLANT IS NOT BASED ON CO RRECT APPRECIATION OF FACTS. ACCORDINGLY, THE POCM METHOD APPLIED BY THE AO FOR RECOGNIZING REVENUE IN THE CASE OF APPELLANT FOR THE YEAR UNDER CONSIDERATION IS REJECTED AND ADDITION MADE ON THE BASIS OF SUCH MET HOD OF RS.15,65,60,883/- IS DELETED. IN THIS REGARD, RELIA NCE IS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS ON THE ISSUE: THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSION ER OF INCOME TAX V. BILAHARI INVESTMENT P LTD. (2008) 299 ITR 1 (HON'BLE SUPREME COURT) HELD AS UNDER :- ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 7 'RECOGNITION/IDENTIFICATION OF INCOME UNDER THE 196 1 ACT IS ATTAINABLE BY SEVERAL METHODS OF ACCOUNTING. IT MAY BE NOTED THAT THE SAME RESULT COULD BE ATTAINED BY ANYONE OF THE ACCOUNTING METHODS. THE COMPLETED CONTRACT METHOD IS ONE SUCH METHOD. SIMILARLY, THE PERCENTAGE OF COMPLETION METHOD IS A NOTHER SUCH METHOD. UNDER THE COMPLETED CONTRACT METHOD, THE RE VENUE IS NOT RECOGNIZED UNTIL THE CONTRACT IS COMPLETE. UNDER TH E SAID METHOD, COSTS ARE ACCUMULATED DURING THE COURSE OF THE CONT RACT. THE PROFIT AND LOSS IS ESTABLISHED IN THE LAST ACCOUNTING PERI OD AND TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. THE SAID METHOD DET ERMINES RESULTS ONLY WHEN THE CONTRACT IS COMPLETED. THIS METHOD LE ADS TO OBJECTIVE ASSESSMENT OF THE RESULTS OF THE CONTRACT. ON THE O THER HAND, THE PERCENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PER IODIC RECOGNITION OF INCOME IN ORDER TO REFLECT CURRENT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZED UNDER THE METHOD DETERMINED BY R EFERENCE TO THE STAGE OF COMPLETION OF THE CONTRACT. THE STAGE OF C OMPLETION CAN BE LOOKED AT UNDER THIS METHOD BY TAKING INTO CONSIDER ATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT. THE ABOVE INDICATES THE DIFFEREN CE BETWEEN THE COMPLETED CONTRACT METHOD AND THE PERCENTAGE OF COM PLETION METHOD. RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF PARAS BUILDTECH INDIA PVT. LTD. VS. CIT [ITA NO. 602/2015] WHEREIN IT IS HELD AS UNDER :- '18. SECTION 145 (1) OF THE ACT STATES THAT THE INC OME CHARGEABLE UNDER THE HEADS 'PROFITS AND GAINS OF BUSINESS OR P ROFESSION' SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCA NTILE SYSTEM OF ACCOUNTING 'REGULARLY EMPLOYED BY THE ASSESSEE'. IT IS ONLY WITH EFFECT FROM 1 ST APRIL 2015 THAT A CHANGE HAS BEEN BROUGHT ABOUT I N SECTION 145 (2) WHICH PERMITS THE CENTRAL GOVERNMEN T TO NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME THE INCOME COMPU TATION AND ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 8 DISCLOSURE STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSES OR IN RESPECT OF ANY CLASS OF INCOME. THAT CHANGE IS PROS PECTIVE AND IN ANY EVENT DOES NOT APPLY TO THE CASE ON HAND. 19. THE SETTLED LEGAL POSITION AS FAR AS SECTION 14 5 OF THE ACT IS CONCERNED IS THAT IT IS NOT OPEN TO AN AO TO REJECT THE ACCOUNTS OF AN ASSESSEE UNLESS HECOMES TO A DETERMINATION THAT NOT IFIED ACCOUNTING STANDARDS HAVE NOT BEEN REGULARLY FOLLOWED BY THE A SSESSEE. AS POINTED OUT BY THE CIT (A) IN THE ORDER DATED 2ND J ULY, 2010, THE AS OF THE ICAI DID NOT HAVE ANY STATUTORY RECOGNITION UNDER THE ACT ALTHOUGH IT WAS BINDING UNDER THE COMPANIES ACT, 19 56. THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN TH E PRESENT CASE I.E. PROJECT COMPLETION METHOD WAS CERTAINLY ONE OF THE RECOGNIZED METHODS AND HAS BEEN CONSISTENTLY FOLLOWING BY IT. IN PARA 22 OF THE ABOVE JUDGMENT, THE COURT OBSERVE D AS UNDER: '22. THE OTHER ASPECT THAT APPEARS TO HAVE ESCAPED THE ATTENTION OF THE ITAT IS THAT THE ASSESSEE OFFERED TO TAX IN THE SUBSEQUENT FY THE AMOUNTS RECEIVED AND THEREFORE THERE WAS NO ACTUAL LOSS TO THE REVENUE. IN SIMILAR CIRCUMSTANCES, THE SUPREME COUR T IN CIT V. EXCEL INDUSTRIES LIMITED 2013 ITR 295 (SC) OBSERVED THAT THE DISPUTE IF ANY RAISED AT THE INSTANCE OF THE REVENUE WOULD BE AT BEST ACADEMIC. THE STAND OF THE ASSESSEE IN THE PRESENT CASE ALSO FINDS SUPPORT IN THE DECISION OF THE GUJARAT HIGH COURT I N CIT-IV V. SHIVALIKBUILDWELL (P) LTD. (2013) 40 TAXMMANN.COM 2 19 (GUJARAT). IT WAS HELD THAT THE ASSESSEE IN THAT CASE, WHO WAS A DEVELOPER, WAS ENTITLED TO BOOK THE AMOUNT RECEIVED AS BOOKING ADV ANCE AS INCOME ON TRANSFER OF THE PROPERTY. TILL THEN THE ADVANCE BOOKING AMOUNTS COULD NOT BE TREATED AS HIS TRADING RECEIPT. THE HI GH COURT RECOGNIZED THAT THE ASSESSEE IN THAT CASE WAS ENTIT LED TO APPLY THE PROJECT COMPLETION METHOD IN TERMS OF THE APPLICABL E AS. 23. THIS COURT TOO HAS BY ORDER DATED 7 TH JANUARY 2015 IN ITA 111/2014 (CIT V. SABH INFRASTRUCTURE LTD.) HELD LIK EWISE, AFTER ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 9 NOTICING THE DECISIONS OF THE SUPREME COURT IN CIT V. BILAHARI INVESTMENT P. LTD. (SUPRA) AND THE ORDER DATED 15 TH NOVEMBER 2011 IN ITA NO. 928 OF 2011 (CIT V. MANISH BUILDWELL PVT . LTD.).' THE RELIANCE IN THIS REGARD IS ALSO PLACED ON THE J UDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF PR. CIT V SANTHA B UILDTECH PVT. LTD. [2017][4)TMI 826 VIDE ITS DECISION DATED 04.04.2017 WHEREIN THE COURT HAS HELD THAT WHERE THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METHOD, REVENUE WAS NOT JUSTIFIED IN SUB STITUTING THE SAME WITH PERCENTAGE COMPLETION METHOD. THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF PR. CIT V FRIEND LAND DEVELOPERS [2017] [4] TMI 1153 HAS HELD THAT T HERE ARE NO PROVISIONS UNDER THE INCOME TAX ACT OR THE RULES WHICH MAY COM PEL THE ASSESSEE TO FOLLOW PERCENTAGE COMPLETION METHOD. IN VIEW OF THE FACTUAL AS WELL AS LEGAL POSITION DI SCUSSED ABOVE, IT IS HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN AP PLYING POCM INSTEAD OF PROJECT COMPLETION METHOD REGULARLY FOLLOWED BY THE APPELLANT. ACCORDINGLY, THE ADDITION OF RS.15,65,60,883/- MADE BY THE ASSESSING OFFICER IS DELETED. THE APPELLANT HAS ALTERNATIVELY SUBMITTED THAT EVEN IF THE REVISED GUIDANCE NOTE ISSUED BY ICAI ON WHICH THE ASSESSING OFFICER HAS PLACED RELIANCE, NO REVENUE WAS REQUIRED TO BE RECOGNIZED BY THE APPELLANT DURING THE YEAR. THE APPELLANT SUBMITTED THAT IN PARA 3.4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ADMITTED THE POSIT ION THAT FOR RECOGNIZING REVENUE AS PER THE SAID GUIDANCE NOTE ONE OF THE CO NDITION REQUIRED TO BE FULFILLED IS THAT 'SELLER HAS TRANSFERRED TO THE BU YER ALL SIGNIFICANT RISKS AND REWARD OF OWNERSHIP.' IN THIS REGARD, THE APPELLANT HAS SUBMITTED THAT TH IS CONDITION IS NOT FULFILLED IN THE CASE OF APPELLANT. IN THE CASE OF APPELLANT NEITHER ALL THE SIGNIFICANT RISKS NOR THE REWARD OF OWNERSHIP HAS B EEN TRANSFERRED TO THE BUYER. THE RISK OF THE PROPERTY STILL VESTS WITH TH E APPELLANT AND HAS NOT ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 10 BEEN TRANSFERRED TO THE BUYER. IF SOMETHING HAPPENS TO THE BUILDING STRUCTURE, THE LOSS WILL BE OF THE APPELLANT AND NO T THE BUYER. SIMILARLY, THE REWARD OF OWNERSHIP HAS NOT BEEN TRANSFERRED TO THE BUYER. ONLY A BUILDER BUYER AGREEMENT HAS BEEN SIGNED AS PER WHICH IT HAS BEEN CLEARLY PROVIDED THAT CONVEYANCE DEED / LEASE DEED SHALL BE EXECUTED ONLY AFTER FULL AND FINAL PAYMENTS INCLUDING ALL ADDITIONAL CH ARGES ARE PAID BY THE BUYER AND UNTIL THAT, THE OWNERSHIP OF THE PROPERTY SHALL REMAIN VESTED WITH THE APPELLANT. THE RELEVANT CLAUSE OF PARA 3 O F BUILDER-BUYER AGREEMENT IS REPRODUCED HERE UNDER :- 'THE SUB-LEASE DEED / CONVEYANCE DEED SHALL BE EXEC UTED, ONLY AFTER THE ALLOTTEE(S) HAS MADE FULL & FINAL PAYMENT S, INCLUDING ALL OTHER ADDITIONAL CHARGES WHICH ARE DUE AND PAYABLE TO THE COMPANY. TILL THE EXECUTION OF THE SUB-LEASE DEED / CONVEYANCE DEED AND HANDING OVER THE POSSESSION OF THE UNIT, T HE OWNERSHIP OF THE UNIT SHALL REMAIN VESTED WITH THE COMPANY.' THIS CLAUSE CLEARLY ESTABLISHES THAT ALL SIGNIFICAN T RISK AND REWARD OF OWNERSHIP HAS NOT BEEN TRANSFERRED TO THE BUYER, TH EREFORE, EVEN AS PER REVISED GUIDANCE NOTE AND AS-9, NO REVENUE COULD BE RECOGNIZED BY THE COMPANY AS THE PRIMARY CONDITION HAS NOT BEEN FULFI LLED. THE ASSESSING OFFICER IN PARA 3.8 OF THE ASSESSMENT ORDER HAS HELD THAT PERCENTAGE OF COMPLETION METHOD HAS TO BE ADOP TED FOR RECOGNIZING REVENUE IRRESPECTIVE OF THE PERCENTAGE OF COMPLETIO N. TO THIS, THE APPELLANT HAS SUBMITTED THAT EVEN IF THE GUIDANCE NOTE OF ACC OUNTING OF REAL ESTATE TRANSACTIONS ARE TAKEN INTO ACCOUNT FOR RECOGNIZING THE REVENUE, NO REVENUE COULD BE RECOGNIZED IN THE CASE OF APPELLANT FOR TH E YEAR UNDER CONSIDERATION AS FOR APPLYING POCM, CERTAIN PERCENT AGE OF THE WORK HAS TO BE COMPLETED WHICH AS PER THE GUIDANCE NOTE ISSUED IS 25%. THEREFORE, THE OBSERVATION MADE BY THE ASSESSING OFFICER FOR RECOG NIZING REVENUE AS PER POCM IS NOT BASED ON CORRECT UNDERSTANDING OF THE P OCM METHOD. IN THIS REGARD, PARA 5.3 OF THE GUIDANCE NOTE FOR RECOGNIZI NG THE REVENUE IS REPRODUCED HEREUNDER: ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 11 '5.3 FURTHER TO THE CONDITIONS IN PARAGRAPH 5.2 THE RE IS A REBUTTABLE PRESUMPTION THAT THE OUTCOME OF A REAL ESTATE PROJE CT CAN BE ESTIMATED RELIABLY AND THAT REVENUE SHOULD BE RECOG NISED UNDER THE PERCENTAGE COMPLETION METHOD ONLY WHEN THE EVENTS I N (A) TO (D) BELOW ARE COMPLETED. (A) .. (B) WHEN THE STAGE OF COMPLETION OF THE PROJECT REA CHES A REASONABLE LEVEL OF DEVELOPMENT. A REASONABLE LEVEL OF DEVELOP MENT IS NOT ACHIEVED IF THE EXPENDITURE INCURRED ON CONSTRUCTIO N AND DEVELOPMENT COSTS IS LESS THAN 25 % OF THE CONSTRUC TION AND DEVELOPMENT COSTS AS DEFINED IN PARAGRAPH 2.2 (C) R EAD WITH PARAGRAPHS 2.3 TO 2.5. (C) (D) CONSTRUCTION AND DEVELOPMENT COSTS AS DEFINED IN PA RAGRAPH 2.2 (C) READ WITH PARAGRAPHS 2.3 TO 2.5. IS AS UNDER :- '2.2(C) CONSTRUCTION AND DEVELOPMENT COSTS - THESE WOULD INCLUDE COSTS THAT RELATE DIRECTLY TO THE SPECIFIC PROJECT AND COSTS THAT MAY BE ATTRIBUTABLE TO PROJECT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO THE PROJECT. 2.3 CONSTRUCTION COSTS AND DEVELOPMENT COSTS THAT R ELATE DIRECTLY TO A SPECIFIC PROJECT INCLUDE: (A) LAND CONVERSION COSTS, BETTERMENT CHARGES, MUNI CIPAL SANCTION FEE AND OTHER CHARGES FOR OBTAINING BUILDING PERMISSION S; (B) SITE LABOUR COSTS, INCLUDING SITE SUPERVISION; (C) COSTS OF MATERIALS USED IN CONSTRUCTION OR DEVE LOPMENT OF PROPERTY; (D) DEPRECIATION OF PLANT AND EQUIPMENT USED FOR TH E PROJECT; ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 12 (E) COSTS OF MOVING PLANT, EQUIPMENT AND MATERIALS TO AND FROM THE PROJECT SITE; (F) COSTS OF HIRING PLANT AND EQUIPMENT; (G) COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT I S DIRECTLY RELATED TO THE PROJECT; (H) ESTIMATED COSTS OF RECTIFICATION AND GUARANTEE WORK, INCLUDING EXPECTED WARRANTY COSTS; AND (I) CLAIMS FROM THIRD PARTIES. 2.4 THE FOLLOWING COSTS SHOULD NOT BE CONSIDERED PA RT OF CONSTRUCTION COSTS AND DEVELOPMENT COSTS IF THEY ARE MATERIAL: (A) GENERAL ADMINISTRATION COSTS; (B) SELLING COSTS; (C) RESEARCH AND DEVELOPMENT COSTS; (D) DEPRECIATION OF IDLE PLANT AND EQUIPMENT; (E) COST OF UNCONSUMED OR UNINSTALLED MATERIAL DELI VERED AT SITE; AND (F) PAYMENTS MADE TO SUB-CONTRACTORS IN ADVANCE OF WORK PERFORMED. 2.5 COSTS THAT MAY BE ATTRIBUTABLE TO PROJECT ACTIV ITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC PROJECTS INCLUDE: (A) INSURANCE; (B) COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT I S NOT DIRECTLY RELATED TO A SPECIFIC PROJECT; AND (C) CONSTRUCTION OR DEVELOPMENT OVERHEADS; AND (D) BORROWING COSTS.' FROM THE ABOVE STATED FACTS, IT IS CLEAR THAT FOR R ECOGNIZING REVENUE AS PER THE GUIDANCE NOTE, ONE OF THE PRIME CONDITIO N IS THAT NO REVENUE SHOULD BE BOOKED UNTIL THE EXPENDITURE INCURRED ON CONSTRUCTION AND DEVELOPMENT COST REACHED TO THE LEVEL OF 25% OF THE CONSTRUCTION AND ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 13 DEVELOPMENT COSTS. ACCORDING TO THE APPELLANT CONST RUCTION AND DEVELOPMENT COST INCURRED BY THE APPELLANT UPTO THE YEAR ENDING 31.03.2014 WAS ONLY 18.40% OF THE TOTAL ESTIMATED C ONSTRUCTION AND DEVELOPMENT COST. ON CONSIDERATION OF THE FACTS, CA LCULATIONS GIVEN BY AO AND THE SUBMISSION OF THE APPELLANT, IT IS SEEN THA T THE ASSESSING OFFICER HAS ERRED IN APPLYING THE PERCENTAGE COMPLETION OF THE PROJECT. SINCE THE CONSTRUCTION AND DEVELOPMENT COST INCURRED BY THE A PPELLANT TILL 31.03.2014 WAS ONLY 18.40% OF THE TOTAL ESTIMATED C ONSTRUCTION AND DEVELOPMENT COST, NO REVENUE COULD HAVE BEEN BOOKED EVEN AS PER THE GUIDANCE NOTE ISSUED BY ICAI. IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS HELD TH AT IT WAS NOT MANDATORY FOR THE APPELLANT TO FOLLOW POCM METHOD A S PER GUIDANCE NOTE ISSUED BY ICAI. FURTHER EVEN AS PER GUIDANCE NOTE I SSUED BY ICAI, NO REVENUE WAS REQUIRED TO BE BOOKED BY THE APPELLANT FOR THE YEAR UNDER APPEAL AS APPELLANT HAS NOT TRANSFERRED ALL SIGNIFI CANT RISKS OF OWNERSHIP TO THE BUYER AND THE LEVEL OF COMPLETION OF THE CON STRUCTION IS LESS THAN 25% OF THE ESTIMATED COST OF CONSTRUCTION AND DEVEL OPMENT TILL 31.03.2014. ACCORDINGLY, THE ADDITION OF RS.15,65,60,883/- MADE BY THE ASSESSING OFFICER IS DELETED. THIS GROUND OF APPEAL IS ALLOWE D. 8. WE DO NOT SEE ANY INFIRMITY INTO THE ABOVE FINDI NGS OF LD.CIT(A) AS THE ASSESSEE HAS BEEN APPLYING CONSISTENTLY THE SAME ME THOD SINCE INCEPTION. MOREOVER, LD.CIT(A) HAS RECORDED THE FACT THAT THE ASSESSEE HAS BEEN ADOPTING THE SAME METHOD OF ACCOUNTING WHICH WAS ACCEPTED BY THE REVENUE. FURTHER, IT IS ALSO RECORDED BY LD.CIT(A) THAT THE ASSESSING OFFICER COMMITTED ERROR IN COMPUTING THE CONSTRUCTION AND DEVELOPMENT COST INC URRED BY THE ASSESSEE TILL 31.03.2014. AS PER LD.CIT(A), THE COST WAS ONLY 18 .40% OF THE TOTAL ESTIMATED CONSTRUCTION AND DEVELOPMENT COST. THEREFORE, NO R EVENUE COULD HAVE BEEN BOOKED EVEN AS PER THE GUIDANCE NOTE ISSUED BY ICA I. THIS FINDING OF FACT IS ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 14 NOT REBUTTED BY THE REVENUE. THUS, GROUND NO.1 RAI SED BY THE REVENUE IS DEVOID OF ANY MERIT HENCE, DISMISSED. 9. GROUND NO.2 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.1,63,15,044/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF BROKERAGE EXPENSES. 10. LD.CIT DR SUPPORTED THE ORDER OF ASSESSING OFF ICER AND SUBMITTED THAT THE ASSESSEE COMPANY HAD NOT DECLARED ANY INCOME FR OM THE PROJECTS UNDERTAKEN DURING THE YEAR UNDER CONSIDERATION. HO WEVER, THE ASSESSEE COMPANY CLAIMED THE EXPENSES INCURRED TOWARDS BROKE RAGE RELATED TO THE PROJECT. LD.CIT DR TOOK US THROUGH THE ASSESSMENT ORDER AND SUBMITTED AS PER THE ASSESSING OFFICER, THE EXPENDITURE SHOULD H AVE BEEN TREATED AS WORK IN PROGRESS. 11. PER CONTRA, LD. COUNSEL FOR THE ASSESSEE OPPOS ED THESE SUBMISSIONS AND SUPPORTED THE FINDINGS OF LD.CIT(A). HE SUBMITTED THAT BROKERAGE IS A SELLING EXPENDITURE WHICH CANNOT BE CAPITALIZED ALONGWITH I NVENTORY. HE SUBMITTED THAT AS PER THE ACCOUNTING STANDARD 7 WHICH SPECIFI CALLY STATES THAT SELLING COST CANNOT BE ALLOCATED AS COST OF CONSTRUCTION CO NTRACT. FURTHER, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE BEFORE LD.CIT(A). 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. LD.CIT(A) DECIDED THE ISSUE BY OBSERVIN G AS UNDER:- ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 15 DECISION: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSERVATIONS OF THE ASSESSING OFFICER MADE IN THE ASSESSMENT ORDER. IT IS SEEN THAT APPELLANT HAS COMMENCED THE PROJECT KNOWN AS 'FRENCH APARTMEN TS' IN F.Y. 2010-11 RELEVANT TO AY. 2011-12 AND THE LEVEL OF COMPLETION HAS REACHED TO 18.4% UPTO 31.03.2014. THIS SHOWS THAT APPELLANT'S BUSINE SS HAS COMMENCED IN AY. 2011-12 ITSELF. FOR BOOKING / SALE OF THE FLATS , THE APPELLANT HAS PAID BROKERAGE CHARGES TO THE BROKERS WHO HAVE BROUGHT C LIENT FOR BOOKING OF THE FLATS AND THIS FACT HAS NOT BEEN DISPUTED BY TH E AO IN THE ASSESSMENT ORDER. IT IS SEEN THAT BROKERAGE HAS BEEN PAID BY T HE APPELLANT FOR BOOKING OF THE FLATS WHICH IS WHOLLY AND EXCLUSIVELY FOR TH E BUSINESS PURPOSES OF THE APPELLANT, HOWEVER, IN THE ASSESSMENT ORDER, TH E ASSESSING OFFICER HAS DISALLOWED SUCH BROKERAGE EXPENSES ON THE PRINCIPLE OF MATCHING REVENUE CONCEPT AS APPELLANT HAS NOT BOOKED ANY REVENUE FRO M BOOKING OF THE FLATS, THEREFORE, AO HELD THAT SUCH EXPENSES SHOULD HAVE B EEN CAPITALIZED UNDER THE HEAD 'WORK-IN-PROGRESS' INSTEAD OF CLAIMING THE SAME IN PROFIT & LOSS ALC. IT IS ALSO SEEN THAT THIS IS NOT THE FIRST YEA R OF CLAIM OF DEDUCTION OF BROKERAGE EXPENSES. THE BROKERAGE EXPENSES CLAIMED IN EARLIER YEAR HAS BEEN ALLOWED TO THE APPELLANT AS DETAILED BELOW:- AY. AMOUNT (RS.) REMARKS 2013-14 4779263 ASSESSED U/S 143(1) 2012-13 723946 ASSESSED U/S 143(1) 2011-12 844895 ASSESSED U/S 143(1) THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF TH E CASE DURING THE YEAR AS COMPARED TO FACTS AND CIRCUMSTANCES IN THE EARLI ER YEARS. THEREFORE, THE ASSESSING OFFICER WAS DUTY BOUND TO FOLLOW THE DECI SION OF EARLIER YEARS AND SHOULD HAVE ALLOWED THE BROKERAGE EXPENSES. IT IS ALSO SEEN THAT AS PER PARA-19 OF AS-7, THE SE LLING COST CANNOT BE ATTRIBUTED TO CONTRACT ACTIVITY OR CANNOT BE ALLOCA TED TO A CONTRACT UNDER CONSTRUCTION. EVEN AS PER AS-2 'VALUATION OF INVENT ORY' ISSUED BY ICAI, IT IS ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 16 SEEN THAT SELLING AND DISTRIBUTION COST CANNOT BE C ONSIDERED AS PART OF THE COST OF INVENTORY AND SUCH EXPENSE HAS TO BE RECOGN IZED IN THE PERIOD IN WHICH THEY ARE INCURRED. THE COST WHICH CAN BE ATTR IBUTED /ALLOCATED OVER THE INVENTORY SHOULD COMPRISE ALL THE COST OF PURCH ASE, COST OF CONVERSION AND OTHER COST INCURRED IN BRINGING THE INVENTORY T O THEIR PRESENT LOCATION AND CONDITION. IN THE CASE OF CONSTRUCTION ACTIVITI ES THE COST OF PURCHASE OF LAND AND CONSTRUCTION COST CAN ONLY BE ATTRIBUTED O VER THE PROJECT. THE BROKERAGE EXPENSES ARE PURELY A SELLING COST AND CA NNOT FORM A PART OF INVENTORY. IN VIEW OF THE ACCOUNTING STANDARD, THE BROKERAGE EXPENSES BEING A SELLING COST CANNOT BE CAPITALIZED WITH THE COST OF INVENTORY AND CANNOT BE ALLOCATED TO THE CONSTRUCTION ACTIVITY. T HE BROKERAGE EXPENSES PAID ARE SELLING EXPENSES AND NOT FOR ACQUIRING OR DEVELOPING OR CONSTRUCTING ANY ASSET. THEREFORE, THE SAME CANNOT BE TAKEN TO THE WORK IN PROGRESS. EVEN AS PER PARA 2.2 OF REVISED GUIDANCE NOTE (2012) ON REAL ESTATE TRANSACTIONS REFERRED BY THE A.O., THE PROJE CT COST COMPRISES OF: A) COST OF LAND PLUS RELATED CHARGES B) BORROWING COST (ATTRIBUTABLE TO PROJECT) C) CONSTRUCTION AND DEVELOPMENT COST AS PER PARA 2.4 OF THE AFORESAID GUIDANCE NOTE PROV IDES THAT 'SELLING COST' SHALL NOT BE CONSIDERED AS PART OF C ONSTRUCTION AND DEVELOPMENT COST. THUS, THE BROKERAGE EXPENSES ARE PART OF SELLING EXPENSES, THEREFORE, SAME ARE ALLOWABLE AS REVENUE EXPENSES U/S 37 OF INCOME TAX ACT, 1961. THE JURISDICTION DELHI HIGH COURT IN THE CASE CIT V SAMSUNG INDIA ELECTRONICS LTD VIDE ITS JUDGEMENT DATED 09.07.2013 HAS HELD THAT BUSINESS WILL COMMENCE WITH THE FIRST PURCHASE AND THE EXPENSES INCURRED THEREAFTER WERE DULY ALLOWABLE AND IT WAS IMMATERIA L WHEN THE FIRST SALES WAS BOOKED. THE JURISDICTIONAL DELHI HIGH COURT IN CASE OF CIT VS ESPN SOFTWARE LTD. [301 ITR 368 (DEL)) HAS HELD AS UNDER : ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 17 'SECTION 28(I) OF THE INCOME-TAX ACT, 1961 - BUSINE SS - COMMENCEMENT OF/CARRYING ON OF - ASSESSMENT YEAR 19 97-98 - WHETHER A BUSINESS IS COMMENCED AS SOON AS AN ESSEN TIAL ACTIVITY OF THAT BUSINESS IS STARTED - HELD, YES - ASSESSEE- COMPANY WAS INCORPORATED ON 1-8-1995 - ON 15-8-1995, IT HAD ACQ UIRED A LICENCE FROM ITS PARENT COMPANY TO SUB-LICENCE ESPN SERVICE S FOR DISTRIBUTION OF PROGRAMMES IN INDIA VIA CABLE TELEVISION SYSTEM - BY VIRTUE OF THAT LICENCE, IT ENTERED INTO AN AGREEMENT ON 1-10-1995 WITH COMPANY 'M' AND APPOINTED IT AS ITS SOLE DISTRIBUTOR FOR DISTRI BUTION OF ESPN PROGRAMMES IN INDIA - DURING RELEVANT ASSESSMENT YE AR, ASSESSEE INCURRED CERTAIN EXPENDITURES WHICH WERE CLAIMED BY IT AS BUSINESS EXPENDITURES - ASSESSING OFFICER HELD THAT SINCE AG REEMENT WITH PARENT COMPANY TO DISTRIBUTE ESPN SERVICES IN INDIA WAS DATED 15- 8-1995, WHILE AGREEMENT WITH 'M' WAS DATED 1-10-199 5, IT COULD NOT BE SAID THAT BEFORE THAT DATE, ASSESSEE HAD COMMENC ED BUSINESS - ACCORDINGLY, ASSESSING OFFICER HELD THAT ASSESSEE H AD NOT COMMENCED ITS BUSINESS DURING RELEVANT PERIOD AND T REATED ALL EXPENSES AS HAVING BEEN INCURRED PRIOR TO COMMENCEM ENT OF BUSINESS - ON APPEAL, COMMISSIONER (APPEALS) AS ALS O TRIBUNAL HELD THAT ASSESSEE HAD COMMENCED ITS BUSINESS ON 15-8-19 95 AND, THEREFORE, ALL EXPENSES INCURRED ON OR AFTER THAT D ATE WERE ALLOWABLE AS REVENUE EXPENDITURES - WHETHER SINCE ASSESSEE WA S READY TO COMMENCE ITS BUSINESS ON 15-8-1995 WHEN IT ACQUIRED LICENCE, THERE WAS NO INFIRMITY WITH REGARD TO SAID FINDINGS OF AU THORITIES BELOW - HELD, YES' THE FACTS OF THE ABOVE CITED JUDGMENTS ARE IDENTICA L WITH THE FACTS OF THE APPELLANT'S CASE, THEREFORE, THE RATIO OF THE A BOVE JUDGMENTS IS SQUARELY APPLICABLE IN THE CASE OF APPELLANT. THE APPELLANT HAS COMMENCED ITS BUSINESS AND EXPENSES INCURRED ON BROKERAGE/ SELLIN G CANNOT FORM PART OF CONSTRUCTION AND DEVELOPMENT COST AND SAME HAS TO B E ALLOWED IN THE YEAR IN WHICH THEY HAVE BEEN INCURRED. ACCORDINGLY, THE BROKERAGE EXPENSES ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 18 INCURRED BY THE APPELLANT FOR BOOKING OF THE FLATS ARE ALLOWABLE EXPENDITURE AND DISALLOWANCE MADE BY THE AO OF RS.1,63,15,044/- IS DELETED. 13. WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AS THE CIT(A) HAS CORRECTLY APPRECIATED THE FACTS IN THE LIGHT OF RAT IO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF CIT VS SAMSUNG INDIA ELECTRONICS LTD. VIDE ITS JUDGEMENT DATED 09.07.2013 AND CIT VS ESPN SOFTWARE LTD. [301 ITR 368 (DEL)]. MOREOVER, THE REVENUE COULD NOT REBUT THE FINDING OF LD.CIT(A) THAT BROKERAGE FORMS PART OF SELLING COST THEREFORE, ALLOWABLE EXPENDITURE. THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 14. GROUND NO.3 RAISED BY THE REVENUE IS AGAINST TH E DELETION OF ADDITION OF RS.9,85,667/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF INTEREST FREE ADVANCE GIVEN TO GROUP COMPANIES. 15. LD.CIT DR SUPPORTED THE ORDER OF ASSESSING OFFI CER AND RELIED ON THE FINDINGS GIVEN IN THE ASSESSMENT ORDER. 16. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) AND REITERATED THE SUBMISSIONS AS MADE BE FORE HIM. 17. WE HAVE HEARD THE CONTENTIONS OF LD. REPRESENTA TIVES OF THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D MATERIAL PLACED ON RECORDS. LD.CIT(A) HAS GIVEN A FINDING ON FACT BY OBSERVING AS UNDER:- DECISION: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT A ND OBSERVATIONS OF THE ASSESSING OFFICER MADE IN THE ASSESSMENT ORD ER. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF INTEREST PAYMENT O F RS.9,85,667/- ON THE ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 19 GROUND THAT THE APPELLANT HAS GRANTED INTEREST FREE ADVANCES TO GROUP CONCERNS. ON GOING THROUGH THE FINANCIAL STATEMENT OF THE APPELLANT COMPANY, IT IS SEEN THAT APPELLANT COMPANY HAS NOT TAKEN ANY INTEREST- BEARING FUNDS EXCEPT THE LOAN TAKEN FOR PURCHASE OF CAR. IT IS SEEN FROM THE FINANCIAL STATEMENT THAT INTEREST OF RS.9,85,667/- HAS BEEN PAID TO GREATER NOIDA AUTHORITY FOR LATE PAYMENT OF INSTALLMENT OF THE LAND PURCHASED ON DEFERRED CREDIT. IT IS SEEN THAT ADVANCES GIVEN TO ASSOCIATE CONCERNS WERE OUT OF INTEREST FREE ADVANCES RECEIVED FROM BOOKING OF THE FLATS TO THE TUNE OF RS.8,11,05,947/-. THERE IS NO PAYMENT OF INTERES T FOR ANY BORROWING, THEREFORE, DISALLOWANCE OF RS.9,85,667/- MADE BY TH E ASSESSING OFFICER IS WITHOUT APPRECIATING THE CORRECT FACTS OF THE CASE. HENCE, THE SAME IS DELETED. 18. LD.CIT(A) HAS CATEGORICALLY GIVEN A FINDING THA T FROM THE FINANCIAL STATEMENT, IT WAS OBSERVED THAT INTEREST OF RS.9,85 ,667/- WAS PAID TO GREATER NOIDA AUTHORITY FOR LATE PAYMENT OF INSTALLMENT OF THE LAND PURCHASED ON DEFERRED CREDIT. IT WAS ALSO RECORDED THAT THE ADV ANCES GIVEN TO THE ASSOCIATE CONCERN WAS OUT OF INTEREST FREE ADVANCES RECEIVED FROM BOOKING OF THE FLATS. THIS FINDING ON FACT WAS NOT REBUTTED BY THE REVENU E BY FURNISHING ANY CONTRARY MATERIAL. THEREFORE, NO INTERFERENCE IS C ALLED FOR IN THE DECISION OF LD.CIT(A), THE SAME IS HEREBY AFFIRMED. THUS, GROU ND NO.3 RAISED BY THE REVENUE IS REJECTED HENCE, DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIR TUAL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 29 TH OCTOBER, 2021. SD/- SD/- (G.S.PANNU) (KUL BHARAT) PRESIDENT JUDICIAL MEMBER ITA NO.5676/DEL/2017 ASSESSMENT YEAR : 2014-15 PAGE | 20 * AMIT KUMAR * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI