DCIT 13(3)(1), MUMBAI V. RAGHULEELA BUILDERS P.LTD, MUMBAI

ITA 5839/MUM/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9888 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 29-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM & SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 5839 / MUM/ 2015 ( / ASSESSMENT YEAR: 2012 - 13 ) DCIT - 1 3 (3) (1) ROOM NO. 229, 2 ND FLOOR, AAAYAKAR BHAVAN, M. K. ROAD , MUMBAI - 40002 0 / VS. RAGHULEELA BUILDERS PVT. LTD. 301, 3 RD FLOOR, PLATINA PLOT C 59, G BLOCK, BKC, BANDRA, MUMBAI - 400051 . ./ ./ PAN NO. AA DCR 5942 E ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI V. JUSTIN / RESPONDENTBY : SHRI JITENDRA JAIN / DATE OF HEARING : 14 .02 .1 8 / DATE OF PRONOUNCEMENT : 1 4.03.18 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT (APPEAL) 21, MUMBAI DATED 20.10.15 F OR AY 20 12 - 13 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. 1. WHETHER ON THE FACTS AND THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE L D. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 1,11,20,153/ - MADE ON ACCOUNT OF BROKERAGE COMMISSION ON SALE OF FLATS. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION WITHOUT APPRECIA TING THE FACT THAT AS THE ASSESSEE WAS FOLLOWING THE % OF COMPLETION METHOD, THESE EXPENSES OUGHT TO HAVE BEEN CAPITALIZED OR TAKEN AS PREPAID EXPENSE IN THE CURRENT ASSETS HEAD AND CLAIMED IN THE RESPECTIVE YEAR IN WHICH INCOME WAS OFFERED TO TAX AND NOT IN THE YEAR UNDER CONSIDERATION. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY B E NECESSARY. 2. THE B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT FOR COMMERCIAL AND RESIDENTIAL PURPOSES. THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.NIL AFTER CLAIMING LOSS OF RS. 1,15,68,476/ - WAS FILED ON 3 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. 31.03.15 AND THE SAME WAS PROCESSED U/S. 143(1) OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY OF THE ASSESSEE , ORDER OF ASSESSMENT U/S 143(3) W AS COMPLET ED BY THE AO ON 13.02.15 THEREBY MAKING CERTAIN ADDITIONS/DISALLOWANCE S . AGGRIE VED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW BEFORE US, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 & 2 . 3. THIS GROUND RAISED BY THE REVENUE ARE INTER CONNECTED AND INTER RELATED AND RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) THAT WHILE DELETING THE ADDITIONS, LD. CIT(A) HAS NOT APPRECIATING THE FACT THAT THE ASSESSEE WAS FOLLOWING THE PERCENTAGE OF COMPLETION METHOD, THEREFORE THESE EXPENSES OUGHT TO HAVE BEEN CAPITALIZED OR TAKEN AS PREPAID EXPENSE IN THE CURRENT ASSETS HEAD AND CLAIMED IN THE RESPECTIVE YEAR IN WHICH INCOME WAS OFFERED TO TAX AND NOT IN THE YEAR UNDER CONSIDERATION. 4 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. ON THE OTHER HAND, LD. A R RELIED UPON THE ORDERS PASSED BY REVENUE AUTHORITIES. 4. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENUE IN ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 5.1 TO 5.4 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 5.1 THE THIRD GROUND OF APPEA L IS IN RESPECT OF DISALLOWANCE OF RS 1,11,20,153/ - OUT OF TOTAL BROKERAGE EXPENSES CLAIMED AT RS 124,15,082/ - . THE APPELLANT IS FOLLOWING PERCENTAGE COMPLETION METHOD AND HAD NOT RECOGNIZED REVENUE IN RESPECT OF ITS PROJECT 'ONE BKC'AT BANDRA KURLA COMPLE X. HOWEVER IT HAD CLAIMED BROKERAGE EXPENSES OF RS 1,24,15,082/ - IN P & L ACCOUNT. THE ASSESSING OFFICER DID NOT ACCEPT THE ACCOUNTING METHOD FOLLOWED BY THE APPELLANT AND 5 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. REASONED THAT WHEN REVENUE IS NOT RECOGNIZED, THE BROKERAGE EXPENSES ON SALE OF UNIT S CANNOT BE CLAIMED AS EXPENSE AND IS VIOLATION OF ACCOUNTING STANDARDS. FURTHER, THE EXPENSES ARE SPECIFIC TO THE PROJECT AND SHOULD BE DEBITED TO WIP. 5.2 IN THE APPELLATE PROCEEDINGS, THE SUBMISSIONS BEFORE THE AO WAS REITERATED. IT WAS CONTENDED THAT T HE ACCOUNTING TREATMENT WAS IN LINE WITH THE ACCOUNTING STANDARDS AND GUIDANCE NOTES ISSUED BY ICAI. IN THE ALTERNATIVE AND ON WITHOUT PREJUDICE BASIS, IT WAS SUBMITTED THAT SUCH EXPENSES SHOULD BE ADDED TO WIP WHICH THE AO HAS NOT DONE. 5.3 I HAVE EXAMINED THE CONTENTIONS CAREFULLY. THE AS 9 DEALS WITH REVENUE RECOGNITION. HOWEVER THIS SPECIFICALLY EXCLUDES CONSTRUCTION CONTRACTS. AS 7 DEALS WITH CONSTRUCTION CONTRACTS. HOWEVER THE APPELLANT IS A BUILDER AND DEVELOPER. AS 2 DEALS WITH THE VALUATION OF INVENTORIES. THERE IS NO SPECIFIC ACCOUNTING STANDARDS FOR REAL ESTATE BUSINESS. THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS (REVISED) 2012, THE TERMS PROJECT COSTS HAS BEEN DEFINED. IT IS CATEGORICALLY MENTIONED IN PARA 2.4. THAT '2.4. THE FOLLOWING COST SHOULD NOT BE CONSIDERED PART OF CONSTRUCTION COST AND DEVELOPMENT COSTS IF THEY ARE MATERIAL: 6 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. (A) GENERAL ADMINISTRATION COSTS (B) SELLING CO STS. (C) RESEARCH AND DEVELOPMENT COSTS D) DEPRECIATION OF IDLE PLANT AND EQUIPMENT (E) COST O F UNCONSUMED OR UNINSTALLED MATERIAL DELIVERED AT SITE; AND (F) PAYMENTS MADE TO SUB CONTRACTORS IN ADVANCE OF WORK PERFORMED.' 5.4. THUS, THE ITEMS OF EXPENDITURE NOT ADDED TO WORK IN PROGRESS ACCOUNT IS AS PER THE GUIDANCE NOTES. HOWEVER, IN THE PRESENT CASE THE ASSESSING OFFICER HAS BEEN SWAYED BY THE FACT THAT THERE IS ONLY A SINGLE PROJECT AND THAT ALL THE EXPENSES SHOULD BE CONSIDERED AS WIP. HOWEVER, WHILE COMPUTING THE INCOME HE HAS NOT GIVEN DIRECTION THAT THE SAME SHOULD BE ADDED TO WIP AND WILL B E CARRIED FORWARD. FROM THE COMPUTATION OF INCOME, IT IS SEEN THAT THE APPELLANT HAS CONSIDERED THE SHARE OF PROFITS FROM PARTNERSHIP FIRM SHOWN AS OTHER INCOME AT RS 243,71,746/ AS EXEMPT U/S 10(2A). THE BUSINESS INCOME IS COMPUTED AT A LOSS OF RS 116,34, 822/ - IN THE RETURNED INCOME. THE CONSTRUCTION WIP IS SHOWN AT RS 157,24,49,556/ - THE SELLING EXPENSES EVEN IF CAPITALIZED AS A PART OF WIP WILL BE ALLOWABLE AGAINST REVENUE WHEN RECOGNIZED AS PER PERCENTAGE COMPLETION METHOD. CONSIDERING THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE 7 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. TRANSACTIONS (REVISED) 2012, THE ACCOUNTING METHOD FOLLOWED BY APPELLANT DOES HAVE A VALID BASIS AND CANNOT BE DISREGARDED WITHOUT VALID REASONS. IN THE FACTS OF THE PRESENT CASE THEREFORE THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER IS DELETED AND THE GROUND OF APPEAL NO 3 IS ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT LD. CIT(A) HAS RI GHTLY APPRECIATED THE FACTS OF THE PRESENT CASE AND PASSED THE JUDICIOUS ORDER AFTER C ONSIDERING THE GUIDANCE NOTE ON ACCOUNTING FOR REAL ESTATE TRANSACTIONS (REVISED) 2012, WHILE DOING SO THE LD. CIT(A) HAS CORRECTLY HELD THAT AS - 9 DEALS WITH REVENUE RECO GNITION AND EXCLUDES CONSTRUCTION CONTRACTS. SINCE THE ASSESSEE IS A BUILDER AND DEVELOPER AND THERE IS NO SPECIFIC ACCOUNTING STANDARD FOR REAL ESTATE BUSINESS, THEREFORE LD. CIT(A) WHILE RELYING UPON THE GUIDANCE NOTE HAD RIGHTLY HELD THAT THE ACCOUNTING METHOD FOLLOWED BY ASSESSEE DOES HAVE A VALID BASIS AND CANNOT BE DISREGARDED WITHOUT VALID REASONS AND THEREAFTER DELETED THE DISALLOWANCE MADE BY THE AO. 8 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD CIT(A). THEREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY TH E LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THESE GROUND S RAISED BY THE REVENUE STANDS DISMISSED . GROUND NO. 3 & 4 5 . THESE GROUNDS ARE GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 6 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH , 2018 SD/ - SD/ - ( RAJENDRA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 14 . 03 .201 8 SR.PS . DHANANJAY 9 I.T.A. NO. 5 839 /MUM/201 5 RAGHULEELA BUILDERS PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI