Emerald Haven Realty Ltd., CHENNAI V. ACIT Corporate Circle 2, , CHENNAI

ITA 634/CHNY/2020

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9782 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-10-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 17-06-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Revenue expenditure
• Section: 28; 143(3); 37(1); 13

Judgement Text

आयकर अपीलीय अिधकरण ‘ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा12 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम2। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ITA No.634/Chn y/2020 (िनधाBरणवषB / Assessment Year: 2014-15) M/s. Emerald Haven Realty Limited Ist Floor, Greenways Tower, No. 119, St. Marry’s Road, Abhiramapuram, Chennai – 600 006. बनाम/ V s . ACIT Corporate Circle 2(1), 121, Mahatma Gandhi Road, Chennai – 600 034. थायीलेखासं. /जीआइआरसं. /P AN /G IR N o. A AC C H - 42 8 8- E (अ पीलाथ /Appellant) : ( थ / Respondent) & आयकरअपीलसं./ITA No.37/Chny/2021 (िनधाBरणवषB / Assessment Year: 2013-14) & आयकरअपीलसं./ITA No.38/Chny/2021 ( िनधाBरणवषB / Assessment Year: 2014-15) JCIT(OSD) Corporate Circle -2(1), Room No. 511, 5 th Floor, Wanaparthy Block, 121, M.G. Road, Chennai – 600 034. बनाम/ V s . M/s. Emerald Haven Realty Limited Ist Floor, Greenways Tower, No. 119, St. Marry’s Road, Abhiramapuram, Chennai – 600 006. थायीलेखासं. /जीआइआरसं. /P AN /G IR N o. A AC C H - 42 8 8- E (अ पीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Assessee by : Shri R. Vijayaraghavan (Advocate) – Ld. AR थ कीओरसे/Department by : Shri AR V Sreenivasan (Addl. CIT) –Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 10-10-2022 घोषणाकीतारीख /Date of Pronouncement : 26-10-2022 - 2 - आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. The revenue is in further appeal for Assessment Years(AY) 2013- 14 & 2014-15 whereas the assessee is in further appeal for AY 2014- 15. The facts as well as issues are stated to be substantially the same. 2. The Registry has noted delay of 164 days in the revenue’s appeals. The condonation of the same has been sought by Ld. Sr. DR on the ground that the delay occurred due to lockdown situation arising out of Covid-19 Pandemic. Considering the fact that the time available to prefer appeal falls within lockdown situation arising out of Covid-19 Pandemic, we condone the delay in both the appeals and admit the appeals for adjudication on merits. 3. The impugned order is common order for both the years which has been passed by learned Commissioner of Income Tax (Appeals)- 6, Chennai [CIT(A)] on 13-03-2020. The assessment for AY 2013-14 has been framed by Ld. Assessing Officer (AO) u/s 143(3) on 31.12.2015. The grounds raised by the Revenue read as under: (a) Whether on the facts and circumstances of the case, the CIT(A) is right in deleting Rs.4,03,86,928/- for AY 2013-14 (deferred revenue expenditure) which is getting claimed by the assessee over and above the actual project expenses amount already considered in purchase (Sl. No.6 of P&L) item of ROI as explained above para F to K. (b) Whether on the facts and circumstances of the case, the CIT(A) is right in deleting Rs.1,21,81,827/- for AY 2013-14 (other expenses), without appreciating the fact that other expenses consist of Advertisement expenses, Deputation charges etc . which are directly relatable to the construction projects, hence, liable to be taken into the value of Stock as per AS7 percentage completion method or corresponding revenue if any has to be offered as per matching concept and AS &as it has not been done so, which is very clear from discussion in Para F&L, the AO has rightly disallowed the same? - 3 - As is evident, the sole matter is allowance of project expenditure as claimed by the assessee during the year. 4. The Ld. Sr. DR submitted that the project expenditure as claimed by the assessee was to be capitalized since no revenue was earned during the year. The Ld. AR, on the other hand, submitted that the expenditure has been claimed as per accounting standard and the same is in accordance with law. The decision in Tribunal in assessee’s own case for 2012-13, ITA No.481/Chny/2019 order dated 07.02.2022 has been placed on record. In this year, the bench has allowed capitalization of expenses. Having heard rival submissions, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in construction business. Assessment Proceedings 5.1 The assessee admitted loss of Rs.307.88 Lacs. The assessee earned interest income of Rs.224.99 Lacs but it claimed business expenditure for Rs.403.86 Lacs, depreciation of Rs.7.18 Lacs and other expenses for Rs.121.81 Lacs. However, no business receipts were offered to tax. 5.2 It transpired that the assessee entered into agreement with TVS Housing Ltd. for development of a parcel of land owned by that entity for residential and commercial purpose at Tambaram. The proposal was moved with CMDA and the approval was awaited during this year. The company merely constructed model apartment at site based on customer feedback and at the fag-end of this year, pre-launch sales were commenced. Accordingly, Ld. AO held that the business had not commenced and no business expenditure could be allowed to the assessee. - 4 - 5.3 The assessee relied on Accounting Standard-7 to submit that few of the costs were not to be considered as construction costs. These include general administration costs, selling costs, R & D Costs, depreciation of idle plant and machinery, cost of unconsumed material at site etc. These are to be treated as period costs. 5.4 However, Ld. AO held that the assessee did not have business receipts and claimed various expenses which were pre- commencement expenses before starting the actual execution of the projects. Since the construction did not start, the question of application of percentage of completion method would not arise. There is no concept of deferred revenue expenditure and the expenditure has to be either revenue or capital in nature. Accordingly, the expenditure could not be allowed to the assessee. Finally, the deferred revenue expenditure, depreciation and other expenses aggregating to Rs.532.87 Lacs were disallowed. Appellate Proceedings 6. The assessee submitted that expenditure incurred are to be claimed in the years in which it is actually incurred and income is to be offered in the year of receipt. The Ld. CIT(A), relied upon the decision of Hon’ble Supreme Court in Madras Industrial Investment Corn. Ltd. vs CIT (225 ITR 802) wherein it was held that ordinarily revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred and could not be spread over number of years even if the assessee has written it off in his books of accounts. Reliance was also placed on the decision of Hon’ble Delhi High Court in CIT vs. Dhoomketu Builders & Development Pvt. Ltd. (3 Taxmann.com - 5 - 18). Finally, this issue was decided in assessee’s favor. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 7. Upon due consideration of material facts, it could be gathered that the sole project entered into by the assessee is pending at approval stage and the project has not taken-off yet. The assessee has only constructed model apartment and launched pre-commencement sale. During appellate proceedings, the assessee submitted that expenditure incurred are to be claimed in the years in which it is actually incurred and income is to be offered in the year of receipt which violates the matching concept of accounting. In the construction activities, the income has to be offered either on percentage of completion method or on the basis of completed contract method. From the fact, it emerges that the project has not taken-off and therefore, the expenditure incurred by the assessee are to be taken as incurred during pre-commencement stage. Under such circumstances, the same could not be allowed as business expenditure but the same are to be capitalized along with project expenditure as held by Tribunal in AY 2012-13 as under: - 6. At the outset, it could be gathered that whether the business had been set up / commenced or not would not be much germane to the facts of the case since Ld. AO has already allowed admissible depreciation to the assessee which would establish that the fact of commencement of business has been accepted by Ld. AO. 7. Proceeding further, the finding that the expenditure has been claimed as deferred revenue expenditure in the books whereas full expenditure has been claimed in the computation of income, is not a correct finding. The perusal of details of other expenses as debited in Profit & Loss Account for Rs.69.29 Lacs (page-2 & 10 of paper-book dated 06.06.2019) and the details of construction expenses of Rs.277.70 Lacs (page 13 of same paper-book), would show that the set of expenditures are altogether different and therefore, it is not a case where - 6 - the assessee has claimed deferred revenue expenditure. The findings rendered by Ld. AO are not correct. 8. In the background of above observations, we are convinced with Ld. AR’s submissions that since the genuineness of the expenditure is not under question, the capitalization of the same as work-in-progress may be allowed. These submissions find all the more favor in the background of the fact that the assessee is following percentage of completion method of accounting. Therefore, we direct Ld. AO to allow capitalization of Rs.277.70 Lacs as well as Rs.45.90 Lacs as debited in the Profit & Loss Account as ‘other expenses’. No other ground has been urged before us. Facts being pari-materia the same, we direct Ld. AO to verify the expenditure incurred by the assessee and allow capitalization of the same. The revenue’s appeal stands partly allowed. Revenue’s Appeal for AY 2014-15 8. In this year, the assessee has reflected business receipts of Rs.27.41 Crores. The assessee following method of accounting as followed in earlier years, disallowed project expenses written-off for Rs.21.39 Crores but claimed deduction of deferred revenue expenditure for Rs.25.94 Crores. This adjustment was denied by Ld. AO and profit was taken to be Rs.1.94 Crores as reflected in the Profit & Loss Account which was adjusted for further additions and disallowances. The adjudication of Ld. CIT(A) is common for AYs 2013-14 and 2014-15 and accordingly, this issue was decided in assessee’s favor. Aggrieved, the revenue is in further appeal before us. 9. Since we have allowed capitalization of expenses for AY 2013- 14, the same would have direct bearing on income computation of this year. It could also be seen that the expenditure has been allowed to be capitalized for AY 2012-13 also. In this year, the assessee has carried out business operations and would be entitled to claim the - 7 - corresponding expenditure as per percentage of completion method of accounting being followed by it. Therefore, this issue stand restored back to Ld. AO for fresh adjudication in the light of adjudication of earlier years. The revenue’s appeal stand allowed for statistical purposes. Assessee’s Appeal for AY 2014-15 10. The sole grievance of the assessee is confirmation of disallowance of Bad Debts for Rs.150 Lacs u/s 36(1)(vii) r.w.s. 36(2). The same stem from the fact that the assessee debited a sum of Rs.158.01 Lacs towards provision against advances. It transpired that a sum of Rs.150 Lacs was lent to M/s Southern Project Management Pvt. Ltd. on which interest of Rs.8.01 Lacs was accrued. However, the same was written-off as irrecoverable. The Ld. AO denied deduction of Rs.150 Lacs to the assessee on the ground that money lending was not the main business of the assessee. The lending of advances was not incidental to the business activities of the assessee. Concurring with the same, Ld. CIT(A) dismissed the ground raised by the assessee. 11. From the facts, it emerges that the assessee has lent surplus funds to another entity which are not business advances. No commercial expediency of advances could be demonstrated by the assessee. The assessee claimed the write-off of advances as irrecoverable u/s 36(1)(vii) which applies for a business transaction only and not otherwise. The money lending is not the business of the assessee neither the advances were incidental to the business activities of the assessee. In such a case, the ratio of recent decision of Hon’ble High Court of Madras in Ashok Leyland Ltd. vs. ACIT (141 - 8 - Taxmann.com 171) would squarely apply to the facts of the case wherein it has been held by Hon’ble Court as under: - 7. We have heard both sides and perused the materials placed on record. 8. The issue involved herein is relating to claim of Rs.83,41,614/- towards bad debts made by the appellant/assessee, which was subsequently, enhanced to Rs.4,80,71,436/- during the course of assessment proceedings. The said claim was disallowed by the assessing officer as it was not satisfied the criteria laid down under section 36(2) of the Act, after having found that money lending and banking are not the principal activities of the assessee and they made the advance of surplus funds available with it for earning interest and they could not recover the principal and hence, the same was written off as irrecoverable. It was further noted by the assessing officer that the advances are transactions on capital account and therefore, the loss suffered by the assessee is capital loss which is neither admissible under section 36(1)(vii) nor under section 37(1) of the Act. The order of the assessing officer was confirmed by the CIT(A), on the premise that putting surplus money as inter corporate deposit for earning of interest cannot be said to be incidental to business or during ordinary course of business and hence, the loss of investment by way of deposits by the appellant, cannot be claimed as revenue loss. The said order of the CIT(A) was also affirmed by the Tribunal in the further appeal filed by the appellant/assessee, by observing that if the provision written back is the excess provision than the money realized, then that would 100% be brought to tax apart from the fact that whether it is a revenue loss or capital loss; the loss sustained by the assessee in respect of the loan advanced to BFL is in the nature of capital loss and is not allowable under section 28 of the Act; and there is no transfer of asset involved and hence, the loss sustained by the assessee is not liable to be carried forward, though it is a capital loss. We do not find any reason to interfere with the said well considered findings of the authorities below, as the same are based on the material evidence available before them. 9. At this juncture, it is pertinent to refer to the decision rendered by the Allahabad High Court in Indian Turpentine & Rosin Co. Ltd. (supra) cited on the side of the respondent, wherein, it was held as follows:— "8. .....In the instant case, rightly speaking, it was not a case of any trading loss. It was the case of a mistake in passing entries in the books. As noted above, in the previous year, relevant to the assessment year 1966-67, the assessee despatched certain goods of the value of Rs. 71,648/- to M/s. Mandya Paper Mills, Madras. Necessary entries were passed in the books by debiting the purchaser's account and crediting the sales account. The purchaser did not take delivery of those goods and on assessee's instructions those goods were sold by its own agent on its account in the previous year relevant to the assessment year 1967-68. The assessee received the sale proceeds and instead of reversing the entries made in the accounting year relevant to the year 1966-67, it credited the sales account and debited the stores account. Thus, the mistake occurred in that year. The assessee knew that the goods despatched in the preceding year had not been taken delivery of by the purchaser and had been sold on its account by its agent. Therefore, it should have made the necessary entries in that year itself and there would not have arisen any question of the profit - 9 - of 1967-68 being inflated as observed by the Tribunal. This mistake certainly could not have been corrected by the assessee itself by reversing the entries in the previous year relevant to the year under consideration and then claiming deduction of the amount as a bad debt or as a trade loss. It could not have been a bad debt and that contention was rightly given up. It could not have been a trade loss either because no such loss occurred to the assessee in the relevant previous year." 10. In such view of the matter, the questions of law raised in this appeal are answered against the assessee and in favour of the revenue. Accordingly, the Tax Case Appeal stands dismissed. No costs. We find that the facts are similar before us. Respectfully following the same, we dismiss the ground raised by the assessee. No other ground has been urged in the appeal. The appeal stands dismissed. Conclusion 12. The revenue’s appeal for AY 2013-14 stands partly allowed whereas the appeal for AY 2014-15 stand allowed for statistical purposes. The assessee’s appeal stands dismissed. Order pronounced on 26 th October, 2022 Sd/- (MAHAVIR SINGH) उपा12 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखासद9 /ACCOUNTANT MEMBER चे*ई/ Chennai; िदनांक/ Dated : 26.10.2022 EDN/- आदेशकीWितिलिपअ6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant2. यथ /Respondent 3. आयकरआय ु त (अपील)/CIT(A)4. आयकरआय ु त/CIT 5. वभागीय त न ध/DR6. गाड फाईल/GF