DCIT, New Delhi V. M/s. Somnath Buildtech Pvt. Ltd., New Delhi

ITA 7010/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5570 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 26-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAUSHLENDRA TIWARI
• Assessee Lawyers: KAPIL GOYAL
• Keywords: Depreciation; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. K. N. CHARY , JM ITA NO. 7010 /DEL/2014 : ASSTT. YEAR : 2010 - 11 DCIT, CIRCLE - 24(2), NEW DELHI VS M/S SOMNATH BU ILDTECH PVT. LTD., A - 104, PATEL SOCIETY, PLOT NO. 4, SECTOR - 4, DWARKA, NEW DELHI - 75 (APPELLANT) (RESPONDENT) PAN NO. A A KCS8147D ASSESSEE BY : SH. KAPIL GOYAL , ADV. REVENUE BY : SH. KAUSHLEND RA TIWARI , SR. DR DATE OF HEARING : 11 .0 4 .201 8 DATE OF PRONOUNCE MENT : 13 .0 4 .201 8 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 27.10.2014 OF LD. CIT(A ) - X I I , NEW DELHI. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS.86,97,395/ - COMPRISING ADVERTISEMENT EXPENSES RS.31,61,088/ - , BUSINESS PROMOTION EXPENSES RS.37,288 / - , BROKERAGE & COMMISSION EXPENSES OF RS.83,42,150/ - AND SOFTWARE DEVELOPING CHARGE OF RS.56,000/ - TREATING THEM AS CAPITAL IN NATURE. 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, ADD OR FORGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HE ARING OF THIS APPEAL. 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS DECIDED ITA NO . 7010 /DE L/2014 SOMNATH BUILDTECH PVT. LTD. 2 IN FAVOUR OF THE ASSESSEE IN ITA NO.2940/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 22.11.2017 (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). 4. IN HIS RIVAL SUBMISSIONS, THE LD. SR. DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THIS FACT THAT AN IDENTICAL ISSUE WAS DECIDED BY THE ITAT IN THE PRECE DING YEAR VIDE AFORESAID REFERRED TO ORDER DATED 22.11.2017 , IN ASSESSEE S OWN CASE . 5. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS , ON THE SAME ISS UES HAS ALREADY BEEN ADJUDICATED BY THE ITAT DELHI BENCH G , NEW DELHI IN ASSESSEE S OWN CASE IN ITA NO.2940/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 22.11.2017 AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 6 & 7 WHICH READ AS UNDER: 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE FACTS ARE THAT THE ASSESSEE IS DEVELOPING A PROJECT AND FOR WHICH THE ASSESSEE HAS INCURRED THE COST OF THE PROJECT ON THE LAND AND ITS DEVELOPMENT CHARGES. THE SAME HAVE BEEN CAPITALIZED AS WORK IN PROGRESS BY THE ASSESSEE. HOWEVER, CERTAIN EXPENDITURE SUCH AS ADVERTISEMENT EXPENDITURE, BROKERAGE EXPENDITURE, BUSINESS PROMOTION EXPENDITURE AND SOFTWARE DEVELOPMENT CHARGES WERE NOT CAPITALIZED BY THE ASSESSEE, BUT CLAIMED AS REVENUE EXPENDITURE. THE GUIDANCE HAS BEEN PROVIDED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR ACCOUNTING IN CASE OF REAL ESTATE PROJECTS. THESE GUIDELINES ARE UNDISPUTEDLY APPLICABLE TO THE FACTS OF THE CASE BEFORE US. ACCORDING TO THAT GUIDELINE WHAT ARE THE EXPENDITURE WHICH ARE ITA NO . 7010 /DE L/2014 SOMNATH BUILDTECH PVT. LTD. 3 REQUIRED TO BE CAPITALIZED AND WHAT ARE THE EXPENDITURE WHICH ARE REQUIRED TO BE EXPRESSED OUT HAVE BEEN SPECIFICALLY MENTIONED. 2.2 PROJECT COSTS PROJECT COSTS IN RELATION TO A PROJECT O RDINARILY COMPRISE (A) COST OF LAND AND COST OF DEVELOPMENT RIGHTS - ALL COSTS RELATED TO THE ACQUISITION OF LAND, DEVELOPMENT RIGHTS IN THE LAND OR PROPERTY INCLUDING COST OF LAND, COST OF DEVELOPMENT RIGHTS, REHABILITATION COSTS, REGISTRATION CHARGES, ST AMP DUTY, BROKERAGE COSTS AND INCIDENTAL EXPENSES. (B) BORROWING COSTS IN ACCORDANCE WITH ACCOUNTING STANDARD (AS) 16, BORROWING COSTS WHICH ARE INCURRED DIRECTLY IN RELATION TO A PROJECT OR WHICH ARE APPORTIONED TO A PROJECT. (C) CONSTRUCTION AND DEVE LOPMENT 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 RELATE DIRECTLY TO A SPECIFIC PROJECT INCLUDE (A) LAND CONVERSION COSTS, BETTERMENT CHARGES, MUNICIPAL SANCTION FEE AND OTHER CHARGES FOR OBTAINING BUILDING PERMISSIONS; (B) SITE LABOUR COSTS, INCLUDING SITE SUPERVISION; (C) COSTS OF MATERIALS USED IN CONSTRUCTION OR DEVELOPMENT OF PROPERTY; (D) DEPRECIATION OF PLANT AND EQUIPMENT USED FOR THE PROJECT ; (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 ASSISTAN CE THAT IS DIRECTLY RELATED TO THE PROJECT; (H) ESTIMATED COSTS OF RECTIFICATION AND GUARANTEE WORK, INCLUDING EXPECTED WARRANTY COSTS; AND (I) CLAIMS FROM THIRD PARTIES. ITA NO . 7010 /DE L/2014 SOMNATH BUILDTECH PVT. LTD. 4 2.4 THE FOLLOWING COSTS SHOULD NOT BE CONSIDERED PART OF CONSTRUCTION COSTS AND DE VELOPMENT 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 DELIVERED AT SITE; AND (F) PAY MENTS MADE TO SUB - CONTRACTORS IN ADVANCE OF WORK PERFORMED. 2.5 COSTS THAT MAY BE ATTRIBUTABLE TO PROJECT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC PROJECTS INCLUDE: (A) INSURANCE; (B) COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT IS NOT DIRE CTLY RELATED TO A SPECIFIC PROJECT; (C) CONSTRUCTION OR DEVELOPMENT OVERHEADS; AND (D) BORROWING COSTS. SUCH COSTS ARE ALLOCATED USING METHODS THAT ARE SYSTEMATIC AND RATIONAL AND ARE APPLIED CONSISTENTLY TO ALL COSTS HAVING SIMILAR CHARACTERISTICS. THE ALLOCATION IS BASED ON THE NORMAL LEVEL OF PROJECT ACTIVITY. CONSTRUCTION OVERHEADS INCLUDE COSTS SUCH AS THE PREPARATION AND PROCESSING OF CONSTRUCTION PERSONNEL PAYROLL. 7. THE EXPENDITURE THAT IS STATED TO BE CAPITALIZED BY THE LD. ASSESSING OFFICER ARE THE ADVERTISEMENT EXPENSES AND BUSINESS PROMOTION EXPENSES WHICH ARE RELATED TO THE GENERAL ADMINISTRATIVE COST OF THE ASSESSEE. THE BROKERAGE AND COMMISSION EXPENDITURE ARE RELATED TO SELLING COSTS, WHICH IS NOT DISPUTED. FURTHER, THE SOFTWARE DEVELO PMENT EXPENDITURE INCURRED BY THE ASSESSEE ARE FOR THE PURPOSE OF DAY TO DAY RUNNING OF THE COMPANY AND NOT RELATED TO THE SPECIFIC PROJECT. AS STATED IN THE GUIDANCE NOTE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, AS PER PARA NO. 2.4 THAT ON RELA TE ADMINISTRATIVE EXPENDITURE AS WELL AS THE SELLING COST SHOULD NOT BE CARRIED FORWARD AND CAPITALIZING THE ITA NO . 7010 /DE L/2014 SOMNATH BUILDTECH PVT. LTD. 5 PROJECT COST BUT SHOULD BE EXPENSED. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT THAT HOW THE ACCOUNTING MADE BY THE ASSESSEE IS NOT PR OPER WITH RESPECT TO THE GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. FURTHER, NONE OF THE EXPENDITURE INCURRED BY THE ASSESSEE WERE NOT FOUND TO BE NOT GENUINE. LOOKING FROM THE ANOTHER ANGLE ABOUT THE EXPENDITURE CLAIMED BY TH E ASSESSEE, IT WOULD BE APPARENT THAT IF THE ASSESSEE FOLLOWS THE COMPLETED CONTRACT METHOD, THEN THE ASSESSEE WOULD BE CARRYING ON THE COST OF THE PROJECT FOR THE PERIOD TILL THE PROJECT IS SOLD. NATURALLY THE COST OF THE PROJECT WOULD BE INCREASED BY THE SE AMOUNTS AND THE REVENUE IS DUTY BOUND TO GRANT THE DEDUCTION OF THIS COST OF PROJECT AT THE TIME OF SALE. THEREFORE IN THAT PARTICULAR SCENARIO, THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE ALLOWED TO THE ASSESSEE IS A DEDUCTION IN THAT P ARTICULAR YEAR. IF THE DEDUCTION IS ALLOWED TO THE ASSESSEE DURING THIS YEAR AND THE ASSESSEE HAS INCURRED LOSS ASSESSEE IS DUTY BOUND TO SET OF THIS LOSS WITHIN A SPECIFIED NUMBER OF ASSESSMENT YEAR SPECIFIED UNDER SECTION 72 OF THE INCOME TAX ACT, I.E. 8 YEARS. IF THE ASSESSEE CANNOT SET OF THESE LOSSES DURING THAT PARTICULAR PERIOD THEN THE ASSESSEE FORGOES THE TAX ADVANTAGE OF CLAIM OF THE LOSS. THEREFORE, EVEN IF THE EXPENDITURE IS ALLOWED TO THE ASSESSEE FOR THIS YEAR AS DEDUCTION, IT DOES NOT MAKE TH E CASE OF THE REVENUE AT ANY DISADVANTAGEOUS POSITION, IN FACT, IT PUTS ASSESSEE INTO SOME DISADVANTAGE. FURTHERMORE, ON THE IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, THE COORDINATE BENCH IN CASE OF ITA NO. 310/MUM/2012 FOR ASSESSMENT YEAR 2008 - 09 HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 37 (1) ON ACCOUNT OF ADVERTISEMENT EXPENSES, BROKERAGE EXPENSES. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH WE ALSO ALLOW THE CLAIM OF THE ASSESSEE WITH RESPECT TO T HE DEDUCTION OF ADVERTISEMENT EXPENSES, BUSINESS PROMOTION EXPENSES, BROKERAGE AND COMMISSION AND SOFTWARE DEVELOPMENT CHARGES. FURTHERMORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A), ITA NO . 7010 /DE L/2014 SOMNATH BUILDTECH PVT. LTD. 6 HENCE, WE CONFIRM THE SAME AND DIRECT THE LD. ASSESSI NG OFFICER TO DELETE THE ADDITION OF RS. 45038586/ . IN THE RESULT, SOLITARY GROUND IN THE APPEAL OF THE REVENUE IS DISMISSED. 6. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE VIEW THAT THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 7 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 13 /0 4 /2018 ) SD/ - SD/ - ( K. N. CHARY ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 /0 4 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTA NT REGISTRAR