ITO 3(3)(4), MUMBAI V. WONDERLAND ESTATE DEVELOPERS P. LTD, MUMBAI

ITA 8445/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6642 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 01-04-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 03-12-2010
• Court: TRIBUNAL
• Department Lawyers: JKTLP DH LS SHRI R K SAHU
• Keywords: Depreciation; Cost of acquisition; Wrong claim; Difference of opinion; Revenue expenditure; Capital expenditure

Judgement Text

WONDERLAND ESTATE DEVELOPERS P. LTD 1 VK;DJ VIHYH; VF/KDJ.K TH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI JH JH JH JH FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FC YYS;K] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FCYYS ;K] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FCYYS ;K] YS[KK LNL; DS LE{K FOT; IKY JKO] U;KF;D LNL; ,OA JH UJSUNZ DQEKJ FCYYS ;K] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER VK;DJ VIYH LA[;K /ITA NO. 8445/MUM/2010 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2001-02 VK;DJ VIYH LA[;K /ITA NO. 8446/MUM/2010 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2004-05 INCOME TAX OFFICER 3(3)(4) R.NO. 672, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI -400 020. VS. WONDERLAND ESTATE DEVELOPERS P. LTD. 171-C, E WING, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021. PAN: - AAACW0547P APPELLANT RESPONDENT REVENUE BY/ JKTLP DH VKSJ LS SHRI R.K. SAHU ASSESSEE BY/ FU/KKZFJRH DH VKSJ LS SHRI SHAILESH SHAH ORDER PER VIJAY PAL RAO, JM THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF CIT(A) DATED 27.09.2010 AND 29.09.2010 ARISING FRO M PENALTY ORDER PASSED U/S 271(1)(C) OF THE INCOME TAX ACT FOR A.Y. 2001-02 AN D 2004-05 RESPECTIVELY. THE REVENUE HAS REAISED COMMON GROUNDS IN THESE APPEALS AS UNDER:- DATE OF HEARING 01.04.2014 DATE OF PRONOUNCEMENT 11.04.2014 WONDERLAND ESTATE DEVELOPERS P. LTD 2 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW,T HE LD. CIT(A) ERRED IN DELETING THE PENALTY OF RS. 66,40,445/- LE VIED U/S 271(1)(C) OF THE INCOME TAX ACT IN RESPECT OF CLAIM OF AN INELIGIBLE DEDUCTION UNDER THE HEAD AMORTIZATION AS EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS SOUGHT TO EVADE TAX BY MAKING NON-GENU INE/WRONG CLAIM OF DEDUCTION AND HAD FURNISHED INACCURATE PARTICULARS OF INCOME LEADING TO CONCEALMENT OF THE INCOME U/S 271(1)(C) READ WITH E XPLANATION 1 THERETO OF THE INCOME TAX ACT. 2. THE ASSESEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE. THE ASSESSEE MADE A PAYMENT FOR CORPORATE MEMBERSHIP OF ROYAL PALMS GOL F & COUNTRY CLUB OF RS. 25,18,50,000/-. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS CLAIMED IN THE COMPUTATION OF INCOME AN AMOUNT OF R S. 1,67,90,000/- ON ACCOUNT OF AMMORTIZATION OF UNSOLD CLUB MEMBERSHIP. THE AO HAD DISALLOWED THE SAME AND TREATED IT AS CAPITAL EXPENDITURE HOL DING THAT THERE IS NO PROVISION IN THE INCOME TAX TO AMMORTIZE SUCH EXPENDITURE. 3. THE ASSESSEE CHALLENGED THE ACTION OF AO BEFORE CIT(A), WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES CLAIM IS ALLOWABLE UNDER THE MATCHING PRICNIPLE OF ACCOUNTING. 4. ON FURTHER APPEAL BY THE REVENUE, THE TRIBUNAL V IDE ITS ORDER DATED 28.04.2009 DECIDED THE ISSUE IN FAVOUR OF THE DEPAR TMENT. THE TRIBUNAL HELD THAT THE ASSESSEE HAS NOT CLAIMED ANY AMMORTIZATION IN THE EARLIER YEAR AND WHEN THE ASSESSEE IS FOLLOWING THE PROJECT COMPLETI ON METHOD, THE CLUB MEMBERSHIP PURCHASED BY THE ASSESSEE WAS FOR INCENI VE TO THE PURCHASER OF THE PROPERTY IN THE PROJECT AND, THEREFORE, OBSERVED TH AT THERE IS A CHANGE IN THE ACCOUNTING POLICY. WHEN THE ASSESSEEE IS NOT SHOWIN G ANY REVENUE ON THE PROJECT AND THE EXPENDITURE BOOKED IS ALSO CAPITALZ ED AND SHOWN UDNER THE WORK IN PROGRESS THEN THE AMMORTIZATION EXPENDITURE SHOU LD BE CAPITALIZED AS WORK IN PROGRESS AND CANNOT BE CLAIMED AS REVENUE EXPENDITU RE. WHEN THERE IS NO REVENE RECEIPT FROM THE PROJECT THEN NO EXPENDITURE BY WAY OF AMMORTIZATION OF CLUB MEMBERSHIP CAN BE ALLOWED EVEN ON THE BASIS OF MATCHING PRINCIPLE. AFTER WONDERLAND ESTATE DEVELOPERS P. LTD 3 THE DECISION OF THIS TRIBUNAL THE AO INITIATED THE PENALTY PROCEEDINGS AND LEVIED THE PENALTY BEING 100% OF THE TAX SOUGHT TO BE EVAD ED ON THE INCOME FOR THE AMOUNT AMMORTIZED BY THE ASSESSEE DURING THESE YEAR S. 5. THE ASSESSEE CHALLENGED THE LEVY OF PENALTY BEFO RE CIT(A). THE CIT(A) DELETED THE PENALTY ON THE GROUND THAT THAT IT IS N OT A CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME BUT REJECTION OF T HE CLAIM WAS WAS BASED ON DIFFERENCE OF OPINION. 6. BEFORE US, THE LD. DR HAS SUBMITTED THAT THE ASS ESSEE IS FOLLOWING THE PROJECT COMPLETION METHOD. THE MEMBERSHIP IN QUESTI ON WAS PURCHASED BY THE ASSESSEE AS AN INCENTIVE FOR THE PROSPECTIVE BUYERS OF THE PROJECT OF THE ASSESSEE WHICH WAS NOT COMPLETED DURING THE YEAR. THE ASSESS EE HAS NOT SHOWN ANY INCOME FROM THE PROJECT, THEREFORE, NO EXPENDITURE CAN BE CLAIMED IN RESPECT OF THE SAID PROJECT. EVEN OTHERWISE, THE ASSESSEE ITSE LF HAS CAPITALIZED THE EXPENDITURE AND SHOWN IN THE WORK IN PROGRESS, THER EFORE, THE CLAIM OF HE ASSESSEE IS ABSOLUTELY INCORRECT AND NOT ALLWOABLE. EVEN IN THE EARLIER YEARS THE ASSESEE HAS NOT CLAIMED SUCH AN EXPENDITURE ON THE BASIS OF AMMORTIZATIN AND ONLY DURING THE YEAR UNDER CONSIDERATION THE ASSES SEE, FOR THE FIRST TIME HAS CLAIMED THE SAID EXPENDITURE. THE LD. DR HAS REFERE D THE FINDING OF THIS TRIBUNAL IN THE QUANTUM APPEAL AND SUBMITTED THAT THE TRIBUN AL HAS HELD THAT THE ASSESSEE HAS NEVER CLAIMED ANY AMMORTIZATION IN THE EARLIER YEARS AND FOR THE FIRST TIME THERE IS A CHANGE IN THE ACCOUNTING POLI CY AS STATED IN THE NOTE NO. 4 TO THE SCHEDULE 7. THE TRIBUNAL HAS RECORDED THE FACT THAT THE ASSESSEE HAS ADMITTED THAT THESE MEMBERSHIP WERE PURCHASED AS AN INCENTIVE FOR PROSPECTIVE BUYERS TO INDUCE BUYER OF THE PROPERTIES UNDER DEVE LOPMENT AND ACCORDINGLY THESE ARE NOT BOUGHT FOR THE PURPOSE OF TRADING IN MEMBERSHIP BUT THE PRIMARY AIM OF BUYING THE BULK MEMBERSHIP IS FOR DEVELOPING THE PROPERTIES BY THE ASSESSEE IN THE REAL ESTATE DEVELOPMENT BUSINESS. L D. DR HAS FURTHER SUBMITTED THAT THE TRIBUNAL HAS OBSERVED THAT THE CIT(A) HAS TAKEN THE PRINCIPLE WRONGLY HOLDING THAT THE ASSESSEES ACOUNTING PRINCIPLE AL LOWS CLAIM OF EXPENDITURE. WONDERLAND ESTATE DEVELOPERS P. LTD 4 EVEN IF, THE ASSESSEE DECIDED TO AMMORTIZE THE EXPE NSES ON ACCOUNT OF CLUB MEMBERSHIP THE SAME SHOULD HAVE BEEN CAPITALIZED TH ROUGH WORK IN PROGRESS AND CANNOT BE ALLOWED AS REVENUE EXPENDITURE IN THI S YEAR SINCE THERE IS NO MATCHING REVENUE FROM THE PROJECT. THUS THE LD. DR HAS SUBMITTED THAT CLAIM OF THE ASSESSEE IS NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT AND IT IS TOTALLY A FALSE CLAIM. IN SUPPORT OF HIS CONTENTION HE HAS RE LIED UPON RELIED UPON THE FOLLOWNG DECISIONS:- (I) COMMISSIONER OF INCOME TAX VS. HCIL KALINDEE ARSSPL ( 37 TAXMANN.COM 347( DEL). (II) PSB INDUSTRIES (I) (P.) LTD. 47 SOT 209. (III) COMMISSIONER OF INCOME TAX VS. MORGAN FINVEST (213 TAXMAN 23) (IV) COMMISSIONER OF INCOME TAX VS. ZOOM COMMUNICATIONS (P) LTD. (327 ITR 510) (V) GUJARAT STATE FINANCIAL SERVICES LTD. VS. ACIT (39 SOT 570) (VI) CHADHA SUGARS (P.) LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (17 ITR (T) 316) 7. THUS THE LD. DR HAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS AN ABSOLUTELY INCORRECT CLAIM AND NOT A BONAFIDE ONE. 8. ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE MEMBERSHIP OF CLUB PURCHASED BY THE ASSESSEE WAS SH OWN AS STOCK IN TRADE. THE MEMBERSHIP WAS FOR THE 15 YEARS AND AFTER EXPIR Y OF A CONSIDERABLE TIME PERIOD THE ASSESSEE HAS TOOK THE DECISION TO AMMORT IZE THE AMOUNT AS THE MEMBERSHIP WAS NOT SOLD OUT. THE ASSESSEE COULD SOL D ONLY TWO MEMBERSHIP AND LOSS DUE TO THE SALE OF TWO MEMBERSHIP HAS BEEN ACCEPTED BY THE REVENUE. THE LD. AR HAS FURTHER CONTENDED THAT THE PURCHASE AND SALE OF CLUB MEMBERSHIP IS INDEPENDENT ACTIVITY OF BUSINESS AND, THEREFORE, THE ALLOWABILITY OF THE CLAIM CANNOT BE ASSOCIATED WITH THE COMPLETI ON OF PROJECT. EVEN IF IT IS A DIMINUTION IN THE VALUE OF STOCK IN TRADE IT IS AN ALLOWABLE CLAIM. THE LD. AR HAS FORCEFULLY CONTENDED THAT IT IS A DEBATABLE ISSUE AND CIT(A) IN QUANTUM ALLOWED THE CLAIM OF THE ASSESSEE. THE TRIBUNAL WHILE DISAL LOWING THE CLAIM HAS OBSERVED THAT THE MEMBERSHIP HAS TO BE SOLD TO THE PROSPECTI VE BUYERS OF THE PROJECT AND WONDERLAND ESTATE DEVELOPERS P. LTD 5 SINCE THE PROJECT WAS NOT COMPLETED, THEREFORE, THE CLAIM WAS NOT ALLOWABLE. THUS THE CLAIM OF THE ASSESSEE WAS NOT BOGUS BUT IT WAS DISALLOWED BECAUSE THE PROJECT WAS NOT COMPLETED. THE LD. AR HAS SUBMITTE D THAT THE ASSESSEES CLAIM IS ALLOWABLE THOUGH ONLY AT THE TIME OF COMPLETION OF THE PROJECT AS HELD BY THE TRIBUNAL. THUS THE LD. AR HAS SUBMITTED THAT THE CL AIM OF THE ASSESSEE IS A BONAFIDE CLAIM AND THE LOSS ARISING OUT OF SALE OF TWO MEMBERSHIP HAS BEEN ACCEPTED BY THE AO, THEREFORE, THE EXPLANATION OF T HE ASSESSEE IS BONAFIDE AND DISALLOWANCE OF CLAIM CANNOT LEAD TO LEVY OF PENALT Y. HE HAS RELIED UPON THE FOLLWING DECISIONS:- (I) ITO VS. M/S ENERGETIC CONSTRUCTIONS PVT LTD. (2012 (7) TMI 338 ITAT, DELHI (II) CIT-II VS. KAS MOVIE (P) LTD. (20 TAXMANN.COM 6 (DELHI)) (III) SUSHIL KUMAR MODI VS. ACIT (35 TAXMANN.COM 88 ( JAIPUR TRIB) (IV) CIT VS. PRADIP AGENCIES JOINT VENTURE (20 TAXMANN .COM 45 (DELHI) (V) CIT-IV VS. GLOBAL GREEN CO. LTD. (42 TAXMANN.COM 31 (DELHI) (VI) M/S MILLENIUM INTERNATIONAL VS. ACIT ( ITA NO. 495 6/DEL/2010) (VII) CIT-14 VS. NALIN P SHAH (HUF) (40 TAXMANN.COM 86 (BOMBAY) (VIII) DCIT VS. SARAYA INDUSTRIES LTD. ( 14 SOT 55 (DELHI) (IX) CIT-III VS. M/S ADONIS ELECTRONICS PVT LTDE. (ITA N O. 1483/OF 2011) AND SUBMITTED THAT WHEN THE ASSESSEE HAS MADE FULL AND COMPLETE DISCLOSURE WITH RESPECT TO THE CLAIM OF DEDUCTION THEN THE DIS ALLOWANCE OF THE SAME BY THIS TRIBUNAL WOULD NOT IFSO FACTO ATTRACT THE PENALTY PROVISIONS U/S 271(1)(C). HE HAS REFERRED THE NOTE ON ACCOUNTS AND SUBMITTED THA T THE ASSESSEE HAS EXPLAINED THE CLAIM AND THE BASIS OF THE AMMORTIZAT ION, THEREFORE, THE ASSESSEE HAS NOT SUPPRESSED OR CONCEALED ANY MATERIAL OR FAC T WITH RESPECT TO THE CLAIM. THE LD. AR HAS SUBMITTED THAT THE DECISIONS RELIED UPON BY THE LD. DR ARE NOT APPLICABLE IN THE FACTS OF THE ASSESSES CASE BECAU SE IN THOSE CASES THE PENALTY WAS LEVIED ON THE FACT WHERE THE CLAIM WAS FOUND AB SOLUTELY WRONG AND FRIVOLOUS WHICH IS NOT IN THE CASE OF THE ASSESSEE. WONDERLAND ESTATE DEVELOPERS P. LTD 6 9. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE PURCHASED 290 CORP ORATE MEMBERSHIP OF ROYAL PALMS GOLF & COUNTRY CLUB. THIS MEMBERSHIP IS FREEL Y TRANSFERABLE, THE ASSESSEE PURCHASED THESE MEMBERSIP TO SELL TO THE PROSPECTIV E BUYERS OF THE PROJECT WHICH WAS TO BE DEVELOPED BY THE ASSESSEE AS AN INC ENTIVE FOR THE PURCHASERS. THE MEMBERSHIP WAS FOR A PERIOD OF 15 YEARS THIS ME MBERSHIP WAS PURCHASED IN THE EARLIER YEARS AND SHOWN BY THE ASSESSEE AS A BA LANCE SHEET ITEM WITHOUT ROUTING THROUGH THE PROFIT & LOSS ACCOUNT. THE ASSE SSEE IS UNDISPUTEDLY FOLLOWING THE PROJECT COMPLETION METHOD AND NO REVE NUE/INCOME HAS BEEN RECOGNIZED BY THE ASSESSEE FROM THE PROJECT UP TILL THE ASSESSMENT YEARS UNDER CONSIDERATION. THE CLAIM OF THE ASSESSEE WAS FINALL Y DISALLOWED BY THIS TRIBUNAL BY ANALYZING AND CONSIDERING THE RELEVANT FACTS IN PARA 7 AND 8 OF THE ORDER AS UNDER:- 7. WE HAVE CONSIDERED THE ISSUE, PERUSSED THE REC ORD AND CONSIDERED THE ARGUMENTS OF BOTH THE COUNSELS. AT T HE OUTSET WE ARE UNABLE TO EXAMINE WHETER THE ASSESSEE PAID ANY AMOU NT FOR PURCHASE OF THE MEMBERSHIP AS THE AMOUNTS ARE NOT V ERFIABLE ON THE BASIS OF THE BALANCE SHEET NOR FROM THE DETAILS FIL ED BEFORE US. HOWEVER, AS SUBMITTED THE ASSESSEE HAS STATED TO HA VE ACQUIRED 219 CORPORATE MEMBERSHIPS FOR RS. 25,18,50,000/- WHICH WERE VLAID UP TO 2013. AS PER THE SUBMISSIONS AND ALSO THE FINDINGS GIVEN BY THE LEARNED CIT(A) AND AO THESE CORPORATE MEMBERSHIPS WERE ACQUIRED AS A PART OF INCENTIVES TO INDUCE BUYING THE PROPER TIES UNDER DEVELOPMENT BY THE ASSESSEE COMPANY. AS SEEN FROM T HE P&L ACCOUNT THE ASSESSEE COMPANY IS FOLLOWING PROJECT C OMPLETION METHOD AS FAR AS THE DEVELOPMENT OF PROPERTIES ARE CONCERN ED AND THE BALANCE SHEET INDICATES THAT THE ASSESSEE HAD INVES TMENT IN JOGESHWARI PROPERTIES TO AN EXTENT OF RS. 22,43,73, 932/- AND MEMBERSHIPS TO THE EXTENT OF RS. 25,18,50,000/- AGA INST WHICH IT WAS CURRENT LIABILITIES TO AN EXTENT OF RS. 47,16,7 3,667/-. HOWEVER, THE NET FUND A PER THE BALANCE SHEET IS RS. 28,36,3 34/- AND THE NET ASSET IS ALSO THE SAME AMOUNT OUT OF WHICH P&L ACC OUNT LOSS IS RS. 5,06,00,982/- MOSTLY COMPRISING OF WRITE OFF OF AMO RTISATION OF UNSOLD MEMBERSHIP FOR THE THREE YEARS AS PER NOTE N O. 4 IN SCHEDULE 7 TO P&L ACCOUNT. IT IS TRUE THAT THE ASSESSEE HAS SOLD 2 MEMBERSHIPS AND BOOKED THE LOSS AND THE LOSS WAS ALLOWED BY THE AO. HOWEVER, WONDERLAND ESTATE DEVELOPERS P. LTD 7 WITH REFERENCE TO THE BALANCE OF THE MEMBERSHIPS TH E ASSESSEE HAS NEVER CLAIMED ANY AMORTISATION IN EARLIER YEARS AND FOR THE FIRST TIME THERE IS A CHANGE IN THE ACCOUNTING POLICY AS STATE D IN NOTE 4 TO SCHEDULE 7 AND ACCORDINGLY THE PREVIOUS TWO YEARS A MORTIZATION AMOUNT OF RS. 3,35,80,000/- HAS ALSO BEEN WRITTEN O FF AND CHARGED TO THE P&L ACCOUNT. HOWEVER AS SEEN FROM THE ACCOUNTIN G PRINCIPLES FOLLOWED BY THE ASSESSEE THE MAIN PROJECT IS YET TO BE COMPLETED AND NO INCOMES HAVE BEEN DISCLOSED. AS PER THE FINDINGS OF THE AO AND THE LEARNED CIT(A) AND ALSO AS ADMITTED BY THE ASSE SSEE THESE MEMBERSHIPS WERE PURCHASED AS AN INCENTIVE FOR THE PROSPECTIVE BUYERS TO INDUCE BUYING THE PROPERTIES UNDER DEVEL OPMENT AND ACCORDINGLY THESE ARE NOT BOUGHT FOR THE PURPOSE OF TRADING IN MEMBERSHIP BUT THE PRIMARY AIM OF BUYING THE BULK M EMBERSHIP IS FOR DEVELOPING THE PROPERTIES BY THE ASSESSEE IN THE ES TATE DEVELOPMENT BUSINESS. SINCE THE MAIN PROJECT IS STILL UNDER CO MPLETION AND THE ASSESSEEHAS NOT DISCLOSED ANY INCOMES ON THAT, WE A RE UNABLE TO UNDERSTAND HOW THE ASSESSEE CAN CLAIM THE EXPENSES ON MEMBERSHIP ON THE BASIS OF AMORISATION. THE LD. CIT (A) ALSO CONSIDERED THE ISSUE BUT HAS TAKEN THE PRINCIPLE WR ONGLY HOLDING THAT THE ASSESSEES ACCOUNTING PRINCIPLE ALLOWS CLAIM OF EXPENDITURE. IT IS A FACT ON RECORD THAT ASSESSEE IS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING AND AS FAR AS THE PROJECT IS CONCERNED, INCOMES ARE RECOGNISED ON PROJECT COMOPLETION METHOD. IN THAT W AY THE CLAIM OF AMORISATION OF CLUB MEMBERSHIP COST SHOULD BE AGAIN ST THE INCOME RECEIVED ON THE PROJECT ONLY. THE MATCHING PRINCIPL E WILL APPLY ONLY WHEN THE REVENUE AND INCOME EARNED DURING THE ACCOU NTING PERIOD MATCHES TO EACH OTHER WITH THAT OF EXPENDITURE. THE ASSESSEE IS NOT SHOWING ANY REVNEU ON THE PROJECT AND THE EXPENDITU RE BOOKED IS ALSO CAPITALISED AND SHOWN IN WORK IN PROGRESS. THAT BEI NG THE CASE, THIS AMORTISATION EXPENSE ALSO SHOULD BE CAPITALISED TO THE WORK IN PROGRESS AND CANNOT BE MADE REVENUE EXPENDITURE IN THIS YEAR, SINCE THERE IS NO MATCHING REVENUE FROM THE PROJECT. 8. THE ASSESSEE EVEN THOUGH HAS ACQUIRED LARGE NUMB ER OF MEMBERSHIPS TO INDUCE PROPSECTIVE BUYERS, SAID TO H AVE SOLD TWO MEMBERSHIPS AND BOOKED LOSS. THE LOSS TO THAT EXTEN T WHICH WERE SOLD CAN BE CONSIDERED AS REVENUE EXPENDITURE/BUSIN ESS LOSS BUT THAT DOES NOT MAKE THE ASSESSEE ELIGIBLE TO CLAIM T HE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE, SINCE THE MAIN INTENTION OF BUYING CLUB MEMBERSHIP IS MAINLY FOR THE BUSINESS P ROJECT DEVELOPMENT. IN VIEW OF THAT WE ARE OF THE OPINION THAT THE LEARNED CIT(A) HAS ERRED IN CONSIDERING THE MATCHING PRINCI PLE AND DIRECTING THE AO TO ALLOW THE EXPENDITURE. SINCE THE ASSESSE ES CHANGE OF ACCOUNTING METHOD ON THIS HAS NOT BEEN EXAMINED BY THE AO NOR BY THE LEARNED CIT(A) AND CONSIDERING THE ISSUE IN IT S CORRECTIVE PERSPECTIVE, SINCE THE PURPOSE OF PURCHASE OF CLUB MEMBERSHIP HAS WONDERLAND ESTATE DEVELOPERS P. LTD 8 NOT BEEN CONSIDERED BY THE AUTHORITIES, WE ARE OF T HE OPINION THAT THE AMORTISATION OF THIS YEARS PURCHASE COST CANNOT BE ALLOWED AND TO THAT EXTENT THE ORDER OF THE LEARNED CIT(A) IS NOT CORRECT. AT THE SAME TIME THE REASONS FOR DISALLOWANCE OF THE CLAIM OF T HE ASSESSEE BY THE AO IS ALSO NOT CORRECT. THE CLAIM OF ASSESSEE IS TH AT THE REDUCTION IN VALUE OF MEMBERSHIP IS PERIDODICAL COST WHICH IS RE VENUE IN NATURE. THERE IS MERIT IN THE CLAIM. BUT THE SAME CANNOT BE ALLLWED AS ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD AND REVENUES ON THE PROJECT ARE NOT YET RECOGNIZED. WHILE ALLOWING THE SALE OF TWO CLUB MEMBERSHIPS AND LOSS INCURRED THEREON, THE AO HAS N OT EXAMINED THE BALANCE OF CLUB MEMBERSHIP AND THE PURPOSE FOR WHIC H IT WAS ACQUIRED . EVEN FROM THE SUBMISSIONS MADE BEFORE TH E LD CIT(A), ONE CAN GATEHR THAT THE ASSESSEE HAS SOLD ONLY TWO MEMB ERSHIPS OUT OF 219 FOR A COST OF RS. 16,09,018/- AND INCURRED LOSS OF RS. 2,30,982/- DETAILS OF WHICH WERE MADE IN THE SUBMISSIONS BEFOR E THE LEARNED CIT(A) BUT COULD NOT BE GATHERED FROM THE P & L ACC OUNT OR FORM THE BALANCE SHEET. AS SEEN FROM THE P&L ACCOUNT THE ASS ESSEE HAS NOT SHOWN ANY INCOME AND THERE WERE ONLY TWO DEBITS. (1 ) LOSS ON SALE OF MEMBERSHIP RS. 2,30,982/- AND (II) AMORTISATION OF MEMBERSHIP RS. 16,97,000/-. SINCE THE ASSESSEEE HAS SOLD TWO MEMBE RSHIPS WHICH WERE ACQUIRED FOR GIVING AS AN INCENTIVE FOR THE PR OJECT DEVELOPMENT, THERE CAN BE A GENUINENESS IN ALLOWING THE LOSS ON SALE OF MEMBERSHIP BUT AMORTISATION OF BALANCE MEMBERSHIP D OES NOT ARISE AS THE SAME WERE ACQUIRED FOR THE PURPOSE OF PROJEC T DEVELOPMENT AND THE INCOMES FROM THE PROJECT DEVELOPMENT HAVE N OT BEEN OFFERED TO TAX, EVEN THOUGH THE BALANCE SHEET INDICATES THA T THERE WERE RECEIPTS TO THE TUNE OF RS. 4416 LAKHS TOWARDS JOG ESHWARI DEVELOPMENT PROJECT. IN VIEW OF THIS, WE ALLOW THE REVENUE APPEAL AND MODIFY THE ORDER OF THE LEARNED CIT(A). HOWEVER , FOR THE REASONS STATED ABOVE, THE EXPENDITURE CAN ONLY BE CAPITALIS ED TO THE PROJECT- EXPENSES AND CAN ONLY BE SET OFF IN THE YEAR IN WHI CH THE PROJECT IS COMPLETED. TO THAT EXTENT THE CLAIM OF EXPENDITURE AS REVENUE EXPENDITURE IN THIS YEAR DOES NOT ARISE AND SO, THE GROUNDS ARE CONSIDERED ALLOWED FOR THE ABOVE REASONS. 10. IT IS CLEAR FROM THE FACT OF THE CASE THAT THE CLUB IN QUESTION AS WELL AS THE PROJECT TO BE DEVELOPED BY THE ASSESSEE WERE IN VIC INITY. THE ASSESSEE HAS ADMITTED THAT THE MEMBERSHIP OF THE CLUB WAS PURCHA SED AS AN INCENTIVE FOR THE PROSPECTIVE BUYERS OF THE PROPERTY IN THE PROJECT. FURTHER THE ASSESSEE HAS NOT BOOKED THIS EXPENDITURE ON THE CLUB MEMBERSHIP IN T HE P & L ACCOUNT BUT THE SAME WAS SHWON ONLY IN THE BALANCE SHEET THOUGH UND ER THE HEAD STOCK IN TRADE. THE ASSESSEE HAS CAPITALISED THE ENTIRE EXP ENDITURE OF THE PROJECT AND WONDERLAND ESTATE DEVELOPERS P. LTD 9 SHOWN IN THE WORK IN PROGRESS AND UNDISPUTEDLY THIS WAS THE REASON FOR NOT SHOWING THIS EXPENDITURE IN THE P&L ACCOUNT AS IT H AS THE DIRECT CONNECTION WITH THE DEVELOPMENT AND SALE OF PROJECT BY THE AS SESSEE. IN THE QUANTUM APPEAL THE CIT(A) THOUGH ALLOWED THE CLAIM OF THE A SSESSEE HOWEVER RECORDED THE FACT AT PAGE 4 AS UNDER:- I HAVE GONE THROUGH THE CONETNION OF THE APPELLANT AS WELL AS THAT OF THE AO FROM THE FACT OF THE CASE WHAT EMERGES IS THAT THE APPELLANT COMPANY HAD ACQUIRED 219 CLUB MEMBERSHIP OF ROYAL PALM FOR THE PURPOSE OF PROVIDING SAME AS INCENTIVES TO THE PROSPECTIVE BUYERS OF IT S PROPERTY UNDER DEVELOPMENT. IT IS NOT IN DISPUTE THAT SUCH MEMBERS HIP HAD A TENURE OF 15 YEARS AND WERE TO EXPIRE IN THE YEAR 2013. 11. THUS THE EXPLANATION OF THE ASSESSEE THAT THE A CTIVITY OF PURCHASE AND SALE OF CLUB MEMBERSIP AS AN INDEPENDENT FROM THE PROJEC T IS CONTRARY TO THE FACT AS RECORED BY THE CIT(A) IN THE QUANTUM APPEAL AS WELL AS BY THIS TRIBUNAL WHILE DECIDING THE QUANTUM APPEAL. THE CLAIM OF THE ASSES SEE WAS FOUND TO BE NOT ALLOWABLE EVEN AS PER THE ASSESSEES ACCOUNTING POL ICY AS WELL AS ON THE BASIS OF THE FACT THAT NO INCOME HAS BEEN RECOGNIZED BY THE ASSESSEE FROM THE PROJECT AND THE EXPENDITURE WHICH IS CONNECTED WITH THE PRO JECT TO BE CAPITLISED AND HAS TO BE SHOWN IN THE WORK IN PROGRESS, CANNOT BE ALLO WED ON THE BASIS OF AMORTISATION AGAINST THE OTHER INCOME OF THE ASSESS EE. THEREFORE, THE ASSESSEES CLAIM WAS FOUND UNTENABLE AND UNACCEPTABLE AS BASED ON REPRESENTATION OF WRONG FACTS. WHEN THE CLAIM OF THE ASSESSEE IS WHOL LY UNTENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION THEN THE EXPLANATION OF TH E ASSESSEE CANNOT BE SAID TO BE THE BONAFIDE. THE FINDING OF THE FACTS GIVEN BY THE TRIBUNAL HAS ATTAINED THE FINALITY AND, THEREFORE, THE CONTENTION OF THE ASSE SSEE THAT THE DIMINUTION IN THE VALUE OF STOCK IN TRADE IS ALSO ALLOWABLE CLAIM IS BASELESS IN VIEW OF THE FACT THAT ANY CLAIM IN RESEPCT OF THE EXPENDITURE IN CONNECTI ON WITH THE PROJECT CAN BE ALLOWED ONLY ON COMPLETION OF THE PROJECT. THEREFOR E, THE CLAIM OF THE ASSESSEE WITHOUT RECOGNISING ANY INCOME FROM THE PROJECT AS THE PROJECT IS YET TO BE COMPLETED IS ABSOLUTELY WRONG AND THERE IS NO REASO N OR BONAFIDE BASIS OF SUCH CLAIM. AS FAR AS THE DECISION RELIED UPON BY THE PA RTIES ARE CONCERNED THERE IS NO WONDERLAND ESTATE DEVELOPERS P. LTD 10 QUARREL ON THE POINT THAT IF THE CLAIM OF THE ASSES SEE IS FOUND AS BONAFIDE THOUGH NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT, THEN THE PENALTY IS NOT LEVIABLE. WHEREAS ON THE OTHER HAND IF THE CLAIM OF THE ASSES SEE IS BASED ON WRONG FOOTINGS AND MISREPRESENTAITON OF FACTS THEN THE DI SALLOWANCE OF SUCH CLAIM JUSTIFY THE LEVY OF PENALTY. IN THE CASE IN HAND TH E CLAIM OF THE ASSESSEE IS BASED ON TWISTING AND MISREPRESENTATION OF FACTS THAT PUR CHASE AND SALE OF CLUB MEMERBSIP IS AN INDEPENDENT ACTIVITY OF HE ASSESSEE AND THEREBY AMORTISING THE EXPENDITURE WHICH WAS FOUND AS CONTRARY TO THE FAC TS AND ACCOUNTING POLICY OF THE ASSESSEE. THERE IS NO BASIS FOR CHANGE IN THE A CCOUNTING POLICY/METHOD ADOPTED BY THE ASSESSEE AND THE REASON EXPLAINED BY THE ASSESSEE WAS FOUND AS ABSOLUTELY CONTRARY TO THE GROUND REALITY. ACCORDIN GLY WE SET ASIDE THE IMPUGNED ORDER OF CIT(A) AND CONFIRM THE PENALTY LEVIED BY A O U/S 271(1)(C). 12. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 -04-2014 SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) ( JUDICIAL MEMBER) (ACCOUNTANT MEMBER) MUMBAI DATED 11-04-2014 SKS SR. P.S. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI