HIGHSTREET DEVELOPERS PVT. LTD., Mumbai V. I.T.O. - 3(1)(4), Mumbai

ITA 92/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7633 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 05-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: DR K SHIVARAM; RAHUL K HAKANI ARS
• Keywords: Rule of consistency; Revenue expenditure
• Section: 37(1); 43; 13; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUM BAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMB ER ITA NO.92/MUM/2018 ( ASSESSMENT YEAR: 2012-13 ) HIGHSTREET DEVELOPERS PRIVATE LIMITED SP CENTRE, 41/44 MINOO DESAI MARG, COLABA MUMBAI-400 005 VS. ITO-3(1)(4) AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AA BCH6648H APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI SACHCHIDANAND DUBE, DR ASSESSEE BY DR. K.SHIVARAM & RAHUL K. HAKANI, ARS DATE OF HEARING 07 /01/2020 DATE OF PRONOUNCEMENT 29/01/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)08, MU MBAI, DATED 11/09/2017 AND IT PERTAINS TO ASSESSMENT YEAR 2012- 13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), MUMBA I HAD ERRED IN CONFIRMING THE DISALLOWANCE OF PROJECT MANAGEMENT E XPENSES CLAIMED BY THE ASSESSEE OF RS. 48,16,592/- U/S 37 OF THE INCOM E TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE INCURRED AFTER 01/07//2011 I.E.. AFTER THE SUSPENSION OF THE BUSIN ESS CANNOT BE CAPITALIZED AS THE PROPERTY CONSTRUCTION WAS NOT IN EXISTENCE DURING THIS PERIOD AND THERE WAS NO WORK IN PROGRESS DURING TH IS PERIOD. ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 2 THE DECISION ARRIVED AT BY THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) WITHOUT PROPERLY CONSIDERING AND APPRECIA TING THE FACTS WAS WHOLLY UNWARRANTED, UNCALLED FOR AND IN LAW. 1.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) HAD ALSO ERRED IN NOT APPRECIATING THE THAT THOUGH THE BUSINESS OF THE ASSESSEE HAS NOT CEASED PERMANENTLY BUT THE FACT THAT THERE WAS NO B USINESS DURING THIS PERIOD AND THE ASSESSEE HAS NOT ADOPTED A DIFFERENT METHOD OF ACCOUNTING FROM THE DALE OF SUSPENSION OF THE BUSIN ESS MOREOVER THE ASSESSEE CONTINUED THE ACCOUNTING PRINCIPLES FOLLOW ED BY THEM UP TO 30/06/2011. AS PER THE ACCOUNTING PRINCIPLES FOLLOW ED BY THE ASSESSEE, THE EXPENDITURE INCURRED DURING THE PERIOD OF SUSPE NSION HAS BEEN CLAIMED AS REVENUE EXPENDITURE AS THE SAME CANNOT B E CAPITALIZED WITH THE COST OF THE INVESTMENT IN PROPERTY AS THE PROPE RTY CONSTRUCTION WAS NOT IN EXISTENCE. THERE WOULD HAVE BEEN NO OCCASION TO CLAIM THE DEDU CTION IF THE WORK IN PROGRESS HAD CONTINUED. BECAUSE THE PROJECT WAS SUS PENDED, THE WORK IN PROGRESS DID NOT PROCEED ANY FURTHER. THE DECISION TO SUSPEND THE PROJECT WAS THE CAUSE FOR CLAIMING THE DEDUCTION. 2. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, AMPLI FY, MODIFY OR DELETE ANY OF THE AFORESAID GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN REAL-ESTATE DEVELOPMENT PROJECTS, SUCH A S SPECIAL ECONOMIC ZONE (SEZ), INFORMATION TECHNOLOGY PARKS ( IT PARK) AND OTHER COMMERCIAL ESTABLISHMENTS. THE COMPANY CURREN TLY ENGAGED IN THE PROJECT FOR DEVELOPMENT FOR IT PARK AT MYSOR E. FOR THIS PURPOSE, IT HAS GOT ALLOTMENT OF LAND FROM KARNATAK A INDUSTRIAL AREA DEVELOPMENT BOARD (KIADB). THE ASSESSEE HAS ENTERED INTO DEVELOPMENT AGREEMENT FOR DEVELOPMENT OF INDUSTRIAL PARK WITH SHAPOORJI PALLONJI & CO. LTD. AND ASLO FOR PROVIDIN G VARIOUS PROJECT MANAGEMENT AND OFFICE MANAGEMENT SERVICES. THE ASSE SSEE HAS CAPITALIZED PROJECT MANAGEMENT EXPENSES INTO WORK I N PROGRESS ACCOUNT AND SHOWN UNDER THE HEAD INVESTMENT IN PROP ERTY UNDER CONSTRUCTION. DUE TO CERTAIN LEGAL HURDLES, ALLOTME NT OF ENTIRE LAND BY KIADB, AS PER AGREEMENT WAS NOT COMPLETE. THEREFORE , THE ASSESSEE HAS TEMPORARILY SUSPENDED ITS PROJECT FROM 01/07/2011. ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 3 FURTHER, THE PROJECT MANAGEMENT EXPENSES INCURRED U P TO 01/07/2011 WAS CAPITALIZED TO WORK IN PROGRESS ACCO UNT, BUT FROM 01/07/2011 ONWARDS SAID EXPENDITURE HAS BEEN DEBITE D INTO PROFIT AND LOSS ACCOUNT AS REVEUNE EXPENDITURE. 4. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSE HA S FILED ITS RETURN OF INCOME, DECLARING TOTAL LOSS OF RS. 1,39, 027/-. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE LD. AO AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO, TAKING NOTE OF THE FACT THAT THE PROJECT MANAGEMENT EXPENSES HAS BEEN CAPITALIZED DURING THE EARLIER YEARS DID NOT ACCEPT THE CONTENTION OF THE ASSESEE AND D ISALLOWED PROJECT MANAGEMENT EXPENSES DEBITED INTO PROFIT AND LOSS AC COUNT AMOUNTING TO RS. 48,16,592/- AND ADDED BACK TO CAP ITAL WORK IN PROGRESS ACCOUNT SHOWN UNDER THE HEAD INVESTMENT IN PROPERTY UNDER CONSTRUCTION. THE RELEVANT OBSERVATIONS OF TH E LD. AO ARE AS UNDER:- I HAVE GONE THROUGH THE SUBMISSION OF THE ASSESEE WHI CH IS NOT FOUND TO BE ACCEPTABLE. THE ASSESEE HAS CLAIMED THA T THE PROJECT MANAGEMENT EXPENSES OF RS. 48,16,592/- DEBITED DURI NG THE YEAR TO THE P &L ACCOUNT SHOULD BE ALLOWED U/S 37(1) AS ITS AUD ITORS INSISTED TO PARK A PART OF PROJECT MANAGEMENT EXPENSES TO PROFIT AND LOSS ACCOUNT INSTEAD OF CWIP. AS PER PREVIOUS RECORDS IT IS FOUN D THAT, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE PROJECT COMPLETION METH OD OF ACCOUNTING AND TILL A.Y. 2011-12, THE ASSESSEE WAS REGULARLY AND W HOLLY CAPITALIZING THE PROJECT MANAGEMENT EXPENSES TOWARDS CWIP, BUT AS TH ERE IS NO SUBSTANTIAL IMPROVEMENT OF THE PROJECT AND THE PROJ ECT IS STALLED AND DELAYED, THE SUDDEN AND ARBITRARY DECISION TAKEN BY THE ASSESEE WITHOUT FOLLOWING STANDARD ACCOUNTING METHOD, TO CHARGE CER TAIN PORTION OF THE SAID EXPENSES TO THE P&L ACCOUNT FROM AY 2012-13 ON WARDS, IS INCORRECT AND NOT ACCEPTABLE. THE ASSESSEE HAS ADMITTED THAT ITS PROJECT BUSINESS HAS TEMPORARILY SUSPENDED WITH EFFECT FROM 1 JULY, 2011 AND IT IS TAKING ALL NECESSARY STEPS FOR GETTING THE POSSESSION OF T HE LAND AND TO REVIEW ITS BUSINESS ACTIVITY. SINCE, THE ASSESEE HAS ITSEL F NOT COMPLETED THE LAND ACQUISITION FORMALITY THE PROJECT IS STILL IN PRELI MINARY STAGE OF LAND ACQUISITION, THE EXPENSES INCURRED TOWARDS THE RUNN ING PROJECT ARE LIABLE ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 4 TO BE CAPITALIZED TOWARDS CWIP AND THE SAME CANNOT BE ALLOWED TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSE E ALSO COULD NOT SUBSTANTIATE ITS CLAIM SHOWING STANDARD ACCOUNTING METHOD, ON THE BASIS OF WHICH PART OF THE PROJECT MANAGEMENT EXPENSES HA VE BEEN CHARGED TO P &L ACCOUNT IN AY 2012-13 WHICH WERE EARLIER CONSI STENTLY CAPITALIZED TOWARDS CWIP. THE ASSESEE ALSO COULD NOT EXPLAIN TH E BASIS ON WHICH IT HAS SUDDENLY CHANGED ITS REGULAR AND ACCOUNTING MET HOD IN AY 2012-13. THE ASSESEE HAS RELIED UPON VARIOUS JUDICIAL PRONOU NCEMENTS AND HAS CLAIMED THAT PART OF THE PROJECT MANAGEMENT EXPENSE S AMOUNTING TO RS. 48,16,592/- SHOULD BE ALLOWED AS REVENUE EXPENDITUR E U/S 37(1) OF THE I.T.ACT. THE FACTS AND CIRCUMSTANCES OF THE CASES R ELIED UPON BY THE ASSESSEE IN VARIOUS JUDICIAL PRONOUNCEMENTS ARE CLE ARLY DISTINGUISIBLE AND ARE NOT SIMILAR TO THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE, THEREFORE, THE CLAIM OF EXPENSES OF RS. 48,16,592/- OUT OF PROJECT MANAGEMENT EXPENSES AS EXPENSES U/S 37(1) IS NOT AL LOWABLE AND THEREFORE, THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSE. FURTHER, THE EXPENSES OF RS. 48,16,592/- O N ACCOUNT OF PROJECT MANAGEMENT EXPENSES IS CAPITALIZED TOWARDS CWIP AND ACCORDINGLY, THE WORK IN PROGRESS OF THE INVESTMENT PROPERTY UNDER C ONSTRUCTION AS ON 31/03/2012 IS REVISED AS UNDER;- 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSU E, WHICH HAS BEEN REPRODUCED AT PARA 4 ON PAGES 3 TO 11 OF LD.CI T(A) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSE BEFOR E THE LD.CIT(A) ARE THAT EXPENDITURE DEBITED UNDER THE HE AD PROJECT MANAGEMENT EXPENSES ARE REVENUE IN NATURE AND THE G ENUINENESS OF SAID EXPENSES HAS NEVER BEEN DOUBTED BY THE LD. AO. THE REASONS DISALLOWANCES OF SAID EXPENDITURE AND ADDED BACK TO WORK IN PROGRESS ACCOUNT IS THAT THE ASSESSEE HAS IN THE PAST CAPITALIZED SAID EXPENDITURE INTO WORK IN PROGRESS ACCOUNT. BUT , FACT REMAINS THAT THE BUSINESS OF THE ASSESEE HAS BEEN ALREADY S ETUP AND ONCE, BUSINESS HAS BEEN SET UP RELEVANT REVENUE EXPENDITU RE INCURRED FOR THE PURPOSE OF BUSINESS, WHICH ARE IN THE NATURE OF REVENUE EXPENDITURE SHALL BE ALLOWED AS DEDUCTION IRRESPECT IVE OF THE FACT THAT WHETHER, THE BUSINESS HAS BEEN COMMENCED OR NO T. FURTHER, THERE IS NO ESTOPPEL AGAINST LAW. ALTHOUGH, THE ASS ESEE HAS ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 5 CAPITALIZED SAID EXPENDITURE TO CAPITAL WORK IN PRO GRESS ACCOUNT IN EARLIER YEAR, BUT IT CAN VERY WELL CHANGE THE METHO D OF ACCOUNTING, IF SUCH CHANGE IN METHOD OF ACCOUNTING IS IN ACCORDANC E WITH LAW AND BONAFIDE AND ALSO, IT HAS CONTINUOUSLY FOLLOWING SA ID METHOD OF ACCOUNTING IN SUBSEQUENT YEARS. 6. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISS IONS OF THE ASSESSEE AND ALSO, TAKEN NOTE OF VARIOUS FACTS BROU GHT OUT BY THE LD. AO AND ALSO BY RELIED UPON CERTAIN JUDICIAL PR ECEDENTS HELD THAT ONCE, IT IS ACCEPTED AND ESTABLISHED THAT THE BUSI NESS OF THE ASSESSEE HAS NOT CEASED, THERE IS NO JUSTIFICATION FOR ADOPTING A DIFFERENT METHOD OF ACCOUNTING FROM A CERTAIN DATE, DURING THE RELEVANT PERIOD. THERE IS NO CHANGE IN THE NATURE O R STATUS OF THE BUSINESS ACTIVITY AT THAT POINT. EVEN, EARLIER PROJ ECT WAS IN WORK IN PROGRESS STAGE AND EVEN, AFTER 30/06/2011, IT REMAI NS THE SAME. DENIAL OF RENEWAL OF LEASE OF LAND BY KIADB OR ANY OTHER REASON FOR TEMPORARILY LULL IN BUSINESS IS NOT IMPORTANT FOR F OLLOWING CONSISTENT ACCOUNTING PRINCIPLES. THEREFORE, HE OPINED THAT TH ERE IS NO REASON TO INTERFERE WITH THE CONCLUSION ARRIVED BY THE LD. AO AND ACCORDINGLY, CONFIRMED THE ACTION OF THE LD. AO IN DISALLOWED PROJECT MANAGEMENT EXPENDITURE CLAIMED AS REVENUE IN THE PR OFIT AND LOSS ACCOUNT AND ADDED BACK TO CAPITAL WORK IN PROGRESS ACCOUNT. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER;- 5.2.1 THIS GROUND RELATES TO DISALLOWANCE OF RS. 43 ,16, 592/- ON ACCOUNT OF PROJECT MANAGEMENT EXPENSES. THE APPELLANT HAD D EBITED THE IMPUGNED AMOUNT ON ACCOUNT OF PROJECT MANAGEMENT EX PENSES. IN THE BALANCE SHEET, THE APPELLANT HAS SHOWN WORK IN PROG RESS UNDER THE HEAD 'INVESTMENT IN PROPERTY UNDER CONSTRUCTION' AT RS.18,07,09,163/ AS ON 31/03/2011 AND AFTER INCURRING VARIOUS EXPENSES TOTALING TO RS.1,78,31,674/-, THE APPELLANT HAS SHOWN WORK IN P ROGRESS AT RS.1 9,85,40, 837/- AS ON 31/03/2012, THE ASSESSING OFFI CER HELD THAT PROJECT MANAGEMENT EXPENSES RELATED TO THE PROJECT SHOULD B E DISALLOWED AND CAPITALIZED TOWARDS THE RUNNING PROJECT. THE ASSESS ING OFFICER HAS FURTHER ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 6 HELD THAT THE APPELLANT ALSO COULD NOT SUBSTANTIATE ITS CLAIM SHOWING STANDARD ACCOUNT METHOD, ON THE BASIS OF WHICH PART OF THE PROJECT MANAGEMENT EXPENSES HAS BEEN CHARGED TO PROFIT AND LOSS ACCOUNT IN ASSESSMENT YEAR 2012-13 WHICH WERE EARLIER CONSISTE NTLY CAPITALIZED TOWARD CWIP ACCORDINGLY, SHE ASSESSING OFFICER CAPI TALIZED THE EXPENSES OF RS.48,16,592/- TOWARDS CWIP AND CONSEQU ENTLY, THE WORK IN PROGRESS OF THE L INVESTMENT IN PROPERTY' WAS REVISED AS ON 31/03/20 12 AL RS.20,33,57,428/- WHICH WAS SHOWN BY THE APPELLANT IN THE BALANCE SHEET AT RS.19,85,40,836/- . 5.2.2 IT IS NOTED THAT THERE IS NO DISPUTE ON THE AMOUNT OR FACT OF PAYMENT. THE APPELLANT HAD INCURRED RS 62,79,039/- TOWARDS PROJECT MANAGEMENT SERVICES RENDERED BY M/S SHAPOORJI PALLO NJI & CO. LTD. (SPCL). IT IS ALSO NOT DISPUTED THAT THE APPELLANT HAS CONSISTENTLY FOLLOWED PROJECT COMPLETION METHOD OF ACCOUNTING AND HAS BEE N CAPITALIZING PROJECT MANAGEMENT EXPENSES TOWARDS CWIP. THE ONLY DISPUTE IS OVER THE DIFFERENT TREATMENT TO PAR] OF THE ABOVE MENTIO NED FEES PAID TO SPCL DURING THE INSTANT YEAR. ACCORDING TO THE APPELLANT , THE PROJECT WAS TEMPORARILY STALLED AS ON 30/06/2011. THEREFORE, EX PENSES INCURRED UP TO THAT DATE WERE CAPITALIZED BUT SUBSEQUENT PROJECT M ANAGEMENT EXPENSES ARE DEBITED TO P&L ACCOUNT. 5.2.3 I FIND THAT THE ASSESSING OFFICER HAS NOT DIS PUTED THE ACCOUNTING PRACTICE FOLLOWED BY THE APPELLANT. FURTHER, THE AP PELLANT HAS ITSELF STATED THAT THE BUSINESS IS NOT WOUND UP OR DISCONTINUED B UT WAS 'A LULL IN BUSINESS' AND THE COMPANY HAS 'TEMPORARILY SUSPENDE D ITS BUSINESS ACTIVITY'. THE APPELLANT, INTER ALIA, HAS RELIED ON DECISION OF HON'BLE BOMBAY HIGH COURT IN HINDUSTAN CHEMICAL WORKS LTD., 124 ITR 561 TO ASSERT THAT A LULL IN BUSINESS IS NOT CLOSURE OF BU SINESS AND THEREFORE, ANY REVENUE EXPENDITURE RELATED TO BUSINESS ACTIVITY IS ALLOWABLE. I FIND THE CASE LAWS RELIED UPON BY THE APPELLANT ARE NOT DISP UTED AT ALL. THIS POSITION HAS BEEN ENDORSED BY NUMEROUS JURISDICTION AL DECISIONS INCLUDING IN BECHTEL INTERNATIONAL INC. VS. ADIT (I TAT MUMBAI), APPEAL NUMBER: ITA NO. 4120/MUM/2GQ7WHEREIN HONBLE ITAT M UMBAI HELD, 'MERE INACTIVITY FOR A LIMITED PERIOD DOES NOT MEAN THAT THE ASSESSEE'S BUSINESS CEASED TO EXISTS OR THAT IT DID NOT CARRY ON BUSINESS AL A//,' THE ASSESSING OFFICER HAS NOT CONCLUDED THAT THE BUSINE SS OR THE APPELLANT CONSISTENT PROJECT COMPLETION METHOD OF RECORDING R EVENUE AND EXPENDITURE, THE APPELLANT MUST ACCORD CONSISTENT T REATMENT TO PROJECT MANAGEMENT EXPENSES IN THE INSTANT YEAR AS IT DID I N EARLIER YEARS 5.2.4 ONCE IT IS ACCEPTED AND ESTABLISHED THAT THE BUSINESS OF THE APPELLANT HAS NOT CEASED, THERE IS NO JUSTIFICATION FOR ADOPTING A DIFFERENT METHOD OF ACCOUNTING FROM A CERTAIN DATE DURING THE RELEVANT PERIOD. THERE IS NO CHANGE IN THE NATURE OR STATUS OF THE B USINESS ACTIVITY AT THAT POINT. EVEN EARLIER, THE PROJECT WAS WORK-IN-PROGRE SS STAGE AND EVEN AFTER 30/06/2011 IT REMAINED SO. DENIAL OF RENEWAL OF LEA SE OF LAND BY KARNATAKA INDUSTRIAL AREA DEVELOPMENT BOARD OR AN Y OTHER REASON FOR TEMPORARY 'LULL IN BUSINESS' IS NOT IMPORTANT FOR F OLLOWING CONSISTENT ACCOUNTING PRINCIPLES. IN EARLIER YEARS AND UP TO 3 0/06/2011, THE APPELLANT ITSELF HAS CAPITALIZED PROJECT MANAGEMENT EXPENSES, IF IS. THEREFORE, INCUMBENT UPON THE APPELLANT TO FOLLOW THIS ACCOUNT ING PRINCIPLE TILL THERE ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 7 IS ANY MATERIAL CHANGE IN STATUS OF BUSINESS ACTIVI TY SUCH AS CLOSURE OF BUSINESS. 5 2.5 THE PRINCIPLE OF CONSISTENCY HAS BEEN LAID DOWN IN SHAPOORJI PALLONJI & CO (RAJKOT) (P) LTD. VS. ITO, 49 ITD (BO M) 479 WHEREIN IT WAS HELD, 'THE PROFITS OF BUSINESS MAST BE COMPUTED IN ACCORDANCE WITH METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSES THE CHOICE OF THE METHOD OF ACCOUNTING, LIKE THE CHOICE TO THE PR EVIOUS YEAR, LIES WITH THE ASSESSEE. THE ONLY THING IS THAT THE ASSESSEE M UST SHOW THAT HE HAS FOLLOWED THE CHOSEN METHOD OF ACCOUNTING REGULARLY. 5.2.6 IN VIEW OF THE RATIO OF ABOVE JURISDICTIONA L JUDGMENT AND IN THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE, I FIND NO REASON TO INTERFERE WITH THE CONCLUSION ARRIVED AT BY THE ASSESSING OFFICER ON T HIS ISSUE. ACCORDINGLY, THIS GROUND IS DISMISSED. 7. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D.CIT(A) HAS ERRED IN CONFIRMED DISALLOWANCES OF PROJECT MANAGEM ENT EXPENSES CLAIMED BY THE ASSESSEE U/S 37(1) OF THE I.T.ACT, 1 961, WITHOUT APPRECIATING THE FACT THAT EXPENDITURE INCURRED AFT ER 01/07/2011, AFTER SUSPENSION OF BUSINESS CANNOT BE CAPITALIZED AS CON STRUCTION WAS NOT IN PROGRESS DURING THIS PERIOD AND THERE WAS NO WORK IN PROGRESS. THE LD. AR, FURTHER SUBMITTED THAT THE LD.CIT(A) HA D ALSO ERRED IN NOT APPRECIATING THE FACT THAT THE BUSINESS OF THE ASSESEE HAS NOT CEASED PERMANENTLY, BUT THERE WAS NO BUSINESS DURIN G THIS PERIOD AND ASSESSE HAS NOT ADOPTED A DIFFERENT METHOD OF A CCOUNTING FROM THE DATE OF SUSPENSION OF THE BUSINESS, BUT CONTINU ED THE ACCOUNTING POLICIES FOLLOWED BY IT UP TO 30/06/2011. HE, FURTH ER, SUBMITTED THAT, AS PER ACCOUNTING PRINCIPLES FOLLOWED BY THE ASSESS EE, THE EXPENDITURE INCURRED DURING THE PERIOD OF SUSPENSIO N SHALL BE TREATED AS REVENUE EXPENDITURE, BECAUSE THE SAME CANNOT BE CAPITALIZED TO WORK IN PROGRESS ACCOUNT DUE TO TEMPORARY SUSPENSIO N OF CONSTRUCTION ACTIVITIES. THE LD. AR, FURTHER SUBMIT TED THAT IT IS AN ADMITTED FACT THAT ONCE, BUSINESS HAS BEEN SET UP, THEN RELEVANT REVENUE EXPENDITURE NEEDS TO BE ALLOWED AS DEDUCTIO N, WHETHER OR NOT THE BUSINESS IS COMMENCED AND REVENUE HAS BEEN GENERATED ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 8 FROM THE BUSINESS DURING THE RELEVANT PERIOD. FURTH ER, THE ASSESSEE CAN CHANGE ITS METHOD OF ACCOUNTING FROM A PARTICUL AR PERIOD, IN RESPECT OF ANY ITEM OF INCOME OR EXPENDITURE DUE TO CHANGED CIRCUMSTANCES, BUT SUCH CHANGE IN PRINCIPLES OF ACC OUNTING SHOULD BE BONAFIDE AND CONTINUED IN SUBSEQUENT FINANCIAL Y EARS. SINCE, THE ASSESSEE HAS EXPLAINED REASONS FOR CHANGE IN METHOD OF ACCOUNTING FOR PROJECT MANAGEMENT EXPENSES AND SUCH CHANGES IS ON ACCOUNT OF BONAFIDE REASONS, THERE IS NO REASON FOR THE REV ENUE AUTHORITIES TO DOUBT THE CHANGE IN METHOD OF ACCOUNTING ONLY FOR T HE REASON THAT THE ASSESSEE HAS FOLLOWED SAID METHOD OF ACCOUNTING IN THE PREVIOUS FINANCIAL YEARS. 8. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORT ING ORDER OF THE LD.CIT(A) SUBMITTED THAT THERE IS NO MERIT IN ARGUM ENTS OF THE LD. AR OF THE ASSESEE, BECAUSE THE ASSESSEE HAS FAILED TO MAKE OUT A CASE OF CHANGE IN FACTS AND CIRCUMSTANCES, WHICH WA S EXISTED PRIOR TO 01/07/2011, WHEN IT HAS CHANGED METHOD OF ACCOUN TING TO GIVE DIFFERENT TREATMENT TO PROJECT MANAGEMENT EXPENSES. THEREFORE, THE LD. AO, AS WELL AS THE LD.CIT(A) WERE RIGHT IN COMI NG TO THE CONCLUSION THAT THE ASSESSEE HAS NOT EXPLAINED REAS ONS FOR CHANGE IN METHOD OF ACCOUNTING FOR PROJECT MANAGEMENT EXP ENSES FROM CAPITAL IN NATURE TO REVENUE IN NATURE. HENCE, THEI R ORDER SHOULD BE UPHELD. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE ASSESSE COMPANY IS ENGAGED IN THE BUSINESS OF DEVEL OPMENT, OPERATION AND MAINTENANCE OF INDUSTRIAL PARK AT MYS ORE. FOR THE ABOVE PURPOSE, IT WAS ALLOTTED LEASE OF INDUSTRIAL LAND BY KIADB. THE ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 9 ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH SHAPOOR JI PALLONJI & CO.LTD., FOR DEVELOPMENT OF INDUSTRIAL PARK, FOR WH ICH IT HAS PAID PROJECT MANAGEMENT AND OFFICE MANAGEMENT SERVICE CH ARGES. THE ASSESSEE HAS CAPITALIZED SAID EXPENDITURE INTO CAPI TAL WORK IN PROGRESS ACCOUNT UP TO 30/06/2011. BUT, FROM 01/07/ 2011, IT HAS CHANGED ITS ACCOUNTING METHOD FOR ACCOUNTING PROJEC T MANAGEMENT EXPENSES AND ACCORDINGLY, DEBITED SAID EXPENSES INT O THE PROFIT AND LOSS ACCOUNT AS REVENUE IN NATURE. THE ASSESSEE HAS EXPLAINED THE REASONS FOR CHANGE IN METHOD OF ACCOUNTING OF PARTI CULAR EXPENDITURE FROM CAPITAL IN NATURE TO REVENUE IN NATURE. ACCORD ING TO THE ASSESSEE, THE CHANGE IN ACCOUNTING METHOD FOR ACCOU NTING PROJECT MANAGEMENT EXPENSES IS DUE TO TEMPORARILY SUSPENSIO N OF CONSTRUCTION ACTIVITIES FOR NON ALLOTMENT OF ENTIRE PARCEL OF LAND BY THE KIADB, AS PER AGREEMENT FOR MORE THAN THREE YEARS. AS A RESULT, THE PROJECT WAS TEMPORARILY SUSPENDED AND ALL CONSTRUCT ION ACTIVITIES ARE SUSPENDED FROM 01/07/2011. THEREFORE, IT HAS DEBITE D SAID PROJECT MANAGEMENT EXPENSE INTO THE PROFIT AND LOSS ACCOUNT AND CLAIMED DEDUCTION U/S 37(1) OF THE I.T.ACT, 1961. 10. HAVING CONSIDERED ARGUMENTS OF BOTH THE SIDES, WE FIND THAT THERE IS NO DISPUTE WITH REGARDING THE NATURE OF EX PENDITURE INCURRED BY THE ASSESSEE AND THE GENUINENESS OF SAID EXPENDI TURE. IN FACT, THE LD. AO HAS NOT DOUBTED EXPENDITURE INCURRED UND ER THE HEAD PROJECT MANAGEMENT SERVICES CHARGES. THERE IS NO DI SPUTE THAT THE BUSINESS WAS TEMPORARILY SUSPENDED FROM 01/07/2011, DUE TO CERTAIN LEGAL HURDLES IN THE PROJECT, AS PER WHICH THE KIADB WAS NOT ABLE TO HANDOVER THE LAND ALLOTTED FOR THE PROJECT. IN VIEW OF THE ABOVE, THE COMPANY HAS TEMPORARILY SUSPENDED ITS BU SINESS ACTIVITY W.E.F. 01/07/2011. THEREFORE, WE ARE OF THE CONSIDE RED VIEW THAT ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 10 THERE IS A CHANGED CIRCUMSTANCE, WHICH FORCED THE A SSESSE TO RETHINK ITS ACCOUNTING POLICIES, IN ORDER TO GIVE A FAIR AND BETTER TREATMENT IN ITS FINANCIAL STATEMENTS, IN RESPECT O F VARIOUS EXPENDITURE INCURRED FOR THE PROJECT. AS, WE NOTED IN EARLIER PARAGRAPHS, THE ASSESSEE HAS CAPITALIZED PROJECT MA NAGEMENT EXPENSES ON THE BASIS OF AN AGREEMENT WITH THE DEVE LOPER AND SAID EXPENDITURE WAS DEBITED INTO CAPITAL WORK IN PROGRE SS ACCOUNT UP TO 30/06/2011. THE ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING TO GIVE BETTER TREATMENT TO SAID EXPENDITURE AND ACCOR DINGLY, IT HAS DEBITED PROJECT MANAGEMENT EXPENSES INTO PROFIT AND LOSS ACCOUNT, BECAUSE THE PARTICULAR EXPENSES CANNOT BE CAPITALIZ ED, WHEN THE CONSTRUCTION WORK HAS BEEN TEMPORARILY SUSPENDED DU RING THE RELEVANT PERIOD. THEREFORE, WE ARE OF THE CONSIDERE D VIEW THAT IF, THE CHANGE IN METHOD OF ACCOUNTING WAS NECESSARY IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND WAS ALSO BONAFIDE , THEN THERE IS NO RESTRICTION UNDER THE LAW TO CHANGE METHOD OF AC COUNTING TO TREAT PARTICULAR ITEM OF INCOME OR EXPENDITURE DURING THE RELEVANT PERIOD, BUT SUCH CHANGES SHOULD BE BONAFIDE AND IT SHOULD B E CONTINUED IN SUBSEQUENT FINANCIAL YEARS. IN THIS CASE, THERE IS NO DOUBTS WITH REGARD TO THE FACT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT METHOD OF ACCOUNTING FOR ACCOUNTING PROJECT MANAGEM ENT EXPENSES IN THE PAST, BUT DUE TO CHANGED CIRCUMSTANCES, IT H AS CHANGED ITS METHOD OF ACCOUNTING FROM A PARTICULAR DATE AND SU CH CHANGES WAS BONAFIDE AND NEED OF THE HOUR. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAS CHANGED ITS METHOD OF ACCOUNTING WITHOUT THERE BEING ANY CHANGES IN FACTS AND CIRCUMSTANCES AND SUCH CHANGES WAS NOT BONAFIDE. ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 11 11. HAVING SAID SO, LET US EXAMINE, WHETHER EXPENDI TURE CLAIMED BY THE ASSESSEE IS REVENUE IN NATURE AND WHICH CAN BE ALLOWED AS DEDUCTION U/S 37(1) OF THE I.T.ACT, 1961. THE BUSIN ESS OF THE ASSESSEE HAS BEEN SET UP LONG BACK. IF THE BUSINESS WAS SET UP, THEN ANY REVENUE EXPENDITURE INCURRED SHALL BE ALLO WED AS DEDUCTION U/S 37(1), WHETHER OR NOT, THE BUSINESS WAS COMMENC ED AND REVENUE WAS GENERATED FROM SAID BUSINESS. IN THIS C ASE, THE LD. AO NEVER DOUBTED THE FACT THAT THE BUSINESS OF THE ASS ESSEE WAS SET UP. THE LD. AO HAS ALSO NOT DOUBTED THE FACT THAT THE E XPENDITURE INCURRED ARE IN THE NATURE OF REVENUE EXPENDITURE. THE ONLY GROUND FOR THE LD. AO TO DENY THE DEDUCTION CLAIMED U/S 37 (1) IS CHANGE IN METHOD OF ACCOUNTING. THERE IS NO ESTOPPEL AGAINST LAW. IF, AN ASSESSEE FOLLOWS A PARTICULAR METHOD OF ACCOUNTING TO ACCOUNT AN ITEM OF INCOME AND EXPENDITURE FOR A PARTICULAR DAT E, IT CAN VERY WELL CHANGE ITS METHOD OF ACCOUNTING FOR ACCOUNTING SAID ITEM OF INCOME AND EXPENDITURE FROM A PARTICULAR DATE, IF SUCH CHA NGES IS IN ACCORDANCE WITH LAW AND IS WITHIN THE PROVISIONS OF PRINCIPLES OF ACCOUNTING. FURTHER, THE CHANGE IN METHOD OF ACCOUN TING WAS BONAFIDE AND SUCH CHANGES IS CONTINUED IN SUBSEQUEN T YEARS, THEN THERE IS NO RESTRICTION UNDER THE LAW TO CHANGE A M ETHOD OF ACCOUNTING FROM A PARTICULAR DATE TO GIVE DIFFERENT TREATMENT TO A PARTICULAR OF ITEM OF EXPENDITURE OR INCOME. THIS LEGAL PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT, IN THE CASE OF CIT VS CORPORATION BANK LTD. (1988) 174 ITR 616, WHERE IT WAS HELD THAT THE ASSESSEE HAD THE RIGHT TO CHANGE OVER THE PRESENT METHOD, PROVIDED SUCH CHANGE WAS BONAFIDE AND FOLLO WED REGULARLY. THEREAFTER, THE HONBLE BOMBAY HIGH COURT, IN THE C ASE OF BAJAJ AUTO LIMITED VS CIT(SUPRA) HAD TAKEN SIMILAR VIEW A ND HELD THAT THE ASSESEE WAS WELL WITHIN ITS RIGHTS TO BRING ABOUT CHANGES, SO LONG AS ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 12 THE ASSESSE ADOPTS SUCH CHANGE BONAFIDE AND PROPOSE TO EMPLOYEE THE NEW METHOD REGULARLY. IN THIS CASE, THE ASSESSE E HAS CHANGED METHOD OF ACCOUNTING INRESPECT OF PROJECT MANAGEMEN T EXPENSES FROM A PARTICULAR DATE AND SAID METHOD OF ACCOUNTIN G HAS BEEN CONTINUED IN SUBSEQUENT YEARS AND WHICH HAS BEEN AC CEPTED BY THE REVENUE. FURTHER, THE CHANGE IN METHOD OF ACCOUNTIN G WAS ALSO SUPPORTED BY A REASON OF TEMPORARILY SUSPENSION OF BUSINESS ACTIVITY DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSE SSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESEE WAS WELL WITHIN ITS RIGHT TO CHANGE METHOD OF ACCOUNTING FOR ACCOUNTING PARTICULAR EXPENDITURE. THE LD. AO AND LD.CIT(A) WITHOUT APPRE CIATING THE FACT THAT HAS SIMPLY REJECTED THE CLAIM OF THE ASSESSEE, WITHOUT ASSIGNING ANY REASONS, HOW THE CHANGED METHOD OF ACCOUNTING W AS NOT IN ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTING FOLLOW ED BY THE ASSESSE. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE ERRED IN DISALLOWED, PRO JECT MANAGEMENT EXPENSES CLAIMED BY THE ASSESSEE U/S 37(1) OF THE A CT AND ACCORDINGLY, WE DELETE ADDITIONS MADE BY THE LD. AO TOWARDS PROJECT MANAGEMENT EXPENSES AND DIRECT THE LD. AO TO ALLOW DEDUCTIONS AS CLAIMED BY THE ASSESSEE. 12. IN THE RESULT, APPEAL FILED BY THE ASSESEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 /01 /2020 SD/- (RAM LAL NEGI) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.92/MUM/2018 HIGHSTREET DEVELOPERS PRIVATE LIMITED 13 MUMBAI ; DATED : 29 /01/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//