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2021 (9) TMI 231 - ITAT CHENNAIDeduction u/s.80IB(10) - disallowance of excess claim of development expense - Method followed to allocate expenses - method of accounting followed by the assessee to recognize revenue from sales and accounting of development expenses - HELD THAT:- We do not ourselves subscribe to reasons given by the AO for allocation of expenses on the basis of sales revenue, because the method followed by the Assessing Officer to allocate expenses for each assessment year on the basis of sales revenue is contrary to accounting standard issued by the ICAI for recognition of revenue from construction contracts. Assessee has incurred total development expenses in two financial years including impugned assessment year 2008-09. However, revenue from project has been recognized in three assessment years starting from assessment year 2008-09. Therefore, we are of the considered view that method of accounting followed by the assessee to recognize revenue from sales and accounting of development expenses is in accordance with prescribed accounting method suggested by the ICAI and such method has been consistently followed by the assessee. Hence, the Assessing Officer’s action of allocating expenditure on the basis of sales revenue is contrary to prescribed method for accounting of construction contracts and hence, we are of the considered view that the Assessing Officer has erred in reallocation of expenses on the basis of revenue and working out excess development cost without any basis. CIT(A) has recorded categorical finding that when the assessee is eligible for deduction u/s.80IB(10) of the Act, in respect of 100% profit derived from housing project, there is no question of inflation of expenditure to reduce profit, because it adversely impact benefit of deduction to the assessee. Therefore, on this count also reasons given by the Assessing Officer that assessee has inflated expenditure for impugned assessment year is not supported by any evidence - no error in the findings recorded by the learned CIT(A) to delete additions - Decided against revenue. Ad-hoc disallowance of various expenses on the ground that said expenses incurred in cash and not further, supported by necessary bills and vouchers - AO has disallowed 20% of contract expenses like site expenses, earth filling charges and sand purchases on the ground that the assessee has incurred expenditure in cash - CIT(A) has recorded categorical finding that Assessing Officer has made ad-hoc disallowance of 20% of construction expenses without pointing out any specific defects in bills and vouchers - HELD THAT:- In this case, there is no observation regarding defects in bills and vouchers submitted by the assessee in respect of expenses. Although, the AO claims that most of expenditure is incurred in cash, but he himself admitted fact that each payment is less than ₹ 20,000/- prescribed u/s.40A(3) of the Act. Therefore, we are of the considered view that once the Assessing Officer having accepted fact that cash payments for purchases does not exceed prescribed limit provided under the Act, then erred in making 20% ad-hoc disallowance of expenses. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue. Additional ground taken by the assessee making alternative plea for deduction u/s.80IB(10) - HELD THAT:- Deletion of additions made by the Assessing Officer towards disallowance of development expenses and ad-hoc disallowance of construction expenses, he has not allowed additional ground raised by the assessee making a claim for deduction u/s.80IB(10) - As categorically stated that the assessee has satisfied conditions prescribed u/s.80IB(10) of the Act, to be eligible for deduction towards profit derived from housing project. Therefore, we are of the considered view that grounds taken by the revenue challenging findings of the learned CIT(A) in allowing claim of the assessee towards deduction u/s.80IB(10) of the Act, in principle, is merely academic in nature and does not require any specific adjudication. Hence, ground taken by the Revenue is rejected.
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