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2019 (3) TMI 1272 - HC - Income TaxRecognition of income under constriction contract - Completed Contract Method (‘CCM’) vs. Percentage Completion Method (‘PCM’) - Payment of compensation to flat/space buyers - some allottees of the flats refused to take them for completion since the New Delhi Municipal Council (‘NDMC’) changed the usage of the Lower Ground Floor (‘LGF’) - compensation paid in lieu of surrender of rights in flats/space shown in work and progress in balance-sheet and enhance the value of work and progress? - HELD THAT:- A fact which has not been addressed by either the AO or the ITAT is that the Assessee follows the CCM and not the PCM. - as far as the case in hand is concerned, since there is no dispute that the Gopal Das Bhawan Project was completed in FY 1994-95, it is AS 7, pre-revised, which would apply. There is merit in the contention of the Assessee, based on AS 2 that compensation paid subsequent to the completion of the project is an ‘extraordinary item.’ It was not ‘cost’ of completion of the project and, therefore, such compensation could not be added to the value of the stock and trade of the Assessee. AS 2 governs valuation of inventories. ‘Cost’ comprises all of the costs of purchase, cost of completion and other costs incurred “in bringing the inventories to their present location and condition.” That which is not relevant to bringing the stock to its present condition or location cannot be a part of its value. In the considered view of the Court, the view expressed by the CIT (A) merits acceptance. The conclusion of the ITAT that the payment was made for ‘extraneous consideration’ appears to be based on surmises and conjectures. Applying the law explained by the Supreme Court in the CIT v. Nainital Bank Ltd. [1966 (9) TMI 46 - SUPREME COURT] to the case in hand, the plausible conclusion is that the compensation paid by the Assessee to the allottees of the commercial spaces for the surrender of their rights therein cannot be said to be disallowable on the ground of such payment having been made for ‘extraneous considerations.’ The result of the above discussion is that the Court holds that the payment made by the Assessee to the allottees of the flats for their surrendering the rights therein should be allowed as business expenditure of the Assessee. Rental income earned from its stock and trade - business income or income from house property - ITAT held the same from income from house property except in one year - HELD THAT:- The Court finds that barring this one year i.e. AY 1996-97, in all the other AYs, the consistent view of the ITAT that rental income is to be assessed as IHP and not business income has been accepted by the Revenue. Following the rule of consistency as explained in the above decisions, this Court declines to entertain the plea of the Revenue which appears to be confined to AY 1996-97, with none of the earlier or subsequent AYs being challenged by the Revenue. Accordingly, the issue is decided in favour of the Assessee and against the Revenue by answering the question in the affirmative and holding that the rental income of the Assessee from the properties forming part of its stock-in-trade would be IHP and not business income. Allowabilty of brokerage and commission - HELD THAT:- For AY 1995-96, the Revenue filed ITA No.69 of 2003 in this Court raising a question on this issue but it was not admitted by this Court by the order dated 8th January 2004. Likewise, for AY 1997-98, when the ITAT followed its earlier order the Revenue filed ITA 772 of 2005. This Court did not frame any question on this issue following its earlier order dated 8th January 2004 in ITA 69 of 2003. Following the rule of consistency, this Court finds no merit in the contention of the Revenue and this question is accordingly answered in favour of the Assessee Allowabilty of Expenditure on foreign travel - HELD THAT:- this issue is similar to the issue of brokerage and commission which was held allowable and accepted by the Revenue for all of the AYs in question except for AY 1996-97. Again, following the rule of consistency, this Court answers this issue in favour of the Assessee Allowabilty of Interest and guarantee commission - interest was capitalised only up to the stage of completion of the project under ‘capital work and progress.’ and subsequent period, after completion of project, claimed and as a revenue expense - HELD THAT:- as rightly pointed out, AS 2 would apply in terms of which, with the Assessee following the CCM, the expenditure incurred subsequent to the completion of the project cannot be attributed to work and had to be allowed only as revenue expenditure. Consequently, the question is answered in the affirmative in favour of the Assessee Withdrawal of credit of TDS u/s 154 - Assessee was not the owner - rent received by the Assessee from the tenants was passed on to the respective owners with Tax - HELD THAT:- AO also did not dispute the fact that the Assessee passed on the rent collected to the respective owners. The TDS deducted at the time of such passing on of rental income was also deposited by the Assessee. Further, the owners did disclose the rental income in their returns. Thus on the one hand, there was credit of TDS and on the other hand there was debit of tax paid on behalf of the owners. The Court is of the view that there was no occasion to invoke Section 154 of the Act, since the issue was a debatable one. The decisions of the CIT (A) as affirmed by the ITAT take a plausible view and deserve to be upheld. Interest under Section 201 (1A) - HELD THAT: - Under Section 194-I of the Act, the liability to deduct TDS is on the tenant paying the rent. The amount passed on to the owners by the Assessee was not its capacity as tenant. It is further pointed out that for AY 1998-99 the Revenue accepted the order of the CIT (A) by not filing any further appeal. This issue is also, therefore, accordingly answered in favour of the Assessee Disallowance of Advertisement expenses - HELD THAT:- Further in AYs 1995-96 and 1996-97 a similar expenditure was allowed and no question was framed by this Court. The Assessee being in the real estate business cannot carry on its business without publicity. The expenditure was necessary for the promotion of the business. The question is accordingly answered in favour of the Assessee and against the Revenue. Disallwance of Service charges - revenue expenditure - HELD THAT:- The Assessee is admittedly following the CCM. Service charges were incurred after the completion of the project and would not be part of the capital work in progress. Having been incurred at a stage subsequent to the completion of the project it had to be shown as revenue expenditure and was rightly allowed as such by the ITAT. This question is also therefore answered in favour of the Assessee
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