TMI Blog2015 (2) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... /Consultancy/ Survey fees” - AO noted that these expenses relate to the projects in progress and therefore should have been debited to the work in progress and thus disallowed the sum - CIT(A) deleted the disallowance - Held that:- Each assessment year is independent and income for each assessment year has to be computed independently. We, therefore, set aside the order of CIT(A) on this issue and restore this issue to the file of CIT(A) with the direction that the CIT(A) shall re-decide this issue after getting the evidences from the Assessee as to what extent these expenses relate to the current year and to what extent these expenses relate to the work in progress. Further, the CIT(A) should also obtain evidences that these expenses have been incurred by the Assessee genuinely for the purpose of the business. To the extent these expenses relate to the work in progress, it should be disallowed. Only the expenses which the Assessee proves to have been genuinely incurred for the purpose of the business and does not relate to work in progress be allowed - Decided in favour of revenue for statistical purposes. Addition to income - AO re-computed the profit relating to the projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing addition of ₹ 2.22 crores on account of profits on sale of plots of one year is shifted to another year which is incorrect method of accounting which results in diminishing the assessment of the taxable profit of the year as held by Apex court in the case of CIT vs British Paints India Ltd. (1991) 188 ITR 44. 2. Ground no. 1 is general in nature and therefore does not require any adjudication. 3. None appeared on behalf of the Assessee even though the appeal had been adjourned on 28.10.2014 at the request of the Assessee. We therefore decided to dispose off the appeal after hearing the ld. DR. 4. The brief facts of the case are that the Assessee is a firm engaged in the business of real estate activities such as construction of residential-cum-commercial project, developing of plots etc. In the year under appeal, the Assessee declared an income of ₹ 3,51,67,540/-. The AO made the following additions in the business loss declared at ₹ 3,52,869/- :- ( i ) Disallowance u/s 14A ₹ 23,22,638/- ( ii ) Addition on account of Professional/Consultancy fees ₹ 17,59,743/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance sheet of the assessee on the first day and the last day of the previous year Rs.3,61,28,216 + ₹ 22,33,14,515 Average of the above =Rs.31,65,44,668/- =Rs.3,37,37,416/- C. The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ₹ 9,32,30,153 + ₹ 22,33,14,515 Average of the above = ₹ 31,65,44,668/- - ₹ 15,82,72,334/- Accordingly:-[AxB]/C = ₹ 73,00,131 x ₹ 3,37,37,416 Rs.15,82,72,334 = ₹ 15,33,027/- (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not from part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. =Rs.3,37,37,416 x .00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance amounting to ₹ 17,59,743/- made by the AO under the head Professional/Consultancy/ Survey fees . The AO noted from the profit and loss account that the Assessee has debited a sum of ₹ 17,59,743/- under the head Professional/Consultancy/ Survey fees . The AO further noted that these expenses relate to the projects in progress and therefore he took the view that these expenses should have been debited to the work in progress and therefore he disallowed the sum. The Assessee went in appeal before the CIT(A). CIT(A) deleted the disallowance. 8. After hearing the submissions made by the ld. DR and going through the order of the tax authorities below, we noted that the Assessee has taken the contention before the CIT(A) that the professional fees were paid to various consultants. As such, same are for different works for business purposes. It was also submitted that all the works are not related to the work in progress and these fees also included payment made to the consultants for availing advice on legal and taxation matters relating to the firm s affairs. On the basis of this submission of the Assessee, CIT(A) deleted the disallowance by holding that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as to what extent these expenses relate to the current year and to what extent these expenses relate to the work in progress. Further, the CIT(A) should also obtain evidences that these expenses have been incurred by the Assessee genuinely for the purpose of the business. To the extent these expenses relate to the work in progress, it should be disallowed. Only the expenses which the Assessee proves to have been genuinely incurred for the purpose of the business and does not relate to work in progress be allowed. Thus, this ground is allowed for statistical purposes. 10. Ground no. 3 relates to the deletion of the addition of ₹ 2,22,47,248/-. After hearing the submissions made by the ld. DR and going through the order of the tax authorities below, we noted that the AO found on the basis of the details furnished by the Assessee that the Assessee has completed the development work of the plot as on 31.3.2009 and in respect of the plots he has received around 70-80% of the sale proceeds but still the Assessee has not shown the sale proceeds in the profit and loss account. Since the development has already been completed, therefore, the AO re-computed the profit relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent the work is completed. In case the revenue has to be recognized on the basis of receipt of payment from the plot-holders, that will also not be regarded to be percentage of completion method. It is not a case where the AO has rejected the accounts of the Assessee on the ground that it had not followed AS-7 for recognition of revenue on the basis of percentage of completion method. The method as has been followed by the Assessee, in our opinion, is neither project completion method nor percentage of completion method. Percentage of completion method is not linked with the consideration received by the Assessee from the intended buyer. We noted that the Assessee has recognized the revenue only when the registration of the sale deed has been done by the Assessee in favour of the buyer. Under AS-7 this is not a recognized method of recognizing the revenue. This method is neither project completion method nor percentage of completion method. The method adopted by the Assessee, therefore, cannot be regarded to comply with the ingredients as laid down u/s 145 of the Income Tax Act. Sec. 145 of the Income Tax Act makes it mandatory on the part of the Assessee to follow either c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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