9911796707
TMI Blog2010 (3) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... out of which, ground Nos: 1, 7 and 8 being general in nature and since no specific issues involved, they have become non-consequential. In the remaining grounds, the lone grievance has been described in an illustrative and narrative manner. The substance of the issue, at best, can be highlighted, in a concise manner, as under: The CIT (A) has erred in holding that the payment of ₹ 14.27 crores made in respect of contractual obligation as 'business expenditure' u/s 37(1) of the Act. Common order: 4. As the issues raised by the rival parties were directed against the order of the CIT (A) for the same AY, these appeals were heard, considered and disposed off, for the sake of convenience and clarity, in this common order. Brief: 5. The assessee engaged in real estate development business, furnished its ROI for the AY under dispute, admitting a loss of ₹ 2.22 crores. Consequent upon the action u/s 133(6) of the Act, the assessee came up with a revised ROI, admitting additional income of ₹ 4.16 crores and subsequently, the assessment was concluded by the AO, determining its income at ₹ 25.19 crores. While doing so, the AO, among others, made disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpended wholly and exclusively for the purposes of business or profession.' Accordingly, the expenses allowable would be restricted to 50% i.e., to an amount of ₹ 2.5 crore only. The action of the AO in restricting it to 50% is in order and, therefore, an amount of ₹ 2.5 crore out of Rs.Five crore would be disallowed u/s 37(1) for the relevant year." 6. Aggrieved, the assessee has come up with the present appeal. The Ld. A R reiterated more or less what has been contended before the Ld. CIT (A). In furtherance, the submissions of the Ld. A R are summarized as under: (i) as the assessee was interested in projecting the project for successful commercial sale, it had approached Gemini Film Circuit [GFC] for display of the assessee's project in the films produced by GFC, especially its logo of the project is displayed in the film Uppi Dada MBBS through its film song and also in the cinema hall/theatre in select cities of Karnataka; - there will be a display of the assessee's project and its logo wherever the song was displayed and also by way of exhibiting the project in the theatres where these films run; - a similar advertising was also made in Shankar Dada MBBS pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the general publicity of the company's name, that it was a direct expenditure incurred to propagate the 'Shanthiniketan project', the income from which was not recognized for the current year as the assessee had decided to recognize the income on completion of the project and thus, the AO was right in concluding that the expenditure enhances the value of the project and was to be included in the value of the work-in-progress, deferring its allowance to the year in which income from the project materializes. She was, therefore, of the view that the Ld. CIT(A) was not justified in allowing the expenditure to the extent of ₹ 2.5 crores u/s 37(1) of the Act for the reasons set-out in his impugned order which is in dispute. 7. We have carefully considered the rival submissions, scrupulously perused the relevant records and also the evidences advanced by the Ld. A R in this regard. 7.1. The view of the AO was that the business promotion not in the nature of ensuring the general publicity of the company's name, that it was a direct expenditure incurred to propagate the 'Shanthiniketan project', the income from which was not recognized for the current year as the assessee had d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sively for the purposes of business or profession.' Accordingly, the expenses allowable was restricted to 50% i.e., to an amount of ₹ 2.5 crore only. He, thus, concluded that the action of the AO in restricting it to 50% was in order and, therefore, an amount of ₹ 2.5 crores out of ₹ 5 crores claimed was disallowed u/s 37(1) for the relevant assessment year under dispute. 7.2.3. With respects, we have perused the ruling of the Hon'ble Supreme Court in the case of CIT v. Rajendra Prasad Moody referred supra, wherein the issue before the Hon'ble Court was that Whether interest paid on money borrowed for investing in shares is deductible when no dividends are received?, and ruled that "It is deductible under s. 57(iii) of IT Act 1961." This, in our view, has no relevance to the issue on hand. 7.2.4. In an over all consideration of the facts of the issue, assessee's contentions, stand of the Revenue and also well reasoning the Ld. CIT (A), besides the Clause 10 of the agreement entered into between the assessee and GFC referred supra, we are of the firm view that since the Ld. CIT(A) arrived at a conclusion which has the backing of the relevant provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a cancellation agreement i.e., a cancellation specifically of all the earlier obligation which could only mean the obligation that subsisted after the first agreement dated 18/11/99. By this cancellation agreement, the appellant has relieved himself of its obligation under the earlier agreement. Thus after adjusting the advance already received by it, the appellant paid ₹ 14.27 crores to Unitech in terms of the cancellation agreements and did not transfer to Unitech a part of the land which was its stock in trade. That land is the appellant's stock-in-trade is evidenced from a perusal of the appellant's balance sheet dated 31/3/05. Now, therefore by the cancellation agreement, the appellant got relieved of is obligation to deliver part of its stock in trade to Unitech. The obvious question which needs an answer here is what is the nature of expenditure? Land is stock-in-trade in the hands of the appellant. In fact, the appellant with a view to develop the property and to commercially exploit it entered into an agreement with Unitech. This was clearly a commercial activity carried by the appellant when the agreement for development was executed with Unitech and also when adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rive home the Revenue points of view. 9.1.1. Equally, the Ld. A R was vehement in his resolve that the Ld. CIT(A), after analyzing the issue in depth, extensively referring to the various agreements entered into with Unitech Ltd and comprehensively quoting the sequence under which the project fell through etc., came to a conclusion in a judicious manner that the expenditure claimed by the assessee is to be allowed for the AY under dispute in his finding which requires no interference at this stage. 9.2. We have carefully considered the rival submissions, perused the relevant records and evidences produced by either party in the shape of paper books. 9.2.1 On a glimpse of the assessment order, we find justification the well reasoning of the AO's conclusion that the effect of the cancellation agreement dated: 28.2.2005 was to free the title of the land from the encumbrance created in favour of Unitech. Taking into consideration the substantial increase in the value of land in intervening period between 1999 and 2005, the premium of ₹ 14.27 crores paid to Unitech was towards creating a clear title for the land and was to be directly attributed towards increase in the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k-in-trade of the company, and the loss was incurred in perfecting the title of the land. It is therefore admissible under s.37(1). However, the contention is the year in which the amount is to be allowed as revenue expenditure……………………………….." For the above point raised by the assessee, the AO had given his comments thus - "(Page 2) It may also be noted that during the year the assessee earned revenue from works contract. The true profits of the works contract will not be reflected if expenditure of another project from which no revenue is recognized, is charged off against the works contract revenue. In the above circumstances, expenditure in the 'Shanthiniketan' Project has been deferred for the current year. The assessee is permitted to claim expenditure in the year in which revenue from 'shanthiniketan' project is recognized." 9.2.3. During the course of hearing, the Ld. D R drew the attention of this Bench to the fact that a Misc. Petition was preferred by the AO before the CIT (A)-I on 6.10.2008 with a plea that the order of the CIT(A) misquoted the remand report of AO as well as conveyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants of India and came into effect in respect of all contracts entered into during accounting periods on or after 1.4.2003. The primary object of AS 7 is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This statements of Accounting Standards uses the recognition criteria established in the frame work of the preparation and presentation of the financial statements to determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of profit & loss. Further AS 7 covers the contracts for the rendering of services which are directly related to the construction of an asset i.e., those for the services or project managers etc. as in the case on hand. AS 7 stipulate that any claim from third parties could be included in the cost of the project if it is attributable to the project. Therefore the amount of ₹ 14.27 crores paid for the release of the land from legal complexities, on which the project Shanthiniketan was to be executed, will definitely form part of the cost of the project Shanthiniketan and it is has to be recognized as such. This expenditure of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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