TMI Blog2019 (10) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... riod cost but the commission expenses incurred for booking of the flats on various property is directly identifiable expenses of the specific project for which commission is paid to the dealer. In view of this we do not find any infirmity in the order of the learned CIT A Claim of deduction u/s 80IB - CIT-A has held that assessee has placed contradicting facts about the size of the flats and therefore CIT-A directed the learned assessing officer to verify the factual position regarding the area of residential unit having a built-up area of up to 1000 ft and grant the benefit of proportionate deduction accordingly - HELD THAT:- According to us, the learned CIT A has valid reason to direct the learned assessing officer to verify the fact. It is not in dispute that assessee has given written submission that built-up area of the residential unit is 1164 and 144 6 ft . This fact has been reproduced by the learned CIT-A in paragraph number 5.2 of his order. Thus, we do not find any infirmity in the direction of the learned CIT- A to the assessing officer. Further, the direction for granting the proportionate deduction is also based on the several judicial precedents. In any cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On the facts and circumstances of the case, the Ltd. C.I.T. (A) has erred in law and on facts in confirming disallowance of ₹ 22,02,640/-on account of processing fee and ₹ 1,63,90,177/- on account of commission after having upheld the legal position that the indirect expenses are period cost and therefore allowable in the year in which the same are incurred . 6. On the facts and circumstances of the case , the Ltd. C.I.T. (A) has erred in law and on facts in dismissing the ground of the appellant that the A.O. has erred in law and on facts in not treating the surrender of ₹ 9 Crores as voluntary and treating the same as income from undisclosed source. 3. The ld Assessing Officer has raised the following ground of appeal in ITA No. 1972/Del/2011 for the Assessment Year 2008-09:- 1. The Ld. CIT(A) has erred both in law and on facts of the case in considering expenses such as establishment expenses, finance charges, sales and marketing expenses and other expenses as indirect expenses or costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure should be allowed against this income as further deduction. According to ld Assessing Officer the Assessee has claimed expenditure of ₹ 11.05 crores against other income of ₹ 10.21 crores. It was further noted that amount of miscellaneous income of ₹ 10.21 crores includes ₹ 9 crore surrendered during the search. Thus according to him the assessee has expenditure of ₹ 11.05 crores to negate the surrendered income. Thus, Assessee was questioned about the allowability of that expenditure. The Assessee explained that expenses that are not related to the particular project such as marketing expenses and financial expenses are not carried to work in progress‟ but are shown in the profit and loss account. The assessee further submitted that profit of ₹ 2.51 crores and other income of ₹ 10.21 crores which includes ₹ 9 crores as surrendered income has already been shown in the profit and loss account and return of income. The ld AO rejected the contentions of the assessee and held that all these expenditure should be proportionately capitalized as work in progress. Consequently, he also held that all expenses on account of adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that learned CIT A has deleted the disallowance of INR 7 7072993 merely based on the guidelines of IC a holding that indirect expenses being. Cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses especially when the assessing officer himself has accepted and assessed the revenue booked by the appellant during the year under consideration stop she submitted that the total project cost is required to be capitalized as work in progress. Thus, she argued that the order of the learned assessing officer may be restored. 9. We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer based on the sales of INR 127,000,000 and the cost of sales of INR 101,800,000 has held that no other expenses should be allowed to the assessee irrespective of the nature. The assessing officer further alleged that assessee has shown other expenditure in the profit and loss account only to negate the surrendered income of INR 90,000,000. The AO was also of the view that for the year ended on 31/3/2007 the assessee was recognizing the revenue only if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- have been added to the inventory by the assessee. The assessee had furnished detailed replies during the course of asstt proceedings in support of method of accounting adopted by it and the expenses claimed. After considering the replies submitted by the appellant, AO has made a net addition of ₹ 9,56,65,810/- ( ₹ 11,26,79,720 - ₹ 1,70,13,910/-) on account of excess claim of indirect expenses primarily and, inter-alia, for the following reasons given in asstt order: (i) There is change in accounting policy followed by assessee as it had not been following the percentage completion method subject to 30% condition of completion compared to total cost of project. (ii) There are various projects like Bhiwadi, Palwal, Corporate and other, operational during the year. (iii) Separate books of accounts and consolidated books of accounts of various divisions have not been produced. (iv) Since, no project of the company till 31-3-2008 has competed 30% of the projected cost therefore, all expenses are to be capitalized till date and to be percentage wise charged to cost of sales. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench mark percentage should be 10% and since in the present year the actual cost achieved is 10.22% of the projected cost, the appellant has been duly disclosed by the appellant in its notes to accounts recognized the revenue. The above change in accounting policy forming parts of financial statement. The Id. AR in his written submission has drawn my attention to the provisions of section AS-1 of ICAI which permit the change in accounting policy. The following judicial decisions in this regard referred to by the AR duly support the case of the appellant. a. Indian Oiltanking Ltd. V/s TTO, Mumbai 120 TTJ 61 (Mum-Trib) b. Dy. CIT V/s Conwood Agencies Pvt. Ltd. 2 SOT 573 (Mum) c. MKB (Asia) (P) Ltd. V/s CIT 167 Taxman 256 (Gau) d. DCIT V/s IT C Hotels Ltd. 82 TTJ 652 (Ban-Trib) On a perusal of facts of present case and the above judgments, I find that books of accounts in the appellant case are duly audited and there is no qualification made by the Chartered Accountant. The change in accounting policy for recognizing the revenue is duly disclosed. There is no change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant The Id. AR in his written submissions has also relied on the provisions of AS7 and has successfully argued that the indirect and administrative cost that are not attributable or allocable to a particular contract are to be excluded from contract cost. I am also in agreement with the submissions of the counsel that in any business which has commenced its operation, all revenue nature expenditure is to be allowed as such after the commencement of the business. It is also not disputed by the AO that the contract cost relating to direct cost of construction including the cost of land has been claimed proportionate to the revenue recognized. The Id. AR has also in his written submissions given a description of various heads of indirect expenditure being Establishment expenses i. e. personal cost relating to administrative employees of the appellant, Finance Charges: being the interest and bank charges, Sales and Marketing expenses: being the expenses on account of commission, advertisement, sales promotion etc and other expenses comprising legal and professional fees, rent, housekeeping, telephone, printing stationary, car running and conveyance etc. During the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee and loan processing charges is as under: SI Project Processing Fee (In') Loan Processing Charges In' i. Bhiwadi 1,68,000 5,61,800 ii. Palwal Nil Nil iii. Corporate Park 22,02,640 Nil Total 23,70,640 5,61,800 The major expense of ₹ 22.02 Lacs in respect of processing fee is the processing fee of the loan from M/s India Bulls. The remaining are the routine expenses of the loan of the Bhiwadi Project. Other than the above there are routine expenses on account of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the legal position that the indirect expenses being period cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses specially when AO himself has accepted and assessed the revenue booked by appellant during the year under consideration. Even as per provisions of AS7 of the ICAI, the administrative and general expenses not allocable or attributable to a specific contract are not to be considered as part of the contract costs, therefore, these expenses cannot be loaded to contract cost. The finance cost being interest expenditure and bank charges etc are also allowable as a direction in view of specific provisions of section 36(l)(iii) of Act r.w. judgment of Hon‟ble Mumbai Tribunal in the case of K. Raheja (P) Ltd 106 TTJ 874. However, under the head of Finance Cost, the appellant has claimed an amount of ₹ 22,02,640/- being the processing fee of the loan availed by the appellant from M/s. India Bulls for the project at corporate part. The appellant has itself stated in his written submissions that the interest expenditure pertaining to above loan being directly recognized with the project has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e booked by the appellant during the year under consideration. He further referred to the accounting standard 7 issued by the Inst of chartered accountants of India wherein it has been stated that administrative and general expenses are not allocable or attributable to a specific contract and are to be considered as part of the contract cost and there should these expenses cannot be loaded to a particular contract. With respect to the allowability of the interest expenditure, the reliance was placed on the coordinate bench decision. He further held that sales and marketing expenditure are allowable indirect expenditure being a period cost but the commission expenses incurred for booking of the flats on various property is directly identifiable expenses of the specific project for which commission is paid to the dealer. In view of this we do not find any infirmity in the order of the learned CIT A. Accordingly appeal of the assessee contesting the confirmation of the disallowance of INR 1 8592817/ is dismissed. Accordingly, ground numbers 1 5 of the appeal are dismissed and findings of the learned CIT AR confirmed. 11. Now we come to ground n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) declaring nil income on 30/9/2008. The facts in this case are identical to the facts in the case of Piyush Colonizers Limited. The assessment u/s 143 (3) was passed on 29/12/2009 under section 143 (3) read with section 153A of the income tax act determining the total income of the assessee at INR 105117940/ wherein an addition of INR 1 8432854/ was made on account of the various expenditure with respect to bank guarantee charges related to the project, bank interest, advertisement, fees, legal and professional charges, web designing charges amounting in all INR 2 23332727/ was allowed by the learned assessing officer to the extent of only 21% amounting to INR 4 899873/ and therefore it was held by the learned assessing officer that the balance expenditure of INR 1 8432854/ should have been capitalized to the work in progress account. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned Commissioner of income tax central circle 1, New Delhi who passed an order on 30/3/2012 deleting the above disallowance based on the decision rendered by him in case of Piyush colonizers limited. Therefore, on this issue revenue has fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring expenses such as advertisement expenses, business promotion expenses, commission on booking expenses, legal and professional expenses, postage expenses, printing projects expenses, project development expenses and rent fuel expenses as indirect expenses or costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract , though each and every expenditure incurred by the assessee, in view of the entire gamut of business activity of the assessee, are wholly and exclusively expenses incurred in the generation of its exclusively singular source of revenue - development and sale of real estate property. 2. The Ld. CIT(A)-I has erred both in law and on facts of the case in allowing the so called indirect expenses fully, even though the expenses were only to be allowed in a proportionate manner within the ambit of the principles of percentage completion method, which the assessee has itself relied on for recognizing its revenues. 3. The Ld. CIT(A) has erred both in law and on facts of the case in allowing proportionate deduction u/s 80IB after considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the claim u/s 80-IB of the Income Tax Act. 3. That the ld CIT(A) erred in rejecting the claim of the appellant in regard to deduction u/s 80IB in respect of three bedroom flats and in holding that the territorial limit prescribed u/s 80IB should not be taken from the municipal limit of Faridabad. 21. The learned departmental representative submitted that the facts in the case of ground number 1 and 2 appeal of the assessing Officer and ground number 1 3 of the cross objections of the assessee are identical to the facts of the case of Piyush Colonizers Limited. Whereas with respect to ground number three of the appeal of the learned assessing officer it was submitted that proportionate grant of deduction to the assessee is now covered by the decision of the honourable Bombay High Court. On the ground number 4 6 of the cross objections of the assessee and appeal of the assessee he heavily relied upon the decision of the learned assessing officer and the learned CIT A. 22. We have carefully considered the rival contention and perused the orders of the lower authorities. On the appreciation of the facts we find that ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. Accordingly ITA number 1971/del/2011 filed by the learned assessing officer and CO number 164/del/2011 filed by the assessee for assessment year 2008 09 are dismissed. 25. Now we come to the appeal of the assessee in ITA number 2067/del/2012 for assessment year 2008 09 wherein the assessee has challenged the action of the learned CIT A in not allowing the claim of assessee u/s 80 IB of the income tax act and further holding that the territorial limit prescribed u/s 80 IB should not be taken from the municipal limit of Faridabad. The assessee is also aggrieved in rejecting the claim of the appellant with respect to deduction u/s 80 IB in respect of 3 bedroom flats. As we have already appellant the action of the learned CIT A in the appeal of the learned assessing officer, we do not have any reason to interfere with the order of the learned CIT A while deciding the interconnected ground of appeal filed by assessee. The assessee could not substantiate before the lower authorities that if the maximum built-up area of 1000 ft the residential units are built then there must be situated within the city of Delhi or Mumbai or within 25 km from the municipal l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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