Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2019 (10) TMI 351

..... principle that the indirect expenses being period cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses when the assessing officer himself has accepted and assess the revenue 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 Claim of deduction u/s 80IB - CIT-A has held that assessee .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... irect expenditure are allowable as period cost. 3. On the facts and circumstances of the case , the Ld. CIT(A) has erred in law and on facts in upholding the addition of ₹ 22,02,640/- on account of disallowance of processing fee of loan taken by the appellant by holding that the same should be capitalized to the project coast as work in progress. 4. On the facts and circumstances of the case , the Ld. CIT (A) has erred in law and on facts in disallowing the commission expenses of ₹ 1,63,90,177/- by holding the same as project specific expenses. 5. 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... income of ₹ 102140867/-. The Assessee has claimed expenditure of ₹ 21.23 crores which includes other expenditure, cost of revenue, cost of land, finance charges and sales and marketing expenditure. The ld Assessing Officer noted that Assessee has shown sales of ₹ 127007573/- and cost of sales is ₹ 101841337/-. Therefore, according to ld Assessing Officer no other expenditure 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 ₹ .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... great injustice done to the other party. Therefore, we are forced to proceed these matters to decide on the facts of the case and information available on record. 8. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that 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 furthe .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ring the course of search operation and as such assessee has claimed the above expenditure of ₹ 11,05,26,147/- to negate the surrendered income. The AO has also noted that the project expenses of ₹ 2,09,25,355/- 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... pellant has decided that the bench 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 method of accounting followed by the appellant. The change in accounting policy has .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... 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 of hearing, Id. AR was again specifically asked to given the break up and project-wise details of above indirect expenses. The Id. AR filed further .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... 8377; 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 interest paid to banks and financial institutions for the general loans availed by the Appellant Company. Also there are routine expenses on account of interest on car loan and bank charges which are not relatable to a specific project. 3. Regarding sales and marketing expenses, these are the expenses for the promotion of the business of the Appellant Company as a whole and the advertisements in various Medias‟ and also expenditure on commission to the brokers/dealers responsible for sale of the various properties in the different projects of the appellant. The sales and marketing expenses like advertisements, press conferences, and sale promotion are incurred at the corporate level without any specific relations/allocations to any of the projects of the company. As desired, the commission on booking for the various projects is as under: i. Bhiwadi ₹ 1,69,69,931 ii. Palwal ₹ 33,63,614 iii. Corporate Park ₹ 1,30,26,563 Total .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... , however, the commission expenses incurred on the broker for booking the flats in the various properties is according to me a directly identifiable expense of the specific project for which commission is paid to the dealer. The relevant expenditure in respect of appellant‟s project located at Palwal and Corporate Park (the projects for which revenue is yet to be recognized) is ₹ 1,63,90,177/- and the same cannot be equated with other indirect expenditure and is accordingly liable to be disallowed. Although the AO has mentioned that the project wise expenditure details is not being maintained by the appellant but on perusal of written replies submitted during the course of asstt proceedings I fmd that appellant has duly furnished the details of all the expenses and further more the contention of the appellant that the project at Bhiwadi has completed more than 10% of the projected cost has also been accepted by the AO. In this regard, a reference may be made to assessee‟s replies dated 17-9-2009, 24-9- 2009, 7-10-2009, 11-12-2009 and 16-12-2009 available at pages No. 70 to84 as revenue expenditure and out of total disallowance of ₹ 9,56,65,810/-, the disallo .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... r. Thus the finding of the learned CIT - A is confirmed on the ground number 6 of the appeal of the assessee is dismissed. 12. Accordingly ITA number 1644/del/2011 filed by the assessee is dismissed. 13. CO number 165/del/2011 filed by the assessee for assessment year 2008 - 09 in ITA number 1972/del/2011 filed by the learned AO Challenges on the similar ground additions confirmed by the learned CIT - A. As we have dismissed the appeal of the assessee on the similar grounds, the cross objection filed by the assessee is also dismissed for the reasons given while deciding the appeal of the assessee in ITA number 1644/del/2011. 14. In ITA number 1972/del/2011, the learned Asst Commissioner of income tax has challenged the finding of the learned CIT - A by raising two substantive grounds of the appeal on the issue decided in ground number 1 to 5 of the appeal of the assessee. As we have upheld the order of the learned CIT - A wherein he has deleted the addition to the extent of INR 7 7072993/-, the appeal filed by the learned assessing officer is also dismissed for the similar reasons. Accordingly, ground number 1 and 2 of the appeal of the learned assessing officer are dismissed. 15. .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... at is 1164 ft² and 1446 ft² respectively. The assessee company is claiming that it is not exceeding 1500 ft² is area of the residential unit. Claim of the assessee was rejected by the learned assessing officer holding that the site of the project of the assessee is situated within 25 km from municipal limits of Delhi. Therefore the claim of deduction u/s 80 IB amounting to INR 8 6685089/- is not allowable. The assessee preferred an appeal before the learned CIT - A. The learned CIT - A held that the residential unit must have a maximum built up area of 1000 ft² if it is situated within the city of Delhi on within 25 km from the Minister limits of the cities. Therefore, he rejected the argument of the assessee. However, he accepted the assessee must get the proportionate deduction based on the decision of the coordinate bench in 30 SOT 155. He held that appellant is eligible for benefit of proportionate deduction after considering the area of residential units having a built up area of less than 1000 ft². However in view of the contradicting facts stated by the appellant in its written submissions before him and in the assessment order he directed the learne .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... of the case, Ld. C.I.T.(A) has rightly allowed indirect expense as period expenses as the revenue arising to the appellant from Real Estate Project is being recognized as per percentage of completion method as prescribed under the Accounting Standard -7 of the Institute of Chartered Accountants of India (ICAI ). 3. That on the facts and circumstance of the case, the Ld. C.I.T. (A) has erred in disallowing a part of the deduction claimed amounting to ₹ 8,66,85,089/-. 4. That the Ld. C.I.T.(A) has erred in law and on facts in disallowing deduction u/s 80-IB in respect of area of residential units having built up area more than 1000 sq. ft. within the municipal limits of Faridabad. 5. That the C.I.T(A) has erred in law and on facts in disallowing a part of deduction 80-IB ignoring the fact that there could not be discrimination in allowance of deduction u/s 80-IB I respect of two projects of two different assessee located within municipal limits of Faridabad. 6. That, the C.I T.(A) has erred in law and on facts in disallowing a part of deduction claimed u/s 80IB of the Act, ignoring the fact that it was a beneficial section and was to be interpreted liberally to advance the pur .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... roportionate deduction accordingly. 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 ft². 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 case the order passed by the learned assessing officer u/s 250 of the income tax act giving effect to the order of the learned CIT - A passed on 30/3/2012 the learned assessing officer computed the same disallowance of INR 8 6685089/- and thus the original disallowance made by the learned assessing officer stands. In view of this, the grievance of the learned assessing officer as per ground number 3 of his appeal is not sustainable. Accordingly, ground number 3 of the appeal of the learned assessing officer is dismissed. On this issue, also the assessee has preferred ground number 3, 4, 5 and 6 .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||