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TMI Blog2021 (9) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years 2009-10 and 2010-11 ignoring the fact that each assessment year is different and assessee has not claimed such deduction for the assessment year 2008-09. 2.4 The learned CIT(A) failed to note that assessment year 2008-09 is the first year in which assessee claimed deduction of entire development expenses as deduction and there is no consistency in approach by assessee. Further, CIT(A) ignored the fact that assessing officer has pointed out the deficiency / inadequacy in the method followed by assessee as land cost is being apportioned on the basis of extent of sales whereas development expenses is claimed fully in one year, which is against the matching principle as held by the Apex Court in the case of Calcutta Co.Ltd (37 ITR 1). 2.5 The learned CIT(A) ought to have appreciated the facts that the assessing officer never treated the excess claim of development expenses as capital expenditure but allocated such revenue expenditure on matching principle concept and balance was treated as closing WIP. 3.1 The learned CIT(A) is not correct in deleting 20% of contract expenses incurred by cash of Rs. 55.13,307/- (20% of Rs. 2,75,66,537/-) 3.2 The learned CIT(A) is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. The assessment has been subsequently reopened u/s.147 of the Income Tax Act, 1961, for the reasons recorded as per which income chargeable to tax had escaped assessment on account of excess claim of development cost for the assessment year 2008-09 and hence, notice u/s.148 of the Act, dated 26.04.2012 was served on the assessee. In response, the assessee submitted that return of income filed on 30.06.2009 may be treated as return of income filed in response to notice issued u/s.148 of the Act. Thereafter, case has been taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has developed housing project called 'Guru Paradise' and has debited entire development cost of Rs. 3,37,75,000/- towards construction of 112 flats, even though, these flats were sold during three financial years. He further noted that the assessee has received total sale consideration for transfer of 112 flats for three assessment years starting from 2008-09 to 2010-11, however, claimed entire cost of development for assessment year 2008-09. Therefore, opined that the assessee has claimed excess development cost of Rs. 2,78,20,552/- for assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing construction expenses on the basis of sale consideration received for three assessment years without understanding accounting policies prescribed for recognition of revenue in the case of construction contract. The assessee has also taken an alternative plea in light of provisions of section 80IB(10) of the Act and submitted that when the assessee is eligible for deduction u/s.80IB(10), then there is no question of inflation of expenditure to reduce profit, because there is no point in reducing profit when the assessee is eligible for 100% deduction towards profit derived from housing project u/s.80IB(10) of the Act. The assessee has challenged additions made by the Assessing Officer towards ad-hoc disallowance of 20% expenses on the ground that all expenditure incurred under the head site expenses , earth filling charges and sand purchases are supported by necessary evidences and the assessee has not paid cash against purchases in excess of Rs. 20,000/- prescribed u/s.40A(3) of the Act. 5. The learned CIT(A), after considering relevant submissions of the assessee and also taken note of various facts held that assessee's claim of development expenditure for assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no. 1 to 2.5 of revenue appeal is deletion of disallowance of excess claim of development expense of Rs. 2,78,20,552/-. The learned DR for the Revenue submitted that the learned CIT(A) has erred in deleting disallowance of excess claim of development expenses, without appreciating fact that assessee has claimed entire development expenses in the impugned assessment years, even though it has recognized revenue from sale of flats for three assessment years including impugned assessment year. The learned DR further submitted that the learned CIT(A) failed to note that assessment year 2008-09 is the first year in which assessee claimed deduction of entire development expenses as deduction and there is no consistency in approach followed for recognition of revenue. Therefore, the learned CIT(A) is incorrect in observing that the assessee has consistently followed this method of accounting for recognition of revenue. The DR further referring to decision of the Hon'ble Supreme Court in the case of Calcutta Company Ltd. (37 ITR 1) submitted that when the assessee has apportioned cost of land on the basis of extent of sales failed to apportion development expenses but has claimed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has not disputed these facts. In fact, the Assessing Officer has accepted fact that assessee has followed project completion method. However, he has apportioned development expenses on the basis of sales revenue for three years and disallowed a sum of Rs. 2,78,20,552/- by reallocating expenses incurred for assessment year 2008-09 on the basis of sale revenue. 9. We have given our thoughtful consideration to reasons given by the Assessing Officer in light of arguments advanced by the learned A.R for the assessee and we do not ourselves subscribe to reasons given by the Assessing Officer for allocation of expenses on the basis of sales revenue, because the method followed by the Assessing Officer to allocate expenses for each assessment year on the basis of sales revenue is contrary to accounting standard issued by the ICAI for recognition of revenue from construction contracts. Further, as per accounting standard, an assessee, at its option can follow percentage completion method or project completion method for recognition of revenue. In project completion method, revenue will be recognized when sales taken place, but when it comes accounting for expenses, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the learned CIT(A) and reject grounds taken by the revenue. 11. The next issue that came up for our consideration from ground no.3 of revenue appeal is ad-hoc disallowance of various expenses on the ground that said expenses incurred in cash and not further, supported by necessary bills and vouchers. The Assessing Officer has disallowed 20% of contract expenses like site expenses, earth filling charges and sand purchases on the ground that the assessee has incurred expenditure in cash. According to the Assessing Officer, although, the assessee has produced certain bills and vouchers to support the expenditure, but on verification of vouchers, he was of the opinion that the assessee has prepared vouchers in such a way that each payment was shown less than Rs. 20,000/- to escape from the provisions of section 40A(3) of the Act. It was explanation of the assessee before the Assessing Officer that it has incurred expenses in cash, but each payment is not in excess of prescribed limit provided under section 40A(3) of the Act. The assessee further contended that all expenses have been incurred for development of housing project, which is supported by bills and vouchers. 12. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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