TMI Blog2023 (4) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... projects, when substantial part of the project is completed, the risk and rewards shift from the assessee and corresponding income accrue to the assessee, which is offered computed following the percentage completion method, however, the expenses which pertain to project cost cannot be allowed to be debited to P L Account. In the case, the assessee did not provide details of the borrowings and purpose for which those borrowings were utilized and corresponding interest expenditure. Similarly regarding other expenses also, particularly advertisement publicity and commission brokerage, no details have been provided for determination whether those expenses pertain directly to the undergoing project. The interest and other expenses, which are directly related to the project should not be included in project cost and balance should be debited to P L Account. The gross profit from project is then credited to P L Account and the expenses in the nature of Administration and General, which are not specific to project like directors remuneration, office expenses are debited in P L Account and then net profit / loss is computed as per accounting principles. But in the case, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, facts of the case are that the assessee company was engaged in the business of constructing, purchasing, acquiring, managing and developing real estate projects. For the year under consideration, the assessee filed return of income on 20/07/2013 declaring loss of ₹3,83,15,655/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act,1961 (in short the Act ) were issued and complied with. During the course of assessment proceedings, the Assessing Officer noticed construction receipt aggregating to ₹7,28,00,816/and other receipts aggregating to ₹97,26,533/- on account of dividend and miscellaneous income. After debiting various expenses such as construction cost, administrative cost, etc. the assessee reported loss in the return of income at ₹3,83,15,655/-. As far as profit from the projects i.e. real estate/construction project is concerned, the assessee was following percentage completion method. While working out the loss, the assessee debited interest of ₹4,39,48,540/- and other expenses of ₹57,92,865/- to P L Account and claimed the same as revenue expenditure, whereas acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example and it by no meaning can exclude the other costs which are directly attributable to the construction cost. It may be noted that the Finance Cos as debited by the assessee company is on borrowed fund, which are sanctioned on the basis of specific projects. In other words, these borrowings are in nature of Project Funds and not general Term Loans / CCs / ODs. There is direct nexus between the borrowed fund and the projects undertaken. Thus, the interest on respective project Fund can be attributed to the respective project on actual basis. Once the interest is attributable to the project, the same is to be allowed as business expenditure in ratio of the revenue offered from the project and WIP at the end of the year. 3.6 In respect of assessee's claim of other Expenses of Rs. 57,92,965/- debited to Profit Loss Account, the assesse has relied on Para 19 of the AS. It is to be noted that The para 19 starts with Costs that cannot be attributable ........'. So the general admin costs as referred in Para 19 is with reference to the General Admin expenses that are not directly attributable to the construction project. If these expenses are directly attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible expenses, the assessee has not only concealed its income but has also filed inaccurate particulars thereof. Penalty proceedings u/s. 271(l)(c) of the I.T. Act, 1961 are initiated separately for the default committed by the assessee within the meaning of that section. 5. On appeal, the assessee filed additional evidences before the Ld.CIT(A) in terms of Rule 46A of Income Tax Rules, 19562. The Ld.CIT(A), after calling for the remand report from the Assessing Officer accepted the contention of the assessee and deleted the disallowance made by the Assessing Officer of rs.4,97,38,505/- observing as under:- Decision Ground No.1: Ground of Appeal, the Appellant has agitated the disallowance of expenses amounting to Rs.4,97,38,505/-. I have carefully considered the submissions of the Appellant vis-a-vis assessment order. On perusal of the same, I find that the A.O. has disallowed expenses amounting to Rs.4,97,38,505/- by holding that the same are required to be added to the WIP of the Project. On the other hand, I find that the Appellants following Percentage Completion Method for purpose of Accounting. It is further contended by the Appellant that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction against the revenue recognized from said project in proportion of the project completed. The Ld.CIT(A), however, has reversed the finding of the Ld.AO. 8. We find that in this case, the finance plus interest cost claimed by the assessee pertains to bank overdraft, unsecured loans and others, having details as under:- Particulars Amount in Rupees Interest expenses on bank overdraft 74,232/- Interest expenses on Unsecured Loans 4,35,50,933/- Interest Paid Others 3,23,375/- Total Finance Cost incurred during A.Y. 2014-15 4,39,48,540/- 9. The details of other expenses have been reproduced by the Ld. CIT(A) in para 4.9 of the impugned order. There is no dispute on the method of declaring profit following project completion method. The only dispute is regarding the treatment of finance and other cost for working out net profit during the year under consideration. The assessee has referred to AS-7 according to which operating cost which are incurred directly in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eking to debit whole of interest and other expenses to profit loss account. The interest and other expenses, which are directly related to the project should not be included in Project cost and balance should be debited to P L account. In the facts and circumstances of the case, we feel it appropriate to restore this issue back to the file of the Ld. CIT(A) for determining the quantum of interest and other expenses related directly to the project. The assessee is directed to co-operate and provide all the details of the finance and other expenses alongwith ledgers and vouchers. It is needless to mention that assessee shall be afforded adequate opportunity of being heard. Ground No.1 of the Revenue is allowed for statistical purpose. 10. Now we shall take up appeals of the Revenue in the case of Rustomjee Construction Pvt. Ltd for A.Y. 2012-13. The gvrounds raised by the Revenue are reproduced as under:- 1. On the facts and in the circumstances of the case and in law, the id. CIT (A) erred in not appreciating the fact that the assessee had failed to establish the nexus between revenue offered and the expenses c!aimed and and expenses claim and closing work-in- progress. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumentary evidences produced during the Remand Proceedings also advances the case of the Appellant, After considering stage of completion, facts of the case and the case laws relied upon by the Appellant, all favoring the treatment adopted by the Appellant for Construction Accounting. Moreover, by capitalization there is no loss or profit to the Revenue. Accordingly, the disallowance made by the A.O. of ₹10,10,59304/- is deleted. Accordingly, this Ground of Appeal is allowed. 12. We have heard rival submissions of the parties on the issue in dispute and perused relevant materials on record. We find that the facts mentioned by the Ld. CIT(A) are perverse. Actually, the Ld. CIT(A) repeated the facts of Rustomjee Buildcon Pvt Ltd. Since the decision arrived at by the Ld.CIT(A) is based on incorrect facts, ignorance of the facts of the instant case, same being perverse on facts, is set aside and matter is restored back to the file of the Ld.CIT(A) for deciding afresh keeping in view correct facts of the case. 13. The ground of A.Y. 2013-14 in M/s Rustomjee Construction Pvt. Ltd is as under:- 1. On the facts and in the circumstances of the case and in law, the id. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion, facts of the case and the case laws relied upon by the Appellant, all favoring the treatment adopted by the Appellant for Construction Accounting. Moreover, by capitalization there is no loss or profit to the Revenue. Accordingly, the disallowance made by the A.O. of Rs. 34,996,200/- is deleted. Accordingly, this Ground of Appeal is allowed. 15. The Ld. CIT(A) in his finding has mentioned of relying on the remand report from the Assessing Officer whereas no such remand report was called for by the Ld.CIT(A). This fact has been accepted by the Ld. Counsel of the assessee also. Therefore, the decision has been arrived at by the Ld. CIT(A) on assuming wrong facts. Hence, the same is set aside and matter is sent back to the Ld.CIT(A) for deciding afresh. 16. As far as appeal in the case of M/s Rustomjee Realty Pvt Ltd for A.Ys. 2012-13 2013-14 are concerned, findings of Ld. CIT(A) are identical to the case of M/s Rustomjee Construction Pvt Ltd in A.Ys 2012-13 and 2013-14. Therefore, following our finding in the case of Rustomjee Construction P Ltd for A.Y. 2012-13 2013-14, the decision of Ld.CIT(A) being perverse on facts, same are set aside and matter in these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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