9911796707
TMI Blog2025 (5) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue has filed the appeal with the following grounds: 1. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs. 319,01,05,617/- made by the AO on account of disallowance of revenue recognition as per POCM method of recording ignoring that the AO has categorically held that the Internal Development Charges (IDC) incurred by the assessee cannot be loaded/apportioned against unlaunched area? 2. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs. 61,34,84,000/- made by the AO on account of disallowance of Interest capitalization ignoring that the AO has categorically held that the assessee is following POCM method of accounting under which interest expenditure related to projects under construction can only be allowed on proportionate basis to the extent of revenue recognized and the interest of Rs. 61,34,84,000/- are in the nature of cost attributable to the acquisition/construction of asset, therefore, needs to be capitalized. 3. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the Income Tax Act, 1961. 11. Whether CIT(A) was justified in allowing the assessee to adopt an accounting standard which was not even notified by the Government(Ind AS got effective from 01.04.2018 only). 12. Whether CIT(A) was justified in allowing the assessee a deduction for which Revenue was not even disclosed during the year. 13. Whether the Ld. NFAC under the facts and circumstances of the case and in law was Justified in deleting the addition of Rs. 6,30,05,370/- made by the AO on account of disallowance u/s 40(a)(ia) of Income Tax Act, 1961. 14. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. The brief facts leading to this case are that the assessee company, engaged in the business of real estate, having multiple ongoing projects of construction and also selling upon the plots of land, filed its return of income declaring loss of Rs. 20,04,58,93,245/- on 04.11.2017 through electronic media for A.Y. 2017-18. However, a revised return was filed on 29.03.2019 declaring loss at Rs. 20,04,58,93,245/ -. The said assessment was selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench was also referred by the Learned AR being annexed to the paper book filed before us. 8. Under these facts and circumstances of the matter, we, thus, considered the order passed by the Co-ordinate Bench dated 19.07.2023. While rejecting the ground preferred by the Revenue the Co-ordinate Bench, observed as follows: "6. The issue arises out of the addition made by Ld. AO on account of Revenue recognition as per POCM. In assessee's own case for A.Y. 2006-07 (supra) issue has been considered against the Revenue with relevant finding in para no. 35 to 42. It can be observed that in A.Y. 2006-07, the issues are restored to the files of Ld. AO to make further inquiries in respect of Mangolia project and Summit project. However, the adoption of POCM was approved. Further in A.Y. 2008-09 the department's appeal had again raised the issue and taken into consideration the determination of issue in favour of the assessee by the Tribunal in assessee's own case for A.Y. 2006- 07. The Co-ordinate Bench had decided the issue against the Revenue. In the present A.Y. the para 9.2 of the order of the Ld. CIT(A) shows he has followed the findings in favour of the assessee by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed by the Hon'ble Co-ordinate Bench has also been duly submitted before us as annexed to the paper book filed by the assessee. Such submission made by the Learned AR has not been able to be controverted by the Learned DR. 14. Heard the parties, perused the records. Considering the assessee's submissions, the Learned AO came to a conclusion that under the percentage of completion method, interest expenditure related to a project under construction can only be allowed on pro-rata basis to the extent of revenue recognition. The impugned amount therefore, are in the nature of borrowing cost attributable to the acquisition or construction of qualifying assets and the same need to be capitalized and thus not allowable as revenue expenditure. Finally, the expenses of Rs. 61,34,84,000/- was added to the total income of the assessee, which was deleted by the Learned CIT(A) with following observation: "6.3.3 It is observed that the facts and circumstances with regard to capitalization of interest in this year are identical to the facts in the assessment year 2009-10 and subsequent assessment years. I have no reason to differ with the findings of my predecessors in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital assets 2. These are stock in trade 3. Any borrowing for the stock in trade can never be capitalized. * Accounting standard AS-(16) has no application. Accounting Standards cannot override the provisions of Income Tax Act. It is a matter of record that the borrowed funds have been utilized for the business of the real estate and the loans and advances to the subsidiaries. The company has earned the interest of Rs. 895.62 crore from the loans and advances which has been offered as the income. In view of the above, it is clear that the company has effectively claimed the net interest of Rs. 722.81 crore on the term loans which have been used for the purposes of business of the company and in this respect it is evident that the interest earned by the company is more than the net interest debited in the accounts on the term loans and thus there is no question of making any adhoc disallowance. This is further fortified by the fact that the balance sheet of the company in the schedule 16 as on 31.03.2014 shows the closing inventory of Rs. 8,112.24 crore which indicates the use of the substantial amount of interest bearing funds. In view of the above, it is held that capitali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition laid down u/s 36(1) (iii) are satisfied by the assesse. The proviso says that any amount of the interest paid in respect of capital borrowed for acquisition of an asset whether capitalized in books of accounts or not for any period beginning from the date on which the capital asset was borrowed for acquisition of the asset till the date on which such asset was put to use shall not be allowed as deduction. The deduction is to be disallowed even if the interest is capitalized in the books of accounts or not. Hon'ble Supreme Court in the case of Core Healthcare [298 ITR 194] has held that provisions of section 36(1)(iii) is a code in itself. In the present case, the interest paid by the assessee is not for the purpose of acquisition of any capital asset but for its inventory. We do not find any restriction in provisions contained u/s 36(1)(iii) which provides that the interest can be disallowed if incurred for the purpose of inventory as provided under Accounting Standard 16. Apparently, in this case, there is no allegation that interest is not paid on capital borrowed for the purpose of the business. Hon'ble Mumbai High Court in the case of C1T vs. Lokhandwala Constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the claim for deduction under section 36(1)(iii) of the Act -Calico Dyeing & Printing Works v. CIT [19581 34 ITR 265 (Bom.) In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case." Further, in the following decisions of various coordinate Benches, the deduction of interest has been allowed u/s 36(1)(iii) even where the assessee has followed the projection completion method : - (i) ACIT vs. Tata Housing Development Company Ltd. - 45 SOT 9 (Bom.); (ii) DCIT vs. Thakar Developers - 115 TTJ 841 (Pune); (iii) DCIT vs. K. Raheja Pvt. Ltd. - (2006) TIOL 220 ITATMUM .; (iv) K. Raheja Development Corporation vs. DCIT in ITA No. 240/Bang./97 dated 22.09.1997 - In this case, reference application filed by the Department has also been rejected by the Hon'ble Karnataka High Court vide its order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to be devoid of any merit and thus, dismissed. 17. Ground No. 3: Deletion of disallowance of expenses to the tune of Rs. 54,63,24,512/- under Section 14A read with Rule 8D(2)(ii) & (iii) of the Act made by the Assessing Officer is under challenge before us, which has been claimed to be covered in assessee's own case by and under the judgment passed by the Co-ordinate Bench dated 19.07.2023 for A.Ys. 2014-15 to 2016-17. 18. At the time of hearing of the matter, the Learned DR vehemently supported the order passed by the Learned AO. 19. The order passed by the Co-ordinate Bench has been duly considered by us. The relevant observation whereof is as follows by us as under: "13. The issue arises out of the addition made by Ld. AO u/s 14A r.w.r. 8D wherein the Ld. CIT(A) has restricted the addition to Rs. 9,10,488/- only. The issue has been considered in case of assessee in assessment year 2010- 11 vide ITA no. 4187/Del/2015 order dated 29.09.2020 and it has been further followed in A.Y. 2011-12 vide ITA no. 4159/Del/2015. The Ld. CIT(A) has considered the fact that assessee had made his own disallowance for which Assessing Officer has not recorded his satisfaction about disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 26. Ground No. 5: This ground relates to deletion of disallowance to the tune of Rs. 9,03,15,833/- on account of Helicopter and Aircraft expenses made by the Assessing Officer, treating them as not incurred wholly & exclusively for the business purpose holding them personal in nature. 27. At the time of hearing, the Learned DR supported the order passed by the Learned AO on this ground raised the matter. 28. On the other hand, Learned AR submitted before us that the issue is squarely covered in assessee's own case by and under the order passed by the Co-ordinate Bench dated 29.09.2020 for A.Y. 2010-11, which was subsequently followed up to A.Y. 2016-17, the copy whereof has duly been annexed to the paper book filed before us by the assessee. 29. We find that the order passed by the Co-ordinate Bench of Tribunal appearing at page 13 therein, the relevant observation whereof is as follows: "17. The issue arises out of addition made by the Ld. AO on account of personal nature expenses attributed to the use of helicopter and aircraft expenses treating them as not incurred wholly & exclusively for business purpose. Ld. CIT(A) taking into account the nature of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees of the company is personal in nature because of the limited company is an in animated person and there cannot be anything personal about such an entity. He further followed the decision in case of Sayaji Iron and engineering Co Ltd 253 ITR 749 and deleted the addition/disallowance. The learned departmental representative could not show us any reason to state that the expenditure incurred by the assessee on such travel expenditure of aircraft and helicopter can be considered as a personal expenditure of a company. There were no contrary decision is pointed out before us. In view of this we do not find any infirmity in the order of the learned CIT - A in deleting the above disallowance. Accordingly ground number 16 and 17 of the appeal of the learned assessing officer is dismissed." This has been followed subsequently in assessee's own case for A.Y. 2010-11 and 2011-12 (supra). In the light of aforesaid, following aforesaid, the ground has no substance, the same is decided against the Revenue." 30. Having regard to the order passed by the Co-ordinate Bench in assessee's favour, the issue since found to be squarely covered on identical facts the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otified by the Ministry of Corporate Affairs, Government of India. * The difference in the amount of upfront fees paid on loans and debentures amortized under the old method of accounting (IGAAP) upto 31.06.2016 and the amount that ought to have been amortized under the new method of accounting (Ind-AS) upto 31.03.2016. * The working of the same is as follows : Sr. No. Particulars Amount (Rs. lakhs) 1. Gross margin in respect of ongoing projects upto 31.03.2016 under the old method 15,08,342.92 2. Less: Gross margin in respect of ongoing projects upto 31.03.2016 under the new method 9,30,933.81 3. Difference (1-2) 5,77,409.11(A) 4. The amount with respect to upfront fees paid on loans and debentures to be amortized as per the old method upto 31.03.2016. 23,804.41 5. Less: The amount with respect to to upfront upfro fees paid on loans and debentures to amortized as per the new method upto 31.03.2016 29,091.23 Difference (5-4) 5,286.82(B) Total principal claim (A+B) 582,695.93 34. Show-cause thereafter, on 26.07.2021 proposing denial of claim of the assessee and making addition thereupon was issued by the Assessing Officer for the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such profit/income which has already been offered on the basis of provision of the Act applicable for the relevant assessment year." Effective interest adjustment on Debentures "The incremental claim of upfront fees has been made stating that higher claim of such deduction should have been made in earlier years. Accordingly, the assessee has applied Ind AS as applicable for the year under consideration to the earlier year in which Ind AS was not applicable. Therefore, such claim of deduction is not as per provisions of the Act." 36. On the contrary, the Learned AO computed the income of the appellant applying the old method for the year under consideration and restricted the above claim of Rs. 1,48,423.72 lakhs; the details whereof is as follows: Sr No. Particulars Amount (Rs. lakhs) 1. Gross margin accounted for during the assessment year 2017-18 following new method (Ind AS POCM) which stood already accounted for under the erstwhile old method IGAAP POCM . 145,926.57 2. The amount with respect to upfront fees paid on loans and debentures not taken into consideration consequent to application of the new method which otherwise would have been considered under the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 100 100 100 Less : Rebates - - - - 9.5 Net sales 100 100 100 100 90.5 Cumulative Cost 70 70 70 70 70 Margin 30 30 30 30 20.5 Under IGAAP (A) Budgeted Year -1 Year-2 Year-3 Year-4 Year -5 (B) Actual Cumulative Sales 60 80 90 95 100 Less : Rebates - - - - 9.5 Net sales 60 80 90 95 90.5 Cumulative Cost 35 40 45 50 70 Cost % 50% 57.14 % 64.29 % 71.43 % 100 % Sale % 60% 80% 90% 95% 100 % POCM Sale 30 45.71 57.86 67.86 90.5 POCM Cost 21 32 40.5 47.5 70 POCM Margin 9 13.71 17.36 20.36 20.5 Year to year margin 9 4.71 3.64 3 0.14 Cumulative total margin during project life cycle 20.5 However, since under IND-AS POCM rebates are estimated upfront in the year 1 Rs. 9 shall be reduced from budgeted sale value in year 1 itself based on the assumption that 90% of the total rebates will have to be paid. Further, at the end of the year 5, actual rebate comes to Rs. 9.50 which would be considered in year 5 and the cumulative margin during the life of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. In support of each contention, assessee took support of different judicial pronouncements. 40. It was further pointed out by the assessee before the CIT(A) that out of the claim of Rs. 5,77,409.11 crores in the assessment year under consideration on account of change in the method of accounting, excess revenue as per the change method had been booked to the extent of Rs. 444,160.95 lakhs in the A.Ys. 2017-18 to 2023-24. The breakup whereof was also given. In that view of the matter under the present facts and circumstances of the case, the AO was not justified in disturbing the claim of appellant in not allowing deduction arising out of change in the method of accounting as the case made out before the Learned CIT(A). 41. Before us, Learned AR drew our attention to the notification issued by the Ministry of Corporate Affairs dated 16.02.2015, which annexed to the paper book at pages 688- 690 which has duly been considered by us clause 4 whereof speaks of applicability of the same to the all listed companies/companies having turnover worth Rs. 500 crores or more w.e.f. 1st April, 2016. 42. We have further considered the Accounting standard dealt with the issue of recognition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence in margin under IGAAP POCM and IND-AS POCM as certified by the auditor, the Learned AR has drawn our attention to pages 283 to 295 of the paper book. It was further argued by him that one-time claim of deduction on account of change of method is for the purpose of avoiding double taxation as this very income i.e. Rs. 5,77,409.11 lakhs has already been taxed in the past and would eventually be again taxed in the future based on POCM. In these circumstances, the disallowance made by the Assessing Officer is absurd and would result in double taxation. In fact, in sum and substance, the exercise of change of method and one-time claim is revenue neutral as the same will have no impact on the total profit from the projects and ultimate taxable income on cumulative basis at the end. 46. In this connection, he has drawn our attention to the finding of Learned CIT(A) at para nos 10.5.7 to 10.5.9 of the order passed by the Learned CIT(A). 47. Further, the detailed submission filed before CIT(A) explaining the changed method of accounting alongwith illustrations and consequential one-time claim of expenses has also been informed by the Learned AR appearing at paper book at pages 253-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this effect is at Paper book Pages 267-271. Further, the Learned CIT(A) approved the claim vide finding recorded at pages 130-131, Para 10.5.11 to 10.5.13 of the impugned order which has been perused by us. 53. In the light of the above, the grounds raised by the revenue on the issue of one-time claim have been dealt with by the appellant in the following manner: Ground No. Issue raised Remarks 6. CIT(A) ignored that the change of method tantamount to inconsistency The change of method from IGAAP POCM to IndAS 18 POCM is mandated by MCA and there is no case of any arbitrary change of method 7 CIT(A) was not justified in accepting the claim without any evidence and against the provisions of Income tax act as earlier year losses can be set- off only in accordance with provisions of the Act and not on ad-hoc basis. This ground is wholly misconceived as the one-time claim is on account of implementation of IndAS and supported from auditor certificate. Further, as opposed to the allegation of set-off of earlier year losses, it is case of reversal of profit margin already subjected to tax in earlier years and as such this ground is incorrect and contrary to facts of the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the matter, granted relief to the assessee with the following observation : "10.5.2 It is noticed that the appellant company, being in the business of real estate development, was following the POCM as per IGAAP upto 31.03.2016 as per prescribed under the Companies Act. Vide notification dated 16.02.2015 in terms of section 133 of the Companies Act, 2013 issued by Ministry of Corporate Affairs, mandatory adoption of Ind-As was made applicable from financial year 2016-17. Accordingly, the financial statements for F.Y. 2016-17 were prepared as per new method. Under IGAAP, revenue from real estate projects started on or after 01.04.2012 was recognized in accordance with GN-IGAAP issued by ICAI. This POCM method was accepted by the AO in the past. The appellant has pointed out that it has been consistently following POCM for recognition of revenue under IGAAP and continues to follow the same under Ind-AS. The change is only with regard to methodology of POCM which has been redefined under Ind- AS. Therefore, it is seen that the appellant has been regularly following the regulations for recognising the revenue which is in conformity with the provisions of section 145 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where the appellant had suo- moto adopted Ind-AS and GN- IND-AS governing revenue recognition. On the other hand, the appellant was obliged to adopt the new accounting method to comply with the statute. Therefore, the change in the method of accounting adopted by the AO cannot be said to be not bonafide. 10.5.3 The appellant also referred to the various judicial pronouncements for the proposition that an assessee is entitled to change his method of accounting provided the same is bonafide and is consistently followed thereafter. In such cases, it is not open to the revenue authorities to question the change in the method of accounting. In the present case, the appellant had not suo-moto adopted Ind-AS and GN-Ind-AS governing revenue recognition. Rather, the appellant was obliged to adopt the new accounting method to be compliant with the statute. In the absence of any particular methodology prescribed under ICDS for real estate developers, the appellant was obliged to compute its taxable income in accordance with the method of accounting regularly employed, which is in accordance with the requirements of section 145(1) of the Act. Accordingly, the method adopted by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method being regularly employed by the assessee. This provision is, however, subject to the Central Government notifying AS in respect of any class of assessee or class of income. Sub-s. (3) of s. 145, empowers the AOs to disregard the books of accounts submitted by the assessee only if he is not satisfied with the correctness or completeness of the accounts of the assessee or, the method of accounting employed by the assessee or on account of AS notified under sub-s. (2), not being particularly followed by the assessee. In this particular case, the AO has disregarded, in substance, the method of accounting followed by the assessee qua lease rentals without basing it on the grounds provided in S. 145 of the IT Act. The fact that the assessee justified its method of accounting, by taking recourse to the Guidance Note issued by the ICAI in that behalf, was disregarded, on what we would term as, a disjointed reading of the provisions of the said Guidance Note. Both the AO as well as the CIT(A) have adverted to para 2 of the Guidance Note to come to, what we consider an erroneous conclusion in as much as they have held that in determining as to whether deduction on account of equalizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation taking recourse to the guidance note issued by ICAI while accounting for lease transaction. The High Court considered several judgments, including the judgment of Delhi High Court in Virtual Soft System Ltd (supra) and in para 12 observed as under: - " ... However, when the law, as amended subsequent to the aforesaid judgment of the Apex Court, expressly provided that the Central Government may notify in the Official Gazette from time to time the accounting standards to be followed by any class of assessees or in respect of any class of income, the assessment orders to be passed under the Act by the authorities have to be in conformity with the accounting standards notified by the Central Government .... (ii) In the case of Commissioner of Income Tax and others Vs Pact Securities and Financial Services and others reported in (2015), 374 ITR 681 (AP), the assessee had claimed a deduction of Rs. 48,56,224/- by way of "lease equalisation charges" from the lease rental income. It was submitted on behalf of the assessee that the treatment in the accounts had been given as per the "guidance note" on accounting for lease issued by ICAI. The question before the High Court was wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intaining the accounts based on a mercantile system. Under sub-section (1) of section 145 of the Act the assessee's income which is chargeable under the head "Profits and gains of business or profession" is required to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. 16.7 "As indicated above the assessee has been maintaining a mercantile system of accounting, therefore, the treatment of emergency spares in accordance with the revised Accounting Standards (AS) 2 and (AS) 10 would be in consonance with the mercantile system of accounting which under the Act the revenue is required to look at for computing income of the assessee chargeable under the head "Profits and gains" from business. The submission of the learned counsel for the revenue that the accounting treatment to be meted out to a transaction in accordance with the Accounting Standard has no relevance for the purposes of the Income-tax Act, 1961 is a submission which does not commend to us." 10.5.4 In view of the above facts and judicial precedents, there is no denying the fact that the appellant had to mandatorily prepare its financial statements for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ojects which were ongoing and continuing as on the date of transition. As already stated above, because of mandatory applicability of Ind-AS, the appellant had to switch over to the revenue recognition and working of cost estimates from the beginning of such projects. In case of project of continuing nature, the accounting treatment has to be given from the beginning of the project to give a correct picture of the income of the project. If the revenue recognition and cost estimates are not changed from the beginning, the same may lead to distortion because income from the project would be recognised on different basis in the two periods i.e., before and after the change. In this regard, the decision of Kolkata Tribunal in the case of Bata India Ltd. v. DCIT [2019] 111 taxmann.com 453 wherein it was held that transitional liabilities of gratuity and leave encashment as per provisions of AS-15, which were disclosed in notes appended to accounts, should be adjusted while computing book profit under section 115JB under the Act is relevant. The appellant's submission that on account of mandatory application of Ind-AS it had to switch over to the method of revenue recognition in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appellant, having opted for concessional tax rate u/s 115BAA A.Y. 2020-21 onwards prior to which the effective rate of tax was 35%, the excess margin accounted for in its books of account on account of mandatory adoption of Ind-AS POCM has already been offered to tax @35%. In case the reversal of revenue in assessment year 2017-18 is not allowed, the said margin would again be taxed in the subsequent assessment years. 10.5.9 I also observe from the submissions and details filed by the appellant that deduction/adjustment claimed by it in the assessment year 2017-18 on account of reversal of revenue shall be e off-set by higher reporting of revenue in future years since total revenue under both IGAAP and Ind-AS remains the same. In case this adjustment is not allowed, the same would amount to double taxation of income as the projects are ongoing and continuous and the appellant has already reported higher revenues in the subsequent years. It is seen that the one-time adjustment of Rs. 5,774.09 cr claimed by the appellant towards reversal of revenue of earlier years upto F.Y. 2015-16 impacts the revenue/margin recorded in the books of account for the subsequent years starting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to tax in the earlier years due to IGAAP POCM and again to be offered in the t years a er Ind-AS POCM. 10.5.10 As regards the AO's contention that it is the real liability and not the notional liability which can be claimed as deduction by placing reliance on the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd versus JCIT (320 ITR 577), it may be mentioned here the appellant was under an obligation to compute its taxable income in accordance with the method of accounting regularly employed (i.e. POCM) as provided under section 145(1) of the Act in the absence of any particular methodology specified under the provisions of the Act or ICDS. Therefore, the claim of the appellant is as per the provisions of the Act. Further, in the case cited by the AO, the observations of the court were in a different context. In this case, the appellant had created certain provisions against non-performing assets on the basis of accounting prescribed by the Reserve Bank of India under Prudential Norms. The provisions were debited to profit and loss account and the assessee had claimed deduction of these provisions while computing its taxable income. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -AS adjustment explained above. It was further submitted that the said claim is tax neutral because the total charge in relation to the upfront fee will remain the same under IGAAP as well as Ind- AS. 10.5.12 It needs to be appreciated that the incremental claim of Rs. 5,286.82 lakhs has arisen on account of transition from IGAAP POCM to Ind-AS POCM. This is the difference between the amount of upfront fee recognized under IGAAP and the amount that should have been recognized under Ind- AS upto the date of transition. Therefore, on transition to Ind- AS, the appellant has recomputed the annual amortized amount on each loan to be debited to profit & loss account and the differential (as per Ind-AS vis-à-vis IGAAP) has been claimed as deduction. The computation and detailed working of the incremental claim duly certified by the auditor was filed before the AO vide appellant's reply dated 20.08.2021, a copy of which was filed during the course of appellate proceedings at page 1 to 19 of paper book Volume I. A summary of the same was also given in the written submissions dated 25.09.2023 filed during the course of appellate proceedings. It may be mentioned here that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the same would result in double-taxation of income as the projects are ongoing and continuous and the appellate has reported revenues in the subsequent years. 10.6.1 In view of the above discussions, I am of the considered view that change in the method of accounting to Ind-AS POCM in the assessment year 2017-18 due to mandatory adoption of Ind-AS was bonafide and hence the excess revenue of Rs. 5,82,695.93 lakhs (Rs. 5,77,409.11 lakhs + 5,286.82 lakhs) recognized in the earlier years in respect of the projects which were under implementation and are yet to be completed needs to be reversed and the appellant deserves to be allowed deduction of the adjustment of Rs. 5,82,695.93 lakhs in the assessment year 2017-18, otherwise the same would amount to double taxation of income as the gross margins already booked would be again booked by the appellant in future years. Therefore, the principal claim of Rs. 5,82,695.93 lakhs is directed to be allowed to the appellant company. But since the alternate claim of the appellant amounting to Rs. 1,48,423.72 lakhs (Rs. 1,45,926.57 lakhs+ Rs. 2,497.15 lakhs) has been allowed by the AO while disallowing the principal claim of Rs. 5,82,695.93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 2024 for some clarification. As per the order sheet entry dated 20/12/2024, it is noted that the Hon'ble Bench has sought certain clarification in respect of the issue of one-time claim of deduction being transitional impact on account of implementation of Ind-AS. 2. It is clarified that the assessee company before FY 2016-17 was preparing accounts and recognizing income from real estate projects as per system of accounting notified under IGAAP. However, upon notification of Ind-AS by MCA vide notification dated 16th February, 2015 (PB Pg 688) which were mandatory applicable on the assessee company w.e.f 01/04/2016, the assessee company is preparing accounts as per Ind-AS and the transitional impact being one-time claim of deduction has been claimed as under: Particular Amount (Rs./Lacs) POCM Adjustment 5,77,409.11 Effective Interest rate adjustment on debenture 286.82 Other Ind-AS adjustment (notional in nature) 1,943.01 Net adjustment 5,84,638.93 3. It may be clarified that assessee has not changed new system but it is merely a case of substitution of same POCM method based on new guidelines under IndAs- 18 as notified by MCA which is of mandatory nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at changed method will not have any impact on the completed real estate project since the income/loss arising from a completed project already stands recognized in the books and same will have no impact on current or future assets/liabilities of the company. The assessee has adopted notified IndAS in respect of all ongoing and continuing projects. ii. Furnish the basis, how the notification dated 16.02.2015 is applicable from 01.04.2016 and on a mandatory basis. A. The para 4 of the MCA notification dated 16.02.2015 as enclosed at PB Pg 688 is reproduced hereunder for ready reference: 4. Obligation to comply with Indian Accounting Standards (Ind AS). - (1) The Companies and their auditors shall comply with the Indian Accounting Standards (Ind AS) specified in Annexure to these rules in preparation of their financial statements and audit respectively, in the following manner, namely: - (i) any company may comply with the Indian Accounting Standards (Ind AS) for financial statements for accounting periods beginning on or after 1ST April, 2015, with the comparatives for the periods ending on 31ST March, 2015, or thereafter; (ii) the following companies shall comply with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable in respect of real estate development and the factual position to this effect has been clarified by the CBDT in FAQ issued on 23rd March 2017 vide Circular No. 10/2017. The relevant clarification is reproduced hereunder: Question 12: Since there is no specific scope exclusion for real estate developers and Build- Operate- Transfer (BOT) projects from ICDS IV on Revenue Recognition, please clarify whether ICDS-III and ICDS-IV should be applied by real estate developers and BOT operators. Also, whether ICDS is applicable for leases. Answer: At present there is no specific ICDS notified for real estate developers, BOT projects and leases. Therefore, relevant provisions of the Act and ICDS shall apply to these transactions as may be applicable. It is thus not even the case of the AO that the ICDS III is applicable on the assessee and as such the reference to ICDS III in para (e) at Page 57 is of negatory nature. In fact, Ld. CIT(A) has specifically taken note of the above vide finding recorded at Page 120 of the impugned order. iv. To clarify the observation of the AO in para-(i) on page-56 of the assessment order and in para no.9.3 (i) on page-55 of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is appearing at Page 70 of the Assessment order. Therefore, it is self evident that the details regarding offering of income in subsequent year under new Ind-AS POCM was duly placed before the assessing officer. It is also relevant to take note that there is no such dispute even in the grounds raised by the revenue and even the AO has accepted the profit declared in subsequent year based on Ind-AS 18 POCM. There is thus no adverse revenue implication. The legal position to this effect is also supported from the full bench decision of Hon'ble Apex Court in the case of CIT v.Excel Industries Ltd. 358 ITR 295 (SC). Further, CIT(A) has rightly appreciated this position vide finding recoded at Page 128 para 10.5.9 of the impugned order. vi. To clarify how the issues raised in question of law no. (vii, (viii), (ix), (x), (xi) and (xii) in Form -36 has been dealt by the ld. CIT(A) in deciding his appellate order. A. In this regard, the attention of Your Honor is drawn to the synopsis filed during the course of hearing wherein we have dealt with and clarified all the grounds raised in the appeal filed by the revenue and same is reproduced hereunder for ready reference: G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This ground is factually incorrect. As per MCA notification dated 16th Feb, 2015 placed at PB Pg 688, the IndAS were made mandatorily applicable w.e.f. 1st April, 2016. CIT(A) was not justified in allowing deduction for which revenue was not disclosed during the year. Again, this ground is absurd and contrary to facts as the one-time claim is only with reference to margin already recognized and subjected to tax in earlier years and the claim of deduction is merely a transitional claim to realign the revenue recognition from the various project with changed method as per IndAS-18. In fact, as clarified above, the deduction so claimed has duly been offered to tax in subsequent years and as such the claim is revenue neutral in nature. The relevant finding of CIT(A) is at Page 127-129, Para 10.5.7-10.5.9 In view of the above, we may humbly submit that the issues raised by the revenue in Ground No. (vii), (viii), (ix), (x), (xi) and (xii) are incidental to the core issue of change of method of accounting and same have duly been considered and discussed by CIT(A) while adjudicating the issue. 5. We hope Your Honors will find the above in order. 57. It is noted that the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall come into force on the date of their publication in the Official Gazette. 2. Definitions. In these rules, unless the context otherwise requires,- (a) "Accounting Standards" means the Accounting Standards as specified in rule 3 of these rules; (b) "Act" means the Companies Act, 1956 (1 of 1956); (c) "Annexure" means an Annexure to these rules; (d) "General Purpose Financial Statements" include balance sheet, statement of profit and loss, cash flow statement (wherever applicable), and other statements and explanatory notes which form part thereof. (e) "Enterprise" means a company as defined in section 3 of the Companies Act, 1956. (f) "Small and Medium Sized Company" (SMC) means, a company- (1) whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India; (ii) which is not a bank, financial institution or an insurance company; (1) (iii) whose turnover (excluding other income) does not exceed rupees fifty crore in the immediately preceding accounting year; (iv) which does not have borrowings (including public deposits) in excess of rupees ten crore at any time during the immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44,160.95 lakhs in the A.Ys. 2017-18 to 2023- 24. The observation made by Learned CIT(A) that the excess revenue of Rs. 5,82,695.93 lakhs (Rs. 5,77,409.11 lakhs + Rs. 5,286.82 lakhs) recognized in the earlier years in respect of the projects which were under the implementation and yet to be completed needs to be reversed is therefore, found to be correct. Further that, deduction for adjustment of Rs. 5,82,695.93 lakhs in the A.Y. 2017-18 should be allowed otherwise the same would amount to double taxation of income as the gross margins already booked would be again booked by the appellant in the future years is, therefore, acceptable. 61. Thus, taking into consideration, the entire aspect of the matter, we do not find any reason to interfere with the order passed by the Learned CIT(A) in allowing the principal claim of Rs. 5,82,695.93 lakhs to the appellant which is found to be just and proper so as not to warrant interference. Thus, this ground of appeal filed by revenue is dismissed. 62. Ground No. 13 : Deletion of addition to the tune of Rs. 6,30,05,370/- made by the AO on account of disallowance under Section 40(a)(ia) of the Act is the subject matter before us. 63. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 196 of the Act which do not require any deduction of tax, as such payments are made to the State Govt. In support of the same, the assessee relied upon very many judgments passed by different High Courts. The Learned CIT(A) ultimately granted relief to the assessee with the following observations: "12.3.3 I have also perused the case laws of ITAT, Delhi relied upon by the appellant and referred to in para 12.1.3 above, wherein it was held that since payments to HUDA were deposited in the Consolidated Fund of the State, the appellant was not required to deduct tax at source on such payments. The issue of non-deduction of TDS on payment of EDC has been discussed in detail by ITAT, Delhi in the case of M/s Santur Infrastructure Pvt. Ltd. vs. ACIT, Range 77 in ITA No. 6844/Del/2019 vide order dated 18.12.2019. The relevant findings of the ITAT are reproduced below: - "6. When we examine the question "as to whether TDS on payment of EDC to HUDA was not to be deducted by assessee because levy is made by DTCP having control over the EDC and not HUDA as contended by the Id. AR for the assessee" in the light of the aforesaid undisputed facts, we are of the considered view that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with the assessee prior to 23.12.2017, if TDS was to be deducted by the assessee on payment of EDC, it provided a "reasonable cause" u/s 273B of the Act that TDS was not required to be deducted. 12. Ld. AR for the assessee contended that DTCP had issued a clarification dated 29.06.2018 to the effect that no TDS was/is required to be deducted in respect of payment of EDC and relied upon the order passed by the coordinate Bench of the Tribunal in case of RPS Infrastructure Ltd. vs. ACIT in ITA Nos.5805, 5806, 5349/Del/2019 order dated 23.07.2019 wherein it is held that, "on the basis of letter supra issued by DTCP that the letter covers both past and future transactions and TDS was not required to be deducted." We have perused the order passed by the Tribunal in case of RPS Infrastructure Ltd. (supra) in which letter (supra) has been examined, it is clear that TDS was/is not required to be deducted in respect of deduction of EDC. So, in view of the matter, we are of the considered view that when DTCP, a Department of Government of Haryana, has itself clarified not to deduct the TDS, no penalty is leviable u/s 271C on the assessee" 12.3.4 I have also perused the consolidated o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the obligation to Construed deduct TDS at the rate of 10 per cent on the said payment. However, they earnestly contended that since the Assessing Officer has the jurisdiction to determine whether IDS is payable or not, the impugned order be set aside and the matter be remanded to the Assessing Officer. According to them, the Assessing Officer has erroneously mentioned that TDS was required to be deducted under section 194I instead of section 194C. It is contended that merely mentioning an incorrect provision is a curable defect; it does not affect the substratum of the impugned order or renders it vulnerable to challenge. * This court does not find any merit in the contention that the substratum of the impugned order is correct, and the Assessing Officer has merely referred to a wrong provision of law. * The question as to the nature of EDC payment was squarely one of the issues that was required to be addressed by the Assessing Officer. He had concluded that the same was 'rent' as it was in nature of an arrangement to use land. It is not open for the respondents to now contend that EDC charges are payment made to a contractor under a contract and not 'rent' un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the provisions referred by him for determining the petitioner's liability are not material and rejected. * Accordingly, for the reasons stated above, the impugned order is set aside and the said petition is allowed." 68. The judgment passed by the ITAT, Chandigarh Bench in the case of ITO TDS Chandigarh vs. M/s. Sukham Infrastructure Pvt. Ltd. wherein it was held that TDS provision under Section 194C of the Act are not attracted on EDC payments made by the assessee to GMADA which is statutory authority under the Govt. of Punjab similar to HUDA of Haryana were also duly considered and relying upon the same disallowance of 30% of these payments under Section 40(a)(ia) of the Act made by the AO, in our considered opinion has rightly been found to be not justified and addition made therefore, rightly found to be deleted by the Learned CIT(A) so as not to warrant interference. Hence, this ground of appeal is found to be devoid of any merit and thus, dismissed. 69. In the result, appeal of Revenue is dismissed. ITA No.673/Del/2024 (Assessee's appeal) : 70. The assessee has filed the appeal with the following grounds: 1. That the learned CIT(A) has grossly erred in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee with this party cannot be treated as unverified purchase transactions as sufficient details mentioned herein above were duly filed. As the party failed to reply to the notices under Section 133(6) of the Act, the assessee cannot be penalized by making addition as the case was made out by the assessee. However, the Learned CIT(A) upheld the addition only on this count that the appellant could have produced this party once non-compliance of notices under Section 133(6) of the Act by the said party was made known to assessee in order to proof the genuineness of this purchases. The judgment relied upon by the assessee were distinguished by the Learned CIT(A) as sufficient evidence in the form of confirmation from the party delivery Challan, sales tax return, sales tax Challan etc. were duly filed in those cases which is absent in the instant case. Thus, reliance on this judicial precedence by the appellant is miss-placed as was the ultimate finding of the Learned CIT(A) while upholding the addition made by the Learned AO. Under this facts and circumstances, the Learned Counsel appearing for the assessee submitted before us that the assessee may be given further oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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