2018 (2) TMI 2093 - AT - Income Tax

Claim of on money paid for purchase for the project V-69 scheme - claim of expenditure in proportion to revenue recognised - since the project has not been started during the A.Y. 2009-10 and stated that same will be included in the closing stock of the land - HELD THAT - As taken into consideration the contention that when the order of the Ld. CIT(A) was passed for A.Y. 2009-10 by that time the return of A.Y. 2011-12 was already filed and books of accounts were also finalized. Therefore the assessee has claimed that 31% of the Revenue of Vedika Exotica Scheme which was recognized during the A.Y. 2011-12 and accordingly claimed 31% of the expenditure during the year under consideration. We observe that above stated fact demonstrate that assessee is justified in claiming the above expenditure during the year under consideration. Therefore, the appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of expenditure claimed by the assessee.
2. Justification for claiming the expenditure.
3. Appeal against the order of the Ld. CIT(A).

Analysis:
In this case, the assessee, engaged in Real Estate Development and Building, filed a return of income declaring Rs. 400,82,629. The Assessing Officer (A.O.) selected the case for scrutiny assessment and noticed that the assessee had deducted Rs. 25,60,600 from business income, based on certain loose papers found during a search action. The papers detailed expenses incurred in cash, leading to a claim of Rs. 4,42,75,986 against on-money receipt from a project. The A.O. disallowed Rs. 2,99,61,986 of the claimed expenditure for the relevant assessment year.

On appeal, the Ld. CIT(A) upheld the disallowance but recognized that Rs. 82,60,000 was spent on purchasing land for a specific scheme, V-69. The Ld. CIT(A) stated that this expenditure would increase the work in progress of the project's closing stock, hence not allowable. The assessee claimed 31% of this expenditure, amounting to Rs. 25,60,600, based on revenue recognition in the following year. The A.O. did not accept this claim, leading to the dismissal of the appeal by the Ld. CIT(A).

The assessee then appealed to the ITAT, arguing that the claim was justified as the project had not started during the relevant assessment year, and the revenue was recognized in the subsequent year. The ITAT considered the timing of events, noting that the return for the subsequent year was filed, and books were finalized before the CIT(A)'s decision for the previous year. Consequently, the ITAT found the assessee's claim reasonable and allowed the appeal, overturning the previous decisions.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing the justification for claiming the expenditure based on the project's timeline and revenue recognition, thereby overturning the disallowance made by the lower authorities.