2021 (11) TMI 104 - AT - Income Tax

Addition made on account of recognition of revenue on the basis of POCM of the project - CIT-A deleted the addition - as per Revenue that the assessee ought to have recognized Revenue on the principles of POCM - HELD THAT - No infirmity into the above findings of Ld.CIT(A) as the assessee has been applying consistently the same method since inception. Moreover, Ld.CIT(A) has recorded the fact that the assessee has been adopting the same method of accounting which was accepted by the Revenue. Further, it is also recorded by Ld.CIT(A) that the Assessing Officer committed error in computing the construction and development cost incurred by the assessee till 31.03.2014. As per Ld.CIT(A), the cost was only 18.40% of the total estimated construction and development cost. Therefore, no revenue could have been booked even as per the guidance note issued by ICAI. This finding of fact is not rebutted by the Revenue. Thus, Ground No.1 raised by the Revenue is devoid of any merit hence, dismissed. Addition on account of brokerage expenses - assessee company had not declared any income from the projects undertaken during the year under consideration - As per AO Expenditure should have been treated as work in progress - CIT- A deleted the addition - HELD THAT - No infirmity in the order of Ld. CIT(A) as the CIT(A) has correctly appreciated the facts in the light of ratio laid down by the Hon ble Jurisdictional High Court rendered in the case of CIT vs Samsung India Electronics Ltd . 2013 (7) TMI 335 - DELHI HIGH COURT and ESPN SOFTWARE INDIA P. LTD. 2008 (3) TMI 90 - DELHI HIGH COURT - Revenue could not rebut the finding of Ld.CIT(A) that brokerage forms part of selling cost therefore, allowable expenditure. The Ground No.2 raised by the Revenue is dismissed. Interest free advance given to group companies - HELD THAT - CIT(A) has categorically given a finding that from the financial statement, it was observed that interest was paid to Greater Noida Authority for late payment of installment of the land purchased on deferred credit. It was also recorded that the advances given to the associate concern was out of interest free advances received from booking of the flats. This finding on fact was not rebutted by the Revenue by furnishing any contrary material. Therefore, no interference is called for in the decision of Ld.CIT(A), the same is hereby affirmed.

Summary

Issues Involved:
1. Deletion of addition of ?15,65,60,883/- made by the AO towards non-recognition of revenue as per AS-9.
2. Deletion of addition of ?1,63,15,044/- made by the AO on account of brokerage expenses.
3. Deletion of addition of ?9,85,667/- made by the AO on account of interest-free advance given to group companies.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of ?15,65,60,883/-:
The Revenue argued that the assessee should have recognized revenue based on the Percentage of Completion Method (POCM) as prescribed by ICAI in AS-7. However, the assessee consistently followed the project completion method as per AS-9, which was accepted in previous assessments. The CIT(A) noted that the Assessing Officer (AO) did not reject the assessee's books of accounts nor invoked Section 144 of the Income Tax Act, 1961, which is mandatory if the AO is dissatisfied with the method of accounting. The CIT(A) highlighted that the Central Government had not mandated POCM for the assessment year in question, and the CBDT's draft ICDS for real estate transactions was not finalized. The CIT(A) also pointed out that the construction and development cost incurred was only 18.40% of the total estimated cost, below the 25% threshold required for revenue recognition under POCM. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the consistent application of the project completion method and the factual findings regarding the construction cost percentage.

2. Deletion of Addition of ?1,63,15,044/-:
The AO disallowed brokerage expenses, arguing they should be treated as work in progress since the assessee did not declare any income from the projects. The CIT(A) observed that the brokerage expenses were for booking flats, a selling cost that cannot be capitalized as part of inventory. The CIT(A) referred to AS-7 and AS-2, which state that selling costs should not be attributed to contract activity or construction costs. The CIT(A) also noted that brokerage expenses were allowed in previous years. The Tribunal agreed with the CIT(A)'s findings, emphasizing that brokerage expenses are selling costs and allowable as revenue expenses under Section 37 of the Income Tax Act, 1961.

3. Deletion of Addition of ?9,85,667/-:
The AO disallowed interest payment on the grounds that the assessee granted interest-free advances to group concerns. The CIT(A) found that the assessee did not take any interest-bearing funds, except for a car loan, and the interest of ?9,85,667/- was paid to the Greater Noida Authority for late payment of land installments. The advances to associate concerns were from interest-free advances received from flat bookings. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide contrary material to rebut the CIT(A)'s factual findings.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all grounds, highlighting the consistent application of accounting methods, proper classification of expenses, and accurate factual findings.