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2015 (6) TMI 5 - AT - Income TaxAdditional income offered voluntarily - return of income filed in response to notice u/s 153A - at the time of search the assessee had offered to disclose the income on the basis of percentage completion method which has been retracted later on - Held that - There is no finding that the assessee has been following percentage completion method regularly since beginning or in any other project. There is no such evidence or documents which have been found during the course of search indicating that the assessee had been following percentage completion method regularly. If the assessee has been following one of the recognized methods as prescribed by AS-9, then it cannot be held that the Revenue can impose a different method upon the assessee unless there is a finding of fact that such a method is not reflecting the true profits of the assessee. Now it has also been brought on record by the ld. Counsel that in the subsequent year i.e. in the year of completion of the project in A.Y. 2012-13, the Revenue itself has accepted the project completion method for recognition of revenue and accordingly, has assessed the income of the project on the same method. Thus, a contrary view cannot be taken for this year. - Decided against revenue. Disallowance of interest u/s. 36(1 )(iii) on loans - Held that - So far as the advance of ₹ 50 lakhs, it is seen from the record that the said amount was given for purchase of plot of land pertaining to Survey No. 187, Hissa 4A, situated at village Kharghar, Taluq Panvel. Since the assessee is the developer of the project, the said land was intended to be purchased for developing the project at PanvelOnce the advance has been given for the purchase of plot of land which is for business purposes then no adverse inference can be drawn so as to disallow the interest on the ground that the same is for non-business purpose. Similarly, the loan to the partnership firm has been in which the partners are common. The said firm too is engaged in the business of developer. Further, from the perusal of the balance sheet as pointed out by the ld. Counsel, it is seen that interest free funds in the form of capital is more than ₹ 2.85 crores, whereas the advance/loan given is only ₹ 82 lakhs and once the assessee had interest free funds, then presumption can be drawn that the same has been given from interest free funds. Also as the assessee has been following project completion method and such interest cost have been capitalized in the account, then no disallowance can be made in this year. See CIT v/s Reliance Utilities & Power Ltd 2009 (1) TMI 4 - HIGH COURT BOMBAY - Decided in favour of assesse. Addition on account of statutory deposits to the total income - Held that - we do not find any reason to disallow the said amount, because the assessee has debited the same to WIP and if at all any disallowance is called for, then the same will go to reduce from the WIP. It cannot be added to the total income of the assessee during the year. On this ground alone, we do not find any reason to uphold such disallowance - Decided in favour of assesse. Disallowance of professional fees for registration of trademark with logo - revenue v/s capital expenditure - Held that - As the assessee had contended that this expense has been debited to WIP and, therefore, in view of the reasoning given above, the same cannot be disallowed and added to the income of the assessee for this year, because if at all the disallowance is called for, it will go to reduce the WIP only. Accordingly, the disallowance made in this year cannot be sustained - Decided in favour of assesse.
Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) on account of income disclosed during search proceedings. 2. Disallowance of interest under section 36(1)(iii) of the Income Tax Act. 3. Addition of statutory deposits paid to NMMC. 4. Addition of professional fees for registration of trademark with logo. Issue 1: Deletion of Addition Made by AO on Account of Income Disclosed During Search Proceedings The Revenue appealed against the deletion of the addition made by the AO based on income disclosed during search proceedings. The assessee, a partnership firm, had not included the voluntarily disclosed income in its return, claiming it followed the "Project Completion Method" rather than the "Percentage Completion Method" for revenue recognition. The AO added Rs. 63 lakhs to the income based on the percentage completion method, citing the voluntary disclosure during the search. The CIT(A) deleted the addition, stating that the assessee was misled by the search party to believe that the percentage completion method was mandatory. The CIT(A) emphasized that both the percentage completion method and the project completion method are recognized methods, and the Income Tax Act does not prescribe a specific method for builders and developers. The CIT(A) also noted that the AO did not examine the books of accounts to justify the switch to the percentage completion method and that the assessee had consistently followed the project completion method. The Tribunal upheld the CIT(A)'s decision, affirming that the assessee's consistent use of the project completion method was acceptable and that the AO had no grounds to impose a different method. The Tribunal also noted that the Revenue had accepted the project completion method in subsequent years, reinforcing the CIT(A)'s decision. Issue 2: Disallowance of Interest Under Section 36(1)(iii) of the Income Tax ActThe AO disallowed interest of Rs. 6,80,853/- under section 36(1)(iii), arguing that the assessee had given interest-free loans while incurring interest on borrowed funds. The assessee contended that the advances were for business purposes and that it had sufficient interest-free funds to cover the advances. The CIT(A) upheld the AO's decision, stating that the assessee could not prove that the advances were for business purposes. However, the Tribunal found that the assessee had sufficient interest-free funds and that the advances were indeed for business purposes. The Tribunal cited the Bombay High Court's decision in CIT vs. Reliance Utilities and Power Ltd., which established that if sufficient interest-free funds are available, it can be presumed that the investments were made from those funds. The Tribunal deleted the disallowance, accepting the assessee's argument and evidence. Issue 3: Addition of Statutory Deposits Paid to NMMCThe AO added Rs. 4,33,348/- paid to NMMC for statutory deposits to the total income, arguing that these deposits were not allowable expenses. The assessee argued that these expenses were debited to the Work-in-Progress (WIP) account and should not be added to the total income. The Tribunal agreed with the assessee, stating that if the expenses were debited to the WIP account, any disallowance should reduce the WIP and not be added to the total income. The Tribunal deleted the addition, accepting the assessee's method of accounting. Issue 4: Addition of Professional Fees for Registration of Trademark with LogoThe AO added Rs. 16,292/- paid for professional fees for trademark registration to the total income, treating it as a capital expenditure. The assessee argued that this expense was debited to the WIP account and should not be added to the total income. The Tribunal accepted the assessee's argument, stating that if the expense was debited to the WIP account, any disallowance should reduce the WIP and not be added to the total income. The Tribunal deleted the addition, supporting the assessee's accounting method. Conclusion:The Tribunal dismissed the Revenue's appeals for the assessment years 2008-09 and 2009-10, upholding the CIT(A)'s decisions. The Tribunal allowed the assessee's appeals, deleting the disallowances and additions made by the AO and affirming the assessee's accounting methods and business purposes for the advances.
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