2019 (10) TMI 351 - AT - Income Tax

Disallowance of indirect expenditure claimed by the appellant as revenue/ period expenditure - HELD THAT - CIT- A has identified each of the expenditure and isolated the expenditure based on the principle that the indirect expenses being period cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses when the assessing officer himself has accepted and assess the revenue booked by the appellant during the year under consideration. He further referred to the accounting standard 7 issued by the Inst of chartered accountants of India wherein it has been stated that administrative and general expenses are not allocable or attributable to a specific contract and are to be considered as part of the contract cost and there should these expenses cannot be loaded to a particular contract. With respect to the allowability of the interest expenditure, the reliance was placed on the coordinate bench decision. He further held that sales and marketing expenditure are allowable indirect expenditure being a period cost but the commission expenses incurred for booking of the flats on various property is directly identifiable expenses of the specific project for which commission is paid to the dealer. In view of this we do not find any infirmity in the order of the learned CIT A Claim of deduction u/s 80IB - CIT-A has held that assessee has placed contradicting facts about the size of the flats and therefore CIT-A directed the learned assessing officer to verify the factual position regarding the area of residential unit having a built-up area of up to 1000 ft and grant the benefit of proportionate deduction accordingly - HELD THAT - According to us, the learned CIT A has valid reason to direct the learned assessing officer to verify the fact. It is not in dispute that assessee has given written submission that built-up area of the residential unit is 1164 and 144 6 ft . This fact has been reproduced by the learned CIT-A in paragraph number 5.2 of his order. Thus, we do not find any infirmity in the direction of the learned CIT- A to the assessing officer. Further, the direction for granting the proportionate deduction is also based on the several judicial precedents. In any case the order passed by the learned assessing officer u/s 250 of the income tax act giving effect to the order of the learned CIT A passed on 30/3/2012 the learned assessing officer computed the same disallowance and thus the original disallowance made by the learned assessing officer stands. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of indirect expenditure.
2. Treatment of processing fee and commission expenses.
3. Treatment of surrendered income as undisclosed income.
4. Proportionate deduction under section 80IB of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Indirect Expenditure:
The assessee and the Assessing Officer (AO) filed cross appeals against the order of the CIT(A) concerning the disallowance of indirect expenditure. The AO argued that all expenses should be capitalized as work in progress, while the assessee contended that these were period costs and should be allowed in the year incurred. The CIT(A) held that the indirect expenses being period costs are allowable as revenue expenditure, deleting the disallowance of ?7,70,72,993/- and restricting the disallowance to ?1,85,92,817/-. The tribunal upheld the CIT(A)'s decision, confirming that the indirect expenses are allowable as period costs.

2. Treatment of Processing Fee and Commission Expenses:
The CIT(A) disallowed the processing fee of ?22,02,640/- for a loan from M/s India Bulls and commission expenses of ?1,63,90,177/- related to specific projects (Palwal and Corporate Park), as these were directly identifiable project-specific expenses. The tribunal agreed with the CIT(A) that these expenses should be capitalized and not treated as indirect expenses.

3. Treatment of Surrendered Income as Undisclosed Income:
The AO treated the surrendered income of ?9 crores as undisclosed income. The CIT(A) and the tribunal upheld this decision, noting that the surrender was not voluntary and thus should be treated as income from undisclosed sources.

4. Proportionate Deduction under Section 80IB:
In the case of Piyush Buildwell India Limited, the issue of deduction under section 80IB was raised. The AO disallowed the deduction, arguing that the project was within 25 km of Delhi, and thus the built-up area of residential units should not exceed 1000 sq. ft. The CIT(A) allowed proportionate deduction based on the area of units less than 1000 sq. ft. The tribunal upheld the CIT(A)'s decision, directing the AO to verify the factual position regarding the area of residential units and grant proportionate deduction accordingly.

Conclusion:
The tribunal dismissed the appeals of both the assessee and the AO, upholding the CIT(A)'s decisions on all issues. The indirect expenses were allowed as period costs, specific project-related expenses were to be capitalized, the surrendered income was treated as undisclosed income, and proportionate deduction under section 80IB was allowed based on the area of residential units. The tribunal's decision was pronounced in the open court on 03/10/2019.