2021 (4) TMI 528 - AT - Income Tax

Allowability of development expenses - A.O observed that the assessee had claimed development expenses on estimated basis which are much higher than the actual expenses incurred during the year - why the assessee has changed the system of claiming development expenses on estimated basis with effect from Assessment Year 2013-14? - HELD THAT - From perusal of the above observation by Ld. A.O we find that firstly he mentions that development expenses has not yet been incurred in respect of all the plots and then he further observes that actual development expenses actually incurred would have to be considered for deduction but he fails to give the benefit of actual expenses incurred by the assessee during the year and thirdly he applies a complete different approach with regard to the development charges whether received or not but would accrue to the assessee @ ₹ 170/- per sq.feet at par with 22 buyers of plots. Looking to the above observation of Ld. A.O we are of the view that his approach is neither here nor there. Ld. A.O is not sure what actually he want to assert upon. CIT(A) after examining the facts in detail and also discussing the settled judicial precedents decided in favour of the assessee allowing the claim of development expenses claimed on estimated basis of development expenses for Assessment Year 2013-14 and partly allowing the claim of development expenses for Assessment Year 2010-11. A.O denied the claim of development expenses claimed by the assessee without providing on record any cogent material to show that the assessee has received cash over and above the amount recorded in the books of accounts. None of the buyers of the plots in their statement recorded by the Ld. A.O has stated about the payment of cash to the assessee. The fact of the matter is that whatever the buyers have confirmed in their statement recorded before Ld. A.O all those payments are duly recorded in the respective ledger account. It is also not in dispute that the excess development charges recovered at ₹ 61,21,220/- are offered to tax in Assessment Year 2015-16 which includes sum of ₹ 39,21,275/- pertaining to the Assessment Year 2013-14 A.O has raised no doubt about the genuineness of the actual development charges incurred by the assessee nor has he pointed out any mistake in the books of accounts maintained by the assessee except about the claim of development charges. The assessee has been consistently claiming the actual development charges from Assessment Year 2009-10 till Assessment Year 2012-13. Though actual expenses are incurred subsequently also but expenses are booked in the Profit and Loss account based on a scientific method i.e. report of technical expert. The assessee purchase piece of land, makes a plan for its development with all amenities required for establishing the colony which includes land leveling, roads, internal roads, parks, common areas and other incidental expenses relating to development of land till it is handed over to the plot holders and then subsequently for making a particular colony fit for constructing residential houses. In all this process development charges ought to be incurred. They were incurred and were consistently charged to Profit Loss Account. The change of accounting policy effected from Assessment Year 2013-14 was based on the accounting standard AS-5 issued by Institute of Chartered Accountants of India which permits the change and which was done so to make appropriate presentation of financial statements of the enterprise. The same was taken up since the highest number of plots were sold by the assessee during Assessment Year 2013-14 which were 168 in number. Almost 16% of saleable area was sold during the year. Change in accounting policy is duly disclosed in the audited financials by way of note. Actual development charges incurring during the year are also reported in the balance sheet. Development charges which were taken from some of the purchasers of plot and were excess in nature in comparison to the amount charged to other plot purchasers the excess amount of ₹ 61,21,220/- have already been offered to tax in Assessment Year 2015-16 and the chart showing year wise amount of income offered during Assessment Year 2015-16 has already been mentioned by us in the preceding paras. Where the genuineness of actual development expenses incurred by the assessee has never been in doubt at any stage by the revenue authorities nor the Departmental Representative could controvert this fact then the next thing to be considered is that whether the assessee over charged the Profit Loss Account by claiming the higher amount of estimated development expenses. The excess amount charged in the preceding years has been offered to tax in Assessment Year 2015-16 and it would not be justified to tax an income already offered to tax in the correct year as there is no loss to the revenue department. It is a settled law that once an amount has been subjected to tax in a given assessment year, it cannot be taxed again in another assessment year. This principle emerged from the decision of Hon ble Supreme Court in the case of Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT CIT(A) was justified in allowing the claim of estimated development expenses booked by the assessee in the Profit Loss Account on matching concept by adopting scientific method allowable u/s 37(1) of the Act and thus the theory adopted by the Ld. A.O of the assessee having received the development charges in cash is just in air and has no legs to stand for since there is no evidence to prove it and it is merely on surmises and conjectures. The fact remains that the assessee had been consistently incurring development expenses and the genuineness of the same has not been doubted by the revenue authorities at any stage. We accordingly find no reason to interfere in the finding of Ld. CIT(A) and the same is confirmed. We accordingly order so and dismiss all the grounds of appeal raised by the revenue for Assessment Year 2013-14. Application made by Ld. Counsel for the assessee under Rule 27 of Income-Tax (Appellate Tribunal) Rules, 1963 which provides that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him - In view of Rule 27 of Income-tax (Appellate Tribunal) Rules, 1963 and also in view of the judgment of Hon'ble Delhi High Court in the case of Sanjay Sawhney 2020 (5) TMI 441 - DELHI HIGH COURT we accept the application of the assessee. As regards the issue of taxability of development charges received by the assessee at ₹ 3,70,650/- Ld. CIT(A) has held that this sum is to be taxed in Assessment Year 2010-11. Ld. Counsel for the assessee submitted that this amount has already been offered to tax in the return of income filed for Assessment Year 2015-16. Once an amount has been subjected to tax in a given assessment year, it cannot be taxed again in another assessment year. In view of the above judgment and the fact that the income of ₹ 3,70,650/- relating to Assessment Year 2010-11 is offered to tax for Assessment Year 2015-16 and is duly reported in the audited Profit Loss Account and its relevant schedule, we are of the view that the finding of Ld. CIT(A) of taxing the impugned amount in Assessment Year 2010-11 deserves to be set aside. In the result this issue raised by the assessee through application under Rule 27 of Income-Tax (Appellate Tribunal) Rules, 1963 is decided in favour of the assessee.

Summary

Issues Involved:
1. Allowability of development expenses for Assessment Years 2010-11 and 2013-14.
2. Taxability of development charges received from customers.

Detailed Analysis:

Issue 1: Allowability of Development Expenses
The primary issue revolves around the allowability of development expenses claimed by the assessee for Assessment Years 2010-11 and 2013-14. The assessee, engaged in the development of colonies, changed its accounting policy from claiming actual development expenses to estimating these expenses based on a report by an expert Architect & Engineer, M/s Mathur & Associates. This change was implemented from Assessment Year 2013-14 onwards.

Facts and Arguments:
- The assessee incurred actual development expenses until Assessment Year 2012-13 but shifted to an estimated basis from Assessment Year 2013-14, calculating expenses at ?170 per sq. ft. based on the expert report.
- The Assessing Officer (AO) disallowed the estimated development expenses, arguing they were contingent and not actually incurred during the year. The AO also suspected that the assessee might have received development charges in cash from other plot purchasers, which were not recorded in the books.
- The AO’s disallowance was based on the presumption that the assessee received development charges from 22 purchasers through cheques and might have received cash from others.
- The assessee contended that the change in accounting policy was to match revenue with corresponding expenses and was disclosed in the financial statements. The excess development charges received were offered to tax in Assessment Year 2015-16.

Tribunal’s Findings:
- The Tribunal noted that the AO did not provide any concrete evidence that the assessee received development charges in cash.
- The Tribunal emphasized that the genuineness of actual development expenses incurred was not disputed by the AO.
- The Tribunal referred to the decision in Calcutta Co. Ltd. vs. CIT and Rotork Controls India P. Ltd. vs. CIT, supporting the principle that estimated expenses based on scientific methods are allowable if they match revenue recognition.
- The Tribunal upheld the change in accounting policy as it was based on a scientific method and disclosed in the financial statements, aligning with Accounting Standard AS-5.
- The Tribunal confirmed that the assessee's claim of development expenses on an estimated basis was justified and allowable under Section 37(1) of the Income Tax Act.

Issue 2: Taxability of Development Charges
The second issue pertains to the taxability of development charges received from customers, specifically whether these should be taxed in the year of receipt or when offered by the assessee.

Facts and Arguments:
- The AO argued that development charges received from customers should be taxed in the year of receipt, suspecting undisclosed cash receipts.
- The assessee had offered the excess development charges received from some customers to tax in Assessment Year 2015-16, amounting to ?61,21,220, including ?39,21,275 for Assessment Year 2013-14.
- The CIT(A) partially allowed the assessee’s claim but directed that ?3,70,650 should be taxed in Assessment Year 2010-11.

Tribunal’s Findings:
- The Tribunal noted that taxing the same income in two different years would result in double taxation, which is against the principles established in Excel Industries Ltd. vs. CIT.
- The Tribunal accepted the assessee’s contention under Rule 27 of the Income-Tax (Appellate Tribunal) Rules, 1963, that the amount of ?3,70,650 had already been offered to tax in Assessment Year 2015-16.
- The Tribunal concluded that the income of ?3,70,650 should not be taxed again in Assessment Year 2010-11, setting aside the CIT(A)’s direction.

Conclusion:
The Tribunal dismissed the revenue's appeals for both Assessment Years 2010-11 and 2013-14, upholding the assessee's claim of development expenses on an estimated basis. Additionally, the Tribunal allowed the assessee’s application under Rule 27, ensuring that the amount of ?3,70,650 was not taxed twice. The order was pronounced in the open Court on 09.03.2021.