2021 (9) TMI 878 - AT - Income Tax

Revenue recognition - Income from sale of plots - as per AO assessee should have followed the percentage of completion (POC) method instead - HELD THAT - As decided in own case 2015 (3) TMI 847 - DELHI HIGH COURT upheld the contention of the assessee that the project completion method followed by the assessee will not result in deferment of tax and there is no justification for the Ld. Assessing Officer to adopt POC method for one year on selective basis.So far as these facts are concerned, they remain un-challenged and un-impeached. Since there are no compelling reasons to deviate from this consistent view taken by the Tribunal and Hon ble High Court, we are of the considered opinion that the findings of the ld. CIT(A) cannot be found fault with. On this premise, we find the grounds of Revenue s appeals as bereft of merits and consequently dismiss the same. Interest free advances to the sister concern - disallowance of interest in respect of the investments made by the assessee in the subsidiaries, on which no interest was charged by the assessee - HELD THAT - It remains an established fact that for the assessment years 2008-09 and 2009-10, as against the interest free funds in the hands of the assessee to the tune of ₹ 104.18 crores and 118.68 coress respectively, the assessee made investments only to the tune of ₹ 37.25 crores and 75.77 crores respectively. It goes without saying that for these two assessment years, the own funds of the assessee are in far excess of the investments made- when the assessee had substantial capital and interest free funds available with it, which far exceed the interest free advances to the sister concern, there is no scope to make any addition, though the assessee was maintaining a bank account with mixed common funds, in which all deposits and withdrawals were made. See Reliance Utilities Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Application of Percentage of Completion (POC) method for revenue recognition.
2. Addition of notional interest on investments in subsidiaries.

Issue 1: Application of Percentage of Completion (POC) method for revenue recognition

The case involved the assessment years 2008-09 and 2009-10 where the Assessing Officer disagreed with the revenue recognition method used by the assessee, stating that the Percentage of Completion (POC) method should have been applied instead. The Assessing Officer made additions to the income of the assessee based on this disagreement. The CIT(A) granted relief to the assessee regarding the application of the POC method but upheld the addition of disallowance of interest on investments in subsidiaries. The Revenue challenged the deletion of the POC method addition, citing previous Tribunal and High Court decisions that supported the assessee's method of revenue recognition. The Tribunal found no fault with the CIT(A)'s decision, as the assessee's method had been accepted in previous years and the Revenue's grounds lacked merit. Therefore, the Revenue's appeals were dismissed.

Issue 2: Addition of notional interest on investments in subsidiaries

The Assessing Officer added notional interest on investments made by the assessee in subsidiaries, arguing that interest should have been charged on these investments. The assessee contended that the investments were made from its own funds, which did not carry interest. The Tribunal analyzed the financial details provided by the assessee, showing that its own funds exceeded the investments made in subsidiaries for the relevant years. Citing previous High Court decisions, the Tribunal concluded that no deemed interest should be added when the assessee had substantial capital and interest-free funds exceeding the investments. As a result, the Tribunal directed the Assessing Officer to delete the additions of deemed interest. The Tribunal also dismissed the Revenue's appeals for subsequent assessment years based on similar grounds and upheld the CIT(A)'s decision to delete disallowance of interest under section 14A of the Income-tax Act, 1961. The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals, directing the deletion of deemed interest additions for all relevant years.

In conclusion, the Appellate Tribunal ITAT DELHI, in its judgment, addressed the issues of revenue recognition methodology and addition of notional interest on investments in subsidiaries for multiple assessment years. The Tribunal upheld the assessee's revenue recognition method and ruled in favor of the assessee regarding the addition of deemed interest, based on the availability of substantial own funds. The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, directing the deletion of deemed interest additions and disallowance of interest under section 14A for the relevant years.