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2023 (7) TMI 861 - HC - Income TaxRevenue recognition - Excess of receipts over expenditure and the interest accrued were not chargeable to tax - method of accounting by way of 'project completion method' - HELD THAT - On perusal of the entire record, it is explicit that in the instant case, no observation had been recorded by the assessing officer that the project completion method as followed by the assessee would result in deferment of the payment of taxes which are to be assessed annually under the Act. Hence in our opinion, the assessee could follow either project completion method or percentage completion method and the CIT (A) and the Tribunal had rightly considered that the method of accounting followed by the assessee was consistent and the addition made by the assessing officer was not in accordance with the same and hence was not correct and committed no error in giving direction to delete the same. Therefore, the findings recorded by the authorities below on this point do not warrant any interference and are affirmed. Nature of expenses - Udyog Sahayak Expenses - revenue or capital expenditure - one of the contributories (PSIDC) of the Udyog Sahayak Expenses had admitted that some of the expenses were of capital in nature - HELD THAT - The Udyog Sahayak is admittedly a body constituted by PSIDC, the respondent assessee and some other corporations to facilitate the promotion of industries. It is not in dispute that the contributions made to these funds are utilized for purchase of capital items, renovation, furnishing etc. of office bearers. As such, the expenses incurred on this account cannot be treated as business expenditure and are revenue expenses and, therefore, the findings by the authorities below on this point also do not deserve to be disturbed.
Issues Involved:
1. Validity of the project completion method of accounting adopted by the assessee. 2. Nature of Udyog Sahayak Expenses and their treatment as capital or revenue expenditure. Issue-wise Detailed Analysis: 1. Validity of the Project Completion Method of Accounting: The respondent-assessee company, engaged in the business of development and sale of industrial plots and sheds, followed the project completion method for accounting. The primary contention was whether this method was appropriate and whether the excess of receipts over expenditure and the interest accrued were chargeable to tax in the relevant assessment years (2003-04 to 2007-08). The assessing officer contested this method, arguing that the receipts and expenses should be reflected based on the percentage of project completion during the year. However, the CIT (A) and the Tribunal upheld the project completion method as a recognized and accepted method of accounting, consistent with the assessee's previous assessment years. The Tribunal emphasized the principle of consistency, stating that it is not open to an assessing officer to reject the accounts unless the notified accounting standards were not followed. The judgment referred to Section 145 of the Income Tax Act, which deals with the method of accounting, and highlighted that companies are required to follow the Accounting Standards prescribed by the ICAI. The judgment cited several precedents, including CIT v. Hyundai Heavy Industries Co. Ltd. and Bilahari Investment (P) Ltd., affirming that the project completion method is a well-recognized method and suitable for developers who deliver completed products. The court concluded that the assessing officer had no basis to reject the project completion method, and the CIT (A) and Tribunal were correct in their decisions. 2. Nature of Udyog Sahayak Expenses: The second issue was whether the Udyog Sahayak Expenses incurred by the assessee were of capital or revenue nature. The assessing officer disallowed 50% of these expenses, treating them as capital in nature. However, the CIT (A) observed that these expenses were incurred for the furtherance of business or industrialization of the State and hence were of revenue nature. The Tribunal concurred with this observation. The Udyog Sahayak is a body constituted to facilitate the promotion of industries, and contributions to this fund were utilized for various purposes, including the purchase of capital items and renovation. The judgment concluded that these expenses could not be treated as business expenditure and are revenue expenses. The findings of the CIT (A) and the Tribunal on this point were affirmed, and the court held that no substantial question of law arose in this regard. Conclusion: The court dismissed all the appeals filed by the revenue, affirming the decisions of the CIT (A) and the Tribunal. The project completion method followed by the assessee was upheld as a valid method of accounting, and the Udyog Sahayak Expenses were deemed to be revenue expenses. The judgment emphasized the principle of consistency and adherence to recognized accounting standards, concluding that the assessing officer's additions were not justified.
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