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TMI Blog2021 (9) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... development expenses is in accordance with prescribed accounting method suggested by the ICAI and such method has been consistently followed by the assessee. Hence, the Assessing Officer s action of allocating expenditure on the basis of sales revenue is contrary to prescribed method for accounting of construction contracts and hence, we are of the considered view that the Assessing Officer has erred in reallocation of expenses on the basis of revenue and working out excess development cost without any basis. CIT(A) has recorded categorical finding that when the assessee is eligible for deduction u/s.80IB(10) of the Act, in respect of 100% profit derived from housing project, there is no question of inflation of expenditure to reduce profit, because it adversely impact benefit of deduction to the assessee. Therefore, on this count also reasons given by the Assessing Officer that assessee has inflated expenditure for impugned assessment year is not supported by any evidence - no error in the findings recorded by the learned CIT(A) to delete additions - Decided against revenue. Ad-hoc disallowance of various expenses on the ground that said expenses incurred in cash and not further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Revenue has raised following grounds of appeal:- "1. The order of the learned CIT(A) is contrary to facts and circumstances of the case. 2.1 The learned CIT(A) is not correct in deleting the disallowance of excess claim of development expenses of ₹ 2,78,20,552/- made by the assessing officer. 2.2 The learned CIT(A) erred in allowing deduction u/s 8OlB(10) though assessee did not make any such claim before the assessing officer. 2.3 The learned CIT(A) erred in his decision to allow development expenses fully during the year on the basis that assessee was granted deduction u/s 8OlB(10) for assessment years 2009-10 and 2010-11 ignoring the fact that each assessment year is different and assessee has not claimed such deduction for the assessment year 2008-09. 2.4 The learned CIT(A) failed to note that assessment year 2008-09 is the first year in which assessee claimed deduction of entire development expenses as deduction and there is no consistency in approach by assessee. Further, CIT(A) ignored the fact that assessing officer has pointed out the deficiency / inadequacy in the method followed by assessee as land cost is being apportioned on the basis of extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per mandatory provisions in sec.801B(10) of the Act if the assessee had not filed Form 1OCCB r.w. Rule 18BBB, that itself is a reason for rejection of the claim u/s 801B(10) r.w.s. 8OlB(13) and 801A(7). 4.5 The learned CIT(A) failed to note that as per sec. 8OAC as applicable form assessment year 2006-07, deduction u/s 801B(10) is available only if assessee furnishes return before the due date." 3. Brief facts of the case are that the assessee, a partnership firm, is engaged in the business of construction of flats filed its return of income for assessment year 2008-09 on 30.06.2009 declaring total income of ₹ 65,847/-. The assessment has been subsequently reopened u/s.147 of the Income Tax Act, 1961, for the reasons recorded as per which income chargeable to tax had escaped assessment on account of excess claim of development cost for the assessment year 2008-09 and hence, notice u/s.148 of the Act, dated 26.04.2012 was served on the assessee. In response, the assessee submitted that return of income filed on 30.06.2009 may be treated as return of income filed in response to notice issued u/s.148 of the Act. Thereafter, case has been taken up for scrutiny and during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the learned CIT(A), the assessee has reiterated its submissions made before the Assessing Officer and argued that the assessee is following project completion method for recognition of revenue from sale of flats and accordingly, sale consideration has been recognized as and when flats are sold. However, construction expenses has been debited into profit and loss account, as and when said expenditure was incurred, but same has been recognized under the head closing work-in-progress. Therefore, there is no error in the revenue recognition method adopted by the assessee for sale of flats. Therefore, the Assessing Officer was erred in disallowing construction expenses on the basis of sale consideration received for three assessment years without understanding accounting policies prescribed for recognition of revenue in the case of construction contract. The assessee has also taken an alternative plea in light of provisions of section 80IB(10) of the Act and submitted that when the assessee is eligible for deduction u/s.80IB(10), then there is no question of inflation of expenditure to reduce profit, because there is no point in reducing profit when the assessee is eligible for 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, in respect of profit derived from housing project, but because there is no profit for year under consideration on account of deletion of additions made by the Assessing Officer towards disallowance of development expenses and ad-hoc disallowance of construction expenses, there is no requirement for allowing deduction u/s.80IB(10), as there is no taxable income for the year under consideration, but in principle, accepted fact that the assessee is eligible for deduction u/s.80IB(10) of the I.T.Act, 1961. Aggrieved by the learned CIT(A) order, the revenue is in appeal before us. 6. The first issue that came up for our consideration from ground no. 1 to 2.5 of revenue appeal is deletion of disallowance of excess claim of development expense of ₹ 2,78,20,552/-. The learned DR for the Revenue submitted that the learned CIT(A) has erred in deleting disallowance of excess claim of development expenses, without appreciating fact that assessee has claimed entire development expenses in the impugned assessment years, even though it has recognized revenue from sale of flats for three assessment years including impugned assessment year. The learned DR further submitted that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which a sum of ₹ 1,88,38,982/- was incurred for financial year 2006-07 relevant to the assessment year 2007- 08 and further, a sum of ₹ 1,49,36,017/- was incurred in financial year 2007-08 relevant to the assessment year 2008- 09. The assessee is following project completion method for recognition of revenue, as per which, revenue from sale of flats is recognized only when flats are sold to customers. Further, in project completion method of accounting all construction expenses are booked as and when said expenditure is incurred. However, same will be recognized under closing work-in-progress, till such time assessee recognizes revenue from sales. The Assessing Officer has not disputed these facts. In fact, the Assessing Officer has accepted fact that assessee has followed project completion method. However, he has apportioned development expenses on the basis of sales revenue for three years and disallowed a sum of ₹ 2,78,20,552/- by reallocating expenses incurred for assessment year 2008-09 on the basis of sale revenue. 9. We have given our thoughtful consideration to reasons given by the Assessing Officer in light of arguments advanced by the learned A.R for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of 100% profit derived from housing project, there is no question of inflation of expenditure to reduce profit, because it adversely impact benefit of deduction to the assessee. Therefore, on this count also reasons given by the Assessing Officer that assessee has inflated expenditure for impugned assessment year is not supported by any evidence. 10. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) to delete additions made by the Assessing Officer towards disallowance of excess development expenses. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. 11. The next issue that came up for our consideration from ground no.3 of revenue appeal is ad-hoc disallowance of various expenses on the ground that said expenses incurred in cash and not further, supported by necessary bills and vouchers. The Assessing Officer has disallowed 20% of contract expenses like site expenses, earth filling charges and sand purchases on the ground that the assessee has incurred expenditure in cash. According to the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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