Income Tax Appellate Tribunal - Delhi
Acit, Circle- 2(2), New Delhi vs Anthem Infrastructure Pvt. Ltd., New ... on 29 October, 2021
Author: G.S.Pannu
Bench: G.S.Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI "A" BENCH: NEW DELHI
(THROUGH VIDEO CONFERENCING)
BEFORE SHRI G.S.PANNU, PRESIDENT &
SHRI KUL BHARAT, JUDICIAL MEMBER
ITA No.5676/Del/2017
Assessment Year : 2014-15
ACIT, vs Anthem Infrastructure Pvt.Ltd.,
Circle-2(2), 501, Sachdeva Tower,
New Delhi. Karkardooma, New Delhi-110092.
PAN-AAICA7355D
APPELLANT RESPONDENT
Appellant by Sh. Satpal Gulati, CIT DR
Respondent by Sh. Amit Goel, CA &
Sh.Nipun Mittal, CA
Date of Hearing 14.10.2021
Date of Pronouncement 29.10.2021
ORDER
PER KUL BHARAT, JM :
This appeal filed by the Revenue for the assessment year 2014-15 is directed against the order of learned CIT(A)-I, New Delhi dated 19.06.2017. The Revenue has raised following grounds of appeal:-
1. "The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.15,65,60,883/-made by the AO towards not recognization of revenue as per AS-9, as the assessee had violated the law by not following percentage of completion method (POCM) as prescribed by ICAI in AS-7.
2. The Ld.CIT(A) has erred on facts and in law in deleting the addition of Rs.1,63,15,044/- made by the AO on account of brokerage expenses.
3. The Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.9,85,667/-made by the AO on account of interest free advance given to group companies.ITA No.5676/Del/2017
Assessment Year : 2014-15
4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
2. Facts in brief are that the assessee company is engaged in the business of real estate development. In the year under appeal, the assessee was engaged in developing a residential housing project namely "French Apartments" at Noida Extension. The assessee filed its return of income on 27.09.2014 declaring nil income with loss of Rs.2,58,52,776/-. The case of assessee was taken up for the scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 ("the Act") was framed on 30.12.206, assessing the total income at Rs.14,80,79,340/- against the loss of Rs.2,58,52,776/-. The Assessing Officer made addition on account of non- recognizing the revenue on the basis of Percentage of Completion Method ("POCM"). Further, the Assessing Officer disallowed brokerage expenses of Rs.1,63,15,044/-, disallowance of interest expenses of Rs.9,85,667/- and the disallowance made by invoking the provision of Section 14A of Rs.70,520/-.
3. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A), who after considering the submissions and material placed before him, partly allowed the appeal. Thereby, Ld.CIT(A) deleted the addition of Rs.15,65,60,883/- made on account of applying POCM, of Rs.1,63,15,044/- made on account of disallowance of brokerage of Rs.9,85,667/- made on account of disallowance of interest expenses and confirmed the addition of Rs.70,520/- as made by making disallowance u/s 14A of the Act.
Page | 2 ITA No.5676/Del/2017 Assessment Year : 2014-15
4. The first ground of Revenue's appeal is in respect of addition made on account of recognition of revenue on the basis of POCM of the project.
5. Ld.CIT DR, Shri Satpal Gulati supported the assessment order and submitted that Ld.CIT(A) committed an error for not sustaining the impugned addition. He submitted that the assessee is engaged in the business of development of housing projects. Therefore, as per Accounting standards as prescribed by ICAI, the assessee was required to recognize the Revenue on the basis of POCM.
6. On the contrary, Ld. Counsel for the assessee opposed the submissions of Ld.CIT DR. He submitted that the law is well settled that no addition can be made, merely on the basis that the assessee is not following a particular method of accounting. The assessee had been consistently following the same method which was even accepted by the Revenue. The Assessing Officer has not brought any material on record, suggesting that the method applied by the assessee, the correct figure of profit would not be deduced. He submitted that the Revenue has accepted this method in earlier years. Therefore, no fault can be found with finding of Ld.CIT(A).
7. We have heard the rival contentions and perused the material available on records. The grievance of the Revenue before us that Ld. CIT(A) committed gross error in deleting the addition as made by the Assessing Officer. It is the case of the Revenue that the assessee ought to have recognized Revenue on the principles of POCM. The Ld. CIT(A) decided the issue by observing as under:-
Page | 3 ITA No.5676/Del/2017 Assessment Year : 2014-15 "Decision:
I have considered the submission of the appellant and observations of the assessing officer made in the assessment order. It is seen that appellant is constructing a project known as 'French Apartments' at Noida Extension. The appellant company started this project in F.Y. 2010-11. For recognizing revenue from this project, the appellant company is following project completion method as per AS-9. However, in the assessment proceedings, Assessing Officer has held that accounting policy followed by the appellant is not acceptable as it is prescribed by the ICAI and has applied the percentage of completion method (POCM) for recognizing the revenue. The issue in the appeal is whether it is mandatory for the appellant to follow the POCM Method. As per the observation of the Assessing Officer, it is mandatory for the appellant to follow POCM, whereas as per the submission of the appellant it is not mandatory. The Assessing Officer while holding that POCM is mandatory for the appellant has placed reliance on the Guidance Note on Revenue Recognition for Real Estate Transactions issue by CAI in May 2012. The AR of the appellant submitted before me that taxable income has to be computed as per the provision of Income Tax Act / Rules and not according to the Guidance Note issued by ICAI. The projection completion method is a recognized method of accounting for computing the taxable income as per provisions of Income Tax Act. The provisions of section 145 of Income Tax Act, 1961 states as under:
"145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time 2 [income computation and disclosure standards] to be Page | 4 ITA No.5676/Del/2017 Assessment Year : 2014-15 followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) 3[has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under subsection (2)], the Assessing Officer may make an assessment in the manner provided in section 144.]"
As per aforesaid provisions of section 145, it is apparent that income of the assessee has to be computed as per method of accounting regularly employed by the assessee. It is provided in sub-section (3) that where the assessing officer is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting has not been regularly followed or the income has not been computed in accordance with the standards notified under sub-section (2), the assessing officer may make an assessment in the manner provided in section 144 of the I.T. Act. In the present case, the assessing officer has disregarded the appellant's regularly followed method of accounting of project completion method and has applied percentage of completion method for recognizing revenue. However, while doing so, the Assessing Officer has not invoked the provisions of section 144 of the I.T. Act which is mandatory if the Assessing Officer is not satisfied with the method of accounting regularly followed by the appellant. It is seen that Assessing Officer has framed the assessment u/s 143(3) of the I.T. Act without rejecting the books of accounts. It is observed from the assessment order that Assessing Officer has not pointed out any deficiency with reference to computation of income and disclosure of accounting standards notified by CBDT. It is seen that the appellant has been following the project completion method since its inception from AY. 2011-12 and has recognized revenue in accordance with AS-9 of the ICAI. It is also observed Page | 5 ITA No.5676/Del/2017 Assessment Year : 2014-15 that this method of accounting followed by the appellant has been accepted in the past assessments including the assessment made u/s 143(3) for AY. 2012-13. While rejecting the appellant's project completion method, the Assessing Officer has not pointed out as to how the method of accounting followed by appellant was not in accordance to the provisions of section 145 of the Income Tax Act, 1961. It was not justified on the part of the Assessing Officer to disregard the method of accounting regularly followed by the appellant without pointing out any defects and violation of provisions of section 145 of the Act. It is seen that as per the provisions of Section 145, it is not mandatory for the appellant to follow POCM which is evident from the fact that the CBDT has issued Draft Income Computation And Disclosure Standard (ICDS) of Real Estate Transactions in May 2017 for discussion wherein it has been proposed to provide for recognition of revenue in real estate transaction based on percentage of completion method. This ICDS proposal is only at discussion stage and has not been finalized as yet, therefore, it is not mandatory for the appellant to follow percentage of completion method in AY. 2014-15. It is also seen that Section 145 has not prescribed any such conditions for recognizing the revenue in the real estate transactions. Had the percentage of completion method been mandatory earlier, there would have been no need for the CBDT for releasing the draft of ICDS in May 2017. This implies that POCM is not mandatory for the assessment years prior to 2017-18. In view of these facts, it is held that observation of the Assessing Officer with regard to POCM in the case of appellant is not based on correct appreciation of facts. Accordingly, the POCM method applied by the AO for recognizing revenue in the case of appellant for the year under consideration is rejected and addition made on the basis of such method of Rs.15,65,60,883/- is deleted. In this regard, reliance is placed on the following judicial pronouncements on the issue:
The Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Bilahari Investment P Ltd. (2008) 299 ITR 1 (Hon'ble Supreme Court) held as under :-
Page | 6 ITA No.5676/Del/2017 Assessment Year : 2014-15 "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by anyone of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under the method determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method."
Reliance is also placed on the decision of Hon'ble Delhi High Court in the case of Paras Buildtech India Pvt. Ltd. vs. CIT [ITA NO. 602/2015] wherein it is held as under :-
"18. Section 145 (1) of the Act states that the income chargeable under the heads 'Profits and gains of business or profession' shall be computed in accordance with either cash or mercantile system of accounting "regularly employed by the Assessee". It is only with effect from 1st April 2015 that a change has been brought about in Section 145 (2) which permits the central government to notify in the Official Gazette from time to time the income computation and Page | 7 ITA No.5676/Del/2017 Assessment Year : 2014-15 disclosure standards to be followed by any class of Assesses or in respect of any class of income. That change is prospective and in any event does not apply to the case on hand.
19. The settled legal position as far as Section 145 of the Act is concerned is that it is not open to an AO to reject the accounts of an Assessee unless hecomes to a determination that notified accounting standards have not been regularly followed by the Assessee. As pointed out by the CIT (A) in the order dated 2nd July, 2010, the AS of the ICAI did not have any statutory recognition under the Act although it was binding under the Companies Act, 1956. The method of accounting followed by the Assessee in the present case i.e. project completion method was certainly one of the recognized methods and has been consistently following by it.
In para 22 of the above judgment, the Court observed as under:
"22. The other aspect that appears to have escaped the attention of the ITAT is that the Assessee offered to tax in the subsequent FY the amounts received and therefore there was no actual loss to the revenue. In similar circumstances, the Supreme Court in CIT v. Excel Industries Limited 2013 ITR 295 (SC) observed that the dispute if any raised at the instance of the Revenue would be at best academic. The stand of the Assessee in the present case also finds support in the decision of the Gujarat High Court in CIT-IV v. ShivalikBuildwell (P) Ltd. (2013) 40 taxmmann.com 219 (Gujarat). It was held that the Assessee in that case, who was a developer, was entitled to book the amount received as booking advance as income on transfer of the property. Till then the advance booking amounts could not be treated as his trading receipt. The High Court recognized that the Assessee in that case was entitled to apply the project completion method in terms of the applicable AS.
23. This Court too has by order dated 7th January 2015 in ITA 111/2014 (CIT v. SABH Infrastructure Ltd.) held likewise, after Page | 8 ITA No.5676/Del/2017 Assessment Year : 2014-15 noticing the decisions of the Supreme Court in CIT v. Bilahari Investment P. Ltd. (supra) and the order dated 15th November 2011 in ITA No. 928 of 2011 (CIT v. Manish Buildwell Pvt. Ltd.)."
The reliance in this regard is also placed on the judgment of Hon'ble Madras High Court in the case of Pr. CIT v Santha Buildtech Pvt. Ltd. [2017][4)TMI 826 vide its decision dated 04.04.2017 wherein the Court has held that where the assessee has been consistently following the project completion method, revenue was not justified in substituting the same with percentage completion method.
The Hon'ble Allahabad High Court in the case of Pr. CIT v Friend Land Developers [2017] [4] TMI 1153 has held that there are no provisions under the income tax act or the rules which may compel the assessee to follow percentage completion method.
In view of the factual as well as legal position discussed above, it is held that Assessing Officer was not justified in applying POCM instead of Project Completion Method regularly followed by the appellant. Accordingly, the addition of Rs.15,65,60,883/- made by the assessing officer is deleted.
The appellant has alternatively submitted that even if the revised Guidance Note issued by ICAI on which the Assessing Officer has placed reliance, no revenue was required to be recognized by the appellant during the year. The appellant submitted that in para 3.4 of the assessment order, the Assessing Officer has admitted the position that for recognizing revenue as per the said guidance note one of the condition required to be fulfilled is that "Seller has transferred to the buyer all significant risks and reward of ownership."
In this regard, the appellant has submitted that this condition is not fulfilled in the case of appellant. In the case of appellant neither all the significant risks nor the reward of ownership has been transferred to the buyer. The risk of the property still vests with the appellant and has not Page | 9 ITA No.5676/Del/2017 Assessment Year : 2014-15 been transferred to the buyer. If something happens to the building structure, the loss will be of the appellant and not the buyer. Similarly, the reward of ownership has not been transferred to the buyer. Only a builder buyer agreement has been signed as per which it has been clearly provided that conveyance deed / lease deed shall be executed only after full and final payments including all additional charges are paid by the buyer and until that, the ownership of the property shall remain vested with the appellant. The relevant clause of Para 3 of builder-buyer agreement is reproduced here under :-
"The Sub-Lease Deed / Conveyance deed shall be executed, only after the Allottee(s) has made full & final payments, including all other additional charges which are due and payable to the Company. Till the execution of the Sub-Lease Deed / Conveyance Deed and handing over the possession of the Unit, the ownership of the Unit shall remain vested with the Company."
This clause clearly establishes that all significant risk and reward of ownership has not been transferred to the buyer, therefore, even as per revised guidance note and AS-9, no revenue could be recognized by the company as the primary condition has not been fulfilled.
The assessing officer in Para 3.8 of the assessment order has held that percentage of completion method has to be adopted for recognizing revenue irrespective of the percentage of completion. To this, the appellant has submitted that even if the guidance note of accounting of real estate transactions are taken into account for recognizing the revenue, no revenue could be recognized in the case of appellant for the year under consideration as for applying POCM, certain percentage of the work has to be completed which as per the guidance note issued is 25%. Therefore, the observation made by the Assessing Officer for recognizing revenue as per POCM is not based on correct understanding of the POCM method. In this regard, para 5.3 of the guidance note for recognizing the revenue is reproduced hereunder:
Page | 10 ITA No.5676/Del/2017 Assessment Year : 2014-15 "5.3 Further to the conditions in paragraph 5.2 there is a rebuttable presumption that the outcome of a real estate project can be estimated reliably and that revenue should be recognised under the percentage completion method only when the events in (a) to (d) below are completed.
(a) ........
(b) When the stage of completion of the project reaches a reasonable level of development. A reasonable level of development is not achieved if the expenditure incurred on construction and development costs is less than 25 % of the construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5.
(c) .........
(d) .........
Construction and development costs as defined in paragraph 2.2 (c) read with paragraphs 2.3 to 2.5. is as under :-
"2.2(c) Construction and development costs - These would include costs that relate directly to the specific project and costs that may be attributable to project activity in general and can be allocated to the project.
2.3 Construction costs and development costs that relate directly to a specific project include:
(a) land conversion costs, betterment charges, municipal sanction fee and other Charges for obtaining building permissions;
(b) site labour costs, including site supervision;
(c) costs of materials used in construction or development of property;
(d) depreciation of plant and equipment used for the project;
Page | 11 ITA No.5676/Del/2017 Assessment Year : 2014-15
(e) costs of moving plant, equipment and materials to and from the project site;
(f) costs of hiring plant and equipment;
(g) costs of design and technical assistance that is directly related to the project;
(h) estimated costs of rectification and guarantee work, including expected warranty costs; and
(i) claims from third parties.
2.4 The following costs should not be considered part of construction costs and development costs if they are material:
(a) General administration costs;
(b) selling costs;
(c) research and development costs;
(d) depreciation of idle plant and equipment;
(e) cost of unconsumed or uninstalled material delivered at site; and
(f) payments made to sub-contractors in advance of work performed.
2.5 Costs that may be attributable to project activity in general and can be allocated to specific projects include:
(a) insurance;
(b) costs of design and technical assistance that is not directly related to a specific project; and
(c) construction or development overheads; and
(d) borrowing costs."
From the above stated facts, it is clear that for recognizing revenue as per the guidance note, one of the prime condition is that no revenue should be booked until the expenditure incurred on construction and development cost reached to the level of 25% of the construction and Page | 12 ITA No.5676/Del/2017 Assessment Year : 2014-15 development costs. According to the appellant construction and development cost incurred by the appellant upto the year ending 31.03.2014 was only 18.40% of the total estimated construction and development cost. On consideration of the facts, calculations given by AO and the submission of the appellant, it is seen that the assessing officer has erred in applying the percentage completion of the project. Since the construction and development cost incurred by the appellant till 31.03.2014 was only 18.40% of the total estimated construction and development cost, no revenue could have been booked even as per the guidance note issued by ICAI.
In view of the facts discussed above, it is held that it was not mandatory for the appellant to follow POCM method as per guidance note issued by ICAI. Further even as per guidance note issued by ICAI, no revenue was required to be booked by the appellant for the year under appeal as appellant has not transferred all significant risks of ownership to the buyer and the level of completion of the construction is less than 25% of the estimated cost of construction and development till 31.03.2014. Accordingly, the addition of Rs.15,65,60,883/- made by the Assessing Officer is deleted. This ground of appeal is allowed."
8. We do not see any infirmity into the above findings of Ld.CIT(A) as the assessee has been applying consistently the same method since inception. Moreover, Ld.CIT(A) has recorded the fact that the assessee has been adopting the same method of accounting which was accepted by the Revenue. Further, it is also recorded by Ld.CIT(A) that the Assessing Officer committed error in computing the construction and development cost incurred by the assessee till 31.03.2014. As per Ld.CIT(A), the cost was only 18.40% of the total estimated construction and development cost. Therefore, no revenue could have been booked even as per the guidance note issued by ICAI. This finding of fact is Page | 13 ITA No.5676/Del/2017 Assessment Year : 2014-15 not rebutted by the Revenue. Thus, Ground No.1 raised by the Revenue is devoid of any merit hence, dismissed.
9. Ground No.2 raised by the Revenue is against the deletion of addition of Rs.1,63,15,044/- made by the Assessing Officer on account of brokerage expenses.
10. Ld.CIT DR supported the order of Assessing Officer and submitted that the assessee company had not declared any income from the projects undertaken during the year under consideration. However, the assessee company claimed the expenses incurred towards brokerage related to the project. Ld.CIT DR took us through the assessment order and submitted as per the Assessing Officer, the expenditure should have been treated as work in progress.
11. Per contra, Ld. Counsel for the assessee opposed these submissions and supported the findings of Ld.CIT(A). He submitted that brokerage is a selling expenditure which cannot be capitalized alongwith inventory. He submitted that as per the Accounting Standard 7 which specifically states that selling cost cannot be allocated as cost of construction contract. Further, Ld. Counsel for the assessee reiterated the submissions as made before Ld.CIT(A).
12. We have heard the rival contentions and perused the material available on record. Ld.CIT(A) decided the issue by observing as under:-
Page | 14 ITA No.5676/Del/2017 Assessment Year : 2014-15 "Decision:
"I have considered the submission of the appellant and observations of the assessing officer made in the assessment order. It is seen that appellant has commenced the project known as 'French Apartments' in F.Y. 2010-11 relevant to AY. 2011-12 and the level of completion has reached to 18.4% upto 31.03.2014. This shows that appellant's business has commenced in AY. 2011-12 itself. For booking / sale of the flats, the appellant has paid brokerage charges to the brokers who have brought client for booking of the flats and this fact has not been disputed by the AO in the assessment order. It is seen that brokerage has been paid by the appellant for booking of the flats which is wholly and exclusively for the business purposes of the appellant, however, in the assessment order, the Assessing Officer has disallowed such brokerage expenses on the principle of matching revenue concept as appellant has not booked any revenue from booking of the flats, therefore, AO held that such expenses should have been capitalized under the head 'Work-in-progress' instead of claiming the same in Profit & Loss Alc. It is also seen that this is not the first year of claim of deduction of brokerage expenses. The brokerage expenses claimed in earlier year has been allowed to the appellant as detailed below:-
AY. Amount (Rs.) Remarks 2013-14 4779263 Assessed u/s 143(1) 2012-13 723946 Assessed u/s 143(1) 2011-12 844895 Assessed u/s 143(1)
There is no change in facts and circumstances of the case during the year as compared to facts and circumstances in the earlier years. Therefore, the assessing officer was duty bound to follow the decision of earlier years and should have allowed the brokerage expenses.
It is also seen that as per para-19 of AS-7, the selling cost cannot be attributed to contract activity or cannot be allocated to a contract under construction. Even as per AS-2 "Valuation of Inventory" issued by ICAI, it is Page | 15 ITA No.5676/Del/2017 Assessment Year : 2014-15 seen that selling and distribution cost cannot be considered as part of the cost of inventory and such expense has to be recognized in the period in which they are incurred. The cost which can be attributed /allocated over the inventory should comprise all the cost of purchase, cost of conversion and other cost incurred in bringing the inventory to their present location and condition. In the case of construction activities the cost of purchase of land and construction cost can only be attributed over the project. The brokerage expenses are purely a selling cost and cannot form a part of inventory. In view of the accounting standard, the brokerage expenses being a selling cost cannot be capitalized with the cost of inventory and cannot be allocated to the construction activity. The brokerage expenses paid are selling expenses and not for acquiring or developing or constructing any asset. Therefore, the same cannot be taken to the work in progress. Even as per para 2.2 of revised Guidance Note (2012) on real estate transactions referred by the A.O., the project cost comprises of:
a) Cost of land plus related charges
b) Borrowing cost (Attributable to project)
c) Construction and development cost
As per para 2.4 of the aforesaid Guidance Note provides that "Selling Cost" shall not be considered as part of construction and development cost. Thus, the brokerage expenses are part of selling expenses, therefore, same are allowable as revenue expenses u/s 37 of Income Tax Act, 1961.
The jurisdiction Delhi High Court in the case CIT v Samsung India Electronics Ltd vide its judgement dated 09.07.2013 has held that business will commence with the first purchase and the expenses incurred thereafter were duly allowable and it was immaterial when the first sales was booked. The Jurisdictional Delhi High Court in case of CIT vs ESPN Software Ltd. [301 ITR 368 (Del)) has held as under:
Page | 16 ITA No.5676/Del/2017 Assessment Year : 2014-15 "Section 28(i) of the Income-tax Act, 1961 - Business - Commencement of/carrying on of - Assessment year 1997-98 - Whether a business is commenced as soon as an essential activity of that business is started - Held, yes - Assessee-company was incorporated on 1-8-1995 - On 15-8-1995, it had acquired a licence from its parent company to sub-licence ESPN services for distribution of programmes in India via cable television system - By virtue of that licence, it entered into an agreement on 1-10-1995 with company 'M' and appointed it as its sole distributor for distribution of ESPN programmes in India - During relevant assessment year, assessee incurred certain expenditures which were claimed by it as business expenditures - Assessing Officer held that since agreement with parent company to distribute ESPN services in India was dated 15- 8-1995, while agreement with 'M' was dated 1-10-1995, it could not be said that before that date, assessee had commenced business - Accordingly, Assessing Officer held that assessee had not commenced its business during relevant period and treated all expenses as having been incurred prior to commencement of business - On appeal, Commissioner (Appeals) as also Tribunal held that assessee had commenced its business on 15-8-1995 and, therefore, all expenses incurred on or after that date were allowable as revenue expenditures - Whether since assessee was ready to commence its business on 15-8-1995 when it acquired licence, there was no infirmity with regard to said findings of authorities below - Held, yes"
The facts of the above cited judgments are identical with the facts of the appellant's case, therefore, the ratio of the above judgments is squarely applicable in the case of appellant. The appellant has commenced its business and expenses incurred on brokerage/ selling cannot form part of construction and development cost and same has to be allowed in the year in which they have been incurred. Accordingly, the brokerage expenses Page | 17 ITA No.5676/Del/2017 Assessment Year : 2014-15 incurred by the appellant for booking of the flats are allowable expenditure and disallowance made by the AO of Rs.1,63,15,044/- is deleted."
13. We do not see any infirmity in the order of Ld. CIT(A) as the CIT(A) has correctly appreciated the facts in the light of ratio laid down by the Hon'ble Jurisdictional High Court rendered in the case of CIT vs Samsung India Electronics Ltd. vide its judgement dated 09.07.2013 and CIT vs ESPN Software Ltd. [301 ITR 368 (Del)]. Moreover, the Revenue could not rebut the finding of Ld.CIT(A) that brokerage forms part of selling cost therefore, allowable expenditure. The Ground No.2 raised by the Revenue is dismissed.
14. Ground No.3 raised by the Revenue is against the deletion of addition of Rs.9,85,667/- made by the Assessing Officer on account of interest free advance given to group companies.
15. Ld.CIT DR supported the order of Assessing Officer and relied on the findings given in the assessment order.
16. On the contrary, Ld. Counsel for the assessee supported the order of the Ld.CIT(A) and reiterated the submissions as made before him.
17. We have heard the contentions of Ld. representatives of the parties and gone through the orders of the authorities below and material placed on records. Ld.CIT(A) has given a finding on fact by observing as under:-
Decision:
I have considered the submission of the appellant and observations of the assessing officer made in the assessment order. The assessing officer has made disallowance of interest payment of Rs.9,85,667/- on the Page | 18 ITA No.5676/Del/2017 Assessment Year : 2014-15 ground that the appellant has granted interest free advances to group concerns. On going through the financial statement of the appellant company, it is seen that appellant company has not taken any interest- bearing funds except the loan taken for purchase of car. It is seen from the financial statement that interest of Rs.9,85,667/- has been paid to Greater Noida Authority for late payment of installment of the land purchased on deferred credit. It is seen that advances given to associate concerns were out of interest free advances received from booking of the flats to the tune of Rs.8,11,05,947/-. There is no payment of interest for any borrowing, therefore, disallowance of Rs.9,85,667/- made by the assessing officer is without appreciating the correct facts of the case. Hence, the same is deleted."
18. Ld.CIT(A) has categorically given a finding that from the financial statement, it was observed that interest of Rs.9,85,667/- was paid to Greater Noida Authority for late payment of installment of the land purchased on deferred credit. It was also recorded that the advances given to the associate concern was out of interest free advances received from booking of the flats. This finding on fact was not rebutted by the Revenue by furnishing any contrary material. Therefore, no interference is called for in the decision of Ld.CIT(A), the same is hereby affirmed. Thus, Ground No.3 raised by the Revenue is rejected hence, dismissed.
19. In the result, the appeal of the Revenue is dismissed.
Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 29th October, 2021.
Sd/- Sd/-
(G.S.PANNU) (KUL BHARAT)
PRESIDENT JUDICIAL MEMBER
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ITA No.5676/Del/2017
Assessment Year : 2014-15
* Amit Kumar *
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT, NEW DELHI
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