Income Tax Appellate Tribunal - Bangalore
M/S Indiabuild Homes Private Limited , ... vs Income Tax Officer Ward-3(1)(1), ... on 11 October, 2021
ITA Nos.86&184/Bang/2019
M/s. Indiabuild Homes Pvt. Ltd., Bangalore
IN THE INCOME TAX APPELLATE TRIBUNAL
"B''BENCH: BANGALORE
BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER
ITA No.86/Bang/2019
Assessment Year: 2015-16
M/s. Indiabuild Homes Pvt. Ltd.
No.6/A, 2nd Floor, Kabra Excelsior
7th Cross, 1st Block, Koramangala ITO Ward-3(1)(1)
Vs.
Bangalore 560 034 Bangalore
PAN NO : AACCI5152L
APPELLANT RESPONDENT
ITA No.184/Bang/2019
Assessment Year: 2015-16
Deputy Commissioner of M/s. Indiabuild Homes Pvt. Ltd.
Income-tax No.6/A, 2nd Floor, Kabra Excelsior
Vs.
Circle-3(1)(1) 7th Cross, 1st Block, Koramangala
Bangalore Bangalore 560 034
APPELLANT RESPONDENT
Appellant by : Shri Siddesh S. Gaddi, A.R.
Respondent by : Shri Priyadarshi Mishra, D.R.
Date of Hearing : 06.10.2021
Date of Pronouncement : 11.10.2021
ORDER
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
These cross appeals are directed against the order dated 27.11.2018 passed by Ld. CIT(A)-3, Bengaluru and they relate to the assessment year 2015-16.
ITA Nos.86&184/Bang/2019 M/s. Indiabuild Homes Pvt. Ltd., Bangalore Page 2 of 7
2. The effective grounds of appeal urged by the assessee read as under:
2. The Learned CIT(A) has erred in holding that depreciation to the extent of Rs.17,90,945/- is relating to project and therefore not allowable undersection 32 of the Income-tax Act, 1961; [tax effect Rs.
5,53,402/-]
3. The Learned CIT(A) has erred in holding that staff welfare expenses (under employee benefit expenses) of Rs. 3,70,148 is proportionately relating to project and therefore not deductable; [tax effect Rs. 1,14,376/-]
4. The Learned CIT(A) has erred in disallowing expenses claimed under 'other expense' to the tune of Rs. 34,16,699/- by stating that the same are relatable to the project and therefore capital in nature; [tax effect Rs. 10,55,760/-]
5. The Learned CIT(A) has failed to appreciate that the expenses as relatable to project expenses are already capitalized by the Appellant. [common ground with total tax effect of Rs. 17,23,538/-])
3. The effective grounds urged by the revenue read as under:
"2. The Ld CIT(A) erred in allowing the expenditure claimed by the assessee when the business of the appellant had not commenced and the assessee was not eligible for set off of business loss against income from other sources.
3. The Ld.CIT(A) erred in allowing the appeal of the assessee by not following the decision of the Hon'ble Apex Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd wherein the Hon'ble SC has clearly laid down the law that:
a. Before the commencement of the business of the assessee, income earned in the form of interest on deposits made with banks out of the funds borrowed from banks and financial institutions which was not immediately required or the purpose of setting up of the business should be assessed to tax under the head income from other sources"
ITA Nos.86&184/Bang/2019 M/s. Indiabuild Homes Pvt. Ltd., Bangalore Page 3 of 7 b Similarly, no expenditure can be claimed under the head "Profits and Gains of business or profession" during the period prior to the commencement of the business:
and c Any expenditure incurred including the interest on funds borrowed for the purpose of setting up of the business'/ Purchase of plant and machinery etc., cannot be set-off against interest income under the head "Other Sources".
4. The facts relating to the case are stated in brief. The assessee company is engaged in the business of real estate development. It filed its return of income declaring loss of Rs.4,14,82,994/-. It included interest income of Rs.1,25,06,325/-. During the course of assessment proceedings, the assessee submitted that it is promoting a project in White Field area in Bangalore. It was submitted that the revenue from this project is recognized in accordance with the provisions of Accounting Standard-9 of revenue recognition issued by ICAI under "Percentage Completion method". On examination of the financial statements and reply of the assessee, the A.O. noticed that the assessee has purchased land and started booking advances from customers. However, the assessee has not recognized any income on percentage completion method, but it has claimed certain expenses and declared business loss. Accordingly, the A.O. took the view that the business activity of the assessee has not commenced and hence loss claimed by the assessee cannot be allowed. Accordingly, the A.O. disallowed the claim of business loss and assessed interest income of Rs.1,25,40,420/-.
5. In the appellate proceedings, the Ld. CIT(A) held that the business activities of the assessee had already commenced and hence it is eligible to claim deduction of business expenses. The Ld. ITA Nos.86&184/Bang/2019 M/s. Indiabuild Homes Pvt. Ltd., Bangalore Page 4 of 7 CIT(A) noticed that the assessee has accumulated project related expenditure and shown the same as Work in Progress. The assessee has also claimed certain expenditure, apparently for the reason that it is not specific expenses related to the project, and declared business loss. On analysis of the expenditure claimed in the Profit and Loss account, the Ld. CIT(A) took the view that some of the expenditure should be allocated to the "project". Accordingly, the Ld. CIT(A) allocated certain expenditure to the project account.
6. The revenue is aggrieved by the decision of Ld. CIT(A) in holding that the business of the assessee has commenced. The assessee has filed appeal challenging the allocation of expenditure to the project account.
7. The Ld. A.R. submitted that the assessee had purchased land in the financial year 2010-11 and started developing the land. The expenditure incurred on construction activities has been shown as "work in progress" in the books of accounts. Hence, the business of the assessee has already commenced when the land was acquired and hence the decision rendered by the Ld. CIT(A) on this issue does not call for any interference. The Ld. A.R. further submitted that the revenue received by the assessee during the year under consideration was around 17% only and hence according to the Accounting Standard-7 & 9 issued by ICAI, no revenue needs to be recognized under percentage completion method, if the receipts are less than 25% on estimated construction and development cost. The Ld. A.R. further submitted that the Ld. CIT(A) did not consider Accounting Stadard-2, 7 and 9 while allocating some of the expenditure to the project account. The Ld. A.R. submitted that the expenditure claimed by the assessee in the P&L account do not specifically relate to project undertaken by the assessee and hence ITA Nos.86&184/Bang/2019 M/s. Indiabuild Homes Pvt. Ltd., Bangalore Page 5 of 7 Ld. CIT(A) was not justified in allocating part of expenditure to the project account, since the same is not in accordance with the Accounting Standards issued by ICAI.
8. The Ld. D.R., on the contrary, supported the order passed by Ld. CIT(A). The Ld. D.R. submitted that the assessee has not proved that the business of the assessee has been commenced and hence the Ld. CIT(A) was not justified in holding that the business of the assessee has commenced.
9. We heard the rival contentions and perused the record. The only issue urged by the revenue is whether the assessee has commenced his business or not? We notice that the Ld. CIT(A) has addressed the issue in the following manner:-
"4.1 During appellate proceedings the appellant has made detailed submissions, which are in substance same as made before the AO. The appellant has argued that its business had already commenced as it had acquired land and the same was registered in its name in FY 2010-11. The land was part of its inventory in its books of account. The appellant submitted that the construction activities had also started and there was work in progress (WIP) to the extent of Rs 71,01,11,630/- as on 31.03.2015. The appellant submitted that the construction costs already incurred constituted 17.06% of its estimated cost of construction. The appellant submitted that only routine administrative expenses had been debited to the P&L account and the construction/project related expenses had been capitalized.
4.2 The submissions of the appellant have duly been considered_ As per appellant its business activities had already commenced and he had already purchased land. The WIP shows expenses incurred on various construction related activities including expenses related to various approvals from the relevant authorities. The appellant had paid money to the land owners as well as spent money towards construction activities. A perusal of the financials of the appellant shows that there was work in progress of Rs 71,01,11,630/- as on 31.03.2015 and Rs.48,69,47,520/- as on 31.3.2014. This includes money paid to the land owners as well as money spent on construction activities.
ITA Nos.86&184/Bang/2019 M/s. Indiabuild Homes Pvt. Ltd., Bangalore Page 6 of 7 4.3 So it could not be said that there was no commencement of the business of the appellant".
10. A perusal of the order passed by Ld. CIT(A) would show that the assessee has acquired the land in financial year 2010-11 and declared the same as its inventory. The assessee is in the real estate business and it has commenced a project of construction of building by purchasing land. The Ld. CIT(A) has also noticed that the assessee has incurred a sum of Rs.71.01 crores as on 31.3.2015 on its construction activities. Since the assessee has purchased the land as its stock in trade in financial year 2010-11 itself and also incurred on construction activities, in our view, the A.O. was not correct in holding that the assessee has not commenced its business activity even in the year relevant to assessment year 2015-16. Accordingly, we are of the view that the Ld. CIT(A) was justified in holding that the assessee has already commenced its business. Accordingly, we reject the grounds raised by the revenue in this regard.
11. So far as the grounds urged by the assessee, which relate to allocation of various expenses to the Project account, it is the submission of the Ld. A.R. that the Ld. CIT(A) has allocated a portion of expenses to the project account without considering the Accounting Standards issued by the ICAI. Accordingly, we are of the view that allocation of expenses to project account made by the Ld. CIT(A) requires fresh examination at his end by duly considering the Accounting Standards issued by ICAI. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore them to his file for examining it afresh duly considering the applicable accounting standards.
ITA Nos.86&184/Bang/2019 M/s. Indiabuild Homes Pvt. Ltd., Bangalore Page 7 of 7
12. In the result, the appeal filed by the revenue is dismissed and the appeal of the assessee is treated as allowed. Order pronounced in the open court on 11th Oct, 2021 Sd/- Sd/-
(Beena Pillai) (B.R. Baskaran)
Judicial Member Accountant Member
Bangalore,
Dated 11th Oct, 2021.
VG/SPS
Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file
By order
Asst. Registrar,
ITAT, Bangalore.