2015 (6) TMI 5 - AT - Income Tax

Tribunal upholds assessee's appeals for 2008-09 and 2009-10, dismissing Revenue's appeals.

Bhoomi Construction Projects Versus ACIT, Central Circle -2, Thane, ACIT, Central Circle -2, Thane Versus Bhoomi Construction Projects

Bhoomi Construction Projects Versus ACIT, Central Circle -2, Thane, ACIT, Central Circle -2, Thane Versus Bhoomi Construction Projects - TMI Issues Involved:1. Deletion of addition made by the Assessing Officer (AO) on account of income disclosed during search proceedings.2. Disallowance of interest under section 36(1)(iii) of the Income Tax Act.3. Addition of statutory deposits paid to NMMC.4. Addition of professional fees for registration of trademark with logo.Issue 1: Deletion of Addition Made by AO on Account of Income Disclosed During Search ProceedingsThe Revenue appealed against the deletion of the addition made by the AO based on income disclosed during search proceedings. The assessee, a partnership firm, had not included the voluntarily disclosed income in its return, claiming it followed the 'Project Completion Method' rather than the 'Percentage Completion Method' for revenue recognition. The AO added Rs. 63 lakhs to the income based on the percentage completion method, citing the voluntary disclosure during the search.The CIT(A) deleted the addition, stating that the assessee was misled by the search party to believe that the percentage completion method was mandatory. The CIT(A) emphasized that both the percentage completion method and the project completion method are recognized methods, and the Income Tax Act does not prescribe a specific method for builders and developers. The CIT(A) also noted that the AO did not examine the books of accounts to justify the switch to the percentage completion method and that the assessee had consistently followed the project completion method.The Tribunal upheld the CIT(A)'s decision, affirming that the assessee's consistent use of the project completion method was acceptable and that the AO had no grounds to impose a different method. The Tribunal also noted that the Revenue had accepted the project completion method in subsequent years, reinforcing the CIT(A)'s decision.Issue 2: Disallowance of Interest Under Section 36(1)(iii) of the Income Tax ActThe AO disallowed interest of Rs. 6,80,853/- under section 36(1)(iii), arguing that the assessee had given interest-free loans while incurring interest on borrowed funds. The assessee contended that the advances were for business purposes and that it had sufficient interest-free funds to cover the advances.The CIT(A) upheld the AO's decision, stating that the assessee could not prove that the advances were for business purposes. However, the Tribunal found that the assessee had sufficient interest-free funds and that the advances were indeed for business purposes. The Tribunal cited the Bombay High Court's decision in CIT vs. Reliance Utilities and Power Ltd., which established that if sufficient interest-free funds are available, it can be presumed that the investments were made from those funds. The Tribunal deleted the disallowance, accepting the assessee's argument and evidence.Issue 3: Addition of Statutory Deposits Paid to NMMCThe AO added Rs. 4,33,348/- paid to NMMC for statutory deposits to the total income, arguing that these deposits were not allowable expenses. The assessee argued that these expenses were debited to the Work-in-Progress (WIP) account and should not be added to the total income.The Tribunal agreed with the assessee, stating that if the expenses were debited to the WIP account, any disallowance should reduce the WIP and not be added to the total income. The Tribunal deleted the addition, accepting the assessee's method of accounting.Issue 4: Addition of Professional Fees for Registration of Trademark with LogoThe AO added Rs. 16,292/- paid for professional fees for trademark registration to the total income, treating it as a capital expenditure. The assessee argued that this expense was debited to the WIP account and should not be added to the total income.The Tribunal accepted the assessee's argument, stating that if the expense was debited to the WIP account, any disallowance should reduce the WIP and not be added to the total income. The Tribunal deleted the addition, supporting the assessee's accounting method.Conclusion:The Tribunal dismissed the Revenue's appeals for the assessment years 2008-09 and 2009-10, upholding the CIT(A)'s decisions. The Tribunal allowed the assessee's appeals, deleting the disallowances and additions made by the AO and affirming the assessee's accounting methods and business purposes for the advances.