Tribunal decision: Land cost excluded in PoCM, interest on loan not added to project cost. The Tribunal partially allowed the appeal of the assessee, directing the Assessing Officer to delete the addition related to the inclusion of the cost of ...
Cases where this provision is explicitly mentioned in the judgment/order text; may not be exhaustive. To view the complete list of cases mentioning this section, Click here.
Provisions expressly mentioned in the judgment/order text.
Tribunal decision: Land cost excluded in PoCM, interest on loan not added to project cost.
The Tribunal partially allowed the appeal of the assessee, directing the Assessing Officer to delete the addition related to the inclusion of the cost of land for computation under the Percentage of Completion Method (PoCM) and dismissing the addition of interest on the loan in the project cost.
Issues: 1. Addition of interest on loan in project cost 2. Inclusion of cost of land for computation under Percentage of Completion Method (POCM)
Issue 1: Addition of interest on loan in project cost
The appellant contested the addition of Rs. 1,25,72,260 on account of interest on loan, arguing that the interest expenses were not directly related to the ongoing project and should not be considered as part of the project cost. The Assessing Officer believed that interest expenditure is part of borrowing cost and thus part of the total project cost, as per the Guidance Notes on Accounting for real estate transactions. The appellant failed to provide supporting evidence for their claim, leading to the disallowance of the amount by the Assessing Officer. The appellant's appeal before the CIT(A) was unsuccessful. The Tribunal upheld the Assessing Officer's decision, stating that the interest amount should be added to the project cost. However, they directed the Assessing Officer to consider this enhanced project cost in the total estimated cost of the project.
Issue 2: Inclusion of cost of land for computation under Percentage of Completion Method (POCM)
The appellant, engaged in real estate development, followed the Percentage Completion Method (PoCM) for revenue recognition for the Prateek Edifice project. The Assessing Officer insisted that the appellant must recognize revenue as per the PoCM method in line with the Guidance Note on Accounting for Real Estate Transactions, rejecting the appellant's contention that the cost of land should not be included in the computation under PoCM. The Assessing Officer added an amount of Rs. 3,61,56,783 after re-computing the percentage of completion. The Tribunal noted that the appellant consistently followed a method of accounting for revenue recognition under the project and had already offered the complete revenue for taxation before the completion of the project. The Tribunal found no merit in the addition and directed the Assessing Officer to delete it, considering the approach of the appellant as revenue neutral.
In conclusion, the Tribunal partially allowed the appeal of the assessee, directing the Assessing Officer to delete the addition related to the inclusion of cost of land for computation under PoCM and dismissing the addition of interest on loan in the project cost.
Full Summary is available for active users!
Note: It is a system-generated summary and is for quick reference only.
TaxTMI 
of 
Join Channel
TaxTMI 
