2021 (11) TMI 104 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on revenue recognition, brokerage expenses, and interest payments.

ACIT, Circle-2 (2), New Delhi. Versus Anthem Infrastructure Pvt. Ltd.

ACIT, Circle-2 (2), New Delhi. Versus Anthem Infrastructure Pvt. Ltd. - TMI Issues Involved:1. Deletion of addition of Rs. 15,65,60,883/- made by the AO towards non-recognition of revenue as per AS-9.2. Deletion of addition of Rs. 1,63,15,044/- made by the AO on account of brokerage expenses.3. Deletion of addition of Rs. 9,85,667/- made by the AO on account of interest-free advance given to group companies.Issue-Wise Detailed Analysis:1. Deletion of Addition of Rs. 15,65,60,883/-:The Revenue argued that the assessee should have recognized revenue based on the Percentage of Completion Method (POCM) as prescribed by ICAI in AS-7. However, the assessee consistently followed the project completion method as per AS-9, which was accepted in previous assessments. The CIT(A) noted that the Assessing Officer (AO) did not reject the assessee's books of accounts nor invoked Section 144 of the Income Tax Act, 1961, which is mandatory if the AO is dissatisfied with the method of accounting. The CIT(A) highlighted that the Central Government had not mandated POCM for the assessment year in question, and the CBDT's draft ICDS for real estate transactions was not finalized. The CIT(A) also pointed out that the construction and development cost incurred was only 18.40% of the total estimated cost, below the 25% threshold required for revenue recognition under POCM. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the consistent application of the project completion method and the factual findings regarding the construction cost percentage.2. Deletion of Addition of Rs. 1,63,15,044/-:The AO disallowed brokerage expenses, arguing they should be treated as work in progress since the assessee did not declare any income from the projects. The CIT(A) observed that the brokerage expenses were for booking flats, a selling cost that cannot be capitalized as part of inventory. The CIT(A) referred to AS-7 and AS-2, which state that selling costs should not be attributed to contract activity or construction costs. The CIT(A) also noted that brokerage expenses were allowed in previous years. The Tribunal agreed with the CIT(A)'s findings, emphasizing that brokerage expenses are selling costs and allowable as revenue expenses under Section 37 of the Income Tax Act, 1961.3. Deletion of Addition of Rs. 9,85,667/-:The AO disallowed interest payment on the grounds that the assessee granted interest-free advances to group concerns. The CIT(A) found that the assessee did not take any interest-bearing funds, except for a car loan, and the interest of Rs. 9,85,667/- was paid to the Greater Noida Authority for late payment of land installments. The advances to associate concerns were from interest-free advances received from flat bookings. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide contrary material to rebut the CIT(A)'s factual findings.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all grounds, highlighting the consistent application of accounting methods, proper classification of expenses, and accurate factual findings.