TaxTMI 
TaxTMI 
2018 (1) TMI 892
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....me-tax (Appeals) has erred in confirming the action of the Assessing Officer by ignoring the submission of the assessee and by treating the expenses of Rs. 1,34,37,679/- for assured return as capital expenses/part of inventory whereas these have been incurred for ensuring the sales booking/receipt of advance by the company considering the prevailing market conditions. The learned Commissioner of Income-tax (Appeals) has also failed to appreciate that the assessee has to incur such expenses as assured return on advance lease premium to meet competition in the market for selling its products. Further, the capitalization of assured return expenses are also not in conformity with the applicable Accounting Standards. 3. That the learned Commissioner of Income Tax (Appeals) also erred while observing that "so far as the expenses of Rs. 1,34,37,679/- under the head assured return are concerned, the fact and nature of expense is different as the expense is relating to booking which is unidentified and may even be in relation to some future projects". That in doing so, the learned CIT (A) has completely disregarded the facts of the case and observations as given by way of note no. ....
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....e has not been returned unserved. On said date also, none attended on behalf of the official liquidator of the company. Again a fresh notice was issued on 27/11/2017 fixing the appeal on 18/12/2017 but none attended on behalf of the assessee. In view of the above, we are of the considered view that further adjournment of these appeals would not serve any purpose and these appeals may be disposed on the basis of the record after hearing the Ld. DR on behalf of the Revenue. We, therefore, proceeded to hear and adjudicate these appeals accordingly. 5. The briefly stated facts of the case are that during the year under consideration, the assessee company was engaged in construction and development of a technology Park namely "SPIRE EDGE" in 'Manesar', (Haryana). The company acquired land measuring approximately 1.3 million square-feet and started construction work thereon. Out of the saleable area of 12,22,959.60 square feet, the assessee booked sales of 1,99,326 square feet till the end of the relevant year under consideration and received advances of Rs. 50,41,05,499/- from 187 customers on booking of commercial units. 5.1 The assessee filed return of income on 30/09/2009 decla....
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....rketing expenses debited to profit and loss account. 5.4 The contention of the assessee that expenses related to the projects were already transferred to inventory and the expenses which were not specific to any project were claimed as revenue expenditure. 5.5 In view of the Assessing Officer, the project was under early stage of development and all expenditure claimed being related to the project, same should have been capitalized. Accordingly, the Assessing Officer disallowed following expenses claimed by the assessee as revenue and treated the same as part of the inventory: Expenses Head Amount (In Rs.) Advertisement &. marketing expenses 5,84,49,543 Employees Salary 65,03,046 Travelling expenses 9,26,893 Legal expenses 19,19,931 Brokerage Expenses 3,54,42,663 Assured Return 1,34,37,679 Total expenses 11,66,79,755 5.6 Aggrieved, the assessee filed appeal before the Ld. CIT-(A) and partly allowed the appeal of the assessee. The learned CIT-(A) allowed the disallowances except amount of Rs. 1,34,37,679/- related to assured returns. 5.7 Aggrieved, both the assessee and the Revenue are in appeal before the Tribuna....
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....p to the buyers and when it Is not unreasonable to expect ultimate collection and no significant uncertainty exists regarding the amount of consideration. However if, at the time of transfer, substantial acts arc yet to be performed under the contract, revenue is recognized on the basis of percentage of actual cost incurred thereon, Including land and total estimated construction and development cost of projects under execution, subject to the reliability of the outcome of the project. The estimates of saleable area and costs are reviewed periodically by the management and any effect of changes in estimates Is recognized in the period such changes are determined. However, when the total project cost is estimated to exceed total revenues from the project, the loss is recognized immediately. Determination of revenues under the percentage of completion method necessarily involves making estimates by the Company, some of which are technical in nature, concerning, where relevant, the percentage of completion, costs to completion, and the expected revenues from the projects and the foreseeable losses to completion. ii) Interest income is accounted for on accrual basis."....
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....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 recognized under the percentage completion method only when the events in (a) to (d) below are completed. (a) All critical approvals necessary for commencement of the project have been obtained. These include, wherever applicable: (i) Environmental and other clearances. (ii) Approval of plans, designs, etc. (iii) Title to land or other rights to development/ construction. (iv) Change in land use (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) At least 25% of the saleable project area is secured by contracts or agreements with buyers. (d) At least 10 % of the total revenue as per the agreements of sale or any other legally enforceable documents are realized at the reporting date in respe....