TaxTMI 
TaxTMI 
2023 (9) TMI 1077
X X X X Extracts X X X X
X X X X Extracts X X X X
....). The appeals and Cross Objections in the case of IREO Pvt. Ltd., in ITAs No. 910 & 911/Del/2017 also for AY 2010-11 & 2011-12 and CO Nos. 99 & 100/Del/2017 arise out of the orders of the Commissioner of Income Tax (Appeals)-29, New Delhi, [hereinafter referred to as 'ld. CIT(A)', in short] in Appeals No. 205/13-14/CIT(A)-29 & 76/14-15/CIT(A)- 29 both dated 29.11.2016 against the orders of assessment passed u/s 153A/143(3) and 143(3), respectively, of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 26.03.2013 and 30.03.2014, respectively, by the ld. Assessing Officer, Central Circle-2, New Delhi (hereinafter referred to as 'ld. AO'). 2. The issues involved in all these appeals are identical and hence they are taken up together and disposed of by this common order for the sake of convenience. 3. With the consent of both the parties, the appeal of the revenue in the case of IREO Waterfront Pvt Ltd in ITA No. 2849/Del/2016 for A.Y. 2010-11 and Cross Objections of the assessee in CO No. 235/Del/2016 are taken up first. 4. The first identical issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the addition of Rs. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he date of incurrence of expenditure, description of the bill produced by the assessee thereon, party to whom it was paid and the amount involved therein, in a tabular form in pages 6 to 8 of his assessment order. The assessee also furnished the complete explanation of the expenses incurred on publicity, advertisement & sales /business promotion. The reply of the assessee vide letter dated 25.02.2014 as reproduced by the ld. AO in page 9 of his assessment order is as under:- 'Publicity, advertisement & sale promotion:- During the year under consideration the assessee company has incurred expenses of Rs. 3,49,24,911/- on sales promotion expenses. Out of this total amount, major amount i.e. Rs. 78,00,008/- has been paid to Matthew Brain Roche towards production of & creation of CG image, animation & lightshow for Ludhiana, Rs. 79,19,451/- to Lead Advertisers towards the display charges for project in Ludhiana and balance amount of is towards various activities like printing of Brochure, making website, organizing Conference, meals for business promotion & advertisement gifts, publishing of full page advertisement in The Indian Express Newspaper, launch campaign for Ludhi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emaining sum of Rs. 3,44,55,262/- was allowed as revenue expenditure by the ld. CIT(A) by appreciating the fact that assessee is following percentage of completion method and as per the Guidance Note issued on 'Accounting for Real Estate Transactions' by ICAI, the selling and marketing expenses should not form part of project cost and to be allowed as revenue expenditure. Aggrieved, only the revenue is in appeal before us. 4.6. It is not in dispute that the assessee is following 'Percentage of Completion' Method for recognition of revenue from real estate transactions carried out by the assessee. It is not in dispute that the assessee had indeed launched the project at Ludhiana and had collected advance from customers (shown in the liabilities side of balance sheet under current liabilities) and had also shown the 'Project in Progress' in the asset side of the balance sheet in respect of all expenditures incurred which are directly attributable to the project. This accounting is done strictly in accordance with the Guidance Note issued for 'Accounting for Real Estate Transactions' by ICAI. For the sake of convenience, the relevant portion of the Guidance Note issued by ICAI are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... general and can be allocated to the project. 2.3 Construction costs and development costs that relate directly to a specific project include: (a) land conversion costs, betterment charges, municipal sanction fee and other charges for obtaining building permissions; (b) site labour costs, including site supervision; (c) costs of materials used in construction or development of property; (d) depreciation of plant and equipment used for the project; (e) costs of moving plant, equipment and materials to and from the project site; (f) costs of hiring plant and equipment: (g) costs of design and technical assistance that is directly related to the project; (h) estimated costs of rectification and guarantee work, including expected warranty costs; and (i) claims from third parties. 2.4 The following costs should not be considered part of construction costs and development costs if they are material: (a) General administration costs; (b) selling costs: (c) research and development costs; (d) depreciation of idle plant and equipment; (e) cost of un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia (ICAI). Accordingly, the AO cannot re draw the audited accounts or change the formats, which are drawn pursuant to Companies Act. However working of income can be differed on the basis of the provisions of IT Act, which is not the case in present issue of appeal. 8.2 As discussed in details by the appellant, the expenditure is in respect of the business carried out by the appellant. The conditions mentioned u/s 37(1) of the Act are satisfied to show that it is an allowable expenditure. It is true that no income has been disclosed by the appellant however it has shown to have received a sum of Rs. 3,97,41,443/- as booking advance from its customers. Therefore, it cannot be said that the appellant has not received any money. However, due to following the Accounting Standards, no income has been shown by the appellant. Therefore, to say that the expenditure incurred on business promotion and advertisements etc. is not related to the income earned by the appellant for the year under consideration is factually incorrect. 8.3 Further, the AO has not questioned about the eligibility of claim of this expenditure however disallowed it and stated that this should be take....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble for waterfront lunch. Since, this is an advance payment and the expenditure appeared to have not been crystallized for the year under consideration therefore the same cannot be treated to have been incurred for the relevant previous year and cannot be allowed as expenditure within the meaning of provisions of Section 37(1) of the Act. Hence, the addition to the extent of Rs. 13,23,600/- is sustained. 8.7 Thus the balance amount of Rs. 3,44,55,262/- (Rs. 3,57,78,862/-- Rs. 13,23,600/-) is allowed as revenue expenditure for the year under consideration. 8.8 However, while allowing such expenditure the AO should verify whether the appellant has complied with the provisions of TDS, as applicable, in all such expenditure to satisfy that provisions of Section 40(a)(ia) is not applicable. In case proper compliance related to the provision of TDS has not been made by the appellant, adequate action may be initiated, as per law. 8.9 In the result, the appeal is partly allowed on this ground." 4.8. We find that the fact of assessee not recognizing any income from sale of flats in accordance with the Guidance Note issued by ICAI while following 'Percentage of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kkamal Jain Saraf P Ltd amounting to Rs. 1,06,000/- b) 1.11.2010 - Purchase of silver articles for Diwali gifts given to Frazer and Haws amounting to Rs. 9,10,616/-. 8.2. The ld. AO had disallowed the same as not meant for business purposes of the assessee by stating that the assessee failed to produce the details of persons along with reasons and confirmations to whom the expensive gifts were distributed. It is not in dispute that the aforesaid gifts were given by the assessee to its land aggregators who were identifying and brokering the land deals on behalf of the assessee company and to brokers who were effecting bulk sales for the assessee company, on the occasion of Diwali. The assessee had stated before the ld. CIT(A) that no details were ever called for by the ld. AO regarding this expenditure and the assessee came to know of this only from the assessment order. It is not in dispute that the assessee is in the real estate business wherein purchase of land and sale of projects is the most critical and commercially important activity and hence it was very important for the assessee to keep land aggregators and brokers in good humor. The assessee had submitted that....