TaxTMI 
TaxTMI 
2025 (8) TMI 144
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....s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 19.03.2015 by the Assessing Officer, ACIT, Circle-8(1), New Delhi (hereinafter referred to as 'ld. AO'). 2. The only issue to be decided in this appeal is as to whether the learned CITA was justified in confirming the ad-hoc disallowance of Rs 8,73,10,314, being 90% of revenue expenditure of Rs 9,70,11,460/- made by the learned AO under various heads which were claimed as business expenditure by the assessee in the facts and circumstances of the incident case. 3. We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of construction and development of real estate projects, which ....
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....siness expenditure so debited to the profit and loss account has been claimed as deduction by the assessee in the return of income. 4. The case of the Learned AO is that the expenditure claimed as deduction by the assessee are directly or indirectly linked to the project and since no revenue from the project is recognized, those expenditure need to be considered as part of the project cost / inventory / work in progress and accordingly not to be allowed as deduction. The Learned AO however, considered 10 percent of the said expenditure as an allowable revenue expenditure and made an ad hoc disallowance of 90 percent there on in the sum of Rs 8,73,10,314/- and completed the assessment. This action of the Learned AO was upheld by the Learn....
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....truction and development costs - These would include costs that relate directly to the specific project and costs that may be attributable to project activity in 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; ....
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.... AS-7 and Guidance Note on Accounting of Real Estate transactions issued by ICAI by transferring the requisite portion to the project and claiming the remaining sums as revenue expenditure. The books of accounts and the book results submitted by the assessee are not sought to be rejected by the Learned AO in terms of section 145(3) of the Act. The application of Accounting Standard and Guidance Notes issued by ICAI and utilization of the same for the purpose of recognition of income under the Income Tax Act has been subject matter of due consideration by the Hon'ble Supreme Court in the case of Virtual Soft Systems Limited vs ACIT reported in 404 ITR 409 (SC) wherein the Hon'ble Apex Court had duly given due credence to the Accounting Stand....
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....e to the facts before us. 7. Further in any event, we find that the Learned AO himself had allowed 10% of the total revenue expenditure as a deduction which goes to prove that he was convinced that the expenditure incurred by the assessee in the total sum of Rs 9,70,11,460/- are indeed meant wholly and exclusively for the purpose of business of the assessee. Having held so, the Learned AO erred in making an adhoc disallowance of 90% of the expenditure in the sum of Rs 8,73,10, 314/- which in our opinion is totally arbitrary in nature. A query was posed by the Bench to the Learned AR as to when the income has been ultimately offered to tax from the project. In response thereto, the Learned AR sought time to furnish the said details of inc....