DCIT Vs. Rustomjee Ever shine Joint Venture Private Limited (ITAT Mumbai)
We may recapitulate the following observations of the Hon’ble Supreme Court in Investment Ltd. Vs. CIT(supra) :
“A taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts, and for that purpose to value his stock-in-trade either at cost or at market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by the Departmental Authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if in the opinion of the taxing authorities’ income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade.”
12. As stated above, the accounting system AS-7 is an approved system of accounting by the ICAI and as such the authenticity of the said accounting system is not under challenge. The assessee firm/appellant being a private limited company was maintaining its accounts following the said system and the accounts were duly audited by a qualified chartered accountant, maintenance of the accounts as well as the valuation of work-in-progress will not prejudice either side. Admittedly, the particular work contract was not completed and it comes under the category of work-in-progress. There is also no dispute that the ultimate liability of the assessee as regards tax will be dependent upon the total (fixed) amount received by the assessee against the particular work contract.
13. We, therefore, hold that the IT authority has no option/jurisdiction to meddle in the matter either by directing the assessee to maintain its accounts in a particular manner or adopt a different method for valuing the work-in-progress. We reiterate the decision in Doom Dooma India Ltd. (supra) and hold that an assessee has as the option/liberty to adopt any recognized method of accounting for his business and the income shall be computed in accordance with such regularly maintained accounting system.
The Ld. AR has contended that the assessee is consistently following the same method of accounting over several years, which is nowhere controverted by the revenue. Further, a perusal of quantum assessment order for AY 2011-12 as placed on record reveal that the assessee has claimed similar expenditure in that year also which has been allowed by the revenue in an assessment u/s 143(3) despite the fact that unsold inventory has remained with the assessee in the Balance
On the basis of above discussion, it can be observed that the assessee was consistently following a particular method of accounting which was in accordance with Accounting Standard issued by ICAI which is well accepted by higher courts. Further, the revenue has accepted the method adopted by assessee in subsequent year and therefore, precluded from changing stand particularly when both the assessment orders were framed by same assessing officer and on same date.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
1. The captioned appeal by Revenue for Assessment Year [AY] 2010- 11 contest the order of the Ld. Commissioner of Income-Tax (Appeals)- 37 [CIT(A)], Mumbai, Appeal No. CIT(A)-37/IT-311/DCCC-10/13-14 dated 17/06/2014 by raising following solitary grounds of appeal:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 2,94,02,417/- made on account of selling and administrative expenses, without appreciating the fact that the selling and administrative expenses include advertisement and publicity, selling and marketing cost, commission and brokerage, professional & legal charges, which are expenses related to the project and should have been capitalized.
2.1 Facts leading to the same are that the assesse being resident Association of Person [AOP] was assessed for impugned AY on 30/03/2013 u/s 143(3) read with Section 153C of the Income Tax Act, 1961. The return of income was field by the assessee on 15/10/2010 declaring loss of Rs. 11,46,68,151/-. The assessee belonged to Rustomjee Group (M/s Keystone Realtors Private Limited & Other Companies).
2.2 Pursuant to search and seizure action u/s 132(1) on 21/10/2010 on Rustomjee Group & Ever shine Group, their group concerns, directors and related persons, certain documents relating to assessee were found and consequently, a notice u/s 1 53A read with Section 153C was issued to the assessee on 04/01/2013. Pursuant to said notice, the original return of income, as filed earlier, was offered by the assessee.
2.3 During assessment proceedings, it was noticed that the only project developed by the assessee during impugned AY was a project called ‘Global City ’situated at Virar, Thane. The assessee had capitalized entire cost of construction since the project had not generated any taxable income up to 31/03/2010. However, the assessee claimed selling & administrative cost, personnel cost & Finance Cost in the Profit & Loss Account as revenue expenditure. The sole subject matter of the appeal is claim of the assessee under the head administrative cost.
2.4 The Ld. AO noted that the assessee claimed selling & administrative expenditure of Rs. 4,52,07,328/-, out of which the following items, in the opinion of Ld. AO, were directly related to the project carried out by the assessee and hence were required to be capitalized:-
