M/s. A.N. Build well Pvt. Ltd. Vs. DCIT (ITAT Delhi)
In the present case, the assessee is following Mercantile system of accounting therefore, the assessee was required to disclose the profit which accrued corresponding to the part of the work of the project executed by the assessee. The Assessing Officer was required to examine the agreement to sale for units and record whether any specified area of plot of land was allocated to the customers and significant risk relating to the said plot like price risk, any regulatory risk (related to state government or any local authority) was transferred by the assessee. He was also required to examine whether there was any restriction on the buyer to sale or transfer his interest in the property to a third person till complete sale consideration is paid. In our opinion, if the significant risk and reward are transferred to the buyer, the amounts received from the buyer to the extent of stage of completion of the project has accrued to the assessee and it should be subject to tax in terms of section 5 of the Act. Before us, the percentage of work completed by the assessee on the project, is not available and, thus, we are unable to compute the revenue recognized from the project.
In view of the above facts and circumstances, we feel it appropriate to set aside the order of lower authorities on the issue in dispute raised in both the appeals and restore the matter to the file of the Assessing Officer for deciding afresh in view of observation made by us above. The assessee shall be afforded adequate opportunity of being heard. Accordingly, the grounds raised in both the appeals are allowed for statistical purposes.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
These cross appeals of the assessee and the Revenue are directed against order dated 11/01/2013 of Ld. Commissioner of Income-tax (Appeals)-IV, New Delhi [in short ‘the Ld. CIT-(A)’] for assessment year 2009-10.
2. The grounds of appeal raised by the assessee in ITA No. 1710/Del/2013 are reproduced as under:
1. On the facts and circumstances of the case, the Learned Commissioner of Income-tax (Appeals) has erred in confirming the addition of Rs. 1,34,37,679/- on account of Assured Return made by Ld. A.O. in his assessment order u/s 143(3) of the l.T. Act.
2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-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. 15 of schedule 11 to the audited balance sheet as at March 31, 2008 and the explanation/evidences furnished by the assessee company during the appellate proceeding duly supported by Audited Financial Statements as Books of Accounts, Profit and loss Account, Balance Sheet, notes to accounts etc.
4. That the learned CIT (A) has further overlooked the fact of the instant case, that the advance received from sales booking was applied for the business of the assessee and also the interest income from fixed deposits made out of advance received has been duly shown as part of income of the assessee company.
5. That the Appellant craves to leave, alter, vary and/or add or delete any ground of appeal at any time thereafter.
It is therefore prayed that the addition made and sustained be deleted and it be held that the proceedings were
3. The grounds of appeal raised by the Revenue in ITA No. 2099/Del/2013 are reproduced as under:
1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the expenses made by account of Advertisement and Marketing Expenses, Employees Salary, Traveling Expenses, Legal Expenses and Brokerage Expenses, amounting to Rs. 10,32,42,076/- ignoring the facts that these expenses incurred by the assessee are of capital in nature.
2. The Appellant craves for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearting of this appeal.
4. When these appeals were called for hearing, neither anyone attended on behalf of the assessee nor any application for adjournment was placed before the Bench. On perusal of the record, we find that these appeals are pending since, 2013 and on many occasions, the case was adjourned on the request of the assessee. The Ld. counsel of the assessee also filed two paper books containing written submission on 14/02/2014 and 18/08/2016 respectively. During the hearing dated 25/04/2017, the Ld. counsel of the assessee requested for issue of notice of hearing on the official liquidator of the company, at the address provided by him. In view of his request, notice for hearing was issued on 23/08/2017 on the Assistant Official Liquidator at his address located on 8th floor, Loknayak Bhawan, Khan market, New Delhi fixing the date of hearing on 04/10/2017. On perusal of the record, we find that this notice 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 declaring nil income. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. During assessment proceeding, the Assessing Officer observed that expenses incurred on land and construction work debited to work in progress account reflected as inventory in the balance sheet and no revenue was recognised. The Assessing Officer noted work in progress of Rs. 43.51 crores and advance from customers of Rs.54.35 crores as on 31/03/2009. The assessee did not recognise any revenue from the project and the only income which was reflected in the profit and loss account was on account of interest income on deposits with banks.
The Assessing Officer further observed that the assessee claimed expenses of Rs. 12.80 crores including expenses of Rs. 7.80 crores under the head administrative expenses, Rs. 3.54 crores on brokerage, Rs. 1.34 crores on assured returns and Rs. 11 lakhs on depreciation. The assessee provided detail of the administrative expenses as under:
