ACIT Vs IREO Waterfront Pvt. Ltd (ITAT Delhi)
ITAT Delhi held that expenditure towards gift to persons who work for the assessee company during Diwali occasion is held for the purpose of business as per the principle of commercial expediency and accordingly allowable as business expenditure.
Facts- The assessee incurred expenditure towards purchase of two omega watches given as gift and purchase of silver articles for Diwali gifts. AO 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.
Conclusion- It is customary to incur these expenses on various auspicious occasions especially festivals like Diwali to be given to brokers, persons who work on behalf of the assessee company, customers and suppliers of the assessee, in order to keep them in good humor. It is a fact that by incurrence of these expenditure at the proper time like Diwali occasion would certainly strengthen the relationship of the assessee with the persons who work for the assessee company, customers and suppliers which in turn would enable the company to have continued relationship with the parties. Hence we hold that the said expenditure is held for the purpose of business as per the principle of commercial expediency.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeals and Cross Objections in the case of IREO Waterfront Pvt. Ltd., in ITAs No.2849 & 2850/Del/2016 for AY 2010-11 & 2011-12 and CO Nos.235 & 236/Del/2016 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.71/14-15/CIT(A)-29 & 72/14-15/CIT(A)-29 both dated 12.02.2016 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 31.03.2014 by the ld. Assessing Officer, Central Circle-2, New Delhi (hereinafter referred to as ‘ld. AO’). 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 3,44,55,262/- on the ground that the capitalization of selling and marketing expenses by the ld. AO is contrary to Guidance Note on Accounting for Real Estate transactions issued by ICAI .
4.1. We have heard the rival submissions and perused the materials available on record. The assessee is a private limited company engaged in the business of construction and development of real estate business. The return of income for the A.Y. 2010-11 was filed by the assessee company on 15.10.2010 declaring Nil income with loss for the year under consideration declared at Rs 4,46,56,632/-. A search and seizure action u/s 132 of the Act was carried out on 19.10.2010 in the case of IREO Group of Cases, wherein the assessee was also covered. Pursuant to the search, notice u/s 153A of the Act was issued to the assessee on 30.12.2011 . In response thereto, the assessee filed its return on 1.5.2012 declaring nil income claiming the loss for the year at Rs 4,46,56,632/-. The assessee had furnished the copy of Profit and Loss Account and Balance Sheet together with Auditor’s Report before the ld. AO.
4.2. The ld. AO noticed that assessee had launched an integrated township projects in Ludhiana, Punjab. As per accounting policies adopted for revenue recognition by the assessee company, revenue is recognised in relation to the sold areas only, upon transfer of all significant risks and rewards of ownership of such property as per the terms of contracts entered into with buyers which generally coincides with firming up of the buyers’ agreements, on the basis of Percentage of Completion Method. The assessee company had received a sum of Rs 63,63,000/- as booking advance from its customers which was shown under the head ‘current liabilities’ in its financial statements. The assessee has shown the following income in its profit and loss account:-
