Experion Developers Pvt. Ltd Vs ACIT (ITAT Delhi)
AO considered 90% of revenue expenses as part of the project cost / inventory / work in progress and accordingly made an ad hoc disallowance – Not sustain by ITAT Delhi
In the case of Experion Developers Pvt. Ltd. vs. ACIT, the Income Tax Appellate Tribunal (ITAT) Delhi addressed an ad-hoc disallowance made by the Assessing Officer (AO). The company, a real estate developer, consistently used the Percentage of Completion Method (POCM) for revenue recognition. During the assessment year 2012-13, the AO disallowed 90% of the company’s claimed revenue expenditures, totaling ₹8,73,10,314. The AO’s reasoning was that since no revenue from the projects had been recognized for the year, these expenses should be capitalized as part of the project cost or inventory. However, the ITAT noted that the company had already allocated expenses directly related to the projects to the project cost in its books, in line with Accounting Standard-7 (AS-7) and the Guidance Note on Accounting of Real Estate Transactions issued by the Institute of Chartered Accountants of India (ICAI). The remaining administrative and selling expenses, not directly tied to the projects, were correctly debited to the profit and loss account.
