DCIT Vs Sashwat Construwell Pvt. Ltd. (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal considered Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals)-50, Mumbai for Assessment Year 2022-23 concerning three principal additions/disallowances: CSR expenditure of Rs.6,65,000/-, interest of Rs.3,64,470/- on delayed payment of GST/MVAT, and Rs.29,46,82,835/- representing alleged profit from sale of tenements in Tower B of the “Bhoomi Celestia” project. The assessee was engaged in real-estate development and had undertaken the project under an MoU with American Springs and Pressing Works Pvt. Ltd., the landowner.
The project comprised Towers A, A1 and B, with the assessee entitled to 49% of the saleable area and the landowner to 51%. Although construction of Tower B was completed and an Occupancy Certificate was issued in December 2021, the assessee consistently followed the project completion method and treated all three towers as one integrated project. On the CSR issue, the Tribunal agreed with the CIT(A) that although CSR expenditure is not allowable as business expenditure under Section 37(1), a qualifying CSR donation may be considered for deduction under Section 80G subject to satisfaction of the applicable statutory conditions. On interest paid for delayed GST/MVAT, the Tribunal followed the judicial view that such interest is compensatory rather than penal and therefore does not fall within Explanation 1 to Section 37(1).
Regarding the Tower B addition, the Tribunal noted the consolidated commencement certificate, common amenities, single cost centre, common project structure and consistent project completion method. It relied upon the principles recognised in DLF Universal Ltd. and held that completion of one tower did not require artificial recognition of profit where the entire development constituted a single project and income from the completed project was subsequently offered to tax. The Tribunal accordingly found no justification for disturbing the CIT(A)’s deletion of the addition. The Revenue’s appeal was dismissed.
Cases Discussed
- Savex Technologies Pvt. Ltd. (ITA No. 4185/MUM/2025 dated 12.09.2025)
- DCIT vs. L.N. Malviya Infra Projects Pvt. Ltd. [2024 (5) TMI 1354 – ITAT Indore]
- Vyoma Technologies Pvt. Ltd. vs. DCIT [2024 (8) TMI 1232 – ITAT Bangalore]
- Saltwater Studio LLP vs. ACIT [2023 (3) TMI 1389 – ITAT Mumbai]
- Neelkamal Realtors Suburban Pvt. Ltd. vs. ACIT [2022 (5) TMI 40 – ITAT Mumbai]
- CIT vs. Aditya Builders [2015 (9) TMI 1304 – Bombay High Court]
- DLF Universal Ltd. [2017] 88 taxmann.com 500 (Delhi)
FULL TEXT OF THE ORDER OF ITAT MUMBAI
By this appeal, the Revenue is challenging the order dated 11.08.2025 passed by the learned Commissioner of Income Tax (Appeals)-50, Mumbai (‘CIT(A)’ for short), which in turn arose out of assessment order dated 28.06.2023 passed by the Assessing Officer (‘AO’ for short) for the assessment year 2022-23.
2. The respondent-assessee is engaged in the business of builders, developers and dealer in real estate. The respondent-assessee had undertaken construction of a residential project, viz. ‘Bhoomi Celestia’ at Malad West, Mumbai, as per the Memorandum of Understanding (MoU) entered into with M/s. American Springs and Pressing Works Pvt. Ltd. (‘American Springs’ for short), which is the owner of the land, on which the project is being undertaken. The project comprises of three towers – Tower A, A1 and B. The respondent-assessee has 49% share, while the remaining 51% is with American Springs. The construction was commenced somewhere in 2010 on the basis of a consolidated Commencement Certificate from MCGM on 06.07.2010. According to the respondent-assessee, the project actually got commenced in financial year 2016-17 as it was delayed on account of certain regulatory permissions. Be that as it may, out of the three towers, construction of tower B was completed in assessment year 2022-23 and Occupancy Certificate was issued in respect the said tower in December 2021. The respondent-assessee is following the project completion method of accounting and, therefore, did not recognise the income arising out of sale of tenements in tower B in the year of its completion. According to the respondent-assessee, the project comprises of all the three towers.
3. The respondent-assessee filed its Return of Income (RoI) for the relevant year declaring a total income under normal provisions of Rs.99,93,740/- and book profit of Rs.1,13,36,555/- under Section 115JB of the Income Tax Act, 1961 (‘Act’ for short). The case was selected for scrutiny. The AO issued statutory notices to which the respondent-assessee filed its response. The AO finalised the assessment vide order dated 28.06.2023 under Section 143(3) of the Act making the following disallowances/additions:-
i) Disallowance of Rs.6,65,000/- being the donation made in compliance with the Corporate Social Responsibility (CSR) requirements.
ii) Disallowance of Rs.3,64,470/- on account of expenditure on interest on delayed payment of indirect taxes, viz. GST/MVAT.
iii) Addition of Rs. 29,46,82,835/- towards the profit element earned out of sale of tenements from tower B.
4. A perusal of the assessment order shows that the tax liability of the assessee as per the normal provisions being more than the liability as per MAT provisions, the resultant tax liability was computed in accordance with the normal provisions of the Act.
5. In appeal, it was contended on behalf of the respondent-assessee that none of the additions/disallowances can be sustained. It was contended that the project being comprised of all the three towers, completion of one of the towers cannot necessarily result in recognition of the profit element as income in the year of its completion, particularly as the respondent-assessee was consistently following the project completion method. The other two disallowances were also disputed.
6. The learned CIT(A) by the impugned order has allowed the appeal and deleted all the additions. Hence, this appeal.
7. We have heard parties. Perused record.
8. The learned DR has submitted that the project comprises of three distinct towers and the construction of tower B having been completed and an Occupancy Certificate being issued in December, 2021, the assessee cannot delay the recognition of the income in the relevant year, which has the effect of delayed payment of taxes thereon. It is submitted that the non-recognition of revenue cannot strictly be stated to be revenue neutral. It is submitted that the AO has gone into the issue threadbare in computing the profit element in respect of sale of tenements in tower B and the same does not need any interference.
9. Insofar as the disallowance on account of CSR requirements are concerned, it is submitted that the assessee is under a statutory responsibility as per the provisions of Section 135 of the Companies Act, 2013 to incur the expenses on account of CSR and as such, it is not an allowable expenditure. The learned DR has referred to Explanation 2 to Sub-section (1) of Section 37 of the Act in order to submit that the CSR expense is not an allowable expenditure.
10. Insofar as the disallowance on account of interest on delayed payment of indirect taxes is concerned, it is submitted that the said interest is penal in nature and, therefore, the said expenses would be clearly covered by Explanation 1 to Sub-section (1) of Section 37 of the Act.
11. It is submitted by the learned AR that the claim of CSR expenses, being allowable under Section 80G of the Act, was made before the learned CIT(A). He submitted that it is a settled position that the CSR expenses can always be allowed as a deduction under Section 80G of the Act subject to donation to eligible institutions.
12. It is submitted that it is also well settled that interest on delayed payment of indirect taxes is compensatory and not penal in nature and as such, is an allowable expenditure under Section 37(1) of the Act.
13. Insofar as the addition made in respect of the income earned out of the sale of tenements in tower B, it is submitted that the same cannot be sustained as the project comprises of all the three towers with a consolidated Commencement Certificate issued in the year 2010 and particularly when the respondent-assessee was following the project completion method of accounting. It is thus submitted that the addition has rightly been deleted. Reliance is placed on the decision of Delhi High Court in case of DLF Universal Ltd. [2017] 88 taxmann.com 500 (Delhi). It is submitted that in the subsequent years, on completion of the project, the income has been offered to tax in respect of all the three towers. It is submitted that, in any case, the non-recognition of income in the present assessment year was revenue neutral in nature.
14. We have given our anxious consideration to the rival circumstances and the submissions made. The learned CIT(A), in our view, has rightly found that the CSR donation/expenses can qualify for deduction under Section 80G of the Act subject to the applicable conditions. A useful reference in this regard may be made to the decision of co-ordinate bench of this Tribunal in Savex Technologies Pvt. Ltd. (ITA No. 4185/MUM/2025 dated 12.09.2025) to which one of us (President) was a party.
15. In this case, it is not disputed that the donation was made and the expenses were incurred towards CSR responsibility. As the learned AO did not allow the said expenses under Section 37(1) of the Act, before the First Appellate Authority the assessee claimed that it may be allowed under Section 80G of the Act. The learned CIT(A) has thus directed the learned AO to verify the eligibility of the notified fund/institution and subject to such verification, allow 50% deduction under Section 80G of the Act, if the required conditions are satisfied. We do not find any exception can be taken to the said finding.
16. Coming to the disallowance on account of interest on delayed payment of indirect taxes, it is well settled that such interest is not penal in nature as the same is essentially compensatory. The learned CIT(A) has taken note of the decision of this Tribunal in DCIT vs. L.N. Malviya Infra Projects Pvt. Ltd. [2024 (5) TMI 1354 – ITAT Indore], Vyoma Technologies Pvt. Ltd. vs. DCIT [2024 (8) TMI 1232 –ITAT Bangalore], Saltwater Studio LLP vs. ACIT [2023 (3) TMI 1389 – ITAT Mumbai] and Neelkamal Realtors Suburban Pvt. Ltd. vs ACIT [2022 (5) TMI 40 – ITAT Mumbai] in which it has been held that such interest is compensatory in nature. Thus, the finding by the learned AO that it was covered by Explanation 1 to Section 37(1) is not correct. The learned CIT(A) has rightly found that such interest on delayed payment of GST/MVAT does not fall under the category of “offences prohibited by law”. We, therefore, find that the disallowance on this ground has rightly been deleted.
17. This takes us to the addition made on account of income from Wing-B of the project ‘Bhoomi Celestia’. In this case, it is undisputed that although a consolidated Commencement Certificate was granted by the MCGM in respect of the entire project comprising of three towers, tower B got completed first, for which an Occupancy Certificate was issued in December 2021. The assessee was following the project completion method. It is also undisputed that as per the MOU, the assessee had 49% share in the saleable area while American Springs, which is the owner of the land, was having 51% share. In this case, it was also not disputed that in the subsequent years, the profit/income arising out of the entire project has been offered to tax. The learned CIT(A) while dealing with the said issue after taking note of several decisions (including that of CIT vs Aditya Builders [2015 (9) TMI 1304] of Bombay High Court) has held as under:-
7. I have gone through the assessment order and also perused the submission of the appellant. It is seen that appellant is engaged in the development of One Project namely “Bhoomi Celestia” at Malad West, Mumbai. This Project consists of 3 Towers namely A, A1 and B. The appellant has taken the land for development from One Company i.e. American Springs and Pressing Works Private Limited by Development Agreement executed on 16.04.2010. As per the understanding of the Joint Development Agreement the appellant was to develop the entire property consisting of three towers and 51% of the saleable area was to be given to the land owners and 49% of the saleable area would come to the appellant’s share which it was entitled to sell. The 51% of area was to be given free of cost to the land owners. The appellant received the approval for three towers by a single approval as stated in the proceedings. It was further stated that the common amenities such as recreational ground, common podium, club house, parking slots, swimming pool, sports grounds, etc. are common for all three buildings. The construction was done for all three buildings together and there was no separate accounting of cost for each building. The total cost of construction was maintained as single cost centre for all three buildings namely A, A1 and B. The appellant has been following “Project Completion Method” of accounting for revenue recognition for this Project consistently and regularly. It is seen from the whole proceedings and submissions that since inception the intention of the appellant was to develop this property as a single project consisting of three Towers. It so happened that one Tower namely Tower B reached completion in the F.Y. 2021-22 and other Tower A1 got completed in F.Y. 2023-24 and the 3rd Tower i.e. Tower A was completed in F.Y. 2024-25. It is the contention of the appellant that all 3 Towers are inseparable from each other having common facilities and amenities and having one cost centre in its books of accounts and therefore would recognize the sales of all Towers upon completion of the entire Project of 3 Buildings which happened in F.Y. 2024-25 relevant to A.Y. 2025-26. In the submission, it has been stated that in A.Y. 2025-26 the appellant has estimated the net profit of all 3 Towers at Rs.92.74 Cr. for the flats sold till 31.03.2025 and it has paid Advance Tax and TDS of Rs.18.75 Crores for A.Y. 2025-26. The Ld. A.O. in the assessment for A.Y. 2022-23 found that the appellant received Occupation Certificate for Tower B and therefore profit of Tower B for the Units sold by it need to be brought to Tax. He did the exercise of ascertaining cost of this Tower B by some estimated method and considering the sale price of the Units sold arrived at profit of Rs.29,46,82,835/- and made the addition in the year under consideration. The appellant submitted that all 3 buildings should be considered as one Project and the exercise of Ld. A.O. in artificially dividing the project is not warranted. It is also the contention of the appellant that it is a revenue neutral exercise done by Ld. A.O. as the appellant is considering the entire profit of the project including Tower B for the flats sold till 31.03.2025 in A.Y. 2025-26 and paid taxes accordingly. The tax rates for both the years are same.
The learned CIT(A) has further observed in para 7.1 as under:-
7.1 ……………………The ratio of the above decisions is that when there is no ultimate effect on the taxability of the profits of the project then artificial exercise of dividing the profits in different years be avoided because there is no ultimate gain of the revenue. Secondly, the judicial authorities have held that project completion method is a valid and recognized method of accounting in case of Real Estate Developers. I find force in the argument of the appellant that once the profit is being determined of the whole project in A.Y. 2025-26 for this it has paid Advance Tax and also filed statement showing calculation of projected income & profit for A.Y. 2025 26 in the proceedings before me no profit be assessed in this year. It is also seen that various approvals, commencement certificate and amenities are common for all 3 towers A, A1 and B and therefore in my view the project of 3 towers needs to be accepted as a single project. In this view of the matter, I am of the view that the impugned addition of Rs.29,46,82,835/- on account of Wing B of Project “Bhoomi Celestia” is uncalled for and ought not to have been made by the Ld. A.O. Even otherwise the appellant submitted a statement that the cost taken by the Ld. A.O. while estimating the profit of Tower B is also not correct. The Ld. A.O. adopted Rs.15,549/- as construction cost per sq. ft. whereas the appellant submitted that construction cost of this Tower would work out to approx. Rs.30,325/- per sq. ft. and if that is considered the sale considered by the Ld. A.O. in the year for this Tower B would result into loss of Rs.45.68 Crores. This was the alternative plea taken by the appellant and submitted that there cannot be any profit for tax in this Year even going by the Ld. A.O.’s findings. Considering the totality of the facts and circumstances and the principle laid down in various judgements relied on by the appellant, in my considered view, the impugned addition need to be deleted and has no reason to survive. I hold accordingly and the Ld. A.O. is directed to delete this addition of Rs.29,46,82,835/-. Accordingly, this ground of appeal is ALLOWED.”
18. In this regard, a useful reference can also be made to the decision of Delhi High Court in DLF Universal Ltd. (supra). The High Court in para 12 of the judgment has reproduced the following observations by the Tribunal in the context of a similar dispute as under:-
“Now coming back to the first issue raised by the AO and accepted by the CIT (A), it is with regard to the fact whether the assessee should not have treated Phases I to IV as one project for purposes of application of project completion method. The CIT (A) has opined that Phases I, II and III should be treated as one complex and Phase IV should be treated separately. This is for the reason, as per CIT (A) and the AO, that Phase IV could go on indefinitely and this could lead to reduction in profits because the purchase of land subsequently would be at the higher rates vis-à-vis the rate at which the land was purchased earlier at lower rates. As explained before, the appellant assessee follows the project completion method whereunder all its costs are capitalized to work-in-progress, including the purchase of land – whether it is purchased at earlier point of time or later point of time. So, there is no dispute between the appellant assessee and the Department that its work-in-progress has been properly reflected in its books of accounts. The issue that has been raised is that when the assessee books a sale on registration of the sale deed, then its credits work-in-progress by the average cost of land on the date of sale and debits its profit & loss account by the same amount. In principle, both the AO and CIT (A), as well as, the learned DR agree with this method; the only variation they are proposing is that average should be in respect of Phases, I, II and III, not including therein Phase IV, whereas, as per books of accounts maintained by the assessee from 1981 to 1993-94, the assessee is doing it in respect of all the four Phases, i.e., principally, the methodology is not under dispute. The only variation that is being pressed is in the exact working thereof. The criteria adopted by the Ld. CIT (A) is not justified. Firstly, the entire area under phase I to IV has been considered by the HUDA authorities as one single project, in terms of sanction given as per their letter. Secondly, the extent of the area to be held for benefit of the community like school, hospital, fire station, parks, police station etc. are to be set apart from the entire land of Phase I to IV jointly and not phase wise. Thus the cost of land in phase I to IV have to be aggregated by pooling all these lands together. This justifies the action of the assessee in allocating the cost of entire land in phase I to IV by pooling them together. On the contrary, there is no justification for excluding the cost of phase IV alone without any intelligible criteria for the same. There is no intelligible criteria for making this change. Ultimately, profit and loss even out over a period of time and life of the project. This tinkering with the books of accounts does not result in any gain to the Revenue as it only reduces profit in one year and increases in the other year and as observed by the CIT (A), most of the sales in these four Phase have been completed. Therefore, over the period of life of this colonization, this variation being proposed by the AO and the CIT (A) does not serve the purpose of the Revenue and this should not have been tinkered with. The finding by Ld. CIT (A) in this regard is incorrect for the reasons stated in this paragraph, especially in view of the fact that Haryana Urban Development Authority has also treated these four Phases as one as mentioned at pages 212 to 215 of the Paper Book.”
The Delhi High Court has, inter alia, held that the project completion method is a known and recognised method of accounting in which the assessee can identify receipt of income or revenue only upon the completion of the contract.
19. In the present case, as noticed earlier, there was a singular project undertaken in accordance with the MoU entered into between the assessee and American Springs, the owner of the land, for which one consolidated Commencement Certificate was granted. Thus, the fact that the assessee claimed the recognition of income only after completion of the entire project in the context of the fact that the assessee was following the project completion method, cannot be said to be incorrect. We find that the learned CIT(A) has rightly deleted the said addition.
20. In the result, the appeal is without any merit and is accordingly dismissed.
Order pronounced in the open court on 25.06.2026.
