DCIT Vs Bright Buildtech Pvt. Ltd. (ITAT Delhi)
No Sales, Yet No Disallowance: Selling Costs Allowed Despite Zero Revenue; Revenue’s Appeal Only Partly Succeeds
Delhi ITAT, Bench ‘E’, in DCIT vs. Bright Buildtech Pvt. Ltd. (ITA Nos. 1240 & 1244/Del/2025, AYs 2015-16 & 2016-17, order dated 22.12.2025), partly allowed Revenue’s appeals and upheld the CIT(A)’s relief on most issues relating to real-estate project accounting under the Percentage Completion Method (POCM).
The core dispute revolved around the AO’s action of disallowing advertisement, business promotion, commission & interest expenditure on the ground that no revenue was recognised during the year. The Tribunal agreed with CIT(A) that the Assessee had correctly followed POCM and ICAI Guidance Note, as the mandatory threshold of 25% project cost was not achieved. It was held that selling costs such as advertisement & commission do not form part of project cost, even where revenue is not recognised, and are allowable as revenue expenditure, relying on DLF Home Developers (SC) and several Delhi HC & ITAT precedents. Accordingly, deletion of disallowance of ₹11.65 crore (AY 2015-16) and ₹5.53 crore (AY 2016-17) was upheld.
On interest expenditure, the Tribunal partly disagreed with CIT(A). While debenture issue expenses were held to be revenue in nature u/s 37(1) (following India Cement line of cases), interest on NCDs used for project financing was directed to be capitalised, as funds were deployed in project activity and not otherwise. Thus, Revenue succeeded partly on this limited issue.
Regarding notional interest on interest-free advances to subsidiaries, ITAT held that advances to subsidiaries for business purposes, where interest had already been capitalised in earlier years, could not justify arbitrary notional interest. However, where advances were sourced from interest-bearing funds and no interest-free funds were demonstrably available, AO was directed to recompute disallowance restricted to actual interest cost, rejecting flat 12% notional approach.
On section 14A, the Tribunal rejected Revenue’s challenge in principle, reiterating that investments made in earlier years out of interest-free funds and investments yielding taxable income do not attract s.14A. However, AO was directed to rework disallowance, if any, restricted to actual interest claimed, after adjusting for interest already disallowed on notional basis.
Finally, on section 40(a)(ia), ITAT upheld CIT(A)’s finding that this was a case of excess TDS deposit and not delayed deduction, and that AO’s reverse-calculation method was unsustainable. Disallowance was rightly deleted.
Overall, ITAT reaffirmed that absence of revenue recognition under POCM does not automatically justify disallowance of genuine selling & administrative expenses, while simultaneously cautioning that interest costs must follow correct capitalisation principles. Revenue’s appeals were thus partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The Revenue has filed appeals against the order of the Learned Commissioner of Income-tax (Appeals)-3, Noida [“Ld. CIT(A)”, for short] dated 18.12.2024 for the Assessment Years 2015-16 & 2016-17.
