Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(ITAT) 11694

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
MADHUMITA ROY, Judicial Member, BRAJESH KUMAR SINGH, Accountant Member
DCIT – Appellant
Versus
DLF Limited – Respondent
I.T.A. Nos. 711/Del/2024|I.T.A. Nos. 673/Del/2024

Advocates:
For the Appellants/Petitioners: Shri R. S. Singhvi, Shri Satyajeet Goel, Shri Rajat Garg, C.A.’s
For the Respondents: Shri Surender Pal, CIT-D.R., Shri Sanjay Kumar Yadav, Sr. D.R.

Mandatory Ind-AS transition permits revenue-neutral one-time deduction for POCM margin reversal; consistent accounting methods upheld if bona fide; interest on construction inventory borrowings fully deductible; no TDS on statutory govt. payments.

Headnote:(A) Income Tax Act, 1961 - Sections 14A r.w. Rule 8D, 36(1)(iii), 40(a)(ia), 145 - Real estate development - Revenue recognition under Percentage of Completion Method (POCM) - Internal Development Charges (IDC) apportionment - Assessing Officer disallowed revenue recognition by loading IDC only on launched area and added Rs.319,01,05,617/-; deleted by CIT(A) following coordinate bench orders upholding POCM consistently applied. (Paras 4-9)

(B) Income Tax Act, 1961 - Section 36(1)(iii) - Interest capitalization - Borrowing costs for projects under construction (stock-in-trade) allowable as revenue expenditure despite POCM; no pro-rata restriction to revenue recognized; addition of Rs.61,34,84,000/- deleted relying on prior tribunal decisions holding proviso inapplicable to inventory. (Paras 10-16)

(C) Income Tax Act, 1961 - Section 14A r.w. Rule 8D - Disallowance of expenses relatable to exempt income - Restricted/deleted by CIT(A) following assessee's own disallowance and prior coordinate bench orders. (Paras 17-20)

(D) Income Tax Act, 1961 - Income heads - Reclassification of rental income from house property to business income - Rs.24,85,57,703/- addition deleted as covered by prior tribunal rulings. (Paras 21-25) (E) Income Tax Act, 1961 - Sections 145, Ind-AS transition - Mandatory shift from IGAAP-POCM to Ind-AS POCM w.e.f. 01.04.2016 per MCA notification - One-time deduction of Rs.5,82,695.93 lakhs for reversal of excess margins from prior years upheld as bona fide, revenue-neutral, avoiding double taxation; consistently followed thereafter. (Paras 31-61) (F) Income Tax Act, 1961 - Section 40(a)(ia) - TDS on payments of IDC, IAC, EDC to government departments - No deduction required u/s 196 as statutory fees to state authorities; addition of Rs.6,30,05,370/- deleted following high court and tribunal precedents. (Paras 62-68) (G) Income Tax Act, 1961 - Section 133(6) - Unverified purchases - Rs.95,12,768/- addition on non-response to notice remitted to AO for fresh verification with opportunity to assessee. (Paras 70-74)

Facts of the case:
Cross appeals for real estate developer against CIT(A) order on assessment u/s 143(3) r.w.s 144B for A.Y. 2017-18 involving additions on revenue recognition, interest, s.14A expenses, income reclassification, aircraft expenses, Ind-AS transition claim, TDS disallowance, and unverified purchases; assessee filed return declaring loss, revised same.

Findings of Court:
Revenue's appeal dismissed upholding CIT(A) deletions; assessee's appeal allowed for statistical purposes with remand on unverified purchases to AO.

Issues: Validity of POCM revenue recognition excluding IDC on unlaunched areas; interest deductibility u/s 36(1)(iii); s.14A disallowance; income head classification; aircraft expenses; Ind-AS one-time deduction on mandatory transition; TDS on statutory payments; genuineness of purchases.

Ratio Decidendi: Consistent method of accounting u/s 145 upheld if bona fide and revenue-neutral; mandatory Ind-AS change from 01.04.2016 binding, permitting transitional reversal of prior excess margins to prevent double taxation; interest on borrowings for stock-in-trade fully deductible; no TDS on govt. statutory fees; prior coordinate bench rulings binding on identical facts.

Result: Revenue appeal dismissed; assessee appeal allowed for statistical purposes.

Table of Content
1. cross appeals against cit(a) order on various additions. (Para 1 , 2 , 3)
2. pocm revenue recognition upheld per prior tribunal orders. (Para 4 , 5 , 6 , 7 , 8 , 9)
3. interest deduction u/s 36(1)(iii) allowed for business inventory. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16)
4. section 14a disallowance restricted per prior rulings. (Para 17 , 18 , 19 , 20)
5. rental income reclassified as business income upheld. (Para 21 , 22 , 23 , 24 , 25)
6. aircraft/helicopter expenses allowed for real estate business. (Para 26 , 27 , 28 , 29 , 30)
7. ind-as transition adjustment allowed as revenue-neutral under s.145. (Para 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61)
8. no tds required on idc/iac/edc payments to government authorities. (Para 62 , 63 , 64 , 65 , 66 , 67 , 68)
9. revenue appeal dismissed; assessee's remitted for verification. (Para 69 , 70 , 71 , 72 , 73 , 74 , 75 , 76)

ORDER

PER MS. MADHUMITA ROY – JUDICIAL MEMBER :

The instant cross appeals filed by the respective parties are directed against the order passed by the National Faceless Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 18.12.2023 arising out of the assessment order dated 30.09.2021 passed by the ACIT, Circle – 7(1), Delhi under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) passed by the ITO, Delhi, for Assessment Years (A.Y.) 2017-18. Since, both the appeals relate to the same assessee, these are heard analogously and are being disposed of by this common order. ITA No.711/Del/2024 (Revenue’s appeal) :

2. The Revenue has filed the appeal with the following grounds:

1. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs.319,01,05,617/- made by the AO on account of disallowance of revenue recognition as per POCM method of recording ignoring that the AO has categorically held that the Internal Development Charges (IDC) incurred by the assessee cannot be loaded/apportioned against unlaunched area?

2. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs.61,34,84,000/- made by the AO on account of disallowance of Interest capitalization ignoring that the AO has categorically held that the assessee is following POCM method of accounting under which interest expenditure related to projects under construction can only be allowed on proportionate basis to the extent of revenue recognized and the interest of Rs.61,34,84,000/- are in the nature of cost attributable to the acquisition/construction of asset, therefore, needs to be capitalized.

3. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in deleting the addition of Rs.54,63,24,512/- made by the AO on account of disallowance of expenses related to exempted income u/s 14A r.w Rule 8D of the Act ignoring that the AO has categorically held that the assessee has made disallowance of expenses u/s 14A on estimate basis and no working has been submitted as per the provision of Rule 80 r.w.s 14A of the Act?

4. Whether the Ld. NFAC under the facts and circumstances of the case and in law is justified in deleting the addition of account of reclassification of income from house property amounting to Rs 24,85,57,703/-.

5. Whether the Ld. NFAC under the facts and circumstances of the case and in law was Justified in deleting the addition of Rs.9,03, 15,833/ made by the AO on account of disallowance of expenses of Helicopter and Aircraft which were not related to business of assessee.

6. Whether on the facts & circumstances of the case and in law, the Ld. NFAC has erred in allowing the Principal claim of deduction of Rs.582,695.93 lacs ignoring that the assessee had to follow consistency in method of accounting i.e. POCM for the year under consideration and accordingly, the AO has rightly rejected the chan

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2025 Supreme(Online)(ITAT) 11694

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)MADHUMITA ROY, Judicial Member, BRAJESH KUMAR SINGH, Accountant MemberDCIT – AppellantVersusDLF Limited – RespondentI.T.A. Nos. 711/Del/2024|I.T.A. Nos. 673/Del/2024

Mandatory Ind-AS transition permits revenue-neutral one-time deduction for POCM margin reversal; consistent accounting methods upheld if bona fide; interest on construction inventory borrowings fully deductible; no TDS on statutory govt. payments.

Cases Referred (1)

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
MADHUMITA ROY, Judicial Member, BRAJESH KUMAR SINGH, Accountant Member
DCIT – Appellant
Versus
DLF Limited – Respondent
I.T.A. Nos. 711/Del/2024|I.T.A. Nos. 673/Del/2024