Major Relief to DLF as ITAT upholds Deletion of ₹6000+ Crore Addition, Dismisses Revenue’s Appeal [Read Order]

The Delhi bench of Income tax appellate tribunal ( ITAT ) has upheld the deletion of additions of Rs. 6000+ crores on DLF Ltd accepting the revenue recognition as per Percentage of Completion Method (POCM). This is a major relief for the real estate giant.

Both revenue and DLF filed appeals before the tribunal, where the revenue raised 14 issues with regards to the deletion of addition by the CIT (A). The assessee company, engaged in the real estate business with multiple ongoing construction projects and sale of plots, filed its return of income for A.Y. 2017–18 on 04.11.2017, declaring a loss of ₹20,04,58,93,245/-.

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The Assessing Officer completed the assessment with various additions. On appeal, the CIT(A) partly deleted these additions. The Revenue has appealed against the deletions, while the assessee has filed a cross-appeal challenging the additions confirmed by the CIT(A) related to unverified purchase transactions.

During assessment, the AO questioned the assessee’s revenue recognition under the Percentage of Completion Method (POCM) and, based on the Special Auditor’s report for A.Y. 2009-10, concluded that the entire Internal Development Cost (IDC) incurred up to 31.03.2017 (₹361.79 crore) should be apportioned to the launched area, not unlaunched Phase-V. This led to an addition of ₹319.01 crore, which the CIT(A) later deleted.

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In the appeal, the Revenue challenged the CIT(A)’s deletion. However, the assessee pointed out that the issue was consistently settled in its favor in earlier years, particularly through Tribunal orders dated 11.03.2016 (A.Y. 2006-07) and 19.07.2023 (up to A.Y. 2016-17), both approving the POCM approach. The Tribunal, after reviewing these past rulings, found no reason to interfere with the CIT(A)’s order and dismissed the Revenue’s appeal on this ground.

With regards to the second ground raised by the revenue, the CIT(A) deleted ₹61.34 crore addition. In the situation, the AO disallowed ₹61.34 crore, treating part of the assessee’s claimed interest expenditure (₹1,236.08 crore) as capital in nature, arguing it should be capitalized under the Percentage of Completion Method (POCM) rather than allowed as a revenue deduction under Section 36(1)(iii) of the Income tax act. The assessee countered that it had sufficient interest-free funds and relied on past Tribunal decisions, where similar disallowances were rejected.

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The Tribunal observed that the issue was already covered by its earlier rulings (including A.Y. 2006-07 and the consolidated order for A.Ys. 2014-15 to 2016-17 dated 19.07.2023) in favour of the assessee. Accordingly, the Tribunal upheld the CIT(A)’s deletion and dismissed the Revenue’s appeal on this ground.

The other key issues raised by the Revenue in its appeal included the disallowance under Section 14A related to exempt income, reclassification of income from house property to business income, and disallowance of expenses related to the use of helicopters and aircraft. Each of these issues was carefully examined by the Tribunal, but ultimately, all the contentions raised by the Revenue were dismissed.

The huge addition was on the recognizing revenue under the Percentage of Completion Method (POCM) as per Indian GAAP until 31.03.2016 of about Rs.₹58,269,593 lakhs. This change resulted in an adjustment of ₹5,82,695.93 lakhs in the return of income for FY 2016-17, reflecting the difference between revenue recognized under the old and new methods. 

The AO made an addition of Rs.58,26,95,93,000/- on account of one time Ind-AS claim under the head “Large any other amount claimed as deduction” on account of adoption of Ind-AS. However, the same was deleted by the CIT(A). In this issue also, the tribunal dismissed the grounds of the revenue stating the change in method was mandatory for the company as notification issued by the MCA.

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As for the cross-appeal filed by DLF Ltd., challenging the CIT(A)’s confirmation of the disallowance of ₹95,12,768/- on account of unverified purchase transactions, the bench comprising Brajesh Kumar Singh (Accountant Member) and Madhumita Roy (Judicial Member) remitted the matter back to the Assessing Officer.

The Tribunal directed the AO to reconsider the issue afresh after providing the assessee a proper opportunity of being heard and after examining both the evidence already on record and any additional evidence the assessee may submit to establish the genuineness of the purchase transactions.

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To Read the full text of the Order CLICK HERE

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