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2019 (4) TMI 259 - AT - Income TaxAllowable revenue expenditure - business of Real Estate - WIP in construction development - Disallowance of expenditure incurred on employee cost, administrative expenses and selling and marketing expenses debited to P& L Account - Guidance Note on Accounting for Real Estate Transaction - proof of incurring indirect expenses - CIT-A deleted the addition - HELD THAT:- From the wordings of AS-2 that the administrative expenses which are not related to bringing the inventories (work-in-progress) to their present location and condition are to be excluded from the Inventories being work in progress in the assessee’s case. Moreover, it is also categorically stated that the selling expenses shall not form part of Inventories. The assessee being following the accounting policies framed by the ICAI by way of AS 2 and report of EAC, worked out the closing work in progress considering the expenses directly attributable to the construction of the project and the expenses which were not directly attributable to work in progress has been debited to Profit & Loss account. The above accounting method followed by the assessee has been also fortified by the “Guidance Note on Accounting for Real Estate Transaction” issued by the Institute of the Chartered Accountants which vide paragraph 2.2 defines the “Project Cost (i.e. which expenses shall be included while determining the project cost) Accounting treatment given in Guidance note on Real Estate Transaction is at par with AS 2 reproduced above and the assessee has followed these accounting principles in preparing its accounts year after year including the year under consideration. We found that the assessee, in compliance to these accounting principles, determined the expenses which are not related to the work in progress and debited the same to the profit & loss account being administrative expenses and selling expenses incurred for day to day functioning of the business and marketing; likewise, the expenses directly attributable to the work in progress have been debited to work in progress. No merit for the disallowance made by the AO on account of employee, cost, administrative expenditure and selling and marketing expenses, which are essentially in the nature of revenue expenditure. - Decided in favour of assessee. Addition u/s 14A - HELD THAT:- As recorded by the CIT(A) that during the year assessee has received ₹ 54.01 crores on account of security premium whereas maximum outstanding amount of investment made was ₹ 36.50 crores. Since own fund was more than the investment, no disallowance was warranted in terms of the decision in the case of Reliance Utilities and Power Ltd.[2009 (1) TMI 4 - BOMBAY HIGH COURT]. The finding so recorded with regard to the availability of interest free funds vis-a-vis investment has not been controverted by the learned D.R. by bringing on any cogent material on record. No infirmity in the order of the CIT(A) for deleting the addition under Section 14A by recording definite finding - Decided in favour of assessee.
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