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2023 (8) TMI 326 - ITAT DELHIAllowable business expenses - assessee claimed expenses directly in the computation of income, when such expenses had not been claimed by the assessee itself in its audited books of accounts - assessee was following Accounting Standard 7 issued by the Institute of Chartered Accountants of India, according to which assessee would start reporting Revenue once 25% of the project is complete and before that all the expenses will go in cost of development and would not be allowed to be debited to the Profit and Loss account - assessee had not conducted any business activity and had only done construction work which was debited to construction work in progress, therefore of the view that there was no justification of claiming expenses. HELD THAT:- As decided in assessee own case [2022 (8) TMI 1417 - ITAT DELHI] for Noida Authority-Interest and Late registration charges assessee was allowed 16 half yearly installments to pay the amount of Rs. 302.31 Cr. to NOIDA and in case of default interest @ 14% compounded half yearly leviable for the default period on the defaulted amount. The balance sheet also reflects cost of land of Rs. 387.25 Cr. which has been capitalized. Since, the interest is attributable to the cost of land, the interest expenditure is not allowable as per Section 36(1)(iii). Similarly, the registration charges and the fee/penalty/damages/price for late registration amounts to an integral part of cost of acquisition of land has also to be allotted to the “cost of project” and to be treated as part of capital work-in-progress. Hence, we hereby affirm the order of the CIT(A) on these two issues. Advertisement Expenses, Brokerage & Commission - The project cost in relation to a project comprises of cost of land and cost of development rights, borrowing cost, construction and development cost. In relation to land, the entire cost of land and development rights, stamp duty registration charges and other incidental expenses have to be capitalized. With relation to the borrowing cost, the interest directly related to the project is to be capitalized. All the direct costs relating to the construction and development of the specific project have to be capitalized. The construction cost includes conversion cost, municipal sanction fee, expenses incurred, site labour cost, cost of material, cost of hiring plant & machinery, cost of designs and claims of the third party. The general administrative cost, advertisement, brokerage, selling cost, depreciation of the vehicles and office expenditure are part of the revenue expenditure and need not be capitalized. There is difference between commencement of the business and setting off of the business. All the expenses incurred pre-commencement are to be treated as pre-operative expenses and the expenses incurred which do not form the part of the “work in progress” (WIP) like office expenses, salaries, advertising, brokerage and commission which are incurred for running of the business operations and to bring revenues to the company are to be treated as revenue expenditure. Hence, we hereby affirm the order of the ld. CIT(A) on account of the disallowance on Noida Authority-Interest and Late Registration Charges (LRC) and hold that the disallowance affirmed by the CIT(A) on account of Advertisement Expenses and Brokerage & Commission are liable to be obliterated. DR could neither point out any fallacy in the findings of CIT(A), nor could point out any distinguishable facts in the present case - Decided against revenue.
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