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2023 (9) TMI 1077 - AT - Income TaxNature of selling and marketing expenses - Revenue or Capital Expenditure - Treatment to the expenses while recognition of income - Guidance Note on Accounting for Real Estate transactions issued by ICAI - assessee is following ‘Percentage of Completion’ Method for recognition of revenue from real estate transactions carried out by the assessee - HELD THAT:- We find that the fact of assessee not recognizing any income from sale of flats in accordance with the Guidance Note issued by ICAI while following ‘Percentage of Completion’ Method, is not disputed by the ld. AO in the instant case. We find that the ld. AO had not doubted the incurrence of selling and marketing expenses for business purposes AO had not stated that the same are personal in nature ; the ld. AO had not stated that the same are capital in nature and the AO had not stated that the same were incurred in violation of Explanation 1 to Section 37(1) of the Act. Whether the selling and marketing expenses could be claimed as revenue expenditure independently by not including the same by capitalizing to Project Costs? - We find as per the Guidance Note issued by ICAI on ‘Accounting for Real Estate Transactions’, the selling and marketing expenses had to be charged off to revenue in the year of incurrence and not to be included in the project costs, which has been factually done by the assessee in the instant case. This fact is duly appreciated by the ld. CIT(A) in the instant case while granting relief to the assessee, subject to assessee complying with the provisions of section 40(a)(ia) of the Act. Hence we do not find any infirmity in the order of the ld. CIT(A) in this regard. Accordingly, the grounds raised by the revenue are dismissed. Disallowance made on account of gifts - It is not in dispute that the assessee is in the real estate business wherein purchase of land and sale of projects is the most critical and commercially important activity and hence it was very important for the assessee to keep land aggregators and brokers in good humor. The assessee had submitted that it had purchased land parcels worth Rs. 399 crores till the year end. It is customary to incur these expenses on various auspicious occasions especially festivals like Diwali to be given to brokers, persons who work on behalf of the assessee company, customers and suppliers of the assessee, in order to keep them in good humor. It is a fact that by incurrence of these expenditure at the proper time like Diwali occasion would certainly strengthen the relationship of the assessee with the persons who work for the assessee company, customers and suppliers which in turn would enable the company to have continued relationship with the parties. Hence we hold that the said expenditure is held for the purpose of business as per the principle of commercial expediency.
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