TMI Blog2013 (1) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... would be allowable u/s. 36(1)(iii). HELD THAT:- (i) Administrative expenses Employee's Remuneration - Any cost that adds value thereto, i.e., enables the bringing of the relevant inventory to the stage of its completion and location as at the year-end, is to be taken into account for the purpose. Administrative expenses, as it appears, are only general in nature, and even with regard to the employee s remuneration, there is nothing to indicate that it represents an element of either direct cost of production or even of production overhead, which only would enable its inclusion as a part of the cost of production/construction. As such, being fixed (period) cost, these stand to be written off to the profit and loss account in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D THAT:- Considering the said cost as includable in the project cost may have a direct bearing on the gross profit rate, and which may therefore stand to decline from the reported and accepted rate of 23%, and cannot be presumed be remain as such, i.e., unchanged. Thus, no adjustment to the disclosed gross profit rate, on account of any of three items of expenditure under reference, is required under the given facts and circumstances of the case. Revenue Appeal dismissed. - ITA No. 7200/Mum/2010 - - - Dated:- 16-1-2013 - SHRI SANJAY ARORA, A. M. AND SHRI VIJAY PAL RAO, J. M. Appellant by : Dr. Manjunath Karkihalli Respondent by : Shri Pankaj R. Toprani ORDER Per Sanjay Arora, A.M.: This is an Appeal by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly. In appeal, it was explained by the assessee that the construction to the extent not sold, i.e., on which no profit stands booked yet, represents only the assessee s work-in-progress (WIP), i.e., stock-in-trade, and not a purchase of any asset/s. In fact, even if it were so, i.e., on capital account, the interest on borrowed capital would be allowable u/s. 36(1)(iii) of the Act, as clarified by the hon'ble jurisdictional high court in the case of CIT vs. Lokhandwala Construction Inds. Ltd. [2003] 260 ITR 579 (Bom.). The same found favour with the ld. CIT(A) on that basis. With regard to the administrative expenses, as well as the employee s remuneration, he was of the view that the same are only general in nature, and stand to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he valuation of inventories where and to the extent there is a direct nexus, the said standard is not mandatory under the Act. In fact, even following AS-2 a direct nexus has to be established for the interest cost to form part of the cost of production or construction, as the case may be, and, thus, a part of the valuation of the unsold inventory or work-inprogress as at the year-end. This is as, to cite by way of an example from the civil construction itself, the work on a project may not be underway at all for the whole or a part of the year, or say at its optimum or normative level, on account of various business exigencies. The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being reckoned as a part of the cost of production/construction, and thus of the inventory or the project cost as at the year-end. The deductibility of the said cost u/s. 36(1)(iii) is thus neither in doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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