TMI Blog2014 (12) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... said method of accounting as per the provisions of section 145A of the I.T. Act. The AO has not assigned any cogent reason as to why the method, which has been consistently followed by assessee and accepted by the department in past as well in succeeding assessment years and which is in accordance with the recognized principles of accounting by ICAI, is being rejected. In our view, the action of the Revenue Authorities in rejecting the assessee's accounting method, without assigning any reason is not justified. The accounting method followed by the assessee and thereby excluding the indirect expenses such as office employees’ salary, administrative expenses and marketing & selling expenses is as per the recognized principles of accountings and as such the claim of the assessee deserves to be allowed. We hold accordingly. The additions made by the lower authorities on this issue are hereby ordered to be deleted. - Decided in favour of assessee - ITA No.2298/M/2012 - - - Dated:- 10-12-2014 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER, AND SHRI SANJAY GARG, JUDICIAL MEMBER For the Assessee : Shri Vijay Mehta, A.R. For the Revenue : Shri Asghar Zain VP., D.R. ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed revenue expenditure of ₹ 7,60,169/- being proportionate employee cost, ₹ 1,37,574/- being proportionate office and administrative expenses and ₹ 39,76,983/- being selling and administrative expenses and debited the same to its Profit loss account. 4. During the course of assessment proceeding, Assessing Officer (hereinafter referred to as the AO) asked the assessee to explain as to why the above stated expenses relating to proportionate Employees cost, Office and administrative expenses and selling marketing expenses should not be disallowed and carried forward to the work-in-progress. The assessee explained that the employee cost of ₹ 7,60,169/- was in respect of salary paid to the employees who were looking after the administration of office and not directly related to construction of the project. Similarly, for the office and administrative expenses, the same were incurred for office and administration purposes further that the selling and marketing expenses had been incurred for selling and marketing of flats. The above stated expenses were not having any nexus with the project under construction; hence, the same had been claimed as deductib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrative overheads that do not contribute to bringing inventories to their present location and condition; and (d) selling costs. 7. The Ld. Counsel has further relied upon para 2.4 of the Guidance Note on Accounting for Real Estate Transaction issued by the Institute of the Chartered Accountants wherein it has been stated that: The following cost should not be considered part of construction cost and development cost if they are material: (a) General administration costs; (b) Selling cost; (c) Research and development cost; (d) Depreciation of idle plant and equipment; (e) Cost of unconsumed or uninstalled material delivered at site; and (f) Payment made to sub-contractors in advance of work performed. 8. The Ld. Counsel therefore has stated that as per the above guidelines, the administrative and selling expenses have been specifically excluded from the cost of inventory for work for closing WIP. The Ld. Counsel has further submitted that even as per AS -7 vide paragraph 19 it has been mentioned that the general administrative cost and selling cost does not constitute the cost of the project. He, therefore, has submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest cost to the work-in-progress and claimed it in subsequent year in the proportion of revenue offered. Thus, the facts in assessee s case are quite distinguishable and the decision of Special Bench (supra) is not applicable to the facts of the assessee s case. 10. The ld. DR on the other hand has relied upon the findings of the lower authorities. He has stressed that the Ld. CIT(A) has rightly appropriated the indirect expenses to the WIP in proportion to the percentage of completion in respect of the area sold. 11. We have considered rival contentions and carefully gone through the orders of the authorities below. The percentage completion method of accounting has been regularly followed by the assessee. In the succeeding assessment year 2010-11, the AO has accepted the deductibility of the identical nature of expenses in the assessment order passed u/s 143(3) of the I.T. Act. We agree with contention of the Ld. Counsel for the assessee that the employee cost refers to salary paid to the employees who are looking after the administration of office and not directly related to construction of the project but is part of the administrative expenses. Similarly, the office a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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