TMI Blog2017 (12) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of the case, we find no reason to interfere the with the order of Ld. CIT(A) - Decided against revenue - I.T.A. No. 5613/Mum/2014 And Cross Objection No.111/Mum/2017 - - - Dated:- 8-12-2017 - SHRI JOGINDER SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Naresh Kumar, Ld.AR For The Revenue by : M.Daya Sagar, Ld. DR (CIT) ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. The captioned appeal by Revenue for Assessment Year [AY] 2010- 11 contest the order of the Ld. Commissioner of Income-Tax (Appeals)- 37 [CIT(A)], Mumbai, Appeal No.CIT(A)-37/IT-311/DCCC-10/13-14 dated 17/06/2014 by raising following solitary grounds of appeal: 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 2,94,02,417/- made on account of selling and administrative expenses, without appreciating the fact that the selling and administrative expenses include advertisement and publicity, selling and marketing cost, commission and brokerage, professional legal charges, which are expenses related to the project and should have been capitalized. 2.1 Facts leading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Standard-7 issued by the Institute of Chartered Accountants of India. [ICAI] . However, not convinced, Ld. AO disallowed the same and added the same to closing Capital Work-in-Progress [WIP]. 3. Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 17/06/2014 where the assessee s ground was allowed by making following observations:- 4.3.4 Now coming to the items of selling and distribution expenses treated by the AO as items to be capitalized, it is noted that these are not direct or indirect costs of construction. Further, Accounting Standards AS-7, clearly mentions that selling expenses and general administration costs should not be considered as part of construction costs and development costs. The action of the assessing officer is not supported by the Accounting Standards and also will result in complicated and cumbersome accounting to keep track of each year s WIP, without any gain to revenue. None of the expenses is held to be non-genuine. No revenue is recognized so there is no implication of shifting of profits. There is at best a mere postponement of costs. The disallowance made by assessing officer is delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and materials to and from the contract site; ( e) costs of hiring plant and equipment; ( f) costs of design and technical assistance that is directly related to the contract; ( g) the estimated costs of rectification and guarantee work, including expected warranty costs; and ( h) claims from third parties. These costs may be reduced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract. 17. Costs that may be attributable to contract activity in general and can be allocated to specific contracts include: ( a) insurance; ( b) costs of design and technical assistance that is not directly related to a specific contract; and ( c) construction overheads. Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics. The allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and processing of construction personnel payroll. Costs that m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question raised is more or less academic as in the long run, the assessee is not affected as the liability of tax on the income of the total works contract remains the same and the question is at what stage the tax is to be paid. Mr. Joshi was fair enough to submit that it is not a question of additional liability of tax, but the question is whether the IT Department can force the assessee to adopt a particular system of accounting, or whether the assessee has the option. While going through AS-7, we find the executor of the works contract is required to pay income-tax even on the part completion of the work also, but a formula has been provided for the purpose regarding valuation, etc., keeping in mind the ultimate payment to be received against the entire work. 8. In the present case, the factual part is not under dispute and hence we would confine to the question raised. 9. A similar question had arisen in the case of CIT vs. Doom Dooma India Ltd. (1994) 117 CTR (Gau) 156 : (1993) 200 ITR 496 (Gau), wherein the question of valuation of stock arose as a result of the accounting system. Referring to the provision of s. 145 of the Act, This Court held: It is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the trader consistently and regularly cannot be discarded by the Departmental Authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if in the opinion of the taxing authorities income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade. 12. As stated above, the accounting system AS-7 is an approved system of accounting by the ICAI and as such the authenticity of the said accounting system is not under challenge. The assessee firm/appellant being a private limited company was maintaining its accounts following the said system and the accounts were duly audited by a qualified chartered accountant, maintenance of the accounts as well as the valuation of work-in-progress will not prejudice either side. Admittedly, the particular work contract was not completed and it comes under the category of workin- progress. There is also no dispute that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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