TMI Blog2018 (6) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... y be related to specific projects, it is not possible for us to decide, what part of advertisement expenses were related specifically to the project and constitute cost of project. Similarly, no such information is available on record in respect of commission and brokerage expenses - thus the matter is restored to the file of the Ld. CIT(A) for deciding afresh. - ITA No.3923/Del/2014 - - - Dated:- 29-5-2018 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Sh. K. Tiwari, Sr.DR For The Respondent : Sh. Manoj Singhal, Adv. ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 17/04/2014 passed by the Ld. Commissioner of Income-tax (Appeals)-XI, New Delhi[in short the Ld. CIT(A)] for assessment year 2010-11 raising following grounds: 1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of ₹ 5,66,266/- made by AO u/s I4A read with Rule 8ID and restricting the disallowance of ₹ 39,414/- under Rule 8D(2)(iii) to ₹ 37,500/- (0.5% of 1/2 (150,01,500 + 0). 2 On the facts and in the circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year was claimed by the assessee as towards specific projects and same had not been debited under the profit and loss account in view of the percentage completion method followed for revenue recognition from real estate development. The Assessing Officer rejected the contention of the assessee, and in view of the average value of investment amounting to ₹ 7.58 crores, in assets eligible for earning exempt income, he invoked the Rule 8D, computing the disallowance as under: i) Rule 8D(2)(ii) for indirect interest expenditure= (interest amount) X average investment in exempt incomeyielding assets / average of total assets = ₹ 5, 66, 266/- (ii) Rule 8D(2)(iii) for administrative expenses at the rate of 0.5% of the average value of investment in exempt income yielding assets = ₹ 39, 414 3.2 Before the Ld. CIT(A), the assessee claimed that no interest was debited to the profit and loss account, accordingly, the Ld. CIT(A) deleted the disallowance of ₹ 5,66,266/- made under Rule 8D(2)(ii) of the Rules. 3.3 Regarding the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come instead of exempt dividend income. Thus, it was net investment of ₹ 1,50,01,500/- which give rise to exempt dividend income. Accordingly, the disallowance under Rule 8D(2) (iii) of I.T. Rules, 1962 is recomputed at ₹ 37,500/- [0.5% of 1/2 (1,50,01,500 + 0)]. Thus, the disallowance is restricted to ₹ 37,500/-. The ground of appeal on this point is therefore, partly allowed. In the result, ground No. 1 of the appeal is partly allowed. 3.4 Before us, the Ld. DR relied on the order of the Assessing Officer and submitted that in view of no disallowance made by the assessee for earning the exempt income of ₹ 6,72,408/-, the Ld. Assessing Officer was justified in making disallowance. 3.5 On the contrary, the learned counsel of the assessee relied on the finding of the Ld. CIT(A) and submitted that the assessee was having sufficient own funds in the form of share capital and free reserves for investment in the assets, which could yield exempted income. He also submitted that the interest of ₹ 5,88,75,200/- considered by the Assessing Officer for proportionate disallowance in terms of Rule 8D(2)(ii) of the Rules, was incurred in relation to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that the factual finding of the Ld. CIT(A) that amount of ₹ 7,64,000/- was invested in LIC mutual funds, the interest income from which is taxable, has not been disputed by the Ld. DR. Once the said investment of ₹ 7,64,000/- is not part of the average value of investment, which could yield exempted income, the computation of net amount of investment of ₹ 1,50,01,500/- and subsequent working of 0.5% of said value by the Ld. CIT(A) has been made correctly and we do not find any error in the same. Accordingly, we uphold the same. The ground No. 1 of the appeal of the Revenue is accordingly dismissed. 4. In Ground No. 2, the Revenue has challenged deletion of disallowance of ₹ 25,38,714/- against advertisement expenses. In ground No. 3 the Revenue has challenged deletion of disallowance of ₹ 15,96,756/- against commission and brokerage expenses. 4.1 The facts qua the disallowance are that advertisement expenses of ₹ 31,73,393/- and brokerage expenses ₹ 15,96,756/- have been claimed by the assessee in the profit and loss account. The assessee attempted to justify that it was engaged in the business of real estate development, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, the AO has allowed only 80% of the total expenditure under the head Advertisement and remaining expenditure was disallowed. The AO s action is examined from the angle of its allowability u/s 37 of the Act as well as its nature viz. whether capital or revenue. As pointed earlier, the AO has not disputed so far as the allowability of advertisement expenditure u/s 37 of the Act is concerned. The expression 'wholly and exclusively has been interpreted by Hon'ble Supreme Court in the case of Sassoon J. David Company Pvt. Ltd. vs. CIT [1979] AIR 1441 as well as by the Hon ble Jurisdictional High Court in the case of CIT vs. Jay Parabolic Springs Ltd. in 1TA No. 707/Del/20Q4. It has been held that the revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years. So far as the nature of the expenditure is concerned, the appellant has relied upon the decisions of Hon'ble Supreme Court in the case of Empire Jute Company Ltd. vs. CIT, 2002-TIOL 238 (SC) as well as the decisions of Hon'ble Jurisdictional High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as relied upon the decisions of Hon'ble Supreme Court in the case of CIT vs. M/s Val Chand Company Pvt. Ltd. [1967] AIR 1435 as well as in the case of M/s Travancore Titanium Products Ltd. vs. CIT [1966] AIR 3250 and Shrs Meenakshi Mills Ltd. vs. CIT [1967] 63 1TR 207. The Hon'ble Courts have held that the expression for the purpose of the business is wider in scope than the expression for the purpose of earning profits Its range is wide In the appellant's case, even if the appellant had not booked the revenue because of adopting the percentage completion method, as it has not been disputed by the AO that such expenditure was actually incurred by the appellant, the expenditure under the head 'commission and brokerage' is definitely treated for the purpose of the business of the appellant. The facts being so and in view of the decisions of Hon'ble Courts on the subject, the AO s action in disallowing the expenditure of ₹ 15,96,756/- under the head commission and brokerage is not justified and the same is directed to be deleted. Ground No. 3 of the appeal is allowed. 4.4 Before us, the Ld. DR relied on the order of the Assessing Officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account for real estate transactions (revised in 2012) issued by the ICAI has also suggested not to include selling cost under the cost of project. The relevant extract of the said guidance note is reproduced as under: 2.4 The following costs should not be considered part of construction costs and development costs if they are material: ( a) General administration costs; ( b) selling costs; ( c) research and development costs; ( d) depreciation of idle plant and equipment; ( e) cost of unconsumed or uninstalled material delivered at site; and ( f) payments made to sub-contractors in advance of work performed. 4.8 We note that this accounting treatment has been provided for the purpose of making entries in the books of accounts. But no such treatment has been provided specifically in the Act. The accounting entries made in the books account cannot be determinative of whether particular item of receipt should be taxable as income, as has been held in the case of Kedarnath Jute Mfg. Co. Ltd Vs CIT (1971) 82 ITR 363 by the Hon ble Supreme Court. Under the Act, what constitutes total income has been provided in section 5, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject must include the cost on advertisement as well as cost on brokerage and commission, which are related to specific project. In our opinion, the selling cost should also be included in the project cost, if they are reasonably expected to be recovered from the sale of the project or if they are incurred for tangible assets that are used directly throughout the selling period of the sale of the project. Such selling cost may include, cost of model units and their furnishing, cost of sales facilities, legal fees for preparation of the prospectus, cost of semi-permanent signs, brochures, pamphlets etc. In our opinion, under the accrual method of accounting, the selling cost which is incurred in the period of sale of projects must be included in the total cost for the purpose of determining revenue recognized from the project. Before the Assessing Officer, also the assessee claimed that expenditure which are related to day-to-day functioning of the company has only been claimed in the profit and loss account and, thus, this stand that advertisement and brokerage commission related to project are allowable (which means these are related to day-to-day functioning), is contrary to it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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