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2018 (10) TMI 721

Held that:- This would be in the nature of general expenses not attributable to any project and payment to the extent it relates to the aforesaid expenses cannot be capitalised and had to be allowed as revenue expenditure. There is also another agreement for advertising with Ogilvy dated 5.9.2011. This agreement is for specific purpose of advertising of projects and therefore payments made for the said purpose will have to be treated as attributable to specific project and capitalised. The AO is directed to examine the payment of ₹ 15,65,000 and to the extent it relates to corporate brand identity exercise and logo design should be allowed as revenue deduction. The AO will allow opportunity of being heard to the assessee. - Decided pa .....

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essee and the revenue as to whether the assessee can claim revenue expenses under the head income from business because the assessee had not set up the business during the relevant previous year and therefore these expenses have to be capitalised as capital cost and shown in the balance sheet for claiming depreciation on such cost in future. Originally, the claim of the assessee was rejected by the AO in his order of assessment u/s. 143(3) of the Income-Tax Act, 1961 [ the Act ] dated 22.12.2014. The assessee filed appeal before the CIT(Appeals), who by his order dated 31.3.2017 accepted the claim of the assessee that its business was set up during the relevant previous year, but did not allow expenses of Rs,15,65,000 claimed under the head .....

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fore the CIT(Appeals), the plea of the assessee was that as per AS 2 which is an Accounting Standard prescribed by ICAI for determination of value at which inventories should be valued in the financial statements, in terms of clause 3.4 & 13, advertisement and business promotion expenditure, legal and professional charges should not be capitalised as part of work in progress. The relevant clauses of AS 2 reads thus:- Definitions 3. The following terms are used in this Statement with the meanings specified: Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of .....

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The CITA dealt with the aforesaid arguments by holding that (a) AS- 2 is not applicable to construction contracts as will be clear that it was only applicable for purchase of goods held for resale as would be clear from para 4 of AS-2, (b) advertisement and business promotion expenses as well as legal & professional charges were related to a project and cannot be allowed as a revenue expenditure and have to be capitalised as capital cost of the project. Aggrieved by the aforesaid order of CITA, the assessee is in appeal before the Tribunal. 6. I have heard the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee reiterated the submissions as were made before the CITA. He filed a Paperbook con .....

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ure. There is also another agreement for advertising with Ogilvy dated 5.9.2011. This agreement is for specific purpose of advertising of projects and therefore payments made for the said purpose will have to be treated as attributable to specific project and capitalised. The AO is directed to examine the payment of ₹ 15,65,000 and to the extent it relates to corporate brand identity exercise and logo design should be allowed as revenue deduction. The AO will allow opportunity of being heard to the assessee. 8. As far as legal & professional charges are concerned, it is clear from the agreement between the assessee and Prashant Rana and Lenin R.K. that the assessee had engaged professionals for carrying out liasoning work in relat .....

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sure of accounting policies and Accounting Standard II relating to disclosure of prior period and extraordinary items and changes in accounting policies had alone been notified as Accounting Standards to be followed by an Assessee and no other accounting standard has been notified. 11. AS-7, AS-9 issued by ICAI or the ICAI Guidance Note on Accounting for Real Estate Transactions, 2006, have not been notified and hence they do not have statutory force. The Assessee follows mercantile system of Accounting. AS-7 or AS-9 or ICAI Guidance Note on Accounting for Real Estate Transactions, 2006, cannot be said to be either Cash system or Mercantile system of accounting. All these systems of recognizing revenue have trappings of both cash system or .....

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