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2018 (10) TMI 721

Claim of business expenditure u/s 37(1) - concept of Revenue Recognition - assessee had not set up the business during the relevant previous year - advertisement & business promotion expenses - 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 an .....

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r the head income from business and set off the same against the income from other sources. This is how the assessee declared a loss in the return of income filed. 3. There was a dispute between the assessee 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(Appea .....

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ang/2017 by order dated 11.01.18 remanded the issue for a fresh consideration by the CIT(Appeals). Pursuant to the aforesaid direction of the Tribunal, the CIT(Appeals) has passed the impugned order. Before 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 .....

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s prior to a further production stage; (c) administrative overheads that do not contribute to bringing the inventories to their present location and condition; and (d) selling and distribution costs. 5. 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 Tribun .....

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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. 8. As far as legal & pro .....

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ee, the Assessing Officer may make an assessment in the manner provided in section 144. 10. Vide Notification No. 9949, dated 25-1-1996 [(1996) 130 CTR (St) 33], Accounting Standard I relating to disclosure 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 .....

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