TMI Blog2022 (6) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] - We, thus, finding no infirmity in the view taken by the CIT(A) as regards the aforesaid issue under consideration uphold his order to the said extent. The Ground of appeal No. 1 is dismissed. Addition towards sales promotion expenses and Advertisement expenses made by the A.O by capitalizing the same to the work-in-progress - CIT-A deleted the addition - HELD THAT:- We find that the selling and distribution costs, advertisement expense etc. are to be excluded from the cost of inventories as they do not contribute towards bringing the inventories to their present location and condition. Our aforesaid view that selling costs are no to be considered as a part of the project cost i.e W.I.P cost is also supported by the Guidance Note on Accounting for Real Estate Transactions (Revised 2012) wherein at Para 2.4(b) it is provided that selling costs are not to be considered as part of the construction costs and development costs. Hon ble High Court of Delhi in the case of Gopal Das Estates Housing Pvt. Ltd. [ 2019 (3) TMI 1272 - DELHI HIGH COURT] had observed, that that the expenditure incurred on advertising being necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the following disallowances : Sr. No. Particulars Amount 1. Disallowance u/s 36(1)(iii) of interest expenditure pertaining to the investment made by the A.O in Optionally Convertible Debentures (OPCD) of M/s Sarvavasa Buildtech Farms Pvt. Ltd. and M/s Kundam Realtors with a coupon rate of 01.1% p.a Rs. ,5,26,52,120/- 2. Disallowance of Sales promotion expenses (capitalized by the A.O to the WIP cost) Rs. 2,02,86,452/- 3. Disallowance of Advertisement expenses (capitalized by the A.O to the WIP cost) Rs. 6,68,13,114/- 3. On appeal, the CIT(A) found favor with the claim of the assessee that as it had sufficient own funds which were far more than the investments made in the Optionally Convertible Debentures (OPCD) of M/s Sarvavasa Buildtech Farms Pvt. Ltd. and M/s Kundam Realtors, therefore, it could safely be presumed that the investments were made from such own funds. Backed by his aforesaid observation, the CIT(A) concluded that no part of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the assessment order. 5. Per contra, the ld. Authorised representative (for short A.R ) for the assessee relied on the order of the CIT(A). It was submitted by the ld. A.R that the CIT(A) had rightly concluded that as the assessee had sufficient self-owned funds to justify the investment in the OPCD, therefore, no disallowance of any part of the interest expenditure was called for u/s 36(1)(iii) of the Act. Apropos, the disallowance of the sales promotion expenses and advertisement expenses made by the A.O, it was submitted by the ld. A.R that the CIT(A) had rightly observed that as per AS-2 Para 11 13 the selling and distribution costs, advertisement expenses etc. are to be excluded from the cost of inventories. 6. We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid contentions. We shall first deal with the disallowance by the A.O of the assessee s claim for deduction of interest expenditure u/s 36(1)(ii) of the Act. Briefly stated, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds and no disallowance of any part of interest expenditure claimed by the assessee u/s 36(1)(iii) was called for in the hands of the assessee. Our aforesaid view is fortified by the judgments of the Hon ble High Court of Bombay in the case of CIT vs. Reliance Utilities, 313 ITR 340 (Bom) and CIT-2, Mumbai Vs. HDFC Bank Ltd., 366 ITR 505 (Bom). We, thus, finding no infirmity in the view taken by the CIT(A) as regards the aforesaid issue under consideration uphold his order to the said extent. The Ground of appeal No. 1 is dismissed. 7. We shall now deal with the grievance of the revenue that the CIT(A) had erred in law and the facts of the case in deleting the addition of Rs. 2,02,86,452/- towards sales promotion expenses and Rs. 6,68,13,114/- on account of Advertisement expenses made by the A.O by capitalizing the same to the work-in-progress. As observed by us hereinabove, the assessee had during the year under consideration claimed deduction of Sales promotion expenses of Rs. 2,02,86,452/- and Advertisement expenses of Rs. 6,68,13,114/-. Observing, that the assessee which was following percentage completion method of recognition of revenue as per the accounting standards pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sement expenses of Rs. 6,68,13,114/- for launching of its project and attracting the customers. The A.O had treated the aforesaid expenses as a part of the project cost i.e W.I.P cost, and thus, declined the assessee s claim for deduction of the same as a revenue expenditure. In our considered view, as observed by the ld. CIT(A), and rightly so, the sales promotion expenses, advertisement etc. cannot be capitalized to work-in-progress as per the Accounting Standards prescribed for the real estate sector as well as the accepted accounting policies and judicial pronouncements. The assessee had consistently been following the method of valuing its inventory in accordance with AS-2. We find that Accounting Standard 2 (AS 2) provides as under : Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to included overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories. Further, Para 13 of the AS-2 provide for some exclusions from the cost of inventories as under ; Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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