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TMI Blog2022 (6) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... d Rs. 6,68,13,114/- on account of Advertisement expenses made by the Assessing Officer by capitalizing the same to the work-in-progress." 2. Briefly stated, the assessee company that was merged with M/s Lodha Developers Limited (now known as Macrotech Developers Limited) is engaged in the business of construction and development of real estate. Return of income for A.Y 2015-16 was e-filed by the assessee on 31.08.2015, declaring a loss of Rs.10,62,17,774/-. Subsequently, the case of the assessee was selected for scrutiny assessment under CASS. Assessment was thereafter framed by the A.O vide his order passed u/s 143(3), dated Nil and the income of the assessee company was determined at Rs. 3,35,33,911/- after making 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 expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of sales promotion expenses and advertisement expenses as being in order. Accordingly, the CIT(A) directed the A.O to allow the assessee's claim for deduction of the aforesaid expenses aggregating to an amount of Rs. 8,70,99,566/-. Accordingly, the CIT(A) on the basis of his aforesaid observations allowed the appeal of the assessee. 4. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short "D.R") relied 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 prescribed for real estate sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 ; "Exclusions from the Cost of Inventori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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