9911796707
TMI Blog2022 (11) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... I), as the Assessee is admittedly a "developer" and not a "contractor", sums received as advances by it were not under a "construction contract" and the Assessee was not following the 'Percentage of Completion Method' ('POCM'). He states that the ITAT itself made the self-contradictory finding that the respondent was following the "completed contract method" ('CCM'). Therefore, the said expenses being capital in nature should have been disallowed in accordance with provisions of Section 37(1) of the Act. He states that the ITAT failed to appreciate that the expenses incurred by the Assessee were not intended to earn revenue during the subject AY and were spent for an 'enduring benefit' of the real estate project over a significant period of time, consisting of a number of AYs till the completion and sale of the project. 3. He states that the ITAT fell in error in holding that the amount expended by the Assessee towards 'advertisement expenses' and 'business promotion expenses' are related to the 'general administrative cost' of the Respondent. He states that ITAT erred in holding that the amount expended by the Assessee towards 'brokerage and commission' was incurred for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts are that the Assessee is a developer engaged in the business of real estate and in the relevant assessment year was constructing residential and commercial projects in the state of Rajasthan. The Assessee had undertaken its first residential-cum-commercial project on 26th November, 2007. The Assessee had collected advances from various customers to the tune of Rs. 21,38,62,554/- and recorded the same in the balance sheet of the relevant AY. The development of the project began during the Financial Year ('FY') 2008-09 and the company incurred expenses under several heads. 8. The Assessee filed its Return of Income ('ITR') on 30th September, 2009. In the ITR, the Assessee claimed expenses of 16,52,57,997/- under various heads, which included the sums incurred towards purchase of land and cost of construction amounting to Rs. 11,21,57,074/-. The expense incurred by the Assessee towards cost of land and cost of development were capitalised as stock-in-trade. The balance expenses amounting to Rs. 5,31,00,923/- was charged to the Profit & Loss Account and claimed as business expense. The Assessee had total twenty eight (28) heads of indirect expenses, the AO disallowed the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.3. On considering the facts of the case as well as the submissions made by the appellant, it is observed that so far as the AO's observation that it agreed for capitalization of four expenses during the assessment proceedings, the same is not supported with the fact that it is being contested in appeal. In its submissions, the appellant has highlighted that the treatment of such expenses as capital expenditure instead of revenue shall no way impact the taxation of the appellant because in case of treating the same as capital expenditure, this expense will be allowed in the year when the transfer of property takes place or the sale is booked. However, it was again highlighted that it would not be as per the accounting standards issued by ICAI and would be in complete disregard to the provisions of section 209 & 211 of the Companies Act, 1956.Secondly, there is no basis for selecting only four items out of 28 items on expenses claimed by the appellant under the indirect expenses head, it appears that the AO had chosen these heads of expenses solely on the ground that the benefits of such expenses shall be of enduring nature and the appellant shall reap the benefits beyond the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motion expenses which are related to the general administrative cost of the assessee. The brokerage and commission expenditure are related to selling costs, which is not disputed. Further, the software development expenditure incurred by the assessee are for the purpose of day to day running of the company and not related to the specific project. As stated in the guidance note of the Institute of chartered accountants of India, as per para No.2.4 that on relate administrative expenditure as well as the selling cost should not be carried forward and capitalizing the project cost but should be expensed. The Ld. departmental representative could not point out that how the accounting made by the assessee is not proper with respect to the guidance note issued by the Institute of chartered accountants of India. Further, none of the expenditure incurred by the assessee were not found to be not genuine. Looking from the another angle about the expenditure claimed by the assessee, it would be apparent that if the assessee follows the completed contract method, then the assessee would be carrying on the cost of the project for the period till the project is sold. Naturally the cost of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. In the considered view of the Court, the view expressed by the CIT(A) merits acceptance. The conclusion of the ITAT that the payment was made for 'extraneous consideration' appears to be based on surmises and conjectures. ..................... 31. The result of the above discussion is that the Court holds that the payment made by the Assessee to the allottees of the flats for their surrendering the rights therein should be allowed as business expenditure of the Assessee. ....." 12. The Revenue in these proceedings admits to the genuineness of the expenditure. There is also no dispute that the Assessee is bound to draw up its Profit and Loss account and balance sheet in compliance with the accounting standards of the ICAI. The learned counsel for the Respondent has failed to point out any ground for contending that the Guidance Note issued by ICAI for applying the Accounting Standard (AS-7) is not applicable to the Assessee. The contention of the Revenue that the disallowed expenses are of an 'enduring nature' and should therefore be capitalized to the cost of the project is not based on any legal principle. The Revenue does not dispute that these expenses are not a direct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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