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TMI Blog2017 (7) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is engaged in the business of construction. During the year under consideration, the assessee was developing a project named "Casa Bella" at Dombilvali, Mumbai. The Assessing Officer noticed that the assessee has claimed deduction of following expenses:- Nature of expenses Rs. (i) Employee cost 25,71,891/- (ii) Office and administration expenses 83,40,913/- (iii) Selling and marketing expenses 3,13,493/- (iv) Interest charges 67,09,846/- 1,79,36,143/- The Assessing Officer took the view that these expenses cannot be allowed as revenue expenses as the project is under construction and hence they are required to be capitalised. Accordingly, he disallowed the claim of above said expenses. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that the borrowing costs attributable to the project activity can be allocated to purchase cost. He further submitted that the CBDT has issued Income Computation and Disclosure Standard-II (ICDS) relating to valuation of inventories. Clause-11 of the same specifies that interest and other borrowing costs shall not be included in the costs of inventories unless they meet the criteria specified in the ICDS-IX. Learned AR further submitted that ICDS-IX states that the borrowing costs that are directly attributable to the project shall be capitalised and other borrowing costs can be recognised in accordance with the provisions of the Act. 5. Learned AR invited our attention to the Annual Report, more particularly Clause G of Accounting Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting principles and has claimed them as revenue expenditure. Accordingly, he submitted that the expenditure claimed by the assessee should be allowed. 7. On the contrary, learned Departmental Representative submitted that the assessee has not generated any income during the year except a sum of Rs. 70,000/- by way of rent and Rs. 11,337/- by way of write off of unclaimed credit balances. The assessee was fully engaged in developing a housing project and hence the learned CIT(A) was justified in upholding the view of the Assessing Officer that the revenue expenses claimed by the assessee cannot be allowed, since they have to be capitalised. 8. We have heard the rival contentions and perused the record. The assessee has claimed part of emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it should not be included in the value of inventories. ICDS issued by CBDT also states that interest and borrowing costs shall not be included in the costs of inventories unless they meet the criteria for recognising the interest as a component of the cost. 10. Thus, we noticed that the assessee has duly followed the accounting principles prescribed by the Accounting Standard and ICDS for accounting the impugned expenses. Annual Report filed by the assessee would show that the assessee is also engaged in other activities such as relating to acquisition of agricultural land, entering into developing agreement etc. Besides, being a limited company, the assessee is required to incur certain expenses for maintenance of the company. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. Counsel for the assessee that the employee cost refers to salary paid to the employees who are looking after the administration of office and not directly related to construction of the project but is part of the administrative expenses. Similarly, the office and administrative expenses and selling and marketing expenses are to be charged to the profit & loss account in the very same year in which they are incurred and have to be excluded from the cost of inventories for working out closing WIP as per the guidelines issued by the ICAI, Accounting Standard AS-2 and AS-7. The assessee has regularly and consistently been following the said method of accounting as per the provisions of section 145A of the I.T. Act. The ITA No.2298/M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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