9911796707
TMI Blog2022 (9) TMI 1641X X X X Extracts X X X X X X X X Extracts X X X X ..... timately for acquiring a qualifying asset and therefore should have been capitalized as per provisions of section 36(1)(iii) of the Act? 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the advertising expenses of Rs. 1,00,00,884/- despite the fact that the advertising expenditure was incurred with regard to the ongoing project "Dosti Intperia" at Thane, and the same should have been capitalized? The appellant craves leave to add to, amend or withdraw the aforesaid grounds of appeal. 2. The facts in brief are that, assessee is engaged in the business of real estate development. As noted by the AO during the year, only one project 'Dosti Imperia' situated opposite R. Mall, Ghod Bunder Road, Thane (W) was in progress which included residential and commercial property. The revenue from such project was recognized on 'Percentage of completion method' and accordingly, the revenue was recognized after achieving 25% of completion. 3. The assessee had debited direct and indirect cost relating to construction of the said project. AO noted that assessee has debited an amount of Rs. 70,95,375/- as brokerage and marketing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiring land and to render various services related to procuring land over a period of 6 years. Later on, M/s Adrika Developers Pvt. Ltd. had rendered money after expiry of 6 years as it was not able to procure the land. However, AO held as under:- a) The money raised from debentures has been advanced for acquiring land for a Proposed New Project. This land has not yet been acquired. Therefore all expenditure incurred for the said New Project would be in the nature of Pre-operative Expenditure for the Proposed New Project. Such pre-operative expenditure is not an allowable expenditure. The interest of Rs 15,04,76,347/- paid is therefore in the nature of preoperative expenditure and cannot be allowed. On this ground the interest of Rs 15,04,76,347/- is disallowed. b) Secondly, as stated earlier, even if the land is acquired, the cost of the land and the interest thereon forms part of the Inventory of the Proposed New Project as the assessee follows Percentage method of accounting. Hence on this ground also the interest of Rs 15,04,76,347/- is disallowed. 7. AO also held that in AY 2012-13, similar disallowance was made which was deleted by the Ld. CIT(A), however revenue has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the accounting treatment laid down in guidance note issued by the Institute of Chartered Accountants of India for accounting of real estate transactions. 11. Ld. CIT (A) after relying upon the decision of ITAT, Mumbai bench in the case of Macrotech Construction Pvt. Ltd. vs. ACIT (2019) 103 taxmann.com 348 (Mum-Trib), held that the entire advertisement expenditure is to be allowed as revenue expenses. 12. Further against the disallowance of Rs. 29,50,168/-, Ld. CIT (A) held that the said finding of the AO is not justified in view of the fact that the brokerage expense is part of the selling costs and is not related directly to the activity of the construction of project. The entire amount of brokerage expense should have been allowed as period cost in view of the accounting method regularly followed by the assessee and the "Guidance Note on Accounting for Real Estate Transaction" issued by the Institute of the Chartered Accountants according to which the selling cost should be excluded from the construction cost. Reliance was placed by him on the decision of ITAT Mumbai in the case of Macrotech Construction (P.) Ltd. vs ACIT, Circle- 6(3) Mumbai (2019) 103 taxmann.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant has incurred interest cost of Rs. 27,657,503/- which relates to the project and have been charged to land and development account. The appellant is following this method consistently and the same has been disclosed as part of the note given by the Auditors under the head 'significant accounting policies'. Further, it was submitted that the said expenditure was allowed by the AO in assessment year 2013-14 after examining this issue in the scrutiny proceedings, vide order u/s 143(3) dated 28.03.2016. 6.3.3 In this regard, I find that the AS 16, notified by the ICAI, prescribes accounting principles for accounting of borrowing cost as under: 6. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. The amount of borrowing costs eligible for capitalization should be determined in accordance with this Statement. Other borrowing costs should be recognized as an expense in the period in which they are incurred. 7. Borrowing costs are capitalized as part of the cost of a qualifying asset when it is probable that they will result in future e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial placed on record before us. In so far as issue raised in Ground No. 1 & 3 relating to disallowance of brokerage expenses of Rs. 29,15,168/- and advertisement expenses of Rs. 1,00,00,884/-, the main issue is whether the said expenditure claimed by the assessee in the profit and loss account should be capitalized to work in progress or should be allowed in the year in which such expenditure has been incurred and debited to the profit and loss account. As per Accounting Standard-2 relating to 'Violation of inventories' and Clause-13 relating to 'Selling in distribution expenditure' are to be recognized as expenses in the period in which they are incurred. Even as per ICDS-11, the selling cost have to recognize as expenses. The selling cost is not considered as part of construction cost and development cost. 15. Further, as pointed by Ld. Counsel for the assessee that the Hon'ble Delhi High Court in PCIT v. DLF Home Development Ltd. (2020) 114 taxmann.com 97 (Delhi) (HC) held that brokerage and commission claimed by the assessee following percentage completion method is allowed in the year in which they are incurred. 16. Further, It has also been pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital was irrelevant for the purposes of adjudicating the claim for deduction under section 36(l)(iii) of the Act - Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom.). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case. Thus, in the present case also, since capital was borrowed for the business of the Assessee and the land purchased would be stock in trade, interest is an allowable deduction. 19. Ld. CIT (A) has already held that advance was given for commercial expediency and M/s Adrika Developers Pvt. Ltd. is a subsidiary of assessee. If the loan was given on account of commercial expediency, then the interest expenses has to be allowed as business expenditure. It has been pointed out before us by Ld. Counsel that in AY 2011-12 to 2013-14, the interest expenditure on this loan ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
