Completed real estate project costs: interest and sales promotion expenses treated as allowable, while stamp duty valuation addition was remanded.

In a completed real estate project, borrowing cost capitalised to work-in-progress was held not disallowable merely because part of the cost had been claimed through the profit and loss account, where the expenditure was genuine and governed by AS-16 and the real estate guidance note; relief for the assessee was sustained. Advertising, publicity and sales promotion expenses were treated as indirect selling and business expenditure, not project cost, and the disallowance was deleted. The addition under section 43CA read with section 50C was remitted for fresh adjudication because the timing difference between booking date and registration date and the supporting material had not been properly examined.

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Issues: (i) Whether interest cost capitalised to work-in-progress could be disallowed where the real estate project had been completed and the borrowing cost was claimed in the profit and loss account; (ii) Whether advertising, publicity and sales promotion expenses were capital in nature or allowable revenue expenditure; (iii) Whether the addition made under section 43CA read with section 50C of the Income-tax Act, 1961 required fresh adjudication.

Issue (i): Whether interest cost capitalised to work-in-progress could be disallowed where the real estate project had been completed and the borrowing cost was claimed in the profit and loss account.

Analysis: The dispute turned on the treatment of borrowing cost in a real estate project where the assessee followed the percentage completion method and had already completed the project during the relevant year. The Tribunal noted that the assessee had capitalised only the portion directly attributable to the project and claimed the balance as revenue expenditure. Relying on the settled accounting treatment under AS-16 and the guidance note on real estate transactions, and following the decision in the assessee's own case, it held that the expenditure was not disallowable merely because the project cost had been capitalised in part. The genuineness of the expenditure was not in dispute.

Conclusion: The disallowance of interest cost was not justified and the relief granted by the first appellate authority was sustained, in favour of the assessee.

Issue (ii): Whether advertising, publicity and sales promotion expenses were capital in nature or allowable revenue expenditure.

Analysis: The expenses were found to be indirect selling and business expenditure and not part of project cost, particularly since the project had already been completed. The Tribunal followed the guidance note issued by ICAI and judicial precedent holding such expenditure to be revenue in nature, and also noted that the issue stood covered by the assessee's own earlier years and allied decisions. The dispute was only about classification and not about genuineness.

Conclusion: The impugned disallowance was rightly deleted and the issue was decided in favour of the assessee.

Issue (iii): Whether the addition made under section 43CA read with section 50C of the Income-tax Act, 1961 required fresh adjudication.

Analysis: The assessee's plea was that there was a timing difference between the stamp duty value on the booking date and the value on the registration date. The Tribunal noted that the relevant evidentiary issue had not been properly examined by the first appellate authority and that material submissions required consideration. In the interest of justice, the matter was sent back for de novo adjudication after granting due opportunity to the assessee.

Conclusion: The issue was remitted to the first appellate authority for fresh decision, with the ground allowed for statistical purposes.

Final Conclusion: The Revenue's appeal failed on both substantive grounds, while the assessee's cross-objection was sent back for fresh adjudication; the overall result was a partial success for the assessee, with one issue finally concluded and one issue kept open for reconsideration.

Ratio Decidendi: In a completed real estate project, borrowing cost and selling-related expenses are not disallowable merely because they were not capitalised to work-in-progress, where the expenditure is genuine and the classification is governed by the applicable accounting treatment and business nature of the expense.

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