2014 (9) TMI 20

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....curred by the respondent assessee of Rs. 4,29,06,605/- on the Tivoli Holyday Village Project should have been capitalized. It is submitted that the project was at the initial stage and the expenditure should be treated as pre-operative expenditure. Reliance is placed on the fact that the assessee had agreed that the advertisement expenditure of Rs. 32,026,589/- should be capitalized. In the assessment order dated 19.12.2011 the Assessing Officer while dealing with the issue in question had observed and held as under:- "4.1 Pre- Operative Expenses During the year, the assessee company has shown receipts to the tune of Rs. 65,66,199/- and against this claimed expenditure of RS. 5,01,19,431/-. Since the project is in initial stage, the a....

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.... should comprise all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition'. Para 13 of the standard provide specific exclusions from cost of inventories. Para 13 is reproduced as under:- In determining the cost of inventories in accordance with paragraph 6, it is appreciate to exclude certain costs and recognize them as expenses in the period in which they are incurred. Examples of such costs are: 1) Abnormal amounts of wasted material, labour or other production cost; 2) Storage costs unless those costs are necessary in the production process prior to the further production stage; 3) Administrative overheads that do not contribute to bringing the inve....

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....he assessee himself offered expenditure claimed as advertisement cost amounting to Rs. 3,20,26,589/- for including under project work in progress. As the assessee company is in initial stage, and no revenue has been recognized during the year, all the expenditures incurred by the assessee should be included in project work in progress. Therefore, the loss amounting to Rs. 4,31,66,001/- is being disallowed and added back to the project work in progress. However, the income declared as bank interest is assessed as income from other sources and taxed accordingly." 3. It is clearly noticeable that except for stating that the contention of the assessee was unacceptable or untenable, no reason and ground has been mentioned by the Assessing Off....

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....nses were granted for development of the said land under Haryana Development and Regulation of Urban Area Act, 1975 vide license issued on 14.02.07. For purchase of the said land with licenses and approvals, expenditure of Rs. 24.58 Crores was incurred and these payments had been made. The Group Housing Project has been launched on the land in the month of December, 2007 and bookings were accepted from customers and details of these customers were made available. Commission was paid to the brokers and agents for booking said flats. The Appellate Authorities have accepted that Accounting Standard 7 would not be applicable as the specified stage for application of Accounting Standard 7 had not been reached. 7. As noted above, the stand of ....