TaxTMI 
TaxTMI 
2016 (11) TMI 1307
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....licity & marketing , legal & professional charges, service maintenance charges, rent, rates & taxes, security expenses, consultancy charges and miscellaneous expenses , in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee is a private limited company engaged in the business of development of Integrated Satellite Township in India. . The assessee filed its return for the Asst Year 2007-08 on 30.10.2007 declaring total loss of Rs. 11,83,94,738/-. The assessee recognized revenue by following Accounting Standard - 9 on 'Revenue Recognition' ( AS-9 issued by ICAI) and guidance note on recognition of revenue by Real Estate Developers. During the relevant year under appeal, the development activities being at the initial stage, the assessee did not recognize any revenue. Further the expenditure that were purely incidental to the project were transferred to work in progress and those not relating to project were debited to profit and loss account. The basis of allocation was duly verified and audited by the statutory auditors and no adverse comments were reported. The ld AO issued show cause notice to the assessee as to why the expenses, de....
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....ution costs 2.3. The assessee submitted that during the relvant year under appeal, it incurred various expenses under the major group head which included Construction Expenses, Expenses on Employees, Administrative and Marketing Expenses and Interest cost. The expenses which were directly allocable to Project or were indirectly identifiable with project development have been transferred to WIP as part of cost of WIP. Other expenses, which are related to administrative office or selling/marketing expenses being not allocable to Project have been debited to the P/L account. Following is the break up of expenses which have been transferred to WIP and those debited to P/L account. Figures in (000) Head of expenses Total amount Transferred to WIP Debited to P/L Account Remarks Construction Expenses 3,21,885 3,21,885 Nil Being directly related to Project development cost Expenses on employees 11.577 3,121 8.456 Cost of Employees involved in project have been allocated to Project cost Administrative and Marketing Expenses 1,15,921 5,767 110,154 Expenses relat....
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....WBSEB for electricity connection at project has been allocated to Project. Other electricity charges paid for administrative office/purposes are not allocable to project cost. Rent, rates and taxes 3,998 3,801 197 Rent expenses incurred on payment of apartment rent of Project managers have been allocated to Project cost. Rent expenses incurred in administrative office/non project managerial persons are not allocable to project. Property Development expenses 4,352 4,352 Nil Expenses being capital in nature have been suomotto offered to tax in the computation of income. Printing & Stationery 514 514 Nil Expenses are purely of administrative nature and hence not allocable to project. Gifts 648 648 Nil Being in the nature of selling and marketing expenses, not allocable to project cost Communication expenses 1,567 1,396 171 Expenses of telephone of project site/Project Managers have been allocated to Project Cost. Other telephone expenses incurred for administrative/office purpose are not allocable to project cost.....
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....enditure as debited to profit and loss account under the head 'Administrative and Marketing Expenses' on the ground that the assessee was not able to provide any documentary evidences in respect of its claim. The facts for the Asst Year 2009-10 are also similar except with variance in figures. 2.5. Before the ld CITA, it was submitted that the ld AO had not pointed out as to how the method of charging of expenses to profit and loss account was erroneous. He had only simply expressed his opinion and had given his own personal view on the matter. It was further submitted that the mere fact that the assessee has not recognized revenue during the year , does not entitle the administrative / selling and distribution cost to form part of work in progress. The expenses which forms part of work in progress (WIP) represents stock in trade which does not include administrative /selling/ marketing expenses. The said expenses were incurred independent of sale of stock in trade /revenue generation and they are inherent in running of business. Since the business had already commenced, these expenses are squarely allowable as deduction u/s 37(1) of the Act. The ld CITA on going through the Gui....
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....ed expenditures and the appeal is pending before the ld CITA. He stated that for the Asst Year 2008-09 , the assessment was completed u/s 143(1) of the Act. No such disallowance was made for the Asst. Year 2006-07. While this is so, he argued that there is no good reason for the ld AO to dispute the allocation of expenditure to various projects for Asst Years 2007-08 and 2009-10 alone (i.e the years under appeal before us). The ld AR also placed reliance on the paper book filed by him containing the copies of audited financial statements for the years ended 31.3.2006 to 31.3.2013 comprising of pages 1 to 204 of the paper book. He drew the attention of the bench to pages 20 & 21 of the paper book containing audit report for the year ended 31.3.2007 wherein the statutory auditor had stated the manner in which the statutory audit has been performed by him and the treatment of inventory at the end of the year. He also argued that the statutory auditor had not made any qualification in his audit report regarding the treatment of expenditure given by the assessee. He vehemently relied on the order of the ld CITA. 2.8. We have heard the rival submissions. We find that the assessee had ....
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....not be included in the project cost as per the guidance note supra. However, we find that the assessee had erroneously claimed insurance as a revenue expenditure instead of allocating the same to project costs as per the guidance note. To that extent, the argument of the ld DR is well appreciated. We find that the other expenditures incurred by the assessee supra are squarely to be allowed as revenue in nature as they are not related to project cost. Hence we find that the ld CITA had rightly granted relief by deleting the disallowance made on that count. The decision rendered herein for the Asst Year 2007-08 would apply with equal force for the Asst Year 2009-10 also except with variance in figures. Accordingly, the ground no. 1 raised by the revenue for the Asst Years 2007-08 and 2009-10 is partly allowed. 3. The next issue to be decided in this appeal of the revenue for Asst Year 2007-08 is as to whether the ld CITA is justified in deleting the disallowance of gifts of Rs. 6,48,000/- in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee incurred a sum of Rs. 6,48,000/- on account of expenses incurred on ....
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....nexus is proved beyond doubt. Hence the same is squarely allowable as deduction. Moreover, as per para 2.4 of the Guidance Note on Accounting of Real estate transactions, the said expenditure cannot be added to the project cost and hence the assessee had rightly charged off the same as revenue expenditure. Accordingly, the Grounds 2 & 3 raised by the revenue are dismissed for the Asst Year 2007-08. 4. The next common issue to be decided in these appeals is as to whether the ld CITA is justified in deleting the addition on account of interest in the sum of Rs. 10,00,000/- in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that the assessee had given interest free advance of Rs. 1 crore to Mr Ashoke Dasgupta in financial year 2005-06 relevant to Asst Year 2006-07. According to ld AO, the same was advanced out of loan funds of the assessee. The assessee replied that this advance was given in Asst Year 2006- 07 to the said party for business purpose in connection with setting up facilities for future services to the company at concessional rate. The ld AO observed that when the assessee is paying interest on its borrowings us....