TaxTMI 
TaxTMI 
2020 (3) TMI 1230
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....erred in facts and law in sustaining the disallowance of Rs. 1,44,29,341/- made by the learned Assessing Officer, without appreciating that the revenue expenses so claimed are allowable as deduction in the year under consideration as the business of the assessee is already commenced in earlier years. (b) The Id. CIT(A) - 48 erred in facts and law in deviating in her view in spite of the fact that the Hon'ble ITAT had allowed such expenditure in AY 2012-13 under the same set of facts and circumstances. 2.(a) Without prejudice to 1 above, the Id. CIT(A)-48 erred in facts and law in not directing the Id. Assessing Officer to include the expenses disallowed amounting to Rs. 1,44,29,341/- in 'project cost' / 'capital work-in-progress1. (b) Without prejudice to above, the Id. CIT(A)-48 erred in facts and law in not even granting depreciation on the expenses treated as intangible assets. 3. The Id. CIT(A) erred in facts and law in not adjudicating or deleting the alternate disallowance of Rs. 17,38,143/- made u/s. 14A read with Rule 8D of the Act by the Id. Assessing Officer. 4. Your appellant prays that- (a) The disall....
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....exp. Like rates and taxes, printing, communication, auditor's remuneration and misc. expenses Rs. 2.90 Lacs Total Rs. 158.95 Lacs The Ld. AO proceeded to treat the same as capital expenditure. The assessee submitted that expenses directly related to the projects were already classified under Work-in-Progress and the balance common expenses were debited to the Profit & Loss Account. It was explained that the assessee was developing a mall and a residential project at Coimbatore. The cost of land, construction expenses and other direct expenses relating to the project were accumulated under the head workin- progress and the balance expenses being in the nature of period cost were debited to Profit & Loss Account. These expenses were not incurred directly in relation to the projects. A plea was raised that the assessee was consistently following the Accounting Standards as prescribed by Sec. 145 of the Act. Further, the aforesaid accounting treatment, in the books of accounts, was stated to be as per Accounting Standard-7 as well as Accounting Standard-2 issued by The Institute of Chartered Accountants of India. In the above background, it was submitted that the ....
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....g that the business was actually set up and these expenses claimed were not pre-construction expenses. However, no finding has been given on the main argument of Ld. AO the project expenses were all part of capital work-in-progress. There was no finding to the contrary by Tribunal regarding the actual nature of expenses claimed and whether they have to be part of Capital Work-in-Progress. No finding was stated to be rendered on Matching Principle as pointed out by Ld. AO. 4.2 The assessee reiterated that it was developing a mall and would earn income from letting out of shops. For residential projects, though advances are received but work had not started. However, a conclusion was drawn that the assessee was constructing only a Capital Asset and therefore, all the expenses incurred were for Capital Work-in-progress and are capital expenses. 4.3 Preceding further, Ld. CIT(A) observed that major expenses claimed as Advertisement and business promotion were brand management fees paid to and entity namely M/s Prozone Capital Shopping Centre Ltd. The perusal of nature of expenditure would establish that the same were for promotion of Brand. 4.4 Finally, the action of Ld. AO....
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....duced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract. 17. Costs that may be attributable to contract activity in general and can be allocated to specific contracts include: (a) insurance; (b) costs of design and technical assistance that is not directly related to a specific contract; and (c) construction overheads. Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics. The allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and processing of construction personnel payroll. Costs that may be attributable to contract activity in general and can be allocated to specific contracts also include borrowing costs as per Accounting Standard (AS) 16, Borrowing Costs. 18. Costs that are specifically chargeable to the customer under the terms of the contract may include some general administration costs and development costs for ....
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....ssee is not affected as the liability of tax on the income of the total works contract remains the same and the question is at what stage the tax is to be paid. Mr. Joshi was fair enough to submit that it is not a question of additional liability of tax, but the question is whether the IT Department can force the assessee to adopt a particular system of accounting, or whether the assessee has the option. While going through AS-7, we find the executor of the works contract is required to pay income-tax even on the part completion of the work also, but a formula has been provided for the purpose regarding valuation, etc., keeping in mind the ultimate payment to be received against the entire work. 8. In the present case, the factual part is not under dispute and hence we would confine to the question raised. 9. A similar question had arisen in the case of CIT vs. Doom Dooma India Ltd. (1994) 117 CTR (Gau) 156 : (1993) 200 ITR 496 (Gau), wherein the question of valuation of stock arose as a result of the accounting system. Referring to the provision of s. 145 of the Act, This Court held: "It is for the assessee to adopt any recognized method of acco....
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....d regularly cannot be discarded by the Departmental Authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if in the opinion of the taxing authorities' income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognized methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade." 12. As stated above, the accounting system AS-7 is an approved system of accounting by the ICAI and as such the authenticity of the said accounting system is not under challenge. The assessee firm/appellant being a private limited company was maintaining its accounts following the said system and the accounts were duly audited by a qualified chartered accountant, maintenance of the accounts as well as the valuation of work-in-progress will not prejudice either side. Admittedly, the particular work contract was not completed and it comes under the category of workin- progress. There is also no dispute that the ultimate liability of the as....