TaxTMI 
TaxTMI 
2023 (4) TMI 1152
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....A No.3981/Mum/2017 in the case of M/s Rustomjee Buildcon Pvt Ltd for A.Y. 2012-13. The effective ground raised by the Revenue are reproduced as under:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of expenses of Rs. 4,97,38,505/- added to the total work-in- progress of the project without appreciating the fact that the assessee failed to establish the nexus between revenue offered and the expenses claimed and closing work- in- progress. Further, the assessee failed to substantiate with documentary evidence the direct nexus between the borrowed funds and the project undertaken which is required to be established as the Finance cost debited by the assessee was incurred on borrowed funds which must be meant for specific projects and are directly attributable to the individual/specific projects." 4. Briefly stated, facts of the case are that the assessee company was engaged in the business of constructing, purchasing, acquiring, managing and developing real estate projects. For the year under consideration, the assessee filed return of income on 20/07/2013 declaring loss of Rs.3,83,15,655/-. The return of incom....
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....Cost and Selling Cost are to be excluded from the Construction Cost since these costs/expenses cannot be attributed to contract activity or cannot be allocated to a contract. In this regard para 15 and para 19 of AS 7 are discussed as under:- Para 15 of the AS-7 states that Contract Costs should comprise: (a) Costs that relate directly to the specific contract (b) Costs that are attributable to contract activity in general and can be allocated to the contract; and (c) Such other costs as are specifically chargeable to customer under the terms of the contract;" 3.5. As per the above para, the cost has been treated on the basis of attribution of the cost the project. Further Para 16 & 17 which deals with the costs as mentioned in (a) and (b) above are inclusive definitions and includes the costs mentioned there in are an example and it by no meaning can exclude the other costs which are directly attributable to the construction cost. It may be noted that the Finance Cos as debited by the assessee company is on borrowed fund, which are sanctioned on the basis of specific projects. In other words, these borrowings are in nature of Project Funds and not general Term Loans ....
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.... so as to justify the claim of finance cost, Selling and Marketing expenses and general expenses as revenue expenditure. Despite various opportunities, the assessee company has made general claims and has not justified its claim as treating interest expenses and other expenses as revenue expenditure. The assesse has neither submitted projectwise break up of above expenses nor has furnished any details of the ratio in which the revenue has been offered to tax and WIP at the end of the year. In the absence of the details and as per the provisions of Section 37 of the Act, interest of Rs.4,39,48,540/-, and other Expenses of Rs.57,92,965/- aggregating to Rs.4,97,38,505/- attributable to the capital is transferred to the capital WIP and the total income of the assessee stands increased to that extent. By claiming such inadmissible expenses, the assessee has not only concealed its income but has also filed inaccurate particulars thereof. Penalty proceedings u/s. 271(l)(c) of the I.T. Act, 1961 are initiated separately for the default committed by the assessee within the meaning of that section." 5. On appeal, the assessee filed additional evidences before the Ld.CIT(A) in terms of Rule....
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.... Ld. Counsel of the assessee filed a paper book containing pages 1 to 31. 7. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. In this case, the dispute is regarding treatment of interest amounting to Rs.4,339,48,540/- and other expenses amounting to Rs.57,92,966/-. According to the assessee, these expenses should be charged to P&L Account and be allowed as revenue expenditure. However, the contention of the Ld.AO is that these expenses are related directly to the projects being carried out by the assessee and profit from those projects has been declared by the assessee following percentage completion method. Therefore, the cost related to the project of construction / development of the building becomes eligible for deduction against the revenue recognized from said project in proportion of the project completed. The Ld.CIT(A), however, has reversed the finding of the Ld.AO. 8. We find that in this case, the finance plus interest cost claimed by the assessee pertains to bank overdraft, unsecured loans and others, having details as under:- Particulars Amount in Rupees Interest expenses on bank overdraft 74,232/....
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....ave been provided for determination whether those expenses pertain directly to the undergoing project. The interest and other expenses, which are directly related to the project should not be included in project cost and balance should be debited to P&L Account. The gross profit from project is then credited to P&L Account and the expenses in the nature of Administration and General, which are not specific to project like directors' remuneration, office expenses are debited in P&L Account and then net profit / loss is computed as per accounting principles. But in the case, assessee is seeking to debit whole of interest and other expenses to profit & loss account. The interest and other expenses, which are directly related to the project should not be included in Project cost and balance should be debited to P&L account. In the facts and circumstances of the case, we feel it appropriate to restore this issue back to the file of the Ld. CIT(A) for determining the quantum of interest and other expenses related directly to the project. The assessee is directed to co-operate and provide all the details of the finance and other expenses alongwith ledgers and vouchers. It is needless to m....
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.... proceedings. Apart from this, the Appellant also submitted the breakup of Revenue recognized for 4 years, sample copies of invoices; break up of costs for 4 years, value of sale deeds executed and documents to support expenses. However, the A.O. reiterated his earlier stand in Remand proceedings as well. I have also perused detailed submissions dated 23.05.2017 and find that the treatment given by the Appellant is in conformity with the AS 7 & AS 16. I, therefore, find that the disallowance made by the A.O. is against the said Accounting Standards. Moreover, the documentary evidences produced during the Remand Proceedings also advances the case of the Appellant, After considering stage of completion, facts of the case and the case laws relied upon by the Appellant, all favoring the treatment adopted by the Appellant for Construction Accounting. Moreover, by capitalization there is no loss or profit to the Revenue. Accordingly, the disallowance made by the A.O. of Rs.10,10,59304/- is deleted. Accordingly, this Ground of Appeal is allowed." 12. We have heard rival submissions of the parties on the issue in dispute and perused relevant materials on record. We find that the facts....