TaxTMI 
TaxTMI 
2026 (4) TMI 1527
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....circumstances of the case." 3. Briefly stated, the assessee is engaged in the business of real estate, developing Bunglows and Villas. The assessee follows Project Completion Method (PCM) of accounting during the year under consideration; the assessee has only one project at Alibaug, which till the end of year was in progress. The case of assessee was selected for scrutiny, wherein the ld. AO observed that the assessee has claimed various expenses incurred towards ongoing projects namely 'Pavillion', as revenue expenses instead of treating the same as work-in-progress. Accordingly, the assessee was called for to submit the details of such expenses to clarify the nature along with supporting evidences. The details of expenses chosen for clarification are as under: a. Advertisement Rs. 15,94,657/- b. Business Promotion Rs. 45,78,472/- c. Commission Rs. 18,10,000/- e. Loan Processing Charges Rs. 2,22,221/- f. Security expenses Rs. 2,59,007/- 4. In response to the query raised by the ld. AO, the assessee submitted that all the aforesaid expenditure are incurred wholly and exclusively for the purpose of assessee's business. The expenses....
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....e inventories to their present location and condition; and (d) selling and distribution costs." 8. Relaying on the aforesaid guidelines from the AS-2, ld. AR submitted that the expenditure incurred by the assessee under various heads i.e. Advertisement, Business Promotion, Commission, Loan Processing Charges, Security Expenses etc. cannot be considered to be attributed towards the costs which are incurred to bring the inventories to their present location and condition, thus falls within the ambit of exclusions prescribed in AS-2, consequently would not constitute the expenditure to be capitalized as WIP till completion of the project, on the contrary such expenditures are incurred in general for operations of the project for promotion. The ld. AR placed her reliance on the decision of Hon'ble Delhi High Court in the case of Gopal Estate & Housing Pvt. Ltd. vs. ACIT [2019] 103taxmann.com, wherein the Hon'ble Court has observed that the expenditure incurred on Advertisement being necessary for promotion of business is to be allowed as business expenditure and would not form part of the project cost. It is argued that the expenditure which were disputed by the ld. AO to b....
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....ration as Revenue Business Expenditure or to be capitalized as work-in-progress, while the assessee is following the method of accounting of (Project Completion Method) having a single project in operation. From the decision quoted by the ld. AR in the case of Gopal Estate & Housing Pvt. Ltd. (supra), wherein the terminology of AS-2 has been discussed by the Hon'ble Delhi High Court and has held as under: "26. There is merit in the contention of the Assessee, based on AS 2 that compensation paid subsequent to the completion of the project is an extraordinary item. It was not 'cost' of completion of the project and, therefore, such compensation could not be added to the value of the stock and trade of the Assessee. AS 2 governs valuation of inventories. 'Cost' comprises all of the costs of purchase, cost of completion and other costs incurred "in bringing the inventories to their present location and condition." That which is not relevant to bringing the stock to its present condition or location cannot be a part of its value" 11. Similar issue has been deliberated upon by the Co-ordinate Bench of ITAT, Mumbai in the case of ACIT vs. Airmid Real Estate Lt....
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....Tribunal. The Tribunal upheld the findings of CIT(A) by observing as under: "8. We have deliberated at length on the issue in hand in the backdrop of the orders of the lower authorities and the contentions advanced by the Id. Authorized representatives for both the parties. Admittedly, the assessee had incurred the sales promotion expenses of Rs. 2,02,86,4524 and advertisement expenses of Rs. 6,68,13,114/- for launching of its project and attracting the customers. The AO had treated the aforesaid expenses as a part of the project cost i.e. WIP cost, and thus, declined the assessee's claim for deduction of the same as a revenue expenditure. In our considered view, as observed by the Id. CIT(A), and rightly so, the sales promotion expenses, advertisement etc. cannot be capitalized to work-in-progress as per the Accounting Standards prescribed for the real estate sector as well as the accepted accounting policies and judicial pronouncements. The assessee had consistently been following the method of valuing its inventory in accordance with AS-2. We find that Accounting Standard 2 (AS 2) provides as under: "Other costs are included in the cost of inventories only ....
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....relied upon by the Department which need to be appreciated on facts and law, the analogy drawn on a composite reading of the aforesaid case laws and accounting principles, suggests that the expenditure directly attributed to project to bring the inventories to their present location and condition would be the part of WIP, but the expenditure incurred being necessary for promotion of business or which do not directly contribute to bring the inventories to their present location and condition are allowable as revenue expenditure in the year in which it has been expended. 13. In backdrop of aforesaid facts and circumstances and jurisprudence, we are of the considered opinion that the expenditure incurred which are not necessarily paid exclusively to bring the inventories to their present location and condition but are general in nature for promotion of the business, the same are allowable as Business Expenditure and would not form part of the project cost, therefore the contentions of the revenue to add it for enhancement or work-in-progress would not succeed. In present case the expenditure for Advertisement, Business Promotion and Commission to agents are in promotional and gener....