9911796707
TMI Blog2013 (1) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is a company engaged in the business of commercial construction. During the relevant year it had a single project in progress, i.e., Green Gagan Chamber, situate at Swastik Industrial Layout, Andheri (W), Mumbai. It filed its return of income for the year at a loss of Rs. 10.40 lakhs. In the verification proceedings u/s.143(3), it was explained that the said project had been completed as at the year-end up to 34%, and that the profit was booked and returned following the project percentage method, disclosing a gross profit of 23% on the cost of production as capitalized during the year. On a scrutiny of the accounts, the Assessing Officer (A.O.) observed that the assessee had claimed deduction in respect of three items, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to have been capitalized as a part of the project cost, i.e., taken into account for the purpose of valuation of work-in-progress as at the year-end. The guiding principle in this regard is that any cost that adds value thereto, i.e., enables the bringing of the relevant inventory to the stage of its completion and location as at the year-end, is to be taken into account for the purpose. Administrative expenses, as it appears, are only general in nature, and even with regard to the employee's remuneration, there is nothing to indicate that it represents an element of either direct cost of production or even of production overhead, which only would enable its inclusion as a part of the cost of production/construction. As such, being fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assesse, i.e., on a year to year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec. 36(1)(iii) being also satisfied, and toward which the assesse relies on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deductible in computing the business income qua the business of which the relevant asset is or is to constitute a part (also refer Explanation 8 to s.43(1)). The said decision may, thus, in the given facts and circumstances of the case, as well as the amended law, not be of much assistance. In fact, even going by the Revenue's stand, another issue would arise and, accordingly, need to be determined apriori. Considering the said cost as includable in the project cost may have a direct bearing on the gross profit rate, and which may therefore stand to decline from the reported and accepted rate of 23%, and cannot be presumed be remain as such, i.e., unchanged. 3.3 In view of the foregoing, therefore, in our clear view, no adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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