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TMI Blog2015 (12) TMI 1649X X X X Extracts X X X X X X X X Extracts X X X X ..... in calculating the total taxable income of the Appellant and not treat the same as WIP. Ground 2 2. On the facts of the case, the learned CIT(A) erred in confirming the action of the learned AO in concluding that the Appellant undertakes only a single contract and hence the entire expenditure incurred by it is allocable to the said contract only, under the Generally Accepted Accounting Principles ('GAAP') issued by the ICAI and applicable in the case of the Appellant. The Appellant prays that it be held that the above conclusion is incorrect having regard to the facts of the case of the Appellant. Ground 3 3. On the facts and circumstances of the case, the learned CIT(A) erred in confirming the action of the learned AO in concluding that the marketing and general administrative costs incurred by the Appellant are allocable to the specific contract undertaken by the Appellant and thus restating the duly audited accounts drawn by the Appellant in accordance with the GAAP and by adding the said costs to the WIP. The Appellant prays that it be held that the marketing and general administrative expenses cannot be added to the WIP. Ground 4 4. On the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess Expense for the year. That out of the total expenditure incurred of Rs. 14,187.67 lakhs, the assessee had shown an amount of Rs. 9,866.87 lakhs as work-in-progress of project by capitalizing it as the project cost and balance amount of Rs. 4,320.80 lakhs had been claimed as revenue/business expenditure. He further noted that out of total revenue expenditure claimed of Rs. 4320.80 lakhs, expenses amounting to Rs. 3232.42 lakhs had been on account of Marketing Costs, Sales Commission & Sales Promotion and Advertisement Expenses. Further, against the business expenditure claimed of 4320.80 lacs the assessee had shown interest & other income of Rs. 166.68 lacs and the net loss as per P&L A/c. had been worked out at Rs. 4154.12 Lacs. In the computation of income, after adjusting allowable and disallowable expenses, the net business loss had been computed at Rs. 4053.53 Lacs. The AO called upon the assessee to show cause as to why the business loss claimed of Rs. 4053.53 Lacs should not be disallowed by treating it as work-in-progress of the ongoing project of its company. The assessee submitted that the above stated claim of revenue expenditure was rightly worked out as per the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which had been inventorised as WIP. He explained that out of Rs. 43,20,80,449/- of business expenses, Rs. 32,32,42,000/- were sales and marketing costs and Rs. 10,88,38,000/- were on account of depreciation, finance and general administration cost. That out of total Finance cost of Rs. 16,08,50,000/- only a sum of Rs. 23,91,000/- had been claimed as period cost and balance had been inventorised to WIP. The nature of expenses was also undisputed as the AO had carried out due verification of the expenses as noted in the assessment order itself. The contention of the Ld. AR has been that the selling cost and general administration cost cannot be treated as part of inventory or work in progress as they do not contribute to bring the inventory to its present location and status. The Ld. AR of the assessee has further submitted that the issue is squarely covered by the decision of the co-ordinate bench of the Tribunal on almost identical facts in the case of "M/s. Lodha Palazzo Vs. ACIT" ITA No.2298/M/2012 vide order dated 10.12.2014. The Ld. DR has also fairly admitted that the issue is squarely covered by the above decision of the Tribunal. 5. We have considered the rival content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction cost and development cost if they are material: (a) General administration costs; Selling cost; (b) Research and development cost; (c) Depreciation of idle plant and equipment; (e) Cost of unconsumed or uninstalled material delivered at site; and (f) Payment made to sub-contractors in advance of work performed." 8. The Ld. Counsel therefore has stated that as per the above guidelines, the administrative and selling expenses have been specifically excluded from the cost of inventory for work for closing WIP. The Ld. Counsel has further submitted that even as per AS -7 vide paragraph 19 it has been mentioned that the general administrative cost and selling cost does not constitute the cost of the project. He, therefore, has submitted that as per Guidance note, AS 2 and even AS 7, the general administrative expenses and selling expenses are not project cost and are to be charged to the profit & loss account in the very same year in which they are incurred. In view of the above facts and following the Guidance Notes and Accounting Standards, the assessee has individually worked out the expenses directly related to work in progress and expenses not related to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proportion to the percentage of completion in respect of the area sold. 11. We have considered rival contentions and carefully gone through the orders of the authorities below. The percentage completion method of accounting has been regularly followed by the assessee. In the succeeding assessment year 2010- 11, the AO has accepted the deductibility of the identical nature of expenses in the assessment order passed u/s 143(3) of the I.T. Act. We agree with contention of the Ld. Counsel for the assessee that the employee cost refers to salary paid to the employees who are looking after the administration of office and not directly related to construction of the project but is part of the administrative expenses. Similarly, the office and administrative expenses and selling and marketing expenses are to be charged to the profit & loss account in the very same year in which they are incurred and have to be excluded from the cost of inventories for working out closing WIP as per the guidelines issued by the ICAI, Accounting Standard AS-2 and AS-7. The assessee has regularly and consistently been following the said method of accounting as per the provisions of section 145A of the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as to why the interest income earned on bank F.Ds should not be treated as "Income from Other Sources" and assessed accordingly. In response, the assessee furnished reply vide letter dated 19.12.2011, the relevant portion of which is reproduced as under: "At the outset, we may like to mention that the Company is engaged in the business of real estate development and has no other business activity. In this regard, the company has raised funds from shareholders as well as from financial institutions and regularly deploys them in its business. Besides, the company also receives business advances in course of its business activity. Given the initial years of operations of the company, the company does have surplus funds on a temporary basis from such sources. Pending the deployment of its funds for the project, the company has temporarily invested such surplus funds in deposits with bank and earned interest income thereon. The said interest income arising to the company from bank deposits has been characterized as Business Income on the basis that the investment made in the bank deposits yielding interest income was done to temporarily park the surplus funds available with the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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