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TMI Blog2018 (6) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred may be related to brand development or may be related to specific projects, it is not possible for us to decide, what part of advertisement expenses were related specifically to the project and constitute cost of project. Similarly, no such information is available on record in respect of commission and brokerage expenses - thus the matter is restored to the file of the Ld. CIT(A) for deciding afresh. X X X X Extracts X X X X X X X X Extracts X X X X ..... towards specific projects and same had not been debited under the profit and loss account in view of the percentage completion method followed for revenue recognition from real estate development. The Assessing Officer rejected the contention of the assessee, and in view of the average value of investment amounting to ₹ 7.58 crores, in assets eligible for earning exempt income, he invoked the Rule 8D, computing the disallowance as under: i) Rule 8D(2)(ii) for indirect interest expenditure= (interest amount) X average investment in exempt incomeyielding assets / average of total assets = ₹ 5, 66, 266/- (ii) Rule 8D(2)(iii) for administrative expenses at the rate of 0.5% of the average value of investment in exempt income yielding assets = ₹ 39, 414 3.2 Before the Ld. CIT(A), the assessee claimed that no interest was debited to the profit and loss account, accordingly, the Ld. CIT(A) deleted the disallowance of ₹ 5,66,266/- made under Rule 8D(2)(ii) of the Rules. 3.3 Regarding the disallowance made under Rule 8D(2)(iii), before the Ld. CIT(A), the assessee claimed that none of the expenditure debited in the profit and loss account was incurred for earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under Rule 8D(2) (iii) of I.T. Rules, 1962 is recomputed at ₹ 37,500/- [0.5% of 1/2 (1,50,01,500 + 0)]. Thus, the disallowance is restricted to ₹ 37,500/-. The ground of appeal on this point is therefore, partly allowed. In the result, ground No. 1 of the appeal is partly allowed." 3.4 Before us, the Ld. DR relied on the order of the Assessing Officer and submitted that in view of no disallowance made by the assessee for earning the exempt income of ₹ 6,72,408/-, the Ld. Assessing Officer was justified in making disallowance. 3.5 On the contrary, the learned counsel of the assessee relied on the finding of the Ld. CIT(A) and submitted that the assessee was having sufficient own funds in the form of share capital and free reserves for investment in the assets, which could yield exempted income. He also submitted that the interest of ₹ 5,88,75,200/- considered by the Assessing Officer for proportionate disallowance in terms of Rule 8D(2)(ii) of the Rules, was incurred in relation to real estate development projects and in view of the percentile completion method followed by the assessee for revenue reorganization, the cost of the project including the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ld. DR. Once the said investment of ₹ 7,64,000/- is not part of the average value of investment, which could yield exempted income, the computation of net amount of investment of ₹ 1,50,01,500/- and subsequent working of 0.5% of said value by the Ld. CIT(A) has been made correctly and we do not find any error in the same. Accordingly, we uphold the same. The ground No. 1 of the appeal of the Revenue is accordingly dismissed. 4. In Ground No. 2, the Revenue has challenged deletion of disallowance of ₹ 25,38,714/- against advertisement expenses. In ground No. 3 the Revenue has challenged deletion of disallowance of ₹ 15,96,756/- against commission and brokerage expenses. 4.1 The facts qua the disallowance are that advertisement expenses of ₹ 31,73,393/- and brokerage expenses ₹ 15,96,756/- have been claimed by the assessee in the profit and loss account. The assessee attempted to justify that it was engaged in the business of real estate development, purchasing, selling, developing, constructing, hiring or otherwise acquire and deal in the real or personal estate/properties. It was submitted that every real estate projects have long gesta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the Act as well as its nature viz. whether capital or revenue. As pointed earlier, the AO has not disputed so far as the allowability of advertisement expenditure u/s 37 of the Act is concerned. The expression 'wholly and exclusively' has been interpreted by Hon'ble Supreme Court in the case of Sassoon J. David & Company Pvt. Ltd. vs. CIT [1979] AIR 1441 as well as by the Hon'ble Jurisdictional High Court in the case of CIT vs. Jay Parabolic Springs Ltd. in 1TA No. 707/Del/20Q4. It has been held that the revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years. So far as the nature of the expenditure is concerned, the appellant has relied upon the decisions of Hon'ble Supreme Court in the case of Empire Jute Company Ltd. vs. CIT, 2002-TIOL 238 (SC) as well as the decisions of Hon'ble Jurisdictional High Court in the case of CIT vs. Monto Motors Ltd. ITA No. 978/2011 as well as in the case of CIT vs. Citi Financial Consumer Finance Ltd. in ITA No. 1820/2010, etc. It was held by the Hon'ble Courts that there is no adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 3250 and Shrs Meenakshi Mills Ltd. vs. CIT [1967] 63 1TR 207. The Hon'ble Courts have held that the expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits' Its range is wide In the appellant's case, even if the appellant had not booked the revenue because of adopting the percentage completion method, as it has not been disputed by the AO that such expenditure was actually incurred by the appellant, the expenditure under the head 'commission and brokerage' is definitely treated for the purpose of the business of the appellant. The facts being so and in view of the decisions of Hon'ble Courts on the subject, the AO's action in disallowing the expenditure of ₹ 15,96,756/- under the head 'commission and brokerage' is not justified and the same is directed to be deleted. Ground No. 3 of the appeal is allowed." 4.4 Before us, the Ld. DR relied on the order of the Assessing Officer and submitted that the assessee is following percentage completion of the method and the revenue is recognized in proportion to the cost incurred by the assessee on the relevant project. According to him, since duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The following costs should not be considered part of construction costs and development costs if they are material: (a) General administration costs; (b) selling costs; (c) research and development costs; (d) depreciation of idle plant and equipment; (e) cost of unconsumed or uninstalled material delivered at site; and (f) payments made to sub-contractors in advance of work performed. 4.8 We note that this accounting treatment has been provided for the purpose of making entries in the books of accounts. But no such treatment has been provided specifically in the Act. The accounting entries made in the books account cannot be determinative of whether particular item of receipt should be taxable as income, as has been held in the case of Kedarnath Jute Mfg. Co. Ltd Vs CIT (1971) 82 ITR 363 by the Hon'ble Supreme Court. Under the Act, what constitutes 'total income' has been provided in section 5, which is reproduced as under: "Scope of total income. 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at are used directly throughout the selling period of the sale of the project. Such selling cost may include, cost of model units and their furnishing, cost of sales facilities, legal fees for preparation of the prospectus, cost of semi-permanent signs, brochures, pamphlets etc. In our opinion, under the accrual method of accounting, the selling cost which is incurred in the period of sale of projects must be included in the total cost for the purpose of determining revenue recognized from the project. Before the Assessing Officer, also the assessee claimed that expenditure which are related to day-to-day functioning of the company has only been claimed in the profit and loss account and, thus, this stand that advertisement and brokerage & commission related to project are allowable (which means these are related to day-to-day functioning), is contrary to its own submissions before the Assessing Officer. The Ld. CIT(A) has not adjudicated on the issue in dispute that advertisement cost and commission and brokerage costs constitute selling cost and not part of the total cost of the project, to be considered for the purpose of recognizing revenue from the project proportionately. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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