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TMI Blog2020 (3) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of accounting which was in accordance with Accounting Standard issued by ICAI and which is well accepted by higher courts. Therefore, there being no change in fact, the said methodology could not be rejected by the revenue. Most importantly, the Tribunal in assessee s own case for AY 2012- 13 had held that it was not necessary that the business had actually commenced for claiming of expenses but the relevant fact was that the business was set up or not. It is quite evident from the financial statements, that the assessee had already set up its business and was undertaking various projects, the expenditure of which was being accumulated under the head Capital Work-in-progress. Therefore, the observation of Ld. CIT(A) that the business was not set up could not be sustained. Keeping in view the entirety of facts and circumstances, the disallowance as confirmed by Ld. CIT(A) could not be sustained in the eyes of law. By deleting the same, we allow ground no.1 Disallowance u/s 14A r.w.r. Rule 8D(2)(iii) - HELD THAT:- We find that no adjudication has been rendered by Ld. first appellate authority, in this regard since the same was termed as academic in nature. However, going by the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and law in not adjudicating or deleting the alternate disallowance of ₹ 17,38,143/- made u/s. 14A read with Rule 8D of the Act by the Id. Assessing Officer. 4. Your appellant prays that- (a) The disallowance of ₹ 1,44,29,341/- be deleted; (b) Without prejudice to 4(a) above, the disallowance of expenditure amounting to ₹ 1,44,29,341/- be treated as part of project cost; (c) Without prejudice to 4(a) and 4(b) above, depreciation may be allowed on the expenses treated as intangible assets; (d) The disallowance of ₹ 17,38,143/- made u/s. 14A be deleted; (e) Such other relief, as may be deemed fit in the matter, be granted. 5. Each of the above grounds of appeal are independent and without prejudice to one another. The impugned order is common order for AYs 2013-14 & 2014-15 and therefore, the grievance of the assessee in both the years is similar. 2.2 Although the Ld. Authorized Representative for Assessee (AR), at the outset, submitted that issues are squarely covered in assessee's favour by the decision of this Tribunal in cross-appeals for AY 2012-13 in assessee's own case as well as assessee's group concern namely M/s Hagwwod Commercial De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Accounting Standard-7 as well as Accounting Standard-2 issued by The Institute of Chartered Accountants of India. In the above background, it was submitted that the expenses were incurred towards day-to-day activities of the assessee. Reliance was placed on the judgment of Hon'ble Guwahati High Court rendered in MKB (Asia) Private Limited Vs CIT [2006 167 Taxman 256] to support the submissions. 3.3 However, Ld.AO, referring to assessee's Annual Accounts, opined that the assessee was not a builder or developer but actually constructing a capital asset and therefore, the project related expenditure were accumulated under the head Capital Work-in-progress. The assessee was showing the same as Capital Work-in-progress and not as Work-in-progress forming part of inventory or stock-in-trade. It was also concluded that the business was neither set-up nor commenced during the year and therefore, the expenditure would fall under the head pre-operative expenses. It was also observed that the claim would fall on account of Matching Concept since the assessee was not showing any business income during the year but was claiming the expenditure and therefore, the assessee could claim expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty namely M/s Prozone Capital Shopping Centre Ltd. The perusal of nature of expenditure would establish that the same were for promotion of Brand. 4.4 Finally, the action of Ld. AO was upheld by observing that the expenditure was capital-in-nature to set up the business of the assessee and for long term benefit of the project. The expenditure being capital expenditure would not be allowable u/s 37(1). This was further supported by the fact that the basic principle of Matching Concept was not followed by the assessee. 4.5 The alternative claim of the assessee that the expenditure should be allowed as project cost was also denied in view of the fact that Brand Building should be intangible assist for the assessee and therefore the same should not be part of work-in-progress which undisputedly was stock-in-trade and hence, should consist only of revenue expenses. Aggrieved, the assessee is under further appeal before us. 5. Upon careful consideration of factual matrix as enumerated hereinabove, the undisputed position that emerges is that all the direct expenditure incurred by the assessee towards project were capitalized in the books of accounts whereas the period cost was charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment costs for which reimbursement is specified in the terms of the contract. 19. Costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract. Such costs include: (a) General administration costs for which reimbursement is not specified in the contract; (b) selling costs; (c) research and development costs for which reimbursement is not specified in the contract; and (d) depreciation of idle plant and equipment that is not used on a particular contract. 20. Contract costs include the costs attributable to a contract for the period from the date of securing the contract to the final completion of the contract. However, costs that relate directly to a contract and which are incurred in securing the contract are also included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. When costs incurred in securing a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period. Upon perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the method of accounting regularly employed by the assessee. In other words, it is open to the assessee to opt for such method of accounting as he deems reasonable and appropriate. He may opt to adopt the manufacturing cost price method or the market price method provided the method is followed in regard to both the opening stock and the closing stock. It is not open to him to adopt one method for valuing the opening stock and a different method of valuing the closing stock so as to intentionally suppress the income derived or derivable in the particular previous year. Even where an assessee has adopted a particular method for a period of years, there is no provision of law which prevents him from changing to any other method, provided the changeover is not made in the same assessment year. The proviso to sub-s.(1) empowers the AO to compute the income on such basis and in such manner as he determines if the accounts are correct and complete but the method adopted is such that, in his opinion, the income cannot properly be deduced therefrom. The jurisdiction can be invoked where he is of the opinion that the income cannot properly be deduced therefrom. He cannot ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract. 13. We, therefore, hold that the IT authority has no option/jurisdiction to meddle in the matter either by directing the assessee to maintain its accounts in a particular manner or adopt a different method for valuing the work-in-progress. We reiterate the decision in Doom Dooma India Ltd.(supra) and hold that an assessee has as the option/liberty to adopt any recognized method of accounting for his business and the income shall be computed in accordance with such regularly maintained accounting system. It was held that AS-7 as an approved system of accounting and regular accounting methodology adopted by the assessee could not be disregarded by the department. 7. On the basis of above discussion, it could be observed that the assessee was consistently following a particular method of accounting which was in accordance with Accounting Standard issued by ICAI and which is well accepted by higher courts. Therefore, there being no change in fact, the said methodology could not be rejected by the revenue. 8. Most importantly, the Tribunal in assessee's own case for AY 2012- 13 had held that it was not necessary that the business had actually commenced for claiming of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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