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TMI Blog2020 (4) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... s out that the selling and administrative cost are required to be excluded from the contract costs while drawing financial statements. Hence, the action of the assessee resonates that the parameters of AS-7 referred to in the instant case. We also find merit in the plea of the assessee that expenses incurred in the normal course of business is required to be allowed, after setting up of business irrespective of the fact whether the revenue is not yet earned in view of the decision in the case of Western India Vegetable products Ltd. [ 1954 (3) TMI 59 - BOMBAY HIGH COURT] . The action of the assessee in any case is a revenue neutral affair and the revenue is not put to any tax loss per se by such alleged premature claim. The controvers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not appreciating the fact that the assessee company is in the business of construction business and selling expenses incurred is revenue in nature. 2.2 On the facts and circumstances of the case, the ld.CIT(A) erred in not appreciating the fact that selling and promotion expenses are revenue in nature and are allowable expenditure. 3. On the facts and circumstances of the case, the ld.AO erred in initiating penalty proceeding under section 271 of IT Act, 1961. 3. Ground no.1 concerns disallowance u/s 14A of the Act which is dismissed as not pressed. 4. By way of ground no.2, the assessee seeks to impugn the action of the revenue authorities in treating the selling expenses as part of the project cost and thus capital in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been recognized only in the subsequent years. The AO further observed that the selling expenses were mostly comprised of advertising expenses of White field project . In the absence of any revenue recognized from the project, the AO applied doctrine of matching principles and held that only those expenses relatable to sales revenue recognized in a year can be claimed as revenue expenses. It was thus held by the AO that selling expenses claimed as revenue expenditure requires to be capitalized with the project cost and cannot be regarded a expenditure in revenue nature. The claim of selling expenses as the revenue expenses were thus disallowed by the AO and added to the total income of the assessee. The total loss was thus assessed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2012-13 in question at ₹ 1,70,06,860/- and therefore, the assessee does not stand to any benefit by wrongly claiming selling expenses at a premature stage and inflate the losses. It is not the case of the revenue that the selling expenses are not bonafide and therefore, the losses incurred on account of selling expenses are eventually allowable in the year of profits. Thus, the whole exercise is revenue in neutral and therefore, it does not call for any interference. 10. The ld.DR on the other hand, pointed out that in the absence of any sale revenue, the whopping amount of selling expenses cannot be allowed in the light of matching concept, as held by the lower authorities. It was further submitted that the selling expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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