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TMI Blog2022 (11) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these expenses are not a direct cost of the specific project but are indirect costs incurred by the Assessee for development of its real estate business. Revenue does not dispute that these expenses are admittedly not incurred as cost towards completion of the on-going real estate project and therefore in our considered view these expenses cannot be added toward the cost of valuation of the specific asset. The expenses such as advertising expenses, business promotion and brokerage and commission have been incurred by the Assessee towards building its reputation and network in the real estate market and so also the software development charges are incurred towards administrative expenses. No error in the findings of the ITAT, which holds that the said expenses incurred by the Assessee are in the nature of general administration cost and selling cost as classified by the Guidance Note issued by ICAI. The said expenses had been incurred by the Assessee for its business and therefore, it qualifies for deduction as revenue expenditure, as per the decision of this court in Gopal Dass [ 2019 (3) TMI 1272 - DELHI HIGH COURT] The admissibility of the deduction is therefore not denied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in accordance with provisions of Section 37(1) of the Act. He states that the ITAT failed to appreciate that the expenses incurred by the Assessee were not intended to earn revenue during the subject AY and were spent for an 'enduring benefit' of the real estate project over a significant period of time, consisting of a number of AYs till the completion and sale of the project. 3. He states that the ITAT fell in error in holding that the amount expended by the Assessee towards 'advertisement expenses' and 'business promotion expenses' are related to the 'general administrative cost' of the Respondent. He states that ITAT erred in holding that the amount expended by the Assessee towards 'brokerage and commission' was incurred for the purpose of sale of the project, whereas admittedly the project was ongoing and unsold in this AY and the Assessee was following the CCM method which necessitates that the additions by the AO should be capitalised till the completion of the relevant project in a later AY. He further states that the ITAT erred in holding that the amount expended by the Assessee towards 'software development charge' has been incurred for the purpose of day to day opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. The development of the project began during the Financial Year ('FY') 2008-09 and the company incurred expenses under several heads. 8. The Assessee filed its Return of Income ('ITR') on 30th September, 2009. In the ITR, the Assessee claimed expenses of 16,52,57,997/- under various heads, which included the sums incurred towards purchase of land and cost of construction amounting to Rs. 11,21,57,074/-. The expense incurred by the Assessee towards cost of land and cost of development were capitalised as stock-in-trade. The balance expenses amounting to Rs. 5,31,00,923/- was charged to the Profit & Loss Account and claimed as business expense. The Assessee had total twenty eight (28) heads of indirect expenses, the AO disallowed the following four (4) heads of expenses as revenue expenditure and instead re-classified the same as capital expenses:- Advertisement Expenses Rs.16,67,436.00 Business Promotion Rs.1,12,141.00 Brokerage & Commission Rs. 4,30,54,009.00 Software Developing Charges Rs.2,05,500.00 Total Rs. 4,50,38,586.00 The AO capitalised the aforesaid expenses towards the cost of the project. Pertinently, the genuineness of the said expenses is not in dispute. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way impact the taxation of the appellant because in case of treating the same as capital expenditure, this expense will be allowed in the year when the transfer of property takes place or the sale is booked. However, it was again highlighted that it would not be as per the accounting standards issued by ICAI and would be in complete disregard to the provisions of section 209 & 211 of the Companies Act, 1956.Secondly, there is no basis for selecting only four items out of 28 items on expenses claimed by the appellant under the indirect expenses head, it appears that the AO had chosen these heads of expenses solely on the ground that the benefits of such expenses shall be of enduring nature and the appellant shall reap the benefits beyond the current assessment year. However, the AO has lost sight of the fact during such action that these expenses in no way were directed to the specific asset as the business of the appellant is in real estate. Thus, these expenses cannot be tagged with any of the specific asset as these expenses are indirect expenses of the entire projects. At the same time, it is also noticed that no tangible asset is being created by treating these expenses as capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4 that on relate administrative expenditure as well as the selling cost should not be carried forward and capitalizing the project cost but should be expensed. The Ld. departmental representative could not point out that how the accounting made by the assessee is not proper with respect to the guidance note issued by the Institute of chartered accountants of India. Further, none of the expenditure incurred by the assessee were not found to be not genuine. Looking from the another angle about the expenditure claimed by the assessee, it would be apparent that if the assessee follows the completed contract method, then the assessee would be carrying on the cost of the project for the period till the project is sold. Naturally the cost of the project would be increased by these amounts and the revenue is duty bound to grant the deduction of this cost of project at the time of sale. Therefore in that particular scenario, the amount of expenditure incurred by the assessee would be allowed to the assessee is a deduction in that particular year. If the deduction is allowed to the assessee during this year and the assessee has incurred loss assessee is duty bound to set of this loss within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness expenditure of the Assessee. ....." 12. The Revenue in these proceedings admits to the genuineness of the expenditure. There is also no dispute that the Assessee is bound to draw up its Profit and Loss account and balance sheet in compliance with the accounting standards of the ICAI. The learned counsel for the Respondent has failed to point out any ground for contending that the Guidance Note issued by ICAI for applying the Accounting Standard (AS-7) is not applicable to the Assessee. The contention of the Revenue that the disallowed expenses are of an 'enduring nature' and should therefore be capitalized to the cost of the project is not based on any legal principle. The Revenue does not dispute that these expenses are not a direct cost of the specific project but are indirect costs incurred by the Assessee for development of its real estate business. The Revenue does not dispute that these expenses are admittedly not incurred as cost towards completion of the on-going real estate project and therefore in our considered view these expenses cannot be added toward the cost of valuation of the specific asset. The expenses such as advertising expenses, business promotion and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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