INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Period cost - Administrative and general expenses - Not related to any particular contract

During the course of assessment proceedings, it was noted that assessee recognizes revenue on percentage completion basis. Assessee had claimed expenditure of Rs. 21.23 crores which includes other expenditure, cost of revenue, cost of land, finance charges and sales and marketing expenditure. The AO noted that assessee had shown sales of Rs. 12,70,07,573 and cost of sales was Rs. 10,18,41,337. Therefore, according to AO, no other expenditure should be allowed against this income as further deduction. According to AO, the assessee had claimed expenditure of Rs. 11.05 crores against other income of Rs. 10.21 crores. It was further noted that amount of miscellaneous income of Rs. 10.21 crores includes Rs. 9 crores surrendered during the search. Thus, according to him the assessee had expenditure of Rs. 11.05 crores to negate the surrendered income. Assessee explained that expenses that were not related to the particular project such as marketing expenses and financial expenses were not carried to 'work-in-progress' but were shown in the profit and loss account. The assessee further submitted that profit of Rs. 2.51 crores and other income of Rs. 10.21 crores which includes Rs. 9 crores as surrendered income had already been shown in the profit and loss account and return of income. AO rejected the contentions of the assessee and held that all these expenditures should be proportionately capitalized as work-in-progress. Held: CIT(A) had identified each of the expenditure and isolated the expenditure based on the principle that the indirect expenses being period cost are allowable expenditure and there could be no justification for disallowing the claim of such expenses when the AO himself had accepted and assessed the revenue booked by the appellant during the year under consideration. He further referred to the Accounting Standard 7 issued by the Institute of Chartered Accountants of India wherein it had been stated that administrative and general expenses were not allocable or attributable to a specific contract and were to be considered as part of the contract cost and these expenses cannot be loaded to a particular contract. With respect to the allowability of the interest expenditure, the reliance was placed on the coordinate Bench decision. Sales and marketing expenditure were allowable indirect expenditure being a period cost but the commission expenses incurred for booking of the flats in various project was directly identifiable expenses of the specific project for which commission was paid to the dealer. There was no infirmity in the order of the CIT(A). Accordingly appeal of the assessee contesting the confirmation of the disallowance of INR 1,85,92,817 was dismissed.

SUBSCRIBE FOR FULL CONTENT