ASHISH BUILDERS PVT. LTD., MUMBAI V. D.C.I.T. RANGE 3(1), MUMBAI

ITA 1566/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2676 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: PANKAJ TOPRANI
• Keywords: Capital asset; Business income; Rule of consistency; Revenue expenditure
• Section: 37(1); 145; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.310/M/2012 ASSESSMENT YEAR: 2008-09 ITA NO.1566/M/2011 ASSESSMENT YEAR: 2007-08 M/S. ASHISH BUILDERS PVT. LTD., 6 TH FLOOR, AGARWAL GOLDEN CHAMBER, PLOT NO.13/A, FUN REPUBLIC ROAD, OFF NEW LINK ROAD, ANDHERI WEST MUMBAI 400 053 PAN: AAACA 5024F VS. ASST. COMMISSIONER OF INCOME TAX, RANGE 9(1)/3(1), MUMBAI (APPELLANT) (RESPONDENT) ITA NO.7317/M/2013 ASSESSMENT YEAR: 2007-08 ITA NO.433/M/2012 ASSESSMENT YEAR: 2008-09 ITA NO.6658/M/2013 ASSESSMENT YEAR: 2010-11 DY/ASST. COMMISSIONER OF INCOME TAX, CIRCLE 3(1)/RANGE 9(1), R.NO.607/R.NO.223, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 VS. M/S. ASHISH BUILDERS PVT. LTD., G-1, B-3, AKHIL TOWER, RATAN NAGAR, DAHISAR (E), MUMBAI 400 068 PAN: AAACA 5024F (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PANKAJ TOPRANI, A.R. REVENUE BY : SHRI A.B. KOLI, D.R. DATE OF HEARING : 01.09.2016 DATE OF PRONOUNCEMENT : 23.09.2016 ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 2 O R D E R PER D. KARUNAKARA RAO, ACCOUNTANT MEMBER: THERE ARE FIVE APPEALS UNDER CONSIDERATION INVOLVI NG THREE ASSESSMENT YEARS. WE SHALL DEAL WITH THE APPEALS IN ASSESSMENT YEAR WISE AND TO START WITH, THE APPEAL FOR THE ASSESSMENT YEAR 2007-08 IS TAKEN UP. ITA NO.1566/M/2011 (A.Y.2007-08) ASSESSEES APPEAL 2. ASSESSEE RAISED THREE GROUNDS IN THIS APPEAL OUT OF WHICH GROUND NO.3 IS NOT PRESSED. ACCORDINGLY THE SAID GROUND IS DISMISS ED AS NOT PRESSED AND THE BALANCE OF GROUNDS NOS.1 AND 2 ARE EXTRACTED AS UND ER: 1) THE LEARNED CIT (A) HAS GROSSLY ERRED BOTH IN LAW A S WELL AS ON FACTS IN SUSTAINING THE ADDITION OF RS.75,88,422/- (INTEREST ON CAR LOAN RS.51,50,934/-, ADVERTISING EXP. RS.17,92,052/-, BROKERAGES RS.77,7 36/-, LOAN PROCESSING FEES RS.5,67,700/-) IN THE WORK IN PROGRESS FOR THE PURP OSE OF ASCERTAINING GROSS PROFIT @ 20% WHICH IS COMPLETELY UNJUSTIFIED AND UN CALLED FOR. 2) THE LEARNED CIT (APPEAL) HAS FURTHER ERRED IN NOT A PPRECIATING THE FACT THAT THE PERCENTAGE OF COMPLETION METHOD IS CONTINUOUSLY FOL LOWED BY THE APPELLANT THEREFORE NOT ACCEPTING THE SAID METHOD AND MAKING THE ADJUSTMENT IN THE WORK IN PROGRESS IS COMPLETELY UNJUSTIFIED. 3. THE BRIEF FACTS OF THE CASE AND THE GROUNDS ARE THAT THE ASSESSEE IS A BUILDER SINCE THE YEAR 1979. ASSESSEE COMPLETED A PROJECT NAMED GREEN GAGAN IN THE ASSESSMENT YEAR 2004-05. THE ASSESSEE FOLLOWED PERCENTAGE COMPUTATION METHOD QUA THE COST OF THE PROJECT. SUB SEQUENTLY ASSESSEE STARTED ANOTHER PROJECT NAMED AGRAWAL NEGRI AT VASANT EAS T RELEVANT TO THE ASSESSMENT YEAR 2006-07. THE ASSESSEE FOLLOWED THE PERCENTAGE COMPUTATION METHOD FOR THIS PROJECT ALSO. THIS PROJECT IS SAID TO HAVE BEEN COMPLETED IN ASSESSMENT YEAR 2011-12. IN THE ASSESSMENT YEAR 200 6-07, ASSESSEE DECLARED PROFITS @15% OF THE WIP. AS PER THE ACCOUNTING POLI CY, ASSESSEE REDUCES THE INTEREST COST AND ADMINISTRATIVE EXPENSES (INDIRECT EXPENSES) FROM THE GROSS PROFIT BEFORE ARRIVING AT THE TAXABLE NET PROFIT OF THE BUSINESS. THIS METHOD IS CONSISTENTLY FOLLOWED BY THE ASSESSEE OVER THE YEAR . THE CLAIM IN THE ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 3 ASSESSMENT PROCEEDINGS FOR THE YEAR WISE 2006-07, W HERE THE SIMILAR COMPUTATION WAS ADOPTED BY THE ASSESSEE, WAS NOT AC CEPTED. ASSESSING OFFICER TINKERED WITH THE WIP ACCOUNT AND ENHANCED THE SAME FOR WORKING OUT THE HIGHER GROSS PROFIT. THE ADMINISTRATIVE EXPENSES CL AIMED BY THE ASSESSEE WERE ALSO NOT FULLY ALLOWED. IN THE APPEALS BEFORE THE C IT(A), THE SAID CHANGES/ADDITIONS WERE DELETED AND THE ASSESSED INC OME IS REDUCED TO THE RETURN INCOME. THUS, THE INTEREST COST THE ADMINIS TRATIVE COST WERE ALLOWED OUT OF THE GROSS PROFITS FOR THE A.Y. 2006-07 EVENTUALL Y. IN THE ASSESSMENT YEAR 2007-08, ASSESSEE FOLLOWED S AME METHOD OF ACCOUNTING AS STATED ABOVE. GROSS PROFIT @ 20% OF T HE WIP OF RS.4,91,15,853/- WAS WORKED OUT AT RS.98,23,171/-. OUT OF THIS SAID GROSS PROFIT, ASSESSEE CLAIMED ADMINISTRATIVE EXPENSES OF AMOUNT OF RS.1,05,34,615/-. FURTHER, ASSESSEE ALSO CLAIMS IND IRECT EXPENSES AMOUNTING TO RS.28,96,193/-. EVENTUALLY, ASSESSEE RETURNED THE L OSS EVEN AFTER WORKING OUT THE GROSS PROFIT @ 20% OF THE WIP. THE ABOVE COMPU TATION OF THE LOSS WAS NOT ACCEPTED BY THE ASSESSING OFFICER. IN THE ASSES SMENT, THE ASSESSING OFFICER IS OF THE OPINION THE WORK-IN-PROGRESS (WIP) SHOULD BE INCREASED BY 75% OF THE INDIRECT EXPENSES. EVENTUALLY, THE WORK-IN-PROG RESS AS PER THE ASSESSING OFFICER WORKS OUT TO RS.5,33,28,339/-. THE GROSS P ROFIT ON THIS AT 20% WORKS OUT TO RS.1,06,65,668/- (SUPRA). AGGRIEVED WITH THE ABOVE CHANGES BY THE ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE THE CIT(A) FOR THE ASSESSMENT YEAR 2007-08. CIT(A) CONFIRMED ADDITION WITH REFERENCE TO DIRECT EXPENSES OF RS.75,88,422/-, I.E., 75% OF THE RS.1,0 5,34,615/-. REGARDING THE ADDITION RELATING TO THE CHANGES ON ACCOUNT OF INDI RECT EXPENSES OF RS.21,72,144/-, CIT(A) DELETED THE ADDITION TO THAT EXTENT. ACCORDINGLY, CIT(A) GRANTED PART RELIEF TO THE ASSESSEE. AGGRIEV ED WITH THE CONFIRMING OF THE SAID ADDITION AMOUNTING TO RS.75,88,472/-, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE GROUNDS RAISED EXTRACTED ABOVE. FURTHE R, THE REVENUE ACCEPTED THE SAID ORDER OF THE CIT(A). ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 4 4. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE EXPL AINED THE ABOVE FACTS OF THE CASE AND MENTIONED THAT THE SAID AMOUNT OF RS.7 5,88,472/- CONSTITUTES DIRECT EXPENSES AND IT HAS FOUR ELEMENTS AND RELEVA NT BREAK UP IS AS UNDER: A. INTEREST ON TERM LOAN/UNSECURED LAON RS.51,59,134 /- B. ADVERTISEMENT EXPENSES RS. 17,92,052/- C. BROKERAGE RS. 77,736 D. LOAN PROCESSING FEES RS.5,67,700/- LD. A.R. ARGUED THAT THESE EXPENSES ARE FULLY ALLOW ABLE IN VIEW OF THE APPLICABLE PROVISION OF SECTION 36(1)(III) (INTERES T EXPENSES) AND THE 37(1) OF THE ACT. HE ALSO SUBMITTED THAT THE CLAIMS ARE ALL OWABLE IN VIEW OF THE FINDING OF THE SIMILAR ISSUES FOR THE A.Y. 2006-07. REFERR ING TO THE INTEREST AMOUNT OF RS.51,59,134/-, LEARNED COUNSEL FOR THE ASSESSEE DE MONSTRATED THAT THERE IS A TYPOGRAPHICAL ERROR IN THE GROUND NO.1 AND THE ERRO R RELATES TO THE DESCRIPTION OF THE CAR LOAN BUT THE INTEREST SHOULD READ AS INT EREST ON TERM LOAN/UNSECURED LOAN. FURTHER ARGUING FOR ALLOWING FOR THE ENTIRE INTEREST EXPENDITURE IN THE YEAR UNDER CONSIDERATION OUT OF GROSS PROFIT AND OF FERED BY THE ASSESSEE, LD. COUNSEL SUBMITTED THAT THE SAME SHOULD NOT BE CAPIT ALIZED AS DONE BY THE AO FOR THE REASON THAT SUCH INTEREST IS ALLOWABLE LEGA LLY AND VALIDLY AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. HE ALS O SUBMITTED THAT THE ABOVE ARGUMENT IS BASED ON THE STRENGTH OF THE JURISDICTI ONAL HIGH COURT JUDGMENT IN THE CASE OF LOKHANDWALA CONSTRUCTION INDUSTRIES LTD ., 260 ITR 579 (BOM) DATED 15.01.2003. THIS JUDGMENT IS RELEVANT FOR THE LEGAL PROPOSITION THAT THE CONSTRUCTION PROJECT UNDERTAKEN BY THE ASSESSEE BUI LDER CONSTITUTED ITS STOCK-IN- TRADE AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S .36(1)(III) IN RESPECT OF INTEREST ON LOAN OBTAINED FOR EXECUTION OF THE SAID PROJECT. FURTHER, REFERRING TO DECISION OF TRIBUNAL IN THE CASE OF ROHAN ESTATES P VT. LTD., ITA NO.7200/MUM/2010 FOR THE ASSESSMENT YEAR 2006-07 DA TED 16.01.2013 WHICH HAPPENED TO BE ONE OF THE SISTER CONCERN OF THE ASS ESSEE, LD. COUNSEL SUBMITTED ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 5 THE SIMILAR ISSUE AROSE WITH REFERENCE TO THE CLAIM OF INTEREST EXPENDITURE AND THE SAME WAS ALLOWED IN FAVOUR OF THE ASSESSEE BY T HE TRIBUNAL. HE SUBMITTED THAT THE CONTENTS OF PARAGRAPH 3.2 OF THE SAID TRIB UNALS ORDER ARE RELEVANT. BRINGING OUR ATTENTION TO THE SAID PARAGRAPH, LD. C OUNSEL READ OUT THE FOLLOWING THE INTEREST COST ON THE CORRESPONDING CAPITAL BORR OWED WOULD INVOLVED TO BE INCURRED WITHOUT ANY CORRESPONDING INCREASE IN THE VALUE OF THE INVENTORY OF THE PROJECT . HE READ OUT IT IS FOR THIS REASON THAT INTEREST COST IS NORMAL LY CONSIDERED AS ONLY A PERIOD COST AND CHARGED TO THE OPERATING STATEMENT FOR THE YEAR UNDER WHICH THE SAME IS INQUIRED. HE HAS SUBMITTED THAT THE SAID DECISION OF THE TRIBUNAL RELY HEAVILY ON THE CITED JUDGMENT IN THE CASE OF LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (SUPRA). F URTHER, HE BROUGHT OUR ATTENTION TO VARIOUS OTHER DECISIONS TO DEMONSTRATE THAT IN A CASE, WHERE PERCENTAGE COMPUTATION METHOD IS ADOPTED BY THE ASS ESSEE, OUT OF THE GROSS PROFIT COMPUTED BY THAT METHOD, THE INTEREST EXPEND ITURE FOR THE YEAR ON THE BORROWED CAPITAL, IS FULLY ALLOWABLE IN THE YEAR UN DER CONSIDERATION AGAINST THE SAID GROSS PROFITS. THEREFORE, THE DECISION OF THE CIT(A) IN ALLOWING ONLY 25% AND CAPITALIZING THE BALANCE OF 75% OF THE INTEREST FIXED COST, SHOULD BE RESTORED AS CLAIMED BY THE ASSESSEE. REGARDING THE CLAIM OF ADVERTISEMENT EXPENSES OF RS.17,92,052/-, LEARNED COUNSEL SUBMITT ED THAT THIS CLAIM OF THE ASSESSEE SHOULD ALSO BE FULLY ALLOWED WITHOUT RESTR ICTING TO 25% OF THE CLAIM. OTHERWISE, AO CAPITALIZED 75% OF THE CLIAM. BRINGIN G OUR ATTENTION TO THE DECISION OF THE TRIBUNAL IN THE CASE OF VARDHAMAN DEVELOPERS LTD. 35 TAXMAN.COM 370. LD. COUNSEL SUBMITTED, IN THE SAID CASE ALSO, THE ISSUE OF ADVERTISEMENT EXPENSES AGAINST THE GROSS PROFIT CAM E UP AND THE TRIBUNAL FULLY ALLOWED. IN THE ORDER, THIS VIEW OF AO WAS NOT APP RECIATED BY THE TRIBUNAL MUMBAI BENCH AND HELD THAT THE ADVERTISEMENT EXPENS ES WERE ONLY IN THE NATURE OF SELLING COST WHICH WOULD NOT BE CAPITALIZ ED FOR INCLUSION IN THE WORK- IN-PROGRESS ACCOUNT. LEARNED COUNSEL BROUGHT OUR AT TENTION TO PARAGRAPH 4 OF THE SAID ORDER OF THE TRIBUNAL AND DEMONSTRATED THA T THE SAID ADVERTISEMENT ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 6 EXPENSES IS FULLY ALLOWABLE AS THE SAME IS IN THE N ATURE OF SELLING COST. FURTHER, BRINGING OUR ATTENTION TO THE BROKERAGE EXPENSES OF RS.77,736/-, LD. COUNSEL SUBMITTED THAT THESE EXPENSES ARE ALSO FULLY ALLOWA BLE AS COST OF THE BUSINESS U/S.37(1) OF THE ACT. FURTHER, THE LEARNED COUNSEL EXTRACTED THE ABOVE ARGUMENT TO CLAIM OF LOAN PROCESSING FEES OF RS.5,67,700/-. 5. ON THE OTHER HAND, LEARNED CIT-DR FOR THE REVENU E HAS HEAVILY RELIED UPON THE ORDER OF THE CIT(A). ACCORDING TO HIM, THE ADVERTISEMENT EXPENSES, BROKERAGE AND LOAN PROCESSING FEES ARE REQUIRED TO BE CAPITALIZED AND INCLUDED IN THE WORK-IN-PROGRESS ACCOUNT. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE. THE PAPER BOOKS FILED BEFORE US ARE ALSO ON THE REC ORD. TO BRIEF THE UNDISPUTED FACTS, IT IS THE CASE OF THE ASSESSEE THAT A PERCEN TAGE COMPLETION METHOD I.E. PCM IS FOLLOWED CONSISTENTLY BY THE ASSESSEE IN RES PECT OF THE PROJECT IN QUESTION NAMED AGARWAL NEGRI. BY THIS METHOD, THE ASSESSEE HAS BEEN OFFERING SOME PERCENTAGE OF THE COST OF THE CONSTRU CTION OF THE PROJECT (WIP) AS PROFITS EVERY YEAR FROM ASSESSMENT YEAR 2006-07 ONW ARDS. IN PRINCIPLE, PROJECT WAS COMPLETED IN THE A.Y. 2011-12. THE ASS ESSING OFFICER ACCEPTED THE SAID METHOD OF ACCOUNTING. HOWEVER, ASSESSING OFFICER PROCEEDED TO ARTIFICIALLY INFLATE THE WIP ACCOUNT FOR COMPUTING MORE PROFITS FOR THE ASSESSEE. THE ASSESSING OFFICER DID THE SAME BY TRANSFERRING THE ENTIRE/PART OF DIRECT AND INDIRECT EXPENSES DEBITED TO THE P & L ACCOUNT. TO BE SPECIFIC, THE ADMINISTRATIVE EXPENSES (INDIRECT EXPENSES) AND PAR T OF THE INTEREST EXPENSES, ADVERTISEMENT, BROKERAGE, LOAN PROCESSING FEE ACCOU NTS WERE TRANSFERRED TO THE WIP ACCOUNT. OTHERWISE, THERE IS NO DISPUTE ON THE FACT THAT THE PERCENTAGE COMPLETION METHOD IS THE APPLICABLE METHOD OF ACCOU NTING FOR THE PROJECT. IN THE BACKGROUND OF THESE CHANGES, GROUND NO.2 RAISED BY THE ASSESSEE HAS TO BE UNDERSTOOD AND WE NEED TO DECIDE IF SUCH CHANGES AR E VALIDLY DONE BY THE ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 7 ASSESSING OFFICER OR OTHERWISE. WE SHALL TAKE UP T HE APPEAL GROUND WISE ISSUES IN THE FOLLOWING PARAGRAPHS: 6. GROUND NO.1 OF THE APPEAL RELATES TO THE ADDITIO N OF SOME OF THE EXPENSES TO THE WIP ACCOUNT I.E. INTEREST ON UNSECU RED LOAN/FIXED DEPOSITS (SIC- CAR LOAN), ADVERTISEMENT EXPENSES, BROKERAGE EXPENS ES AND LOAN PROCESSING FEES. ASSESSING OFFICER CONSIDERED THE ABOVE EXPEN SES AS RELATABLE TO THE WORK-IN-PROGRESS ACCOUNT AND RECOMPUTED THE WIP ACC OUNT AT RS.5,33,28,339/-. ASSESSEE CONTENDS THAT THE ABOVE SAID EXPENDITURE IS FULLY ALLOWABLE IN THE YEAR UNDER CONSIDERATION. IN THIS REGARD, ASSESSEE RELIED ON VARIOUS DECISIONS. THIS ISSUE IS RELEVANT FOR A.YS/ APPEALS UNDER CONSIDERATION. WE SHALL TAKE UP EXPENDITURE-ACCOUNT WISE ADJUDICAT ION IN THE FOLLOWING PARAGRAPHS: A) INTEREST ON UNSECURED LOANS AND FIXED DEPOSITS: IT IS THE CLAIM OF THE ASSESSEE THAT THE ENTIRE INTEREST EXPENDITURE I S ALLOWABLE AS IT IS A TIME RELATED FIXED FINANCE COST ON THE BORROWED CAP ITAL. THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED IN FULL IN VIEW OF THE V ARIOUS DECISIONS ON THIS ISSUE. TO START WITH, WE PERUSED THE ORDER OF THE TRIBUNAL IN THE CASE OF ROHAN ESTATES PVT. LTD. (SUPRA) WHICH IS ONE OF THE SISTER CONCERNS OF THE ASSESSEE. WE PERUSED THE PARA 3.2 OF THE SAID ORDER OF THE TRIBUNAL AND FIND IT IS A SELF EXPLANATORY AND THE DECISION OF THE TRIBUNAL SUPPORTS THE CASE OF THE ASSESSEE. UNDER COMPARABLE FACTS O F THE ASSESSEE, INTEREST COST WAS ALLOWED IN FAVOUR OF THE ASSESSEE RELYING ON BINDING JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF M/S. LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (SUPRA). FOR THE SAKE OF COMPLETENESS OF THIS ORDER WE EXTRACT RELEVANT PARA 3.2 OF THE ORDE R WHICH IS REPRODUCED AS UNDER: 3.2. WITH REGARD TO THE INTEREST EXPENDITURE, THE INTEREST COST ON THE CORRESPONDING CAPITAL BORROWED WOULD NEVERTHELE SS CONTINUE TO BE INCURRED, WITHOUT ANY CORRESPONDING INCREASE IN THE VALUE OF THE INVENTORY OR THE PROJECT. SIMILARLY, A PROJECT, OR PART THEREOF, MAY BE PARTLY SOLD OR EVEN ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 8 REMAIN UNSOLD FOR QUITE SOME TIME AFTER ITS COMPLET ION. WHILE REVENUE WOULD STAND TO BE BOOKED ONLY ON THE PART, IF ANY, SOLD, THE INTEREST COST WOULD CONTINUE TO BE INCURRED ON THE ENTIRE CAPITAL, EVEN AS NO CORRESPONDING GAIN INURES IN TERMS OF VALUE ADDITION TO THE PROJECT, W HICH STANDS IN FACT COMPLETED, SO AS TO INCREASE ITS COST BY LOADING TH E SAID COST THEREON. IT IS FOR THESE REASONS THAT INTEREST (FINANCING) COST IS NOR MALLY CONSIDERED AS ONLY A PERIOD (FIXED) COST, AND CHARGED TO THE OPERATING S TATEMENT FOR THE YEAR IN WHICH THE SAME IS INCURRED. AS SUCH, WHAT IN OUR VI EW WOULD PREVAIL IS THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOWED BY TH E ASSESSEE, I.E., ON A YEAR TO YEAR BASIS. THE SAME ALSO HAS THE SANCTION OF LAW INASMUCH AS SEC. 145 CLEARLY PROVIDES FOR DETERMINATION OF THE BUSIN ESS INCOME ON THE BASIS OF THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOWED, WITH THE MANDATE OF SEC. 36(1)(III) BEING ALSO SATISFIED, AND TOWARD WHICH T HE ASSESSEE RELIES ON THE DECISION IN THE CASE OF CIT VS. LOKHANDWALA CONSTRU CTION INDS. LTD.(SUPRA). THE SAME ALSO CLARIFIES THAT THE INTEREST COST IS T O ALLOWED U/S. 36(1)(III), IRRESPECTIVE OF WHETHER IT STANDS INCURRED IN RELAT ION TO STOCK-IN-TRADE OR ON CAPITAL ACCOUNT, AS THE SAID SECTION DRAWS NO SUCH DISTINCTION. THE ISSUE, THOUGH, WE MAY CLARIFY, IS NOT AS TO WHETHER THE BO RROWED CAPITAL STANDS UTILIZED TOWARD TRADING OPERATIONS OR ON CAPITAL AC COUNT; THE INSTANT CASE BEING DECIDEDLY OF THE FORMER, BUT WHETHER THE SAID COST, HAVING BEEN INCURRED, IS TO BE CAPITALIZED AS A PART OF THE PRO JECT COST AND, THUS, TAKEN INTO ACCOUNT FOR THE PURPOSE OF VALUATION OF INVENT ORY (STOCK-IN-TRADE) AS AT THE YEAR-END AND, CONSEQUENTLY, THE DETERMINATION O F GROSS PROFIT FOR THE YEAR. IT IS ONLY THE COST THAT IS INCURRED AND OTHE RWISE ALLOWABLE, WHICH, IT MAY BE APPRECIATED, WOULD STAND TO BE CONSIDERED TH US, WHERE IT OTHERWISE QUALIFIES FOR BEING RECKONED AS A PART OF THE COST OF PRODUCTION/CONSTRUCTION, AND THUS OF THE INVENTORY OR THE PROJECT COST AS AT THE YEAR-END. THE DEDUCTIBILITY OF THE SAID COST U/S. 36(1)(III) IS T HUS NEITHER IN DOUBT NOR IN DISPUTE. FURTHER, IT MAY ALSO BE IN PLACE TO STATE THAT SECTION 36(1)(III) STANDS SINCE AMENDED BY FINANCE ACT, 2003 W.E.F. 01/4/2004 , BY WAY OF INSERTION OF A PROVISO THERETO, SO THAT ANY INTEREST COST ON CAP ITAL ACCOUNT IS TO BE NECESSARILY CAPITALIZED. ACCORDINGLY, IT IS ONLY TH E INTEREST COST FOR THE PERIOD POST ACQUISITION OF A CAPITAL ASSET, THAT WOULD STA ND TO BE DEDUCTIBLE IN COMPUTING THE BUSINESS INCOME QUA THE BUSINESS OF W HICH THE RELEVANT ASSET IS A OR IS TO CONSTITUTE A PART (ALSO REFER EXPLANA TION 8 TO S.43(1)). THE SAID DECISION MAY, THUS, IN THE GIVEN FACTS AND CIRCUMST ANCES OF THE CASE, AS WELL AS THE AMENDED LAW, NOT BE OF MUCH ASSISTANCE. 7. WE HAVE ALSO PERUSED THE SAID BINDING HIGH COURT JUDGMENT IN THE CASE OF M/S. LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (S UPRA) AND FIND THE SAME IS RELEVANT FOR THE FOLLOWING CONCLUSION CONSTRUCTION PROJECT UNDERTAKEN BY THE ASSESSEE BUILDER CONSTITUTED ITS STOCK IN TRADE AND THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT IN RESPECT OF THE INTEREST ON THE LOAN OBTAINED FOR EXECUTION OF SAID PROJECT. RELYING ON THE ANOTHER JUDGMENT ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 9 OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CALICO DYEING AND PRINTING WORKS 34 ITR 265 BOMBAY, HONBLE BOMBAY HIGH COURT CONCLUDED THAT THE INTEREST EXPENDITURE RELATING TO THE BORROWED CAPIT AL IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THE RELEVANT LINES FROM THE PARA 4 READS AS UNDER:- THAT, WHILE ADJUDICATING THE CLAIM FOR DEDUCTION U NDER SECTION 36(1)(III) OF THE ACT THE NATURE OF EXPENSE WHETH ER THE EXPENDITURE WAS ON CAPITAL ACCOUNT OR REVENUE ACCOU NT WAS IRRELEVANT AS THE SECTION ITSELF SAYS THAT INTEREST PAID BY THE ASSESSEE ON THE CAPITAL BORROWED BY THE ASSESSEE WA S AN ITEM OF DEDUCTION. THAT THE UTILIZATION OF CAPITAL WAS THE RELEVANT FOR THE PURPOSE OF ADJUDICATING THE CLAIM OF DEDUCTION UNDE R SECTION 36(1)(III) OF THE ACT. (REFERRING TO THE JUDGMENT IN THE CASE OF CALICO) IT WAS LAID DOWN THAT WHERE AN ASSESSEE CLA IMS DEDUCTION OF INTEREST PAID ON THE CAPITAL BORROWED ALL THAT T HE ASSESSEE WAS TO SHOW THAT THE CAPITAL WHICH WAS BORROWED WAS USE D FOR BUSINESS PURPOSE IN THE RELEVANT YEAR OF ACCOUNT AN D IT DID NOT MATTER WHETHER CAPITAL WAS BORROWED IN ORDER TO ACQ UIRE THE REVENUE ASSET OR A CAPITAL ASSET. CONSIDERING THE ABOVE SETTLED POSITION IN THE MATTE R WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO CLAIM ENTI RE INTEREST DEDUCTION RELATABLE TO THE CAPITAL BORROWED AND UTILIZED FOR BUSINESS P URPOSES IN THE YEAR UNDER CONSIDERATION. RESULTANTLY, WE DISAPPROVE THE DECI SION OF THE ASSESSING OFFICER/CIT(APPEALS) IN TRANSFERRING THE INTEREST E XPENDITURE TO WIP ACCOUNT. THEREFORE, ASSESSEE IS JUSTIFIED IN DEBITING THE SA ME TO THE P&L ACCOUNTS OF THE RESPECTIVE ASSESSMENT YEARS. THUS, WE ORDER THE AS SESSING OFFICER TO ACCEPT THE CLAIM AS MADE IN THE RETURN OF INCOME. ACCORDI NGLY, THIS PART OF THE GROUND NO.1 IS ALLOWED IN FAVOUR OF THE ASSESSEE. B) REGARDING ADVERTISEMENT EXPENDITURE AMOUNTING T O RS.17,92,052/- AS STATED BY LD. COUNSEL, WE PERUSED THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. VARDHAMAN DEVELOPERS LTD. 35 TAXMAN.COM 370 AND WE FIND SUCH EXPENSES ARE FOUND ALLOWABLE AS DISCUSSED BY THE TRIBUNAL IN THE PARA 4 OF THE SAID ORDER OF THE TRIBUNAL. RELEVANT EXTRACTS FROM THE SAID PARA IS INSERTED AS UNDER: ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 10 4. . SIMILARLY ADVERTISEMENT EXPENSES ARE ONLY IN THE NATURE OF SELLING COST OF THE CONSTRUCTION BUSINESS WHICH WOU LD NOT THEREFORE STAND TO BE CAPITALIZED IN AS MUCH AS THE SAME COULD ONLY BE IN RESPECT OF DIRECT COST WHICH ADDS VALUE TO OR OTHERWISE ADDS TO ITS COST O F PRODUCTION TO THE ASSESSEE. AS REGARDS THE ARGUMENT OF THERE BEING N O CORRESPONDING INCOME AS IT BEING NOT RELATABLE TO ANY REVENUE STREAM THE SAME TO OUR MIND OF LITTLE SIGNIFICANCE AS LONG AS THE ASSESSEE IS CARR YING A PARTICULAR BUSINESS DURING THE YEAR THE INCOME THERE FROM HAS TO BE COM PUTED UNDER SECTION 28 OF THE ACT ALLOWING IT ALL PERMISSIBLE DEDUCTIONS . WHETHER THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE I.E. PROJ ECT COMPLETION METHOD IS A CORRECT METHOD IN ACCORDANCE WITH THE LAW I.E. GIVE N THAT IT FOLLOWS MERCANTILE METHOD OF ACCOUNTING, IS ANOTHER MATTER ALTOGETHER. .. 8. FROM THE ABOVE IT IS EVIDENT THAT THE ADVERTISEM ENT EXPENSES IS AN ALLOWABLE EXPENDITURE IN THE YEAR OF SPENDING AS TH E SAME IS THE NATURE OF SELLING COST OF THE CONSTRUCTION BUSINESS. CONSIDE RING THE SAME, WE ARE OF THE VIEW THAT THE FINDING OF THE ASSESSING OFFICER AND THE DECISION OF THE CIT(APPEALS) ON THIS ISSUE IS REQUIRED TO BE REVERS ED AND ALLOW THE SAME IN FAVOUR OF THE ASSESSEE. REGARDING OTHER CLAIM OF E XPENDITURE ON ACCOUNT OF BROKERAGE AND LOAN PROCESSING FEE , WE FIND THE SAID CLAIMS SHOULD BE ALLOWED IN FAVOUR OF THE ASSESSEE AS THEY ARE OTHERWISE FOU ND ALLOWABLE UNDER SECTION 37(1) OF THE ACT. IN OUR VIEW, THESE EXPENSES CONS TITUTE SOME KIND OF ADMINISTRATIVE EXPENSES. THE SAID ADMINISTRATIVE E XPENSES ARE ALLOWABLE AS THEY ARE RELATABLE TO THE BUSINESS ACTIVITIES OF TH E ASSESSEE. AS SUCH, IT IS NOT THE ASSESSING OFFICERS CASE THAT THE CLAIMS ARE IN GENUINE AND NOT QUALIFIED THE CONDITIONS SPECIFIED IN THE PROVISIONS OF SECTION 3 7 OF THE ACT. IN THE RESULT, THE GROUND NO.1 RAISED BY THE ASSESS EE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 9. REGARDING GROUND NO.2, WE FIND THE SAME IS RAISE D IN ALTERNATIVE TO THE GROUND NO.1. AS THE GROUND NO.1 IS FULLY ALLOWED I N FAVOUR OF THE ASSESSEE IN EFFECT. WE DISAPPROVED THE CHANGES MADE BY THE ASS ESSING OFFICER/CIT(APPEALS) TO THE WIP ACCOUNT CLAIM OF TH E ASSESSEE. IN EFFECT, IN THAT SENSE GROUND NO.2 STANDS ALLOWED AND IN FAVOUR OF THE ASSESSEE. ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 11 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS FULLY ALLOWED. ITA NO.7317/M/2013 BY THE REVENUE (ASSESSMENT YEAR 2007-08) 11. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS) DATED 17.09.13 RELATING TO THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. THIS APPEAL IS DIRECTLY RELA TED TO THE ADDITIONS CONTESTED IN THE APPEAL ITA NO.1566/M/2011 FILED BY THE ASSES SEE. AS DISCUSSED AT LENGTH, IN THE SAID APPEAL, THE ASSESSING OFFICER C OMPUTED THE ASSESSMENT BY MAKING ADDITIONS ON ACCOUNT OF WIP ACCOUNT QUA CERT AIN EXPENSES RELATING TO INTEREST PAID, ADVERTISEMENT, BROKERAGE AND LOAN PR OCESSING FEE. THE ASSESSING OFFICER LEVIED THE PENALTY OF RS.26 LAKHS UNDER SEC TION 271(1)(C) OF THE ACT. IN CONNECTION WITH THE ABOVE SAID ADDITIONS, CIT(APPEA LS) DELETED THE PENALTY AS PER THE DISCUSSION GIVEN IN PARA 4.3 OF HIS ORDER. THE CIT(APPEALS) HELD THAT THE ASSESSEE IS ENTITLED TO RELIEF ON THE GROUND OF DEBATABILITY. AGGRIEVED WITH THE SAME THE REVENUE IS IN APPEAL BEFORE US. II. BEFORE US, BOTH THE COUNSELS SUBMITTED THAT THE ADJUDICATION OF THIS PENALTY APPEAL BECOMES ACADEMIC, IF THE APPEAL OF T HE ASSESSEE IS ON QUANTUM ADDITIONS IS ALLOWED IN FAVOUR OF THE ASSESSEE. AS CAN BE SEEN IN THE PROCEEDING PARAGRAPHS OF THIS ORDER RELATING TO THE QUANTUM APPEAL ITA NO.1566/M/2011, IT IS THE FINDING OF THE TRIBUNAL T HAT THE ADJUSTMENT MADE BY THE ASSESSING OFFICER/ CIT(APPEALS) TO THE WIP ACCO UNT ARE UNCALLED FOR INV VIEW OF THE JUDGMENT OF JURISDICTIONAL HIGH COURT I N THE CASE OF M/S. LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (SUPRA), R OHAN ESTATES PVT. LTD. (SUPRA) ETC. THEREFORE, IT IS A FACT THAT ADDITION S STAND DELETED AND THE INCOME RETURNED BY THE ASSESSEE IN THE RETURN OF INCOME WA S APPROVED. THEREFORE, WE ARE OF THE OPINION THAT THE DECISION GIVEN BY THE C IT(APPEALS) FOR THIS REASON ALSO DOES NOT CALL FOR ANY INTERFERENCE. ACCORDING LY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 12 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. CROSS APPEALS FOR THE ASSESSMENT YEAR 2008-09 (ITA NOS.310 & 433/M/2012) 13. THERE ARE CROSS APPEALS UNDER CONSIDERATION FOR THE ASSESSMENT YEAR 2008-09. THE GROUNDS RAISED BY THE ASSESSEE AND TH E REVENUE ARE AS UNDER: GROUNDS OF APPEAL OF ASSESSEE: 1. THE LEARNED CIT (A) HAS ERRED BOTH IN LAW AS WE LL AS ON FACTS IN NOT ACCEPTING THE CONSISTENTLY FOLLOWED METHOD OF ACCOU NTING BY THE APPELLANT AND ACCEPTED BY THE DEPARTMENT IN THE PAST. THEREFO RE CAPITALIZING THE EXPENSES TO THE EXTENT OF 49.04% IN DETERMINING THE WORK IN PROGRESS AND NOT ALLOWING THE SAME AS REVENUE EXPENSES IS CO MPLETELY UNJUSTIFIED. 2. THE LEARNED CIT (A) HAS FURTHER ERRED IN NOT APP RECIATING THE NATURE OF EXPENSES INCURRED THEREFORE ADDITION @ 49.04% OF TH E ADMINISTRATIVE AND FINANCIAL EXPENSES IN WORKING OUT CAPITAL WORK IN P ROGRESS ARE COMPLETELY UNJUSTIFIED. 3. THE LEARNED CIT (A) HAS COMPLETELY ERRED IN NOT ALLOWING WHOLE OF THE EXPENSES OF RS.164,55,863/- FOR DETERMINING THE NET PROFIT. THEREFORE DISALLOWANCES TO THE EXTENT OF 49.04% ARE COMPLETEL Y UNJUSTIFIED AND UNCALLED-FOR. 4. THE LEARNED CIT (A) HAS FURTHER ERRED IN ASCERTA INING GROSS PROFIT ON ENHANCED WORK IN PROGRESS @ 22% AS AGAINST 20% DETE RMINING BY THE A.O. THE APPELLANT CRAVES TO LEAVE, ADD AND ALTER ANY GR OUND OR GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. GROUNDS OF APPEAL OF REVENUE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN CHANGING THE METHOD OF ACCOUNTING A DOPTED BY THE ASSESSING OFFICER FOR DETERMINING THE GROSS PROFIT BY ALLOWIN G 50.96% OF THE EXPENDITURE AS REVENUE EXPENDITURE OUT OF TOTAL EXP ENDITURE INCURRED BY ASSESSEE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 13 14. RELEVANT FACTS APPLICABLE TO THE CROSS APPEALS INCLUDE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 20 08-09 DECLARING THE INCOME OF RS.13,05,319/-. ASSESSEE DECLARED GP OF RS.1,97,33,712/- I.E. INCREASED RATE OF 22% OF THE WIP OF RS.8,96,98,689/ -. FOLLOWING THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2007-08, T HE ASSESSING OFFICER INCREASED THE WIP ACCOUNT TO RS.11,89,01,931/- AFTE R ADDING 75% OF THE ADMINISTRATIVE EXPENSES OF (INDIRECT EXPENSES) RS.1 ,64,55,863/- AND THE DIRECT EXPENSES AMOUNTING TO RS.78,91,474/-. HOWEV ER, THE ASSESSING OFFICER ADOPTED THE DIFFERENT GP RATE OF 20% AND RE CALCULATED THE PROFIT AMOUNTING TO RS.2.38 CRORES (ROUNDED OFF). HOWEVER , CIT(APPEALS) DEVIATED FROM THE ABOVE MANNER OF ASSESSMENT OF THE AO. CIT(A) STUDIED THE EXTENT OF SALE PROCEEDS EARNED OUT OF S ALE OF THE FLATS UPTO THE YEAR AND FOUND THAT THE ASSESSEE RECORDED TOTAL SAL ES OF 50.96% OF THE PROJECT SALES. THUS, THE CIT(APPEALS) PROCEEDED TO CONSIDER ONLY THAT PERCENTAGE OF THE INDIRECT/ADMINISTRATIVE EXPENSES. THUS, THE CIT(APPEALS) ALLOWED RS.83,85,000/- OF THE ADMINIST RATIVE EXPENSES OUT OF RS.1.65 CRORES (ROUNDED OFF) AND CAPITALIZED THE BALANCE OF RS.80,69,955/- OUT OF THE GROSS ADMINISTRATIVE EXPE NSES OF RS.1,64,55,863/-. ACCORDINGLY, THE WIP AS PER THE CIT(APPEALS) IS REWORKED OUT AND THE GP AT THE RATE OF 22%, AS ADOP TED BY THE ASSESSEE, IS CONSIDERED. FINALLY, THE GP IS WORKED OUT AT RS. 2,15,09,102/-. AFTER ALLOWING THE ADMINISTRATIVE EXPENSES AMOUNTING TO R S.83,85,908/-, THE TAXABLE NET PROFIT IS WORKED OUT AT RS.1,31,23,194/ -. OTHERWISE, BOTH ASSESSING OFFICER AND THE CIT(APPEALS) DID NOT DEVI ATE FROM THE FACT OF PERCENTAGE COMPLETION METHOD AS ADOPTED BY THE AS SESSEE. HOWEVER, THE DEVIATION IS ONLY WITH REFERENCE TO THE REWORKI NG OF THE WIP ACCOUNT AND TINKERING WITH THE GP RATE. AGGRIEVED WITH THE DEVIATION OF THE CIT(APPEALS) FROM THAT OF ASSESSMENT ORDER, THE REV ENUE IS IN APPEAL WITH THE GROUND EXTRACTED ABOVE. FURTHER, AGGRIEVE D WITH THE ORDER OF THE ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 14 CIT(APPEALS) AND HIS METHOD OF WORKING OUT THE WIP ACCOUNT, THE ASSESSEE IS ALSO IN APPEAL WITH THE GROUNDS REFERRE D ABOVE. IT IS RELEVANT TO MENTION HERE THAT THE PROJECT CO MPLETION METHOD IS ADOPTED BY BOTH THE AUTHORITIES. WHILE THE ASSESSI NG OFFICER HAS ADOPTED THE ONLY 20% OF THE REWORKED OUT WIP ACCOUNT THE CI T(APPEALS) HAS ADHERED TO THE ASSESSEES PERCENTAGE OF 22%. REGAR DING THE CHANGES OF WIP, ASSESSING OFFICER REWORKED THE WIP AT SUM OF R S.11,89,00,000/- (ROUNDED OFF). THE ASSESSING OFFICER ADDED, AN ACC OUNT OF INDIRECT EXPENSES, 75% OF RS.1,64,55,863/- TO WIP ACCOUNT; O N DIRECT EXPENSES ACCOUNT ASSESSING OFFICER ADDED SUM OF RS.78,91,474 /-. FURTHER, BOTH THE PARTIES ARE AGGRIEVED WITH THE CIT(APPEALS) CON CLUSIONS RELATING TO ALLOWING 50.96% OF WIP ACCOUNT. ON THE OTHER HAND, THE CIT(APPEALS) INSTEAD OF ADDI NG 75% OF RS.1,64,55,863/-, HE APPORTIONED THE ADMINISTRATIVE EXPENSES (INDIRECT EXPENSES) OF RS.1,64,55,863/- ON THE BASIS OF SALES RECORDED IN THE YEAR UNDER CONSIDERATION. IT WORKS OUT TO 50.96%. THE CIT(APPEALS) ORDERED FOR ALLOWING THE SAID PERCENTAGE OF ADMINISTRATIVE EXPENSES I.E. 83,85,908/-. BOTH THE PARTIES AGGRIEVED WITH THE S AID DEVIATION. 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE BRO UGHT OUR ATTENTION TO THE GROUNDS AND SUBMITTED THAT THE CIT(APPEALS) ERR ED IN CAPITALIZING THE EXPENSES TO THE EXTENT OF 49.04% FOR DETERMINING TH E WORK-IN-PROGRESS. ASSESSEE IS ALSO AGGRIEVED WITH THE DECISION OF THE CIT(APPEALS) IN CAPITALIZING THE ADMINISTRATIVE AND FINANCIAL EXPEN SES AGAINST THE CLAIM OF THE ASSESSEE THAT THE SAME ARE FULLY ALLOWABLE I N VIEW OF THE CONSISTENCY RULE. ASSESSING OFFICER ALLOWED SUCH C LAIM IN A.Y. 2006-07 WITHOUT ANY CHANGES. THEY ARE ALSO AGGRIEVED WITH THE DECISION OF THE CIT(APPEALS) IN ENHANCING THE PERCENTAGE OF GROSS P ROFIT TO 22% AS ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 15 AGAINST THE 20% ADOPTED BY THE ASSESSING OFFICER. O F COURSE, ASSESSEE CALCULATED THE GP ON THE WORK-IN PROGRESS AT THE RA TE OF 22%. IN EFFECT, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE MET HOD OF ACCOUNTING AND THE METHOD OF COMPUTATION OF TAXABLE PROFITS ARE CO NSISTENTLY FOLLOWED BY THE ASSESSEE FOR THE PROJECT OF AGARWAL NEGRI. REF ERRING TO THE ADMINISTRATIVE EXPENSES, BEING INDIRECT EXPENSES, T HE SAME SHOULD BE ALLOWED IN FULL AS THEY ARE REQUIRED FOR RUNNING OF THE BUSINESS OF THE ASSESSEE. IN SUPPORT OF THE SAID CLAIM, LD. COUNSE L FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE TRIBUNALS ORDER IN TH E FACE OF ITS SISTER CONCERN I.E. ROHAN ESTATES PVT. LTD. (SUPRA). ACCO RDING TO HIM THE ADMINISTRATIVE EXPENSES BEING EMPLOYEES REMUNERATI ON, SALARIES, FIXED EXPENDITURE ETC. ARE REQUIRED FOR MAINTENANCE OF TH E OFFICE, PROJECTS AND OTHER OVER HEADS. IT IS NOT THE CASE OF THE ASSESS ING OFFICER THAT ANY OF THESE EXPENSES HAVE AN ELEMENT OF DIRECT EXPENDITUR E. REFERRING TO THE DIRECT EXPENSES, THE LD. COUNSEL S UBMITTED THAT THE ARGUMENTS MADE BY THE ASSESSEES COUNSEL IN CON NECTION WITH THE CLAIMS RELATING TO THE DIRECT EXPENSES IN THE ITA N O.1566/M/2011 ARE RELEVANT AND APPLY EQUALLY FOR THIS APPEAL TOO. RE FERRING TO THE SAID DECISION IN APPORTIONING THE ADMINISTRATIVE EXPENSE S IN THE RATIO OF EXTENT OF SALES RECORDED IN THE YEAR UNDER CONSIDERATION, THE LD. COUNSEL SUBMITTED THAT ONCE A METHOD OF ACCOUNTING IS ACCEP TED BY THE REVENUE, NO DEVIATION WHATSOEVER IS REQUIRED VALIDLY. FOR T HIS PROPOSITION LD. COUNSEL BROUGHT OUR ATTENTION TO VARIOUS DECISIONS. 1. THE DECISION OF KOLKATA BENCH OF ITAT IN THE CAS E OF M.N. DASTUR AND CO. LTD. ITA NO.1918 & 1919 (CALCUTTA) 1995, 2. BAKSHI VIKRAM VIKAS CONSTRUCTION PVT. LTD. 158 TAXMAN 61 (DELHI), 3. CHABRA LAND AND HOUSING LTD. 152 TAXMAN 68. 4. MANGAL TEERTH ESTATES LTD., MADRAS - 303 ITR 366 . ALL THE ABOVE DECISIONS ARE RELEVANT FOR THE PROPOS ITION THAT THE ITO IS NOT JUSTIFIED IN DEPARTING FROM THE CONSISTE NTLY FOLLOWED METHOD ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 16 OF ACCOUNTING FOLLOWED SCIENTIFICALLY BY THE ASSESS EE WITH RESPECT TO A PROJECT. CIT(APPEALS) IS NOT JUSTIFIED IN LINKING THE PROFITS TO THE SALES UP TO AN YEAR AS THE ASSESSEES METHOD OF COMPUTING THE PROFITS IS LINKED TO THE COST OF THE PROJECT-WIP. 16. REFERRING TO THE REVENUES APPEAL, THE SOLITARY GROUND RAISED BY THE REVENUE RELATING TO CHANGES ADOPTED BY THE CIT( APPEALS), THE LD. COUNSEL SUBMITTED THAT THE SAME RELATES TO THE GROU ND RAISED BY THE ASSESSEE IN ITS APPEAL. THEREFORE THE ABOVE ARGUME NTS OF THE LD. COUNSEL APPLY. ON THE OTHER HAND, LD. D.R. FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF THE ASSESSMENT AND THE DECISIONS DRAWN BY THE ASSESSING OFFICER. DECISION OF THE TRIBUNAL ON CROSS APPEALS-A.Y. 2008 -09 17. WE HEARD BOTH THE PARTIES ON THE ISSUES RAISED IN THE GROUNDS BY THE ASSESSEE AND THE REVENUE. WE FIND THE ISSUES ARE I NTERLACED. TO SUM UP, BOTH THE PARTIES DID NOT APPRECIATE THE DEVIATIONS RECORDED BY THE CIT(APPEALS) I.E. THE MATTERS OF REWORKING OUT THE WIP ACCOUNT IN THE RATIO OF THE SALES RECORDED IN THE YEAR UNDER CONSI DERATION. HOWEVER, THE ASSESSEE IS AGGRIEVED FOR EVERY CHANGE MADE BY THE ASSESSING OFFICER AND THE DEVIATION RECORDED BY THE CIT(APPEALS) TO T HE RESULTS OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME. THEREFORE, W E HAVE TO ADJUDICATE IN THESE CROSS APPEALS IF THE AO AND THE CIT(APPEALS) IS JUSTIFIED IN 1) TINKERING WITH THE WIP ACCOUNTS WITH REFERENCE TO D IRECT AND INDIRECT EXPENSES. 2) THE CHANGE IN THE PERCENTAGE OF GROSS PROFITS ADOPTED BY THE ASSESSING OFFICER AND THE CIT(APPEALS). FINALLY, 3 ) THE LEGAL ISSUE RELATING TO THE DEVIATION TO THE PROJECT COMPLETION METHOD OFFERED BY THE ASSESSEE IN THE RETURN, IF THE REVENUE HAS JURISDIC TION AT ALL TO BRING CHANGES ONCE IF AT ALL METHOD OF ACCOUNTING IS ACCE PTED IN THE EARLIER ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 17 ASSESSMENT YEARS QUA THE PROJECT OF AGARWAL NEGRI . WE SHALL ADJUDICATE THESE ISSUES ONE BY ONE IN THE FOLLOWING PARAGRAPHS: A. REGARDING ADMINISTRATIVE AND INDIRECT EXPENSES, WE FIND THAT THE ADMINISTRATIVE EXPENSES ARE ENTIRELY ALLOWABLE AS T HEY ARE NOTHING TO DO WITH THE DIRECT COST OF THE LIKELY STOCK IN TRADE. THE SIMILAR CLAIM IS ALLOWED IN THE CASE OF ROHAN ESTATES PVT. LTD. (SUP RA). RELEVANT EXTRACT FROM PARA 3.1 IS PLACED HERE AS UNDER: 3.1 THE ADMINISTRATIVE EXPENSES AS IT APPEARS AR E ONLY GENERAL IN NATURE AND EVEN WITH REGARD TO THE EMPLOYEES REMUNERATION THERE IS NOTHING TO INDICATE THAT IT REPRESENTS ELEMENT OF EITHER DIREC T COST OF PRODUCTION OR EVEN OF PRODUCTION OVER HEAD, WHICH ONLY WOULD ENABLE ITS I NCLUSION AS A PART OF THE COST OF PRODUCTION/CONSTRUCTION. AS SUCH, BEING A FIXED PERIOD COST THESE STAND TO BE WRITTEN OFF TO THE P & L ACCOUNT IN THE YEAR BEING INCURRED. THEREFORE THE ADMINISTRATIVE EXPENSES AMOUNTING TO RS.1,64,55,863/- IS ENTIRELY ALLOWABLE. THERE IS N OTHING ON RECORD TO DEMONSTRATE THAT THE ABOVE EXPENDITURE IS ANYWAY CO NSTITUTES A DIRECT EXPENSES OF THE PROJECT IN ANY FORM. COMING TO THE DIRECT EXPENSES OF RS.7,88,91,474/- WE FIND AN IDENTICAL EXPENDITURE W AS CLAIMED BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR 2007-08 W HICH IS THE SUBJECT MATTER OF ADDITION AND THE LITIGATION VIDE THE APPE AL NO.ITA 1566/M/2011 FOR SIMILAR REASONS WE ALLOW THE SAME A ND IN FAVOUR OF THE ASSESSEE. TO SUM UP, THE ENTIRE ADMINISTRATIVE EXP ENSES OF RS.1,64,55,863/- AND DIRECT EXPENSES OF RS.78,91,47 4/- IS FULLY ALLOWABLE, AS CLAIMED BY THE ASSESSEE IN THE P & L ACCOUNT FOR THIS YEAR, AGAINST THE GROSS PROFITS COMPUTED BY THE ASSESSEE. THEREFORE, THE WIP ACCOUNT AS MAINTAINED BY THE ASSESSEE IS APPROVED AND NO MODIF ICATIONS ARE CALLED FOR TO THIS. B. THE PERCENTAGES OF GP RATE AND ADOPTING THE 50.6 9 : 49.31 FORMULA: IN THIS REGARD, WE FIND NO JUSTIFICATION F OR CHANGES IN THESE FIGURES, THUS THE GP RATE OF 22% AS OFFERED BY THE ASSESSEE IS REASONABLE ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 18 AND NO CHANGE IS WARRANTED. IN EFFECT RELYING ON V ARIOUS JUDGMENTS CITED BY THE ASSESSEE THE PERCENTAGE COMPLETION METHOD AS FOLLOWED BY THE ASSESSEE IS APPROVED AND NO DISTURBANCES ARE CALLED FOR TO THE SAME. THUS, WE DO NOT APPROVE THE SALES LINKED CAPITALIZA TION OF EXPENSES IN THIS CASE. IN THE RESULT, ALL THE GROUNDS OF THE ASSESSEE AND OF THE REVENUE ARE ALLOWED. ITA NO.6658/M/2013 (ASSESSMENT YEAR 2010-11) 18. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(APPEALS) AND THE GROUND RAISED BY THE REVENUE READS AS UNDER : 1 WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE A ND CAPITALIZATION OF ADVERTISING EXPENSES, BROKERAGE EXPENSES, LOAN PROC EEDING FEES AND 75% OF INDIRECT EXPENSES MADE BY AO BEFORE COMPUTING THE GROSS PROFIT @ 40% OF THE WORK IN PROGRESS, WITHOUT APPRECIATING THE FACTS TH AT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE WAS FAULTY AND T HIS WAS THE ONLY PROJECT CARRIED OUT BY THE ASSESSEE IN LAST 5 YEARS? 2. WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS RIGHT IN ALLOWING PERCENTAGE COM PLETION METHOD ADOPTED BY THE ASSESSEE ON SUCH BASIS? 3. WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION M ADE ON A/C OF DISALLOWANCE OF 75% OF INDIRECT EXPENSES (RS.42,47,151/-) AND RS .79,80,097/- BEING FINANCIAL AND OTHER EXPENSES, WITHOUT APPRECIATING THE FACT THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE WAS FA ULTY AND DOES NOT DISCLOSE TRUE AND CORRECT INCOME? 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 19. FROM THE ABOVE, LD. COUNSEL SUBMITTED THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE LOSS OF RS.54,57,003/-. TH E ASSESSEE WORKED OUT THE GP AT THE RATE OF 40% ON THE WORK IN PROGRESS. ASS ESSING OFFICER, AS IN THE EARLIER YEARS, INCREASED THE WIP ACCOUNT TO THE EXT ENT OF INTEREST EXPENSES, ADVERTISEMENT EXPENSES, BROKERAGE EXPENSES, LOAN PR OCESSING FEES AND INDIRECT ITA NO.310/M/2012, ITA NO.1566/M/2011, ITA NO.433/M /2012, ITA NO.6658/M/2013 & ITA NO.7317/M/2013 M/S. ASHISH BUILDERS PVT. LTD 19 EXPENSES (75%). CIT(APPEALS) GRANTED RELIEF ON ACC OUNT OF BOTH DIRECT AND INDIRECT EXPENSES. AGGRIEVED WITH THE SAME REVENUE IS IN APPEAL BEFORE US. 20. ON PERUSAL OF THE ORDER OF THE CIT(APPEALS) (PA RA 5) AND THE OTHER RELATED PARAGRAPH, WE FIND BOTH DIRECT EXPENSES AND INDIRECT EXPENSES ARE FULLY ALLOWABLE FOR THE REASONS MENTIONED BY US IN CONNEC TION WITH THE APPEALS FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 ABOVE. ACC ORDINGLY, THE GROUNDS RAISED BY THE REVENUE FOR THIS YEAR ALSO ARE DISMIS SED AND IN FAVOUR OF THE ASSESSEE. 21. IN THE RESULT, ORDER OF THE CIT(APPEALS) DOES N OT CALL FOR INTERFERENCE. IN THE RESULT, GROUNDS RAISED BY THE REVENUE ARE DISMI SSED. 22. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.09.2016. SD/- SD/- (SAKTIJIT DEY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 23.09.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.