Income Tax Appellate Tribunal - Mumbai
Income Tax Officer vs Panchvati Developers on 19 October, 2007
Equivalent citations: (2008)115TTJ(MUM)139
ORDER
A.K. Garodia, A.M.
1. This is a Revenue's appeal directed against the order of learned CIT(A)-XV, Mumbai dt. 31st July, 2003 for asst. yr. 2001-02.
2. The Revenue has raised only one effective ground, which reads as under:
1. On the facts and circumstances of the case and in law, learned CIT(A) erred in directing the advertisement expenditure without appreciating that the same was incurred in respect of ongoing projects and are not relatable to the completed projects.
1b. While doing so, learned CIT(A) failed to appreciate that the said expenditure was required to be capitalized and could not be allowed as a deduction even going by the assessee's method of accounting.
3. Briefly stated, the facts are that the assessee is a builder and developer. The assessee firm has shown income of Rs. 16.08 lakhs from its completed project of Panchavati Gardens. It is noted by the AO from the P&L a/c of the assessee that an amount of Rs. 14,27,377 has been debited to the P&L a/c towards advertisement and exhibition charges. The assessee was asked by the AO the explain why this expense of Rs. 14,27,377 should not be disallowed as these are not related to completed projects of field view and Panchavati Gardens. Learned Authorised Representative of the assessee submitted explanation vide letter dt. 28th Jan., 2003 and it was stated that these are marketing and sales promotion expenses comprising of advertisements in newspapers and rental charges paid for participating in property exhibition for all ongoing projects. It was also submitted that the assessee is following accounting principle of debiting all revenue expenses which are common across projects to the P&L a/c for that particular year. It was also submitted that the revenue expenses like advertisement, interest, salary, printing and stationery etc., which are not attributable to a particular project are debited to P&L a/c; and when an expense is especially attributable to a particular project, then the same is debited to that particular project. It was also submitted that advertisement charges incurred during the year are common in nature across all the ongoing projects, and hence, the same has been debited to the P&L a/c and should be allowed. The AO did not accept the contention of the learned Authorised Representative of the assessee. The AO was of the view that the advertisement expenses were for the upcoming projects of the group as well as the assessee; therefore, should be capitalized as work-in-progress of those projects, which has not been done by the assessee. On this basis, the AO disallowed this expense of Rs. 14,27,377 incurred by the assessee on account of advertisement.
The assessee carried the matter in appeal before learned CIT(A). Learned CIT(A) deleted this disallowance on the basis that there is no justification for the AO in treating the advertisement expenditure on different footing from the other administrative expenses such as salary, telephone expenses, conveyance, general charges etc. as the advertisement expenses as well as all such other expenses like salary, office expenses, conveyance etc. are non allocable expenditure to any specific project undertaken by the assessee. It is held by learned CIT(A) that the disallowance is found to have been made for no valid reason and on this basis, he deleted this disallowance. Now, the Revenue is in appeal before us.
4. Learned Departmental Representative of the Revenue supported the assessment order and it is submitted by her that the advertisement expenses were incurred for new project and hence, the same should be capitalized.
5. As against this, learned Authorised Representative of the assessee supported the order of learned CIT(A) and filed a paper book containing 126 pages having details of expenses along with copy of advertisement bills and copy of advertisements in newspapers. Our attention was drawn to page No. 7 of the paper book, which contains debit note of Rs. 9,87,092. It was also submitted that this amount of Rs. 9.87 lakhs is out of several bills. Our attention was drawn to page No. 8 of the paper book, which is a bill for Rs. 4,26,298 out of which, Rs. 1,0,520 has been transferred to the assessee firm by way of debit note appearing on page No. 7 of the paper book. It is submitted that this bill of Rs. 4.26 lakhs is on account of advertisement on 24th Jan., 2001 in three newspapers i.e. Times of India, Bharat Times and Baharat Samachar. It is submitted that photocopy of these newspaper cuttings is appearing on page Nos. 9, 10 and 11 of the paper book. It is pointed out that in these newspapers, advertisement was made for five projects of Dynamix group out of which, two projects are of the assessee i.e. Millennium Gardens at Malad (East) and Madhuban at Malad (East). Accordingly, out of total bill of Rs. 4,26,298, 1/5th is allocated to each project and since two projects are belonging to the present assessee, Rs. 1,70,520 i.e. 2/5th was transferred to the assessee firm. Similarly, our attention was drawn to page No. 12 of the paper book which contains a bill of Rs. 8,84,001 out of which also, 2/5th has been allocated to the assessee. It is submitted that this bill of Rs. 8,84,001 is on account of advertisement during 13th Feb., 2001 to 15th Feb., 2001 in four newspapers. It is submitted that the copies of these newspaper cuttings are appearing on page Nos. 13 to 15 of the paper book and in these newspaper cuttings, five projects are referred to of Dynamix group, out of which, two projects i.e. Millennium Gardens and Madhuban are belonging to the assessee firm; and hence, 2/5th expenses are transferred to the assessee firm. It is submitted that on the same basis, Rs. 1,68,814 is transferred out of bill of Rs. 4,22,035 as appearing on page No. 16 of the paper book; Rs. 2,56,912 has been transferred out of bill of Rs. 6,42,201 as appearing on page No. 21 of the paper book; Rs. 12,650 is transferred out of bill of Rs. 31,626 as appearing on page No. 25 of the paper book; Rs. 3,134 is transferred out of bill of Rs. 7,835 as appearing on page No. 26 of the paper book; Rs. 10,080 is transferred out of bill of Rs. 25,200 as appearing on page No. 29 of the paper book; and Rs. 11,350 is transferred out of bill of Rs. 28,374 as appearing on page No. 31 of the paper book.
6. Regarding exhibition expenses of Rs. 1,71,214, it is submitted that the relevant debit note is appearing on page No. 33 of the paper book and supporting documents are available on page Nos. 34 to 38 of the paper book. It is submitted that these expenses were incurred by Dynamix group as a whole, 1/5th of the same has been allocated towards the assessee. It is submitted that the details of exhibition expenses along with supporting documents are available on page Nos. 33 to 45 of the paper book.
7. It is submitted that the details of other advertisement expenses of Rs. 88,408 and Rs. 45,338 along with supporting documents are available on page Nos. 46 to 52 of the paper book. It is submitted by him that there is a common bill, which is partly allocated to the assessee. Reliance was placed on the judgment of Special Bench of the Tribunal rendered in the case of Wall Street Construction Ltd. v. Jt CIT (2006) 102 TTJ (Mumbai) (SB) 505 : (2006) 101 ITD 156 (Mumbai) (SB). It is submitted that in this judgment of the Special Bench of the Tribunal, reliance was placed by the assessee on AS-7 issued by the Institute of Chartered Accountants of India, which has been referred to by the Special Bench in para No. 6 of the judgment and as per the same, example of cost that relates directly to a specific contract does not include expenses like advertisement; and hence, as per this judgment of the Special Bench, advertisement expenses cannot be capitalized because in the present case, advertisement expenses are not referable to a particular project. Reliance was placed on the Tribunal judgment rendered in the case of Paranjpe Griha Nirman (P) Ltd. v. Jt CIT, ITA No. 2298/Mum/2001, dt. 4th April, 2006; copy of which is available on page Nos. 2 to 6 of the paper book. Our attention was drawn to para No. 5 of this Tribunal judgment, as per which, it was held by the Tribunal that the lower authorities have erred in not allowing the expenditure of Rs. 28,43,639 as a deduction in computing the taxable income of the assessee; even after considering this judgment of Special Bench of the Tribunal rendered in the case of Wall Street Construction Ltd. (supra). It was also submitted that such a class of expenditure has been consistently and regularly allowed by the AO and hence founded on the tenet of consistency; he is precluded in rejecting the assessee's claim for deduction of advertisement expenditure, and in support of this contention, reliance was placed on various judgments. It is submitted that similar expenses were allowed by the AO such as salary, conveyance expenses etc. and hence, no disallowance can be made on account of advertisement expenses.
8. An alternative contention was raised without prejudice that if disallowance is confirmed in present year, the AO should be directed to allow deduction for the expenses in the year in which, project was completed and in support of this contention, reliance is placed on the judgment of the Tribunal rendered in the case of Perfect Equipments v. Dy. CIT (2004) 86 TTJ (Ahd) 361 : (2003) 85 ITD 50 (And).
9. We have considered the rival submissions, perused the materials on record and have gone through the orders of authorities below and judgments cited by learned Authorised Representative of the assessee. We find that in the case of Wall Street Construction Ltd. (supra), it was held by the Special Bench of the Tribunal that if the assessee is following project completion method of accounting, interest identifiable with that project should be allowed only in the year, in which project is completed and income from that project is offered for taxation and it cannot be allowed on year to year basis. In para No. 22 of this judgment, it is noted by the Special Bench that interest expenses are allocated to different projects. In the light of these facts, we examine the facts of the present case. In the present case also, we find that all the advertisement bills are raised in the name of Dynamix group of companies; and in the advertisements, several projects of this group were advertised simultaneously. Out of advertisement expenditure incurred for this combined advertisements for several projects of this Dynamix group, expenditure has been allocated to the assessee to the extent of 2/5th of this total expenses because in the advertisements, five projects of the group were advertised out of which, two projects were belonging to the assessee firm. In the light of this factual position, we feel that the advertisement expenditure incurred by the assessee is directly relatable to the individual project because, if 2/5th of the total expenditure is allocated to the assessee on the basis that out of advertisement for five projects, two projects were belonging to the assessee, then the expenses borne by the assessee can be allocated to the individual project also and 50 per cent of the expenses is relatable to the Millennium Gardens project and balance 50 per cent is relatable to Madhuban project. Regarding other administrative expenses such as conveyance, general charges, legal fees, printing and stationery, salary, employer's contribution to PF, telephone charges etc., we And that there is no basis on which these expenses can be allocated between these two projects of the assessee firm and hence, advertisement expenses stand on different footing as compared to these administrative expenses because these administrative expenses cannot be allocated to individual project on any rational basis. Whereas, advertisement expense is found to be allocable to individual project on the same basis as per which, these expenses were allocated by Dynamix group to the assessee firm. In the light of this fact, we are of the considered opinion that judgment of Special Bench of the Tribunal rendered in the case of Wall Street Construction Ltd. (supra) is directly applicable to the present case, and respectfully following the same, we hold that advertisement expenses should be capitalized as work-in-progress; and the same are not allowable as expenditure in the present year.
10. Regarding the Tribunal judgment rendered in the case of Paranjape Griha Nirman Ltd. (supra), we find that the facts are different and hence, this Tribunal judgment does not help the case of the assessee in the present case because in that case, the dispute was regarding expenditure of Rs. 28.43 lakhs, which was found by the Tribunal not allocable to any particular project. But, we find force in the alternative contention of learned Authorised Representative of the assessee that the AO should be directed to allow deduction of these expenses in the year when these projects are competed.
11. We feel that once it is held that these advertisement expenses have to be capitalized in work-in-progress of individual project, opening balance of work-in-progress of individual project will go up in the relevant year when these projects were completed and in that year, income has to be computed after considering increased opening work-in-progress of the relevant project. Accordingly, we direct the AO that in the year when these projects i.e. Millennium Gardens and Madhuban projects were completed, income on account of these projects should be computed after considering increased opening balance of work-in-progress due to addition of advertisement expenses in work-in-progress of these projects in the present year. With these observations, appeal of the Revenue for asst. yr. 2001-02 under reference is therefore disposed of as above.
12. In the result, this appeal of the Revenue is allowed pro tanto.