DATTANI CONSTRUCTION,MUMBAI vs. ITO WARD 42(1)(2), MUMBAI

4. On the facts and circumstances of the case and in law the Id.

4. On the facts and circumstances of the case and in law the Id.

4. On the facts and circumstances of the case and in law the Id. CIT(A) erred in confirming the action of Ld. AO in making CIT(A) erred in confirming the action of Ld. AO in making CIT(A) erred in confirming the action of Ld. AO in making disallowance of Sales Promotion Expense amounting to Rs. isallowance of Sales Promotion Expense amounting to Rs. isallowance of Sales Promotion Expense amounting to Rs. 9,17,014/- by transferring the same to Capital work by transferring the same to Capital work-in in- progress for the reasons mentioned in the impugned order or otherwise. for the reasons mentioned in the impugned order or otherwise. for the reasons mentioned in the impugned order or otherwise.

5. On the facts and circumstances of the case and in law the Id.

5. On the facts and circumstances of the case and in law the Id.

5. On the facts and circumstances of the case and in law the Id. CIT(A) erred in confirming the action of Ld. AO in making rred in confirming the action of Ld. AO in making rred in confirming the action of Ld. AO in making disallowance of Financial Expense amounting to Rs. 23,74,386/ disallowance of Financial Expense amounting to Rs. 23,74,386/ disallowance of Financial Expense amounting to Rs. 23,74,386/- by transferring the same to Capital work by transferring the same to Capital work-in- progress for the progress for the reasons mentioned in the impugned order or otherwise. reasons mentioned in the impugned order or otherwise. reasons mentioned in the impugned order or otherwise.

6. On the facts and circums 6. On the facts and circumstances of the case and in law the Id. tances of the case and in law the Id. CIT(A) erred in confirming the action of Ld. AO in making CIT(A) erred in confirming the action of Ld. AO in making CIT(A) erred in confirming the action of Ld. AO in making disallowance of General Administration Expense amounting to disallowance of General Administration Expense amounting to disallowance of General Administration Expense amounting to Rs. 15,37,367/ Rs. 15,37,367/- by transferring the same to Capital work by transferring the same to Capital work-in- progress progress for for the the reasons reasons mentioned mentioned in in the th e impugned impugned order or otherwise. otherwise.

2.1 Subsequently, the assessment was completed under section Subsequently, the assessment was completed under section Subsequently, the assessment was completed under section 143(3) of the Act on 21st March, 2014, wherein the learned 143(3) of the Act on 21st March, 2014, wherein the learned 143(3) of the Act on 21st March, 2014, wherein the learned Assessing Officer made certain additions and disallowances. These, Assessing Officer made certain additions and disallowances. These, Assessing Officer made certain additions and disallowances. These, inter alia, included— —(i) an addition on account of the diffe (i) an addition on account of the difference in receipts as per Form No. 26AS amounting to ₹4,05,826/-, receipts as per Form No. 26AS amounting to receipts as per Form No. 26AS amounting to comprising interest income of comprising interest income of ₹23,334/- and rental income of and rental income of ₹3,82,492/-, and (ii) a disallowance of expenses claimed under the , and (ii) a disallowance of expenses claimed under the , and (ii) a disallowance of expenses claimed under the head “Income from Other Sources”, which were directed to be head “Income from Other Sources”, which were directed to be head “Income from Other Sources”, which were directed to be capitalised by transfer to “Capital Work italised by transfer to “Capital Work-in-Progress”. Progress”.

3. On further appeal, the Ld. CIT(A) partly allowed the appeal of On further appeal, the Ld. CIT(A) partly allowed the appeal of On further appeal, the Ld. CIT(A) partly allowed the appeal of the assessee.

Ground No. 2 of the assessee’s appeal pertains to the addition 7. Ground No. 2 of the assessee’s appeal pertains to the addition Ground No. 2 of the assessee’s appeal pertains to the addition made on account of the difference in receipts as reflected in Form made on account of the difference in receipts as reflected in Form made on account of the difference in receipts as reflected in Form No. 26AS, amounting to No. 26AS, amounting to ₹4,05,826/–.

7.1 The brief facts relevant to this issue are that, as per Form No. The brief facts relevant to this issue are that, as per Form No. The brief facts relevant to this issue are that, as per Form No. 26AS placed at pages 32 to 35 of the Paper Book, the assessee had 26AS placed at pages 32 to 35 of the Paper Book, the assessee had 26AS placed at pages 32 to 35 of the Paper Book, the assessee had received certain sums by way of rent and interest, along with credit received certain sums by way of rent and interest, along with credit received certain sums by way of rent and interest, along with credit for tax deducted at source (TDS), as summarised below: for tax deducted at source (TDS), as summarised below: for tax deducted at source (TDS), as summarised below:

Name of the party Nature of Total amount Total Total tax tax Total TDS receipt paid/credited deducted deducted deposited Selvel Selvel Publicity Publicity And And Rent 6,00,000/- 60,000/- 60,000/ 60,000/- Consultants Pvt. Ltd. Kavveri Kavveri Telecom Rent Telecom 4,24,992/- 42,499/- 42,499/ 42,499/- Infrastructure Ltd. Aditi Fastfood Pvt. Ltd. Aditi Fastfood Pvt. Ltd. Interest 23,334/- 2,334/ - 2,334/- Total 10,48,326/– 1,04,833 1,04,833 1,04,833 7.2 The Assessing Officer observed that against the aforesaid The Assessing Officer observed that against the aforesaid The Assessing Officer observed that against the aforesaid receipts aggregating to ₹10,48,326/–, the assessee had disclosed receipts aggregating to , the assessee had disclosed only a sum of ₹6,42,500/ 6,42,500/– under the head “Miscellaneous Income” “Miscellaneous Income” in the return of income. Consequently, the balance amount, in the return of income. Consequently, the balance amount, in the return of income. Consequently, the balance amount, comprising rent of ₹3,82,492/ 3,82,492/– and interest of ₹23,334/ 23,334/–, remained undisclosed.

7.3 During the course of assessment proceedings, the assessee During the course of assessment proceedings, the assessee During the course of assessment proceedings, the assessee submitted that it had, in fact, received only rent of ₹6,00,000/– submitted that it had, in fact, received only rent of submitted that it had, in fact, received only rent of from Selvel Publicity and Consultants Pvt. Ltd. Selvel Publicity and Consultants Pvt. Ltd. and had not received and had not received any payment from Kavveri Telecom Infrastructure Ltd. Kavveri Telecom Infrastructure Ltd., except for the Kavveri Telecom Infrastructure Ltd. amount of TDS credited in its favour. The assessee thus contended amount of TDS credited in its favour. The assessee thus contended amount of TDS credited in its favour. The assessee thus contended that, since the TDS of that, since the TDS of ₹42,499/– was reflected in its name, the lected in its name, the same amount was taken as income. In this manner, the assessee same amount was taken as income. In this manner, the assessee same amount was taken as income. In this manner, the assessee claimed to have offered total income of ₹6,42,499/ claimed to have offered total income of 6,42,499/– while availing credit for the entire TDS of ₹1,04,834/–. credit for the entire TDS of 7.4 The Assessing Officer, however, did not find the explanat The Assessing Officer, however, did not find the explanat The Assessing Officer, however, did not find the explanation satisfactory. He was of the view that since the assessee had claimed satisfactory. He was of the view that since the assessee had claimed satisfactory. He was of the view that since the assessee had claimed credit for the entire TDS amount of ₹1,04,834/–, it was incumbent credit for the entire TDS amount of , it was incumbent upon it to declare the corresponding gross receipts of ₹10,48,326/–. upon it to declare the corresponding gross receipts of upon it to declare the corresponding gross receipts of Accordingly, he treated the differential sum of ₹4,05,826/–, Accordingly, he treated the differential sum of Accordingly, he treated the differential sum of comprising rent of ₹3,82,492/– and interest of and interest of ₹23,334/–, as comprising rent of undisclosed income and added the same to the total income of the undisclosed income and added the same to the total income of the undisclosed income and added the same to the total income of the assessee.

7.5 Before the Ld. CIT(A) the assessee again reiterated that no Before the Ld. CIT(A) the assessee again reiterated that no Before the Ld. CIT(A) the assessee again reiterated that no rental income or the interest income was re rental income or the interest income was received from M/s Kavveri ceived from M/s Kavveri Telecom Infrastructure Ltd. and Aditi Fastfood Pvt. Ltd. respectively Telecom Infrastructure Ltd. and Aditi Fastfood Pvt. Ltd. Telecom Infrastructure Ltd. and Aditi Fastfood Pvt. Ltd. either in the current year or in the subsequent year and therefore, either in the current year or in the subsequent year and therefore, either in the current year or in the subsequent year and therefore, no addition was warranted. warranted. The Ld. CIT(A) however rejected the The Ld. CIT(A) however rejected the contention of assessee observin contention of assessee observing as under:

“5.2 Ground of Rs.3,82,492/ 5.2 Ground of Rs.3,82,492/-. During the course of appellate . During the course of appellate proceedings, appellant has submitted that difference of rent proceedings, appellant has submitted that difference of rent proceedings, appellant has submitted that difference of rent shown in 26AS of the appellant had neither received the sum nor shown in 26AS of the appellant had neither received the sum nor shown in 26AS of the appellant had neither received the sum nor was the amount in anyway receivable by them. The only error on was the amount in anyway receivable by them. The only error on was the amount in anyway receivable by them. The only error on the part of the appellant was that the corresponding TDS in of the appellant was that the corresponding TDS in of the appellant was that the corresponding TDS in respect of the rent which was not related was claimed by them. respect of the rent which was not related was claimed by them. respect of the rent which was not related was claimed by them. Apart from that appellant has not submitted any documents Apart from that appellant has not submitted any documents Apart from that appellant has not submitted any documents showing that the addition made by the AO was erroneous. showing that the addition made by the AO was erroneous. showing that the addition made by the AO was erroneous. However, during the assessm However, during the assessment proceedings, AO has observed ent proceedings, AO has observed that appellant has not restricted its TDS claim to the amount that appellant has not restricted its TDS claim to the amount that appellant has not restricted its TDS claim to the amount offered to tax but claimed full TDS corresponding to the amount offered to tax but claimed full TDS corresponding to the amount offered to tax but claimed full TDS corresponding to the amount reflected in 26AS statement whereas appellant offered only reflected in 26AS statement whereas appellant offered only reflected in 26AS statement whereas appellant offered only portion of the corresponding income to portion of the corresponding income to tax. The parties who have tax. The parties who have made payments to the appellant had deducted TDS thereon have made payments to the appellant had deducted TDS thereon have made payments to the appellant had deducted TDS thereon have uploaded the said information in their TDS returns corresponding uploaded the said information in their TDS returns corresponding uploaded the said information in their TDS returns corresponding to the appellant's PAN. Therefore, whatever AO contended to the appellant's PAN. Therefore, whatever AO contended to the appellant's PAN. Therefore, whatever AO contended appears to be true as appellant stated that it appears to be true as appellant stated that it had erroneously had erroneously claimed the TDS amount. However, it failed to prove to whom this claimed the TDS amount. However, it failed to prove to whom this claimed the TDS amount. However, it failed to prove to whom this TDS belongs to and who has offered the corresponding amount TDS belongs to and who has offered the corresponding amount TDS belongs to and who has offered the corresponding amount for taxation in their returns. In view of that contention of the for taxation in their returns. In view of that contention of the for taxation in their returns. In view of that contention of the appellant is rejected and addition made by the AO appellant is rejected and addition made by the AO appellant is rejected and addition made by the AO of Rs.3,82,492/ Rs.3,82,492/- on account house property income is being on account house property income is being sustained. Ground of no.3 is therefore, sustained. Ground of no.3 is therefore, dismissed.” 7.6 We have carefully heard the rival submissions of the parties We have carefully heard the rival submissions of the parties We have carefully heard the rival submissions of the parties and perused the material available on record. The controversy that and perused the material available on record. The controversy that and perused the material available on record. The controversy that arises for consideration is whether the assessee is entitled to claim onsideration is whether the assessee is entitled to claim onsideration is whether the assessee is entitled to claim credit of tax deducted at source (TDS) in respect of amounts credit of tax deducted at source (TDS) in respect of amounts credit of tax deducted at source (TDS) in respect of amounts reflected reflected reflected in in in Form Form Form No. No. No. 26AS, 26AS, 26AS, without without without having having having offered offered offered the the the corresponding income to tax in the year under consideration. corresponding income to tax in the year under consideration. corresponding income to tax in the year under consideration.

7.7 It is an admitted It is an admitted position that as per Form No. 26AS, a total position that as per Form No. 26AS, a total sum of ₹10,48,326/– – has been shown as receipts in the name of the has been shown as receipts in the name of the assessee, comprising rent of ₹4,24,992/– and interest of and interest of ₹23,334/–. assessee, comprising rent of The case of the assessee, however, is that no rent was actually The case of the assessee, however, is that no rent was actually The case of the assessee, however, is that no rent was actually received from Kavveri Telecom Infrastructure Ltd. Kavveri Telecom Infrastructure Ltd., except for the , except for the credit of TDS appearing in its favour. Likewise, with respect to Aditi credit of TDS appearing in its favour. Likewise, with respect to credit of TDS appearing in its favour. Likewise, with respect to Fastfood Pvt. Ltd., it has been contended that no interest amount , it has been contended that no interest amount , it has been contended that no interest amount was received apart from the TDS component. was received apart from the TDS component.

7.8 In our considered o In our considered opinion, this issue necessitates verification pinion, this issue necessitates verification at the level of the Assessing Officer. The Assessing Officer shall at the level of the Assessing Officer. The Assessing Officer shall at the level of the Assessing Officer. The Assessing Officer shall ascertain—(i) whether the alleged deductor has claimed the (i) whether the alleged deductor has claimed the (i) whether the alleged deductor has claimed the impugned amount as rental expenditure in its books of account impugned amount as rental expenditure in its books of account impugned amount as rental expenditure in its books of account towards the assessee, o towards the assessee, or (ii) the quantum of amount, if any, credited r (ii) the quantum of amount, if any, credited or actually paid by the said deductor to the assessee. The Assessing or actually paid by the said deductor to the assessee. The Assessing or actually paid by the said deductor to the assessee. The Assessing Officer may also verify from the respective deductors whether only Officer may also verify from the respective deductors whether only Officer may also verify from the respective deductors whether only the TDS amount was finally adjusted or settled between the parties, the TDS amount was finally adjusted or settled between the parties, the TDS amount was finally adjusted or settled between the parties, and no other amount was either paid or payable. o other amount was either paid or payable.

7.9 If, upon such verification, it is found that no amount other If, upon such verification, it is found that no amount other If, upon such verification, it is found that no amount other than the TDS has been received or is receivable by the assessee, the than the TDS has been received or is receivable by the assessee, the than the TDS has been received or is receivable by the assessee, the Assessing Officer shall grant credit of the TDS reflected in Form No. Assessing Officer shall grant credit of the TDS reflected in Form No. Assessing Officer shall grant credit of the TDS reflected in Form No. 26AS in favour of the assessee, after taking into account the rental avour of the assessee, after taking into account the rental avour of the assessee, after taking into account the rental income of ₹42,500/– from M/s Kavveri Telecom Infrastructure Ltd. M/s Kavveri Telecom Infrastructure Ltd.. A similar course of action shall be adopted in respect of the interest similar course of action shall be adopted in respect of the interest similar course of action shall be adopted in respect of the interest from Aditi Fastfood Pvt. Ltd. Aditi Fastfood Pvt. Ltd. 7.10 Accordingly, this Accordingly, this ground of appeal is restored to the file of the ground of appeal is restored to the file of the Assessing Officer for fresh adjudication, after carrying out Assessing Officer for fresh adjudication, after carrying out Assessing Officer for fresh adjudication, after carrying out necessary verification and making such inquiries as may be deemed necessary verification and making such inquiries as may be deemed necessary verification and making such inquiries as may be deemed fit from the concerned deductors. The Assessing Officer shall fit from the concerned deductors. The Assessing Officer shall fit from the concerned deductors. The Assessing Officer shall thereafter decide the issue in accordance with law and after he issue in accordance with law and after he issue in accordance with law and after affording due opportunity of being heard to the assessee. affording due opportunity of being heard to the assessee. affording due opportunity of being heard to the assessee.

7.11 The ground No. 2 of the appeal of the assessee is allowed for The ground No. 2 of the appeal of the assessee is allowed for The ground No. 2 of the appeal of the assessee is allowed for statistical purposes.

8.1 The brief facts relevant to the issue under consideration are The brief facts relevant to the issue under consideration are The brief facts relevant to the issue under consideration are that that that the the the assessee assessee assessee had had had debited debited debited certain certain certain expenses expenses expenses against a a “Miscellaneous Income” “Miscellaneous Income”, comprising sales promotion expenses of , comprising sales promotion expenses of ₹18,31,596/–, general administrative expenses of , general administrative expenses of ₹51,24,557/–, , general administrative expenses of and financial expenses of ₹23,74,386/–. It was the contention of the and financial expenses of . It was the contention of the assessee that, in earlier assessment years, a consistent practice had assessee that, in earlier assessment years, a consistent practice had assessee that, in earlier assessment years, a consistent practice had been followed whereby 70% of such expenses were claimed as been followed whereby 70% of such expenses were claimed as been followed whereby 70% of such expenses were claimed as deductible under the head deductible under the head “Income from Other Sources” “Income from Other Sources” and the balance 30% was capital balance 30% was capitalised as Capital Work-in-Progress Progress pertaining to the assessee’s real estate projects. to the assessee’s real estate projects. This practice was accepted by This practice was accepted by the AO in earlier years. the AO in earlier years.

8.2 However, for the year under consideration, the learned However, for the year under consideration, the learned However, for the year under consideration, the learned Assessing Officer deviated from this practice and transferred the Assessing Officer deviated from this practice and transfer Assessing Officer deviated from this practice and transfer entire amount of certain expenses to entire amount of certain expenses to Capital Work Capital Work-in-Progress, specifically—sales promotion expenses of sales promotion expenses of ₹9,17,014/ 9,17,014/– (excluding donation of ₹9,14,502/ 9,14,502/–), general administrative expenses of ), general administrative expenses of ₹50,20,998/– (after allowing depreciation of (after allowing depreciation of ₹4,68,573/ 4,68,573/–), and financial expenses of ₹23,74,386/–—aggregating to ₹ ₹83,12,398/–. financial expenses of 8.3 In appeal, the learned Commissioner of Income Tax (Appeals) In appeal, the learned Commissioner of Income Tax (Appeals) In appeal, the learned Commissioner of Income Tax (Appeals) [CIT(A)] granted partial relief to the assessee. The Ld. CIT(A) [CIT(A)] granted partial relief to the assessee. The Ld. CIT(A) [CIT(A)] granted partial relief to the assessee. The Ld. CIT(A) accepted the assessee’s contention with respect to general accepted the assessee’s contention with respect to general accepted the assessee’s contention with respect to general administrative expenses and directed that 70% thereof be allowed ministrative expenses and directed that 70% thereof be allowed ministrative expenses and directed that 70% thereof be allowed as deduction, with the remaining 30% to be capitalised as Capital as deduction, with the remaining 30% to be capitalised as as deduction, with the remaining 30% to be capitalised as Work-in-Progress. However, he declined to extend similar treatment . However, he declined to extend similar treatment . However, he declined to extend similar treatment to the sales promotion expenses and financial expenses, thereby to the sales promotion expenses and financial expenses, ther to the sales promotion expenses and financial expenses, ther sustaining the disallowance of those items. sustaining the disallowance of those items..

8.4 Before us, the Ld. counsel for the assessee referred to Paper Before us, the Ld. counsel for the assessee referred to Paper Before us, the Ld. counsel for the assessee referred to Paper Book page 29 and 31 of the Paper Book where detail of the sales Book page 29 and 31 of the Paper Book where detail of the sales Book page 29 and 31 of the Paper Book where detail of the sales promotion expenses and investment expenses is provided. For ready promotion expenses and investment expenses is provided. For ready promotion expenses and investment expenses is provided. For ready reference said detail is reproduced as under : reference said detail is reproduced as under :

“DATTANI CONSTRUCTIONS CTIONS SCHEDULE FORMING THE PART OF PROFIT & LOSS SCHEDULE FORMING THE PART OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2011 ACCOUNT FOR THE YEAR ENDED MARCH 31, 2011 Miscellaneous Income Particulars Rs. Ps. Rent Recd 642499.60 Compensation 4850000.00 5492499.60 Sales Promotion Expenses Sales Promotion Expenses Schedule No. 4 Schedule No. 4 Particulars Advertisement 917014.00 Donations 914582.00 1831596.00 Total 1831596.00 “DATTANI CONSTRUCTIONS “DATTANI CONSTRUCTIONS SCHEDULE FORMING THE PART OF PROFIT & LOSS SCHEDULE FORMING THE PART OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2011 ACCOUNT FOR THE YEAR ENDED MARCH 31, 2011 Financial Expenses Financial Expenses Schedule No. 6 Schedule No. 6 Particulars

Rs. Ps. Discount 375125.00 Brokerage 174500.00 2374386.00 2374386.00 Interest 1824761.00 2374386.00 2374386.00 Total 2374386.00 2374386.00 8.5 We have given our thoughtful consideration to the rival We have given our thoughtful consideration to the rival We have given our thoughtful consideration to the rival submissions advanced by both submissions advanced by both parties, perused the material placed parties, perused the material placed on record, and duly considered the findings of the authorities on record, and duly considered the findings of the authorities on record, and duly considered the findings of the authorities below. The material facts are not in dispute. The assessee is below. The material facts are not in dispute. The assessee is below. The material facts are not in dispute. The assessee is engaged in the business of real estate development and, in the engaged in the business of real estate development and, in the engaged in the business of real estate development and, in the ordinary course of its operatio ordinary course of its operations, incurs various categories of ns, incurs various categories of expenditure expenditure expenditure including including including financial, financial, financial, administrative, administrative, administrative, and and and sales sales sales promotion expenses. The financial expenses comprise brokerage, promotion expenses. The financial expenses comprise brokerage, promotion expenses. The financial expenses comprise brokerage, discount, and interest components, some of which are directly discount, and interest components, some of which are directly discount, and interest components, some of which are directly relatable to ongoing real estate projec relatable to ongoing real estate projects.

8.6 It is evident from the record that the assessee has been It is evident from the record that the assessee has been It is evident from the record that the assessee has been consistently following a uniform accounting methodology over the consistently following a uniform accounting methodology over the consistently following a uniform accounting methodology over the years, wherein 30% of the expenditure incurred under the aforesaid years, wherein 30% of the expenditure incurred under the aforesaid years, wherein 30% of the expenditure incurred under the aforesaid heads is capitalised as part of heads is capitalised as part of Capital Work-in-Progress Progress and the balance 70% is claimed as revenue deduction in the year of balance 70% is claimed as revenue deduction in the year of balance 70% is claimed as revenue deduction in the year of incurrence. This accounting treatment, being consistently followed incurrence. This accounting treatment, being consistently followed incurrence. This accounting treatment, being consistently followed in preceding assessment years, has been accepted by the in preceding assessment years, has been accepted by the in preceding assessment years, has been accepted by the Department and not found fault with in earlier scrutiny Department and not found fault with in earlier scrutiny Department and not found fault with in earlier scrutiny assessments. The principle of consistency, recognised by judicial The principle of consistency, recognised by judicial The principle of consistency, recognised by judicial precedents, mandates that a settled accounting practice accepted in precedents, mandates that a settled accounting practice accepted in precedents, mandates that a settled accounting practice accepted in prior years cannot be arbitrarily disturbed in a subsequent year prior years cannot be arbitrarily disturbed in a subsequent year prior years cannot be arbitrarily disturbed in a subsequent year unless there is a material change in facts or law. unless there is a material change in facts or law.

8.7 The learned As The learned Assessing Officer, however, deviated from this sessing Officer, however, deviated from this consistent practice and directed the transfer of the entire consistent practice and directed the transfer of the entire consistent practice and directed the transfer of the entire expenditure to Capital Work Capital Work-in-Progress, on the reasoning that such , on the reasoning that such expenses are relatable to the projects under development. The expenses are relatable to the projects under development. The expenses are relatable to the projects under development. The learned CIT(A), while learned CIT(A), while appreciating the past pattern, partially appreciating the past pattern, partially accepted the assessee’s contention in respect of administrative accepted the assessee’s contention in respect of administrative accepted the assessee’s contention in respect of administrative expenses but maintained the disallowance of sales promotion and expenses but maintained the disallowance of sales promotion and expenses but maintained the disallowance of sales promotion and financial expenses.

8.8 The question that, therefore, arises for determination is The question that, therefore, arises for determination is The question that, therefore, arises for determination is whether such sales promotion and financial expenses can be her such sales promotion and financial expenses can be her such sales promotion and financial expenses can be treated wholly as capital in nature or whether a proportion thereof treated wholly as capital in nature or whether a proportion thereof treated wholly as capital in nature or whether a proportion thereof merits treatment as revenue expenditure, as consistently followed merits treatment as revenue expenditure, as consistently followed merits treatment as revenue expenditure, as consistently followed by the assessee in earlier years. by the assessee in earlier years.

8.9 We find that the sales promot We find that the sales promotion expenses comprise ion expenses comprise advertisement and publicity expenditure incurred to enhance the advertisement and publicity expenditure incurred to enhance the advertisement and publicity expenditure incurred to enhance the overall business visibility and brand presence of the assessee overall business visibility and brand presence of the assessee overall business visibility and brand presence of the assessee alongwith expenses for publicity of projects also. Such expenditure, alongwith expenses for publicity of projects also. Such expenditure, alongwith expenses for publicity of projects also. Such expenditure, by its very nature, cannot be confined by its very nature, cannot be confined exclusively to a particular exclusively to a particular project but contributes to the general promotion of the assessee’s project but contributes to the general promotion of the assessee’s project but contributes to the general promotion of the assessee’s business as a whole. The donation component, on the other hand, business as a whole. The donation component, on the other hand, business as a whole. The donation component, on the other hand, has already been disallowed separately by the Assessing Officer, has already been disallowed separately by the Assessing Officer, has already been disallowed separately by the Assessing Officer, and therefore, does not form pa and therefore, does not form part of the present dispute. Similarly, rt of the present dispute. Similarly, the the financial financial expenses expenses—comprising comprising brokerage, brokerage, interest, interest, and and discount—partly relate to financing arrangements connected with partly relate to financing arrangements connected with partly relate to financing arrangements connected with the projects and partly to the general working capital requirements the projects and partly to the general working capital requirements the projects and partly to the general working capital requirements of the business.

8.10 In our considered opinion, where an assessee is consistently r considered opinion, where an assessee is consistently r considered opinion, where an assessee is consistently following a method of apportioning part of such expenditure to following a method of apportioning part of such expenditure to following a method of apportioning part of such expenditure to capital work and claiming the balance as revenue, and such method capital work and claiming the balance as revenue, and such method capital work and claiming the balance as revenue, and such method has been accepted in earlier years, there is no valid reason for has been accepted in earlier years, there is no valid reason for has been accepted in earlier years, there is no valid reason for departure in the year under consideration in the absence of any ure in the year under consideration in the absence of any ure in the year under consideration in the absence of any contrary finding that the method results in distortion of income. contrary finding that the method results in distortion of income. contrary finding that the method results in distortion of income. Further, as rightly contended by the assessee, whether the Further, as rightly contended by the assessee, whether the Further, as rightly contended by the assessee, whether the expenditure is allowed as a deduction in the present year or expenditure is allowed as a deduction in the present year or expenditure is allowed as a deduction in the present year or capitalised and allowed as part of the project cost in subsequent and allowed as part of the project cost in subsequent and allowed as part of the project cost in subsequent years would be revenue years would be revenue-neutral in effect, given the uniformity of tax neutral in effect, given the uniformity of tax rates applicable.

8.11 In view of the foregoing, and bearing in mind the settled In view of the foregoing, and bearing in mind the settled In view of the foregoing, and bearing in mind the settled principles of consistency and revenue neutrality, we find no principles of consistency and revenue neutrality, w principles of consistency and revenue neutrality, w justification for the deviation made by the Assessing Officer or for justification for the deviation made by the Assessing Officer or for justification for the deviation made by the Assessing Officer or for the partial disallowance sustained by the learned CIT(A). We, the partial disallowance sustained by the learned CIT(A). We, the partial disallowance sustained by the learned CIT(A). We, therefore, set aside the findings of the learned CIT(A) on this issue therefore, set aside the findings of the learned CIT(A) on this issue therefore, set aside the findings of the learned CIT(A) on this issue and direct the Assessing Officer to adopt the and direct the Assessing Officer to adopt the accounting treatment accounting treatment consistently followed by the assessee in earlier years—namely, to consistently followed by the assessee in earlier years consistently followed by the assessee in earlier years capitalise 30% of the sales promotion and financial expenses as capitalise 30% of the sales promotion and financial expenses as capitalise 30% of the sales promotion and financial expenses as Capital Work-in-Progress Progress and to allow the balance 70% as and to allow the balance 70% as deductible expenditure for the year under consi deductible expenditure for the year under consideration. deration.

8.12 Accordingly, we set aside the findings of the learned CIT(A) on Accordingly, we set aside the findings of the learned CIT(A) on Accordingly, we set aside the findings of the learned CIT(A) on this issue and direct the Assessing Officer to allow the assessee to this issue and direct the Assessing Officer to allow the assessee to this issue and direct the Assessing Officer to allow the assessee to capitalise 30% of the sales promotion and investment-related capitalise 30% of the sales promotion and investment capitalise 30% of the sales promotion and investment expenses as Capital Work Capital Work-in-Progress, while permitting deduction of mitting deduction of the balance 70% as revenue expenditure. the balance 70% as revenue expenditure.

8.13 The ground No. 4 and 5 of the appeal of the assessee are The ground No. 4 and 5 of the appeal of the assessee are The ground No. 4 and 5 of the appeal of the assessee are allowed.