ACIT, CIRCLE- 2(2), NEW DELHI vs. ANTHEM INFRASTRUCTURE PVT. LTD., NEW DELHI

per the Assessing Officer, the expenditure should have been treated as work in

progress.

supported the findings of Ld.CIT(A). He submitted that brokerage is a selling

expenditure which cannot be capitalized alongwith inventory. He submitted

that as per the Accounting Standard 7 which specifically states that selling

cost cannot be allocated as cost of construction contract. Further, Ld. Counsel

for the assessee reiterated the submissions as made before Ld.CIT(A).

on record. Ld.CIT(A) decided the issue by observing as under:-

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“Decision: “I have considered the submission of the appellant and observations of the assessing officer made in the assessment order. It is seen that appellant has commenced the project known as 'French Apartments' in F.Y. 2010-11 relevant to AY. 2011-12 and the level of completion has reached to 18.4% upto 31.03.2014. This shows that appellant's business has commenced in AY. 2011-12 itself. For booking / sale of the flats, the appellant has paid brokerage charges to the brokers who have brought client for booking of the flats and this fact has not been disputed by the AO in the assessment order. It is seen that brokerage has been paid by the appellant for booking of the flats which is wholly and exclusively for the business purposes of the appellant, however, in the assessment order, the Assessing Officer has disallowed such brokerage expenses on the principle of matching revenue concept as appellant has not booked any revenue from booking of the flats, therefore, AO held that such expenses should have been capitalized under the head 'Work-in-progress' instead of claiming the same in Profit & Loss Alc. It is also seen that this is not the first year of claim of deduction of brokerage expenses. The brokerage expenses claimed in earlier year has been allowed to the appellant as detailed below:- AY. Amount (Rs.) Remarks 2013-14 4779263 Assessed u/s 143(1) 2012-13 723946 Assessed u/s 143(1) 2011-12 844895 Assessed u/s 143(1) There is no change in facts and circumstances of the case during the year as compared to facts and circumstances in the earlier years. Therefore, the assessing officer was duty bound to follow the decision of earlier years and should have allowed the brokerage expenses. It is also seen that as per para-19 of AS-7, the selling cost cannot be attributed to contract activity or cannot be allocated to a contract under construction. Even as per AS-2 "Valuation of Inventory" issued by ICAI, it is

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seen that selling and distribution cost cannot be considered as part of the cost of inventory and such expense has to be recognized in the period in which they are incurred. The cost which can be attributed /allocated over the inventory should comprise all the cost of purchase, cost of conversion and other cost incurred in bringing the inventory to their present location and condition. In the case of construction activities the cost of purchase of land and construction cost can only be attributed over the project. The brokerage expenses are purely a selling cost and cannot form a part of inventory. In view of the accounting standard, the brokerage expenses being a selling cost cannot be capitalized with the cost of inventory and cannot be allocated to the construction activity. The brokerage expenses paid are selling expenses and not for acquiring or developing or constructing any asset. Therefore, the same cannot be taken to the work in progress. Even as per para 2.2 of revised Guidance Note (2012) on real estate transactions referred by the A.O., the project cost comprises of: a) Cost of land plus related charges b) Borrowing cost (Attributable to project) c) Construction and development cost As per para 2.4 of the aforesaid Guidance Note provides that "Selling Cost" shall not be considered as part of construction and development cost. Thus, the brokerage expenses are part of selling expenses, therefore, same are allowable as revenue expenses u/s 37 of Income Tax Act, 1961. The jurisdiction Delhi High Court in the case CIT v Samsung India Electronics Ltd vide its judgement dated 09.07.2013 has held that business will commence with the first purchase and the expenses incurred thereafter were duly allowable and it was immaterial when the first sales was booked. The Jurisdictional Delhi High Court in case of CIT vs ESPN Software Ltd. [301 ITR 368 (Del)) has held as under:

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"Section 28(i) of the Income-tax Act, 1961 - Business - Commencement of/carrying on of - Assessment year 1997-98 - Whether a business is commenced as soon as an essential activity of that business is started - Held, yes - Assessee-company was incorporated on 1-8-1995 - On 15-8-1995, it had acquired a licence from its parent company to sub-licence ESPN services for distribution of programmes in India via cable television system - By virtue of that licence, it entered into an agreement on 1-10-1995 with company 'M' and appointed it as its sole distributor for distribution of ESPN programmes in India - During relevant assessment year, assessee incurred certain expenditures which were claimed by it as business expenditures - Assessing Officer held that since agreement with parent company to distribute ESPN services in India was dated 15- 8-1995, while agreement with 'M' was dated 1-10-1995, it could not be said that before that date, assessee had commenced business - Accordingly, Assessing Officer held that assessee had not commenced its business during relevant period and treated all expenses as having been incurred prior to commencement of business - On appeal, Commissioner (Appeals) as also Tribunal held that assessee had commenced its business on 15-8-1995 and, therefore, all expenses incurred on or after that date were allowable as revenue expenditures - Whether since assessee was ready to commence its business on 15-8-1995 when it acquired licence, there was no infirmity with regard to said findings of authorities below - Held, yes" The facts of the above cited judgments are identical with the facts of the appellant's case, therefore, the ratio of the above judgments is squarely applicable in the case of appellant. The appellant has commenced its business and expenses incurred on brokerage/ selling cannot form part of construction and development cost and same has to be allowed in the year in which they have been incurred. Accordingly, the brokerage expenses

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incurred by the appellant for booking of the flats are allowable expenditure and disallowance made by the AO of Rs.1,63,15,044/- is deleted.” 13. We do not see any infirmity in the order of Ld. CIT(A) as the CIT(A) has

correctly appreciated the facts in the light of ratio laid down by the Hon’ble

Jurisdictional High Court rendered in the case of CIT vs Samsung India

Electronics Ltd. vide its judgement dated 09.07.2013 and CIT vs ESPN Software

Ltd. [301 ITR 368 (Del)]. Moreover, the Revenue could not rebut the finding of

Ld.CIT(A) that brokerage forms part of selling cost therefore, allowable

expenditure. The Ground No.2 raised by the Revenue is dismissed.

Rs.9,85,667/- made by the Assessing Officer on account of interest free

advance given to group companies.

findings given in the assessment order.

Ld.CIT(A) and reiterated the submissions as made before him.

gone through the orders of the authorities below and material placed on

records. Ld.CIT(A) has given a finding on fact by observing as under:-

Decision: I have considered the submission of the appellant and observations of the assessing officer made in the assessment order. The assessing officer has made disallowance of interest payment of Rs.9,85,667/- on the

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ground that the appellant has granted interest free advances to group concerns. On going through the financial statement of the appellant company, it is seen that appellant company has not taken any interest- bearing funds except the loan taken for purchase of car. It is seen from the financial statement that interest of Rs.9,85,667/- has been paid to Greater Noida Authority for late payment of installment of the land purchased on deferred credit. It is seen that advances given to associate concerns were out of interest free advances received from booking of the flats to the tune of Rs.8,11,05,947/-. There is no payment of interest for any borrowing, therefore, disallowance of Rs.9,85,667/- made by the assessing officer is without appreciating the correct facts of the case. Hence, the same is deleted.” 18. Ld.CIT(A) has categorically given a finding that from the financial

statement, it was observed that interest of Rs.9,85,667/- was paid to Greater

Noida Authority for late payment of installment of the land purchased on

deferred credit. It was also recorded that the advances given to the associate

concern was out of interest free advances received from booking of the flats.

This finding on fact was not rebutted by the Revenue by furnishing any

contrary material. Therefore, no interference is called for in the decision of

Ld.CIT(A), the same is hereby affirmed. Thus, Ground No.3 raised by the

Revenue is rejected hence, dismissed.

Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 29th October, 2021.

Sd/- Sd/- (G.S.PANNU) (KUL BHARAT) PRESIDENT JUDICIAL MEMBER Page | 19

ITA No.5676/Del/2017 Assessment Year : 2014-15

* Amit Kumar *