IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH , MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND 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., Asst. Commissioner of Income 6th Floor, Agarwal Golden Tax, Range 9(1)/3(1), Chamber, Mumbai Plot No.13/A, Fun Republic Vs. Road, Off New Link Road, Andheri West Mumbai 400 053 PAN: AAACA 5024F (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 M/s. Ashish Builders Pvt. Ltd., Income Tax, G-1, B-3, Akhil Tower, Circle 3(1)/Range 9(1), Ratan Nagar, Vs. R.No.607/R.No.223, Dahisar (E), Aayakar Bhavan, Mumbai 400 068 M.K. Road, PAN: AAACA 5024F Mumbai-20 (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 2 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 ORDER Per D. Karunakara Rao, Accountant Member: There are five appeals under consideration involving three assessment years. We shall deal with appeals in assessment year wise and to start with, appeal for assessment year 2007-08 is taken up. ITA No.1566/M/2011 (A.Y.2007-08) Assessee s Appeal 2. Assessee raised three grounds in this appeal out of which ground No.3 is not pressed. Accordingly said ground is dismissed as not pressed and balance of grounds Nos.1 and 2 are extracted as under: 1) Learned CIT (A) has grossly erred both in law as well as on facts in sustaining addition of Rs.75,88,422/- (Interest on Car Loan Rs.51,50,934/-, Advertising Exp. Rs.17,92,052/-, Brokerages Rs.77,736/-, Loan processing Fees Rs.5,67,700/-) in Work In Progress for purpose of ascertaining Gross Profit @ 20% which is completely unjustified and uncalled for. 2) Learned CIT (Appeal) has further erred in not appreciating fact that Percentage of Completion Method is continuously followed by appellant therefore not accepting said method and making adjustment in Work In Progress is completely unjustified. 3. brief facts of case and grounds are that assessee is builder since year 1979. Assessee completed project named Green Gagan in assessment year 2004-05. assessee followed percentage computation method qua cost of project. Subsequently assessee started another project named Agrawal Negri at Vasant East relevant to assessment year 2006-07. assessee followed percentage computation method for this project also. This project is said to have been completed in assessment year 2011-12. In assessment year 2006-07, assessee declared profits @15% of WIP. As per accounting policy, assessee reduces interest cost and administrative expenses (indirect expenses) from gross profit before arriving at taxable net profit of business. This method is consistently followed by assessee over year. claim in 3 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 assessment proceedings for year wise 2006-07, where similar computation was adopted by assessee, was not accepted. Assessing Officer tinkered with WIP account and enhanced same for working out higher gross profit. administrative expenses claimed by assessee were also not fully allowed. In appeals before CIT(A), said changes/additions were deleted and assessed income is reduced to return income. Thus, interest cost administrative cost were allowed out of gross profits for A.Y. 2006-07 eventually. In assessment year 2007-08, assessee followed same method of accounting as stated above. Gross Profit @ 20% of 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 indirect expenses amounting to Rs.28,96,193/-. Eventually, assessee returned loss even after working out gross profit @ 20% of WIP. above computation of loss was not accepted by Assessing Officer. In assessment, Assessing Officer is of opinion work-in-progress (WIP) should be increased by 75% of indirect expenses. Eventually, work-in-progress as per Assessing Officer works out to Rs.5,33,28,339/-. gross profit on this at 20% works out to Rs.1,06,65,668/- (supra). Aggrieved with above changes by Assessing Officer, assessee is in appeal before CIT(A) for assessment year 2007-08. CIT(A) confirmed addition with reference to direct expenses of Rs.75,88,422/-, i.e., 75% of Rs.1,05,34,615/-. Regarding addition relating to changes on account of indirect expenses of Rs.21,72,144/-, CIT(A) deleted addition to that extent. Accordingly, CIT(A) granted part relief to assessee. Aggrieved with confirming of said addition amounting to Rs.75,88,472/-, assessee is in appeal before us with grounds raised extracted above. Further, Revenue accepted said order of CIT(A). 4 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. Before us, learned counsel for assessee explained above facts of case and mentioned that said amount of Rs.75,88,472/- constitutes direct expenses and it has four elements and relevant 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 allowable in view of applicable provision of section 36(1)(iii) (interest expenses) and 37(1) of Act. He also submitted that claims are allowable in view of finding of similar issues for A.Y. 2006-07. Referring to interest amount of Rs.51,59,134/-, learned counsel for assessee demonstrated that there is typographical error in ground no.1 and error relates to description of car loan but interest should read as interest on term loan/unsecured loan . Further arguing for allowing for entire interest expenditure in year under consideration out of gross profit and offered by assessee, Ld. counsel submitted that same should not be capitalized as done by AO for reason that such interest is allowable legally and validly as per provisions of Section 36(1)(iii) of Act. He also submitted that above argument is based on strength of Jurisdictional High Court Judgment in case of Lokhandwala Construction Industries Ltd., 260 ITR 579 (Bom) dated 15.01.2003. This judgment is relevant for legal proposition that construction project undertaken by assessee builder constituted its stock-in- trade and assessee is entitled to deduction u/s.36(1)(iii) in respect of interest on loan obtained for execution of said project. Further, referring to decision of Tribunal in case of Rohan Estates Pvt. Ltd., ITA No.7200/Mum/2010 for assessment year 2006-07 dated 16.01.2013 which happened to be one of sister concern of assessee, Ld. counsel submitted 5 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 similar issue arose with reference to claim of interest expenditure and same was allowed in favour of assessee by Tribunal. He submitted that contents of paragraph 3.2 of said Tribunal s order are relevant. Bringing our attention to said paragraph, Ld. counsel read out following interest cost on corresponding capital borrowed would involved to be incurred without any corresponding increase in value of inventory of project . He read out it is for this reason that interest cost is normally considered as only period cost and charged to operating statement for year under which same is inquired. He has submitted that said decision of Tribunal rely heavily on cited judgment in case of Lokhandwala Construction Industries Ltd. (supra). Further, he brought our attention to various other decisions to demonstrate that in case, where percentage computation method is adopted by assessee, out of gross profit computed by that method, interest expenditure for year on borrowed capital, is fully allowable in year under consideration against said gross profits. Therefore, decision of CIT(A) in allowing only 25% and capitalizing balance of 75% of interest fixed cost, should be restored as claimed by assessee. Regarding claim of advertisement expenses of Rs.17,92,052/-, learned counsel submitted that this claim of assessee should also be fully allowed without restricting to 25% of claim. Otherwise, AO capitalized 75% of cliam. Bringing our attention to decision of Tribunal in case of Vardhaman Developers Ltd. 35 Taxman.com 370. Ld. Counsel submitted, in said case also, issue of advertisement expenses against gross profit came up and Tribunal fully allowed. In order, this view of AO was not appreciated by Tribunal Mumbai Bench and held that advertisement expenses were only in nature of selling cost which would not be capitalized for inclusion in work- in-progress account. Learned counsel brought our attention to paragraph 4 of said order of Tribunal and demonstrated that said advertisement 6 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 expenses is fully allowable as same is in nature of selling cost. Further, bringing our attention to brokerage expenses of Rs.77,736/-, Ld. counsel submitted that these expenses are also fully allowable as cost of business u/s.37(1) of Act. Further, learned counsel extracted above argument to claim of loan processing fees of Rs.5,67,700/-. 5. On other hand, learned CIT-DR for Revenue has heavily relied upon order of CIT(A). According to him, advertisement expenses, brokerage and loan processing fees are required to be capitalized and included in work-in-progress account. 5. We have heard both parties and perused orders of Revenue. paper books filed before us are also on record. To brief undisputed facts, it is case of assessee that percentage completion method i.e. PCM is followed consistently by assessee in respect of project in question named Agarwal Negri. By this method, assessee has been offering some percentage of cost of construction of project (WIP) as profits every year from assessment year 2006-07 onwards. In principle, project was completed in A.Y. 2011-12. Assessing Officer accepted said method of accounting. However, Assessing Officer proceeded to artificially inflate WIP account for computing more profits for assessee. Assessing Officer did same by transferring entire/part of direct and indirect expenses debited to P & L account. To be specific, administrative expenses (indirect expenses) and part of interest expenses, advertisement, brokerage, loan processing fee accounts were transferred to WIP account. Otherwise, there is no dispute on fact that percentage completion method is applicable method of accounting for project. In background of these changes, ground No.2 raised by assessee has to be understood and we need to decide if such changes are validly done by 7 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 Assessing Officer or otherwise. We shall take up appeal ground wise issues in following paragraphs: 6. Ground No.1 of appeal relates to addition of some of expenses to WIP account i.e. interest on unsecured loan/fixed deposits (sic- car loan), advertisement expenses, brokerage expenses and loan processing fees. Assessing Officer considered above expenses as relatable to work-in-progress account and recomputed WIP account at Rs.5,33,28,339/-. Assessee contends that above said expenditure is fully allowable in 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 adjudication in following paragraphs: A) Interest on unsecured loans and fixed deposits: It is claim of assessee that entire interest expenditure is allowable as it is time related fixed finance cost on borrowed capital. claim of assessee should be allowed in full in view of various decisions on this issue. To start with, we perused order of Tribunal in case of Rohan Estates Pvt. Ltd. (supra) which is one of sister concerns of assessee. We perused para 3.2 of said order of Tribunal and find it is self explanatory and decision of Tribunal supports case of assessee. Under comparable facts of assessee, interest cost was allowed in favour of assessee relying on binding jurisdictional High Court judgment in case of M/s. Lokhandwala Construction Industries Ltd. (supra). For sake of completeness of this order we extract relevant para 3.2 of order which is reproduced as under: 3.2. With regard to interest expenditure, interest cost on corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in value of inventory or project. Similarly, project, or part thereof, may be partly sold or even 8 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 remain unsold for quite some time after its completion. While revenue would stand to be booked only on part, if any, sold, interest cost would continue to be incurred on entire capital, even as no corresponding gain inures in terms of value addition to project, which stands in fact completed, so as to increase its cost by loading said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only period (fixed) cost, and charged to operating statement for year in which same is incurred. As such, what in our view would prevail is method of accounting being regularly followed by assessee, i.e., on year to year basis. same also has sanction of law inasmuch as sec. 145 clearly provides for determination of business income on basis of method of accounting being regularly followed, with mandate of sec. 36(1)(iii) being also satisfied, and toward which assessee relies on decision in case of CIT vs. Lokhandwala Construction Inds. Ltd.(supra). same also clarifies that interest cost is to allowed u/s. 36(1)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as said section draws no such distinction. issue, though, we may clarify, is not as to whether borrowed capital stands utilized toward trading operations or on capital account; instant case being decidedly of former, but whether said cost, having been incurred, is to be capitalized as part of project cost and, thus, taken into account for purpose of valuation of inventory (stock-in-trade) as at year-end and, consequently, determination of gross profit for year. It is only cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being reckoned as part of cost of production/construction, and thus of inventory or project cost as at year-end. deductibility of said cost u/s. 36(1)(iii) is thus 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 proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only interest cost for period post acquisition of capital asset, that would stand to be deductible in computing business income qua business of which relevant asset is or is to constitute part (also refer Explanation 8 to s.43(1)). said decision may, thus, in given facts and circumstances of case, as well as amended law, not be of much assistance. 7. We have also perused said binding High Court judgment in case of M/s. Lokhandwala Construction Industries Ltd. (supra) and find same is relevant for following conclusion construction project undertaken by assessee builder constituted its stock in trade and assessee was entitled to deduction under section 36(1)(iii) of Act in respect of interest on loan obtained for execution of said project . Relying on another judgment 9 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 of Hon ble Bombay High Court in case of Calico Dyeing and Printing Works 34 ITR 265 Bombay, Hon ble Bombay High Court concluded that interest expenditure relating to borrowed capital is allowable under section 36(1)(iii) of Act. relevant lines from para 4 reads as under:- that, while adjudicating claim for deduction under section 36(1)(iii) of Act nature of expense whether expenditure was on capital account or revenue account was irrelevant as section itself says that interest paid by assessee on capital borrowed by assessee was item of deduction. That utilization of capital was relevant for purpose of adjudicating claim of deduction under section 36(1)(iii) of Act. (referring to judgment in case of Calico) It was laid down that where assessee claims deduction of interest paid on capital borrowed all that assessee was to show that capital which was borrowed was used for business purpose in relevant year of account and it did not matter whether capital was borrowed in order to acquire revenue asset or capital asset. Considering above settled position in matter we are of opinion that assessee is entitled to claim entire interest deduction relatable to capital borrowed and utilized for business purposes in year under consideration. Resultantly, we disapprove decision of Assessing Officer/CIT(Appeals) in transferring interest expenditure to WIP account. Therefore, assessee is justified in debiting same to P&L accounts of respective assessment years. Thus, we order Assessing Officer to accept claim as made in return of income. Accordingly, this part of ground No.1 is allowed in favour of assessee. B) Regarding advertisement expenditure amounting to Rs.17,92,052/- as stated by Ld. Counsel, we perused order of Tribunal in case of M/s. Vardhaman Developers Ltd. 35 Taxman.com 370 and we find such expenses are found allowable as discussed by Tribunal in para 4 of said order of Tribunal. Relevant extracts from said para is inserted as under: 10 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. . Similarly advertisement expenses are only in nature of selling cost of construction business which would not therefore stand to be capitalized in as much as same could only be in respect of direct cost which adds value to or otherwise adds to its cost of production to assessee. As regards argument of there being no corresponding income as it being not relatable to any revenue stream same to our mind of little significance as long as assessee is carrying particular business during year income there from has to be computed under section 28 of Act allowing it all permissible deductions . whether method of accounting being followed by assessee i.e. project completion method is correct method in accordance with law i.e. given that it follows mercantile method of accounting, is another matter altogether. .. 8. From above it is evident that advertisement expenses is allowable expenditure in year of spending as same is nature of selling cost of construction business. Considering same, we are of view that finding of Assessing Officer and decision of CIT(Appeals) on this issue is required to be reversed and allow same in favour of assessee. Regarding other claim of expenditure on account of brokerage and loan processing fee, we find said claims should be allowed in favour of assessee as they are otherwise found allowable under section 37(1) of Act. In our view, these expenses constitute some kind of administrative expenses. said administrative expenses are allowable as they are relatable to business activities of assessee. As such, it is not Assessing Officer s case that claims are ingenuine and not qualified conditions specified in provisions of section 37 of Act. In result, ground No.1 raised by assessee is allowed in favour of assessee. 9. Regarding ground No.2, we find same is raised in alternative to ground No.1. As ground No.1 is fully allowed in favour of assessee in effect. We disapproved changes made by Assessing Officer/CIT(Appeals) to WIP account claim of assessee. In effect, in that sense ground No.2 stands allowed and in favour of assessee. 11 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. In result, appeal of assessee is fully allowed. ITA NO.7317/M/2013 BY REVENUE (ASSESSMENT YEAR 2007-08) 11. This appeal is filed by Revenue against order of CIT(Appeals) dated 17.09.13 relating to penalty levied under section 271(1)(c) of Act. This appeal is directly related to additions contested in appeal ITA No.1566/M/2011 filed by assessee. As discussed at length, in said appeal, Assessing Officer computed assessment by making additions on account of WIP account qua certain expenses relating to interest paid, advertisement, brokerage and loan processing fee. Assessing Officer levied penalty of Rs.26 lakhs under section 271(1)(c) of Act. In connection with above said additions, CIT(Appeals) deleted penalty as per discussion given in para 4.3 of his order. CIT(Appeals) held that assessee is entitled to relief on ground of debatability. Aggrieved with same Revenue is in appeal before us. II. Before us, both counsels submitted that adjudication of this penalty appeal becomes academic, if appeal of assessee is on quantum additions is allowed in favour of assessee. As can be seen in proceeding paragraphs of this order relating to quantum appeal ITA No.1566/M/2011, it is finding of Tribunal that adjustment made by Assessing Officer/ CIT(Appeals) to WIP account are uncalled for inv view of judgment of jurisdictional High Court in case of M/s. Lokhandwala Construction Industries Ltd. (supra), Rohan Estates Pvt. Ltd. (supra) etc. Therefore, it is fact that additions stand deleted and income returned by assessee in return of income was approved. Therefore, we are of opinion that decision given by CIT(Appeals) for this reason also does not call for any interference. Accordingly, grounds raised by Revenue are dismissed. 12 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. In result, appeal of Revenue is dismissed. CROSS APPEALS FOR ASSESSMENT YEAR 2008-09 (ITA Nos.310 & 433/M/2012) 13. There are cross appeals under consideration for assessment year 2008-09. grounds raised by assessee and Revenue are as under: Grounds of appeal of Assessee: 1. learned CIT (A) has erred both in law as well as on facts in not accepting consistently followed method of accounting by appellant and accepted by department in past. Therefore capitalizing expenses to extent of 49.04% in determining work in progress and not allowing same as revenue expenses is completely unjustified. 2. learned CIT (A) has further erred in not appreciating nature of expenses incurred therefore addition @ 49.04% of administrative and financial expenses in working out capital work in progress are completely unjustified. 3. learned CIT (A) has completely erred in not allowing whole of expenses of Rs.164,55,863/- for determining net profit. Therefore disallowances to extent of 49.04% are completely unjustified and uncalled-for. 4. learned CIT (A) has further erred in ascertaining gross profit on enhanced work in progress @ 22% as against 20% determining by A.O. appellant craves to leave, add and alter any ground or grounds of appeal on or before date of hearing. Grounds of appeal of Revenue: 1. On facts and in circumstances of case and in law, Ld. CIT(A) erred in changing method of accounting adopted by Assessing Officer for determining Gross Profit by allowing 50.96% of expenditure as revenue expenditure out of total expenditure incurred by assessee. 2. appellant prays that order of CIT(A) on grounds be set aside and that of Assessing Officer be restored. 3. appellant craves leave to amend or alter any grounds or add new ground which may be necessary. 13 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. Relevant facts applicable to cross appeals include that assessee filed return of income for A.Y. 2008-09 declaring income of Rs.13,05,319/-. Assessee declared GP of Rs.1,97,33,712/- i.e. increased rate of 22% of WIP of Rs.8,96,98,689/-. Following assessment order for assessment year 2007-08, Assessing Officer increased WIP account to Rs.11,89,01,931/- after adding 75% of administrative expenses of (indirect expenses) Rs.1,64,55,863/- and direct expenses amounting to Rs.78,91,474/-. However, Assessing Officer adopted different GP rate of 20% and recalculated profit amounting to Rs.2.38 crores (rounded off). However, CIT(Appeals) deviated from above manner of assessment of AO. CIT(A) studied extent of sale proceeds earned out of sale of flats upto year and found that assessee recorded total sales of 50.96% of project sales. Thus, CIT(Appeals) proceeded to consider only that percentage of Indirect/Administrative expenses. Thus, CIT(Appeals) allowed Rs.83,85,000/- of administrative expenses out of Rs.1.65 crores (rounded off) and capitalized balance of Rs.80,69,955/- out of gross administrative expenses of Rs.1,64,55,863/-. Accordingly, WIP as per CIT(Appeals) is reworked out and GP at rate of 22%, as adopted by assessee, is considered. Finally, GP is worked out at Rs.2,15,09,102/-. After allowing administrative expenses amounting to Rs.83,85,908/-, taxable net profit is worked out at Rs.1,31,23,194/-. Otherwise, both Assessing Officer and CIT(Appeals) did not deviate from fact of percentage completion method as adopted by assessee. However, deviation is only with reference to reworking of WIP account and tinkering with GP rate. Aggrieved with deviation of CIT(Appeals) from that of assessment order, Revenue is in appeal with ground extracted above. Further, aggrieved with order of 14 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 CIT(Appeals) and his method of working out WIP account, assessee is also in appeal with grounds referred above. It is relevant to mention here that project completion method is adopted by both authorities. While Assessing Officer has adopted only 20% of reworked out WIP account CIT(Appeals) has adhered to assessee s percentage of 22%. Regarding changes of WIP, Assessing Officer reworked WIP at sum of Rs.11,89,00,000/- (rounded off). Assessing Officer added, account of indirect expenses, 75% of Rs.1,64,55,863/- to WIP account; On direct expenses account Assessing Officer added sum of Rs.78,91,474/-. Further, both parties are aggrieved with CIT(Appeals) conclusions relating to allowing 50.96% of WIP account. On other hand, CIT(Appeals) instead of adding 75% of Rs.1,64,55,863/-, he apportioned administrative expenses (indirect expenses) of Rs.1,64,55,863/- on basis of sales recorded in year under consideration. It works out to 50.96%. CIT(Appeals) ordered for allowing said percentage of administrative expenses i.e. 83,85,908/-. Both parties aggrieved with said deviation. 15. Before us, Ld. Counsel for assessee brought our attention to grounds and submitted that CIT(Appeals) erred in capitalizing expenses to extent of 49.04% for determining work-in-progress. Assessee is also aggrieved with decision of CIT(Appeals) in capitalizing administrative and financial expenses against claim of assessee that same are fully allowable in view of consistency rule. Assessing Officer allowed such claim in A.Y. 2006-07 without any changes. They are also aggrieved with decision of CIT(Appeals) in enhancing percentage of gross profit to 22% as 15 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 against 20% adopted by Assessing Officer. Of course, assessee calculated GP on work-in progress at rate of 22%. In effect, Ld. Counsel for assessee submitted that method of accounting and method of computation of taxable profits are consistently followed by assessee for project of Agarwal Negri. Referring to administrative expenses, being indirect expenses, same should be allowed in full as they are required for running of business of assessee. In support of said claim, Ld. Counsel for assessee brought our attention to Tribunal s order in face of its sister concern i.e. Rohan Estates Pvt. Ltd. (supra). According to him administrative expenses being employees remuneration, salaries, fixed expenditure etc. are required for maintenance of office, projects and other over heads. It is not case of Assessing Officer that any of these expenses have element of direct expenditure. Referring to direct expenses, Ld. Counsel submitted that arguments made by assessee s counsel in connection with claims relating to direct expenses in ITA No.1566/M/2011 are relevant and apply equally for this appeal too. Referring to said decision in apportioning administrative expenses in ratio of extent of sales recorded in year under consideration, Ld. Counsel submitted that once method of accounting is accepted by Revenue, no deviation whatsoever is required validly. For this proposition Ld. Counsel brought our attention to various decisions. 1. decision of Kolkata Bench of ITAT in case 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 above decisions are relevant for proposition that ITO is not justified in departing from consistently followed method 16 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 of accounting followed scientifically by assessee with respect to project. CIT(Appeals) is not justified in linking profits to sales up to year as assessee s method of computing profits is linked to cost of project-WIP. 16. Referring to Revenue s appeal, solitary ground raised by Revenue relating to changes adopted by CIT(Appeals), Ld. Counsel submitted that same relates to ground raised by assessee in its appeal. Therefore above arguments of Ld. Counsel apply. On other hand, Ld. D.R. for Revenue relied heavily on order of assessment and decisions drawn by Assessing Officer. Decision of Tribunal on Cross Appeals-A.Y. 2008-09 17. We heard both parties on issues raised in grounds by assessee and Revenue. We find issues are interlaced. To sum up, both parties did not appreciate deviations recorded by CIT(Appeals) i.e. matters of reworking out WIP account in ratio of sales recorded in year under consideration. However, assessee is aggrieved for every change made by Assessing Officer and deviation recorded by CIT(Appeals) to results offered by assessee in return of income. Therefore, we have to adjudicate in these cross appeals if AO and CIT(Appeals) is justified in 1) Tinkering with WIP accounts with reference to direct and indirect expenses. 2) change in percentage of gross profits adopted by Assessing Officer and CIT(Appeals). Finally, 3) legal issue relating to deviation to project completion method offered by assessee in return, if Revenue has jurisdiction at all to bring changes once if at all method of accounting is accepted in earlier 17 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 assessment years qua project of Agarwal Negri . We shall adjudicate these issues one by one in following paragraphs: A. Regarding administrative and indirect expenses, we find that administrative expenses are entirely allowable as they are nothing to do with direct cost of likely stock in trade. similar claim is allowed in case of Rohan Estates Pvt. Ltd. (supra). Relevant extract from para 3.1 is placed here as under: 3.1 administrative expenses as it appears are only general in nature and even with regard to employees remuneration there is nothing to indicate that it represents element of either direct cost of production or even of production over head, which only would enable its inclusion as part of cost of production/construction. As such, being fixed period cost these stand to be written off to P & L account in year being incurred . Therefore administrative expenses amounting to Rs.1,64,55,863/- is entirely allowable. There is nothing on record to demonstrate that above expenditure is anyway constitutes direct expenses of project in any form. Coming to direct expenses of Rs.7,88,91,474/- we find identical expenditure was claimed by assessee in preceding assessment year 2007-08 which is subject matter of addition and litigation vide appeal No.ITA 1566/M/2011 for similar reasons we allow same and in favour of assessee. To sum up, entire administrative expenses of Rs.1,64,55,863/- and direct expenses of Rs.78,91,474/- is fully allowable, as claimed by assessee in P & L account for this year, against gross profits computed by assessee. Therefore, WIP account as maintained by assessee is approved and no modifications are called for to this. B. percentages of GP rate and adopting 50.69 : 49.31 formula: In this regard, we find no justification for changes in these figures, thus GP rate of 22% as offered by assessee is reasonable 18 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 and no change is warranted. In effect relying on various judgments cited by assessee percentage completion method as followed by assessee is approved and no disturbances are called for to same. Thus, we do not approve sales linked capitalization of expenses in this case. In result, all grounds of assessee and of Revenue are allowed. ITA No.6658/M/2013 (Assessment year 2010-11) 18. This appeal by Revenue is against order of CIT(Appeals) and ground raised by Revenue reads as under: 1 Whether on facts and circumstance of case and in law, Ld. CIT(A) has erred in deleting disallowance and capitalization of advertising expenses, brokerage expenses, loan proceeding fees and 75% of indirect expenses made by AO before computing gross profit @ 40% of work in progress, without appreciating facts that method of accounting adopted by assessee was faulty and this was only project carried out by assessee in last 5 years? 2. Whether on facts and circumstance of case and in law, Ld. CIT(A) was right in allowing percentage completion method adopted by assessee on such basis? 3. Whether on facts and circumstance of case and in law, Ld. CIT(A) was right in deleting addition made 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 fact that method of accounting adopted by assessee was faulty and does not disclose true and correct income? 4. appellant craves leave to amend or alter any grounds or add new ground which may be necessary. 19. From above, Ld. Counsel submitted that assessee filed return of income declaring loss of Rs.54,57,003/-. assessee worked out GP at rate of 40% on work in progress. Assessing Officer, as in earlier years, increased WIP account to extent of interest expenses, advertisement expenses, brokerage expenses, loan processing fees and indirect 19 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 expenses (75%). CIT(Appeals) granted relief on account of both direct and indirect expenses. Aggrieved with same Revenue is in appeal before us. 20. On perusal of order of CIT(Appeals) (para 5) and other related paragraph, we find both direct expenses and indirect expenses are fully allowable for reasons mentioned by us in connection with appeals for assessment year 2007-08 and 2008-09 above. Accordingly, grounds raised by Revenue for this year also are dismissed and in favour of assessee. 21. In result, order of CIT(Appeals) does not call for interference. In result, grounds raised by Revenue are dismissed. 22. In result, appeal of Revenue is dismissed. Order pronounced in 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: Appellant Respondent CIT, Concerned, Mumbai CIT (A) Concerned, Mumbai DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai. M/s. Ashish Builders Pvt. Ltd. v. Asst. Commissioner of Income Tax, Range 9(1)/3(1), Mumbai