ITAT holds assessment erroneous and prejudicial to Revenue due to complete lack of enquiry into cash deposits forming immediate source of loans and partner’s capital.
Meetu Kumari | Dec 26, 2025 |
Advertisement & Promotion Costs Allowable Despite NIL Revenue Under POCM: ITAT
M/s Bright Buildtech Pvt. Ltd., a real estate developer following the Percentage Completion Method (POCM), did not recognise revenue in AYs 2015-16 and 2016-17 as the prescribed completion threshold was not met. Despite this, the assessee claimed selling and administrative expenses such as advertisement, business promotion, commission and interest.
The Assessing Officer disallowed these expenses by capitalising them as project cost and also made further disallowances towards interest on debentures, notional interest on advances to subsidiaries, disallowance under Section 14A, and disallowance under Section 40(a)(ia). The CIT(A) granted substantial relief, prompting Revenue appeals before the Tribunal.
Issue Before Tribunal: Whether selling and administrative expenses are allowable when no revenue is recognised under POCM, and whether the AO was justified in making disallowances towards interest, notional interest, Section 14A and Section 40(a)(ia).
Tribunal’s Ruling: The Tribunal held that non-recognition of revenue under POCM does not warrant disallowance of genuine selling and administrative expenses. Advertisement, business promotion and commission are selling expenses and cannot be capitalised as project cost merely because revenue has not been recognised.
The Tribunal held that no notional interest could be disallowed where advances were made for business purposes, and interest had already been capitalised in earlier years. The AO was directed to recompute the disallowance based on actual cost of capital, restricted to the interest actually claimed.
The Tribunal directed recomputation of disallowance with reference to actual interest claimed, after adjusting for interest already disallowed elsewhere, holding that customer advances and unsecured loans could not be treated as interest-free funds.
The disallowance under Section 40(a)(ia) was deleted, the Tribunal affirming that there was no delay in TDS deposit and that the AO’s reverse calculation method was impermissible.
To Read Full Judgment, Download PDF Given Below
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