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Exp. towards corporate brand identity exercise & logo design wasn’t capital in nature: ITAT

October 11, 2018[2018] 98 taxmann.com 187 (Bangalore - Trib.)
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IT : Where assessee-real estate developer engaged the services of one Ogilvy for the purpose of corporate brand identity exercise, logo design and collateral design, this would be in the nature of general expenses not attributable to any project and payment to the extent it relates to the aforesaid expenses cannot be capitalised and had to be allowed as revenue expenditure

• Where agreement was for specific purpose of advertising of projects, payments made for the said purpose would have to be treated as attributable to specific project and capitalized.

• Where assessee had engaged professionals for carrying out liasoning work in relation to a site, payment made was referable to a particular project and, therefore, these expenses had to be capitalised to the concerned project.

• AS-7, AS-9 issued by ICAI or the ICAI Guidance Note on Accounting for Real Estate Transactions, 2006 have not been notified and, hence, they do not have statutory force. The Assessee-real estate developer followed mercantile system of Accounting. AS-7 or AS-9 or ICAI Guidance Note on Accounting for Real Estate Transactions, 2006, cannot be said to be either Cash system or Mercantile system of accounting. All these systems of recognizing revenue have trappings of both cash system or mercantile system but cannot be said to fall strictly within the parameters of either cash system or mercantile system of accounting. For example, in a real estate project if none of the flats constructed are sold there is no need to recognize revenue as no income has accrued or arisen. However in POCM, one has to presume accrual of income based on the stage of completion of the project. This is definitely not in tune with the mercantile system of accounting. Similarly in PCM, even prior to completion of the project sale of some of the flats in a project could be made, but income from such sale is not recognized but postponed. Therefore, PCM is also not strictly in tune with the mercantile system of Accounting. However, it is to be made clear that the aforesaid observations would hold good only for AY upto AY 2012-13because Section 145 has undergone some statutory amendments and the position after such amendment is not and cannot be subject of decision in this appeal. For the reasons, the argument of the assessee on his reliance on AS 2 was to be rejected.

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