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Facts
The assessee, engaged in real estate development, incurred project marketing expenses but had no sales in the assessment year 2013-14. The Assessing Officer disallowed these expenses, adding them to the total income, which was confirmed by the CIT(A).
Held
The Tribunal held that the addition made by the Assessing Officer was tax-neutral. Allowing the expenses in the current year would affect carry-forward losses, while disallowing them would increase the cost of work-in-progress. Given the practical difficulties in adjustments across multiple years, the appeal was allowed.
Key Issues
Whether project marketing expenses incurred in a year with no sale of property are allowable as revenue expenses, and the implications for carry-forward losses and work-in-progress adjustments.
Sections Cited
250, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: March 11, 2025 ORDER
Per Rajesh Kumar, Accountant Member:
The present appeal filed by the assessee for the assessment year 2013-14 against the order dated 19.04.2024 of the Commissioner of Income Tax (Appeals)-12, Mumbai [hereinafter referred to as ‘CIT(A)’] u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
The only issue raised by the assessee is against the confirmation of addition of Rs.36,80,375/- by the ld. CIT(A) as made by the Assessing Officer on account project marketing expenses incurred in connection with commercial properties.
The relevant brief facts of the case are that the assessee filed its return of income on 29.09.2024 declaring nil income. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The assessee is engaged in the business of real estate development and sale of commercial properties. During the Assessment Year: 2013-14 Techna Infrastructure Pvt. Ltd year, there was no sale of commercial property and the expenses incurred by the assessee on marketing were debited to the Profit & Loss A/c and accordingly, the loss was carried forward to the subsequent year. The Assessing Officer in the assessment proceedings held that since the project for which the expenses were incurred was not completed during the year and no revenue was generated, therefore, the project marking expenses were not allowable and accordingly the same were added to the total income of the assessee in an assessment framed u/s 143(3) dated 02.03.2016 assessing the net loss of revenue at Rs.2,95,808/- against the total loss claimed by the assessee of Rs.39,76,183/-.
In appeal, the ld. CIT(A) confirmed the order of the Assessing Officer by upholding the addition.
After hearing the rival contentions and perusing the materials available on record, we find that the assessee is engaged in the construction of commercial properties and during the year, there was no sale of property. We, therefore, note that the assessee has claimed marketing expenses of Rs.36,80,375/- in connection with the sale of property which was claimed in Profit & Loss A/c as revenue expenses without capitalising the same in the Work-in-Progress A/c. In our opinion, the addition made by the Assessing Officer is tax-neutral because if the expenses claimed during the year is allowed then the loss carried forward to the subsequent year would be set off against the revenue generated from the sale of commercial properties and if not allowed during the year, then the cost of work-in-progress has to be adjusted upwardly and accordingly, the income of the assessee would be computed. Therefore, if we sustain the addition in the current year, it has to be allowed in the subsequent years when the project was sold but considering the practical difficulty in making adjustment in the various 2 Assessment Year: 2013-14 Techna Infrastructure Pvt. Ltd assessment years by the revenue, we deem it fit to allow the appeal of the assessee by setting aside the order of the ld. CIT(A) and deleting the addition. However, it may be noted that this precedent is not to be followed by the assessee in the subsequent years as this appeal has been allowed on the ground of avoiding unnecessary corrections/adjustments to income in the subsequent years which may span more than one assessment years.
In the result, the appeal of the assessee is allowed.
Kolkata, the 11th March, 2025.