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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आयकरअपीलसं./ (िनधा3रणवष3 / Assessment Year: 2012-13) M/s. Emerald Haven Realty Ltd DCIT बनाम/ No. 29, Jayalakshmi Estates, Corporate Circle -2(1) Vs. Haddows Road,Chennai – 600 006. Chennai - 600 034. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AACCH-4288-E (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri R. Vijayaraghavan (Advocate) – Ld. AR ��थ�कीओरसे/Respondent by : Shri P. Sajit Kumar (JCIT) – Ld. DR सुनवाईकीतारीख/ : 03-02-2022 Date of Hearing घोषणाकीतारीख / : 07-02-2022 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2012-13 arises out of the order of learned Commissioner of Income Tax (Appeals)-5, Chennai [CIT(A)] dated 28-12-2018 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 30-01-2015. The grounds raised by the assessee read as under: -
1. The order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.
2. The Commissioner of Income tax (Appeals) erred in holding that business has not commenced.
2 - 3. The CIT(A) ought to have appreciated that the appellant has incurred expenditure for project related activities and also incurred other fixed administrative costs. These fixed costs are administrative in nature required for running the business but not related to construction activities and there will not be any revenue corresponding to these activities as they are administrative in nature. Hence these expenses are allowed to be claimed. The Commissioner of Income tax (Appeals) failed to appreciate that the appellant had set-up the business and ready to carry out the commercial activities.
4. The Commissioner of Income Tax (Appeals) erred in disallowing the period cost of Rs.2,07,988 without giving proper notice for disallowing the expenditure. As evident the grievance of the assessee stem from the fact that various business expenditure as claimed by the assessee has not been allowed by lower authorities on the ground that the business had not commenced during the year.
The Ld. AR, made limited alternative submissions that the business expenditure is genuine and therefore, the same may be allowed to be capitalized during this year. The Ld. DR, on the other hand, submitted that since the business had not commenced, the expenditure could not be allowed to the assessee.
Having heard rival submissions and after going through the orders of lower authorities, our adjudication would be as under.
The assessee is stated to be engaged in construction business and it filed return of income for the year declaring loss of Rs.279.78 Lacs. In the computation of income, the assessee claimed construction expenses of Rs.277.70 Lacs. However, in the financial statements, the assessee claimed depreciation and other expenses of Rs.70.55 Lacs. After adjusting interest income, the book loss was shown as Rs.45.92 Lacs. In the books of account, the expenditure of Rs.277.70 Lacs was shown as part of work-in-progress and capitalized under the head inventories. The Ld. AO held an opinion that though the assessee did not generate any business income but claimed the construction expenses in the computation of income. It was submitted by the assessee that the 3 - expenditure incurred for project development was capitalized under work-in-progress which would be claimed in the year in which the project would be completed. However, for income tax purposes, since theseexpenditures are revenue in nature, the same has been claimed as per consistent method of accounting as followed in earlier years. In other words, the expenditures are to be claimed in the year in which the same has actually been incurred whereas income would be offered to tax in the year of receipt. However, rejecting the same, Ld. AO disallowed the expenditure of Rs.277.70 Lacs as claimed by the assessee. Further, the book loss of Rs.45.93 Lacs as claimed in the Profit & Loss Account would also not be acceptable since there has to be matching of expenditure and income as per Accounting Standard-7. Finally, the loss was determined at Rs.2.07 Lacs. In the process the net expenditure of Rs.45.90 Lacs was disallowed but depreciation claim was allowed.
During appellate proceedings, it was submitted that the assessee followed percentage of completion method of accounting. However, it was noted by Ld. CIT(A) that according to this method, the assessee was to recognize revenue in proportion to the number of units sold in the project and expenses / costs reasonably allocated to the sold units would be allowable. If the business had commenced, there would be sale of units which was not the case. Accordingly, the action of Ld. AO was upheld. Aggrieved, the assessee is infurther appeal before us.
At the outset, it could be gathered that whether the business had been set up / commenced or not would not be much germane to the facts of the case since Ld. AO has already allowed admissible depreciation to the assessee which would establish that the fact of commencement of business has been accepted by Ld. AO.
4 - 7. Proceeding further, the finding that the expenditure has been claimed as deferred revenue expenditure in the books whereas full expenditure has been claimed in the computation of income, is not a correct finding. The perusal of details of other expenses as debited in Profit & Loss Account for Rs.69.29 Lacs (page-2 & 10 of paper-book dated 06.06.2019) and the details of construction expenses of Rs.277.70 Lacs (page 13 of same paper-book), would show that the set of expenditures are altogether different and therefore, it is not a case where the assessee has claimed deferred revenue expenditure. The findings rendered by Ld. AO are not correct.
In the background of above observations, we are convinced with Ld. AR’s submissions that since the genuineness of the expenditure is not under question, the capitalization of the same as work-in-progress may be allowed. These submissions find all the more favor in the background of the fact that the assessee is following percentage of completion method of accounting. Therefore, we direct Ld. AO to allow capitalization of Rs.277.70 Lacs as well as Rs.45.90 Lacs as debited in the Profit & Loss Account as ‘other expenses’. No other ground has been urged before us.
The appeal stands partly allowed. Order pronounced on 07th February, 2022. Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद5 /JUDICIAL MEMBER लेखा सद5 /ACCOUNTANT MEMBER चे*ई/ Chennai; िदनांक/ Dated : 07-02-2022 JPV आदेशकीWितिलिपअ:ेिषत/Copy of the Order forwarded to : 1.अपीलाथ�/Appellant 2 .��थ�/Respondent 3.आयकरआयु3 (अपील)/CIT(A) 4.आयकरआयु3/CIT 5. िवभागीय�ितिनिध/DR6. गाड8फाईल/GF