DCIT CR 4(2), MUMBAI vs. MAGNA WAREHOUSING & DISTRIBUTION PVT LTD, MUMBAI

From impugned order, it could be seen that Ld. CIT(A), relying upon certain judicial pronouncements, held that the business would commence with the acquisition of land, obtaining all necessary approvals / certificates from government authorities, appointment of project manager and procurement of plant & machinery etc. Since all these formalities were completed, the business was already set up and therefore, the expenditure would be an allowable expenditure. Aggrieved, the revenue is in further appeal before us.

As rightly pointed out by Ld. AR, this issue is recurring in nature and covered by the earlier decision of Tribunal in assessee’s own case for AY 2010-11, dated 21/08/2019 wherein it was held as under: - 3.1. We find that the assessee had pleaded that the aforesaid expenditure were incurred for the purpose of smooth running of the business and are purely administrative in nature and are not connected with the project undertaken by the assessee. In other words, it was pleaded that the aforesaid expenditure are routine administrative expenses and are to be incurred irrespective of the completion of the project by the assessee. We find from the perusal of the balance sheet that the assessee had already considered, the cost of land, material and contractual payments, technical professional fees, rates & taxes for the project, travelling expenses for the project, technical project support fees, interest etc aggregating to Rs 187 crores, to the capital work in progress as they are directly related to the construction of project. This was done in accordance with the mandate prescribed in Accounting Standards (AS-7) issued by Institute of Chartered Accountants of India (ICAI). We find that the assessee pleaded before the lower authorities that the very same set of expenditure were incurred by the assessee and claimed as deduction by the assessee in earlier years in Asst Years 2006-07 and 2007-08 wherein the claim of the assessee was accepted by the ld AO in scrutiny assessments. It is not in dispute that the commercial project had been undertaken by the assessee from the earlier years and had not been completed during the year under consideration. The aforesaid treatment of expenditure i.e partly towards capital work in progress in respect of direct project related expenses and partly towards revenue expenditure in respect of routine administrative expenses has been consistently followed by the assessee in the earlier years also and the same stand was taken by the assessee during the year under consideration. We find that there is no reason for the ld AO to take a divergent stand with regard to the treatment of expenditure given by the assessee in the books which is similar to treatment for income tax purposes also. In any case, we find that these administrative expenses, even if transferred to capital work in progress, would eventually find way to the profit and loss account in the year of completion of project , in view of the fact that the revenue had not doubted the genuineness of incurrence of those expenditure and the business nexus of the same. We find that the lower authorities had not appreciated the action of the assessee wherein the routine administrative expenses that are not directly connected with the project, need to be charged off as revenue expenditure. Hence we direct the ld AO to grant deduction of the revenue expenditure in the sum of Rs 1,09,84,625/- that were debited to profit and loss account by the assessee. Accordingly, the Ground No. 1 raised by the assessee is allowed.