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Income Tax Appellate Tribunal, “B”, BENCH
Before: SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2010-11 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-20, Mumbai in appeal No.CIT(A)20/DC9(3)/IT-293/2012-13 dated 04/09/2013 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 11/02/2013 by the ld. Dy. Commissioner of Income Tax – 9(2), Mumbai(hereinafter referred to as ld. AO).
M/s. Magna Warehousing & Distribution Pvt. Ltd.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the action of the ld AO of treating the entire expenditure of Rs 1,09,84,625/- debited to profit and loss account as expenditure pertaining to commercial project and capitalized to work in progress, in the facts and circumstances of the case.
We have heard the rival submissions. We find that the assessee is engaged in the business of real estate development of hotel, retail, mall, information technology park and other high quality commercial segments and had filed the return of income for the Asst Year 2010-11 on 10.9.2010 declaring total loss of Rs 1,08,35,377/- for the current year. During the year under consideration, the assessee’s commercial project at Benguluru was under progress and accordingly, the expenditure incurred towards the said project were capitalized to capital work in progress by the assessee. But there are certain administrative and general expenditure which were incurred by the assessee which cannot be attributed to the commercial project as such and accordingly the same were charged off by the assessee as a revenue expenditure to the tune of Rs 1,09,84,625/ by debiting the same to the profit and loss account. The ld AO observed that the assessee had derived other income of Rs 1,50,563/- against which the aforesaid expenditure was set off. Accordingly, the ld AO disallowed the loss claimed by the assessee in the sum of Rs 1,08,35,377/- and allowed the same to be capitalized to capital work in progress in view of the fact that the project had not commenced during the year under consideration. We find that the details of expenditure debited to profit and loss account are as under:-
M/s. Magna Warehousing & Distribution Pvt. Ltd.
Sr. Expenses Head Amount Remarks 1 Rates, taxes and others 5,000 Professional tax paid 2 Guest house expenses 3,54,596 Day-to-day use of employees white on duty 3 Printing and Stationery 98,816 Letter-head and other miscellaneous stationery 4 Legal and Professional 5,37,705 Internal Audit and Tax Audit expenses fees 5 Project support fees (non- 41,35,560 Administrative charges, HR technical) Accounting, Finance. Payroll, taxation etc. 6 Travelling and 11,56,447 Routine travel and related conveyance expenses 7 Communication costs 37,713 Telephone charges 8 Repairs and maintenance 4,43,785 Various AMC & internet charges at corporate office 9 Audit fees 7,49,488 Statutory Audit Fees 10 Royalty charges 17,35,524 For use of name and logo 11 Bank charges 48,202 Routine bank charges 12 Subscription charges 56,500 Subscription to Export promotion council and business association 13 Advertisement and 5,29,524 Market Survey and research Publicity expenses reports 14 Miscellaneous expenses 1,13,155 Various day to day small nature expenses at corporate office 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 M/s. Magna Warehousing & Distribution Pvt. Ltd. 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 its M/s. Magna Warehousing & Distribution Pvt. Ltd. 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.
In view of our aforesaid decision, the adjudication of Ground No. 2 becomes academic in nature as it would not have any bearing on the computation of total income of the assessee for the year under consideration. Accordingly, the Ground No. 2 on merits is left open and is hereby dismissed as being academic in nature.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on this 21/08/2019