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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 21.11.2016 passed by the Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The revenue has raised the following grounds: - “
1"Whether on the facts and circumstances of the case and In law, the Ld CIT(A) was right deleting the additions made by (he AO of Rs.32,47,759/- on account of other expenses and of Rs.6,26,302/- on account of employee benefit expenses by holding that the same were not related to the project which assesses has capitalized A.Y.2012-13 various expenses and hence are allowable as revenue expenditure?" ii "Whether on the facts and In the circumstances of the case and in law, the Ld CIT(A). erred in not appreciating the fact have the assessee i$ a developer/builder and hence as expenses have to be (rested as work In progress and adjusted as end when revenue Is recognized from the respective projects?" The appellant prays that the order of the C1T(A) on the above ground be set aside and that of the Dy. ClT 9(3)0) be restored. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”
3. The brief facts of the case are that the assessee filed its return of income on 25.09.2012 declaring total income to the tune of Rs.88,32,522/-. The return was processed u/s 143(1) of the Act. Notice u/s 143(2) of the Act dated 23.09.2013 was issued and served upon the assessee. Thereafter notices u/s 142(1) of the Act on various dates were issued and served upon the assessee. The assessee company was engaged in the business of builders and developers. It was the first year of assessment and the assessee claimed various expenses to the tune of Rs.88,48,139/- and showed the net loss to the tune of Rs.88,48,139/-. The AO was of the view that till project does not attain the requisite level to recognize the revenue, therefore, all the cost incurred related to the project needs to be considered for valuation of work- in-progress. The AO considered the expenses for valuation of WIP. The work in progress was valued to the tune of Rs.6,50,29,518/- and expenses to the tune of Rs.88,48,139/- was disallowed and the income of the assessee was assessed to the tune of Rs.Nil. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUES NO 1 & 2:-
ITA No. 1004/M/2017 A.Y.2012-13
The revenue has challenged the deletion of the addition made by AO to the tune of Rs.32,47,759/- on account of other expenses and to the tune of Rs.6,26,302/- on account of employee benefit expenses. The AO disallowed the claim of the assessee on the basis of this fact that the expenses are in nature of WIP. The CIT(A) has allowed the claim of the assessee on the basis of this fact that the said expenses were not related to the project in which the assessee has capitalized various expenses hence held that the expenses are revenue in nature. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “6.1 The only effective ground raised by the appellant is against disallowance of loss of Rs.88,48,139/- by holding the same as capital expenditure. In para 4 of the assessment order, the Ld A O. had mentioned that the appellant company wan engaged in the business of real estate, trading of commercial and residential project Apart from it, the appellant was also involved in the business of investment in immovable properties. The A.O. further pointed out that during the year under consideration, the appellant company purchased land as well as TDK and capitalized all the expenditure such as material, transport, commission, brokerage, electricity, labour etc. and valued the closing work in progress at Rs.5,61H81H379/-. The A.O, further pointed out that apart from the above expenditure, the appellant had also claimed employee cost, finance cost, depreciation and other expenditures aggregating to Rs.88,28,139/- as administrative and establishment expenditures. Since during the year, there was no sale, therefore, other expenditures claimed resulted in to a business loss. According to the A.O. since the appellant was engaged in the business of developing of land and all Such expenditures were related to the project as work in progress, therefore he capitalized all such expenses in the work in progress. Therefore, he capitalized all such expenses in the work in progress and disallowed the claim of loss amounting to Rs.88,48,139/- Before A.O., the appellant claimed that all the cost incurred cannot be considered as capital cost. It was further submitted tbat it would result in violation of Company's Act and account standard A.Y.2012-13 6.2 During the course of appellate proceedings a written submission was filed which is placed in para 5 of this order The appellant has claimed expenses on account of employee benefit expenses, finance costs, other expenses and depreciation. It was claimed that it was not the year of the company and some of the cost were incurred (or discharging statutory and day to day functions of the company which were the directly related to the project which was under consideration Certain number of employees vehicles and expanses had to be incurred for discharging statutory functions of the company. The appellant has incurred expenditure of Rs 6,26,302/ - on account of alary, staff welfare expenses and Diwali bonus paid to permanent employees of the company. 6.3 The appellant has also filed the breakup of the finance cost. The same is reproduced as under: Main Head of Name of Amount Reason Expenses Expense Finance Cost Interest on 23,489 Car Loan vehicle loans Interest Finance Cost Interest on 29,88,834 loan-Deron hills Finance Cost Interest on late 23 Delayed payment of Statutory TDS on salary payment interest Finance Cost Interest on 800 Delayed TDS Statutory payment interest Finance Cost Loan 16,31,140 DHFL loan Processing processing Charges fees 4 The breakup of other expenses amounting to Rs 32,4 7,759/- was also furnished y the appellant. The same the reproduced as under: Name of Amount Reasons Expenses Advertisement & 4,10,594 Deron Hills Advertisement & Printing of Marketing Brochures A.Y.2012-13 Expenses Annual 5,515 Maintenance Contract Audit Fees 2,50,000 Statutory Audit Fees Conveyance & 9,947 Employees Conveyance travelling Documentation 3,350 Project Loan Documentation Charges _____ Electricity 83,720 Office Electricity Bills Charges Office Legal Expenses 5,010 Office Rent - Leave and License Agreement Charges Misc. Expenses 26,504 Various testing Reports- Hills Project 4U&T1 Postage & Postage & telephone telephone Preliminary 18,494 ROC related work for staring the Expenses company Printing & 5,798 Stationery /Xerox 7 Printing Bills Stationery Professional Fees 14,85,593 Fees related to company formation, structure design, project design, loan documentation. Professional tax • 25 Employee Short Deduction Rent " Deron 5,31,594 Office rent paid office Repairs & 63,789 Maintenance Security Services 2,88,515 Security for Deron Office Bank Charges 17,950 DD commission and other charges ITA No. 1004/M/2017 A.Y.2012-13 6.5 I have carefully considered the details of expenses furnished by the appellant. The expenditure related to employees benefit and other expenses were required maintaining the office and discharging other statutory obligation of the company. such expenditures were not related to the project in which appellant have capitalized! various expenses. Therefore, claim of the appellant regarding allow ability of expenses incurred on employees benefit expenses and other expenses are allowed. 6.6 In respect to finance cost, appellant failed to provide necessary documentary evidences regarding sanction of loan and its utilization with respect to its project mentioned in the written submission. In absence of necessary documentary evidences, claim of the appellant regarding allowability of finance charges as revenue expenses cannot be allowed. It could not be demonstrated by the appellant that loans were utilized for earlier projects and not for the project which was under consideration and treated as work in progress by the A.O. In respect to financial cost amounting to Rs 46,44,286/- and depreciation amounting to Rs.3,29,792/-, appellant failed Co give any documentary evidences which can prove that expenses claimed by me appellant were revenue in nature. In absence of documentary evidences and discussions made by the A,O. in assessment order, expenditure relating to financial cost and depreciation are not allowed as revenue expenditure, rather the stand taken by the A.O. regarding capitalization of financial cost is confirmed 6.7 In the result, the addition made by the A.O, in respect to finance cost of Rs.46,44,286/- and depreciation of Rs,3,29,792/- is confirmed and the addition made by the A.O, on employee benefit expenses of Rsr6,26,302/- and other expenses of Rs.32,47,759/- is deleted Therefore, the A.O. is directed to capitalize the expenses claimed on account of finance cost amounting to Rs.46,44,286/-and depreciation of Rs.3,29,792/-.”
On appraisal of the finding of the CIT(A), we noticed that the assessee has given the breakup of the expenses of the said expenses. The breakup of the expenses has been given above while reproducing the finding of the CIT(A), we found no reasonable ground interfere with the finding of the CIT(A) on these issues. Therefore, we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfere with A.Y.2012-13 at this appellate stag. Accordingly, these issues are decided in favour of the assessee against the revenue.