2014 (1) TMI 1716 - AT - Income Tax

Allowable business expenditure - Held that - As the assessee in the present case has furnished the relevant details of expenses incurred prior to survey and after the survey which clearly shows that the expenses incurred during the post survey period are regular business expenditure which mainly includes provision made for depreciation and interest on the last date of the previous year. The assessee has also filed the profit and loss account for the year under consideration which clearly shows that the income of ₹ 50 lacs surrendered during the course of survey was separately declared as its income by the assessee and the routine business expenses including the expenses in question incurred during the post survey period were debited to profit and loss account. The issue involved in the present case as well as all the material facts relevant thereto thus are similar to the case of M/s. Shreeshay Engg. Pvt. Ltd. (2014 (1) TMI 876 - ITAT MUMBAI) and respectfully following the decision of the coordinate bench of this Tribunal rendered in the said case, we set aside the impugned order of the learned CIT(A) on this issue and restore the matter to the file of the AO with a direction considered and allow the claim of the assessee for the impugned expenses as regular business expenses on merit after necessary verification.

Summary

Issues:
1. Disallowance of Business Expenses by AO and CIT(A)
2. Capitalization of Business Expenses as part of Work in Progress

Issue 1: Disallowance of Business Expenses by AO and CIT(A)
The appeal was filed by the Assessee against the order of the Learned CIT(A) confirming the Assessing Officer's decision not to allow Business Expenses of Rs. 17,58,462 while computing Business profits against the additional income of Rs. 50,00,000 declared during a survey. The AO disallowed the expenses, stating that they were accounted for after the survey date and, therefore, not allowable. The CIT(A) upheld this disallowance, considering it as accounting jugglery to reduce taxable income. The Tribunal referred to a similar case and found that the expenses were regular business expenses incurred after the survey, reducing regular business income. Following the previous decision, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the expenses as regular business expenses after verification.

Issue 2: Capitalization of Business Expenses as part of Work in Progress
The Assessee also raised an alternate submission regarding the capitalization of the disallowed Business Expenses as part of Work in Progress. However, the Tribunal's decision focused on allowing the expenses as regular business expenses rather than capitalizing them. The Tribunal found the expenses to be regular business expenditure, including provisions for depreciation and interest, incurred during the post-survey period. As the facts and material facts were similar to a previous case, the Tribunal set aside the CIT(A)'s order and directed the AO to consider and allow the claim of the Assessee for the disallowed expenses as regular business expenses on merit after necessary verification.

In conclusion, the Tribunal allowed the appeal of the Assessee, directing the AO to consider and allow the disallowed expenses as regular business expenses after verification. The decision was based on the similarity of facts with a previous case and the nature of the expenses incurred by the Assessee.