2014 (1) TMI 1725 - AT - Income Tax

Disallowance of business expenditure - Held that - In the present case, the facts involved are similar to the facts involved in the case of M/s. Shreeshay Engg. Pvt. Ltd. Vs. ACIT(2014 (1) TMI 876 - ITAT MUMBAI) as is evident from the relevant portion of the Tribunal s order passed in that case and this position is not disputed even by the learned DR. As in the case of M/s. Shreeshay Engg. Pvt. Ltd., the assessee in the present case has also furnished the relevant details of expenses incurred prior to survey and after the survey at page No.81 of his paper book 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 at page 26 of the paper book 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. Thus 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 Assessing Officer
2. Capitalization of Business Expenses as Work in Progress

Issue 1: Disallowance of Business Expenses by Assessing Officer:

The appellant, a real estate development and construction company, declared income during a survey action, which was later adjusted in the return of income by deducting business expenses. The Assessing Officer disallowed the business expenses, stating they were accounted for after the survey date and thus not allowable. The CIT(A) upheld this disallowance, considering it as an attempt to reduce taxable income. The Tribunal referred to a similar case and found that the expenses were regular business expenses incurred post-survey, reducing regular business income. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the expenses as regular business expenses after necessary verification.

Issue 2: Capitalization of Business Expenses as Work in Progress:

The appellant also argued that if the business expenses were not allowed as deductions, they should be capitalized as part of work in progress. However, the primary focus was on the disallowance of the expenses as business deductions. The Tribunal's decision to allow the expenses as regular business expenses rendered the issue of capitalization moot in this case.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the Assessing Officer to consider and allow the claimed business expenses as regular business expenses on merit after necessary verification. The decision was based on the similarity of facts with a previous case and the understanding that the expenses were legitimate business expenditures incurred post-survey, impacting regular business income calculations.