2015 (10) TMI 1378 - AT - Income Tax

Amortisation of project development expenses - disallowance u/s 35D - CIT(A) allowed the claim - Held that - The expenses claimed by the assessee are not preliminary but were work in progress as per the expenditure incurred on infrastructure by it. These expenses are of the nature of revenue but cannot be claimed in one year because the assessee is to be recovered its investment as well as profits from toll tax up to toll period of respective project. The expenditure is not capital in nature as the assets owned by the State Government and used for the purpose of public. The assessee had claimed these expenses on the basis of the terms and conditions of the contract as well as estimated toll receipts for the period of the contract. When the assessee has shown revenue receipts accordingly the expenditure is to be allowed on matching principle of accountancy. After respectfully following the co-ordinate Bench decision in the assessee s own case the orders of the learned Commissioner of Income-tax (Appeals) were justified in both years. - Decided in favour of assessee.

Summary

Issues:
Appeal against allowing amortisation of project development expenses under section 35D of the Income-tax Act for assessment years 2007-08 and 2008-09.

Analysis:
1. Assessment Year 2007-08:
The Revenue appealed against the amortisation of project development expenses for the Pali project and Bata Chowk project. The Assessing Officer disallowed the expenses, stating they were not covered under section 35D of the Act. The learned Commissioner of Income-tax (Appeals) upheld the assessee's claim based on judicial discipline and past tribunal decisions. The Revenue contended that expenses should be allowed proportionately over the contract period, but the assessee's consistent method was supported by the authorized representative. The Tribunal found the expenses were revenue in nature, to be recovered over the toll period, not capital, as the assets were government-owned. Citing a previous decision in the assessee's favor, the Tribunal upheld the Commissioner's order, dismissing the Revenue's appeal.

2. Assessment Year 2008-09:
Similar to the previous year, the Revenue challenged the amortisation of project development expenses for the Pali project and Bata Chowk project. The Assessing Officer disallowed the expenses under section 35D, but the Commissioner of Income-tax (Appeals) allowed the claim based on past tribunal decisions. The Revenue argued for consistency in claiming expenses over the contract period, while the assessee's representative defended the method based on toll receipts and revenue generation. The Tribunal reiterated that the expenses were revenue in nature, to be recovered over the toll period, not capital, as the assets were government-owned. Relying on a previous decision in the assessee's favor, the Tribunal upheld the Commissioner's order, dismissing the Revenue's appeal for this assessment year as well.

In conclusion, the Tribunal dismissed both appeals of the Revenue, upholding the amortisation of project development expenses for the assessment years 2007-08 and 2008-09 under section 35D of the Income-tax Act. The Tribunal's decision was based on the nature of the expenses, the consistent method followed by the assessee, and past tribunal decisions supporting the claim.