2009 (12) TMI 47 - HC - Income Tax

Direct Expenditure on project ITAT disallowed the direct expenditure incurred towards various projects as claimed by the appellant - The assessee is engaged in the business of promotion of real estate and construction. For the assessment year 1997-98, the assessee filed return of income on 28.11.1997 admitting the total income of Rs.1,08,720/-. While completing the assessment, among other disallowances, the Assessing Officer disallowed a sum of Rs.12,29,025/- towards direct expenses, namely, site electricity, site expenses, commission, rent etc. The Assessing Officer chose to disallow the direct expenditure in respect of four projects namely Yesodha, Blossom, Gayathri and Krishna arcade held that - It is clear from the assessment order where the amount of Rs.12,29,025/- claimed as expenses has been accepted by the assessee itself that the claim should be disallowed. - However, the assessee filed an appeal by stating that the commission and brokerage in respect of procurement of land have not been granted as expenses incurred by the assessee. Both before the First Appellate Authority and the Tribunal, this stand has been taken by the assessee. We are unable to appreciate the arguments of the learned counsel for the assessee, as what was disallowed by the Assessing Officer was on the consent given by the assessee regarding expenses as direct expenditure on the projects in a sum of Rs.12,29,025/-. Apart from that, the amount of brokerage or commission has never been considered in the assessment order. An issue which is not available in the assessment order has been taken on appeal before the two Authorities below and ultimately before us also appeal dismissed decided in favor of revenue.

Summary

Issues:
1. Disallowance of direct expenditure towards various projects.

Analysis:

The High Court of Madras dealt with an appeal challenging the order of the Tribunal regarding the disallowance of direct expenses incurred towards various projects for the assessment year 1997-98. The assessee, engaged in real estate promotion and construction, had filed a return of income admitting total income. The Assessing Officer disallowed a significant sum towards direct expenses related to four projects. The Commissioner upheld the disallowances citing the project completion method and lack of income offered by the appellant from those projects. The Tribunal also disallowed the claim, stating that income realization was necessary to claim expenditure. The assessee contended that the direct expenses were day-to-day costs and should be allowed as period costs. However, the court observed that the assessee had admitted to the disallowance during assessment. The court highlighted that the issue of brokerage and commission was not raised earlier and dismissed the appeal as the question of law did not arise from the Tribunal's orders.

In this case, the court noted that the assessee had accepted the disallowance of direct expenses during the assessment process. The court observed that the assessee's appeal was not consistent with their earlier admission of the disallowed expenses. The court emphasized that the claim for brokerage and commission, which was raised later, was not considered during assessment and had no merit for appeal. The court concluded that the appeal lacked substance as it introduced new issues not addressed in prior proceedings. Consequently, the court dismissed the appeal as the question of law raised did not stem from the Tribunal's orders.

Overall, the judgment underscores the importance of consistency in claims made during assessment and subsequent appeals. It highlights that introducing new issues during appeal, which were not part of the original assessment, may lack merit. The court's decision to dismiss the appeal emphasizes the need for parties to raise all relevant matters at the appropriate stages of the legal process to ensure a fair and consistent application of the law.