2020 (2) TMI 451 - AT - Income Tax

Claim of expenditure in the revised return - Expenditure incurred for the proposed new projects - allowable deduction u/s 37 - whether expenditure pertaining to the new projects have to be debited against the income of the new project only which was treated as work in progress earlier? - HELD THAT - Assessee has incurred the expenses on account of salary, telephone and travelling in order to obtain the business which has been procured in the further years down the lines. The business has to be looked into as a composite activity of the assessee and the receipts and the expenditure have to be taken compositely. The apportion of the expenditure in a consultancy firm like the assessee against each project is not in tune with the standard accounting practices. This is not a case of construction of buildings or townships wherein the expenditure incurred against each project is considered separately depending upon the method of accounting followed by the assessee. The assessee is in the business of providing consultancy and fund management, financial advisory wherein the expenditure and the revenue has to be taken into account in running accounting methods. Revenue has primarily disallowed this expenditure because the assessee has filed a revised return of income which were hitherto claimed under work in progress. Once, the assessee has realized that the claim was wrongly not made, the assessee has every right to revise the return indicating correct taxable income. What is to be examined is whether the claim of the assessee is correct or not but not whether the correct claim is filed with the original return or revised return. Since, the claim of the assessee can be accepted with regard to the expenditure involved as allowable expenditure for the year, we hereby hold that no disallowance on this account is required and the addition made is hereby directed to be deleted. Appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of expenses claimed as revenue expenditure.
2. Revision of return to claim expenditure as allowable deduction under section 37(1).

Issue 1: Disallowance of expenses claimed as revenue expenditure

The assessee appealed against the order of the ld. CIT (A) confirming the assessment at an alleged loss of ?2,75,105 instead of the returned loss of ?55,16,277. The assessee argued that the expenses amounting to ?52,41,172 were revenue in nature and allowable as a deduction under section 37 of the Act. The Assessing Officer (AO) held that the expenses were capitalized for various projects and should not be considered as revenue expenditure. The AO questioned the sudden revision of the return by the assessee, which was attributed to advice from their chartered accountant without sufficient explanation. Consequently, the AO disallowed the expenses as not revenue in nature.

Issue 2: Revision of return to claim expenditure as allowable deduction under section 37(1)

The assessee contended that the expenses were related to new projects and were treated as work in progress. The ld. CIT (A) upheld the addition, stating that the expenses for new projects should be debited against the income of those projects. However, the assessee argued that the expenses were incurred in the course of business for strategic advisory and financial services. The assessee revised the return to claim the deduction of the expenses, which were not claimed in the previous year. The expenses included salary, telephone, and traveling expenses. The Tribunal found that the expenses were revenue in nature and essential for obtaining business engagements, which were later offered for taxation. The Tribunal held that the claim of the assessee was correct, and no disallowance was required. Therefore, the appeal of the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, stating that the expenses claimed were revenue in nature and allowable as a deduction under section 37 of the Act. The Tribunal emphasized that the correct claim made by the assessee in the revised return should be accepted, and no disallowance was warranted.