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2022 (10) TMI 1043 - AT - Income TaxAllowance of project expenditure - Allowability of deferred revenue expenditure which is getting claimed by the assessee over and above the actual project expenses amount already considered in purchase - HELD THAT - As sole project entered into by the assessee is pending at approval stage and the project has not taken-off yet. The assessee has only constructed model apartment and launched pre-commencement sale. During appellate proceedings, the assessee submitted that expenditure incurred are to be claimed in the years in which it is actually incurred and income is to be offered in the year of receipt which violates the matching concept of accounting. In the construction activities, the income has to be offered either on percentage of completion method or on the basis of completed contract method. From the fact, it emerges that the project has not taken-off and therefore, the expenditure incurred by the assessee are to be taken as incurred during pre-commencement stage. Under such circumstances, the same could not be allowed as business expenditure but the same are to be capitalized along with project expenditure as held by Tribunal in AY 2012-13 2022 (2) TMI 696 - ITAT CHENNAI Facts being pari-materia the same, we direct Ld. AO to verify the expenditure incurred by the assessee and allow capitalization of the same. The revenue s appeal stands partly allowed. Disallowance of project expenses written-off - HELD THAT - Since we have allowed capitalization of expenses for AY 2013- 14, the same would have direct bearing on income computation of this year. It could also be seen that the expenditure has been allowed to be capitalized for AY 2012-13 also. In this year, the assessee has carried out business operations and would be entitled to claim the corresponding expenditure as per percentage of completion method of accounting being followed by it. Therefore, this issue stand restored back to Ld. AO for fresh adjudication in the light of adjudication of earlier years. The revenue s appeal stand allowed for statistical purposes. Disallowance of Bad Debts u/s 36(1)(vii) r.w.s. 36(2) - HELD THAT - From the facts, it emerges that the assessee has lent surplus funds to another entity which are not business advances. No commercial expediency of advances could be demonstrated by the assessee. The assessee claimed the write-off of advances as irrecoverable u/s 36(1)(vii) which applies for a business transaction only and not otherwise. The money lending is not the business of the assessee neither the advances were incidental to the business activities of the assessee. In such a case, the ratio of recent decision in Ashok Leyland Ltd. 2022 (6) TMI 269 - MADRAS HIGH COURT would squarely apply to the facts of the case - Respectfully following the same, we dismiss the ground raised by the assessee.
Issues Involved:
1. Delay in filing appeals due to COVID-19. 2. Deletion of deferred revenue expenditure and other expenses. 3. Capitalization of project expenditure. 4. Disallowance of Bad Debts under Section 36(1)(vii) read with Section 36(2). Detailed Analysis: 1. Delay in Filing Appeals: The revenue's appeals for AY 2013-14 and 2014-15 were delayed by 164 days due to the COVID-19 lockdown. The Tribunal condoned the delay, recognizing the extraordinary circumstances of the pandemic, and admitted the appeals for adjudication on merits. 2. Deletion of Deferred Revenue Expenditure and Other Expenses: The Revenue questioned the deletion of Rs. 4,03,86,928/- (deferred revenue expenditure) and Rs. 1,21,81,827/- (other expenses) by the CIT(A) for AY 2013-14. The core issue was whether these expenses should be capitalized or allowed as business expenditure. The Tribunal noted that the project was still pending approval and had not commenced. It was held that these expenses were pre-commencement and should be capitalized, not allowed as business expenditure. 3. Capitalization of Project Expenditure: The Tribunal observed that the assessee had only constructed a model apartment and initiated pre-launch sales. The project had not taken off, and thus, the expenses incurred were pre-commencement expenses. Following the precedent set in AY 2012-13, the Tribunal directed the AO to allow capitalization of Rs. 277.70 Lacs and Rs. 45.90 Lacs as debited in the Profit & Loss Account as 'other expenses'. For AY 2014-15, the Tribunal restored the issue back to the AO for fresh adjudication, considering the capitalization allowed in earlier years. 4. Disallowance of Bad Debts: The assessee's appeal for AY 2014-15 involved the disallowance of Rs. 150 Lacs claimed as Bad Debts under Section 36(1)(vii) read with Section 36(2). The Tribunal upheld the disallowance, agreeing with the AO and CIT(A) that the advances were not business-related and money lending was not the assessee's main business. The Tribunal cited the Madras High Court decision in Ashok Leyland Ltd. vs. ACIT, which held that such advances, being capital in nature, could not be claimed as revenue loss. Conclusion: - The revenue's appeal for AY 2013-14 was partly allowed. - The revenue's appeal for AY 2014-15 was allowed for statistical purposes. - The assessee's appeal for AY 2014-15 was dismissed. Order Pronounced on 26th October, 2022.
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