2022 (12) TMI 736 - AT - Income Tax

Disallowance towards Project Development cost written off by the assessee - year of deductibility - AO is of view was that such expenditure could not be allowed as deduction by writing it off during the year under consideration - HELD THAT - AO in the present case, going with the amount of expenses incurred in earlier years, has decided that the project ought to have been written off in earlier year. Even though the assessee incurred 93% of the project costs in earlier years, it can be seen that it incurred further costs of Rs.16.63 lakh on the project in the immediately preceding year, which divulges that the project was still going on up to the end of the preceding year. It was only in the current year that the assessee realized that the project cannot be continued and hence wrote off the costs incurred on it. In our considered opinion, no exception can be taken to the assessee s point of view of deciding the year in which the project became unviable so as to write off the revenue costs incurred on it. As the assessee found the project to be lost and decided to write it off, it is this year in which the write off has to be allowed. In view of the fact that the revenue nature of the costs incurred has not been disputed by the AO, we hold that the assessee is entitled to deduction of Rs.7.15 crore in the current year. The impugned order is overturned pro tanto to this extent. Appeal is allowed.

Summary

Issues:
Confirmation of disallowance of Rs.7,15,81,164/- towards 'Project Development cost written off'.

Analysis:
The appeal challenged the correctness of the order passed by the CIT(A)-6, Pune regarding the disallowance of Rs.7,15,81,164/- made by the Assessing Officer towards 'Project Development cost written off'. The Assessing Officer observed that the majority of project costs were incurred in earlier years, with only a salary cost incurred in the year under consideration. The assessee explained that the project was shelved after realizing it was not feasible, leading to the write-off. The AO accepted the expenditure's deductibility but disputed the timing of the write-off. The CIT(A) upheld the disallowance, considering the expenses as capital in nature and denying depreciation due to the project not being utilized. The Tribunal noted the project's unsuccessful outcome and the costs being written off due to its unviability. The AO did not contest the expenses' allowability but questioned the year of deductibility. The Tribunal held that the assessee's decision to write off the costs in the current year, upon realizing the project's failure, was valid. As the revenue nature of the costs was undisputed, the Tribunal allowed the deduction of Rs.7.15 crore for the current year, overturning the impugned order partially.

In conclusion, the Tribunal allowed the appeal, emphasizing the importance of respecting the assessee's decision on the timing of project write-offs and recognizing the revenue nature of the costs incurred.