2023 (5) TMI 685 - AT - Income Tax

Addition of business expenses and depreciation claim u/s 32 - AO observed that business was not set up and commenced - principles of consistency - HELD THAT - We note that the assessee was allowed similar expense and depreciation in the earlier years which has resulted loss from the business as evident from the Income Tax Return. The relevant details of the business loss claimed by the assessee. Accordingly, the principles of consistency need to be adopted as there is no change in the facts before us as well as law with respect to the issue raised by the assessee. DR at the time of hearing has also not brought anything on record contrary to the arguments advanced by the assessee. Accordingly, keeping the principles of consistency, set aside the findings of the Ld. CIT(A) and allow the grounds of appeals raised by the assessee. Hence, the ground of appeal of the assessee are allowed. Addition on account of violation of the provisions of section 43B - assessee has claimed the expenses incurred on conversion of agriculture land into non-agriculture land which were not paid before the due date of filing the return of income - As the expense was not by the assessee before the due date of filing the return of income, the disallowed the same and added to the total income of the assessee - HELD THAT - Admittedly, the genuineness of the expense has not been doubted by the authorities below. The expense claimed by the assessee was disallowed mainly on the reasoning that the conditions specified u/s 43B of the Act were not satisfied. Admittedly, the expense in the present case is to be allowed on payment basis under the provisions of the section 43B of the Act. Accordingly, set aside the order of the CIT(A) with the direction to the AO to allow the impugned expense on payment basis as per the provision of section 43B - Hence, the ground of appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of business expenses and depreciation claims.
2. Addition on account of violation of the provisions of section 43B of the Income Tax Act.

Summary:

Issue 1: Disallowance of Business Expenses and Depreciation Claims

The assessee raised grounds against the disallowance of Rs. 55,72,136/- and Rs. 10,10,513/- representing business expenses and depreciation claims under section 32 of the Income Tax Act on the reasoning that the business was not set up and commenced. The assessee argued that their business was set up and ready to commence, supported by a Board of Directors resolution, a certificate of commencement of business, and an MOU with GSBTM of Gujarat Government.

The CIT(A) upheld the AO's decision, stating that the business had not commenced as various approvals were pending, and the expenses were capital in nature to be capitalized along with the project cost. The CIT(A) noted that mere possession of a certificate of commencement of business or constructing a compound wall does not constitute the commencement of business activities. The CIT(A) also dismissed the relevance of case laws cited by the assessee due to differing facts.

However, the Tribunal noted that similar expenses were allowed in earlier years, resulting in business losses. Applying the principle of consistency, the Tribunal set aside the CIT(A)'s findings, allowing the assessee's appeal on this ground.

Issue 2: Addition on Account of Violation of Section 43B

The AO found that the assessee claimed expenses for converting agricultural land to non-agricultural land, which were not paid before the due date of filing the return. The AO disallowed the expenses under section 43B, which was confirmed by the CIT(A), stating that such expenses were part of the land cost and had to be capitalized, not allowed as revenue expenditure.

The Tribunal, acknowledging the genuineness of the expenses, directed the AO to allow the expenses on a payment basis as per section 43B, thus allowing the assessee's appeal for statistical purposes.

For AY 2013-14 and AY 2014-15:

The issues raised for AY 2013-14 and AY 2014-15 were identical to AY 2012-13. The Tribunal applied the same findings as for AY 2012-13, allowing the appeals for these years.

Conclusion:

The appeal for AY 2012-13 was partly allowed for statistical purposes, while the appeals for AY 2013-14 and AY 2014-15 were fully allowed.

Order pronounced on 05/04/2023 at Ahmedabad.