2023 (6) TMI 280 - AT - Income Tax

Allowability of expenses of selling expenses as revenue expenditure - contention of the assessee that such expenditure is not connected with the construction, hence allowable as revenue expenditure in terms of AS-7 - HELD THAT - As relying on PUMA REALTORS PVT. LTD. 2018 (11) TMI 1618 - ITAT DELHI and Pragnya Crest Properties (P) Ltd 2020 (4) TMI 224 - ITAT BANGALORE as held the action of the Revenue Authorities in rejecting the assessee's accounting method, without assigning any reason is not justified. The accounting method followed by the assessee and thereby excluding the indirect expenses such as office employees salary, administrative expenses and marketing selling expenses is as per the recognized principles of accountings and as such the claim of the assessee deserves to be allowed. We hold accordingly. The additions made by the lower authorities on this issue are hereby ordered to be deleted. Thus we hereby direct the AO to delete the impugned additions. Decided in favour of assessee.

Summary

Issues involved:
The judgment involves the capitalization of expenses, specifically selling expenses and depreciation, under the head 'Capital Work in Progress' for the assessment year 2013-14.

Capitalization of Selling Expenses and Depreciation:
The assessee had declared a loss in the income tax return, which was selected for scrutiny assessment. The Assessing Officer noted that selling expenses and other expenses were not capitalized under 'Capital Work in Progress' as required. The income was assessed accordingly, leading to an appeal by the assessee. The Commissioner of Income-Tax (Appeals) upheld the decision, prompting the appeal to the Appellate Tribunal. The Tribunal considered the allowability of expenses claimed by the assessee as revenue expenditure, particularly selling expenses. The Tribunal referred to Accounting Standard-7 (AS-7) and previous decisions to support the assessee's contention that such expenses not connected with construction should be treated as revenue expenditure. The Tribunal highlighted that the expenses were not directly related to the project under construction and thus should be allowable as revenue expenditure. Relying on previous tribunal decisions, the Tribunal directed the Assessing Officer to delete the additions made, ultimately allowing the appeal of the assessee.

Conclusion:
The Appellate Tribunal, after considering the arguments and legal precedents, directed the Assessing Officer to delete the additions made regarding the capitalization of selling expenses and depreciation. The Tribunal found merit in the assessee's claim that the expenses were revenue expenditure not directly linked to the ongoing project, in line with Accounting Standard-7. The appeal of the assessee was allowed based on the Tribunal's analysis and previous decisions on similar issues.