2012 (10) TMI 317 - AT - Income Tax

Addition on account of loss in business from sale of flats Assessee has sold the flats at a loss Held that - As the figure of sales are not disputed, the opening balance on account of completed flats also is not doubted. Assessee has demonstrated that the flats were sold in this year at a price more than previous year, the loss whereof is accepted. Assessing Officer himself has allowed similar loss on sale of flats due to business exigencies. Therefore appeal decides in favour of revenue Addition on account of bank loan processing charges Assessee has claimed the processing charges over the period for which sanction of the loan Rollover charges also paid for re-schedulement of loans after giving credit/ incentive for early repayment of some loan - Held that - As these charges were paid to HDFC bank for rescheduling of loans already taken, which were costly due to higher rate of interest. Therefore, treating the move of the assessee to reduce interest burden and being a business decision. The bank charges are held to be allowable expenses. Decided in favour of assessee Additions in respect of building maintenance charges, water and electricity charges These expenses were paid by the assessee in respect of flats held as stock in trade AO made addition that these are to be set off against the income from house property Held that - As ITAT has allowed similar expenditure which is referred to by CIT(A) in his earlier case . Therefore, respectfully following the same. Decided in favour of assessee Share Registrar Expenses, capital or revenue in nature These are the routine recurring professional and services charges for maintenance of secretarial records, redressal of investors grievance, postage & communication charges . There is no issue of capital during the year by the company and hence there is no reason for treating the expenses as capital expenditure. These expenses incurred are recurring revenue expenses for the purpose of business; there allowability has also been recognized by CBDT. Decided in favour of assessee Disallowance of interest expenditure on ad-hoc basis The AO has not disputed the fact that expenditure incurred was for the purpose of business. He has disallowed 40% of interest on ad hoc basis by holding it as of Capital nature - Held that - Disallowance made was not sustainable as the projects of the company are stock in trade and not the capital projects. Therefore, holding the interest expenditure to be revenue/ business in nature and there is no element of payment of interest on capital account. Appeal decided in favour of assessee.

Summary

Issues: Revenue's appeal against CIT(A)'s order challenging the deletion of additions related to loss in business, loan processing charges, building maintenance charges, water and electricity charges, share register expense, and interest payment.

Loss in Business - Project Completion Method: The appellant followed the 'Project Completion Method of Accounting' consistently, as accepted by the income-tax department since A.Y. 1977-78. The Assessing Officer disallowed the loss without proper appreciation of facts and explanations. CIT(A) allowed the loss, noting that the appellant had provided complete details of sales and costs, and the Assessing Officer failed to rebut the appellant's submission regarding market conditions and losses suffered. The disallowance was deemed unsustainable, and the appeal was allowed.

Loan Processing Charges: The Assessing Officer disallowed loan processing charges paid to HDFC bank for rescheduling loans, stating no new loans were obtained. CIT(A) observed that the charges were incurred to reduce interest burden and were allowable business expenses. The addition was deleted based on these findings.

Building Maintenance and Water/Electricity Charges: The expenses were incurred for properties held as stock in trade. CIT(A) deleted the disallowance, citing precedents where similar expenses were allowed as business income. The disallowances made by the Assessing Officer were deemed unsustainable and were deleted.

Share Register Expense: The Assessing Officer mistook the expense as capital expenditure, while it was routine charges paid to SEBI for maintaining statutory records. CIT(A) upheld the expense as recurring revenue expenditure for business purposes, following past allowances and CBDT recognition. The disallowance was deleted.

Interest Payment: The Assessing Officer disallowed 40% of interest expenditure on an ad hoc basis, which was later deleted by CIT(A). The interest was considered revenue/business in nature, not capital, as the projects were stock in trade and already completed. The disallowance was deemed unsustainable, and the order of CIT(A) was upheld.

Conclusion: The revenue's appeal was dismissed, upholding CIT(A)'s order on all issues. The judgments were based on detailed considerations of facts, legal precedents, and the nature of expenses incurred by the appellant.