2015 (12) TMI 192 - AT - Income Tax

Additions on account of capitalization of pre-commencement of expenses pertaining to a project under consideration - CIT(A) deleted the addition - Held that - ACIT vs. Ashima Syntex Ltd.(2008 (10) TMI 298 - ITAT AHMEDABAD-B) has held that so far as corporate advertisement expenses, computer software expenses, public relation expenses quota expenses, sales promotion expenses, fixed deposit expenses and exhibition expenses are concerned, those expenses should be allowed in the year in which they are incurred. In the case in hand, the assessee has claimed expenditure in the year those were incurred. The AO disallowed on the ground that the expenditure related to the pre-commencement of the business. However, the ld.CIT(A) deleted the disallowance. In the light of the judgement of the Hon ble Apex Court rendered in the case of Taparia Tools Ltd. vs. Jt.CIT (2015 (3) TMI 853 - SUPREME COURT) and decision of the Coordinate Bench in the case of ACIT vs. Ashima Syntex Ltd.(supra), we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. - Decided against revenue Disallowance u/s.40(a)(ia) - CIT(A) deleted the addition - Held that - We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgement relied upon by the parties. There is no dispute with regard to the fact that there was no finding for treating the assessee to be in default by the concerned AO. Therefore, in view of the judgement of the Hon ble High Court of Delhi in the case of CIT vs. Ansal Land Mark Township(P) Ltd. 2015 (9) TMI 79 - DELHI HIGH COURT we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. - Decided against revenue

Summary

Issues:
1. Deletion of additions on account of capitalization of pre-commencement expenses.
2. Deletion of disallowance under section 40(a)(ia) of the Act.

Analysis:

Issue 1: Deletion of additions on account of capitalization of pre-commencement expenses
The Revenue appealed against the order of the Ld. Commissioner of Income Tax(Appeals) directing the deletion of additions totaling to Rs. 35,02,119/- and Rs. 18,643/- related to pre-commencement expenses for a project. The Revenue contended that the expenses were incorrectly treated as pre-commencement expenditure. The assessee, supported by case laws, argued that the expenses were allowable revenue expenditure. The ITAT upheld the Ld. Commissioner's decision, citing that the expenses were related to the business of real estate development and were revenue in nature. The ITAT referred to relevant judgments and concluded that the expenses were correctly allowed, rejecting the Revenue's appeal.

Issue 2: Deletion of disallowance under section 40(a)(ia) of the Act
The second issue pertained to the deletion of a disallowance of Rs. 5,61,240/- under section 40(a)(ia) of the Act. The Revenue challenged the deletion based on non-deduction of tax on processing fee for financial appraisal. The assessee argued that as they were not declared in default, no addition could be made as per the second proviso to section 40(a)(ia) of the Act. The ITAT agreed with the assessee, citing the absence of a finding declaring the assessee in default. Relying on a judgment of the Hon'ble High Court of Delhi, the ITAT upheld the Ld. Commissioner's decision to delete the disallowance. Consequently, the ITAT rejected the Revenue's appeal on this issue.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the decisions of the Ld. Commissioner of Income Tax(Appeals) on both issues. The judgment provided detailed reasoning based on legal provisions and precedents, ensuring a thorough analysis of the facts and contentions presented by both parties.