2022 (6) TMI 1056 - AT - Income Tax

Nature of expenditure - Allowability of general management fees incurred when the assessee is still in the process of completing the project of IT/ITES project - Assessing Officer as well as the ld. CIT(A) took a stand that since the appellant is a process of setting up a SEZ project, the revenue expenditure incurred till the completion of the projects are required to be capitalized - whether the assessee can be said to have commenced/setup business in the facts of the present case or not? - HELD THAT - In the present case, except making a bald statement before us that the assessee is engaged in real estate business, no evidence was filed before us. The material on record clearly shows the assessee is into process of setting up SEZ project, wherein, SEZ provider creates assets in the form of building and let out/the building. This activity cannot said to be in relation to the real estate business. Therefore, it is a case where the assessee in the process of SEZ project and all the project expenditures have been directly related to the project, the decision of the Hon ble Supreme Court in the case of Challapalli Sugars Ltd. 1974 (10) TMI 3 - SUPREME COURT is squarely applicable to the present case. In the said decision, the Hon ble Supreme Court held that the revenue expenditure incurred till the business is set-up should only add to the capital cost of the project. Thus we uphold the action of the lower authorities in disallowing claim for allowance of expenditure. Thus, we do not find any merit in the present appeal filed by the assessee company on merits of the issue in appeal. Application of principle of consistency - As in the previous year the claim of the assessee came to be allowed by the Assessing Officer. However, the action of the Assessing Officer in the present year taking different view following the decision of the Hon ble Supreme Court in the case of Challapalli Sugars Ltd. (supra), cannot be faulted with. The doctrine res-judicata has no application to the income-tax proceedings merely because the claim came to be in the earlier years, it is does not mean that the Assessing Officer should allow the same when he is conscious of the non-allowability of the claim in view of well settled position of law in this issue. Thus, we are of the considered opinion that claim of appellant cannot be allowed invoking the principle of consistency. Accordingly, the same is dismissed.

Summary

Issues:
Allowability of general management fees as revenue expenditure vs. capital in nature.

Analysis:
The appellant, a private limited company engaged in IT/ITES Parks business, filed an appeal against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2013-14. The primary issue raised was the treatment of general management fees paid to Ascendas Services (India) Private Limited as capital in nature. The Assessing Officer disallowed the fees as revenue expenditure, stating it should be capitalized as the project was still under construction. The appellant argued for consistency in allowing similar expenses in previous years. The CIT(A) upheld the Assessing Officer's decision.

On the issue of principle of consistency, the Assessing Officer rejected its application in income-tax proceedings, emphasizing each year as a separate assessment year. The appellant contended that expenses not directly related to fixed assets should be allowed as revenue expenditure, citing a Tribunal case. However, the lower authorities and the appellant differed on whether the appellant had commenced its business, crucial in determining the nature of the expenditure. The appellant's claim was dismissed based on the Hon'ble Supreme Court's decision in Challapalli Sugars Ltd. vs. CIT, which held that revenue expenditure incurred until business setup should be added to the capital cost of the project.

Regarding the application of the principle of consistency, the Assessing Officer's differing view in the present year was justified based on the legal position established by the Challapalli Sugars Ltd. case. The doctrine of res judicata was deemed inapplicable to income-tax proceedings, and the appellant's claim was dismissed on this basis. The appeal was ultimately dismissed, upholding the disallowance of the expenditure as capital in nature.

In conclusion, the Tribunal upheld the lower authorities' decision to disallow the general management fees as revenue expenditure, considering the stage of the appellant's project development and the legal precedent set by the Challapalli Sugars Ltd. case. The principle of consistency was not applied, and the appeal was dismissed on the grounds of the legal position regarding the treatment of such expenses in income-tax proceedings.