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TMI Blog2016 (4) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... The nature of expenditure incurred by the assessee decides its allowability as business expenditure. Payments made under Meter expenses to MSEB - Held that:- Admittedly, after the installation, the Transformer becomes the property of MSEB and MSEB is at liberty to transmit electricity to persons other than the assessee. Further, the assessee had paid sum of ₹ 13,24,400/- against the cost of service line connection. This expenditure was also incurred in relation to the provision of electricity connection to the assessee. Such expenditure incurred by the assessee for carrying on of its business from day to day is business expenditure and allowable in the hands of assessee under section 37(1) of the Act and cannot be part of work-in-progress of the expenditure which are incurred by the assessee. The expenditure incurred for commercial exigency of carrying on of its business, as held by various Hon’ble High Courts and Hon’ble Supreme Court is an allowable expenditure in the hands of assessee. With regard to allowability of expenditure of Meter expenses (MSEB), we find support from the ratio laid down in Chief Project Manager, Railway Electrification, Indian Railway Vs. ITO (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al:- 1) On the facts and circumstances of the case and in law the Ld. CIT(A) ought to have passed a 'speaking order' as warranted by S. 250(6) of the Act and ought to have followed the directions of the Hon'ble Tribunal issued while deciding the appeal of the assessee for A. Y. 2001 -02 in ITA No.1595S/PN/2005 dt. 21st July 2006. The order of the Ld. CIT(A) being not in consonance with the provision of law be quashed allowing the appeal. 2) On the facts and circumstances of the case and in law the Ld. CIT(A) failed to take into account the expenses disallowed were debited in the accounts and also formed the part and parcel of closing WIP the valuation of which was done by the appellant by a method consistently followed by it. It is absurd to disallow expenses without disturbing the closing WIP which action is contrary to accounting principles. The Ld. CIT(A) failed to consider the consistent method followed for valuation of WIP and simply confirmed the disallowance as made by A.O. 3) On the facts and circumstances of the case and in law the Ld. CIT(A) ought to have considered that the proposition that the disallowance of expenses means such expenses we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asic directions have not been followed. 8) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of supervision charges of ₹ 3,60,565/- made by the A. O. The disallowance be quashed. 9) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of Site Expenses of ₹ 98,461/- made by the A. O. The disallowance be quashed. 10) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of Society Charges of ₹ 82,815/- made by the A. O. The disallowance be quashed. 11) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of Interest on loan of ₹ 10,36,730/- made by the A. O. The disallowance be quashed. 12) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of Meter Expenses (MSEB) of ₹ 22,49,872/- made by the A. O. The disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Before the CIT(A), the assessee explained the details of projects undertaken and also the details of closing value of work-in-progress. Further, the assessee challenged the addition of ₹ 38,28,448/- and pointed out that where whether the said expenses could be considered as direct expenses debitable to Trading account. The assessee in turn, explained the nature of each of the expenses before the CIT(A) and the submissions of the assessee in this regard are incorporated at pages 9 to 13 of the appellate order. The CIT(A) in the first round, upheld the order of Assessing Officer, which was agitated before the Tribunal and the Tribunal restored the issue back to the file of CIT(A) for de novo examination of the issue. In the second round of the appellate proceedings, the CIT(A) was of the view that the expenses which were directly attributable to any particular contract should be charged to the contract account or the Trading account and thus, would form part of work-in-progress. Vide para 4.2 at pages 21 onwards, the CIT(A) took note of the individual disallowances made by the Assessing Officer and was of the view that where the expenses were directly relatable to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of expenditure booked by the assessee and it was pointed out that all these expenses were allowable as revenue expenditure in the hands of assessee. 9. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A). 10. We have heard the rival contentions and perused the record. The issue arising before us is whether the expenditure claimed by the assessee is revenue in nature, which in turn, is allowable in the hands of assessee under section 37(1) of the Act or since the assessee was following project completion method, the said expenses were to be carried forward as work-in-progress, to be allowed in the respective year when the units were sold. 11. In the facts of the present case, the assessee was engaged in the development of buildings and was undertaking several projects, which were at different stages of completion. The assessee had bifurcated the expenses as being relatable to the cost of construction of projects undertaken by the assessee and depending on the stage of completion had credited the amounts to work-in-progress. Certain expenses were claimed as revenue expenditure by the assessee, which had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2000-01 Rs.1,80,000 4) A.Y. 2001-02 Rs.3,60,565 13. Another expenditure claimed by the assessee was the payment to MSEB of ₹ 22,49,872/- i.e. on account of Transformer installation charges including the cost of Transformer at ₹ 8,65,328/- and service line connection charges paid at ₹ 13,24,400/-. The explanation of the assessee in respect of the said expenses was that from this step down Transformer the MSEB authorities distribute electricity connections to the assessee. The MSEB provides the service lines to all adjoining schemes from this Transformer and after the installation of said Transformer, cost of which was borne by the assessee, becomes the property of MSEB. Further, cost of the service lines connection paid to MSEB were ₹ 13,24,400/- by which the electricity is transmitted to the premises of the assessee. The said expenditure was also claimed as business expenditure under section 37(1) of the Act. 14. The first aspect of the issue is whether the assessee while following percentage completion method, is entitled to claim certain e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication, Indian Railway Vs. ITO (TDS) in ITA Nos.1069 to 1075/Chd/2009, relating to assessment years 2000-01 to 2005-06 2007-08, order dated 30.12.2011. Accordingly, we hold so. 16. The next item of expenditure is the interest expenditure claimed under section 36(1)(iii) of the Act. The assessee is in the business of developer and once the assessee has purchased land for the development purpose, then the assessee has started its business and under section 36(1)(iii) of the Act, it is very clearly provided that the interest paid on borrowed funds, which in turn, has been utilized for the purpose of carrying on of the business of assessee is duly allowable as business expenditure. In this regard, we find support from the ratio laid down by Pune Bench of Tribunal in M/s. Kumar Company Vs. JCIT in ITA No.900/PN/2013 and Cross Appeal in ITA No.1147/PN/2013, relating to assessment year 2009 -10, order dated 29.01.2016. Hence, the interest expenditure claimed by the assessee where the assessee is following percentage completion method is duly allowable as expenditure in the hands of assessee. 17. Similarly, the Society charges of ₹ 82,815/- is to be allowed as expenditure. F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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