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TMI Blog2020 (2) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... rogress during this period. The decision arrived at by the learned Commissioner of Income Tax (Appeals) without properly considering and appreciating the facts was wholly unwarranted, uncalled for and in Law. 1.1 The learned Commissioner of Income-Tax (Appeals) had also erred in not appreciating the that though the business of the assessee has not ceased permanently but the fact that there was no business during this period and the assessee has not adopted a different method of accounting from the dale of suspension of the business moreover the assessee continued the accounting principles followed by them up to 30/06/2011. As per the accounting principles followed by the assessee, the expenditure incurred during the period of suspension has been claimed as revenue expenditure as the same cannot be capitalized with the cost of the investment in property as the property construction was not in existence. There would have been no occasion to claim the deduction if the work in progress had continued. Because the project was suspended, the work in progress did not proceed any further. The decision to suspend the project was the cause for claiming the deduction. 2. The assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds it is found that, the assessee is consistently following the project completion method of accounting and till A.Y. 2011-12, the assessee was regularly and wholly capitalizing the project Management expenses towards CWIP, but as there is no substantial improvement of the project and the project is stalled and delayed, the sudden and arbitrary decision taken by the assesee without following standard accounting method, to charge certain portion of the said expenses to the P&L account from AY 2012-13 onwards, is incorrect and not acceptable. The assessee has admitted that its project business has temporarily suspended with effect from 1 July, 2011 and it is taking all necessary steps for getting the possession of the land and to review its business activity. Since, the assesee has itself not completed the land acquisition formality the project is still in preliminary stage of land acquisition, the expenses incurred towards the running project are liable to be capitalized towards CWIP and the same cannot be allowed to be debited to the profit and loss account. The assessee also could not substantiate its claim showing standard accounting method, on the basis of which part of the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and bonafide and also, it has continuously following said method of accounting in subsequent years. 6. The Ld.CIT(A) after considering relevant submissions of the assessee and also, taken note of various facts brought out by the Ld. AO and also by relied upon certain judicial precedents held that once, it is accepted and established that the business of the assessee has not ceased, there is no justification for adopting a different method of accounting from a certain date, during the relevant period. There is no change in the nature or status of the business activity at that point. Even, earlier project was in work in progress stage and even, after 30/06/2011, it remains the same. Denial of renewal of lease of land by KIADB or any other reason for temporarily lull in business is not important for following consistent accounting principles. Therefore, he opined that there is no reason to interfere with the conclusion arrived by the Ld. AO and accordingly, confirmed the action of the Ld. AO in disallowed project management expenditure claimed as revenue in the profit and loss account and added back to capital work in progress account. The relevant findings of the Ld.CIT(A) are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stan Chemical Works Ltd., 124 ITR 561 to assert that a lull in business is not closure of business and therefore, any revenue expenditure related to business activity is allowable. I find the case laws relied upon by the appellant are not disputed at all. This position has been endorsed by numerous jurisdictional decisions including in Bechtel International Inc. Vs. ADIT (ITAT Mumbai), Appeal Number: ITA No. 4120/Mum/2GQ7wherein Hon'ble ITAT Mumbai held, "Mere inactivity for a limited period does not mean that the assessee's business ceased to exists or that it did not carry on business al a//,' The Assessing Officer has not concluded that the business or the appellant consistent project completion method of recording revenue and expenditure, the appellant must accord consistent treatment to project management expenses in the instant year as it did in earlier years 5.2.4 Once it is accepted and established that the business of the appellant has not ceased, there is no justification for adopting a different method of accounting from a certain date during the relevant period. There is no change in the nature or status of the business activity at that point. Even earlier, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that it is an admitted fact that once, business has been set up, then relevant revenue expenditure needs to be allowed as deduction, whether or not the business is commenced and revenue has been generated from the business during the relevant period. Further, the assessee can change its method of accounting from a particular period, in respect of any item of income or expenditure due to changed circumstances, but such change in principles of accounting should be bonafide and continued in subsequent financial years. Since, the assessee has explained reasons for change in method of accounting for project management expenses and such changes is on account of bonafide reasons, there is no reason for the revenue authorities to doubt the change in method of accounting only for the reason that the assessee has followed said method of accounting in the previous financial years. 8. The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that there is no merit in arguments of the Ld. AR of the assesee, because the assessee has failed to make out a case of change in facts and circumstances, which was existed prior to 01/07/2011, when it has changed meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended its business activity w.e.f. 01/07/2011. Therefore, we are of the considered view that there is a changed circumstance, which forced the assesse to rethink its accounting policies, in order to give a fair and better treatment in its financial statements, in respect of various expenditure incurred for the project. As, we noted in earlier paragraphs, the assessee has capitalized project management expenses on the basis of an agreement with the developer and said expenditure was debited into capital work in progress account up to 30/06/2011. The assessee has changed its method of accounting to give better treatment to said expenditure and accordingly, it has debited project management expenses into profit and loss account, because the particular expenses cannot be capitalized, when the construction work has been temporarily suspended during the relevant period. Therefore, we are of the considered view that if, the change in method of accounting was necessary in the given facts and circumstances of the case and was also bonafide, then there is no restriction under the law to change method of accounting to treat particular item of income or expenditure during the relevant period, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Hon'ble Bombay High Court, in the case of Bajaj Auto Limited vs CIT(supra) had taken similar view and held that the assesee was well within its rights to bring about changes, so long as the assesse adopts such change bonafide and propose to employee the new method regularly. In this case, the assessee has changed method of accounting inrespect of project management expenses from a particular date and said method of accounting has been continued in subsequent years and which has been accepted by the revenue. Further, the change in method of accounting was also supported by a reason of temporarily suspension of business activity due to circumstances beyond the control of the assessee. Therefore, we are of the considered view that the assesee was well within its right to change method of accounting for accounting particular expenditure. The Ld. AO and Ld.CIT(A) without appreciating the fact that has simply rejected the claim of the assessee, without assigning any reasons, how the changed method of accounting was not in accordance with the principles of accounting followed by the assesse. Hence, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were erred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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