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TMI Blog2023 (8) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has shown Nil income from business and profession and has already shown income from other sources - when the construction of project has started and this fact has not been disputed by the authorities below then the impugned expenditure if not allowable as revenue expenditure then the same required to be treated as capital work in progress. Since, CIT(A) himself noted that the impugned expenses relates to project then the same should have been included as project work-in-progress as the sole activity of assessee during relevant period was construction of only project - AO is directed to allow the impugned expenditure as project work in progress. - Shri C.M. Garg, Judicial Member And Shri M. Balaganesh, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O out of employee benefit expense, finance cost, administration expenses and depreciation by treating such expenditure as capital work-in-progress despite admitting the fact that Appellant had started/commenced its business during the year under consideration. He further submitted that without prejudice to Ground No. 1 above, the Ld. CIT(A)/AO have erred on facts and under the law in capitalizing the expenditure of Rs. 64,08,489/- to capital work- in-progress instead of capitalizing the same to inventory viz. work-in-process - construction of project. The ld counsel drawing our attention towards relevant part of the assessment order and submitted that the assessee has adopted mercantile system of accounting and has shown revenue from operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 9,76,723/- by way of reducing claim of expenditure of the amount of interest income and receipts of administrative fee amounting to Rs. 5,65,997/- and Rs. 3,34,178/- respectively. The AO made disallowance of Rs. 64,08,789/- by observing that certain statutory expenses are essential to maintain the entity of the company as well as expenses necessary to earn income from other sources are to be allowed as per provision of section 57 of the Income Tax Act, 1961. 6. From relevant part of the first appellate order, we note that the ld CIT(A) upheld the action of the AO with the following observation and finding at para 4.4 and 4.5:- 4.4 Having examined the facts of the case, it is necessary to see what the courts have held in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Mumbai ITAT in the case of Panchvati Developers (173 Taxman 26) wherein advertisement expenses claimed towards upcoming projects of the assessee, had been claimed as revenue expenditure, but following the Wall Street Construction decision (supra) the advertisement expenses were held to be allocable and capitalized as WIP. In the present case since all the expenses in question relate to the project, particularly, advertisement and publicity expenses [Rs.12.62 lacs], commission payment [Rs.28.94 lacs], entertainment expenses [Rs.1.19 lacs] etc., these expenses ought to be capitalized and added to the WIP. It is noted that the AO himself has discussed at Page 3 of the assessment order that the expenses so disallowed are pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been disputed by the authorities below then the impugned expenditure if not allowable as revenue expenditure then the same required to be treated as capital work in progress. 9. Since, the ld CIT(A) himself, in para 4.5 noted that the impugned expenses relates to project then the same should have been included as project work-in-progress as the sole activity of assessee during relevant period was construction of only project. Therefore, alternative prayer in ground No. 2 of assessee is allowed and the AO is directed to allow the impugned expenditure as project work in progress. Accordingly, ground no. 1 is dismissed and ground No. 2 is allowed. 10. Apropos ground No. 3 the ld counsel submitted that the same has been raised by mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X
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