Income Tax Appellate Tribunal (ITAT), Chennai bench consisting of V Durga Rao, Judicial Member and Manoj Kumar Aggarwal, Accountant Member held that expenditure incurred exclusively for business to be allowed whether or not assessee was having any income during year.
The assessee, M/s. Casa Grande Homes Pvt. Ltd. is resident corporate assessee. During assessment proceedings, it transpired that the assessee claimed expenditure of Rs.5,15,44,310/-, whereas there was no revenue from operations and the construction activity was going on. The assessee submitted that its project ‘ECR-14’ had not commenced. The expenditure so claimed are in the nature of professional / consultancy charges and advertisement charges. The advertisement expenses were towards project ‘ECR-14’ against which no revenue was offered.
The assessee defended the claim on the ground that all direct costs of constructions activity have been classified as construction cost whereas indirect costs not specifically allocable to any specific project have been debited to Profit & Loss Account. Indirect costs are mandatory and necessary cost for the purpose of business though they may not fall under the ambit of construction cost. The said treatment was stated to be in accordance with ICDS-III as introduced by the legislatures. However, observing that aforesaid standards were applicable only from AY 2017-18, the expenditure thus claimed by the assessee was disallowed and loss was reduced to that extent.
During appellate proceedings, the assessee submitted that as per guidance note on Accounting for Real Estate Transactions as issued by the Institute of Chartered Accountants of India (ICAI), the assessee has to follow percentage of completion method to recognize the revenue. The project cost would include cost of land, borrowing costs and construction cost and development costs. However, General administration costs, selling costs, R and D Costs, depreciation of idle plant, cost of unconsumed / uninstalled material delivered at site etc was not to be considered as part of construction and development costs and thus, the same would be charged to the Profit and Loss Account in the year of occurrence. It was also submitted that the principles laid down in guidance note as well as in ICDS were one and the same. Aggrieved, the revenue is in appeal before the Tribunal.
The Tribunal observed that “Once the business has commenced, the expenditure incurred wholly and exclusively for the purpose of business has to be allowed whether or not the appellant was having any income during the year. The applicable guidance note issued by ICAI mandate the assessee to claim the same as period cost and the assessee has followed the same treatment. The action of the assessee is in consonance with the mandatory guidance note and therefore, the same could not be faulted with.”
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