Indiabuild Reality Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 1271/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7030 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 07-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUMAR AJITH ADDITIONAL
• Keywords: Depreciation; Revenue expenditure
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO.1271/BANG/2017 ASSESSMENT YEAR : 2012-13 M/S. INDIABUILD REALTY PRIVATE LIMITED, NO. 6/A 2 ND FLOOR, KABRA EXCELSIOR, 7 TH CROSS, 1 ST BLOCK, KORAMANGALA, BENGALURU 560 034. PAN : AACCI 4014 M VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095. APPELLANT RESPONDENT ASSESSEE BY : SHRI. SIDDESH, ADVOCATE REVENUE BY : SHRI. KUMAR AJITH, ADDITIONAL CIT DATE OF HEARING : 13.12.2017 DATE OF PRONOUNCEMENT : 22.12.2017 O R D E R PER SUNIL KUMAR YADAV, JM : THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE CIT(A), INTER ALIA, ON FOLLOWING GROUNDS: GROUND NO. 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE ASSESSING OFFICER {DEPUTY COMMISSIONER OF INCOME TAX. CIRCLE 3(1)(1) BANGALORE} HAS ERRED IN CONSIDERING THE SITE ADMINISTRATIVE EX PENDITURE OF RS. 28,14,140 AND LEGAL AND PROFESSIONAL FEES OF RS. 4,700 BOTH BEING ADMINISTRATIVE OVERHEADS, TO BE CAPITALIZED TO INVENTORY I.E. PROJECT COST EVEN THOUGH THE SAME IS NOT ELIGIBLE TO CAPITALIZED TO INVENTORY AS PER ACCOUNTING STAND ARD 2 ON INVENTORY READ WITH SECTION 145 OF THE IT ACT, AND SHOULD BE ALLOWED AS AN REVENUE EXPENDITURE IN THE YEAR IN WHICH THE EXPENDITURE IS INCURRED. THE LEARNED CIT (A) - II HAS FURTHER ERRED IN CONFIRMING THE SAID DISALLOWANCE. ITA NO. 1271/BANG/2017 PAGE 2 OF 7 GROUND NO. 2 THE ASSESSING OFFICER ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW, HAS ERRED IN ARBITRARILY DISALLOWING THE DEDUCTION ON INTEREST EXPENDITURE OF RS. 151,370 BEING AN AMOUNT BEYOND 12% INTEREST RATE BY STATING IN ITS REMAND REPORT THAT INTEREST SHOULD BE RESTRICTED TO 12% BE ING MARKET RATE. THE ASSESSING OFFICER HAS NOT PROVIDED ANY BASIS OF THE MARKET RA TE OF INTEREST OF 12%. THE LEARNED CIT (A) - II HAS FURTHER ERRED IN CONFIRMIN G THE SAID DISALLOWANCE. GROUND NO. 3 YOUR APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND O R WITHDRAW ANY OF THE GROUND/S, IF NECESSARY. 2. APROPOS GROUND NO.1, IT WAS CONTENDED THAT THE A SSESSEE IS A COMPANY ENGAGED IN THE REAL ESTATE DEVELOPMENT ACTIVITIES I N BENGALURU. ASSESSEE HAS FILED THE RETURN OF INCOME DECLARING LOSS OF RS.68,88,407 /-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND DURING THE ASSESSMENT PRO CEEDINGS, THE AO DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE COMPANY HAD NOT BEEN SET UP AND THEREFORE THE EXPENDITURE INCURRED WAS REQUI RED TO BE CAPITALIZED. THE AO HAS ALSO TREATED THE INTEREST INCOME OF RS.15,08,04 0/- AS INCOME FROM OTHER SOURCES AND TAXED IT AS INCOME FOR THE YEAR. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF REAL ESTATE DEVELOPMENT IN BENGALURU AND SUCH TYPE OF BUSINESS DOES NOT INV OLVE ANY SANCTION OF POWER, ETC. THEREFORE, THERE IS NO PRE-OPERATION PERIOD O R POST-OPERATION PERIOD IN THIS TYPE OF BUSINESS. THE BUSINESS OF THE COMPANY HAS COMMENCED IMMEDIATELY ON ITS INCORPORATION AND ON MAKING ADVANCES FOR THE PU RCHASE OF FLATS. THEREFORE, IT CANNOT BE HELD THAT BUSINESS OF THE COMPANY WAS NOT SET UP DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) HAS ALSO RECORDED THE WR ITTEN SUBMISSIONS IN HIS ORDER. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN NIL INCOME UNDER THE HEAD REVENUE FROM OPERATIONS AND RS.15,08,000/- A S OTHER INCOME. THE ASSESSEE HAD HOWEVER CLAIMED EXPENDITURE OF RS.85,2 4,700/- UNDER VARIOUS HEADS. ITA NO. 1271/BANG/2017 PAGE 3 OF 7 THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT THE ASSESSEE COMPANY HAS MADE ADVANCES FOR THE PURCHASE OF LAND FOR THE YEAR 31.03.2011 AND HAS ENTERED INTO MOU ON 29.09.2010 IN THIS REGARD. THE REFORE, THE BUSINESS OF THE COMPANY SHOULD BE CONSIDERED TO BE SET UP IN THE YE AR ENDED 31.03.2011 ITSELF. IT WAS FURTHER CONTENDED THAT HE HAS FOLLOWED ACCOU NTING STANDARD AS-2 FOR ACCOUNTING OF INVENTORY. IT WAS FURTHER STATED THA T FOLLOWING THE AS-2, THE ASSESSEE COMPANY HAS WORKED OUT ALL EXPENSES INCURR ED BY IT INTO 2 CATEGORIES. IN FIRST CATEGORY, THE ITEMS DIRECTLY LINKED TO THE IN VENTORY WERE CAPITALIZED BY THE COMPANY AS INVENTORY WORK IN PROGRESS AND THE TOT AL AMOUNT OF SUCH CAPITALIZED EXPENDITURE IS STATED TO BE RS.54.58 CRORES WHICH I S REFLECTED IN THE BALANCE SHEET UNDER INVENTORIES. IN THE SECOND CATEGORY, THE A SSESSEE IDENTIFIED THE ADMINISTRATIVE EXPENSES AND THE EXPENSES INCURRED T OWARDS SELLING AND DISTRIBUTION COSTS. THE SAME HAS BEEN CLAIMED AS EXPENSES IN TH E PROFIT & LOSS ACCOUNT. THE CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF THE AS SESSEES CONTENTIONS BUT WAS NOT CONVINCED BY IT. THE RELEVANT OBSERVATION OF T HE CIT(A) IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: 7. CONSIDERING THE SPECIFIC FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT, THE DETAILS OF EXPENSES WHICH WERE FURNISHED DURING THE APPEAL PROCEEDINGS WERE FORWARDED TO THE AO WITH A SPECIFIC DIRECTION TO VERIFY THE EXPENSES AND TO CONFIRM WHETHER SUCH EXPENSES HAVE BEEN ACTUALLY IN CURRED DURING THE YEAR UNDER CONSIDERATION UNDER THE SPECIFIC HEADS, AS CLAIMED BY THE APPELLANT. THE AO WAS ALSO DIRECTED TO CALL FOR THE BOOKS OF ACCOUNTS AND OTHE R RELEVANT RECORDS TO VERIFY WHETHER THE EXPENSES HAVE BEEN ACTUALLY INCURRED FOR THE SP ECIFIC PURPOSE AS CLAIMED IN THE FINANCIAL STATEMENTS. 7.1 IN RESPONSE, THE AO FURNISHED HIS REPORT DATED 06/01/2017. THE AO EXAMINED THE EXPENSES INCURRED UNDER VARIOUS HEADS SUCH AS EMPLOYEE BENEFIT EXPENSES, FINANCE COST AND OTHER EXPENSES. HOWEVER, THE AO WAS OF THE VIEW THAT THE ASSESSE COMPANY HAS NOT YET STARTED ANY BUSINES S ACTIVITY DURING THE 'EAR UNDER CONSIDERATION AND THEREFORE THE EXPENSES INCU RRED, SPECIFICALLY THE OTHER EXPENSES' ARE REQUIRED TO BE CAPITALISED AS PART OF THE PROJECT COST. THE COPY OF THE REMAND REPORT WAS FORWARDED TO THE APPELLANT FOR FU RNISHING ITS COUNTER COMMENTS ON THE OBSERVATIONS MADE BY THE AO. THE AP PELLANT HAS FURNISHED THEIR SUBMISSIONS IN THIS REGARD VIDE LETTER DATED 27/02/2017. TAKING INTO CONSIDERATION THE MATERIAL FACTS OF THE CASE AND CO NSIDERING THE EXPLANATION IF THE APPELLANT AND THE OBSERVATIONS MADE BY THE AO, THE RELEVANT ISSUES ARE CONSIDERED AS UNDER. ITA NO. 1271/BANG/2017 PAGE 4 OF 7 8. THE PRIMARY ISSUE IN DISPUTE IS WHETHER THE BUSI NESS OF THE APPELLANT CAN BE SAID TO HAVE BEEN SET UP DURING THE YEAR UNDER CONSIDERATIO N, SPECIFICALLY ASKING INTO CONSIDERATION THE FACT THAT NO REVENUE WAS GENERATED FROM THE BUS INESS ACTIVITIES CLAIMED TO HAVE BEEN CARRIED OUT BY THE APPELLANT. THE AO AS OBSERVED TH AT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS NOT GENERATED ANY REVENUE FROM ITS RE AL ESTATE DEVELOPMENT ACTIVITIES. THEREFORE TAKING THIS SPECIFIC FACT INTO CONSIDERATION THE AO CONCLUDED THAT THE BUSINESS OF THE APPELLANT HAD NOT BEEN SET UP DURING THE RELEVANT YEAR AND CO NSEQUENTLY HE DISALLOWED THE CLAIM OF EXPENDITURE MADE IN THE PROFIT & LOSS ACCOUNT. HOWEVER, THE APPELLANT HAS CLAIMED THAT THE COMPANY HAD MADE ADVANCE PURCHASE OF LAND IN THE EARLIER YEAR, I.E., IN THE YEAR ENDING 31/03/2011 MOU DATED 29.09.2010. IT IS ALSO CLAIMED THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAD PURCHASED LAND WITH AN INVESTMENT OF RS. 49.79 S. ADMITTEDLY THESE FACTS HAVE NOT BEEN DISPUTED BY THE AO. BASED ON FACTS RELATIN G TO THE PURCHASE OF LAND AND ADVANCE FOR PURCHASE OF LAND AND RELYING ON VARIOUS JUDICIAL DECISIONS INCLUDING SWIRE HOLDINGS (P) LTD., VS. ITO (SUPRA), THE APPEL LANT HAS CLAIMED THAT THE BUSINESS HAD BEEN SETUP DURING THE RELEVANT YEAR. 8.1 CONSIDERING THESE FACTS IT IS APPARENT THAT THE APPELLANT HAD TAKEN DEFINITE STEPS FOR ACQUISITION OF LAND FOR COMMENCING THE REAL ESTATE DEVELOPMENT ACTIVITIES. IN THIS REGARD IT IS RELEVANT TO REFER TO THE DECISION IN THE CASE OF SWIRE HOLDINGS PVT. LTD., VS, ITO (SUPRA) INVOLVING SIMILAR FACTS, RELIED UPON BY THE APPELLANT. IN THE CASE REFERRED, THE APPELLANT COMPANY WAS ENGAGED IN THE REAL ESTATE BUSINESS AND HAD ADVANCED MONIES TO VARIOUS LAND OWNERS FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROPERTIES. CONSIDERING THE FACTS THE HON'BLE TRIBUNAL HAD HELD THAT THE MOMENT THE COMPANY WAS INCORPORATED AND AMOUNTS HAVE BEEN ADVANCED FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROP ERTY, THE BUSINESS OF THE ASSESSE SHOULD BE TREATED AS COMMENCED. THE SPECIFI C OBSERVATIONS MADE BY THE HON'BLE TRIBUNAL ARE STATED AS UNDER: 4. I HAVE HEARD THE RIVAL SUBMISSIONS E AND PERUSED THE RECORDS. THE FACT THAT THE ASSESSEES MAIN BUSINESS IS REAL ESTATE BUSINESS IS NOT IN DISPUTE. THE FACT THAT THE ASSESSEE HAD ADVANCED MONEY TO VARIOUS LAND OWNERS FOR THE PURPOSE OF ACQUIRING AND DEALIN G IN LANDED PROPERTIES IS NOT IN DISPUTE. THEREFORE, AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR ASSESSEE, THE MOMENT COMPANY IS INCORPORATED AN D THE AMOUNTS HAVE BEEN ADVANCED FOR THE PURPOSE OF ACQUIRING AND DEALING IN LANDED PROPERTY, THE BUSINESS OF THE ASSESSEE SHOULD HAVE BEEN TREATED AS COMMENCED. INTEREST EARNED THERE CANNOT BE TREATED AS PRE-OPERATIVE. THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZER S LTD. V. CIT 227 ITR 172 (SC) ........ AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR ASS ESSEE, THE DECISIONS RELIED ON BY THE AUTHORITIES BELOW ARE FA CTUALLY DISTINGUISHABLE. IN THE CASE OF THE ASSESSEE NEITHER SETTING UP FACT ORY OR ERECTION OF MACHINERY IS REQUIRED. THE MOMENT THE ASSESSEE-COMP ANY INCORPORATED AND THE AMOUNTS ADVANCED, IT WILL LEAD TO THE CONCLUSIO N THAT THE BUSINESS OF THE ASSESSEE HAS BEEN COMMENCED. THEREFORE, /FIND M UCH MORE IN THE STAND TAKEN BY THE ASSESSEE. THE INCOME SHOWN BY TH E ASSESSEE HAS TO BE TREATED AS INCOME FROM BUSINESS AND NECESSARY BE NEFITS OR DEDUCTIONS CLAIMED BY THE ASSESSEE HAVE TO BE ALLOW ED IN ACCORDANCE WITH LAW. IT IS ORDERED ACCORDINGLY. 9. AS SEEN FROM THE ABOVE, THE HON'BLE TRIBUNAL HAS HELD THAT IN THE CASE OF THE ASSESSE ENGAGED IN THE REAL ESTATE BUSINESS, THE MO MENT THE COMPANY IS ITA NO. 1271/BANG/2017 PAGE 5 OF 7 INCORPORATED AND AMOUNTS WERE ADVANCED FOR THE PURP OSE OF ACQUIRING AND DEALING IN LANDED PROPERTIES, THE BUSINESS OF THE A SSESSE SHOULD BE TREATED AS COMMENCED. A SIMILAR VIEW WAS ALSO HELD BY THE HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHOOMKETU BUILDERS AND DEVELOPERS LTD., ITA NO.528 A 529/2012, RELIED UPON BY THE APPELLANT, IN WHICH IT WAS HELD THAT TH E COMMENCEMENT OF REAL ESTATE BUSINESS WOULD NORMALLY START WITH THE ACQUISITION OF LAND OR IMMOVABLE PROPERTY. IT WAS ALSO HELD THAT WHEN THE ASSESSE WH OSE BUSINESS IS TO DEVELOP REAL ESTATE IS IN A POSITION TO PERFORM CERTAIN ACTS TOW ARDS THE ACQUISITION OF LAND, THAT WOULD CLEARLY SHOW THAT IT IS READY TO C OMMENCE BUSINESS AND AS A COROLLARY THAT IT HAS ALREADY SET UP THE SAME. ONCE LAND IS ACQUIRED THE ASSESSE MAY BE SAID TO HAVE ACTUALLY COMMENCED ITS BUSINESS WHI CH IS THAT OF DEVELOPMENT OF REAL ESTATE. 9.1 IN THE PRESENT CASE OF THE APPELLANT COMPANY, W HICH IS ADMITTEDLY ENGAGED IN THE REAL ESTATE BUSINESS, IT HAS BEEN FOUND THAT TH E APPELLANT HAS MADE ADVANCES TO VARIOUS LAND OWNERS AND ENTERED INTO AN MOU FOR LAND PURCHASE. IT IS ALSO CLAIMED THAT THE COMPANY HAD PURCHASED LAND WITH AN INVESTMENT OF RS.49.79 CRORES. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECO RD TO CONTROVERT THESE FACTS. CONSIDERING THESE SPECIFIC FACTS RELATING TO ACQUIS ITION OF LAND AND KEEPING IN VIEW THE DECISION OF THE HON'BLE ITAT, BANGALORE BE NCH IN THE CASE OF SWIRE HOLDINGS PVT. LTD., (SUPRA), IT CANNOT BE SAID THAT THE BUSINESS OF THE APPELLANT WAS NOT SET UP DURING THE YEAR ENDING 31/03/2012. T HEREFORE THE CONTENTION OF THE AO REJECTING THE CLAIM OF THE APPELLANT IS NOT FOUN D TO BE LEGALLY CORRECT. THE BUSINESS OF THE APPELLANT COMPANY IS HELD TO HAVE B EEN SET UP DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THE APPELLANT I S FOUND TO BE ELIGIBLE TO CLAIM DEDUCTION IN RESPECT OF THE EXPENSES INCURRED DURIN G THE YEAR, SUBJECT TO THE OBSERVATIONS MADE BELOW. 10. DURING THE YEAR UNDER CONSIDERATION THE APPELLA NT HAS CLAIMED TO HAVE INCURRED EXPENDITURE OF RS.85,24,700/- ON VARIOUS H EADS AND AFTER ADJUSTING THE INTEREST INCOME OF RS.15,08,040/- IT HAS REPORTED L OSS OF RS.70,16,660/- IN THE PROFIT ET LOSS ACCOUNT. THE FOLLOWING ARE THE DETAI LS OF EXPENSES CLAIMED TO HAVE BEEN INCURRED BY THE APPELLANT. SL. NO. NATURE OF EXPENDITURE AMOUNT 1. EMPLOYEE BENEFIT EXPENSES 16,42,200 2. FINANCE COST 6,19,720 3. DEPRECIATION AND AMORTIZATION 5,00,360 4. OTHER EXPENSES 57,62,420 10.1 FROM THE DETAILS OF THE 'EMPLOYEE BENEFIT' EXP ENSES FURNISHED BY THE APPELLANT, IT IS OBSERVED THAT THE EXPENSES PRIMARI LY COMPRISE OF SALARY PAID TO EMPLOYEES AND OTHER STAFF WELFARE EXPENSES. THE APP ELLANT HAS ALSO CLAIMED THAT OUT OF THE TOTAL SALARY EXPENSES OF RS.23,00,462/- IT HAS CAPITALIZED SUCH EXPENSES TO THE EXTENT OF RS.10,57,322/-. THE AMOUN T DEBITED TO THE P&L ACCOUNT IS FOUND TO BE PRIMARILY SALARY PAID TO FOUR STAFF MEMBERS WHO ARE STATED TO BE ENGAGED IN THE ADMINISTRATIVE, FINANCE AND MARKETIN G RELATED ACTIVITIES. THEREFORE CONSIDERING THE NATURE OF THE EXPENSES, THE SAME IS FOUND TO BE NOT DIRECTLY RELATED TO THE PROJECT AND HENCE THEY SHOULD BE ALL OWED AS REVENUE EXPENDITURE. 10.2 THE FINANCE COST OF RS.6,19,720/- PRIMARILY IN CLUDES RS.6,18,150/- TOWARDS INTEREST ON LOAN TAKEN AND OTHER INTEREST COST OF R S.1570/-. THE EXPENSES CLAIMED ARE OF REVENUE NATURE AND HENCE SHOULD BE ALLOWED A S DEDUCTION. HOWEVER, THE AO IN THE REMAND REPORT HAS STATED THAT THE APPELLA NT HAS PAID INTEREST AT THE RATE ITA NO. 1271/BANG/2017 PAGE 6 OF 7 OF 15.5% AND THE SAME SHOULD BE RESTRICTED TO THE M ARKET RATE OF INTEREST OF 12%. CONSIDERING THE FACT THAT THE INTEREST WAS PAID TO GROUP CONCERNS, I AGREE WITH THE AO'S CONTENTION. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW DEDUCTION OF RS.4,66,780/- OUT OF THE INTEREST PAYMENT OF RS.6,1 8,150/- AND OTHER INTEREST COST OF RS.1570/-. 10.3 THE APPELLANT HAS CLAIMED A SUM OF RS.57,62,42 0/- AS 'OTHER EXPENSES'. CONSIDERING THE DETAILS OF EXPENSES INCURRED IT IS FOUND THAT SOME OF THE EXPENSES INCURRED ARE LINKED TO THE PROJECT. THEREF ORE CONSIDERING THE NATURE OF SUCH EXPENSES THE SAME SHOULD HAVE BEEN CAPITALIZED AS P ART OF THE PROJECT COST. THE FOLLOWING ARE THE EXPENSES WHICH ARE THEREFORE HELD TO BE CAPITAL IN NATURE TO BE CAPITALIZED AS PART OF THE PROJECT EXPENDITURE. I) SITE ADMINISTRATIVE EXPENDITURE. THE APPELLANT HAS CLAIMED EXPENDITURE OF 28,14,140/- TO HAVE BEEN INCURRED FO R SITE CLEANING AND SITE SUPERVISION EXPENSES. FROM THE NAME ITSELF, IT IS EVIDENT THAT THESE EXPENSES ARE DIRECTLY LINKED TO THE SPECIFIC PROJEC T AND HENCE SHOULD HAVE BEEN CAPITALISED AS PART OF THE PROJECT WORK I N PROGRESS. ACCORDINGLY THE SAME ARE HELD TO BE CAPITAL IN NATURE. II) III) LEGAL AND PROFESSIONAL CHARGES. THE APPELLANT HAS CLAIMED TO HAVE INCURRED EXPENDITURE OF RS.8,11,750/- IN THIS REGARD. THE AMOUNT OF RS.70,500/- PAID TOWARDS AUDIT FEES, RS. 30,000/- P AID FOR MARKET RESEARCH SERVICES AND RS.2,93,749/- PAID AS MONTHLY RETAINER CHARGES, ARE CLEARLY FOUND TO BE ON REVENUE ACCOUNT. HOWEVER , THE AMOUNTS PAID TOWARDS LEGAL CONSULTANCY AND TO JLL PROPERTY CONSU LTANTS FOR MARKET RESEARCH ARE FOUND TO BE PRIMARILY INCURRED LARGELY IN CONNECTION WITH THE PROJECT AND THEREFORE SHOULD HAVE BEEN CAPITALISED AS PART OF THE PROJECT COST. ACCORDINGLY, THE ABOVE EXPENDITURE OF RS.4,17 ,500/- IS HELD TO BE CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTIO N. THE BALANCE AMOUNT SHOULD BE ALLOWED AS REVENUE EXPENDITURE. TH E AO IS DIRECTED ACCORDINGLY. IV) III) RENT, RATES AND TAXES : THE APPELLANT HAS CLAIMED EXPENDITURE OF RS.11,56,270/- UNDER THIS HEAD. THESE EXPENSES A RE FOUND TO BE PRIMARILY INCURRED IN CONNECTION WITH THE HIRING OF OFFICE ACCOMMODATION AND OTHER MISCELLANEOUS EXPENSES. THEREFORE, CONSID ERING THE NATURE OF THE EXPENDITURE, THE SAME ARE FOUND TO BE REVENUE I N NATURE AND THEREFORE ARE HELD TO BE ALLOWABLE. IV) OTHER ITEMS OF EXPENSES CLAIMED BY THE APPELLA NT ARE FOUND TO BE PRIMARILY IN THE NATURE OF SELLING AND DISTRIBUTION EXPENSES, SECURITY SERVICES, COMMISSION PAYMENTS AND OTHER MISCELLANEOUS EXPENSES. THESE EX PENSES ARE FOUND TO BE REVENUE IN NATURE AND THEREFORE THE SAME ARE HELD T O BE ALLOWABLE. 11. CONSIDERING THE ABOVE, THE AO IS DIRECTED TO COMPUT E THE LOSS AFTER MAKING DISALLOWANCE FOR THE EXPENSES AS DISCUSSED ABOVE. T HE LOSS SO DETERMINED SHALL BE ALLOWED TO BE CARRIED FORWARD TO THE SUCCEEDING YEARS. ITA NO. 1271/BANG/2017 PAGE 7 OF 7 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE CIT(A) AND REITERATED ITS CONTENTIONS. WHEREAS, THE LEARNED DR PLACED RELIAN CE UPON THE ORDER OF THE CIT(A). 5. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORIT IES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT DURING THE IMPUGNED ASSESSMENT YEAR, ASSESSEE HAS NOT RECOGNIZED ANY REVENUE AS INCOME FOR THE YEAR. HE HOWEVER CLAIMED SUBSTANTIAL AMOUNT OF EXPENDITURE UNDER DIFFERENT H EADS. CERTAIN EXPENDITURES WERE ALLOWED BY THE CIT(A) IN ORDER TO KEEP THE COM PANY ALIVE BUT OTHER ADMINISTRATIVE EXPENSES CLAIMED BY THE ASSESSEE WER E DISALLOWED AS NO EVIDENCES WERE FILED. HAVING CAREFULLY EXAMINED THE ORDER OF THE CIT(A), I FIND THAT CIT(A) HAS ADJUDICATED THE ISSUE IN DETAIL IN HIS ORDER. SINCE I DO NOT FIND ANY INFIRMITY THEREIN, I CONFIRM HIS ORDER. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2017. SD/- (SUNIL KUMAR YADAV) JUDICIAL MEMBER BANGALORE. DATED: 22 ND DECEMBER, 2017. /NSHYLU/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. DR 4. CIT 5. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.