Logix Buildtech (P) Ltd., New Delhi V. ACIT, Circle- 15(2), New Delhi

ITA 3014/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5856 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 27-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P BISWAS
• Assessee Lawyers: V K AGARWAL
• Keywords: Depreciation; Business expenditure; Principle of natural justice; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. K. N. CHARY, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 3014/DEL/2018 : ASSTT. YEAR : 2013-14 LOGIX BUILDTECH (P) LTD., 301-A, WORLD TRADE TOWER, BARAKHAMBA LANE, CONNAUGHT PLACE, NEW DELHI-110001 VS ACIT, CIRCLE-15(2), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A BCL7527R ASSESSEE BY : SH. V. K. AGARWAL, AR REVENUE BY : MS. P. BISWAS, CIT DR DATE OF HEAR ING: 09 . 0 9 .20 2 1 DATE OF PRONOUNCEMENT: 17 .09 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-5, DELHI DATED 08.03.2018. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THE LD. CIT(A) HAS GROSSLY ERRED ON FACTS AS WE LL AS IN LAW IN CONFIRMING THE ASSESSMENT ORDER PASSED BY THE LD. AO WHICH IS EX-FACIE ILLEGAL, ARBITRARY AND WITHOUT JURISDICTION BEING AGAINST THE PRINCIPLES O F NATURAL JUSTICE AND AGAINST THE PROVISIONS OF IT AC T, 1961. 2. THE LD. CIT(A) HAS GROSSLY ERRED ON FACTS AS WEL L AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 2,27,16,104/- WHICH DOES NOT PERTAIN TO THE PROJECT ITA NO. 3014/DEL/2018 LOGIX BUILDTECH (P) LTD. 2 BUT IS IN THE NATURE OF GENERAL ADMINISTRATION EXPE NSES AS WELL AS SELLING EXPENSES. 3. THE LD. CIT(A) HAS GROSSLY ERRED ON FACTS AS WEL L AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 2,27,16,104/- ON THE BASIS OF ORDER PASSED BY HIS PREDECESSOR IN AY 2012-13 WITHOUT CONSIDERING THE F ACT THAT THE PREDECESSORS ORDER IS PURELY BASED ON TWO CASE LAWS WHICH ARE CLEARLY DISTINGUISHABLE AS EXPLAINED BY THE APPELLANT BEFORE HIM. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE. THE RETURN OF INCOME WAS E-FILED ON 30.09.2013 DECLARING LOSS OF RS.2,19 ,39,670/-. 4. IT IS A FACT ON RECORD THAT THE ASSESSEE HAS ALR EADY CAPITALIZED RS.92.75 CRORES ON ACCOUNT OF CAPITAL WORK IN PROGRESS IN ADDITION TO AN AMOUNT OF RS.13.69 CROR ES UNDER PREOPERATIVE EXPENSES TOTALING TO RS.106.44 CRORE S. 5. FURTHER, THE ASSESSEE COMPANY HAS CLAIMED DEDUCT ION OF RS.2,27,16,104/- ON ACCOUNT OF EXPENSES DEEMED TO H AVE BEEN REVENUE IN NATURE. THE SAID EXPENSES ARE AS UNDER: S. NO. PARTICULARS AMOUNT 1 ADVERTISEMENT EXPENSES 1,97,58,028/- 2 BROKERAGE 25,86,877 / - 3 DEPRECIATION 1,72,280/- 4 FOREIGN FLUCTUATION A/C 41,492/- 5 MISCELLANEOUS EXPENSES 47,150/- 6 OFFICE EXPENSES 3,647/- 7 POSTAGE & COURIER 803/- 8 PRINTING & STATIONERY CHARGES 97,277/ - 9 SUNDRY BAL W/ O 1,148/ - 10 TELEPHONE EXPENSES 7,402 /- TOTAL 2,27,16,104/- ITA NO. 3014/DEL/2018 LOGIX BUILDTECH (P) LTD. 3 6. THE ASSESSING OFFICER HELD THAT THESE EXPENSES A LSO NEEDS TO BE CAPITALIZED AS NO BUSINESS ACTIVITY WAS CARRI ED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HENCE , NO BUSINESS EXPENDITURE IS ALLOWABLE. 7. THE LD. CIT (A) CONFIRMED THE ADDITION HOLDING T HAT COMPUTATION OF INCOME REQUIRED IS TO BE DONE IN ACC ORDANCE WITH THE INCOME TAX ACT, HENCE RESORTING TO ANY ACC OUNTING STANDARD CANNOT NEGATE THE TAXABILITY OF THE ASSESS EE. 8. BEFORE US, IT WAS ARGUED BY THE LD. AR THAT THE ASSESSEE HAS ALREADY STARTED BUSINESS OPERATIONS, CONSTRUCTI ON IS IN PROGRESS AND AN AMOUNT OF RS.106.44 CRORES HAS ALRE ADY BEEN CAPITALIZED. HENCE, IT CANNOT BE SAID THAT THE ASSE SSEE HAS NOT COMMENCED BUSINESS OPERATIONS. THE EXPENSES BEING ADVERTISING, BROKERAGE AND COMMISSION FOR BOOKING O F THE FLATS WHICH IS IN THE NATURE OF REVENUE EXPENSES CANNOT B E TREATED AS CAPITAL EXPENDITURE. HE RELIED ON THE JUDGMENT OF H ONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS PIEM HOTEL PV T. LTD., 209 ITR 0616 WHEREIN IT WAS HELD THAT ONCE BUSINESS IS SET UP, EXPENDITURE INCURRED RELATING TO SUCH BUSINESS HAVE TO BE TREATED AS REVENUE EXPENDITURE AND ALLOWED AS DEDUC TION. AS SOON AS AN ACTIVITY WHICH IS ESSENTIAL TO CARRYING ON THE BUSINESS IS STARTED THE BUSINESS MUST BE SAID TO HA VE COMMENCED. HE RELIED ON THE ACCOUNTING STANDARD-7 A ND ACCOUNTING STANDARD-16 TO BUTTRESS HIS ARGUMENT. 9. ON THE OTHER HAND, THE LD. DR ARGUED THAT THE AS SESSEE IS TRYING TO CONFUSE BY QUOTING THE ACCOUNTING STANDAR D-7, 10 & 16 WHEREAS THE FACT IS THAT THERE WERE NO SALES REF LECTED IN THE ITA NO. 3014/DEL/2018 LOGIX BUILDTECH (P) LTD. 4 P&L ACCOUNT. HENCE, THE MATCHING CONCEPT OF INCOME TO THE EXPENDITURE IS FALTERED BY THE ASSESSEE. 10. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 11. THE PROJECT COST IN RELATION TO A PROJECT COMPR ISES OF COST OF LAND AND COST OF DEVELOPMENT RIGHTS, BORROWING C OST, CONSTRUCTION AND DEVELOPMENT COST. IN RELATION TO L AND, THE ENTIRE COST OF LAND AND DEVELOPMENT RIGHTS, STAMP D UTY REGISTRATION CHARGES AND OTHER INCIDENTAL EXPENSES HAVE TO BE CAPITALIZED. WITH RELATION TO THE BORROWING COST, T HE INTEREST DIRECTLY RELATED TO THE PROJECT IS TO BE CAPITALIZE D. FURTHER, ALL THE DIRECT COSTS RELATING TO THE CONSTRUCTION AND D EVELOPMENT OF THE SPECIFIC PROJECT HAVE TO BE CAPITALIZED. THE CO NSTRUCTION COST INCLUDES CONVERSION COST, MUNICIPAL SANCTION FEE, E XPENSES INCURRED, SITE LABOUR COST, COST OF MATERIAL, COST OF HIRING PLANT & MACHINERY, COST OF DESIGNS AND CLAIMS OF THE THIR D PARTY. THE GENERAL ADMINISTRATIVE COST, ADVERTISEMENT, BROKERA GE, SELLING COST, DEPRECIATION OF THE VEHICLES AND OFFICE EXPEN DITURE ARE PART OF THE REVENUE EXPENDITURE AND NEED NOT BE CAP ITALIZED. 12. THERE IS DIFFERENCE BETWEEN COMMENCEMENT OF THE BUSINESS AND SETTING OFF OF THE BUSINESS. ALL THE E XPENSES INCURRED PRE-COMMENCEMENT ARE TO BE TREATED AS PRE- OPERATIVE EXPENSES AND THE EXPENSES INCURRED WHICH DO NOT FOR M THE PART OF THE WORK IN PROGRESS (WIP) LIKE OFFICE EXPENSE S, SALARIES, ADVERTISING, TRAVELLING EXPENSES WHICH ARE INCURRED FOR RUNNING OF THE BUSINESS OPERATIONS ARE TO BE TREATED AS REV ENUE EXPENDITURE. HENCE, THE DISALLOWANCE MADE BY THE AO IS LIABLE TO BE OBLITERATED. ITA NO. 3014/DEL/2018 LOGIX BUILDTECH (P) LTD. 5 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED ORDER PRONOUNCED IN THE OPEN COURT ON 17/09/2021. SD/- SD/- (K. N. CHARY) (DR. B. R. R. KUMAR) JUDICIAL MEMBER AC COUNTANT MEMBER DATED: 17/09/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR