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2015 (2) TMI 201 - ITAT MUMBAIDisallowance of architect & engineering fees, tender & survey expenses and advertisement & sponsorship and brand building expenses treating them as a part of the construction work in process - Held that:- As long as the assessee is carrying a particular business during the year, income there-from has to be computed u/s.28 of the Act, allowing it all permissible deductions, i.e., in accordance with the provisions of sections 30 to 43D (refer section 29). Whether the method of accounting followed by the assessee, i.e., the project completion method, is a correct method in accordance with the law, i.e., given that it follows mercantile method of accounting, is another matter altogether, which has not been impugned by the Revenue in any manner. We, accordingly, find no merit in the Revenue’s case. The assessee’s plea merits acceptance, and is upheld. - Decided in favour of assessee. Disallowance of repair and maintenance expenses of a rented premises - Held that:- The impugned expenditure is in fact only toward effectuating the decision of acquiring the premises (by way of lease) in the first place, by making it fit for use, both in terms of capacity and capability, in-as-much as it has both quantitative and qualitative attributes, so as to constitute an improvement. It is not a case of a lumpsum payment in lieu of annual business expenditure. The benefit arising out of a capital expenditure, again, does not imply permanence, in which case no expenditure even on regular maintenance, or for keeping it in a state of good repairs, a stipulation that marks most tenancy agreements, would be required. The said benefit, though, cannot also be said to be limited to the period of lease, which may well be extended. Further, that the same, i.e., capital expenditure, is excluded, stands amply clarified per Explanations to sections 30 and 31 of the Act, brought on the statute by Finance Act, 2003 w.e.f. 01.04.2004. The expenditure, in our view, thus stands rightly considered by the ld. CIT(A) to form a part of an admissible asset in view of Explanation 1 below section 32(1)(ii), carving an exception for depreciation, which is generally allowed only on assets owned by an assessee, on a building not owned by it, but in respect of which it holds a lease or other right of occupancy. - Decided against assessee. Capitalization of 80% of the general, administrative expenses, including on employee and director remuneration, toward workin- progress (WIP) - Held that:- We consider 50% of the personnel costs, claimed at ₹ 40.22 lacs, i.e., including director’s remuneration, as liable for inclusion in the project cost, to be allocated on some systematic or rational basis which would capture project execution, which is a composite activity commencing with site identification to the construction in a deliverable state. No such proportion could be applied to rent, rates and taxes, which, at ₹ 70.53 lacs, constitutes the second major component of the impugned expenditure. The same would need to be examined with reference to the purpose for which each item comprising the same is incurred, to be decided accordingly. If not for any specific project, no part of the said cost could be capitalized. Rent for office premises, however, if forming part thereof, would stand to be allocated on the basis of the balance expenditure of ₹ 22.48 lacs. Again, as no particulars in respect of these expenses stand specified; the account head describing only the nature of the expense and not its purpose or the activity in relation to which it is incurred, we consider 20% of such expenditure to be allocable to WIP toward project overhead cost, again on the same parameter as applied to the personnel costs. Further, renovation expenses (which is the subject matter of Gd. 1), include ₹ 1.20 lacs paid to a vaastu consultant, Sh. Kirti Sheth . The same is toward consultancy for various sites at Mumbai. The said expenditure, thus, as it appears, is not toward renovation (as claimed) and, rather, relatable to projects located at different sites, and would therefore require being considered in proper perspective - Decided partly in favour of assessee.
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