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2016 (4) TMI 752 - AT - Income TaxAllowability of expenditure - whether the expenditure claimed by the assessee is revenue in nature, which in turn, is allowable in the hands of assessee under section 37(1) or since the assessee was following project completion method, the said expenses were to be carried forward as work-in-progress, to be allowed in the respective year when the units were sold? - Held that:- Where the expenditure is relatable to day to day running of the business, the said expenditure is allowable as revenue expenditure in the hands of assessee irrespective of the fact that the assessee was following percentage completion method of recognizing its revenue. The expenses admittedly, which are relatable to the cost of construction of project are to be allowed as an expenditure in the hands of assessee on recognition of revenue to which it relates. However, the recognition of work-in-progress by the assessee does not imply that all the other expenses are also to be treated as work-in-progress. The nature of expenditure incurred by the assessee decides its allowability as business expenditure. Payments made under Meter expenses to MSEB - Held that:- Admittedly, after the installation, the Transformer becomes the property of MSEB and MSEB is at liberty to transmit electricity to persons other than the assessee. Further, the assessee had paid sum of ₹ 13,24,400/- against the cost of service line connection. This expenditure was also incurred in relation to the provision of electricity connection to the assessee. Such expenditure incurred by the assessee for carrying on of its business from day to day is business expenditure and allowable in the hands of assessee under section 37(1) of the Act and cannot be part of work-in-progress of the expenditure which are incurred by the assessee. The expenditure incurred for commercial exigency of carrying on of its business, as held by various Hon’ble High Courts and Hon’ble Supreme Court is an allowable expenditure in the hands of assessee. With regard to allowability of expenditure of Meter expenses (MSEB), we find support from the ratio laid down in Chief Project Manager, Railway Electrification, Indian Railway Vs. ITO (TDS) [2012 (7) TMI 544 - ITAT, Chandigarh ] Interest expenditure claimed under section 36(1)(iii) - Held that:- The assessee is in the business of developer and once the assessee has purchased land for the development purpose, then the assessee has started its business and under section 36(1)(iii) of the Act, it is very clearly provided that the interest paid on borrowed funds, which in turn, has been utilized for the purpose of carrying on of the business of assessee is duly allowable as business expenditure. Hence, the interest expenditure claimed by the assessee where the assessee is following percentage completion method is duly allowable as expenditure in the hands of assessee. Similarly, the Society charges is to be allowed as expenditure. Further, the Site expenses and Supervision charges are relatable to carrying on of projects and the same are to be taken as part of work-inprogress. The claim of the assessee before us is that similar expenditure was allowed in the earlier year. However, we find no merit in the claim of assessee as nature of expenditure itself shows it is in relation of construction activities carried on by the assessee and the same is rejected.
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