Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (4) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (4) TMI 1152 - AT - Income TaxTreatment of interest and other expenses - Disallowance of expenses added to the total work-in- progress of the project - assessee failed to establish the nexus between revenue offered and the expenses claimed and closing work- in- progress - only contention of the assessee in support of claiming the interest and other expenses as revenue expenses is that project was on the verge of completion and, therefore, this amount of interest / finance and other cost is not justified for adding into WIP - CIT-A deleted the addition - HELD THAT:- We find that the project of the assessee was completed on 08/05/2012 as per paper book page 31, which falls in subsequent assessment year i.e. A.Y. 2013-14. In such circumstances, if the expenses related to project are not included in the project cost, then profit from the project will be distorted which will be against the principle of percentage completion method. The section 4 of the Act prescribes for income which has accrued to the assessee, during the year for the purpose of taxation since in long term projects, when substantial part of the project is completed, the risk and rewards shift from the assessee and corresponding income accrue to the assessee, which is offered computed following the percentage completion method, however, the expenses which pertain to project cost cannot be allowed to be debited to P&L Account. In the case, the assessee did not provide details of the borrowings and purpose for which those borrowings were utilized and corresponding interest expenditure. Similarly regarding other expenses also, particularly advertisement & publicity and commission & brokerage, no details have been provided for determination whether those expenses pertain directly to the undergoing project. The interest and other expenses, which are directly related to the project should not be included in project cost and balance should be debited to P&L Account. The gross profit from project is then credited to P&L Account and the expenses in the nature of Administration and General, which are not specific to project like directors’ remuneration, office expenses are debited in P&L Account and then net profit / loss is computed as per accounting principles. But in the case, assessee is seeking to debit whole of interest and other expenses to profit & loss account. The interest and other expenses, which are directly related to the project should not be included in Project cost and balance should be debited to P&L account. Thus we restore this issue back to the file of the Ld. CIT(A) for determining the quantum of interest and other expenses related directly to the project.Ground No.1 of the Revenue is allowed for statistical purpose.
|