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ACIT Circle 13 (1) , New Delhi Versus NBCC Ltd.

2016 (4) TMI 388 - ITAT DELHI

Preparatory expense - revenue v/s capital expenditure - Held that:- The preparatory expenses are necessity in a construction work and cannot be bifurcated from the actual construction work. Thus, the Ld. DR’s contention fails and the said receipt has to be treated as revenue receipts only. The reliance of the Assessing Officer on Section 35D of the Act is not relevant in the present case. Section 35D provides for amortization of certain preliminary expenses incurred by an assessee before commenc .....

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- I.T.A. No. 5870/DEL/2010 - Dated:- 8-4-2016 - Shri G. D. Agrawal, Vice President And Smt. Suchitra Kamble, Judicial Member For the Appellant : Sh. P. Dam Kanunjna, Sr. Dr For the Respondent : Sh. Somil Agrawal, Adv ORDER Per Suchitra Kamble, JM This appeal is filed by the Revenue against the order dated 21/09/2010 passed by CIT(A) XVI, New Delhi. 2. The grounds of appeal are as under:- 1. That on the facts and circumstances of the case as well as in law the CIT(A) has erred in deleting the di .....

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expenses. 3. The assessee company is a Government of India Undertaking under Ministry of Urban Development and is engaged in the business of execution of various types of civil/electrical/infrastructural/housing and environmental projects all over India and abroad pertaining to State/Central Governments/Public Sector Undertakings. The assessee company is engaged on consistent basis in execution of various projects. The assessee incurred various expenses termed as expenditure towards preparatory .....

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such as soil testing, survey & consultancy) ONGC Delhi 7.27 Lacs 4. Consultancy & Survey Work (Preparatory work such as soil testing, survey & consultancy) SWM Tejpur 0.75 Lacs 360.79 Lacs 4. The assessee company is carrying out the projects for past many years pertaining to PMGSY Tripura. The perusal of these details was submitted by the assessee before the authorities for the financial years 2004-05 to 2008-09. The assessee company booked aggregate income under the project to the .....

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re on preparatory work. 5. The assessee also claimed in its Profit and Loss Account, ₹ 76.27 lacs on account of prior period expenditure. The same was disallowed to the extent of ₹ 49.31 lacs related to the payments as piece rate of labour and made and addition by the Assessing Officer. 6. The assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal, thereby allowing above mentioned disallowance made by the Assessing Officer in favour of the asssessee. The CIT(A) .....

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e Assessment Order and submitted that the Assessing Officer has rightly disallowed the preparatory expenditure to the extent of two third being ₹ 240.52 lacs. As relates to prior period expenses, the Ld. DR submits that the expenditure can be allowed only in the year to which such expenses relate in mercantile system of accounting. The Assessing Officer has given a reasoning in Para 3.6 of the assessment order and in para 5.7 of the assessment order. Thus, the Ld. DR submitted that the CIT .....

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ad/project. Since the Assessee company is in the business of execution of the project and income from these projects is the main source of income of the assessee company, the expenses incurred in general on these projects commonly debited to the profit and loss account. 9. The Ld. AR submitted that the expenses disallowed by Assessing Officer aggregating to ₹ 49.31 lacs are on account of payment to subcontractors in lieu of work performed by them. These expenses pertain to the work done by .....

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mpany booked income against these expenses only in the year in which these expenses were crystallized and therefore in this case, the crystallization of expenses as well as accrual of income takes place in the same year. In the impugned year also, the assessee credited the income to the tune of ₹ 76.53 lacs against the aforesaid expenses as per details given before the authorities. Thus, in fact and as per law, it is not a case of prior period expenses. It may further be noted that the inc .....

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but was only disputing the year in which the deduction could be allowed, held, castigating the department, that as the tax rates were the same in both the years, department should not fritter away its energies in raising questions as to the year of deductibility/taxability. 10. The Ld. AR further submitted that in the earlier Assessment Years, similar expenses were debited and these were disallowed but allowed by CIT(A) in Assessment Years 1986-87, 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1 .....

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rior period also cannot be taxed. 12. The Ld. AR submitted that the CIT(A) has rightly taken into account the contentions of the assessee before the CIT(A), in fact the CIT(A) in Para 2.2 have given a detailed reasoning explaining therein. As related to Ground No. 3, the CIT (A) has relied on the Sudarshan Overseas decision which is squarely covering the assessee s case. 13. We have perused all the records and heard both the parties. The preparatory expenses are necessity in a construction work .....

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