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Shri Arun Pitamber Sheth Versus The Asst. Commissioner of Income Tax, Circle 3, Pune and Shri Arun Pitamber Sheth Versus The Dy. Commissioner of Income Tax, Circle 3, Pune

2016 (4) TMI 752 - ITAT PUNE

Allowability 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 ex .....

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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 electric .....

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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)( .....

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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. - ITA No.1439/PN/2012, ITA No s.1440 & 1441/PN/2012 - Dated:- 26-2-2016 - MS. SUSHMA CHOWLA, J .....

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relating to assessment years 2003-04 and 2004-05 against respective orders passed under section 143(3) of the Income Tax Act, 1961 (in short the Act ). 2. This bunch of appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. The issue raised in all the appeals is identical and we proceed to decide the present appeals after referring to the facts in ITA No.1439/PN/2012 relating to assessment year 2001-02. 3. The a .....

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hed allowing the appeal. 2) On the facts and circumstances of the case and in law the Ld. CIT(A) failed to take into account the expenses disallowed were debited in the accounts and also formed the part and parcel of closing WIP the valuation of which was done by the appellant by a method consistently followed by it. It is absurd to disallow expenses without disturbing the closing WIP which action is contrary to accounting principles. The Ld. CIT(A) failed to consider the consistent method follo .....

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ing WIP which was then without such component of expenses. The Ld. CIT(A) failed in this respect and therefore, his decision to confirm the disallowance made by A.O. could not be upheld. It be quashed. 4) On the facts and circumstances of the case and in law the Ld. CIT(A) having accepted the accounting method consistently followed by the assessee in as much as the contract receipts in full mentioned in the agreements executed with customer was credited to Income account in Trading account, even .....

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assessee was crediting the entire agreement value to income in Trading A/c the work -in-progress figure in trading account which is not a project completion method as observed by Ld. CIT(A) and therefore, income arrived at would be a distorted figure of income not permissible under the law? 6) Whether on the facts and circumstances of the case and in law when Ld. CIT(A) confirms the action of the A. O. in enhancing the value of closing WIP by ₹ 38,28,448/- the Ld. CIT(A) then ought to have .....

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er this question. Simply by enhancing closing stock it cannot be said income, profit and gains cannot be deduced therefrom. The basic directions have not been followed. 8) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of supervision charges of ₹ 3,60,565/- made by the A. O. The disallowance be quashed. 9) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not .....

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rest on loan of ₹ 10,36,730/- made by the A. O. The disallowance be quashed. 12) On the facts and circumstances of the case and in law and in the context the Ld. CIT(A) was not justified in confirming the disallowance of Meter Expenses (MSEB) of ₹ 22,49,872/- made by the A. O. The disallowance be quashed. 13) On the facts and circumstances of the case and in law the levy of interest u/s 234B and 234C is not justified and in the circumstances it be deleted. 14) The appellant craves/le .....

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ubmissions of the assessee in this regard that against receipts on account of booking of flats declared at ₹ 3,16,10,690/-, the total valuation of workin- progress was ₹ 2.57 crores. The method which was consistently followed for working out the work-in-progress was explained by the assessee, which was incorporated under para 6 of the assessment order. The Assessing Officer noted that the assessee had estimated the work-in-progress by adopting percentage completion method and the sai .....

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Rs.22,49,872/- Rs.38,28,448/- 5. The Assessing Officer thus, considered the expenses as part of Trading account and included the same in closing work-in-progress resulting in addition of ₹ 38,28,448/- to be made to the value of closing stock. The income of the assessee was thus, enhanced to that extent. 6. Before the CIT(A), the assessee explained the details of projects undertaken and also the details of closing value of work-in-progress. Further, the assessee challenged the addition of .....

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CIT(A) for de novo examination of the issue. In the second round of the appellate proceedings, the CIT(A) was of the view that the expenses which were directly attributable to any particular contract should be charged to the contract account or the Trading account and thus, would form part of work-in-progress. Vide para 4.2 at pages 21 onwards, the CIT(A) took note of the individual disallowances made by the Assessing Officer and was of the view that where the expenses were directly relatable t .....

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incurred in respect of various projects, need to be allocated to various projects as project cost and thus, form part of work-in-progress. The CIT(A) further vide para 4.3 observed that the expenses such as office rent, office salary, audit fees, office expenses may be claimed as expenditure from year to year depending on method consistently followed. However, the interest expenditure claimed by the assessee at ₹ 10,36,730/- under section 36(1)(iii) of the Act was taken as part of work-in .....

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penditure incurred for the various projects for which, it had claimed that the revenue expenditure under section 36(1)(iii) of the Act, hence, applying the matching concept, the said expenditure was treated as part of work-in-progress. Similarly, the other expenditure claimed by the assessee was also disallowed on similar grounds. 7. The assessee is in appeal against the order of CIT(A). 8. The learned Authorized Representative for the assessee pointed out that the assessee was a building contra .....

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allowable as revenue expenditure in the hands of assessee. 9. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A). 10. We have heard the rival contentions and perused the record. The issue arising before us is 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) of the Act or since the assessee was following project completion method, the said e .....

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n-progress. Certain expenses were claimed as revenue expenditure by the assessee, which had been allowed by the Assessing Officer. The said system of recognizing the work-in-progress and the claim of revenue expenditure has been consistently followed by the assessee and has been applied by the Assessing Officer from year to year. However, the Assessing Officer during the course of assessment proceedings was of the view that certain expenses debited to the Profit & Loss Account were in fact t .....

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e that similar expenditure is being allowed from year to year as revenue expenditure. Before the CIT(A), the assessee has furnished details of allowability of the said expenditure, which reads as under:- 1) A.Y. 1998-99 Rs.8,70,468 2) A.Y. 1999-00 Rs.8,98,000 3) A.Y. 2000-01 Rs.11,08,946 4) A.Y. 2001-02 Rs.10,36,730 12. Similarly, in respect of Society Charges, the claim of the assessee was that whenever such expenditure was incurred, then it was debited to the Profit & Loss Account and was .....

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earlier years were as under:- 1) A.Y. 1998-99 Rs.1,50,000 2) A.Y. 1999-00 Rs.1,50,000 3) A.Y. 2000-01 Rs.1,80,000 4) A.Y. 2001-02 Rs.3,60,565 13. Another expenditure claimed by the assessee was the payment to MSEB of ₹ 22,49,872/- i.e. on account of Transformer installation charges including the cost of Transformer at ₹ 8,65,328/- and service line connection charges paid at ₹ 13,24,400/-. The explanation of the assessee in respect of the said expenses was that from this step d .....

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penditure under section 37(1) of the Act. 14. The first aspect of the issue is whether the assessee while following percentage completion method, is entitled to claim certain expenditure as part of its work-inprogress and certain other expenditure as business expenditure. Undoubtedly, where the assessee is running its business, certain expenses have to be incurred from day to day for the running of business. Where the expenditure is relatable to day to day running of the business, the said expen .....

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as work-in-progress. The nature of expenditure incurred by the assessee decides its allowability as business expenditure. 15. Now, we proceed to take up the case of payments made under Meter expenses to MSEB. The assessee had debited sum of ₹ 8,65,328/- on account of Transformer installation charges including the cost of Transformer. As pointed out by the assessee that the cost of said Transformer was borne by the assessee, which in turn, was utilized by MSEB authorities to distribute ele .....

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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 b .....

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