TMI Blog2020 (2) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... nd held that the assesee was well within its rights to bring about changes, so long as the assesse adopts such change bonafide and propose to employee the new method regularly. In this case, the assessee has changed method of accounting inrespect of project management expenses from a particular date and said method of accounting has been continued in subsequent years and which has been accepted by the revenue. Change in method of accounting was also supported by a reason of temporarily suspension of business activity due to circumstances beyond the control of the assessee. Therefore, assesee was well within its right to change method of accounting for accounting particular expenditure. The Ld. AO and Ld.CIT(A) without appreciating the fact that has simply rejected the claim of the assessee, without assigning any reasons, how the changed method of accounting was not in accordance with the principles of accounting followed by the assesse. Hence, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were erred in disallowed, project management expenses claimed by the assessee u/s 37(1) - Decided in favour of assessee. - ITA No.92/Mum/2018 - - - Dated:- 29-1-2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that the assessee company is engaged in real-estate development projects, such as Special Economic Zone (SEZ), Information Technology Parks (IT Park) and other commercial establishments. The company currently engaged in the project for development for IT Park at Mysore. For this purpose, it has got allotment of land from Karnataka Industrial Area Development Board (KIADB). The assessee has entered into development agreement for development of industrial park with Shapoorji Pallonji Co. Ltd. and aslo for providing various project management and office management services. The assessee has capitalized project management expenses into work in progress account and shown under the head investment in property under construction. Due to certain legal hurdles, allotment of entire land by KIADB, as per agreement was not complete. Therefore, the assessee has temporarily suspended its project from 01/07/2011. Further, the project management expenses incurred up to 01/07/2011 was capitalized to work in progress account, but from 01/07/2011 onwards said expenditure has been debited into profit and loss account as reveune expenditure. 4. For the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assesee also could not explain the basis on which it has suddenly changed its regular and accounting method in AY 2012-13. The assesee has relied upon various judicial pronouncements and has claimed that part of the project Management Expenses amounting to ₹ 48,16,592/- should be allowed as revenue expenditure u/s 37(1) of the I.T.Act. The facts and circumstances of the cases relied upon by the assessee in various judicial pronouncements are clearly distinguisible and are not similar to the facts and circumstances of the assessee, therefore, the claim of expenses of ₹ 48,16,592/- out of project management expenses as expenses u/s 37(1) is not allowable and therefore, the same is disallowed and added to the total income of the assesse. Further, the expenses of ₹ 48,16,592/- on account of Project Management Expenses is capitalized towards CWIP and accordingly, the work in progress of the Investment property under construction as on 31/03/2012 is revised as under;- 5. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has filed elaborate written submissions on the issue, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect Management expenses. The appellant had debited the impugned amount on account of Project Management expenses. In the Balance Sheet, the appellant has shown Work in Progress under the head Investment in Property under construction at ₹ 18,07,09,163/ as on 31/03/2011 and after incurring various expenses totaling to ₹ 1,78,31,674/-, the appellant has shown Work in Progress at ₹ 1 9,85,40, 837/- as on 31/03/2012, The Assessing Officer held that Project Management expenses related to the Project should be disallowed and capitalized towards the running Project. The Assessing Officer has further held that the appellant also could not substantiate its claim showing standard account method, on the basis of which part of the Project Management Expenses has been charged to Profit and Loss Account in assessment year 2012-13 which were earlier consistently capitalized toward CWIP Accordingly, She Assessing Officer capitalized the expenses of ₹ 48,16,592/- towards CWIP and consequently, the work in progress of the L Investment in Property' was revised as on 31/03/2012 al ₹ 20,33,57,428/- which was shown by the appellant in the Balance Sheet at ₹ 19,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven after 30/06/2011 it remained so. Denial of renewal of lease of land by Karnataka industrial Area Development Board or any other reason for temporary Lull in business is not important for following consistent accounting principles. In earlier years and up to 30/06/2011, the appellant itself has capitalized project management expenses, if is. therefore, incumbent upon the appellant to follow this accounting principle till there is any material change in status of business activity such as closure of business. 5 2.5 The principle of consistency has been laid down in Shapoorji Pallonji Co (Rajkot) (P) Ltd. vs. ITO, 49 ITD (Bom) 479 wherein it was held, 'The profits of business mast be computed in accordance with method of accounting regularly employed by the assesses The choice of the method of accounting, like the choice to the previous year, lies with the assessee. The only thing is that the assessee must show that he has followed the chosen method of accounting regularly. 5.2.6 In view of the ratio of above jurisdictional judgment and in the facts and circumstances discussed above, I find no reason to interfere with the conclusion arrived at by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive different treatment to project management expenses. Therefore, the Ld. AO, as well as the ld.CIT(A) were right in coming to the conclusion that the assessee has not explained reasons for change in method of accounting for project management expenses from capital in nature to revenue in nature. Hence, their order should be upheld. 9. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The assesse company is engaged in the business of development, operation and maintenance of industrial park at Mysore. For the above purpose, it was allotted lease of industrial land by KIADB. The assessee has entered into an agreement with Shapoorji Pallonji Co.Ltd., for development of industrial park, for which it has paid project management and office management service charges. The assessee has capitalized said expenditure into capital work in progress account up to 30/06/2011. But, from 01/07/2011, it has changed its accounting method for accounting project management expenses and accordingly, debited said expenses into the profit and loss account as revenue in nature. The assessee has explained the reasons for chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges should be bonafide and it should be continued in subsequent financial years. In this case, there is no doubts with regard to the fact that the assessee has followed a consistent method of accounting for accounting project management expenses in the past, but due to changed circumstances, it has changed its method of accounting from a particular date and such changes was bonafide and need of the hour. Therefore, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) were erred in coming to the conclusion that the assessee has changed its method of accounting without there being any changes in facts and circumstances and such changes was not bonafide. 11. Having said so, let us examine, whether expenditure claimed by the assessee is revenue in nature and which can be allowed as deduction u/s 37(1) of the I.T.Act, 1961. The business of the assessee has been set up long back. If the business was set up, then any revenue expenditure incurred shall be allowed as deduction u/s 37(1), whether or not, the business was commenced and revenue was generated from said business. In this case, the Ld. AO never doubted the fact that the business of the assessee was set up. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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