TMI Blog2023 (8) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of default interest @ 14% compounded half yearly leviable for the default period on the defaulted amount. The balance sheet also reflects cost of land of Rs. 387.25 Cr. which has been capitalized. Since, the interest is attributable to the cost of land, the interest expenditure is not allowable as per Section 36(1)(iii). Similarly, the registration charges and the fee/penalty/damages/price for late registration amounts to an integral part of cost of acquisition of land has also to be allotted to the cost of project and to be treated as part of capital work-in-progress. Hence, we hereby affirm the order of the CIT(A) on these two issues. Advertisement Expenses, Brokerage Commission - The project cost in relation to a project comprises of cost of land and cost of development rights, borrowing cost, construction and development cost. In relation to land, the entire cost of land and development rights, stamp duty registration charges and other incidental expenses have to be capitalized. With relation to the borrowing cost, the interest directly related to the project is to be capitalized. All the direct costs relating to the construction and development of the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 19.03.2019 in Appeal No. Del/CIT(A)-5/0292/2016-17, granted substantial relief to the assessee. 3. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal and has raised the following grounds:- 1. The Ld.CIT(A) has erred on facts and in law in allowing the assessee to claim expenses directly in the computation of income, when such expenses had not been claimed by the assessee itself in its audited books of accounts. 2. The Ld. CIT(A) has erred on fact and in law holding that the expenses disallowed y the AO were in the nature of relate to general/normal expenses or/and related to the selling expenses. 3. That the appellant craves leave to add, amend, alter or forgo any grounds of appeal either before or at the time of hearing of the appeal. 4. Before us at the outset Ld. DR submitted that though revenue has raised various ground but all the ground are interlinked and interconnected. 5. During the course of assessment proceedings, AO on perusing the computation of income noticed that assessee had claimed deduction of Rs. 10,32,93,504/- on account of expenses claimed as per audit report directly in the computation of income. He al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly mentioned by the AO that the construction work has been started and the appellant has shown work in progress etc. It has not been brought on record that how these expenses are not related to the business activity of the appellant and disallowable within the meaning of the provisions of sec 37 of the Act. AO disallowed only on the pretext that business not commenced, expenses are not justified and also capitalized in its balance sheet and claimed directly in the computation of income. 9.3 The same issue was also in the case of M/s Logix City developer Pvt. Ltd. for AY 2013-14 and the appeal was party allowed in that case by following the order of my predecessor in the case of Ms Logix City developer Pvt. Ltd. itself for AY 2012-13 wherein the appeal was allowed after detailed discussion, holding that the business has been set up and therefore, the business expenditure claimed by the appellant are allowed. Since there is similarity in the facts of both the cases I do not have anything to differ from the case of M/s Logix City developer Pvt. Ltd. and therefore, considering the said order and relying upon the case laws and arguments mentioned therein, it is held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been decided against appellant and held to be capital expenditure, related to work in progress. Therefore, no interference is required to be made towards this addition. 9.8 Accordingly, looking to the facts and circumstances of this case and in law, it is held that the business of the appellant has been set up and therefore, advertisement and brokerage expenses totaling Rs. 5,02,28,267/-(1,31,77,533 + 3,70,50,734) are allowed being revenue in nature as discussed in forgoing paragraphs whereas interest paid to Noida authority are directly related to project therefore, interest of Rs. 5,30,65,237/- is to be capitalized towards work in progress. Therefore, interest paid to Noida authority amounting to Rs. 5,30,65,237/- remained disallowed/confirmed. Out of total disallowance of Rs. 10,32,93,504, Rs. 5,02,28,267/-(1,31,77,533 + 3,70,50,734) is hereby deleted and Rs. 5,30,65,237/- capitalized by the AO is hereby confirmed. These grounds of appeal are partly allowed. 9.9 It has been stated by appellant that above claim of expenses in computation of income have already been capitalized towards project cost in the balance sheet and not routed through profit and loss account, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not started showing the revenue from operations, they will not be allowed to debit the expenditure. 5. The ld. CIT(A) confirmed the action of the AO holding that the construction has not been started, the approvals were pending, the land has not been fully paid for and it becomes apparent that the project is an infantile stage. Therefore, the ld. CIT(A) held that the business could not be said to have been setup or commenced . 6. Heard the arguments of both the parties and perused the material available on record. Noida Authority-Interest and Late registration charges: 7. We find that the assessee has claimed the penal interest payable @ 14% annually on the default of payment of installment. The entry reads as under: S. No. Date Name of Party Amount Purpose of Expenditure 1. 3/31/20222 NOIDA Authority (Penal Intt.) payable being penalty @14% annually on interest to NOIDA is recognized with regards to 1 st Instalment of default interest. Calculation = 166274471 14% 149 days /366 days 94, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site labour cost, cost of material, cost of hiring plant machinery, cost of designs and claims of the third party. The general administrative cost, advertisement, brokerage, selling cost, depreciation of the vehicles and office expenditure are part of the revenue expenditure and need not be capitalized. 11. There is difference between commencement of the business and setting off of the business. All the expenses incurred pre-commencement are to be treated as pre-operative expenses and the expenses incurred which do not form the part of the work in progress (WIP) like office expenses, salaries, advertising, brokerage and commission which are incurred for running of the business operations and to bring revenues to the company are to be treated as revenue expenditure. 12. Hence, we hereby affirm the order of the ld. CIT(A) on account of the disallowance on Noida Authority- Interest and Late Registration Charges(LRC) and hold that the disallowance affirmed by the ld. CIT(A) on account of Advertisement Expenses and Brokerage Commission are liable to be obliterated. 11. Before us Ld. DR could neither point out any fallacy in the findings of CIT(A), nor could point ..... X X X X Extracts X X X X X X X X Extracts X X X X
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