Return losses, regularisation payments and project-cost expenses were allowed as deductible items in computing taxable income.

Loss disclosed in the return had to be recognised while computing taxable income, as the omission to notice it was inadvertent and the figure formed part of the return computation. Payment to the municipal corporation for regularising additional development and unauthorised construction was treated as revenue expenditure, since it secured ex post facto approval for business use and was not a penalty for breach of law. Site development expenses, BMC expenses and brokerage expenses were also not to be disallowed where they were already reflected in work-in-progress and formed part of project cost.

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Issues: (i) Whether the loss of Rs. 23,11,275 shown in the return was to be taken into account while computing taxable income for the assessment year; (ii) whether the amount paid to the Municipal Corporation for regularising additional development / unauthorised construction was deductible as revenue expenditure; (iii) whether the disallowance of site development expenses, BMC expenses and brokerage expenses was justified.

Issue (i): Whether the loss of Rs. 23,11,275 shown in the return was to be taken into account while computing taxable income for the assessment year.

Analysis: The return acknowledgement reflected the loss figure in the statement of income, and the omission by the first appellate authority to notice that figure was inadvertent. The loss was part of the return computation and had to be recognised while determining the taxable income.

Conclusion: The issue was decided in favour of the assessee, and the loss was directed to be allowed.

Issue (ii): Whether the amount paid to the Municipal Corporation for regularising additional development / unauthorised construction was deductible as revenue expenditure.

Analysis: The payment was made to regularise deviations and secure ex post facto approval so that the building stock could be preserved for business use. The amount was not treated as a penalty for infraction of law but as an expenditure incurred on commercial expediency in the course of the profit-making process. A payment of that character was held to be allowable as a business deduction.

Conclusion: The issue was decided in favour of the assessee, and the disallowance was deleted.

Issue (iii): Whether the disallowance of site development expenses, BMC expenses and brokerage expenses was justified.

Analysis: The impugned amounts were shown in work-in-progress and were part of the project cost. In the absence of a sustainable basis to disallow amounts already reflected in WIP, the additions could not be upheld.

Conclusion: The issue was decided in favour of the assessee, and the disallowance was deleted.

Final Conclusion: The assessment additions did not survive and the assessee's appeal succeeded in full.

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