2019 (1) TMI 929 - AT - Income Tax

Appellate Tribunal Upholds Revenue Expenditure Classification

Assistant Commissioner of Income Tax -3 (2) (2), Mumbai Versus Palace Gardens Chennai SEZ Private Limi ted

The Appellate Tribunal dismissed the revenue's appeal, affirming the classification of expenses totaling Rs. 3,08,64,906 as Revenue Expenditure in the ... Revenue Expenditure OR Capital expenditure - assessee was following completed contract method - disallowance of expenses as claimed by the assessee in Profit & Loss Account - Held that:- After due consideration of the factual matrix, we find that the revenue is unable to controvert the fact that the assessee was following percentage of completion method which is evident from the aforesaid report of Ld. AO. Nothing on record suggest that there was any change in the accounting policies adopted by the assessee and further, the genuineness of the expenditure is not under dispute since AO has already allowed the capitalization of these expenses. On the above facts and circumstances, we find that the stand of CIT(A) on placing reliance on the decision of this Tribunal in the case of other group concerns, on similar factual matrix, was quite appropriate and logical. The revenue is unable to controvert these decisions by any binding judicial precedents. Therefore, finding no infirmity in the order of Ld. First appellate authority, we dismiss the revenue’s appeal. Issues:Appeal against order of Ld. Commissioner of Income-Tax (Appeals) regarding classification of expenses as Revenue Expenditure or Capital expenditure.Analysis:1. The appeal by the revenue for Assessment Year 2012-13 challenges the order of Ld. Commissioner of Income-Tax (Appeals) regarding the classification of expenses totaling Rs. 3,08,64,906 under various heads as Revenue Expenditure instead of Capital expenditure. The dispute revolves around the treatment of expenses in the Profit & Loss Account by the assessee, who was engaged in real estate development with one ongoing project at Chennai during the impugned year.2. The Ld. Assessing Officer (AO) disallowed certain expenses claimed by the assessee in the Profit & Loss Account, as the assessee was following the completed contract method of accounting. The expenses disallowed included interest expenses, marketing service cost, sales commission, legal, professional, and other fees, totaling Rs. 3,08,64,906. The AO capitalized these expenses, leading to a difference in the reported income of the assessee.3. The assessee contested the AO's decision before the Ld. CIT(A), who allowed the expenses to be debited from the Profit & Loss Account based on the assessee's accounting method of percentage of completion. The Ld. CIT(A) relied on a decision of the jurisdictional tribunal related to a group concern of the appellant, supporting the consistent accounting method followed by the assessee.4. In the subsequent appeal before the Appellate Tribunal, the revenue argued that the assessee followed the completed contract method, warranting capitalization of expenses. However, the bench noted that the assessee's accounting policy disclosed the adoption of the percentage of completion method. The Tribunal found no change in the accounting policies and upheld the Ld. CIT(A)'s decision based on the consistency in accounting treatment and lack of contrary judicial precedents.5. Consequently, the Tribunal dismissed the revenue's appeal, affirming the allowance of expenses as Revenue Expenditure in the Profit & Loss Account. The decision was based on the assessee's method of revenue recognition and the absence of evidence to challenge the accounting policies followed consistently by the assessee.This detailed analysis outlines the key issues, arguments, and decisions involved in the legal judgment regarding the classification of expenses as Revenue Expenditure or Capital expenditure for the Assessment Year 2012-13.