Tribunal allows revenue expenditure deduction in commercial project, emphasizing business relevance and legitimacy.

The Tribunal allowed the deduction of revenue expenditure amounting to Rs. 1,09,84,625 debited to the profit and loss account by the assessee, directing the ld. AO to treat it as such instead of capitalizing it to work in progress for a commercial project. The Tribunal upheld the consistent treatment of the assessee's administrative expenses as revenue expenditures, emphasizing their business relevance and legitimacy. Consequently, Ground No. 1 of the appeal was allowed, while Ground No. 2 was left open as it would not impact the total income computation for the relevant year.

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Issues:
Whether the expenditure debited to profit and loss account should be treated as revenue expenditure or capitalized to work in progress for a commercial project.

Analysis:
The appeal in ITA No.7430/Mum/2013 for A.Y.2010-11 concerns the treatment of expenditure amounting to Rs. 1,09,84,625 debited to the profit and loss account by the assessee. The primary issue is whether this expenditure should be considered as pertaining to a commercial project and capitalized to work in progress, as done by the ld. AO, or treated as revenue expenditure, as claimed by the assessee.

The assessee, engaged in real estate development, incurred various administrative and general expenses during the year under consideration. The ld. AO disallowed the claimed loss of Rs. 1,08,35,377 and capitalized it to work in progress, citing that the project had not commenced during that year. The details of the expenditure debited to the profit and loss account were presented, showing a range of routine administrative expenses.

The assessee argued that these expenditures were administrative in nature, not directly connected to the project, and had been consistently treated as revenue expenses in previous years. The assessee had already capitalized project-related expenses to work in progress as per Accounting Standards (AS-7). The Tribunal found no reason for the ld. AO to diverge from the assessee's consistent treatment, especially since the revenue had not questioned the legitimacy or business relevance of these administrative expenses.

Consequently, the Tribunal directed the ld. AO to allow the deduction of the revenue expenditure amounting to Rs. 1,09,84,625 that had been debited to the profit and loss account by the assessee. As a result, Ground No. 1 raised by the assessee was allowed. The adjudication of Ground No. 2 was deemed academic and left open, as it would not impact the computation of the total income for the relevant year.

In conclusion, the appeal was partly allowed, and the order was pronounced on 21/08/2019 by the Appellate Tribunal ITAT Mumbai.

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