Assessee's Direct Expenses Disallowed by AO Upheld as Revenue Expenses by Tribunal

The assessee claimed expenses directly in the computation of income without routing them through the Profit and Loss account. The AO disallowed the expenses, citing the business had not commenced. However, the CIT(A) allowed certain expenses as revenue expenses, while disallowing others as capital expenditure. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

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Issues Involved:
1. Whether the expenses claimed by the assessee directly in the computation of income, which were not routed through the Profit and Loss account, are allowable.
2. Whether the disallowance of expenses by the AO was justified on the grounds that the business had not commenced and the expenses were capitalized.

Summary:

Issue 1: Allowability of Expenses Claimed Directly in Computation of Income

During the assessment proceedings, the AO noticed that the assessee claimed a deduction of Rs. 10,32,93,504/- directly in the computation of income, without routing it through the Profit and Loss account. The AO disallowed these expenses, arguing that the assessee was following Accounting Standard 7, which mandates reporting revenue only after 25% of the project is complete. The AO concluded that since the assessee was still in the preoperative phase, these expenses could not be allowed as expenditure.

The CIT(A) overturned the AO's decision, noting that the business had commenced as evidenced by the construction work in progress. CIT(A) held that the expenses related to advertisement and brokerage were normal selling expenses and should be allowed as revenue expenses. However, the interest paid to Noida Authority for late payment was deemed capital expenditure and not allowable as revenue expenditure.

Issue 2: Justification of Disallowance by AO

The Revenue appealed against the CIT(A)'s order, arguing that the business had not commenced and the expenses were capitalized in the balance sheet. The Tribunal referred to a previous decision in the assessee's own case for A.Y. 2012-13, where it was held that the business had commenced and similar expenses were allowed as revenue expenditure. The Tribunal affirmed the CIT(A)'s order, allowing the advertisement and brokerage expenses as revenue expenditure and disallowing the interest paid to Noida Authority as capital expenditure.

The Tribunal concluded that the CIT(A)'s decision was consistent with the facts and applicable laws, and found no reason to interfere with the order. Therefore, the appeal by the Revenue was dismissed.

Order pronounced in the open Court on 17.03.2023.

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