TaxTMI 
TaxTMI 
2010 (2) TMI 848
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....00. In grounds of appeal No. 6, the assessee has challenged the order of the CIT(A) in upholding the action of the Assessing Officer in disallowing the professional fee amounting to Rs.38,60,542. In grounds of appeal No. 8, the assessee has challenged the order of the CIT(A) in upholding the action of the Assessing Officer in considering the total expenses incurred in connection with development of various projects as cost of work-in-progress. Since all the above grounds are interconnected, therefore, all these grounds are being disposed of simultaneously in the following paragraphs. 3. Facts of the case, in brief, are that the assessee is engaged in the business of development of power projects. Some companies of Aditya Birla Group had done some work in connection with Rosa Power Project, Bina Power Project and LNG Power Project. Their rights, title and interest in these projects were transferred to the company effective from 1.4.001. The Assessing Officer observed from the submission made by the assessee that the company was originally registered in the name of Hotgi Fibres Ltd. and its objects were changed as per Special Resolution of 6.11.2000. Thereafter the name of th....
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.... questioned by the Assessing Officer it was stated that the expenses which were being incurred for the various third parties were to be recovered from them only when 'financial closure' has been achieved and till then the assessee had a right to claim the expenditure u/s. 37(1) of the Act. However, the Assessing Officer was not satisfied with such explanation given by the assessee. He observed that the assessee cannot claim expenditure for determining the profit of the year when the expenditure itself has been treated in the books as advance receivable in cash or in kind and that the expenses deserve to be treated as work-in-progress be carried forward to subsequent years. The claim of the assessee that the expenditure was wholly and exclusively for business and the claim was made regarding this expenditure in view of the uncertainty and contingency attached with the achievement of financial closure was rejected by the Assessing Officer. He also rejected the contention of the assessee that the treatment in the books of account is neither decisive nor conclusive for determining of allowability of expenses. 8. The Assessing Officer similarly rejected the claim of legal and pr....
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....evenue is realised by the assessee, the necessary expenditure will be allocated on a pro-rata basis depending on the volume of revenue and other financial parameters. He accordingly disallowed the claim of the assessee. Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 10. The learned counsel for the assessee referring to Paper Book page 1 which is the original computation of total income, submitted that the assessee had shown an amount of Rs.4,87,62,261.01 as third party expenses shown as "advances recoverable in cash or in kind" in Balance Sheet but claimed the same as revenue expenditure. Referring to the note to the computation of total income, he submitted that the third party development cost incurred by the company which was shown as advances recoverable in the books of account are revenue expenses incurred by the company and are allowable expenditure in computing the total income of the company. Reimbursement of such expenses if and when the project attained financial closure would be offered as the income of the company in that year. Referring to page 8 of the Paper Book which is the revised computation of total income he submitted that ....
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....dvances recoverable. There is also no dispute to the fact that in respect of such expenditure shown as advances recoverable in the Balance Sheet, the assessee in its computation of income has claimed the same as revenue expenditure. We find the CIT(A) upheld the action of the Assessing Officer in treating such expenses shown under the head 'advances recoverable' and claimed as revenue expenditure as work-in-progress. It is the submission of the learned counsel for the assessee that the same should be allowed as a loss during the year in view of uncertainty and contingent nature of possibility to recover this expenditure depending upon the successful achievement of financial closure. However, we do not find any merit in the arguments advanced by the learned counsel for the assessee. We find the assessee has also taken a plea before the Assessing Officer that it has claimed the expenses towards project which are shown as advances recoverable on the ground that the if the financial closure of the project is not achieved or if it is decided to abandon a project this expenditure will be written off in that year. When according to the assessee itself there is lot of uncertainty and conti....
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....ny intention of earning profit. According to the Assessing Officer the interest paid by the assessee was actually required to be debited to the BPO project account and not to the Profit and Loss A/c. of the assessee company. The Assessing Officer accordingly disallowed the sum of Rs.45,29,236 on a pro-rata basis in the hands of the company and loaded the same to the BPO project. 13.2 Before the CIT(A) it was argued that M/s. Indian Rayon Industries Co. Ltd. after having evaluated the project agreed to take over the entire project at cost out of commercial expediency and the project was thus handed over to M/s. Indian Rayon Industries Co. Ltd. at cost. It was further argued that the interest was paid on loans borrowed for developing the project was "period cost" deductible u/s. 36(1)(iii) of the Act. However, the CIT(A) was not satisfied with the arguments advanced by the assessee. According to him, the correct treatment would be to treat the entire expenditure as work-in-progress and the pro-rata disallowances made during the year have to be actually made for the following year. He directed the Assessing Officer to load the entire interest expenditure as a project expenditu....
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....close, subscribe to equity shares of the Project Company or obtain reimbursement from the Project Company for an equivalent amount as may be mutually agreed upon. Additionally, in consideration of the expertise and efforts of BPDCL in developing the Project till financial close, BPDCL shall be entitled to charge a development fee from the Project Company. Such development fee shall be payable by each Project Company only upon achieving Financial Closure of the Project and the amount will be decided on a mutually agreed basis. 4. BPDCL specifically understands and agrees that it is entitled to reimbursement of third party expenses incurred by it on and after 01/04/01 and development fee only in the event of the Project achieving financial close." 13.5 Referring to the above, he submitted that interest expenses directly attributable to the project has to be capitalised. Therefore, the decision relied on by the learned counsel for the assessee in the case of Lokhandwala Construction Industries Ltd. (supra) is not applicable to the facts of the present case. 13.6 After hearing both the sides, we do not find any infirmity in the order of the CIT(A). We find the a....
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....e unaudited accounts and the audited accounts and, therefore, there could be difference in expenses or the revenue or under any other head. However, it is essential that to consider the above discrepancies, the assessee must be able to adduce evidence to support the increase in expenses. Neither the assessee produced any evidence before the Assessing Officer nor before him. He accordingly rejected the ground raised by the assessee and upheld the action of the Assessing Officer. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 18. We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find there is no dispute to the fact that there is a difference of Rs.32,46,000 on account of expenses in the original return as well as in the revised return. In absence of any evidence to substantiate such difference, the CIT(A) upheld the action of the Assessing Officer in disallowing the increase in expenses of Rs.32,46,000 on account of increase in salary and other expenses. Before us also no evidence could be produced by the learned counse....