TaxTMI 
TaxTMI 
2020 (12) TMI 162
X X X X Extracts X X X X
X X X X Extracts X X X X
....al estate developments. It did not report any business income till the assessment year 2011-12. Only during the year under consideration, i.e., in the year relevant to assessment year 2012-13, it reported business income, since it undertook construction of a residential project. 4. The assessee has been incurring expenses over the years under various heads. Till financial year 2009-10, those expenses were accumulated under the head "Preliminary & Pre-operative expenses" and shown in Asset side of the Balance sheet as "Miscellaneous Expenditure-Preliminary & Preoperative expenses (To the extent not written off or adjusted). The pre-operative expenses so accumulated upto 31.3.2010 was Rs. 2,50,08,083/-. However, in financial year 2010-11 relevant to the assessment year 2011-12, the assessee transferred the above said pre-operative expenses to "Work in Progress" account. The balance shown under work in progress as on 31.3.2011 was Rs. 3,71,09,319/-. 5. During the year under consideration, the assessee wrote of Rs. 2,83,02,889/- out of the above said "work in progress" amount of Rs. 3,71,09,319/-. Following note was appended to the Annual report:- "Certain preoperative e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same before Ld CTI(A):- a) Copy of Joint Development Agreement dated 21.05.2008 b) Copy of Mutual Termination Agreement dated 04.01.2010 c) Copy of Deed Discharge of Mortgage dated 04-01-2010. It was submitted that all the expenditure incurred in respect of projects till 31.3.2011 have been treated as work in progress/inventory. Since income from operations were recognised for the first time in the FY 2011-12, it was necessary for the assessee to review the value of inventories as on 31.3.2012 and in that process, an amount of Rs. 2,51,54,293/- was reduced from the value of work in progress as the net realisable value was NIL, since the above said amount represented only revenue expenditure. The assessee placed its reliance on the decision rendered by Hon'ble Jharkhand High Court in the case of CIT vs. Tata Robins Fraser Ltd (2012)(211 Taxman 257/27 taxmann.com 15), wherein it was held that the expenditure incurred on unaccomplished project was allowable as revenue expenditure. 8. The Ld CIT(A) noticed that the Joint Development Agreement entered with Mr. Jayaram Shetty was terminated in FY 2009-10 itself, as per the agreements filed by the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the write off i.e. transfer of amount from work-in-progress to debiting the P&L Account. 21. Further, only project specific expenses that can be linked to a particular project can be written off in the event of failure of that particular project. This has not been the present case. 22. In the method of accounting followed by the appellant (or other similar cases of real estate construction) common expenses have to be carried forward as WIP and must be distributed across all the projects. These common expenses can be spread across and allocated to all the running projects as and when these. projects are completed in part or full (based on percentage completion method). Thus, these common expenses are to be charged to the P&L account based on the percentage of revenue received. 23. Therefore, I find that the appellant has been unable to prove that there was any specific project which failed during the current financial year and the appellant lost money on that and therefore, the same needs to be written off and therefore charged to the P&L account during this year itself. What I find instead is that there are common expenses like salary to managing director....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the expenditure of Rs. 2.51 crores consisted of only "revenue expenses". He has further given a finding that, if at all these expenses are related to any abandoned project, the claim should have been made by the assessee in FY 2009-10, since the Joint Development Agreement was terminated in that year only. We have earlier noticed that the assessee has treated these expenses as "pre-operative expenses" till 31.3.2010 and only in the financial year 2010-11, the assessee has converted the same as "work in progress". 15. It is a well settled proposition of law that the accounting treatment given in the books of account is not binding on the assessee/revenue to determine the correct amount of total income under the Income tax Act. However, in order to claim any amount as expenditure or loss, the conditions or procedures prescribed under the Income tax Act should have been followed by the assessee. The Ld A.R. submitted that the accumulated amount of Rs. 2.51 crores represented only revenue expenses and hence the assessee could have claimed the same as business loss in the earlier years. In that case, the brought forward business loss would have been allowed as deduction. This....