ACIT Vs Airmid Real Estate Limited (ITAT Mumbai)
The ITAT Mumbai adjudicated an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2017–18 concerning allowability of advertisement, brokerage, and marketing expenses claimed by a real estate developer. The assessee had filed its return declaring nil income and was following the Project Completion Method for revenue recognition. During the relevant year, no revenue was recognized from the real estate project, though substantial expenditure was incurred on advertisement (₹19.47 lakh) and brokerage and marketing (₹4.96 crore).
The Assessing Officer disallowed these expenses on the ground that, in absence of revenue recognition, such expenditure should be capitalized and added to work-in-progress. The assessee challenged this disallowance, contending that the expenses were incurred wholly and exclusively for business purposes, particularly for marketing and sale of units, and therefore were revenue in nature. The Commissioner (Appeals) accepted the assessee’s contention and allowed the expenditure under Section 37 of the Act, observing that absence of income in a particular year does not render otherwise allowable business expenditure inadmissible.
Before the Tribunal, the Revenue reiterated that such expenses should be capitalized due to non-recognition of revenue. The assessee, on the other hand, emphasized that the expenditure related to marketing and sale of completed units and was supported by agreements, including brokerage paid to a marketing consultant for sale of residential units.
