ITAT Mumbai Allows Project Completion Method, Deletes CSR & GST Interest Disallowances

DCIT Vs Sashwat Construwell Pvt. Ltd. (ITAT Mumbai)

Summary: The Mumbai Bench of the Income Tax Appellate Tribunal considered Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals)-50, Mumbai for Assessment Year 2022-23 concerning three principal additions/disallowances: CSR expenditure of Rs.6,65,000/-, interest of Rs.3,64,470/- on delayed payment of GST/MVAT, and Rs.29,46,82,835/- representing alleged profit from sale of tenements in Tower B of the “Bhoomi Celestia” project. The assessee was engaged in real-estate development and had undertaken the project under an MoU with American Springs and Pressing Works Pvt. Ltd., the landowner.

The project comprised Towers A, A1 and B, with the assessee entitled to 49% of the saleable area and the landowner to 51%. Although construction of Tower B was completed and an Occupancy Certificate was issued in December 2021, the assessee consistently followed the project completion method and treated all three towers as one integrated project. On the CSR issue, the Tribunal agreed with the CIT(A) that although CSR expenditure is not allowable as business expenditure under Section 37(1), a qualifying CSR donation may be considered for deduction under Section 80G subject to satisfaction of the applicable statutory conditions. On interest paid for delayed GST/MVAT, the Tribunal followed the judicial view that such interest is compensatory rather than penal and therefore does not fall within Explanation 1 to Section 37(1).