Case Law Details
It is undisputed fact that the construction was badly damaged due to floods and its negative effect and the expenditures incurred to maintain bus stand and commercial complex was not recoverable under BOT. As per AS-7 when the cost of contract is likely to be exceed the contract revenue then the loss incurred on the contract should be recognized as revenue expenditure immediately.
1. The brief facts of the case are that the assessee is a Developer and engaged in the business of construction, running and operation of hotels, dealers in all types of Hero Honda two wheelers and gas agency, etc. The AO during the course of assessment proceedings, found that under the proprietary concern M/S. Paraskar Developers which was proprietary concerns of the assessee, net loss of Rs.34,40,284/- was shown.
2. The said proprietary concern was engaged in the business of construction. During the year it undertook a project to construct bus stand and commercial complex at Manora, Dist Washim of Maharashtra on BOT basis with MSRTC.
3. The AO found that the part of the expenses incurred during the year on account of purchases and direct expenses were capitalized to Work-In-Progress and part of expenses was shown as revenue expenditure. There was no sales during the year and resultantly the assessee suffered loss of Rs.34,40,284/- as current year loss which set off against the income from other proprietary concerns.
4. The AO vide order sheet entry, dated 1.3.2013 called upon the assessee to show cause as to why this entire loss should not be added to the WIP as the assessee was following contract completion method which was replied by the assessee vide letter dated 19.3.2013 by submitting that the loss was sustained due to flood and its negative consequences.
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