Samira Realty Projects Pvt. Ltd. Vs ACIT (ITAT Mumbai)
The case before the Income Tax Appellate Tribunal Mumbai involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2010–11. The dispute related to whether certain expenses should be treated as revenue expenditure or capitalized as part of work-in-progress (WIP).
The assessee, engaged in real estate development of bungalows and villas, followed the Project Completion Method (PCM) of accounting and had a single ongoing project. During scrutiny, the Assessing Officer (AO) observed that the assessee had claimed various expenses—such as advertisement, business promotion, commission, loan processing charges, and security expenses—as revenue expenditure instead of capitalizing them to WIP.
The assessee contended that these expenses were incurred wholly and exclusively for business purposes and were not directly attributable to construction activities. It argued that such costs were general in nature, related to promotion and operations, and not directly linked to bringing the inventory to its present location and condition.
The AO rejected the explanation and treated the expenses as part of WIP, thereby disallowing them as revenue expenditure. This resulted in enhancement of income. On appeal, the Commissioner (Appeals) partly allowed relief by deleting disallowance under Section 37(1) but upheld the treatment of expenses as WIP, effectively requiring capitalization.
