Logix Infra Developers (P) Ltd Vs ACIT (ITAT Delhi)
The assessee has already started business operations, construction is in progress and an amount of approximately Rs.390 crores has already been capitalized. Hence, it cannot be said that the assessee has not commenced business operations. The expenses being advertising, brokerage and commission for booking of the flats which are in the nature of revenue expenses cannot be treated as capital expenditure. Reliance is being placed on the judgment of Hon’ble High Court of Bombay in the case of CIT Vs Piem Hotel Pvt. Ltd., (209 ITR 0616) wherein it was held that once business is set up, expenditure incurred relating to such business have to be treated as revenue expenditure and allowed as deduction. As soon as an activity which is essential to carrying on the business is started the business must be said to have commenced.
The project cost in relation to a project comprises of cost of land and cost of development rights, borrowing cost, construction and development cost. In relation to land, the entire cost of land and development rights, stamp duty registration charges and other incidental expenses have to be capitalized. With relation to the borrowing cost, the interest directly related to the project is to be capitalized. Further, all the direct costs relating to the construction and development of the specific project have to be capitalized. The construction cost includes conversion cost, municipal sanction fee, expenses incurred, site labour cost, cost of material, cost of hiring plant & machinery, cost of designs and claims of the third party. The general administrative cost, advertisement, brokerage, selling cost, depreciation of the vehicles and office expenditure are part of the revenue expenditure and need not be capitalized.
There is difference between commencement of the business and setting off of the business. All the expenses incurred pre-commencement are to be treated as pre-operative expenses and the expenses incurred which do not form the part of the “work in progress” (WIP) like office expenses, salaries, advertising, brokerage and commission which are incurred for running of the business operations and to bring revenues to the company are to be treated as revenue expenditure.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order of ld. CIT(A)-5, New Delhi dated 04.07.2017.
2. The assessee has raised revised grounds of appeal which are as under:
“2. The ld. CIT(A) has grossly erred on facts as well as in law in confirming the disallowance of expenses amounting to Rs.15,50,59,250/- which do not pertain to the project but are in the nature of selling cost and general administration cost.”
3. The assessee is engaged in the business of real estate. During the year, the assessee was allotted by land by NOIDA. The land acquired by the assessee is the stock-in-trade of the business. The construction work has started during the year. The assessee incurred and claimed the following expenditure which have been disallowed by the Assessing Officer on the grounds that the assessee has not routed these expenses through P&L account and claimed directly in the computation.
