DCIT Vs Omega Shelters Private Limited (ITAT Hyderabad)
ITAT Hyderabad held that expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of business.
Facts-
AO noted from the notes on accounts that during the year under consideration the assessee company surrendered the ‘Neighborhood apartments’ project and the total cost incurred aggregating to Rs.7,57,24,129/- had been considered by the assessee company as a sunk cost and debited to profit and loss account. The said expenditure of Rs.7,57,24129/- incurred by the assessee on the “Neighborhood Apartments” project was claimed against the gross profit of Rs.11,75,65,798/- earned by the assessee on the “Neighborhood Villas” project thereby reducing the profit from “Neighborhood Villas” project by Rs. 7,57,24,129/-.
AO was not satisfied with the explanation given by the assessee and made an addition of the amount of Rs.7,57,24,129/- to the total income of the assessee.
CIT(A) deleted the addition on the ground that the expenditure incurred on the abandoned project called Neighborhood Apartments is revenue expenditure and not capital expenditure. Being aggrieved, revenue preferred the present appeal.
Conclusion-
A perusal of the same shows that the assessee abandoned the project due to commercial expediency and in terms surrendered the same in favour of the land owner M/s. Fortune Construction Pvt.Ltd. Further, the amount of Rs. 13 crores refunded to the assessee towards security deposits is out of the security deposit of Rs. 80 crores as on 31.03.2009 which reduce to Rs.67 crores as on 31.03.2010. Nothing was produced by the revenue to controvert the submissions filed by the assessee before the ld.CIT(A) and the finding of the ld.CIT(A) on this issue.
We find the Hon’ble Madras High Court in the case of Chemplast Sanmar Ltd has held that where assessee company set up a new project which was subsequently abandoned, since new project was managed from common funds, control over all business units was in hands of assessee and there was unity of control, it could not be said that pre-operative expenditure incurred by assessee was on a new line of business, thus, same was to be allowed as revenue expenditure.
We find the Hon’ble Calcutta High Court in the case of Binani Cement Ltd has held that expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of assesee’s business.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The above two appeals filed by the revenue are directed against the separate orders dated 20.01.2017 and 16.03.2018 of the Learned Commissioner of Income Tax (Appeals)-4, Hyderabad relating to AYs 2010-11 & 2013-14 respectively. For the sake convenience both these appeals were heard together and are being disposed-of by this common order.
ITA NO.612/HYD/2017 for AY 2010-11
2. This is the second round of litigation before the Tribunal. Facts of the case, in brief, are that the assessee is a company engaged in the business of real estate development and construction. It filed its return of income on 15.10.2020 declaring nil income, after setting off of brought forward losses of Rs.3,43,74,506. The AO completed the assessment u/s. 143(3) on 27.03.2013 determining the total income of assessee at Rs. 8,22,43,320/- by computing as under:-
