ITAT Mumbai Deletes Section 40(a)(ia) Disallowance as Payments Were Capitalised as WIP

ITO Vs Saat Rasta Properties Private Limited (ITAT Mumbai)

The Revenue appealed against the order of the CIT(A)/National Faceless Appeal Centre concerning the assessment under Section 143(3) of the Income Tax Act, 1961 for AY 2013-14.

The assessee, a company engaged in development of land and buildings, had filed its return declaring a loss of Rs.6,04,397. The assessment was completed under Section 143(3), assessing the loss at the same amount after the Assessing Officer made a disallowance of Rs.4,23,87,490 under Section 40(a)(ia). The amount represented payments debited to Capital Work-in-Progress.

Before the CIT(A), the assessee contended that the amounts paid to certain parties had been capitalised as Work-in-Progress and had not been debited to the Profit & Loss Account or claimed as expenditure. The CIT(A) deleted the disallowance on this basis.

The Revenue challenged the deletion before the ITAT, raising grounds concerning the applicability of Section 40(a)(ia) to payments towards architectural fees and construction, including whether the provision applied irrespective of whether the expenditure was capital or revenue in nature.

Before the Tribunal, the learned Senior Departmental Representative relied on the assessment order. It was, however, admitted that the impugned amount had neither been debited to the Profit & Loss Account nor claimed as expenditure. The assessee’s Senior Authorised Representative supported the CIT(A)’s order.