DCIT Vs Shrem Infraventures Pvt. Ltd. (ITAT Mumbai)
AO found that the assessee has booked management fees of Rs. 24,00,000/- only as revenue from operations & accordingly show caused the assessee to explain why the expenses should not be disallowed u/s 37(1) as revenue expenditure & why it should not be capitalised for amortisation in subsequent assessment years. AO was of the opinion that the assessee has not followed the matching principles of accounting which requires that the expenses incurred during the period be recorded in the same period in which the related revenue are earned. AO completed the assessment by disallowing Rs. 3,77,96,688/-.
Assessee strongly objected to the AO’s reasoning & submitted that the expenses were routine business expenses, necessary for setting up & managing operations. Rent, commission, stamp duty, & repairs were related to office premises, not to any specific capital asset. Professional fees & reimbursements were part of ongoing services (legal, technical, monitoring), not one-time project-related costs. Income had already started being generated, although the quantum was low & was duly reported. Assessee cited the Supreme Court’s ruling in Taparia Tools Ltd. (372 ITR 605), emphasising that unless specified by statute (e.g., u/s 35D), the concept of deferred revenue expenditure is not recognised under income tax law.
