The ITAT Kolkata, in M/s Royal Calcutta Turf Club v. DCIT, allowed deduction on the entire expenditure on an abandoned project development treating the same as revenue in nature. The bench, while quashing the orders of the lower authorities, clarified that such expenditure cannot be considered as capital loss since the same was a revenue earning activity to the assesse.
The assessee, a Club, started construction of a city club. Later, the project was abandoned and the assesse claimed deduction in respect of the entire expenditure incurred by it on the abandoned project development under the Income Tax Act. The Assessing Officer, however, rejected the claim by stating that the same amount to capital loss and therefore, deduction cannot be allowed.
Allowing the contentions of the assesse, the bench noted the fact that the activity of the construction of the city club project was an income earning activity of the assessee. “It is because of the subsequent agreement for development of club cum hospitality services instead of city club project, the development carried out had to be abandoned and removed. The subsequent activity of developing club cum hospitality facility was also incidental and ancillary to the objects of the club and was revenue earning activity. In such circumstances we are of the view that deduction claimed ought not have been considered as capital loss as was done by CIT(A),” the bench said.
The bench further noticed the decision of the Calcutta High Court in the case of Binani Cement vs CIT wherein it was ruled that an expenditure made for acquisition of new facility subsequently abandoned at work-in- progress stage was allowable, as expenses incurred wholly or exclusively for the purpose of assessee’s business.
In the light of the above decision, the bench allowed deduction on the entire expenditure of Rs.1,73,84, 853/-.
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