Expenditure cannot be disallowed since Assessee followed Accounting Standard issued by ICAI: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), on Friday held that the expenditure cannot be disallowed when the assessee has followed the Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI).

Assessee, in the instant case had developed a project named ‘Global City’. For the relevant assessment year, assessee had capitalized entire cost of construction since the project had not generated any taxable income up to 31/03/2010 and claimed selling & administrative cost, personnel cost & Finance Cost in the Profit & Loss Account as revenue expenditure. The AO, however, disallowed the said cost by finding that the same are ‘capital’ in nature.

The assessee contended that the said expenses were not related with the project and allowable as revenue expenditure in terms of Accounting Standard-7 issued by the Institute of Chartered Accountants of India.

The first appellate authority allowed the contentions of the assessee and held that the expenditure cannot be disallowed.

On appeal before the Tribunal, the department contended that that the assessee did not offer any income from the project during impugned AY and therefore, all expenditure incurred by assessee during the same period was required to be capitalized. It was also contended that the income of the assessee was to be arrived at independent of Accounting Standards issued by ICAI.

Dismissing the appeal, the bench observed that “the assessee was consistently following a particular method of accounting which was in accordance with Accounting Standard issued by ICAI which is well accepted by higher courts. Further, the revenue has accepted the method adopted by assessee in subsequent year and therefore, precluded from changing stand particularly when both the assessment orders were framed by same assessing officer and on same date.”