Recently, while allowing expenditure on account of Interest & administrative expenses incurred by the assessee in connection with their project, the ITAT Mumbai bench held that such expenses are allowable as deduction under section 37(1) of the Income Tax Act.
The assessee-company is a builder, who approached the Appellate Tribunal challenging the assessment order disallowing the amount spent by them on account of Interest on term loan/unsecured loan, Advertisement expenses, Brokerage, Loan processing fees etc, in connection with a project.The assessee claimed that they usually follow the percentage method for computing cost of the project. In the present case also they followed the percentage computation method.Therefore, the Assessing officer has erred in disallowing the claim of the assessee. The CIT(A) further confirmed the impugned order on appeal.
The Tribunal accepted the fact that the assessee is following the percentage method for years. The Tribunal found that there are number of case laws supporting the submission that the assessee is entitled to get deduction in respect of interest deduction relatable to the capital borrowed and utilized for business purpose. Since it is settled position of law, the Tribunal allowed interest expenditure to the assessee.
Regarding the other expenditure, the Tribunal noted that “the advertisement expenses is an allowable expenditure in the year of spending as the same is the nature of selling cost of the construction business. Considering the same, we are of the view that the finding of the Assessing Officer and the decision of the CIT(Appeals) on this issue is required to be reversed and allow the same in favour of the assessee. Regarding other claim of expenditure on account of brokerage and loan processing fee, we find the said claims should be allowed in favour of the assessee as they are otherwise found allowable under section 37(1) of the Income Tax Act. In our view, these expenses constitute some kind of administrative expenses. The said administrative expenses are allowable as they are relatable to the business activities of the assessee.”
Read the full text of the order below.
