Directors Salary and Handover Facility Expenses are Incurred Yearly and are Business Expenses: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) observed that the director’s salary and handover facility expenses are incurred yearly and are business expenses.

Shri Niraj Sheth appeared for the appellant and Shri Samuel Pitta appeared for the respondent.

M/s Macrotech Developers Limited, the respondent assessee is engaged in the business of real estate, construction and development.  For the year under consideration, the assessee filed the return of income declaring total income of Rs.62,08,53,170/- and book profit under section 115JB of Rs.45,42,04,660/-. 

Subsequently, the return was revised on 29/03/2018 declaring Nil income after setting off all brought forward losses of Rs.21,37,37,597/-.  The case was selected for scrutiny under CASS and the notices were duly served on the assessee.  The revised return is filed due to the merger of M/s Suryakripa Constructions Ltd with effect from 01.04.2015 vide order dated 24.04.2017 of the National Company Law Tribunal (NCLT). 

The Assessing Office called on the assessee to furnish details of salary overhead costs and their allocation to the cost of the project.  The assessee submitted the details and the basis on which such allocation has been done to the cost of the project.  The Assessing Officer noticed from the details furnished that the employee cost allocated to the project includes director office expenses of Rs.74,51,510/- and handover facility expenses of Rs.62,44,565/-. 

The Assessing Officer called on the assessee to explain why 50% of the above expenditure should not be capitalized to the cost of the project.  In response, the assessee submitted that the role of the Director is inclusive of the company as a whole and not for a specific project.  The assessee further submitted that the salary paid to the director is irrespective of the development stage of the project and hence, the fixed cost of the company.  Accordingly, submitted that the salary cost is debited to the P&L Account and not capitalized to any project.  In respect of the handover facility, the assessee submitted that the said department look.

The Assessing Officer did not accept the submissions of the assessee and disallowed 50% of the expenses towards capitalization to the cost of the project.  On further appeal, the CIT(A) held that the director’s salary and handover facility expenses are incurred year after year and are related to the business of the assessee in general and not project-specific expenses. 

The CIT(A) further held that these expenses are neither capital in nature nor deferred revenue expenditure.  The CIT(A) held that the director’s salary and handover facility expenses had to be allowed in the year of spending as the same is like overhead cost not specific to any project.

A two-member bench comprising Shri Kuldip Singh (Judicial Member) and  Ms Padmavathy S (Accountant Member) upheld the decision of the CIT(A) and dismissed the appeal of the revenue.

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