A Division Bench of the Delhi High Court held that Expenses in nature of general administration and selling cost are deductible as revenue expenditure. The appeal has been preferred by the Commissioner of Income Tax.
The assessee, Somnath Buildtech Pvt Ltd is a developer engaged in the business of real estate and in the relevant assessment year was constructing residential and commercial projects in the state of Rajasthan. The assessee had undertaken its first residential-cum-commercial project on 26th November, 2007.
The Assessee had collected advances from various customers to the tune of Rs. 21,38,62,554 and recorded the same in the balance sheet of the relevant AY. The development of the project began during the Financial Year (‘FY’) 2008-09 and the company incurred expenses under several heads.
The assessee filed its Return of Income and claimed expenses of 16,52,57,997 under various heads, which included the sums incurred towards purchase of land and cost of construction amounting to Rs. 11,21,57,074. The expense incurred by the Assessee towards cost of land and cost of development were capitalised as stock-in-trade.
The balance expenses amounting to Rs. 5,31,00,923 was charged to the Profit & Loss Account and claimed as business expense. The Assessee had total twenty-eight heads of indirect expenses, the AO disallowed the four heads of expenses as revenue expenditure and instead re-classified the same as capital expenses.
The CIT(A) and ITAT deleted the addition of Rs. 4,50,38,586 made by the Assessing Officer in the hands of Assessee as a capital expense. Hence aggrieved the present appeal has been filed.
The Bench consisting of Justice Manmohan and Justice Manmeet Pritam Singh Arora held that “We do not find any error in the findings of the ITAT, which holds that the said expenses incurred by the Assessee are in the nature of general administration cost and selling cost as classified by the Guidance Note issued by ICAI. The said expenses had been incurred by the Assessee for its business and therefore, it qualifies for deduction as revenue expenditure.”
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