The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the fact that the assessee entered into a Joint Development Agreement (JDA) to develop the property shall be treated as proof that the assessee started the business.
The assessee company engaged in the business of purchasing, acquiring, taking on lease or exchanging, developing, selling, giving on a lease, or otherwise disposing of lands, buildings, flats for residential and other purposes.
During the course of assessment proceedings, the AO disallowed an amount of Rs. 69,19,950/- to the profit & loss account towards legal, professional, and consultancy charges under the head “Administrative Expenses” by treating the same as capital expenditure.
Judicial Member Mr. S S Godara and Accountant Member Mr. L P Sahu observed that from the expenditures debited to P&L Account cited supra, the AO allowed some of the expenditures by treating the same as revenue expenditure whereas only legal, professional, and consultancy charges of Rs. 69,19,950/- was not allowed by treating the same as capital expenditure.
“Whereas the CIT(A) observed that this expenditure may be allowed u/s 35D, but not u/s 37(1) of the Act. We observe that the assessee has entered a joint development agreement on 18/01/2008 for the development of the land, which means, the commencement of the business was started in the case of real estate business, which the assessee is doing. Therefore, there is no confusion in this regard that the assessee has not started its business. JDA was entered for the development of the property which is to be treated as an assessee who started its business in the line of real estate business. The case law relied upon by the ld. AR support the assessee’s case. Therefore, the expenditure incurred by the assessee towards legal, professional, and consultancy charges of Rs. 69,19,950/- is hereby allowed as revenue expenditure,” the bench ruled.
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