Expenses for pre-capitalization cost on the expansion of business is revenue expenditure

The Income Tax Appellate Tribunal ruled that expenses incurred for pre-capitalisation costs related to business expansion should be treated as revenue expenditure. The assessee company, involved in real estate development, had claimed professional expenses for a planned hotel chain project in the UK. The tribunal's decision clarifies the tax treatment of such costs, distinguishing them from capital expenditure.

IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, “A”,CHANDIGARH

BEFORE SHRI N.K. SAINI, VICE PRESIDENT &
SHRI R.L NEGI, JUDICIAL MEMBER

ITA No. 143/CHD/2019
Assessment Year : 2013-14 

The ITO,
Ward,
Parwanoo
PAN NO: AABCM4010E
Appellant 

Vs.

Blue Coast Infrastructure
Development Ltd., 7, Shopping
Complex,Sector 1, Parwanoo
Distt. Solan
Respondent

Hearing through video Conferencing 

Revenue by : Smt. C. Chandrakanta, CIT
Assessee by : Sh. Sudhir Sehgal, Advocate

Date of Hearing : 27.04.2021
Date of Pronouncement : 23.07.2021

Order

Per R.L. Negi, Judicial Member: 

The Revenue has filed the present appeal against the order dated 30.11.2018 passed by Commissioner of Income Tax (Appeals), Shimla [for short ’the CIT(A)’] for the assessment year 2013-14, whereby the Ld. CIT(A) has allowed the appeal filed by the assessee against the assessment order passed u/s 143(3) of the Income Tax Act, 1961 [for short ’the Act’].

2. Brief facts of the case are that the assessee company engaged in the business of real estate development and financing, filed its return of

income for the assessment year under consideration declaring loss of Rs. 2,38,22,599/-Later on return was revised declaring loss of Rs. 5,89,66,211/- Since the case was selected for scrutiny, AO issued notices to the assessee company u/s 143(2) and 142(1) of the Act. In response thereof, the authorized representative of the assessee appeared before the AO and produced the books of account and submitted various details as asked by the AO. It was noticed that the assessee had earned interest income of Rs. 4.46 Cr., against which it had debited finance cost of Rs. 4.66 lacs. It was further noticed that the assessee had debited Rs. 3.3 Cr under the head professional expenses. Accordingly, the AO asked the assessee to furnish the detail of professional expenses and justify the expenses against the interest income. It was contended on behalf of the assessee company that it had earned interest on inter deposit from companies and the companies have deducted the tax at source. So far as the professional expenses is concerned, it was contended that during the previous year lot of agreements were entered into with depositors for selling the area. It was further contended that it has planned to start a hotel chain in UK and the other expenses including professional expenses were connected with the same project. 

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