Medha Fashions Pvt. Ltd., New Delhi vs Assessee

This is an appeal filed by assessee against the order of Ld. CIT(A) dated 07.03.2013. The assessee is aggrieved with the action of Ld. CIT(A) by which he had disallowed capitalization of expenses amounting to Rs.8,56,881/-. At the outset, Ld. A.R. invited our attention to his application for raising additional ground and submitted that additional ground raised by assessee is on legal issues whereby the assessee has challenged that since no incriminating material was found from the premises of the searched person therefore, initiation of proceedings u/s 153C were not legal and, therefore the order of assessment itself needs to be quashed.

2. Ld. A.R. also invited our attention to an application filed on 18.06.2013 wherein the assessee had requested for condonation of delay in 2 ITA No.3879/Del/2013

filing the appeal. It was submitted that due to handling of other matters by the counsel, the filing of appeal skipped the attention of the counsel and there was no fault of the assessee. In this respect, Ld. D.R. had no objection in condoning the delay in filing of appeal, therefore, in view of the substantial justice, the delay in filing of appeal is condoned. Inviting our attention to the issue, Ld. A.R. submitted that the assessee company was engaged in the business of manufacturing and dealer in all kinds of cloths. However, during the year under consideration no business activities was carried out by the company as the building was under construction therefore, the assessee had capitalized the day to day expense under the head building under construction. It was also submitted that the A.O. has allowed only 50% of such expense to be capitalized and remaining 50% have not been allowed to be capitalized, nor has been allowed as revenue expenditure. It was submitted that if the remaining expense were not allowed to be capitalized then A.O. should have allowed the same as revenue expenditure. It was submitted that the Institute of Chartered Accountants of India in its guidance notes for pre operative expenses has guided that expenses during construction period needs to be capitalized and, therefore, Ld. A.R. submitted that lower authorities have not considered the above submissions.

3. Ld. D.R. on the other hand heavily relied upon the orders of authorities.

4. We have heard rival parties and have gone through the material placed on record. During proceedings before us, the Ld. A.R. was directed to file a copy of the balance sheet as on 31.03.2003 which he had filed after hearing. From the copy of the balance sheet we find that assessee had not started its business and shown the building under construction. Therefore, the 3 ITA No.3879/Del/2013

expenses incurred by assessee had to be capitalized in accordance with guidance note issued by ICAI. There is no basis of A.O. for allowing 50% of the expenses for capitalization whereas he has not mentioned about the treatment to be made to the remaining 50% of expenses. The A.O. has not doubted the genuineness of expenditure incurred, therefore, the remaining of 50% expenditure has to be allowed either as capitalized expenditure or as revenue expenditure. Since the assessee has preferred these expenses to be capitalized in accordance with ICAI guidelines, we see no justification in the action of A.O. by which he had allowed only 50% of the expense to be capitalized. Ld. CIT(A) has also not appreciated the facts in accordance with law. In view of above, we are in agreement with the contention of Ld. A.R. and direct the A.O. to allow the remaining expenses to be capitalized under the head 'fixed assets'. Since we have decided the issue on merits, the additional ground taken by assessee on legal issue, need not be adjudicated.

5. In view of above, appeal filed by assessee is allowed.

6. Order pronounced in the open court on 08th April, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER th Date: 08 April, 2015 Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

4 ITA No.3879/Del/2013 S.No. Details Date Initials Designation 1 Draft dictated on ¼ Sr. PS/PS 2 Draft placed before author ¼, Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 8/4 Sr. PS/PS 6 Kept for pronouncement 8/4 Sr. PS/PS 7 File sent to Bench Clerk 8/4 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order