DDIT vs. Stork Engineers (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: August 2, 2009 (Date of publication)

Click here to download the judgement (stork_engineers_prior_period_expenditure.pdf)

Even expenditure incurred prior to set up of project office is allowable

The assessee was a foreign company. It was awarded a contract in India on 24.2.1998. The actual work of basic engineering etc started in March 1998 though the RBI’s approval for setting up the project office was given in June 1998. The assessee incurred expenditure for the period 1.4.1998 to 16.6.1998 and the question arose whether the same having been incurred before the setting up of the project office was “prior-period expenditure” and could be allowed as a deduction. HELD, upholding the claim:

It is beyond comprehension how expenditure incurred on the project itself can be disallowed on the ground that it was incurred prior to setting up the project office. When computing the income of the project as a whole including that part which relates to the period anterior to the setting up of the project office, there can be no question of not allowing such expenditure which is relatable to the period prior to the setting up of the project. If the expenditure is identifiable with the project, it has to be allowed as a deduction under the matching concept.

Note: CIT vs. Franco Tosi Ingegneria 241 ITR 268 (Mad) was followed: Business is set up on the date of securing the letter of intent even if that is prior to the RBI’s approval for project office.