Question And Answer
Subject: Whether in case revenue Neutral additions an appeal can be filed under Income Tax Act.
Querist: Prakash Kulkarni
Answered by:
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Date: October 18, 2022
Query asked by Prakash Kulkarni

In case of assessee who is engaged in construction activity, has incurred certain expenditure which he has claimed as revenue expenditure and included in the work in progress,as there was no sale.

During the course of assemment proceedings AO completed the assessment by considering it as capital expenditure and he reduced the amount of such expenditure from the Work in progress.

Assessee prepfered an appeal before CIT A on following ground :

a. It is revenue expenditure only and claimed is correct and WIP is also correct.

b. If it is not reevune expenditure, then allow it to be appropriated proportiinately in the year when sale will disclosed.

CIT A has appreciated the submissions of the Appellant and accepted the main  contention of the  assessee that it revune expenditure only an allowed an appeal by again accepting the amount of WIP disclosed by the assessee. And rejected the second ground raised by the assessee.

Department has filed an appeal before the tribunal against the order of CIT A. Can assessee raised contention that the addition made is revune neutral and therefore not maintainable.

Pl guide.


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The impugned addition made by the Ld. AO cannot be considered to be revenue neutral merely because there is a timing difference in recognition of expenses, as the rate of tax can differ from year to year.

If the Tribunal allows the appeal of the Department. The Assessee would be entitled depreciation of the capitalized expenses.

The Hon’ble Bombay High Court in the case of Ciba of India Ltd v. CIT [1993] 202 ITR 1 (Bom)(HC) held that where the Tribunal turned down assessee’s claim for deduction of a particular amount by way of revenue expenditure and held it to be capital expenditure, Tribunal could have, even without an alternative submission, passed necessary consequential order suo motu directing authorities to include same in cost of asset for purpose of allowing benefit of depreciation and development rebate

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