S M K (CHARTERED ACCOUNTANT) (80 Points)
03 August 2013Dear all,
Party started construction of commercial bldg for his propreitorship business and before completion the Muncipality withdrawn the sanction and demolished the building..
How to treat the cost of Building construction in his books & what are the tax benefits if any?
then if the land is sold then how to treat this expenditure , can we take it as land development cost?
CA Kunal Mishra
(Consultancy Service)
(172 Points)
Replied 03 August 2013
CA Aman Gupta
(Chartered Accountant)
(344 Points)
Replied 03 August 2013
Surely it is the capital expenditure. However, the same may be transferred to Capital Work in Progress A/c.
Coming to the allowability in computing total income of the assessee, there are judicial pronouncements wherein it has been held that the loss on writing off of CWIP is an allowable expenditure. Some of them are mentioned below:
Hon’ble Delhi High Court in the case of CIT -vs-. Priya Village Roadshows Ltd. (2010) 228 CTR (Del) 271 it has been held that if the expenditure is incurred for starting new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure; in such a case whether new business/asset comes into existence or not would become a relevant factor; if there is no creation of new asset, then the expenditure incurred would be of revenue nature.
Hon’ble Calcutta High Court in the case of CIT -vs.- Graphite India Limited (1996) 221 ITR 420 (Cal), Hindusthan Aluminium Ltd. –vs.- CIT (1986) 159 ITR 673 (Cal) & Asiatic Oxygen Ltd. –vs.- CIT (1991) 180 ITR 328 (Cal) held that such expenditure/loss was allowable as it was incurred wholly and exclusively for the purpose of the assessee’s business. The expenditure did not result in bringing into existence any capital asset of enduring in nature. Hence the expenditure was deductible in computing Total Income.
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