ACIT-3(1)(1), MUMBAI vs. RUSTOMJEE REALTY PVT. LTD., MUMBAI

The assessee is engaged in the business of constructing, purchasing, acquiring, hiring, operating, managing and developing land of any real and personal estate property on ownership basis or on built own lease and transfer basis in India or abroad. For the assessment year 2017-18 the assessee filed the return of income declaring Nil income on 23/10/2017. For the assessment year 2014-15 the assessee filed the return of income on 29/11/2014 declaring the loss of Rs.7,25,80,020 and for assessment year 2018-19 the return is filed on 30/10/2018 declaring the total income of Rs. 22,12,44,860. The assessee's case was selected for scrutiny for the years under consideration and the statutory notices were duly served on the assessee. The assessing officer during the course of assessment noticed that the assessee has debited the P&L account with interest and other expenses as per the details given below:- Assessment Year Other Expenses Interest 2014-15 Rs.1,99,51,963/- Rs.21,31,58,233/- 2017-18 Rs.14,09,99,616/- Rs.3,66,17,616/- 2018-19 Rs.29,36,61,687/- Rs.1,14,57,169/-

The assessing officer in this regard issued show cause notice to the assessee asking to explain why the above mentioned expenses should not be disallowed and capitalised to WIP. The assessee submitted the detailed breakup of the interest cost before the assessing officer stating that the interest cost which is directly attributable to specific projects is capitalised and that the interest cost on borrowings for business purposes is debited to the profit and loss account. The 3 1556 & 1586/Mum/2023 Rustomjee Realty Pvt Ltd assessee further submitted that revenue is recognised on project completion method and the interest cost which is attributable to the revenue recognised during the year under consideration is debited to the profit and loss account. Accordingly the assessee submitted that the interest cost that is debited to the profit and loss account is to be allowed as deduction. The assessee relied on various judicial pronouncements in this regard. With regard to the other expenses debited to the profit and loss account the assessee furnished the details of cost allocated to the project and cost debited to the P&L account and submitted that only those expenses that are not directly incurred towards project are claimed as deduction. The assessee also submitted the details of various expenses that are debited to the profit and loss account.

The assessing officer did not accept the submissions of the assessee. The assessing officer held that there is a direct nexus between the borrowed funds and projects undertaken and therefore the interest expenditure should be disallowed and transferred to capital WIP. The assessing officer further held that the other expenses debited to the P&L account should also be transferred to capital WIP and made the disallowance accordingly. 6. Aggrieved the assessee preferred appeal before the CIT(A). Before the CIT(A) the assessee reiterated the submissions made before the assessing officer and also furnished the breakup of expenses that are allocated to the project and claimed as expenses. The assessee further submitted that the allocation of expenses between project cost and revenue is done as per accounting standard 7 and 16. The CIT(A) after considering the submissions of the assessee held that the expenses have been claimed by the assessee against the revenue offered in the year under consideration and therefore the disallowance of the same is not justified. The 4 1556 & 1586/Mum/2023 Rustomjee Realty Pvt Ltd CIT(A) further held that based on the details submitted by the assessee such as invoices bills vouchers in support of the expenses and the guidance note on completion method the assessee has correctly followed the accounting standard 7 and 16 and therefore deleted the disallowance made by the assessing officer. Aggrieved the revenue is an appeal before the tribunal.

The Ld. AR reiterated the submissions made before the lower authorities. The Ld. AR submitted that the assessee has submitted the detailed breakup of interest and other expenses and also the supporting documents justifying the claim in the profit and loss account. The Ld. AR submitted that the coordinate bench of the tribunal in assessee's own case for assessment year 2012-13 and 2013-14 (ITA Nos.3982 & 6281/Mum/2017 dated 19.01.2023) has considered a similar issue and remitted the same to CIT(A). The Ld. AR prayed for similar direction for the years under consideration also.

The Ld. DR on the other hand vehemently argued that the assessee did not provide the necessary details to substantiate the claim of interest and other expenses as a reduction in the profit and loss account instead of capitalising the same as project cost. The Ld.DR also submitted that the CIT(A) has allowed the claim of the assessee based on the submissions without calling for any remand report from the assessing officer. The Ld. DR further submitted that the CIT(A) in the order has not elaborated the evidences submitted giving any specific findings with regard to the merits of the case but has simply stated that the details submitted by the assessee have been verified and found to be in order. Therefore the Ld. DR prayed that the order of the CIT(A) be quashed.

In result all these appeals of the revenue are allowed for statistical purposes. Order pronounced in the open court on 28/08/2023