SARANG RAKESHKUMAR WADHAWAN,MUMBAI vs. DCIT -CC- 5(4), MUMBAI

None appeared on behalf of the assessee, even though several notices were issued by RPAD. Hence, we proceed to dispose of the appeal ex-parte without presence of the assessee.

We heard learned DR and perused the record. The only issue contested in this appeal relates to disallowance of “capitalisation of interest expenses” of Rs. 18.25 crores, which was added to the purchase cost of land at Goa.

The Assessing Officer noticed that the assessee has purchased a land at Goa by taking loan from India bulls Housing Finance Ltd, PMC Bank. The 2 Sarang Rakeshkumar Wadhawan Assessing Officer noticed that the assessee has capitalised interest expenses of Rs.18.25 crores by adding the same to the cost of land. The Assessing Officer took the view that the assessee was not correct in capitalising interest amount. Accordingly he held that the interest expenditure of Rs.18.25 crores cannot be allowed to be capitalised to the cost of land located in Goa. It is pertinent to note that the above said decision of the Assessing Officer did not have impact on the total income of the assessee computed for the year under consideration.

Before the learned CIT(A), the assessee took the plea that the interest expenditure should be allowed as business expenses. The learned CIT(A) rejected the same. In the appeal filed before the ITAT, the assessee is challenging the decision of the Assessing Officer in disallowing capitalisation capital expenditure of Rs. 18.25 crores.

We heard learned DR and perused the record. As noticed earlier the above said decision of the Assessing Officer in holding that the interest expenses cannot be capitalized, i.e., cannot be added to the cost of land, did not have any impact on the total income computed by him. In that case, what should be the treatment to be given to the interest expenses incurred by the assessee. We notice that the AO did not consider that question at all. Before Ld CIT(A), the assessee has raised an alternate plea to allow the interest expenses as revenue expenses. However, the Ld CIT(A) did not properly address the same. It is required to be seen as to whether the land purchased in Goa is a business asset of the assessee or not. We notice that the AO has not given any factual finding on it. Hence we are of the view that the Assessing Officer has not given proper reasons for disallowing the capitalization of interest. The question whether interest expenditure can form part of the asset has to be adjudicated on the basis of facts relating thereto. However, factual details are not brought on record. Accordingly, we are of the view that this issue requires fresh examination at the end of the AO.

In the result, appeal filed by the assessee is treated as allowed for statistical purposes.