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Income Tax Appellate Tribunal, “SMC” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-2, Kolkata (hereinafter referred to as the Ld. CIT(A)”] dated 24.04.2018 for the AY 2012-13.
The assessee has assailed the addition of Rs. 16,52,131/- confirmed by the Ld. CIT(A) which was made by the AO on account of disallowance of interest u/s 36(1)(iii) of the Act.
Facts in brief are that the assessee is engaged in the business of real estate construction and development and during the year filed the return of income on 29.09.2912 declaring total income of nil. The assessee is following project completion method. The assessee has incurred certain expenditures on the on-going project which were capitalized under the head project Work-in-progress which also included interest of Rs. 16,52,131/-. The assessee during the year has realized income of Rs. 34,75,000/- by way of interest which was also reduced from the capital work-in- progress. The details opening WIP, addition , deduction and closing WIP are extracted below:
The AO during the course of assessment proceedings observed that the assessee has received income of Rs. 34,40,000/- against which the assessee has charged financial cost of Rs. 16,52,131/- which is not permissible under the Act and thus disallowed the claim u/s 36(1)(iii) of the Act resulting into an addition of Rs. 16,52,131/-. Whereas as a matter of fact the assesse is following project completion method as its system of accounting though the said income and expenses were routed through the profit and loss account but the same were capitalized accordingly. In other words the expenses incurred were added to the WIP and income received was reduced therefrom and closing WIP appeared in the Balance Sheet.
The Ld. CIT(A) simply dismissed the appeal of the assessee for the reason that the assessee has not filed any details before the Ld. CIT(A).
After hearing the rival submissions and perusing the material on record, we observe that the assessee is engaged in the business of real estate construction and 4 Assessment Year: 2012-13 Louise Construction P. Ltd. development and is following project completion. We are not restoring the file back to the Ld. CIT(A) for the reason of smallness of amount involved in this appeal as it would unnecessary waste the valuable time of the authorities. We have examined the details furnished by the assessee of capital work-in-progress as contained in the paper book and also examined the balance sheet, profit and loss account along with return filed. In our opinion based on the evidences as filed before us, the assessee has not charged any interest to the profit and loss account but capitalized the same under the head capital work-in-progress and also reduced the revenue of Rs. 34,50,000/- which is in accordance with the provisions of Act and also according to accounting standard issued by ICAI. In our opinion, the addition made by the AO is unwarranted and against the method of accounting followed by the assesse. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 17th February, 2023